Regal Rexnord Corp (RRX) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Regal-Beloit second quarter 2005 earnings conference call. [operator instructions] I will now turn the call over to Mr. Ken Kaplan, VP, Treasurer and Secretary. Mr. Kaplan you may begin.

--forward-looking statements are not guarantees since there are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in forward-looking statements. For a list of factors that could cause actual results to differ materially from those projected, please refer to our 2005 filings with the SEC.

Okay now, if you have not had an opportunity to review this morning’s earnings release, it is up on our website at regalbeloite.com. Before turning the call over to Henry, Teresa, would you please provide the participants with instructions for asking questions after we complete some opening comments?

Want me to instruct that now sir?

Yes please, Terse.

Thank you. [operator instructions]

Okay. Thank you. Thank you, everyone, for joining the call. We certainly appreciate your interest in Regal-Beloit. On the call, I’m going to make a few headline comments about the quarter, then we’re going to ask Dave Barta, our CFO, to dive right into the financial aspect of the quarter. And then I’ll come back and add some color and then we will open it up for questions.

First of all the headlines are, record sales, record profits and strong cash flow. We were extremely pleased with our second quarter results. The second quarter is our strongest seasonally, however we felt that we provided pretty aggressive guidance and we achieved this despite some headwinds in the economy. The headwinds were-- primarily came from three areas; one was cold and wet weather in April and May, which had the impact of reducing our HVAC residential sales in May. I’m pleased to say that the hot weather since has reinvigorated those sales, however May was down somewhat as a result of that.

Material costs continued to be somewhat of a negative and I’ll provide more color on that later. And we had some very significant consolidation efforts and costs in the company, including the finalization of the Electra Gear move to our Grove Gear facility, the final phase of that, the sale of our Illinois Gear facility, which had some tail-up costs, the consolidation of our Opperman Mastergear Division in England, which had fairly significant redundancy costs attached to it, and the product moves that we’ve talked about before from the GE Taylor Street facility to other Regal-Beloit facilities.

For the quarter overall, we had very strong performance from our legacy electrical group and very strong performance from our acquisitions. It was not our best effort in the mechanical group of our company, mainly because of the consolidations that I just spoke about. Overall again, it was a very, very positive quarter and with that I’m going to turn it over to Dave Barta.

Thanks Henry. Sales for the quarter were $368.8 million, which was 107.5% increase over the same period last year. Included in these sales are $177.5 million from the CAC and HVAC businesses that we acquired from GE in 2004. So excluding these sales, sales increased for the total company 7.6%.

This performance reflects strong results in our electrical segment, as Henry mentioned. Our sales increased 150.7% including the sales from these acquired businesses. On an organic basis, segment sales in the electrical segment increased 10.4%.

Mechanical segment sales increased 0.8%, reflecting the impact of the sale of the Illinois Gear business, which for the quarter impacted sales by about $1.5 million, or 290 basis points for that segment. Also impacting the results were strong sales at our hub city Mastergear and Richmondgear divisions, but those were somewhat offset by softer sales in our Durst division, primarily related to the irrigation end market, and soft sales in our cutting tools division.

At this point, on a year-to-date basis, sales are $706.6 million, which is an increase of 107.4%. Included in this sales figure is $332.6 million of sales from the acquired businesses. So on an organic basis, year-to-date sales increased 9.8%.

Year-to-date sales in Electrical segments are $606.4 million, an increase of 150%. On an organic basis again, the sales in the electrical segment increased 12.8%. Mechanical segment sales are $100.1 million year-to-date, which is an increase of 2%.

The gross margins for the quarter were 21.6% as compared to the first quarter of 20.3% and a prior year of 23%. If you exclude the gross margin from the acquired businesses, gross margins were within 66 basis points of the second quarter of last year. And again, we still continue to see a small price-versus-material inflation gap however, that’s basically down to 11 basis points so we’re certainly closing that gap as we said we would.

The remainder of that margin gap is really due to the factors that Henry mentioned, which were the restructuring costs at our OML Division in the UK, and residual costs from the moves of the Electra-Gear business and residual costs coming out of our Illinois Gear sale.

