Gibraltar Industries Inc (ROCK) 2005 Q4 法說會逐字稿

Welcome to the Gibraltar conference call to discuss its fourth quarter and full year 2005 results and its outlook for the first quarter of 2006. We will begin today's call with opening comments from Ken Houseknecht, Gibraltar's Vice President of Communications and Investor Relations. (OPERATOR INSTRUCTIONS).

After the Company has concluded its presentation we will open the lines for questions. At this point, I'll turn the call over to Mr. Houseknecht. Please proceed, sir.

Thank you Shakira. We want to thank everyone for joining us on today's call. Before we begin I want to remind you that this call may contain forward-looking statements about future financial results. Our actual results may differ materially as a result of factors over which Gibraltar has no control. These factors are outlined in the news release we issued last night and in our filings for the SEC. If you did not receive the news release you can get a copy on our web site.

At this point I'd like to turn the call over Gibraltar's Chairman and CEO, Brian Lipke.

Good afternoon everyone. On behalf of Henning Kornbrekke, our President and Chief Operating Officer, Dave Kay, our Chief Financial Officer and Ken Houseknecht, our Vice President of Communications and Investor Relations, we want to thank you for joining us on today's call. As usual I am going to give you a general overview of our business and talk about our recent growth initiatives. Dave Kay will discuss our financial results and Henning will take a look at the Company from an operating perspective. Following that, we will open the call to any questions that any of you may have.

In 2005, Gibraltar delivered another strong performance. We generated record sales, net income and EPS before unusual items. We made 4 acquisitions including Amico, which was the largest purchase in the company history. We restructured our balance sheet, including the completion of a subordinated debt offering in December. And we continued to grow on strength in the operations of our existing businesses. So all that sets the stage for a continued sales and earnings growth in 2006.

Even more importantly, we've enhanced our ability to deliver consistent and steadily improving results. In a variety of operating environments as we continue to strategically grow and transform our business, we believe consistent and improving performance is a key to creating shareholder value and maintaining value for our bondholders. Here are just a few of the ways that we've made Gibraltar an even stronger company.

We continue to focus on building leadership positions in niche markets. And today, approximately 80% of our sales come from products or services where we hold the No. 1 or No. 2 marketshare. We continue to focus on those businesses that add the most value and margin and which differentiate us from our competitors.

We serve an increasingly diverse group of markets and customers which reduces our exposure to any single customer or industry. Amico alone brought Gibraltar 8000 new customers, many in markets where we had little participation, providing us with numerous cross-selling opportunities. There are significant opportunities to gain additional business with our existing customers.

At one of our large customers, for example, we sell a whole host of different products to them. However our mailboxes are the only product that Gibraltar sells to all 2,000 of their stores. We believe we could generate approximately $600 million of incremental sales just by selling more of our existing products to our current customers and we have initiatives under way which are helping us to accomplish that.

We now sell more than 5,000 manufactured end products which account for nearly two-thirds of our sales, continuing to propel our transformation from our steel processor routes towards being a value-added diversified manufacturer.

As we've diversified our business, we've also reduced our exposure to the automotive industry, which decreased from 58% of sales in 1993 to approximately 20% today, while our actual sales volume has more than doubled during that time. We've also continued to diversify this business, growing our relationship with the major transplant manufacturers and their suppliers. And our products are now on Toyota, Honda, BMW, Mercedes, and other vehicles as well.

We've established operations throughout North America including Mexico and Canada, with a growing presence in many of the fastest-growing regions. And we are developing and expanding our international footprint. Last September we purchased a facility in Suzhou, China, giving us an on-the-ground brown presence in the center of the rapidly growing Chinese industrial market from which to view other potential market opportunities.

We continue to leverage our business to find ways to streamline our operations, improve our efficiency and lower costs. Our goal is to drive SG&A to 10% or less of our sales; and progress with a number of efficiency initiatives continues to move us closer to that target.

All of these activities over time will improve the performance of our operations. We will drive down our margins, I'm sorry they will drive our margins higher, improve our return on capital and increase our free cash flow, allowing us to find more of our -- fund more of our growth internally.

Gibraltar made significant progress towards many of its goals in 2005. Last year's acquisitions together with growth in our existing operations increased our performance sales to approximately $1.4 billion, moving us much closer to our goal of 2 billion in annual sales by 2009 or sooner. 2005 was another solid year of growth and improvement.

At this point I would turn the call over to Dave and Henning, who will provide a more detailed review of our fourth quarter and 2005 results and give you a better sense of our outlook for the first quarter. Dave.

Thanks Brian. As Brian mentioned, the fourth quarter was a very good one for Gibraltar. Sales from continuing operations were $334 million, the highest of any quarter in Gibraltar's history. An increase by approximately 31% from a year ago. The inclusion of Amico's results for the full quarter was primarily responsible for the increase. As well as overall sales increases from the other building products operations, Partially offset by softer results in the Processed Metals business primarily stripped steel.

For the entire year of 2005, sales from continuing operations were $1.2 billion, an increase of approximately 21% compared to 2004.

Net income from continuing operations in the fourth quarter, exclusive of special charges, amounted to $12.4 million or $0.41 a share compared to 9.4 million or $0.32 a share in the fourth quarter of 2004. These results exceeded the upper end of our earlier guidance by $0.06 a share. They were are primarily driven by higher sales and improve margins in our Building Products segment.

