Regal Rexnord Corp (RRX) 2017 Q2 法說會逐字稿

Good day, everyone, and welcome to the Regal Beloit Second Quarter 2017 Earnings Conference Call and Webcast. (Operator Instructions) Please do note that today's event is being recorded.

I would now like to turn the conference over to Mr. Rob Cherry, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to Regal Beloit's Second Quarter 2017 Earnings Conference Call. Joining me today are Mark Gliebe, Chairman and Chief Executive Officer; Jon Schlemmer, Chief Operating Officer; and Chuck Hinrichs, Vice President and Chief Financial Officer.

Before turning the call over to Mark, I would like to remind you that the statements made in this conference call that are not historical in nature are forward-looking statements. 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 projected results, please refer to today's earnings release and in our SEC filings.

On Slide 3, we state that we are presenting certain non-GAAP financial measures in this presentation. We believe that these are useful financial measures to provide you with additional insight into our operating performance and for helping investors understand and compare our operating results across accounting periods and in the same manner as management. Please read this slide for information regarding these non-GAAP financial measures, and please see the appendix for reconciliations of these measures to the most comparable measures in accordance with GAAP.

Now, I will turn the call over to Mark.

Thanks, Rob. Welcome, everyone. Thank you for joining our second quarter call, and thank you for your interest in Regal. We'll follow our normal agenda. I'll make a few opening comments, Chuck will provide a financial update and then Jon will give color on markets, operations and the performance of our 3 segments. After that, I'll summarize, and then we'll move to Q&A.

Regal delivered a solid performance in the second quarter, with adjusted earnings per share of 13.2% ahead of prior year. Organic sales growth was up 4.8% and it was great to post organic growth in all 3 segments. In fact, the second quarter was the sixth quarter in a row where the organic growth rate improved sequentially.

At the segment level, organic growth in the Climate segment was up 6.5%, with low-teens growth in residential HVAC, partially offset by softer sales in the HVAC aftermarket and into the commercial refrigeration end market.

In the C&I segment, organic growth was up 4.3%, with growth in oil and gas, power generation and in our Asia businesses. Finally, in the PTS segment, organic sales were up 3.5% for the quarter, driven mostly by growth in renewable energy and oil and gas end markets.

From an operating profit perspective, adjusted operating margins improved 70 basis points year-over-year, resulting from 3 key drivers: first was the impact of volume leverage, second was the rightsizing of our oil and gas businesses, and third was the benefits of Simplification and SG&A cost controls. These gains were partially offset by commodity inflation in our Climate and C&I segments.

Free cash flow to net income for the quarter was 154%, and cash cycle days improved sequentially by 3.5 days in the quarter. Our strong free cash flow helped us pay down $70 million in debt and we repurchased $21 million of our shares.

As you may recall, we have been working and repatriating $150 million of cash this year. Through July, we have made great progress, repatriating $110 million of cash. Overall, the first half of 2017 was solid.

Looking forward, as we enter the third quarter, we are encouraged that orders remain up year-over-year across all 3 reporting segments. The key drivers affecting second half forecasted sales include: first, broad-based end market growth in both North America and Asia; next, we have anniversaried last year's decline in the Middle East and in oil and gas; and finally, our residential and commercial HVAC customers are predicting continued growth for the remainder of 2017. Overall, for 2017, we continue to expect low single-digit organic growth for the year.

On margin performance, we are off to a great start on the first half, with 80 basis points of adjusted margin year-over-year. In the second half, we are expecting a more modest year-over-year margin improvement as compared to the first half. To start, we are experiencing commodity inflation across all 3 segments. Additionally, in the Climate segment, we are overcoming supply chain challenges as we ramp up our facilities.

We have been protecting our customers but at a cost. We will get through these challenges, and, overall, we are still are expecting to improve our adjusted operating margins for both the second half and the total year. We raised our 2017 guidance, which now reflects total year adjusted earnings per share of $4.70 to $5, up 9% at the midpoint over 2016.

I will now turn it over to Chuck.

Thank you, Mark, and good morning, everyone. Sales in the second quarter 2017 were $869.2 million, up 3.6% from the prior year. Foreign currency translation in the quarter was a negative 0.7%, and the impact of the 2016 divestiture reduced the sales by 0.5%. Therefore, organic sales increased 4.8% from the prior year.

Our adjusted operating margin in the second quarter was 10.4%, which is a 70 basis points improvement from the 9.7% in the prior year. The strong improvement in the second quarter was driven by 3 factors: the first was the operating leverage on the sales increases in all 3 segments; the second factor was the benefits from the rightsizing of our oil and gas businesses; and finally, we continue to generate benefits from the Simplification initiative and SG&A cost controls.