Year-to-date gross margins are 21% versus 23.2% for the same period in the last year, with the gross margins of our legacy businesses 22.7%, again a 50 basis point reduction year-to-date from 2004. Operating expenses were 11.9% of sales versus 15% in the quarter of last year, reflecting the volume leveraging of fixed costs and the impact of the cost structure of the acquired businesses. Year-to-date operating expenses are 12.3% of sales as compared to 15.4% last year.

Income from operations was $35.8 million versus $14.2 million in the second quarter of last year, an increase of 153%. As a percent of sales, income from operations was 9.7% versus 8% in the second quarter of 2004, and versus 7.7% in the first quarter of 2005. This increase is reflective of pricing actions, productivity and the contributions from the acquisitions. Year-to-date income from operations is $86.6 million, versus $52.3 million for year-to-date 2004, which is an increase of 65%.

Other financial factors, the tax rate for the quarter was 36.7% and we continue to expect a similar rate for the third quarter, resulting in a net income for the quarter of $18.4 million, which is an increase of 142%, versus the $7.6 million reported in the second quarter of 2004.

Fully diluted earnings per share was $0.62, which is double the $0.31 reported in the second quarter of 2004. The average number of diluted shares was 29,720,000, as compared to 24,677,000 last year. Again, this is reflective-- this increase is reflective of the shares issued to General Electric as part of the acquisition, the HVAC acquisition, at year end. Year-to-date net income is $30.7 million versus $14.5 million for the first six months of 2004, which is a 112% increase. And year-to-date earnings per share is $1.03 versus $0.58 for the same period last year.

Turning to a few highlights from the balance sheet, total debt was $536.9 million at the end of the quarter, which is a decrease of approximately $26.7 million from the first quarter. Again, we are continuing to be comfortable with our level of debt and, certainly, very confident in our ability to continue to reduce the debt moving forward.

Inventories were reduced by $11 million in the quarter and this again, was the result of our businesses aggressively addressing inventory levels. CapEx for the quarter was $7.5 million and depreciation and amortization was $10 million.

Now I’ll turn it back over to Henry.

Thanks Dave. Okay, a little bit of color on the market. Through the second quarter, we continue to have-- the strongest markets included power generation, particularly in underdeveloped countries. Oil and related-- oil, gas and related continue to be very strong. Telecommunications, mining, petrochem and marine and automotive after-market were seasonally very strong. Some markets that we think are improving and that have a lot of runway for further growth are commercial construction, industrial construction, material handling and paper. A couple of markets that were a little bit cooler than we would have expected during the quarter were pumps, due to some of the dry weather, residential HVAC after-market in May, specifically again, it turned around in June, agriculture, specifically irrigation, and aircraft support.

We believe that we continue to grow faster than the market in total and that our market penetration initiatives are continuing to work. We’re very pleased with the continuing flow of new products that differentiate us in the marketplace. Chief amongst those, of course, is the ECM products that we got as a result of the GE acquisition. It continues to grow very rapidly and has a lot of runway for further growth. We are now introducing new generations of that product that will add additional value to the users and therefore, to our customers. Our variable speed generator offering, we think, is unique in the marketplace and is being tested in a number of applications that we think have significance for the future.

We continue to be a leader in variable speed motors and high-efficiency motors and gear drives. And of course, with the cost of energy, we believe that that’s going to be-- continue to be an emerging marketplace with a lot of opportunity for growth in the future. And we continue to be a leader in embedding intelligence in our products, such as our 2400 Switch Gear from our Thompson Technology Division and our PHD motors.

Overall, I would say that our pipeline is full and it’s flowing nicely and we think it’s making a difference in our markets.

Also, I want to add a little bit of extra color on the materials side of life, since that’s been a recurring theme now for a long period of time, in excess of a year. We are starting to see some relief in steel and that’s the first relief we’ve seen in almost two years. It is not pronounced yet, but it certainly is gaining in significance. Unfortunately it does not include electrical-grade steel yet, but we think that that should follow. And I would say for the quarter, while we think that the relief is ahead of us, there was not a lot of relief during the quarter.

