Gibraltar Industries Inc (ROCK) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gibraltar Industries fourth-quarter and year-end 2010 earnings conference call. Today's call is being recorded. My name is Lacy, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session towards the end of the presentation.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr. David Calusdian, from the Company's investor relations firm, Sharon Merrill. Please go ahead, sir.

Good morning everyone, and thank you for joining us.

If you have not received a copy of the fourth quarter earnings press release issued yesterday evening, you can find it in the Investor Info section of the Gibraltar website, www.Gibraltar1.com. During the Company's prepared remarks today, Management will be referring to presentation slides that summarize the fourth-quarter and full-year 2010 performance. These slides are also posted on the website. Please turn to slide number two in the presentation.

Gibraltar's earnings release and presentation today both contain non-GAAP financial measures and reconciliations of GAAP to non-GAAP measures that are appended to this the earnings press release. Additionally, Management's remarks contain forward-looking statements about future financial results. The Company's actual results may differ materially from the anticipated events, performance, or results expressed or implied by the forward-looking statements. The Company advises you to read the risk factors detailed in its SEC filings, which can also be accessed through Gibraltar's website.

On the call this morning are Gibraltar's Chairman and CEO, Brian Lipke; Henning Kornbrekke, President and COO; and Ken Smith, CFO. At this point, I'd like to turn the call over to Brian.

Thanks, David.

Welcome everyone, and thanks for joining us on the call this morning. I'm going to begin with some brief opening comments, and then Ken and Henning will review our results in greater detail. Following that, I'll close our prepared remarks with a look forward into 2011, and then we'll open the call up to any of your questions. We can move forward to slide three now.

Despite weak demand in the majority of our key markets, Gibraltar continued to make progress in the fourth quarter. The steps we've taken to streamline our operations and sharpen our competitive edge enabled us to strengthen our balance sheet and position the Company for improved performance in the short-term, and a return to record performance as our end-markets continue to strengthen.

In Q4, we gained share and out-grew the market on the top line, as net sales grew 7% year-over-year. At the same time, we continued to drive efficiencies in the business, while generating strong free cash flow. As a result, we added more than $37 million to Gibraltar's cash position for the year, bringing it to roughly $61 million, significantly improving our liquidity, and our ability to capitalize on shareholder value creation opportunities like acquisitions.

We're beginning 2011 with solid operating leverage in our business model, and we're in a very strong position competitively. The various cost-cutting, streamlining, and restructuring activities completed over the past few years have helped position Gibraltar as the low-cost producer of our products. Coupling that with even a conservative outlook for end-market improvement, our results in 2011 look promising. If end-market activity improves at a faster pace, as some are projecting, our results could be even better.

For more on that, I'll turn the call over to Henning.

Thanks, Brian.

Turning to slide number four in the presentation, the business trends we experienced in the fourth quarter were generally in-line with the expectations we discussed on our last call. I'll start with repair and remodeling demand, which accounts for approximately 70% of our sales in the residential market, and 50% at the non-residential market. Residential repair and remodeling activity remained at depressed levels in the fourth quarter, up slightly from Q4 of 2009, but down significantly from 2008, according to LIRA, the Harvard Joint Center for Housing Studies leading indicator, remodeling activity.

Looking ahead, however, LIRA and others continue to expect a solid rebound in this market in 2011. The trends that we're now seeing in our business support this forecast, which hinges primarily on consumer confidence. As people feel more comfortable with their job security, they feel more comfortable investing in their homes, not only to catch-up on the deferred repair and maintenance that simply has to be done, but also the desirable upgrades they've been postponing, like adding decks and new rooms.

There is also the issue of foreclosed housing, either in the pipeline or currently on sale on the market. One of the reasons for closed home sale for low prices, is the abuse they get once the owner equity disappears, and the neglect they suffer while sitting on the market, unoccupied for long periods of time. When they do sell, the repair and remodeling requirements tend to be substantial. So, although foreclosed housing is a negative for new housing starts, it has the potential to be a net positive for us, by stimulating more repair and remodeling activity, as we work through the inventory of unsold homes.