Actual net income in the fourth quarter of this year was negatively impacted by a number of special charges including a $6.8 million charge or $0.14 a share for prepayment and make whole penalties related to the early redemption of certain senior debt. A $4 million charge or $0.08 a share to cost of sales resulting from purchased accounting adjustments required to adjust inventory of companies we acquired during the quarter, primarily Amico -- adjusting them to fair market value. And a $600,000 expense or $0.01 a share from the write-off of deferred financing costs related to the original issue of the senior debt we redeemed

Together these items reduced net income for the quarter by approximately $7 million or $0.23 a share, resulting in actual net income of 5.4 million or $18 a share in the quarter. Full year 2005 net income from continuing operations before special charges was $51.6 million or $1.73 thought $1.73 a share, compared to 49.7 million or $1.68 a share in 2004. Actual net income from continuing operations after special charges was $43.5 million or $1.50 a share. Selling, general, and administrative expenses amounted to $35.4 million or 10.6% of sales during the quarter, compared to 26.8 million or 10.5% of sales in the fourth quarter of last year.

The large increase in terms of dollars comes almost exclusively from Amico. Our equity partnerships generated a loss of $350,000 during the quarter, compared to a $1.4 million profit in the fourth quarter of 2004. This decrease was driven by selling price and raw material cost-related issues which we expect to improve in 2006.

Interest expense exclusive of the $6.8 million make hold penalties increased the $7.5 million during the quarter from $2.4 million in the fourth quarter of last year. This resulted primarily from the higher overall borrowing levels taken on with the Amico acquisition and higher average interest rates when compared to the fourth quarter of last year.

Our net return on sales, exclusive of the special charges, was 3.7% for the quarter which is in line with last year's fourth quarter. From a cash-flow perspective, we generated actual EBITDA of 32.3 million during the fourth quarter and $126.6 million for the entire year. Our inventories increased by $27.9 million during the quarter, entirely as a result of the Amico acquisition. Inventory levels that are other operating companies, exclusive of Amico, actually decreased by approximately $9 million.

On a consolidated basis we turned our inventories at 5.8 times during the quarter compared to 4.5 times in the fourth quarter of 2004. Average days sales outstanding and receivables were 52.4 days in the fourth quarter compared to 53.5 days a year ago.

During the quarter we spent approximately $252 million gross on acquisitions, most notably for Amico which had a purchase price of $240 million, the largest single acquisition in Gibraltar's history.

Capital spending was $7.3 million in the quarter and $22.1 million for the entire year. With the addition of Amico we expect to spend somewhere between $28 to $31 million on capital expenditures in 2006, slightly less than depreciation. We also paid out approximately $1.5 million in dividends during the quarter and $5.9 million for the year.

Looking out into 2006, we believe we will be able to generate sufficient cash flows to fund our operations, dividends, capital spending and working capital requirements. We also believe that after funding our internal requirements we should generate significant free cash flows for use in potential growth initiatives and/or debt reduction.

During the fourth quarter we were able to complete a restructuring of our debt and our overall capital structure by expanding and renegotiating the terms and conditions of our revolving credit facility. We also issued new long-term debt that affords us greater flexibility while it still allows us to pursue potential growth and acquisition strategies that may arise.

During December, we issued $230 million of institutional floating term rate loans and completed a private offering of $204 million in aggregate principal amount of 8% senior subordinated ten-year notes which were sold at a discount from face value to qualified institutional buyers under Rule 144A of the Securities Act of 1933. Both issues were rated by Moody's and Standard & Poor's.

A new senior subordinated debt gives a fairly large piece of junior capital on our balance sheet and results in the capital structure and mix that is far less dependent on equity and secured financing to one that is more flexible and appropriate to a company of our size and growth characteristics.

At December 31st, our long-term debt to total capital ratio [sat at] approximately 48% with a secured debt representing approximately 26%. Now I'll turn the call over to Henning for a more detailed analysis of operations.

Thanks Dave. As Dave mentioned, our net sales from continuing operations were $334 million in the fourth quarter, up 31% from a year ago. At this point I would like to point out that the following analysis excludes special charges incurred in the quarter, which we believe does provide for more appropriate ongoing comparison. Our gross margins of 18.5% was up by approximately 1.4 percentage points from the fourth quarter of 2004. Our operating margin of 8.1% was up 1.5 percentage points from the fourth quarter of 2004.

Looking at the results of our three segments, Building Products had a net sales increase from continuing operations of 76.2% to $204 million. The growth was the result of a full quarter's results from Amico and continued strong growth in our core products which was up approximately 10% in spite of the normal fourth quarter seasonal slowing.

The gross margins was 24.1%, an increase of 6.4 percentage points from the year ago quarter and the operating margin was 14.4%, up 7.6 percentage points from 6.8% in the fourth quarter of 2004. The margin improvement is attributed to operational improvements in three businesses coupled with growth in two higher margin businesses.

Our Processed Metal Products segment sales were $103 million, down 9% from a year ago, primarily a result of lower industry market prices. Demand on a unit volume basis remained strong and in line with our expectations. Our gross margins were 8.1%, down from 15.7% in the previous year. The operating margin was 3.4% down from 10.7% in the fourth quarter of 2004, both the results of lower selling prices and higher course inventory. Margin compression was most notable in the Service Center business offset in part by an improved performance from our powdered metals business.