Copper continues to climb, and it continues to set new highs. It set a new high during the quarter and in the last couple of days has gained again. Again, we think we’re toward the end of that string, but every day we say that it seems like it continues to hold up fairly strongly.

And so for the quarter in total, we still had some net negatives and some net negatives to pricing from a year ago.

Moving forward, we are again announcing price increases in several divisions and we believe that that will have, obviously, a positive impact and will allow us to finally overcome the negatives that we’ve experienced in materials for two years. And we have a number of contracts that will be coming to closure over the course of the next couple of quarters that we expect to get price improvement on in those contracts. So we continue to believe that while materials could be a moving target that we’re finally catching up and that we can begin to not talk about the net negatives to a year ago comparison.

From an earnings initiative standpoint, we have several strategic initiatives that we feel very good about our progress during the quarter. One is the plant consolidations that we’ve already talked about. Plant consolidations are a big undertaking, they take a lot of energy, there’s a lot of costs associated with them, but we continue to believe that they’re the right things to do for our business for the future and that they will add significant value in the years ahead.

We have also launched, this year, primarily because of the acquisition of the GE Motors businesses, a lean Six Sigma implementation. It is a terrific undertaking for the company. We think it is a triple-win, makes us a better place for our customers to do business. It makes us a better place for our employees to work and it makes us a better place for shareholders to invest. It is a full-fledged implantation, we now have 40-some odd black belts who have been trained and two waves of green belts, and we are adding waves each month. We have some 100-plus projects that are very active and under review, and that number grows exponentially at this point.

We also are expanding our global sourcing team, their-- both the capabilities and the number of people who are involved in that. It is a very significant effort and has been a part of our strategic initiatives for some period of time. We continue to believe its adding value and will continue to grow. And then finally, new product development continues to be very much on schedule and we have a lot of great products coming out of our labs.

As we look forward to the third quarter, several points I guess we would like to make. First of all, I think it’s going to be an interesting test of the old adage about hot weather before or after Memorial Day. The old adage was that, if you had hot weather before Memorial Day, HVAC business was going to be very strong, but after Memorial Day it would mean less because people would have a tendency to delay the decision to replace. This year we have the exact opposite, we had cold weather before Memorial Day and a record heat wave since. And so it’s going to be a classic test of the old adage, but our view of it at the moment is that we are seeing products move, inventories are down in the channel during the month of June and so we expect it to be a net plus.

We also believe that we are seeing-- going to continue to see growing strength in the commercial construction business and we have a number of products that are impacted by that, growing strength in industrial construction. Power generation continues to be strong and I think will continue to strengthen. And industrial equipment and distribution are going to continue to be very, very solid.

Going forward, we expect better performance from our mechanical group. We think that the quarter was an anomaly and that’s because of the actions we’re taking and we’ll see significant improvement there. And as I just said, we expect continued improvements from our contracts, as they roll, from a pricing point of view. We continue to feel great about the acquisition. The management team that came along with the acquisition, the global manufacturing footprints that it gave us, and our product leadership position.

So, in total, we couldn’t be much more positive about where we are today, after the second-- after the first half and what we see coming at us in the second half of this year.

With that, we’re going to open it up for questions.

Yes, Teresa, we’ll start them now.

Thank you. [operator instructions]. Holden Lewis, BB&T.

Right, thank you, good morning guys.

Good morning Holden.

Can you go into a little more detail about the impact at mechanical, both in terms of what was the impact of the Ohio Gear sale, so what would have sort of been more of an organic growth rate? And then what kind of impact, in aggregate, does all these restructuring efforts have at the operating margin line? Can you give a little detail on those items?

Sure, the Illinois Gear sale was about $1.5 million in sales. And really, from a bottom-line standpoint it didn’t have a big impact as far as the business we sold. That was not a profitable business for us.

Was it negative?

No, I would say pretty much a break-even.

Okay, thanks.