Current LIRA projections suggest that residential repair and remodeling activity will grow 7% sequentially in the first quarter of 2011, and 6% sequentially for the second quarter, when the run-rate is expected to be nearly $133 billion. This is up more than 12% from the second quarter of 2010, but down 9% from the high point of $146.2 billion in the second quarter of 2007. Our data suggests that professional installations are continuing to lead the market recovery. This is positive for Gibraltar because 85% of our products are installed by professionals.

The outlook for new home construction, which represents about 30% of our residential business, remains subject to considerable debate. We experienced a nice rebound in multifamily housing construction in the fourth quarter, and this rebound is expected to continue into 2011. Single-family home construction, on the other hand, was actually down in the fourth quarter year-over-year. For all of 2010, total housing starts were around 590,000 units, up from 550,000 units in 2009.

The latest projection from the Joint Center for Housing Studies, and others, is that 650,000 starts in 2011, and 900,000 starts in 2012. There is significant range of opinion on this, reaching as high as 700,000 units in 2011. However, any increase will produce very satisfying results for our businesses. And all data points to return to the average of the past 50 years of 1.5 million starts.

Looking at the demographics, as well as the current inventory of homes on the market, we agree with the Joint Center for Housing Studies in believing the 600,000 to 700,000 build level is unsustainably low, and expected to rebound to a normal trend rate of 1.6 million units by 2014. Of course, even a rebound from the 590,000 starts in 2010, to the 650,000 projected by the Joint Center for Housing Studies and others, would be an increase of nearly 10%. As Brian said, we have strong operating leverage on our business at today's sales run-rates, so a significant portion of that growth in any of our end markets would fall directly to our bottom line.

From a channel perspective, the retail segment is telling us they expect high single-digit growth in 2011, and retail represents 45% of our business in the residential market. There is still some uncertainty in the wholesale and commercial sectors at this point. However, the 7% sales growth we reported in the fourth quarter was largely centered in non-residential markets, driven by a small but significant increase in demand in the manufacturing and energy areas that I mentioned on the last quarter -- last call.

Overall, however, non-residential building construction remains depressed, having been at $260 billion per month in 2010, versus $366 billion per month in 2009. The consensus is for no better than a leveling-off of overall non-residential activity in 2011, followed by a slight improvement in 2012, to approximately $290 billion per month.

That said, we've developed a solid presence for Gibraltar in some of the stronger carriers within the nonresidential market. In addition, we're continuing to build our relationships with key customers by providing them with outstanding customer service, new products, and innovative marketing. We're stepping in where competitors have exited, and as a result, growing our sales and gaining market share.

Meanwhile, we're continuing to make progress improving the underlying operations of our businesses, as Brian said. As outlined in slide number five, we remain focused on lean initiatives across the Company, with a goal of establishing Gibraltar as the low-cost supplier on a global basis.

The fourth quarter concluded a year in which we essentially completed the product, distribution, and portfolio rationalization that we began several years ago, including our exit from the steel business, restructuring three businesses into one, and consolidating five more facilities during the fourth quarter. Total restructuring costs for the fourth quarter were approximately $7.2 million, and we expect a related consolidation to improve consolidated gross margins by 2 percentage points as volumes normalize.

The consolidated manufacturing and distribution facilities we've created in this multi-year restructuring have not only enhanced our efficiency, but our customer service capabilities as well. Adopting lean manufacturing techniques across the Company has allowed us to shorten our production lead times, while freeing-up space in our existing facilities, which is what made the consolidation possible.

In terms of customer service, the major US retailers are looking for smaller nationwide shipments of an incredibly wide range of products on a more frequent basis, with near-zero tolerance for incomplete shipments or missed shipping dates. With more than 5,000 SKUs and a quick-ship system, this is the level of performance we deliver. It has enabled us to significantly strengthen our position in this segment of the market.

These service and delivery capabilities also provide us with competitive advantages in the wholesale and direct channels. Our restructuring and lean initiatives have also been key to our working capital strategy. We've gone from 39 to eight distribution centers, and the inventories associated with those eliminated facilities have disappeared permanently. While rationalizing our organization structure, we've also made large investments in ERP and related IT systems that are enhancing our supply chain planning and procurement processes and inventory management capabilities.

As a result, we have greater control over the entire process, from ordering material and production planning, through to finished goods and, ultimately, out to our customers. Our day sales of inventory in the fourth quarter of 2010 was down to 57 days, the lowest we've ever seen, from the high 80-day at-range only a few years ago.

