Park Ohio Holdings Corp (PKOH) 2017 Q1 法說會逐字稿

Good morning, and welcome to the Park-Ohio First Quarter 2017 Results Conference Call. (Operator Instructions) Today's conference is also being recorded. If you have any objections, you may disconnect at this time.

Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release as well as the company's 2016 10-K, which was filed on March 9, 2017, with the SEC.

Additionally, the company may discuss as adjusted earnings and EBITDA as defined. As adjusted earnings and EBITDA as defined are not measures of performance under generally accepted accounting principles. For a reconciliation of net income to as adjusted earnings and for a reconciliation of net income attributable to Park-Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release.

I would now like to turn the call over to Mr. Edward Crawford, Chairman and CEO. Please proceed, Mr. Crawford.

Good morning, ladies and gentlemen. Welcome to the first quarter 2017 review of Park-Ohio results. I'd like to turn over the microphone to Matthew Crawford, COO of the company.

Thank you, and good morning. Before I review our Q1 2017 results in detail, I want to summarize some of the positive starts to the year on 3 separate fronts.

First, from an operating perspective, Q1 results were ahead of our internal expectations and significantly higher than our results from last year. Sales were up 5% year-over-year and 12% sequentially from the fourth quarter. In addition to profit flow-through from higher sales in several of our business units, our results also benefited from the cost reduction actions that we took in 2016 to reduce headcount and other fixed cost. On the bottom line, our Q1 2017 adjusted EPS was up 48% over last year.

Second, on the strategic front and we'll discuss in more detail today the debt refinancing activities that we announced last month. These activities included issuing $350 million of new senior unsecured notes with a much lower interest rate compared to our previously issued notes when entering into an amended credit facility with higher capacity and more favorable terms. The debt refinancing provides us with increased liquidity, which approximated $250 million as of March 31 on a pro forma basis. The refinancing provides us with significant flexibility to grow our business. We are confident these actions will deliver increased shareholder value over the next several years.

And third, the GH Electrotermia acquisition that we made in December 2016 is performing to expectations. This value-creating synergistic acquisition is complementary to our existing induction hardening business and a perfect example of our current M&A strategy. We're confident that GH will enable us to accelerate our growth in the space and deliver value in the future.

Let's move now to our detailed results for the first quarter. Sales were up 5% year-over-year to $344 million compared to $328 million a year ago. This increase was driven by higher sales in our Supply Technologies and Assembly Components segments as well as the sales from GH. Gross margin as a percent of net sales increased 150 basis points year-over-year from 14.6% in Q1 of 2016 to 16.1% this year. On a sequential basis, the improvement in margin percentage compared to last quarter was almost 100 basis points. The margin improvement was due largely to profit flow-through from our higher sales levels, favorable mix and a benefit of cost reductions taken in '16.

SG&A expense for the quarter was $36.6 million or 10.6% of sales, compared to $32.5 million or 9.9% of sales last year. The increases were due primarily to SG&A expenses in our newly acquired GH business, cost related to the RB&W facility move and expense increase associated with our higher profit levels compared to a year ago including employee-related expense.

In March 2017, we paid $4 million to settle litigation that had been ongoing for several years. In connection with the settlement, we reversed an excess accrual of $3.3 million in the P&L, resulting in a litigation settlement gain. This gain has been excluded from our determination of adjusted EPS.

Q1 2017 interest expense was 0.3% or $300,000 higher than the prior year due to seasonally higher outstanding borrowings to fund our working capital needs in the first quarter of the year. Net income as adjusted was $0.68 per diluted share in Q1, a 48% increase over the $0.46 in Q1 of last year, based on 12.5 million shares outstanding.

Now let's review our segment results. In Supply Technologies, sales were up 3% this quarter from $130 million to $133 million. This increase was driven by higher customer demand in several of our key end markets and new business implemented in the second half of 2016. We saw improved end market demand in many end markets, including power sports and recreational equipment, semiconductor, aerospace, HVAC, industrial and construction equipment as well as medical. These increases across the board largely were offset by continued demand weakness in heavy-duty truck and truck-related markets, which were down 17% compared to a year ago. In addition, sales continue to grow in our fastener manufacturing business, which achieved record quarterly sales in 2017 due to increasing customer demand globally for our proprietary products. Operating income in Supply Technologies was up to $11.3 million, representing an 8.5% margin from $10.2 million or 7.9% margin due to profit flow-through from higher sales. This margin as a percent of sales was the highest in this segment in the past 5 years -- or excuse me, past 5 quarters.