Our thermal processing segment had sales of $27 million, an increase of 2.3% compared to the fourth quarter of 2004. Gross margins at 16.4% were down 4.2 percentage points compared to the fourth quarter of 2004, a result of escalating energy costs. Operating margins were 8.8% in the fourth quarter of 2005, down only 2.2 percentage points in the fourth quarter of 2004. The 2 percentage point pickup from gross margins is attributed to lower SG&A cost in the quarter.

On a full year basis, sales were up 21%. Gross margins were 18.9%, down 1.7 percentage points driven by steel cost pricing issues encountered by our Processed Metals group in the second half of the year. Operating margins were 8.7%, down a half a percentage point attributed to our reduced SG&A costs, as we began to leverage our cost over the larger Company that we have become.

Core earnings per share were $1.73 versus $1.68 driven by the improved sales and improved margins in the Building Products group, particularly in the second half of the year.

At this point, let me provide some commentary on our outlook for the first quarter. We expect to see continued strength in the Building Products segment, driven by a strong performance at our existing operations, contributions from our recent acquisitions, and a good operating environment. Our thermal processing segment will feel continued pressure from higher energy costs although energy costs have retreated from the high level experienced in the fourth quarter, offset by the continuing ramp up of recent business gains, one for our aggressive marketing sales and investment strategies. And the operating climate for our Processed Metal Products segment is improving with a more stable steel market coupled with the active marketing inventory management programs.

As a result of these considerations, we expect our first quarter earnings per share from continuing operations will be in the range of $0.40 to $0.45 compared to $0.36 in the first quarter of 2004 barring a significant change in business conditions.

We are excited about Gibraltar's prospects in 2006. Many of the initiatives started in 2005 with the continued focus on fully integrated acquisitions, converting synergies to operating efficiencies, solidifying our market share, maximizing our cash flow by managing inventory, capital expenditures and receivables, improving our return on investment and topline growth will provide the results expected of our shareholders.

At this point I will turn the call back over to Brian.

Before we open the call to any questions that you might have, let me make just a few closing comments. It's been another very strong year in 2005 with record sales, net income, and EPS before unusual items; improved cash flow; a restructured and more flexible balance sheet; strong organic growth, and 4 acquisitions, including the largest in our history. We expect to generate stronger sales and earnings in the first quarter of 2006 a year earlier and we intend to build on that momentum as we move through the balance of the year.

That covers our prepared comments for today. At this point we will open the call for any questions that any of you may have.

(OPERATOR INSTRUCTIONS) Robert LaGaipa with Rock Gibraltar.

Just a few questions. Obviously, a very good quarter that was driven by Building Products but what I wanted to dig down a little bit deeper into is what occurred in Processed Metals? You mentioned some of the competitive pressures. The inventory situation, etc. I remember last quarter you mentioned that you were expecting an improvement in the margin from the 4.5% and I'm looking at this sequentially. And with the 3.5%, 3.4% that you posted in the fourth quarter, what sequentially happened to cause that decline versus your original expectations? And what gives you confidence that that is going to improve in the first quarter?

I think it will answer in a number of different ways. I think what happened is that the timing that we thought would happen didn't happened as fast as we did. The competitive environment and the steel processing part of the business continued longer than it should have. Now we've looked very carefully at our peers in our industry and it's interesting to note that our margins are right online with theirs. And we feel very confident that our projections in the first quarter because internally, we have just finished one month with that quarter in and we've already seen the improvement that we had forecasted for the quarter. So I think at this point we concretely know that we are in the right direction moving exactly as we should be moving.

Is that just a function of -- I mean, because the steel pricing certainly the hot roll pricing if you look at the benchmark industry, it bottomed out kind of in late summer subsequently been up 25, 26% in the fourth quarter. Was it just a carryover from that?

Yes it was. In fact, we have some issues in conversations with some of our suppliers and I think it's attributed to primarily a lot of the service centers who end up holding most of the inventory and that created an unequal situation, relative to supply and demand. Because the true demand wasn't felt directly to the suppliers and that had a lot to do with the fluctuations in pricing during the year but these same suppliers feel very confident as they go into 2006.

But that has sort of phased its way all the way through the system and I think we are now more online with actual demand.

Is there any reluctance of the suppliers? I mean, obviously, the inventory levels have come back down fairly dramatically, driven by some of the production cutback etc., but on a go forward basis is there concern in the channel relative to rebuilding some of the inventory in light of the pricing volatility? And any potential imports that might be out there given the pricing differential here in the States?

No, in fact, we are feeling very comfortable that the balance they hope to achieve earlier or they're starting to achieve at this particular point. I think everyone's feeling a little bit more comfortable about the pricing levels in the industry. We monitor those on a regular basis. We are feeling increasingly comfortable. I think it's all moving in the right direction. I think some of the more recent announcements in the industry would confirm that.

What type of margin improvement are you expecting or is built into the forecast relative to the 3.5%, in the first quarter? Is it something more similar to the third quarter, the second quarter, the first quarter? What would be the right benchmark to use?

You think we are going to probably (indiscernible)

It will be a sequential improvement.

Last question if I could just to switch gears. I hate to belabor steel, I know you are getting away from steel to some degree in terms of the transformation of the Company. But in building products the contribution if I just use the 10% core growth, and the contribution of Amico in the quarter would be something like $75 to $80 million in sale in the quarter and I was just curious as to what was the operating profit impact of the Amico acquisition?

I can tell you that Amico is accretive to building products but on par with our average building products margins as we go forward.