The structural change has also improved our ability to manage raw material costs. Although increases in the cost of steel and other materials affected our fourth quarter 2010 results, these business improvements moderated the impact on our full-year results, and we expect them to enable us to better manage our continuing commodity volatility we anticipate for the year ahead.

Summing up, the progress we've made in rationalization, restructuring and improving operational efficiency, forging stronger channel relationships, and winning new business in a tough environment puts Gibraltar in an excellent position to leverage and return to growth in our end-markets.

With that, I'll turn the call over to Ken Smith, with a financial review.

Thanks, Henning, and please turn to slide number six in the presentation titled Highlights.

Revenues were up 7% from Q4 of 2009, driven primarily by stronger sales in the non-residential markets. Our profitability in the quarter, however, was lower than expected, as weak demand coupled with competitive pricing and higher raw material costs negatively affected our bottom line, compared to the prior year quarter. Free cash flow continued to be very good, which was aided by our highest level of working capital turns in the Company's history. We also concluded 2010 with a stronger balance sheet, including a lower net debt position by nearly $90 million, compared to the start of 2010. We continue to have no draws on our revolver, and we begin 2011 with improved liquidity and ample funds to invest in our working capital needs and growth initiatives.

Now I'll turn to slide number seven, titled Year-Over-Year Performance. While revenues for the quarter were up year-over-year, revenue for the full year was essentially level with 2009, as macro factors affecting the building markets remained weak throughout 2010. The increase in revenue for the fourth quarter was predominantly driven by sales to non-residential markets, with single-digit growth and unit volumes' slightly higher pricing.

For 2010 as a whole, revenues of residential products were down year-over-year, mainly due to lower unit volumes, while non-residential product sales were up slightly, reflecting steady unit volumes and modestly higher pricing. Overall, the decrease in residential products slightly outweighed the revenue growth in our non-residential products.

Operating income for the fourth quarter of 2010 declined from the prior-year quarter, primarily due to higher raw material costs. At the same time, in an environment of low demand, customers have been reluctant to accept raw material-based price increases. However, we've been able to offset the resulting pressure on margins by efficiently managing our working capital, and Gibraltar continued to generate solid free cash flow in the quarter.

Turning to slide number eight, Net Income and EPS. I'll comment on the non-operating and income tax expenses. Debt interest decreased compared to the comparable periods last year, the result of lower average borrowings. Regarding our credit facilities, we've had no draws on our revolver since early May, as I had mentioned, and we have no near-term debt maturities. The $200 million in sub-debt matures in late 2015.

Regarding income taxes for the non-GAAP results, the effective tax rate for the full year 2010 was 44%, compared to 47% for the full year 2009, and these rates included state taxes net of the federal benefit, as well as non-deductible items. On our GAAP results, the tax rate for 2010 and 2009 were 18% and 32% respectively, which were below the 35% statutory rate here in the states, primarily due to a portion of the impairment charges not being tax-deductible.

Now, I'll turn to slide number nine, Positive Cash Flow. Gibraltar continued to generate positive cash flow from operations in the fourth quarter and full year 2010. After significantly reducing our working capital in 2009, faster working capital turns in 2010 continued to enable us to generate cash flow from working capital. We ended the fourth quarter with networking capital at 61 days, down from 71 at the end of 2009, a 14% improvement in days. And cash flow also benefited from CapEx spending, which was about 40% of depreciation expense, and we ended 2010 with free cash flow at a very solid 9% of revenues.

Now moving to slide number ten, Net Debt Reduction Continued. We lowered our net debt by $87 million in 2010, bringing our total reduction in net debt over the past 24 months to nearly $200 million. Cash on-hand at the end of 2010 was $61 million, a meaningful increase on the end of 2009, when cash was $24 million. And my final point is that year-end cash, plus the availability on our revolver, improved Gibraltar's total liquidity to nearly $150 million, an amount we believe is quite adequate to support the Company's growth initiatives in the quarters ahead.

And now, the call goes back to Brian.

Thanks, Ken. I'll be referring to slide 11 in our presentation.

As Henning said, the early indicators in 2011 support our forecast for improved performance, as we fully leverage our more efficient operations and strong competitive position in the year ahead. We expect the improvement in residential and non-residential repair and remodeling activity that we experienced in the fourth quarter to accelerate in 2011. The firming of demand in the non-residential sector we saw in the fourth quarter is particularly encouraging because it occurred in the energy and manufacturing markets where Gibraltar is well established. This bodes well for our non-residential sales going forward.