In our Assembly Components segment, sales were up almost 6% from $132 million in 2016 to $139 million in the current year. The increase was due primarily to higher sales volumes in our fuel filler and fuel rail product lines, which were driven by new business launched in 2016. As we have discussed on previous calls, in addition to growing domestic sales in this segment, we also focused on expansion outside the U.S. In Q1 2017, our international sales from this business continued to increase year-over-year. Along those lines, we recently opened a new fuel rail facility in China, our eighth Park-Ohio facility there, which is positioned to capture the explosion in direct injection demand from the automotive market. The sales increase noted above were partially offset by lower sales in our aluminum products business, which was down year-over-year due to the accelerated end of production of certain programs, which we have discussed on prior calls, which ended after Q1 2016. Segment operating income for Assembly Components is $12.5 million, a 9% margin in Q1 2017, compared to $10.2 million or 7.7% margin a year ago. The increase was due primarily to operating leverage as well as benefits of cost reduction in 2016 of our aluminum business in response to lower demand.

Turning now to our Engineered Products segment. Sales were up 7% from $66 million in 2016 to $71 million in the 2017 period. The higher sales were a result of sales from GH, which was acquired in December of last year. Excluding GH, customer demand remained weak across our induction heating, pipe threading and forging machine products compared to last year. Despite challenging Q1 results, new equipment order bookings during the first quarter were much improved and at the highest levels since 2014. Operating income in this segment was up to $1.7 million or 2.4% margin compared to $1.4 million or 2.1% margin last year. The increases were attributable to the contribution of GH as well as the benefit of cost reduction actions taken in 2016.

Shifting back now to the consolidated results. Q1 2017 operating cash flows included a $4 million litigation payment and the use of $12 million to fund working capital needs. We expected the increase working capital in Q1 as strong March sales drove an increase in accounts receivable. Overall, our working capital as a percent of sales was in line with our internal projections. In Q1 2017, we had approximately $6 million worth of capital expenditures, which is primarily for our expansion in our fuel rail business and our new business in aluminum products.

As I mentioned earlier, in April, we refinanced a significant portion of our long-term debt. These actions are subsequent events to our Q1 activities that are not reflected in our March 31 balance sheet. The details are as follows. On April 1, we completed the sale in a private placement of $350 million worth of aggregate principal amount of 6 5/8% senior notes due in 2027. The proceeds from the sale enabled us to repay $250 million of 8 1/8% notes due in 2021, repay our term loan of $21 million and repay $63 million against our revolving credit facility. In addition to the more favorable rate and expanded facility from $250 million to $350 million, the new notes also enable us to extend the maturity date to 2027.

On April 17, we also completed an amendment to our existing credit facility, which had several advantages. First, we increased our revolving credit facility from $300 million to $350 million and extended the maturity date from 2019 to 2022. Second, it introduced favorable terms to the agreement, including expansion of our borrowing base and a more favorable pricing structure. And finally, it provides the company with the option to increase the availability under the revolver by an incremental amount of up to $100 million.

We're excited about the refinancing, including the support of our bank group and the overwhelming interest in the offering of our senior notes, and believe that we are even better positioned to finance and execute our long-range growth plans.

I would now like to make a few comments regarding our earnings guidance. As you'll recall, we previously announced full year guidance of $3.15 to $3.35 per diluted share. Our Q1 results came in ahead of our internal forecast, and we expect continued improvement in sales and earnings throughout the year. Therefore, we are reaffirming our EPS guidance for 2017. In addition, for the full year 2017, we are forecasting positive operating cash flows of approximately $50 million to $55 million and CapEx of $35 million to $40 million. We also anticipate an effective tax rate of 30% to 32% and expect to pay cash taxes of about $16 million.

In closing, I'd like to emphasize the confidence the management team feels about the direction of the company. We feel positive momentum building in our underlying business based on the following data points and forecasted market trends: first, increasing demand in key Supply Technologies end markets throughout 2017; second, stabilized heavy-duty truck demand for the remainder of '17; third, continued growth in our fuel product sales in our Assembly Components segment, driven by continued strong automotive demand for components oriented towards fuel efficiency and reduced emissions; fourth, continued ramp-up in our aluminum business on the new 10-speed transmission with Ford and GM as well as other safety-critical suspension components for FCA. And lastly, in our industrial products group, we're seeing increased order bookings for new equipment and aftermarket parts and service for the first time in a while. Our first quarter 2017 new bookings are the highest since 2014 and the second highest for any quarter since 2009.