Consistent with our strategy to selectively prune noncore businesses, in the second quarter, we exited an equipment leasing business in our C&I segment that was underperforming. As a result, we had $3.9 million of restructuring and related costs. We also recorded $1.2 million of SG&A expenses related to this business that does not qualify as restructuring expenses. In 2016, this business had $5 million of sales and operated at a loss.

In summary, we had a good second quarter performance as we grew sales and improved our adjusted operating margin. Our second quarter 2017 earnings per share, reported on a GAAP basis, were $1.18. There were 2 adjustments to GAAP EPS in the second quarter: the first adjustment was restructuring and related costs of $7.7 million or $0.12 per share; and the other adjustment was the $0.01 per share of gains on sale of assets.

Net of these adjustments, the adjusted EPS for the second quarter was $1.29 per share, representing a 13.2% increase from the prior year.

Now I will summarize a few key financial metrics. Our capital expenditures were $16.7 million in the second quarter. We expect our full year 2017 capital spending to be approximately $75 million. Depreciation and amortization expense for the full year 2017 is expected to be approximately $145 million.

Our restructuring activities resulted in $7.7 million of restructuring and other costs in the second quarter. We expect restructuring cost to be approximately $13 million for the full year. This includes the previous guidance of $9 million and the approximately $4 million from the exit of the business in the C&I segment in the second quarter.

In the upper right quadrant, we show our effective tax rate information. The ETR in the second quarter was 21.6%. Excluding the impact of the restructuring cost and the related tax effect, our ETR was 22.5% in the second quarter, consistent with our earlier guidance. We expect our full year 2017 ETR to be approximately 22%, excluding any discrete items.

In the lower left quadrant, we provide data on our second quarter 2017 balance sheet. Our total debt was $1,300,000,000, and our net debt was $1,056,000,000. In the second quarter, we achieved good debt reduction, repaying $70.3 million of debt. We continue to make good progress in reducing our debt, and our total debt-to-adjusted EBITDA ratio declined to 2.7 at the end of the quarter.

In the lower right quadrant, we present information on our free cash flow. We generated $81.7 million of free cash flow in the second quarter, representing 154.2% of net income for the quarter. We continue to be successful in managing our net working capital even with the growth in sales. And we are pleased with our success in executing on our plan to repatriate $150 million of cash from our businesses in Asia. We repatriated $41.8 million in the second quarter and we have repatriated $109.7 million through July.

And lastly, we used $21 million of cash to repurchase our common stock in the second quarter. This is consistent with the more balanced approach in our capital allocation strategy as we communicated at our Investor Day.

Now I will review our full year 2017 earnings guidance. Our guidance for 2017 reflects our expectation of low single-digit organic sales growth for the year. We are expecting a modest improvement in our adjusted operating profit margin in the second half of 2017 as compared to the first half.

We are raising our full-year 2017 GAAP EPS guidance to $4.51 to $4.81 per share. On an adjusted basis, we are raising our 2017 guidance to $4.70 to $5 per share. The adjustments to convert the GAAP EPS to adjusted EPS are restructuring costs of $13 million or $0.21 per share and $0.02 per share of gains on asset sales.

We are also updating our forecast for our full year 2017 effective tax rate to 22% from our previous forecast of 23%. This change matches our actual ETR of 22% in the first half of 2017. Reducing the ETR to 22% for the second half of 2017 accounts for approximately half of the increase in the midpoint of our earnings guidance.

Now, I will turn the call over to Jon Schlemmer.

Thanks, Chuck, and good morning, everyone. Let's first start by walking through each of the segments.

In Commercial and Industrial Systems, sales were $407 million, with organic sales increasing 4.3% from prior year. This represents the fifth consecutive quarter of improving organic growth rates. In the quarter, sales were up in our Asia businesses, with particularly strong demand in both China and India. We also saw strength in our oil and gas and power generation businesses. We had another quarter with sales up in commercial HVAC, however, sales into our distribution channel were slightly down in the quarter. Price improved sequentially and was slightly up to the prior year.

Adjusted operating margin was 6.7% of sales, up 20 basis points from prior year. The margins benefited from the rightsizing of our oil and gas businesses as well as the strong Asia performance. However, we had 3 headwinds that partially offset these benefits. The first relates to the challenges of ramping up our production just after the recent plant consolidations. Second, is the impact of commodity inflation on our margins. And the third is the exit of a noncore business that Chuck referenced earlier. Even with these challenges, we do anticipate sequential margin improvement in the second half of the year.