In addition, although housing starts remain at very low levels, the predicted improvements, while conservative, leveraged against our reduced cost structure, will contribute to bottom line improvements. By essentially completing the multi-year restructuring of our business in 2010, we positioned Gibraltar to generate industry-leading margins as our markets begin to recover. At the same time, faster working capital terms, consistently positive cash flow, and a strong balance sheet have provided the capital necessary, not only to continue to manage our business, but also to invigorate our pursuit of accretive acquisitions.

As I've mentioned on previous earning calls, we're actively evaluating a full range of acquisition potentials from small- to mid-size companies, and game-changing deals. There are bolt-on deal opportunities to strengthen Gibraltar's existing product leadership positions, or provide us with access to new product categories while further enhancing our margins. An example of this type of transaction would be smaller companies with production assets that can easily be transferred to one of our existing facilities, which would dramatically reduce the associated overhead. This type of opportunity will add scale and improve the profitability of our existing operations, while expanding and strengthening our product portfolio.

We're also looking for deals that, like our Florence acquisition, take us further up the value chain, with a higher engineering component. This would reduce raw material costs as a percent of selling price, helping us to mitigate the impact of commodity volatility on our margins. The acquisition landscape looks favorable, so this will be an important part of our growth strategy going forward.

In addition, there are many companies in our space and of similar size who, like Gibraltar, are looking for the best way to accelerate shareholder value creation, which opens the door to larger game-changing transactions.

In terms of organic growth, although we'd like to see more convincing evidence that the construction markets are in a full recovery mode, the environment certainly feels more positive than it did last year, and certainly more so than it did in 2009. Nonetheless, we are not simply waiting for market conditions to improve to drive our results. Our stronger balance sheet and lower cost structure position us to take actions to generate improved results in 2011, and that's our focus.

With that, we'll be happy to take any questions that any of you may have.

Thank you. (Operator Instructions)And our first question will come from the line of Seth Yeager with Jeffries and Company. Please proceed.

Hi, good morning.

Good morning.

It's good to see some top-line growth here. Can you give us a sense of what was volume versus pricing during the quarter?

Yes, volume during the quarter was up 3.1%, prices up 3.6%.

Okay, thank you. And as far as the commodity costs during the quarter, just looking at high roll sheet, it looks like it was up about 16%, but is up another 30% or so year-to-date. Can you just help us quantify the impact in the fourth quarter, and I guess are you able to continue to --?

In the fourth quarter, material pricing -- and we look at material pricing as percent of sales -- had an impact of 5.4 percentage points to gross margin.

Okay. And you mentioned price increasing, or price increases, not sticking as much as you would like, I guess. Are you continuing to announce price increases as fuel goes up year-to-date?

I think we've looked at our businesses from a very competitive standpoint. I think we're very careful to work closely with our customers at putting the right prices into the marketplace. I think we feel that it's a shared responsibility, and we've worked very hard at minimizing the impact on our customers, and try to minimize the impact on our bottom line. I think we've talked about our ability to manage our inventories much more favorably than in the past, and if you look at full-year results, that helped mitigate that variance that we saw. It only impacted us, I said, almost 6 percentage points in the fourth -- only about 1.1 percentage points on a full-year basis.

On a gross margin basis?

Yes.

Okay. All right. Thank you.

I think for the most part filters through. I mean, we've done a good job, if you look at the results, in managing our SG&A, so most of that filters right down to the bottom line.

Right. And as far as the terms, you guys obviously did a good job year-over-year, and over the past couple of years. Is this a good run-rate to use as volume starts to improve a little bit?

Yes, we're very excited. I think all of our businesses have really stepped up and done a great job. Five points -- 57 DSIs is really outstanding. We know where we came from, and I think total working capital was 61 days for the full year ,and those are extraordinarily good levels, and we expect to maintain them going forward. The important part is, and I think Brian talked about earlier, we do have the systems in place to support that level of performance.

Okay, and do you have a total cost savings from the restructuring that you guys did in 2010?

Seth, one last comment on that.

Sure.