And then as far as the costs, a couple of areas that Henry and I mentioned, the Electra Gear-- as you know, we announced the closure of that facility out in California in the fourth quarter. That is predominantly behind us, however, there are some continuing costs, we still do have a facility there and also, some skeleton operations that are there today. That wasn’t a significant drain on the quarter, in the neighborhood of, probably a couple hundred thousand dollar impact. There’s also some of the learning curve, I guess, costs of the Grove Gear facility, where that business is going into.

But the biggest impact for the quarter was the restructuring that took place during the quarter, of the OML Division in the UK. And that was more in the neighborhood, on a pre-tax basis, of a $700,000 type of impact. So that was the most significant impact.

Okay, thanks. And, can you also give a sense, obviously, you give the revenues associated with the acquisition so we can get to the organic revenues, can you give a sense of what your margin on your base business would have been or any sort of guidance in that regard?

I don’t think we’re going to go into the operating margin details. I think I did provide some guidance on gross margins.

Okay, and then, so just sort of a subset of that, how much-- are you incurring a bunch of costs associated with the integration, which are one-time in nature? I think that was the case with HVAC, integration expenses. Can you talk a little bit, just about what the order of magnitude is about, sort of non-recurring, integration-type expenses from the acquisitions?

Well, Holden, this is Henry, there are some one-time costs. Some of those hit in the first quarter. There are continuing costs that will be there until we are totally just-- we call dis-integrated from GE. Those could have a window that could go out another year and a half or so. We have not, I don’t think, provided guidance on exactly what those are, other than the one-time costs that we-- we provided that guidance back last year, at the time of the acquisition. Dave, do you remember what that number was?

Yes, I think back then we were talking in the neighborhood of $6 million, Holden.

And that’s still good?

Yes over-- and remember that’s being spread over this period that Henry’s talking about.

Right, over a couple-year period, from the [inaudible] on the acquisitions.

Yes.

But those numbers are still good? You’re still going through those one-time costs at the same kind of pace?

Yes.

Yes, and, of course, they’re just being expensed as they’ve incurred.

Yep, certainly. Okay great, thanks gentlemen.

Alexander Paris, Barrington Research.

Good morning. Great quarter.

Well, you lost your consecutive first question back there.

I hope nobody lost too much money.

There’s some money changing hands as we speak.

I’m getting old, I guess. Just finishing up on all of those consolidations and the integration of the two GE acquisitions, is there still in your mind, lots of go-forward synergies and added income that still is to be realized from these? Particularly from the two GE ones, as you finish integrating them and the costs start getting overshadowed by the cost—by the savings?

Yes, without question, Alex. There are number of things. First of all, we have the one-time costs that will eventually be-- which are not exactly small. We have the move out of two facilities into our other facilities and the facilities that those moves take place to are lower cost facilities. There are some cross-marketing efforts that are just beginning that we think will pay dividends as we move forward. And the other opportunity, because of the global footprint, is to-- to move some of our other products from other parts of the Company to lower-cost manufacturing operations. So, there is a good runway left in front of us on all of those fronts.

And of the things like Illinois Gear and so forth, was there-- although you really just transferred the sales from one area to the other, were there some sales that were just dropped, that were not good product lines? And, if there were, then is there some kind of a catch-up over the next couple of quarters, as you go back to the full sales in these combined units?

Well, there were a fair number of sales that were actually-- I mean we sold the Illinois Gear Division. We moved what was the Foote-Jones portion of Foote-Jones Illinois Gear, with large enclosed gear drives, to other facilities. But the open gearing components, which was about half of what Illinois Gear produced, was sold to another company. So that part will not come back around. It was a business that we did not feel was strategically in our future and was not appropriate for us to be in anymore. So, that component, as Dave said, I think, that amounted to about a million and a half, just during the second quarter, in two-- in really months because we sold the business at the beginning of May. So that part of the business will not come back.

Okay. And it sounds like you were, in addition to core growth, you were getting growth from the two GE acquisitions, except for maybe that May HVAC decline?

Yeah, again we’re experiencing good solid growth year-over-year. And May was-- May was kind of a blip, we think, and as I said, in June the nice thing we see here is the inventory at the distribution level or throughout the channel is down. And of course, with this heat continuing, it does have a very positive impact on the after sales.