We believe that our businesses are well positioned to achieve our goals for the remainder of 2017 and also believe that our new debt agreement provide the appropriate capital structure to grow our business over the next 3 to 5 years and achieve our N4 initiative of $2 billion in annual sales.

Thank you.

Well, thanks, Matt. Okay. I've been asked a number of times in the last couple of weeks here, why a refinancing at this point. Why did we go to the bond market and why now. I'd just like to give you a couple of thoughts on that. We continue to plan here at Park-Ohio a company in the future of revenues of over $2 billion. That is maintain -- we've maintained that goal, and we felt this was an important time on the basis that we considered interest rates were probably going to go up for 3 years to test the market. We'll begin the process by visiting rating agencies in New York City to make sure that we were thinking along the same lines. That was very, very positive news. We entered the market and we had a target in mind of $250 million, number one. Number two, we wanted to get a rate below with the current rate on the bonds were, 8 1/8%, so it was $350 million below the rate. And we were able to go into the market, relatively short period of time and not only get to $350 million, but at 6 5/8%, which is a 1.5 point spread. The math on the $350 million, 1.5 points over a 10-year period is an astronomical number.

What was really exciting about the trip that Matt and I spent calling on people, the top, top credit analysis people in the country, we've always had good bond holders. But in the process of getting to $350 million, we feel really, really good about the creditworthiness that they have in their minds for Park-Ohio after 25 years of effort here. And they continue to revisit the idea that we stay in the business. We’re an industrial-developing company. They liked where we are, they liked our approach and particularly the management of this company to get in and out of tough times, be up a little bit but always has the answers, always can get through it. And when you can raise $350 million at world-class level potential buyers, it's impressive when you add some new names and it's 5 or 6 new names, this is public information. You can dig them up. But it's really exciting to have this type of recognition of the company. So the spread was an important part of it. We think that, that's the future. Along with the bond financing, we went to our bank group, the same established bank group that we've had for years, and we rewrote -- that bank agreement. So actually, we were in the market at the same time for $700 million. It's rewarding to go to the market at $700 million and achieve availability. These bonds were 4.5x oversold. We could have sold 4.5x that $350 million.

So we have in position with availability. The credit we have in position. We have put aside the issue about going to get capital as we grow. We are going to grow. We are going to do it organically. We are going to do it through acquisitions. We don't want to look over our shoulders thinking about where the money is going to come for when we need it, and it's changed the way people even respond to Park-Ohio now. They see the balance sheet. They see what we have. They see the track record. So it's very, very encouraging. I'm very excited about it, and I think we're off to a good start in the quarter. And things -- hopefully, some of the wind will get behind our backs in some of these tough businesses, but this bond financing is preparing for the future. And we're set and we're in place and we're ready to go and we're ready to reach this target as soon as we can of this $2 billion and the corresponding earnings.

Now I'd like to turn the phones over to questions.

(Operator Instructions) Our first question comes from Steve Barger of KeyBanc Capital Markets.

It's Ken Newman on for Steve. I just want a quick clarification on the maintain guidance. Are you -- I think last quarter, you had mentioned 10% sales guidance for the year. Are you maintaining that guidance?

Ken, this is Pat Fogarty. We are still maintaining that 10% growth over last year.

Okay, I wanted to make sure. Engineered did have a pretty good quarter year-over-year, but it was still a little light of where we were anticipating. Curious, can you just provide any color on the visibility in that business? Obviously, I know orders can be lumpy. But curious, how much of the backlog is expected to be delivered in the year? You did mention that orders were the highest for industrial you've seen in a while. So when should we expect those to monetize?

Yes, this is Matt speaking. The vast majority of -- the majority of that business, I should say, is related to the equipment group. And candidly, that is where our visibility is the weakest. And it is a part of the business that has continued to struggle, particularly in the face of commodity weakness, most notably oil and gas and steel. We have seen some rebound on the hardening side. That's where we added the GH acquisition. So finishing products for the aerospace and automotive and other transportation industries has been a little sign of strength. A little buoying of oil and gas has been helpful. At some point, there needs to be a reinvestment cycle there regardless of the oil price. But the reality of it is we have very limited visibility other than what we see sort of concurrent with the order book. But to answer your question, the visibility on that part of the business is not great. The smaller part of the business, which is the forging business, we do have pretty good visibility. Unfortunately, it's not good. The locomotive market continues to be significantly down year-over-year, and we expect that to extend through the rest of the year. The rail car market also is down significantly year-over-year. We expect that to extend through the year. So those businesses will continue to be down for the rest of 2017 versus '16. Now having said that, the comps do get a fair bit easier as the year goes on. So I expect to see traction in that business, unfortunately, off a very low base.