We have restructured the business significantly, and that has played a big factor in allowing us to permanently take costs out, as well as permanently reduce the working capital that required to manage this business. So, this isn't just a one-time event where we squeezed everything down; this is now part of our normal operating strategy for managing the business now, and as we go forward.

Okay. So even as volumes improve, we're at a pretty decent run-rate?

When you look at it measured on days of working capital needed to run the business, yes. The dollars will, of course, will go up as sales volume goes up. But from a day perspective, yes.

Okay, thanks. And I guess last question. What were some of the drivers and what segments were impacted by the impairment you guys took in the fourth quarter?

We had three business units, three reporting units, that essentially were driven by lower sales being experienced in the last couple of years, and the ramp of future sales, and therefore the profitability and cash flow that comes with that, is less than what we had modeled in prior years. So that drags a lower fair value compared to book value.

Was that more on the residential or non-residential side?

It was split.

Okay. All right. Thanks a lot, guys.

And our next question will come from the line of Peter Lisnic with Robert W. Baird. Please proceed.

Good morning, everyone.

Good morning, Pete.

Good morning.

I guess, first question on the price/cost headwind you saw in the fourth quarter of 550 -- or 540 basis points, what's sort of the outlook as we run through 2011, and what sort of price pressure might we see?

In the first quarter, at this point we're really pretty much on target coming through January, and we expect to be able to manage that as we forecasted, as we go through the year.

Meaning that neutral for the year is the right way to think about it? So effectively in the --?

Yes, we believe we can maintain our material costs as a percent of sales as we go through the year 2011, recognizing that we expect volatility in commodities, and we've put in place systems to help us manage that volatility, and minimize the impact on our bottom line.

In other words, you put through price increases and expect those to sort of neutralize incremental headwinds on the commodity cost side in '11?

I think we expect to be able to follow commodity pricing in our business appropriately, and be able to work with our customers as we price appropriately.

Okay, perfect. And then on the home center, down in the fourth quarter. Any feeling for how much of that was sell-through versus just inventory management on their part, and where might some of the weakness been on the home center side, product-wise?

I didn't catch the front part of that?

In the home center channel, I guess you were down in the fourth quarter if I read it right?

Yes.

And then just how much of that was related to just sell-through of your product at home center versus them perhaps cutting inventory of your product and then --?

It was probably equal, because the home centers tend to reduce their inventories as they go through the fourth quarter and early in the first quarter. And it also is typically the slowest period for our product working its way through that particular channel. And I might also add, and this is going to sound like a cop-out, but the weather was unusually bad through most parts of the country beginning in early December and continuing as we speak.

My back can vouch for the bad weather, trust me. The other last question I guess I had was more of a theoretical one. But as you kind of look at remodel versus new construction, and specifically foreclosed homes, is there sort of a content number that you can think about, or work with, on one verses the other? Is remodel/foreclosed homes a higher content sort of business for you, or lower? And are there any sort of rules of thumb that you can pass on?

Yes, we think on the remodel and the foreclosed, it's a fairly high content. For instance, a lot of the remodel is going to be related to roofing, and roofing projects are something that can't be pushed off forever. And we've got a pretty good product content in re-roofing projects. We also do fairly well in a lot of the upgrades associated with a foreclosed, or houses that have to be remodeled.

Okay. That is very helpful. Thanks for your time.

Your welcome.

And our next question will come from the line of Robert Kelly with Sidoti & Company. Please proceed.

Good morning.

Good morning.

Good morning.

Just wanted to congratulate you on the working capital. Just a phenomenal job there.

Thank you.

As far as the comments regarding the price cost and mismatch, if I could just maybe ask for a point of clarification. You talked about being neutral in 2011. I mean, do you see still incurring like a 540 point gross margin drag going into the year, or recovering that? Maybe just talk--?

No, we fully expect to recover that. I think we're very optimistic as we go to 2011 that our gross margins will recover fully and we believe they will be higher than they were in 2010.

Okay. So just basically looking backwards on 4Q, was it a matter of --

4Q was just terrible phasing. I'm sorry, I interrupted.

Sure. Just being caught behind the curve?

It was just terrible phasing. It just sort of, everything happened in a short period of time. We encountered higher material costs coming out of our inventory, and we -- of course, the fourth quarter is a very competitive quarter, so sales tend to be challenged as well, and that all came together in the fourth quarter.