I think there's a key difference here that bears some discussion. Our Processed Metals business you buy steel by the ton and you sell it by the ton time so customers are very aware of a direct relationship that exist there. Building products, different world. Sure, we buy metals by the ton but we don't sell our products by the ton. We sell them by the piece. So there's a completely different relationship that exists there. That's one of the reasons that we've moved to diversify the business in this way.

Last question before I get back in queue, again, it was in the Building Products. I remember I think it was several quarters ago, you had mentioned some of the changes in the distribution channel, specifically with Home Depot. It seemed like they were becoming more just in time and my conversations with other companies, they've been changing the way that they are selling products on the floor. I was just curious as to what impact that might be having on your business in terms of replenishing inventory, buying ahead of the stronger selling season in the second, third quarter? And what you are expecting in 2006 in that regard?

It's having a very positive effect in our business. We've continued to do very well with our customer base particularly our larger customers and we expect to continue to grow very favorably with those customers.

So the changes are not really affecting.

No, in fact they're helping us. I think they're working hand in hand with our customers and I think we have found, mutually, there are real advantages in getting the products into the stores quickly. They have to carry less inventory. We are able to produce faster. I think it is working out very positively.

So as opposed to it being an inventory build, you're seeing better penetration? Would that be the best way to characterize that?

Better penetration, better sell through to the end-user, more timely products.

David Smith. Citigroup.

Regarding Amico and I know you just touched on it a second ago but can you give us a sense of what the accretion was in the quarter on an EPS basis?

I would say that we don't want to disclose information; it's not our policy and practice to disclose information about individual companies. I would say that Amico's actual results were a little depressed by that $4 million charge that would have gone into cost of sales. I would say that if you look at the Building Products, the Amico's margins are on a par with the rest of our Building Products companies. Certainly our Building Products operations in the fourth quarter of 2005, exclusive of Amico, were certainly better than they were in 2004. As you may recall in 2004 we experienced some fairly significant raw material price increases in the fourth quarter and we were unable to pass on until the first quarter and second quarter of this year.

So if you look strictly at the building products margins a year ago versus this year, yes, Amico had a positive impact. But the rest of the businesses also had an improvement and a fairly significant improvement in some of our higher margin businesses.

Then the sales contribution from Amico -- I know you said, I think you said during the call that the basis was up 10%. Would that be correct?

Yes, that's correct.

And we can back it out and it's a fairly straight line, I guess?

Yes.

Yes.

In terms of additional acquisitions or areas that you are looking at, is there anything we should be thinking of, looking forward? Just continue building in the building products there, is that the main focus?

We are continuing to look across the board for strategic growth opportunities within the business but I think it's fair to say that as has been the case the last couple of years, Building Products is an area where we found the most fertile ground. And while we continue to look in other areas, clearly, that's a strong focus for the Company.

I mean, we've looked at many opportunities in the marketplace and we are excited about all the opportunities. We are excited about continuing to grow the Company and go forward. We are not predisposed to any specific segment. I think that's a fair statement. I think there are exciting opportunities in all the segments we participate in.

On Processed Steel, can you talk about the auto guys. Are you seeing an issue on terms of customer pressure as well as competitive pressure?

I think most of the -- a lot of the pricing that is in place for, certainly, the next 90 to perhaps 180 days is contractually negotiated. There were price increases that did go into effect in the first quarter. Some in January, some that would take place later in the quarter. But I think most of what we have seen on the pricing front has been more market-driven competitive pricing rather than customer demands. It's primarily been competitive.

Last thing and I'm not quite sure I missed part of the prior caller's comments but I cover a bunch of other industrial companies that sell into Home Depot and Lowes and I think this is what he was getting at but I didn't quite get the answer that you said. It sounds like a lot of -- there's a lot of push back at Home Depot and Lowes this quarter and it sounds like it's a structural thing. It's not really a seasonal thing in terms of the stocking on inventory. Is that sort of what you said you're seeing?

I guess we'd didn't address that particular issue. I think and we won't address Home Depot's strategy. I think that would be unfair but we would expect ourselves with our customers including the large customers to be in line with the targets that we've used for this year in 2006. And, again, we are very encouraged with the progress that we're making with all of those customers, including Home Depot.

I think it's fair to say to that while there may be a play to reduce inventories we they certainly don't want to reduce sales. So that would mean we would just have to improve our reaction time with them, which is not a problem.

Right. It sounds like a working capital initiative on their end.

The other side of that is that it's -- I think there's a clear initiative underway in the marketplace in general for major customers to want to do business with a smaller number of suppliers who can deliver a broader range of products to them on a national basis and I can tell you that with the growth that we've had in our Building Products business, we have positioned ourselves well and are feeling the benefit of that trend on our business.

You mean, Home Depot, I know, has released their growth strategy for their businesses going forward. And I think when we read that we were very excited about their growth because we have always found ways of growing our business with them.

And it sounds like the penetration again -- penetration (indiscernible).

Yes.

[Marty Polack] with NWQ Investment Management.

Just a couple of questions. With regard to your inventory, did you -- was there a LIFO charge? I forgot what the accounting policy -- .

We are FIFO. We don't -- none of our businesses are on LIFO.

Secondly with regard to just pricing across the difference segments, can you talk about what you see as a current dynamic and, specifically, I guess I don't know whether and your plan is a slowdown in the building markets in general. But if you can address that as well whether you see pricing (MULTIPLE SPEAKERS)

I think we recognize that pricing is competitive, will stay competitive as we go forward into the future. And that is why we continue to focus on cost reduction programs and increasing efficiency for business. That's just a way of life at Gibraltar and it will continue to be that way. Your second question was -- ?