Right, I guess just the follow to that is, should we expect something, that low single-digit type number sequentially? Or is it something...

It would be very hard, given what I just told you about visibility on the equipment side, it would be very hard. You're asking us to project the business a few hundred thousand dollars either way, and that would be very hard to do at this point. But as I did say, from a trend perspective, we think the comps get easier and the business should improve.

Ken, this is Pat again. I would add to that and say that the first quarter, our aftermarket business was slightly below our expectations but pretty close. And so most of where we were affected came out of new equipment and the progress of completing the jobs that were in place. And we're seeing signs, as we mentioned, of continued increases in order bookings, not only in the new equipment, but in the aftermarket space. So that should -- we should see trends start to improve both on the top and bottom line.

Okay. And I'll ask one more before jumping back in line. The balance sheet does look very strong. You did open up a revolver availability subsequent to quarter end. Can you just talk about the priority for capital on M&A, talk maybe about the multiples that you're seeing in Europe and the U.S.? And just any color on that M&A pipeline would be great.

This is Pat again. We continue to be in the market for transactions that are core to our business and strategic to the businesses. Multiples, because of the low cost of borrowing money, continue to be higher than what we like to see them. So not much of a change from the last 18 months to 24 months. Closing the GH acquisition was positive, and we're going to continue to look for companies that fit our strategy there.

And it's safe to assume that there are opportunities like that out there.

Sure.

Our next question comes from Edward Marshall of Sidoti & Company.

So I wanted to circle back to Engineered Products, if I could. The question I had, it look like, I don't know -- first of all, what was the organic growth for that segment and in sales for that business?

I believe it was negative, I mean, as Pat pointed out, but negative by relatively an immaterial amount.

So roughly, I don't know, $10 million of acquired sale that went through that business? I'm just curious.

That's approximately right Ed.

Okay, okay. So when I look at the business year-over-year, I mean, there was a 30 basis point improvement in the op margin, but it's well off the second half rate. So I'm curious, is there something that's seasonal that maybe cropped up in an acquisition over the last couple of years that might have been playing out that we're not aware of in the first quarter? And how do we think about that margin in spec of the guidance for the remainder of the year?

This is Pat. Are you referring to the consolidated margins or individual segments?

I'm speaking to Engineered Products, in particular, the 2.4% op margin in the quarter relative to the 2.1% last year but then as you progress throughout the remainder of the year and how that factors into the guidance range.

Yes. I think when you look at the prior year, I think it was timing of jobs that were in progress during the second, third quarters. As Matt mentioned, we continue to see positive trends with new order bookings, so we would expect that to improve from an operating margin standpoint because we have taken out a fair amount of costs, both fixed and variable, in that business. So as volumes increase, we should continue -- we should see a positive and a real nice flow-through to the bottom line.

So we should see a similar pattern to last year.

I would think so.

Okay, okay. And then I want to kind of circle -- talk about maybe other further cost actions on the horizon that you're thinking about in the business. Or are we well past that given that the cycle seems to be improving here?

Well, that initiative -- as our business has changed, we continue to implement cost-reduction activities. I would say, as it relates to Supply Tech and our Assembly Components group, most of those changes that took place last year are over, and we hope to continue to accelerate the growth in those businesses. In the third segment, we continue to monitor those -- the sales activity on a weekly basis, a monthly basis, so that we can react to any further declines there. So I'm hesitant to say that those cost-reduction activities are done in that business segment at this point.

Yes, I'll hop in and also say, I don't know if there's ever been a time in our business that given the diversity of our business, that we're not adjusting the cost of one of our businesses. So that's just part of our business model.

That's the one I was looking for.

It always at the top of the list somewhere.

Right, right, right. So last time we talked, it was March in the public forum, and you said earlier that you were ahead of your internal guidance for the month of March or for the quarter of March. And I'm kind of curious about the cadence of the quarters and maybe how we progressed in April and what you might have seen as you've come through the year so far, given it's only 4 months. But maybe you can kind of talk to that language and what gives you the confidence in the back half of the year.

I'll let Pat comment on that in terms of the quantitative analysis. But we have a business plan. We've obviously continued to achieve some new business sales. We have a better sense of kind of where the year is as we sit here in mid-May. So our affirmation of the guidance and being a little ahead of the plan we view as certainly more fully baked than we gave the guidance. So without talking too specifically about April results, I would tell you that if you're feeling a little confident of our forecast, that's why.