As far as the raw material drag, you laid out 440 as a negative, but what was the off-setting positive to keep your margins -- in total, they were down 450?

It was primarily the operating efficiencies. I think we've all talked about, Brian talked about, and I think I did, and Ken.

Right.

We are getting -- and it's hard to see at the low volumes that we're running, but we did pick up operating efficiency, and that helped offset.

Right. So was that from programs you had put in place prior, or was that incremental from the facility -- the consolidations you made during Q4? Was that also a drag?

Yes. Very good question. It was mostly prior. And we will experience more of the gains that we put in place in the fourth quarter as we run into 2011.

I might have missed this, did you talk about the savings that you will get from the moves you made during 4Q? As far as the business unit--?

We did talk about it on a gross basis, a pickup of 2 percentage points in gross margin as our volumes start to normalize.

Just from the Q4 restructure?

Well that's on a full-year basis.

Okay, thank you.

And our next question will come from the line of Mark Parr with KeyBanc Capital Markets. Please proceed.

Okay, thanks very much and good morning.

Good morning, Mark.

I was curious, given the pick-up that you are seeing in the end markets, I just would like to get your thought process around your reluctance to provide any 1Q guidance commentary?

Yes, we could all comment on that. I think there is so much volatility out there in commodity pricing and the economy and the markets that it's difficult for us at this particular point, or think of anyone to accurately forecast or predict what is going to happen as we go forward. So, I think we decided to give the best information flow that we can, given what we do know.

Okay. And Henning, I think, correct me if I'm wrong, but did you say that commodity inflation in the fourth quarter was a 540 basis point hit to the EBIT line?

Yes.

All right. What sort of an impact, based on your current commodity position, would you expect in the first quarter? I mean, clearly there seems to be a likelihood of incremental escalation here in the first quarter, and also in the second quarter. I'll defer any questions on the second quarter, just to try to get your thought process on what you think might happen here, based on what you've seen in January and February, and here over the next 30 days?

Mark, we would expect to have a positive purchase price variance in the first quarter, as opposed to the substantial negative price purchase variance we saw in the fourth quarter, based on information we have so far -- that includes January closing for us. I think we feel comfortable that we will manage the prices -- the purchase price variance as expected during the first quarter.

Okay. You mean by as expected -- I'm not sure what you mean by that.

We would expect to generate the margins that we had forecasted. In fact budgeted through the first quarter.

Okay.

We do not expect a negative drag from purchase price variance.

All right. So when do you expect to see some of this $800 plus base price steel begin to flow through your P&L? Is that more going to start in the second quarter?

Yes. It's going to be more in the second quarter. We did do some buys, particularly on steel in the first quarter early -- early in the fourth quarter, and we'll continue to run those materials through the first quarter.

Mark, we've changed our supply chain management practices significantly, and we're buying from a number of different supply sources in the overall steel universe today. Some from steel mills, some from service centers, and we're buying from both on a wide range of different time durations, and different purchasing -- different pricing arrangements. And our effort there is to mitigate against the volatility by using all of these different vehicles and blending them together to get as much consistency as we possibly can.

The fourth quarter was unfortunately an anomaly, where the prices had gone up, competitors were all looking for volume, because they were at very low capacity utilization levels, and a lot of customers didn't think that the steel prices were going to hold. And so faced with a buying decision, many of them said we're either not going to pay the increase, or we're not going to buy the material. And those are the things that we had to deal with in the fourth quarter. We think the majority of those pressures are behind us now, and that the fourth quarter was an anomaly, an unpleasant one, but an anomaly nonetheless, and that we should be moving back to more formal levels of margins as we move into the first and second quarter of the year.

I want to comment on Henning's response to your question about guidance for the first quarter. We haven't given guidance on a quarterly or annual basis for three years now. And so I don't think it should be viewed by anybody that this is an exceptional move on our part not to provide guidance, when in fact it was been our strategy for quite a while, and probably will continue to be that.

Okay. All right, just, and again not to try to back you into a corner on this, Brian or Henning or Ken, but do you have any thoughts about when you would expect to return to profitable operations? Any help you can give us there?

Sure. Absolutely.

So is that -- you expect to be profitable in the first half of the year?

(laughter) Yes. We do.

We do.