I know it’s hard to separate it out but you had a very good quarter when the overall US industrial sector was pretty punk for several months. It looks like it’s now bottomed and starting up, but you did so well-- would you say that the-- and the capital spending markets were strong during that period. So, would you say that a good part of your growth, maybe more than usual, came from the capital spending end markets rather than general industrial? Or can you separate it out at all?

That’s a good question. We have not looked at it quite in that manner but certainly, I can tell you that we are very happy with the way the quarter progressed and with our market penetration and the growth of our new products. But you raise a good question that we’ll have to look at a little bit more to give more color on for the future.

Mike Schneider, Robert Baird.

Wonder if we can start with GE. Are you able to tell year-over-year, what the GE business has performed on an organic basis?

Well, obviously, we didn’t own those businesses last year so we don’t have, or I guess the financial information I have is from our own internal people versus being tied to the GE records. But, again, Henry mentioned that we feel that both businesses were up and, I would say on par with where we are-- our electrical segment.

Okay, so the growth was comparable on an organic basis, you think, between the businesses?

Yes.

Okay. And given that the HVAC channel was weak during the quarter, can you at least comment on what the outlook is now, for the second half, Henry? Because, it seems like we’re burning a lot of inventory in the HVAC channel right now, with the heat in June and July. Is that good or bad or make things difficult as 13-SEER approaches?

Well, you asked the magic question. It’s obviously good; anytime you’re burning inventory it’s good. We expect stronger sales than we would normally see during the quarter because of the heat, assuming that there’s not some magical change in that.

The complicating factor is the changeover to SEER-13 and, as you know, the changeover plans vary by company. But in the third and fourth quarters, literally each company will be taking time out of the schedule to change their lines and move over to the 13-SEER products. And those plans are pretty well set. There was a report put out by Emerson not long ago that was pretty interesting reading, for those of you who would like to read it, about what they saw those changeover plans being.

But third and fourth quarter we’re certainly going to see those changeovers take place. I think overall, it is good news. I mean we are seeing better-- May was slow, but June jumped back in the segment and July is off to a good start. So I think it’s positive news all the way around for us.

And I guess the changeover that occurs, presumably, in a big way in the fourth quarter, is there an air pocket at all created by the decline in standard product and then the ramp in 13-SEER, that we should be modeling? Or do you actually envision this to be a smooth transition?

At the moment, we don’t see it as being a big air pocket. Again, while some of the dates are set and we know obviously, what all of those are, the plans that lead up to those can change pretty dramatically, based on what happens with the inventory. And the heat is helping that equation considerably right now, so I suspect that we’re going to see less bubble than we might have otherwise expected.

And give us your thoughts on the platforms that you’ve been specified into for 13-SEER? Are you pleased and I guess, how are you actually measuring it, if you were forecasting it, where you are relative to that forecast?

Well, I think we are coming out very well. We are working with all of the top manufacturers, we provide, we think, unique technology that helps them differentiate, in the SEER-13 world, differentiate their products better than they could through any other mechanism. And that our products now-- once you’re at SEER-13 there’s a relative leveling of the efficiency platform so the things that allow you to differentiate your products are comfort, noise and air quality. And, our product adds to the value of all three of those so we expected to have good penetration and good commitments to our products from manufacturers and we’re seeing that.

It’s not different, I don’t think, than what we’ve projected in the past because we believed that from the very beginning that we had a very strong platform to work from. And that’s rolling itself out the way we expected it.

Okay, and then the hedges that were in place at GE upon the acquisition are beginning to roll out. Dave or Ken, could you give us some sense, and I don’t know how you want to measure this, if it’s in basis points or dollars, but indeed, to what extent you’re benefiting now and how that rolls off in the coming two quarters, so we can try and model this?

Good question. As you pointed out, there were hedge contracts, financial contracts, that were in place with the HVAC business that were put in place by GE that we’ve picked up at the end of the year and there’s really multiple pieces of that, obviously, dependent upon where copper pricing goes plus there is certainly a cost to those that we paid being amortized throughout the year. I guess I don’t have a real tight, concise answer for you on that one at this moment.