It's actually pricing across the different segments and so. How are you seeing (indiscernible) external areas as well? Is there pricing prices up or what's (MULTIPLE SPEAKERS)

I think we're seeing a lot of the Processed Metals business is contractually driven prices. We have seen some price increases taking place into the first quarter. Thermal processing, certainly to the extent that we can pass along energy charges, we do. It is -- it's primarily a demand driven business, though, rather than one that's purely price. Certainly in the Building Products segment it's very competitive on the pricing situation.

That's why we view more products that are penetration cost reduction efforts there but where we can, we initiate price increases and pass them through. But it's not, they are a mostly competitive market (indiscernible) situation.

Let me say it this way. Our focus is really on margin improvement. So we understand prices are going to change. We understand there will always be pressures, but we also understand there are things that we can actively do in our business to continually move our margins forward. And that is what we're really focused on.

If you would just with regard to the contribution of acquisitions you made, obviously, you had quite a number of announcements in the latter part of the year. You did note that somebody will contribute in '06 outside of Amico. Can you address that just the progress you made with the Helmet and (MULTIPLE SPEAKERS)

I think we've made excellent progress. They've all been integrated into our business. The Gutter Helmet has been integrated into one of our business units. It's gone very successfully. Again we made great progress in that area. They're all an integral part of the total Gibraltar Company and we will make good contributions. Certainly at expectation if not above in 2006.

Lastly, just a last question. Free cash flow indicated would be both used for some acquisitions as well as pay down debt. Can you describe sort of the prior (indiscernible) at this point especially after a number of announcements of the acquisition front? Do you -- is there a bias here too want to take (MULTIPLE SPEAKERS)

I'd say we don't have a particular bias in that we look at acquisition opportunities all the time. I mean hardly a week or month goes by that we don't look at something. We still view ourselves as a growth company. We are not however our No. 1 priority as a company is not to make acquisitions and just grow the top line and bottom-line. A lot of what Henning and Brian have talked about is making what we have better, improving margins and so on and so forth.

I think our initial focus, when we look at acquisitions that have to be something that is good that really fits the business going forward, fits our strategy. We don't make acquisitions just to say that we made an acquisition. We have on our list right now a priority of reducing debt. We would like to delever the Company. I think we are -- compared to the third end of the third quarter to today, we certainly we are in better condition. Our leverage ratio right now is probably -- is under 3. We would like to get it to 2.5 or better. That's probably our No. 1 focus but if the sort of grand slam of acquisitions comes along, we won't walk away from it. So I'm not sure if that answered your question.

Yes it does, actually.

Peter Lisnic with Robert W. Baird.

I just wanted to get a little before clarification on profitability at Amico. Because you're saying that profitability there is relatively in line with the other businesses and Building Products. When you say that does that include or exclude the $4 million of inventory purchase accounting adjustments that you (MULTIPLE SPEAKERS)

(MULTIPLE SPEAKERS) it excludes that.

It excludes it. Okay. So that puts both of the businesses Amico versus the rest of Building Products somewhere up in those mid 13, 14 midteens kind of range. Is that -- is that a statement?

We didn't say that. But that's a good conclusion probably.

Yes, you did 14% in the quarter if you take out that $4 million or 14.4 and if you look at kind of the historical filings for Amico that you laid out, what, in December? That business has been generally running a little bit, maybe a little bit higher than that. But that's not really the crux of my question. I guess the crux of my question is, 1., is kind of a teens type margin sustainable for Amico and 2, are there significant or any cost savings opportunities that you see there where you can go in and take out some cost right away and get another couple of points of margin improvement there?

We see solid sustainable margins with Amico. That's why we bought the business in the first place. We don't really foresee any synergies, any cost reductions, it's a separate business. Operates in some different markets. We do see great opportunities to grow the business with the strong margins that they have, and I think that's the major contribution that they are going to make the Gibraltar on a go forward basis a larger business with good solid margins.

And if I guess I slip that question around and ask you about the base businesses for the lack of a better term. That 12, 13 or 14% whatever the margin is for those businesses for this quarter seems like it's a relatively significant improvement. And I know, Dave, that you had mentioned materials cost year-over-year as helping. But Henning, you also talked about operational improvement you made at least at three of the businesses.

I mean three of the businesses we had some issues with last -- the quarter last year. And we've got some new teams in place in those businesses. We made those changes early in 2005. The outcome of all those changes has really been outstanding. I really can't say enough about the folks who are part of those businesses and the help they've provided. So we are moving exactly in the right direction.

Remember last year at this time we spelled out that there were raw material cost issues and some operating issues in those businesses but that we expected sequential improvement throughout 2005 and we've delivered, as stated.

Okay. So if you kind of look at where you're at in those businesses, how much more room do you have to improve? Do you see significant areas of improvement you've talked about logistics costs, historically, as an area where you can take cost up there? Is kind of that 12 or low teens number kind of a good run rate to assume for the building products franchises?

I would answer it this way. That's a good solid run rate for manufacturing business in the space that we are in and I think if we can take that margin and continue to grow the businesses and sustain those margins I think everyone, but certainly our shareholders, would be very very satisfied with their investment.