In Climate Solutions, sales were $271 million, with organic sales increasing 6.5% from prior year. This represents the sixth consecutive quarter of improving organic growth rates. We had another quarter with strong demand in our North American residential HVAC business, with sales up in the low teens from prior year. While sales to our HVAC OEM customers was strong in the quarter, our HVAC aftermarket sales were essentially flat to the prior year.

Sales were down in our commercial refrigeration businesses in both North America and Europe, where we had a difficult comparison with strong prior year sales. Price was slightly up to the prior year, improving sequentially due to the 2-way material price formulas. Adjusted operating margin was 15.1% of sales, up 70 basis points from prior year. Margin rates benefited from the strong North American HVAC volumes, the ongoing simplification efforts and improved product mix. However, commodity inflation partially offset the gains.

We are working through supply-chain challenges that started to impact our business in the second quarter. While these issues are largely behind us, the impact from these challenges, in addition to commodity inflation, will put pressure on our margins in the second half of the year. Overall, it was another solid quarter for our Climate business, with strong organic sales growth and improved operating margin.

Sales in Power Transmission Solutions were $191 million, with organic sales increasing 3.5% from prior year. Sales were in line with our expectations as we turned the corner to positive organic sales this quarter. This was our fourth consecutive quarter of improving organic growth rates in the PTS segment. In the quarter, sales were up in renewable energy, oil and gas and the commercial HVAC end markets. Sales into distribution were essentially flat to the prior year.

The order rates continue to be up over prior year, and we are expecting positive organic growth in the second half. Adjusted operating margin was 11.7% of sales, up 160 basis points from prior year. Higher volume, price, synergies and ongoing cost controls all contributed to the margin improvement. We expect second half margin rates to be similar to the first half. It was a solid quarter for our PTS business, with positive organic sales growth and improved operating margin.

Now I'd like to give you a quick update on some of the topics we discussed at Investor Day. At Investor Day, we discussed the focus we were placing on both commercial excellence and the digital customer experience to help drive organic growth. We've made some terrific progress over the past quarter on both of these fronts.

We have now filled of the majority of the new sales positions targeted to improve our sales coverage across all 3 segments. We also recruited new talent in the key sales leadership roles across the company. And we've rolled out a new compensation plan this year that provides more upside for our highest-performing sales team members incenting and rewarding growth.

We're also placing a significant investment in the digital customer experience, or DCX for short. We purchased a PIM, a product information management tool, that allows us to gather and store our digital product information and syndicate the data to our customers. We're investing in taking high-resolution 360 degree spin images of our top-selling distribution products. And to date, we've completed over 70% of the first 20,000 SKUs we targeted to capture in 2017. The data is being provided to our distribution customers to increase their ability to help their customers search, find, and buy our products.

And just last month, we launched a refreshed RegalBeloit.com website and a refreshed Marathon Motors product website. We're making it easier for our customers to find the products they want from Regal. We continue to receive very positive customer feedback on both the direction and progress we're making in this area, and all of this effort is about focusing on our core businesses to drive organic sales growth.

Now before I turn the call back over to Mark, I'd like to give you a quick update on our innovation efforts. At Investor Day, we talked about our new UlteMAX motor and control. The new product utilizes our disruptive axial technology, and is targeted for the high-volume C&I motor space. Our initial focus is on air-moving commercial HVAC applications and the interest level from a customer remains very high.

Last month, we started production on our new manufacturing line, set up in one of our existing North American motor facilities. We've shipped the first production units and the feedback remains very positive. We'll be ramping up the production line throughout the second half of this year and into 2018 to meet customer demand.

As you can see from the 3 awards, our innovative new product has received some excellent recognition over the past quarter. This is helping to bring awareness to the new technology and is creating new leads for future business.

Thanks, Jon. Now before we go to Q&A, I would like to briefly summarize our second quarter results.

Adjusted earnings per share were up 13.2% as compared to prior year. Organic sales growth was up 4.8%, and we are encouraged that orders remained positive as compared to prior year in all 3 segments as we enter the third quarter. Margins were relatively strong in the quarter, up 70 basis points. Our free cash flow to net income was 154% for the quarter. We paid down $70 million in debt, repurchased $21 million of our shares. Our total debt-to-EBITDA now stands at 2.7.

Year-to-date, we have repatriated $110 million of cash of our $150 million target. As Jon mentioned, we are continuing our enterprise strategy outlined in Investor Day to focus, innovate, simplify and drive organic growth. And finally, we raised our 2017 full-year adjusted earnings per share guidance to $4.70 to $5, which represents a 9% increase at the midpoint. Overall, it was a solid first half.

We will now take your questions.

(Operator Instructions) And the first question of today will be Julian Mitchell with Crédit Suisse.