Well, can you give us a sense, during the quarter, of what you believe you actually benefited via the hedges?

As opposed to an un-hedged position?

Right, versus the spot market. And presumably, at some point you’re going to be buying in spot.

Well, almost always, Mike, we are buying some portion of what we use at spot because we never hedge 100%.

Sure.

And we are always hedging. So given the fact that the market is in a backwardation, we’re hedging out well below the spot as we hedge those positions. I think when you asked about the next two quarters, I don’t-- the spot market is certainly very strong so there’s a little bit of headwind there, but it’s not significantly different than what we’ve seen in the second quarter. So I don’t think the third and fourth quarters portend anything significantly different from where we’ve been in the second quarter overall.

As you look into next year, I would say there’s still-- there’s not great clarity yet. There are a lot of different thought processes about where copper will go. Most would say that it’s going to start to decrease by mid-year next year and have a fairly significant ramp-down. That’s all positive news. There’s hardly anyone that believes it’s going to continue to test new highs quarter after quarter.

Okay, that’s helpful. And, the share count-- I guess it was somewhat lower than I had expected. Do you happen to have the share count as of the quarter end?

Yes, the outstanding at the quarter end?

Yes.

Yes, I believe it was 29,085,000 shares. Okay, that was the basic. Now the reason the shares came down, I won’t go into a lot of detail, is it has to do with the fact that our stock prices dropped during the quarter.

Sure.

And that creates this dilution that you have to show on our convertible debt, that was the biggest drop. So, when the price goes back up that share count will move up again, too.

Nigel Coe, Deutsche Bank.

You talked about-- you sound like you’re a little bit disappointed with the performance of mechanical. I know it’s a much smaller part of your business, but could you just remind me of what those issues are and what might change for the next two or three quarters?

It just was not our best quarter. I mean, what happened during the quarter was, we finished the move of Electra-Gear into our Grove Gear facility and, as Dave said, the costs at Electra-Gear were relatively minor. The costs really comes more from ramp-up of training and trying to get people up to speed and get back to the traditional efficiencies that we’ve enjoyed in that division, which frankly have been pretty spectacular over the years. And we just weren’t back up to that level yet. We made progress steadily through the quarter and we’re very confident we will get there quickly.

The major impact was at our OML Division in England, where we literally reduced the footprint of the plant to less than 50% of what it had been before, and there were a number of redundancies created at the same time. And the redundancy costs, the move costs, equipment and so on, as Dave said, were somewhere in the vicinity of $700,000. And then finally, because of the sale of Illinois Gear and subsequently then, there’s the number of costs that are associated with moving equipment and closing a facility and so on there were costs that were there as well. So in the mechanical group we had those three things hit us during the same quarter and-- I shouldn’t say hit us. Those are things that we decided that we needed to do for the business.

Right.

All three of which, though, we believe will be positives for us as we move forward.

Sure, and—-

There will still be some costs in the third quarter, but less than has existed in the second quarter, on two of the three of those.

Okay. And, secondly-- I know the 13-SEER cutover makes it a little bit more complex to answer this question but, could you remind me of what sort of seasonality you expect to see from the HVAC business?

Well, early in the year we said that the seasonality of our overall business of the Company, the second quarter is our largest quarter.

Right.

Third quarter-- followed by the third, followed by the fourth and the first quarter would be the low quarter of the year. We haven’t provided specific flavor on exactly how that models out but I think that it’s a little bit different than it has been in the past and the HVAC is a little bit more cyclical than some of our other businesses, but not wildly so.

Okay. And would you expect with the 13-SEER switch in the fourth quarter, would you expect to, maybe, see fourth quarter up a bit stronger this year than might otherwise be the case?

Again, that’s-- This is the magic question because of the changeovers and what’s happening to inventories in the channel right now. And, as you can appreciate, each one of the key OEMs has a little bit different view of how they’re going to work it. Right now, we don’t think that there’s going to be significant differences seasonally from what we would have seen in past years, either up or down, pretty much what we’ve seen in the past. I think that the changeovers are very well, at this point, planned and orchestrated. And so we should see, I think a pretty clean changeover.