And in the quarter itself, was there any cost for early extinguishment of debt? Or does that come in the second quarter?

Yes, that will happen in the second quarter. As the old bonds had deferred financing cost relating to it, so those will get written off in Q2. But any tender or call premiums that were used to pay down the old bonds would also get charged for GAAP into the P&L, so those adjustments will be add-backs to our earnings in the second quarter.

And they’re not annuitized over a period. They're expensed in the quarter. Is that right?

Yes, any new financing cost relating to both the bonds or the ABL will get capitalized in the balance sheet and then amortized over the related terms of each debt under GAAP.

Got it. And the 30% to 32% tax rate is lower than what you've done historically. I'm curious if the mix of acquisitions that you've brought on and their geographic locations may have assisted that. And is this the kind of new rate we should be thinking about on the go forward?

To your first point, Ed, I would agree that the acquisitions, the last 5 acquisitions have been made in Europe and those acquisitions carry obviously lower effective tax rates, and so that definitely adds to the reduced federal tax rate. And also, the planning that we do to continue to lower the effective tax rate is in place, and we continue to work towards reducing the rate. I think going forward, hopefully, our new President will help us here, but we would continue to see our effective tax rate somewhere around 33% depending on the allocation of the income between those businesses outside the U.S.

Got it. But just to be clear, it does assume that any tax law changes occur to hit that 30% to 32%?

Correct.

Our next question comes from Marco Rodriguez with Stonegate Capital Markets.

Wanted to talk a little bit about the GH. How is the integration proceeding there?

Marco, this is Pat. We're into the first quarter, the first 3 months after the acquisition. We like to call that the shakedown cruise. And so although we believe that they're on track from a revenue perspective, a number of the transition and integration efforts are moving along as planned. So we'll expect a better impact as we get through the rest of the year. But as Matt mentioned in his comments, we are pleased with their first quarter, but we're just into the operations of the business now. So we hope for improvement.

And so as kind of a follow-up then, in terms of the SG&A level at $36.6 million in the quarter, so that potentially should be coming down with some of the integration aspects that you're doing with GH? Or is that kind of a good number from which to model?

No, it should come down. Part of our strategy in acquiring GH was to consolidate our engineering efforts and R&D efforts across the globe, and those expenses flow through SG&A. So as those initiatives take hold, we should see the SG&A as a percentage of sales come down.

Can you talk a bit about the timing on those? Is that an expectation that you have everything done here in fiscal '17? Or does that move into fiscal '18?

Yes, I'm not -- I prefer not to talk to timing. But clearly, our expectation is within the first 18 months of transaction.

Got you, okay. And shifting gears here to Supply Technologies. It sounds like some things are starting to pick up there. But if I heard you correctly, there's still some weakness in trucking and related trucking, but I thought I also heard part of your guidance assumption is a stabilization in the truck market. Is that, first off, correct? And then also if it is so, can you please talk a little bit about the dynamics of what you're seeing, that kind of shifts that thinking?

Sure, sure. This is Matt. No, you did hear us properly. I'd like to say that's because we're seeing some renewed strength in the production rates in Class A truck. That's not the case. I just think we're stabilizing in that from a year-over-year comp perspective in the second half, so we're not seeing a return to more robust production levels. We're seeing some anecdotal evidence that things could be getting a little better but nothing that would cause us to meaningfully change our business outlook. So no, we chose that word very carefully, stabilization, as an indication that we think the negative comp period could be coming to an end. But we certainly don't see a robust level returning. And in fact, it's a little bit frustrating because generally, the business was up nicely ex truck. So it's unfortunate.

Got you. That's helpful. And the improvement in gross margins that you saw year-over-year, about 150 basis points improvement. You called out 3 things: higher sales, mix and cost reduction. Is that the kind of the order in which we should think about the impact there for the increase year-over-year?

I would, Marco. Yes.

I would call out one thing on the cost reduction. I mean, we tried not to bring it in today's conversation because we talked about it too much in the past. But the first quarter last year was a bit of a disaster at General Aluminum, as we responded with cost cuts to the change at FCA. So that on the cost side is significant on a year-over-year basis. And at this point, I think that's -- the year-over-year comps will level out, and we can put that chapter behind us.

Got you. And last quick question here, debt levels post the refinancing. You ended the quarter at about $482 million in total debt. I'm assuming you're still at that level.