Just the first question maybe on the -- you talked about commodity inflation a bunch, relating to C&I and Climate in particular. Is there any way that you can quantify what impact that had in terms of dollars or margins in Q2 and whether you see that impact getting worse in Q3? Or does it start to ease back quickly?

Well, the -- certainly, commodity inflation was a headwind to the first half. Now what we can tell you, Julian, is that as we head to the back half of the year, it's less of a headwind. It's still a headwind, but less of a headwind than it was on the front half of the year. Some of that related to the fact that we continue to get the benefit of material price formulas.

Understood. And then just homing in on the Climate division specifically, should we take from your comments in the prepared remarks that the operating margin in Q3 is probably down sequentially versus the last few years, it's been up sequentially in Q3?

Well, I think the comment that we made is that as you look at the back half of the year, it's going -- the margin rate is going to improve both sequentially in the back half of the year and year-over-year. I think those are the comments we made.

For the total company.

For the total company. And Climate last year was a pretty strong performance in the third quarter last year. And the comments that Jon made, we had some supply chain issues that are now largely behind us that we protected our customers, so no issues for our customers. But there's a cost to it and we're going to pay some of that back as we get into the third and fourth quarters.

And then just a final one from me on capital deployment, some buy back in Q2. How are you thinking about capital deployment in general today, acquisition versus buy back? And what's the appetite there given the successful deleveraging since the PTS deal?

Thanks, Julian. So you may recall in Investor Day, we made a subtle change in our thinking of a go-forward basis, and that was we wanted to -- as opposed to thinking acquisition first, we wanted to think organic first. And kind of we've got kind of the company marching in that direction today, and it seems to be paying back in a lot of different ways. Some of the things we've been doing, were seeing some of the benefits from. So we like that. We want to continue to drive organic growth. Now that's not to say we won't do M&A, we will do M&A and our pipeline is building. We are committed to a more balanced approach when it comes to capital deployment, and, as you saw, we've repurchased 21 share -- $21 million shares in the quarter. So it's a more balanced approach.

And the next questioner today is going to be Jeff Hammond with KeyBanc Capital Markets.

Just want to be clear on Climate seasonality. So margins -- is it fair to say, overall, your margins are up sequentially second half versus first half, but they're down sequentially for Climate, given, what, a tough comp in 3Q last year as well as some of these headwinds?

Yes, I think that's the right way to think about it. But overall, for the company, as I mentioned earlier, the operating margins will be better and -- better in the second half both in the second half of the sequentially and year-over-year, and -- but Climate will be a headwind to that trend.

Okay, that's helpful. And then just top line seasonality, more normal -- I guess, last year, we had the softer start and then the stronger finish, this seems maybe the reverse of more normal?

I would say it was more normal. Jon, do you want to add anything? It's more normal.

Yes. I would say, outside of Climate seasonality, no big change that we're seeing year-over-year for the company. But in Climate, that's correct. As you recall last year, we had a slower start in the cooling season. But a stronger finish, and it carried over stronger in Q3 than what we typically see. And we're seeing a bit more of a normal cooling season this year.

Okay. And then on supply -- it seems like you had supply chain challenges in C&I and Climate. I'm just curious what's surprising you guys? It's not like the growth is robust, we're just kind of going back into a more normal mid-single digit. So what kind of surprised you there and how do we feel that those don't creep up again?

Yes, I'll take a pass at that, Jeff, and then Jon will add some color to it. So we did not have supply-chain issues in the C&I segment. We did -- Jon mentioned we did have in both -- in one of our key commodities in the Climate area, as well as in the electronics space. So the -- this stuff was the issue that we were faced with. It's not unusual. As you probably know, electronics are longer lead-time items and that we know we're not the only one facing those issues. But we did not have supply-chain issues on the C&I side.

Yes. The strength, of course, was better in Climate, up low teens for North America residential HVAC, and that's where we had the supply-chain challenges that Mark mentioned, Jeff. In C&I, it was more of ramping up our facilities right on the heels of some of the recent plant consolidations, and that created some challenges for us in the C&I business. While the organic sales weren't a strong in C&I as they were in climate, when you look at it from an operation standpoint and the amount of inventory that we took down last year when the markets were down, operationally though, we're seeing quite a bit higher unit production in those facilities. So that's created some of those challenges for us. Nothing that we can work through, but were some of the challenges in the second quarter.

And the next question at today will be Josh Pokrzywinski with Wolfe Research.

Breindy Goldring on for Josh. I'd like to ask about the peso impact. I know your components are still in U.S. dollars and you had your peso exposure, but when does the spot rate start to hit your P&L? And how big is that impact?