And then one more if I could. Brian you talked about the 600 million penetration opportunity with your largest customer. I'm getting the sense that that's still I mean we are very early innings. You just hired something in December to be the lead point man for one of your large customers. Right? So still early days and not -- just not a lot to report yet in terms of penetrating that (MULTIPLE SPEAKERS)

It's not a lot to report because it's not on the bottom-line yet. But in fact I just got off the phone with them. We continue to make excellent progress. We are moving in the right direction. We are getting some of the gains that we had hoped for. So again we are very optimistic going forward.

Mark Parr with KeyBank Capital Market.

Just want to first say congratulations on a great quarter. One of the questions I had related to the 10% core growth in construction products. Could you provide a little more color on what particular products or end markets that you are looking out there?

I think interestingly enough everyone in the businesses save one had outstanding gains during the quarter. So it's actually fortunate that it's hard to separate. They all did very well. Throughout the country and even those that are involved in national manufacturing had very strong fourth quarter finish.

We've been getting some inputs about potential slowing of the residential new construction market. Is this -- what is your exposure to this and have you seen any recent weakening in the last several months?

We've had none of this (indiscernible) has been been transposed yet but I'd also would like to add that a large percentage of the products that we manufacture are for the repair, rebuild, remodel market. Not necessarily new. But there is one product line that is more focused on new construction but the bulk of what we sell is not. So if new homes drop off, we find that people then spend more money on rebuilding their homes. So we found that our sales are not necessarily directly impacted by a fall off in new housing starts.

The other thing, Mark, keep in mind Amico moved us into the industrial and commercial space for the first time. Up until then, we had very limited activity in that arena. And I think there the trend is still on the uptick. So we diversified our business, again, in terms of the markets that we're serving which is part of our strategy.

And that's a great point because we are now more heavily involved as Brian said about the architectural and commercial markets and there we haven't played very much yet. We see that as a great opportunity to further expand our business into the same segments.

Terrific. If I could ask just one more. In the metal processing arena, could you give us a sense of what inventory turns were for that business in the fourth quarter compared to the second and third quarter?

We've finished the year at almost in metal processing at 5.8 turns. We improved our turns throughout the entire year. That was our plan, by the way. If you remember in I think it was coming in the first quarter of 2005 most of the questions you had had a lot to do with the (indiscernible) of the inventory that we were carrying. And as I recall at that point, I think our total inventory turn might even be as low as 3.8 turns. We've obviously focused on that through the year. We've obviously turned that around.

We are in a much stronger position relative to inventory management. I think it's also fair to say that how the game is played in metals has changed also; and we have seen a lot of write ups supporting the fact that there's less contractual agreements, more of it's done on the spot so folks are holding less inventory.

All right, so, I mean what are -- are you suggesting that you are increasing your mix of spot business in metal processing?

I don't know if you want to call it spot. I think people are not going out as long in commitments. I think that is real and, again, our suppliers have told us the same thing. Where before people might have locked up supply for 12 months they're more likely to do it in three and six month segments now.

On the other side of that Mark. The pricing practices have changed, too, and there's a move towards both shorter term and indexing of pricing relative to what happens on a raw material cost side of the issue. Historically, it was a different game. You locking in your selling price, you locked in your raw material cost and you went forward for that established period of time. But because of the volatility in steel pricing that equation just doesn't work anymore. So we found some different new ways to do it. A key to it, though, still is turning those inventories over as fast as we possibly can. The less inventory we have on hand at any point in time, the shorter the period of time it takes to react to any changes.

So, just to try to get a little more clarity could you give us a frame of reference for that 5.8 at the year end? I mean was that a full year number (MULTIPLE SPEAKERS)

That was a year-end number and I think that 13 month rolling average I think right now was 4.3.

So you had at (MULTIPLE SPEAKERS)

That's a 13 month rolling average, Mark, so as those really bad months come off, that's going to quickly change.

I think it's fair to say that we are comfortable with the inventory levels that we have on hand now in order to serve the business that we have coming up. In the rest of the first quarter and the early part of the second quarter, the inventory levels that we have on hand is pretty much where we want to be.

Yes we didn't take specific action to drive inventories down for the first for the fourth quarter simply to make the year end numbers look good. We are just managing the business on a go forward basis.

That you for the additional comments and good luck on '06.

[Steven Rainier] with Franklin Advisory Service. (OPERATOR INSTRUCTIONS)

I was wondering if you could go into a little bit more on the cost of goods sell adjustment here. The $4 million. Sort of what the thinking was behind that and what that actually represents if that's just one quarter worth or is that -- would that be the total charge that you think will be (indiscernible)?

That's a relatively simple explanation. The accounting standards GAAP requires that when you purchase a company that you have all its assets -- you record all the assets at the fair market value. So inventory needed to be written up to its fair market value which essentially would be above what its cost is. In other words what could you dispose of it for. So it ends up imputing some amount of money to the seller of the company.

In other words in this particular case the seller of Amico had they sold that inventory over time would have made 8 $4 million profit so we had to impute that to the seller. It happens one time. It happens on the date of acquisition and when it's gone it's gone. It never happens again.

Because I was under the impression that it would be sort of run off throughout the quarter. I remember the last quarter we were talking about how accretive or diluted Amico would be in this quarter and there was some confusion and -- .

We didn't know how much the number was when we had this call three months ago. The $4 million, approximately $4 million, should be the total run out. If we had anything to the first quarter it will be several hundred thousand dollars but that's the total amount. It impacted only the fourth quarter and will not happen again. Unless we make another acquisition.

Could I just kindly ask you what the inventory was pre or post that wrote off for Amico? What dollar amount that represented?