Yes, we are Marco. And our leverage, as it relates to the total business, is expected to be very similar year-over-year.

Our next question comes from [John Baum], a private investor.

The refinancing of the debt was a master stroke, I want to give you guys an attaboy on that. Going forward, when you look at the interest expense, when you blend the reduced 150 basis points for the $350 million and you got incremental $100 million that, I guess, went to the ABL or some other revolver, if we look at interest expense this year overall, do you think it will be the same as 2016 or less because of the new facility?

Yes, actually, the incremental rate on the new bonds over our lower ABL rate will -- for the current year will be about $1 million more in interest expense. And on a net of tax basis, it's roughly $0.05 a share.

Okay, very good. And Matt, did I hear you correctly with the CapEx budget this year? Is that an increase in CapEx over a prior forecast? And how much of that is maintenance CapEx? And how much is new business, please?

I don't believe it's an increase. I believe that's consistent with our budget in our year-end call. Having said that, we continue to believe that the CapEx -- let me just back up, John, because you've been around for a while. There is no doubt that our expansion with the FRS acquisition has increased the part of our portfolio that requires CapEx, both on a maintenance basis and a growth basis, number one. Number two, our desire to capture with some of our innovative products a larger global footprint and a number of our products has caused us to go through sort of a CapEx cycle that we hadn't seen before. So we continue to believe that the numbers we're talking about are well above long-term averages. But I would say our CapEx budget, which you may recall used to be sort of $10 million to $12 million, has permanently moved up to $15 million or $16 million. So for lack of a better word, I'd say roughly 50-50, maybe a little bit heavier this year on the growth side.

Okay. Again, congratulations on that new -- that debt facility. I know you guys worked hard on that and it really is a great vote of confidence in the company going forward. And the fact it was oversubscribed is a tremendous feather in your cap.

Our next question is a follow-up from Steve Barger of KeyBanc Capital Markets.

Just wanted to talk about incremental margins in Supply Tech and Assembly. That looked very strong in the low to mid-30% range. Just curious in terms of cadence, I mean, should we expect that you can carry that trend forward into the 2 and 3Q? Or could incrementals take a step back from here?

I'll let Pat think while I talk. I think Supply Technologies stands to see a significant operating leverage in the foreseeable future, particularly if we see any increase in truck revenue. But generally, I think that we got -- we're in a position there to sustain above-average flow-through from incremental sales. I think that we are incurring and will continue to incur some costs by the growth in Assembly Components, most notably, with some of the expansions globally that we've discussed, China being one that we discussed explicitly. We're launching -- we're in the middle of launching one plant, and we're looking at launching a second here this year. So those flow-through margins will take a while, I think, to come through incrementally with the kind of numbers we'd like to see. So I don't know if that's helpful to your question, but I guess it depends on the business that we're discussing.

No, I think that is helpful here. One other here on just -- go ahead.

No, I was just going to say, there's 2 different stories. I mean, Supply Tech is still struggling overall from some demand in some of its core businesses, so we're going to see great flow-through for a while there. And I think we're going to see less so as we build off the success in the other businesses where we're actually increasing capacity because people like our stuff.

Makes sense. Last question for me, just talking about assembly. Can you just talk about the price cost dynamic for the aluminum business and then just expectations for profitability going forward? And then any color you can give on the process of receiving compensation for those canceled Dodge contracts?

Let me touch on the overall business first. General Aluminum is more stable now in its performance than it's been in the last 5 years. We are launching new business. We are been awarded a number of new blocks of business, in most cases, replacement volume for product which is either rolling off or there's a new generation of products. We're following a path, I think, that is very tight. That does not necessarily mean we're going to see significant incremental revenue this year. As we said last year when we took a significant step back in revenue, it was going to take a couple of years to fill that. We have an active quote pipeline. We've got a restructured business after the loss of revenue, and we've got nice new generation work on contracts that are rolling off. So I view the business -- while not where we want it to be, I view it as very stable and now prepared over the next 12 to 18 months to start to track back towards that $200 million revenue number that we haven't seen in a while. I wish I had better news in terms of the opportunity this year, but I think that what we're going to begin to see is -- what we see right now is a very well-managed tight business on the cost side that has the opportunity to grow and see significant operating leverage going forward. And we'll begin to see some of that as the 10-speed ramps up here towards the end of the year and into next year.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Crawford for closing comments.

Thank you very much for joining the Park-Ohio management, and we look forward to future meetings. Have a good day. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.