Okay. All right. I'm sorry, I don't mean to push, but I guess I am pushing.

You do, Mark, you do mean to push. You just do not want to appear to be a pusher.

Come on, you guys are doing all of this work and you're starting to see the revenues and --

Doing all of the work and we're going to let the bottom line speak for itself when it develops. I would rather under-promise and over-deliver, than over-promise and under-deliver.

No,I get that. I get that. No worries. Brian, we have to go for a ride this summer, that's all I can say. So, hey, good luck on the first half though, and we'll talk soon.

Thanks, Mark.

(Operator Instructions)And our next question will come from the line of Tim Hayes with Davenport and Company. Please proceed.

Hi, good morning.

Good morning.

Good morning.

Two questions. Given the further consolidation in Q4, what is your -- do you have a new sales capacity in dollars terms, now that you did some more consolidation, and -- or then could you just remind me what that figure is?

Yes. We've not jeopardized our capacity to maximize our sales. We still believe that with the current facilities we have, we can still produce approximately $1.4 billion through the facilities that we do have. And we've been very careful. We've spent a lot of time analyzing the depths of the cuts that we have made, and I think we've uniformly decided that we would not jeopardize our ability to perform in the market as it starts to pick up.

It was a strategic decision. We could have cut further, but we would have reduced our long-term capacity. And we're still optimistic that this capacity will in the near future be utilized, and we'll be glad that we have it. The key here is that we have available capacity, and we're basically at a break-even point for the business at this level of sales. And once we start to get any kind of headwind -- or tailwind from our end markets, the incremental sales will drive a very positive impact to the bottom line.And the decision that we made, we looked at it long and hard, we could have cut further. But it would have limited our potential in the future. So, we made the decision that we're going to take whatever steps we could to maximize the cost reduction activities without negatively impacting our overall productive capacity.

Right. And is the operating leverage still 30% for the next $150 million of sales? Those are some previous figures you had put forth?

Yes, you took good notes. Yes.

Well, I'm trying. Okay, and the last question. In terms of positioning yourself as a -- the global low-cost manufacturer, how much has, over the last almost eight, nine years now of the lower dollar, how has that helped, or is that a minor issue, given your customers' increasing stringent requirements on just-in-time inventory?

The threat from foreign producers was never that real to us, because of the type of products we make. Number one, they do not ship well. And number two, we're highly efficient here. And number three, we've got a nationwide manufacturing and distribution footprint. So we never felt any great pressure from China, let's say, in any of the product categories that we're operating in at this point in time. And if you look at it very simplistically, raw material costs are going to be about the same wherever you go.

If you look at labor costs in China, while they are climbing steadily as that economy develops over there, they are still somewhat below where they are in the United States. The key to us though is that our products are not labor-intensive. So there is no substantial disadvantage producing here in the US, what we produce, compared to producing it in China. The advantage is, from a freight standpoint, where someone producing it in China has to load it into a boat and ship it all the way across the world to get it to the US. But then the bigger disadvantage that they have is they don't have a national manufacturing and distribution capability that we do.So we've never felt too much pressure, either because of lower costs or the weaker US dollar, creating import competition for us.

I think in general we feel our business would be very resilient given the world dynamics in the manufacturing arenas that we compete in.

We did have one situation in one of our product categories where a Chinese producer was being subsidized by the government and shipping in -- inferior and under-spec product to the US, and we joined forces in a trade case with NEW Corp and received a successful outcome, and the -- I can't remember exactly what the duty was that was put on the product, but it basically took the product out of the marketplace. But that was a very unique situation. It was bar grating, and a very heavy product, and they were looking for ways to export a product. But it didn't meet the specs, and also it was subsidized, and that was proven in the court case.

Right. Okay, thank you for that color.

And at this time I would like to turn the call back over to Mr. Brian Lipke for any closing remarks.

Well, first of all, thank you for joining us on the call today. Look forward to speaking with you at the end of the first quarter. We are entering 2011 in a stronger financial position than we entered 2010, and I think of equal importance, we're also entering the year with the sense that our markets are looking a little better than they did as we entered 2010. So, we have a higher degree of optimism as we start the year out. Look forward to talking with you at the end of the first quarter and delivering better results. Thank you.

Thank you for your participation in today's call. This concludes your presentation. You may now disconnect. Good day, everyone.