The total inventory?

Yes, what it was.

No I don't have that number right off the top of my head but if you go back and look at the 8-K that we filed, it would have the Amico historic financial statements in it. It would have their inventory number at September 30th.

Is there any reason why, is it normal that you take a charge versus just running the stuff normally through the P&L?

No we ran it through the P&L. I mean that's what you do. But it really only happens one time. It doesn't recur. In other words every quarter is not going to be hit by $4 million. We had to write it up one time. It all hit in the fourth quarter. But it wasn't (MULTIPLE SPEAKERS) cost of sales.

I mean, it wasn't -- we didn't choose to do this. This is part of the accounting standard on making acquisitions.

Would inventory normally turn over at least once in a quarter?

For Amico? Yes, Amico's inventory turns rather well but if we turn inventory on a consolidated basis at five times a year, that means, you only have two months of inventory on hand.

So we've taken care of everything really?

Yes, it's pretty much gone.

Gregory Macosko with Lord Abbett.

Just a follow-up on Pete's question with this question, if I could. With regard to the SG&A, I know that you mentioned on a year-to-year basis the SG&A was 10.6 versus 10.5% and you said that that was exclusively because of Amico. Is there a -- is the SG&A charge for the percentage for Amico slightly higher than the rest of the Company as a whole? I mean you mentioned that as a factor there, I realize there's other sales growth and figures involved there. But in the quarter was there any sort of additional SG&A there that we might not see in a run rate going forward?

No I think that's pretty consistent. Actually our goal is to bring the SG&A on a consolidated basis down to under 10%. We are working on it. We have a way to go but I don't think that you are going to -- there wasn't anything abnormal in the quarter.

When do you expect to get to the -- that 10%? Have you got a timeframe on that?

If you look at the full year ended -- I can't -- I can't see what I wanted to tell you.

I think the real issue here is a lot of ways to drive SG&A down. One is not to increase the actual dollar amount but build sales and we believe that one of the reasons we acquired Amico is that the company can be built and yet do it while maintaining the same dollar amount of SG&A which would bring the percentage down.

We continue to run ourselves. We believe we are only organization. We continue to believe in the philosophy of staying lean. So we very gingerly add to staff to cost on the SG&A side. I think as you'll notice as we go forward into even in the year in front of us as you monitor our SG&A costs as a percent of sales I think you'll see them coming down.

Okay and you talked about a broader product line to your retail customers and selling more product there. In that regard have you become a product category manager in any case is that -- have you seen that happen for you and among your customers?

You mean specific customers?

Yes, for your customers.

Yes we are as it turns out, we are a product category manager in two categories with one of our large customers.

Okay, and is that recent, did that happen in the fourth quarter or has that been for a while?

It happened in 2005.

In the fourth quarter?

it was before the fourth quarter, might have been in the third quarter.

Okay and do you expect to have more of those categories in the future with additional customers?

Yes we do.

Good. Nice to hear. To the process area it was down 9% what was the -- you said demand was good. What was unit demand in the quarter?

Our controller is looking it up. Our tons were close to expectation.

Tons were relatively stable compared to a year ago. Not much change. I'd say the big impact is pricing.

So that was basically 9% was basically pricing. Was there any mix in there?

(MULTIPLE SPEAKERS) No. Mostly priced.

And then the same question with regard to the 10% in the building product area, core growth that you felt. Was that basically volume or -- ?

It was all volume. None of it was priced during the quarter.

And looking out do you expect -- you've talked about change in the product line and cross selling and the like. Do you expect any mix benefits in '06?

I think that we will see more bundling of our products as we go forward particularly with the consolidations we're seeing on the distribution side of the business. Because I know Brian talked earlier the customer is having a desire to have some suppliers who can supply them with a largest variety of product. So we will say bundling on a go forward basis. We're more focused on product development, that we've got a number of our businesses working on some new product opportunities. I think we'll some of those new products that we've developed being sold into those customers where we've already established relationships.

And you talked about sort of that the integration was pretty much done for both Helmet and for Amico?

Yes. American Wilcon in Suzhou in China. The teams have really done a good job of bringing those into the fold inside of Gibraltar.

We are still refining some of Amico in that we need to fully integrate IT systems so that they communicate all the time but I would say that the key issues that we needed to get done in the first 100 days we've got them done. It's all integrated.

So I sense you sort of were a little bit, you said you would make an acquisition but I sense sort of a backing off there a little bit. Is it the cross selling and sort of getting the whole organization to work? Is that sort of the challenge at this point?

I'd say it's a big opportunity.

Right, opportunity, yes, shouldn't say it's a challenge, yes, opportunity.

I think that we've talked about this. We're really focused on developing and organization to run a multibillion dollar business and we made outstanding progress in '05. We'll continue in '06. We still see Gibraltar as a growth business and we still are very optimistic about the continued growth in this Company. Both topline and bottom line.

One thing I can say too, Greg, if you look back over our history, we've made at least one acquisition every year since 1996 and I don't see that pattern being broken.

If you look back at our patterns of acquisitions we made one very large one, one large one; but most of them have been fairly small. And a lot of what we look at every week tend to be smaller sorts of tuck-in bolt-in product adjacency kinds of acquisitions. Obviously we will continue to make those. But when I talk about the Grand Slam of acquisitions, that would be a large one.

I mean we are going to do both, obviously, we're going to continue to do what we will call bolt ons and we are also looking for gain changing opportunities.