Okay. And finally, just to the extent you can, any updates on GE’s intentions?

GE’s intentions? You mean--

With regard to their stake?

Well, we made a significant commitment to GE to help them market the stock, at least a good portion of the stock. We’ll continue to monitor the market itself to determine when a good time to take that offering out will be. And as soon as we think that the opportunity is right we would like to get that completed.

Mike Schneider, Robert Baird.

Could you give us a sense, just the mechanics of the outsourcing contracts that you’ve got in place now with GE? And maybe, just your early reviews of how the two businesses are working together in the back office?

The outsourcing? You mean-- are you talking about the--?

Transition services.

The transition services?

Yes.

So far, Mike, it’s just been terrific. I mean, I don’t know any other way to say it. I think the best example of that is, our customers have not noticed a difference and that was the goal and both companies committed to it. And I think its going very, very well, and we’re working together better than, frankly, than you could have imagined.

Okay.

So, I think that’s going very well.

Good, okay. And I guess, just your thoughts now, where we are in the cycle? To Alex’s point before about late cycle and early cycle businesses, do you sense that the transition is, indeed, underway and you’re starting to benefit more from your late cycle businesses? Or is it too early to call this?

Well, we continue to be pretty optimistic. I mean I think all of the indicators are solid when you look at the purchasing indexes, you look at the confidence indexes and so on, they look very solid for the months ahead. The late businesses frankly are just beginning to kick in and so there’s still a lot of upside. And we don’t see any immediate downturn in the early-on businesses. So I think that there’s more upside before there’s downside.

Okay, fair enough. And then final question, just on pricing. Henry, you mentioned you anticipate putting more pricing into place, I know Baldor, I think, indicated that they don’t intend to put pricing into place. Is there any reconciliation of those two comments or are they just different types of product lines we’re talking about?

Well, we’re not doing it across the board so there are some product categories where there would appear to be not a difference in those two things. But they have, maybe, a different set of drivers than we do. Certainly, in some of our markets we need to capture more and certainly in certain contracts we have to capture more to make the business do what it needs to do for our shareholders.

Have you-- Would you characterize yourself has having been a product or a price leader thus far, or a price follower? Just to get a sense of, maybe where you lie in this spectrum?

Last year, as all of the prices rolled out, we think we were the price leader in at least two of the three legs that took place.

Okay. And just one nuance, when you refer to the power gen markets, specifically what are you talking about? What type of customer and what type of product? Are you talking the gen sets?

Yeah, our customers are the people who are putting together a Gen—

Okay.

And so they’re taking the alternator, for all intents and purposes, that we make, and marrying it to an IC engine, putting controls on it and shipping it as a complete unit.

Thank you. [Operator instructions]. Mason Stark, Ramius Capital.

One question, D&A and CapEx in the quarter, what were they and what do you expect them to be for the year?

The CapEx for the quarter was $7.5 million and D&A was $10 million. And I think on the CapEx front we had previously provided guidance for the year of about $40 million in spending. So obviously, with the first quarter and second quarter, we’re a little behind that pace. I do expect the third quarter, fourth quarter to be a pick-up in the pace of that. We’ve got some projects underway that are larger projects that the spending just hasn’t occurred yet. But again, not a significant-- I think we’ll be under that $40 million for the year.

Okay. And D&A for the year? Just-- it’s going to be $10 million going out?

I think that’s a pretty good estimate.

Thank you. [operator instructions]

Okay, I think we’ll move on. We want to first of all, thank all of you for joining in. We appreciate your interest and, frankly, appreciate your questions. Final thoughts really are that it was a great quarter driven by very strong fundamentals. We expect year-over-year performance to continue to set a very high pace and continue to be excellent as we move forward in the next quarter. We’re very optimistic about what lies ahead for the Company, based on our strategic earnings initiatives and based on the continuing impact of the acquisitions. And with that we’ll say thank you. Have a great day and we’ll-- hopefully, we’ll be talking with you again soon.

Thank you.

Thank you. All participants, this conference is now ended. You may now all disconnect.