And what I sense, finally, just in talking about the first quarter and your outlook, with regard to the sort of the Processed Metals area, I felt you sort of suggested from what you've seen in the last few months, you would expect sort of a building of momentum in those markets in those -- .

Absolutely.

Absolutely.

(OPERATOR INSTRUCTIONS). [Steven McBoyle] with Lord Abbett.

First question is on Amico. You obviously broke out the base business organic growth of 10%. I think that would imply about 77 million for Amico. Is that right?

Probably a pretty good calculation.

And what did Amico grow organically year-over-year?

Probably the best fourth quarter in Amico's existence from what we can tell.

They had a strong fourth quarter. They enjoyed good solid sales right through the end of the year. Their sales and, again, as you know they are not part of us; so the previous year and I think if you looked at Amico they themselves have also been going through a lot of changes. So it's hard to look at previous years with them because their business model has this changed a lot also. But they had nice double-digit sales in the quarter. And growth.

And in terms of drivers underlying that double-digit organic growth (MULTIPLE SPEAKERS)

Industrial markets have picked up a lot. There's been a number of -- as you probably know, oil rigs have been refurbished. They do make equipment in those areas. They've been fairly aggressive in some of their marketing programs. They've got some new products on line and they think they've been working feverishly, up getting those new products into the marketplace and some of them are (indiscernible).

And do you believe that's sustainable?

Absolutely.

What we asked the folks at Amico about their fourth quarter we had suspected that possible storm-related issues had driven the sales and they said, no, this is base business.

And do they have much visibility in the back?

Into the storm damage?

Well just into the sustainability of that level of growth, whether it's oil and gas, industrial?

Yes. I think the growth prospects for those businesses and those product lines are very strong.

Again as Brian said earlier in the conversation we focused on in those businesses where we have niche businesses we have high marketshare and Amico fits that very nicely.

Just on the margin side of the equation, I guess I'm also a little confused. And I'll just ask a general question. Did margins -- and this is Amico -- did margins come in the quarter as you'd expected worst, better? Because again --

Margins came in a little stronger than we expected based on the due diligence we had done with that business.

So that would be consistent with the fact that you were obviously anticipating in the last quarter that this would be a neutral, i.e., not accretive and yet it was accretive -- .

I don't think we ever said it was not going to be an accretive acquisition.

It's just in the quarter.

In the quarter particularly. I'm just trying to get a sense as it obviously was accretive. I presume you had the amortization expenses you expected, you were (MULTIPLE SPEAKERS)

Yes and they had margins that climbed over the onetime charges. I think that's what you're alluding to.

And yet that statement is still consistent with their margins being somewhere in the 13 to 14% range (indiscernible) was next question?

Yes. We didn't confirm or deny those margins but we did say that they have good solid margins at the expected rate.

Were their margins consistent with what they had -- what you had reported in your public filings in terms of the last 12 months?

For Amico?

Yes.

Just slightly better.

Okay, that would make sense. Then on Processed Metals, again, obviously you were anticipating sequential improvement in margins. Can you just -- I may have missed this -- can you just explain what it was you were expecting? And what obviously didn't come to pass?

We expected still pricing to stabilize. We expected pricing with customers to get back to a more normalized range and that's the part that didn't happen as fast as we had expected it to. When I say we, again, we've studied the space that we play in and the markets that we play in and it wasn't just us. All of the folks that play in that same space had exactly the same characteristics. And we see those all moving up in the same direction, by the way.

Can you just talk to what ought to be a realistic margin in that segment over a longer period of time?

Historically that segment has produced a 10 to 11% margin and we would view that as a more normalized margin for that segment.

Okay, so nothing has structurally changed?

No, not at all. Not at all. In fact if anything, we think the quarter has gotten a little bit stronger. We have got some pieces inside of that segment that, in fact, had some outstanding performance last year.

Plus when you look at the macro steel industry I think all of the consolidation that has taken place and some of the big deals that are being contemplated right now, with a number of the worldwide integrated producers targeting 100 million tons as a critical mass that they would like to establish. All of that consolidation, I think, over the long run will lead to greater stability and raw material pricing. And to us that's music to our ears.

Peter Lisnic with Robert W. Baird.

I have to ask another Amico question and it's on margins. Dave you just said that it was higher or a little bit higher than what was in the 8-K that was filed and if I look at the nine-month number for operating margins assuming I can do my math right, it was 17.5%. So what you're saying is this quarter the margin was actually higher.

Well I have a $4 million charge in there but that but yes. Before the charge, I mean it's in line with where they were before.

Okay and if I extend that question you are probably going to hit me for doing this but you've got $300 million in sales that you are generating out of that business. And if you assume they do margins that they've been apparently doing in 2005 -- .

(MULTIPLE SPEAKERS) the margin they used in 2005 but I haven't looked at the numbers but that's not a margin that we anticipate nor would we expect to get if you said 17% and I know that you did that we expect to get from that business.

Okay, so expectation is lower than that (MULTIPLE SPEAKERS) 17. You are saying the expectation is lower than 17.

Yes, 17 would be unrealistic I think for a business like that.

On a sustained basis.

Is it closer to 10 or closer to 15?

(MULTIPLE SPEAKERS) Probably in the middle of those two.

There are no further questions. I would now like to turn the call over to Mr. Brian Lipke.

Thank you all for participating in the call today and thanks for all of your interest in our business and we look forward to talking with you three months from now. Thank you.

Thank you for your participation in today's conference. This concludes our presentation.