I'll try answer that, this is Chuck. So we have a consistent approach on foreign currency hedging. And so we have our hedges in place for pesos that go out 2.5-plus years. So we'll still be enjoying deflationary effects as a result of those hedges for the next 2 years plus. The spot transactions would be occurring at that spot level, but we have a nice supply of pesos that we'll be purchasing at a more attractive rate.

Okay. And just as a follow-up, when you spoke about resi HVAC inventory in 1Q, you said the feedback has been that inventory channel (inaudible), so can you give us an update there?

Yes, sure. This is Jon. So in Climate, I would kind of separate it into 2 areas: our aftermarket business and our OEM business. On the OEM side, I think we would say that inventories are somewhat normal, maybe slightly light given the strong demand that we've experienced through the quarter. But overall, I would characterize it as in line with being normal. On the aftermarket side, we -- I commented in the -- on the slides that we had a weaker demand in the aftermarket for the quarter, and particularly, it was in the back half of the quarter, with June not being a very strong month. So our checks that we've done in the channel on the aftermarket segment would indicate that inventories are a little higher for our aftermarket parts.

And the next questioner today is Robert McCarthy with Stifel.

Yes, so a couple of questions. One, maybe you could just talk a little bit about -- it seems that you had pretty decent OEM strength across the board, but distribution was kind of called out as being flat. I mean, just coming at it from a slightly different way, is there any commonality to that in terms of the weakness you're seeing? Or how would you just kind typify what we're seeing there in terms of the difference?

So I'll break the comment up into the 3 segments, so that'll help put some color. I think Jon just did a nice job of talking about what we were seeing on the Climate space, with it kind of falling off in the quarter. Basically, there's more new equipment being sold in the aftermarket space than there is components. Now when we get to C&I and the PTS segment, sales were actually flat in the second quarter, with some customers up and some down. I think the important point there is, as we look forward with the growth rates we're seeing, we do expect positive growth in the third quarter given the order trends that we see.

In the distribution channel?

Yes, in the commercial, industrial and PTS segments in the distribution channel.

In the distribution, okay. So you expect there's a bit of a timing and then you expected it to improve. Okay. And have you quantified year-to-date how much price you've gotten across the board embedded in your organic growth rate, either at the total company level or the segment level, and what your expectation is for price in the back half?

We haven't quantified it, but we've given a fair amount of anecdotal data about it. It was -- it's been a headwind. Price cost has been a headwind to us. When you take into consideration both the price we're getting and the inflation we're seeing, it's been a headwind. It will be less of headwind in the back half of the year. And then, importantly, the timing of our material price formulas is such that it increases as we move through the year.

So you expect more -- probably better contribution from price in your organic growth rate in the back half, obviously?

Yes, slightly more -- we had more in the second versus the first, and we'll have slightly more in the third and fourth than we did in the second.

And just remind us -- and obviously, this is something I should know, so shame on me. But any days issues in the third quarter or fourth quarter to be mindful of for modeling purposes and update...

We had 1 less shipping day in the quarter.

Shipping day in Q2. But for the back half, any -- are the days the same for third quarter and fourth quarter?

Hold on one second, we'll get that. So...

They're exactly the same.

Yes, they're...

They're exactly the same as prior year. '17 is the same as '16.

And the next questioner today is Scott Graham with BMO.

Kind of the same question as Rob's on the days. I had calculated that the days probably cost you guys 1 to 1.5 points of organic. First of all, is that correct, Chuck?

I'm sorry, Scott, could you say that again, please?

Did the loss of the day seemed like it cost you somewhere between 1 or 1.5 points of organic sales?

I would -- I mean, certainly, when you lose a day, there's probably be some impact. But I would not -- I don't -- we didn't take the time to quantify it, Scott. So...

Either way, but it was something, right?

Yes, yes.

So that kind of dovetails into my next point here, is that you had a pretty good quarter of organic in 2Q, which was a little bit better than advertised off of the day sales thing. Yet here you are saying that with -- even with orders up as you exit the quarter in all 3 segments, that the low single-digit organic sales guidance is maintained, which would almost suggest that the second half will come off on growth versus the second quarter. Is that what you're messaging here?

Well, we also talked about, in the Climate space, kind of teens kinds of a growth rate. You don't get that a lot. So yes, that's exactly what we're saying. It was low single digit in the front half of the year, and it'll be low single digits as we head into the back half of the year.

I think if you look at the performance year-to-date, Scott, our organic sales are up just slightly under 3%. So with half the year behind us, that's where we're sitting at the midpoint. And with 6 sequential quarters of improving organic growth rates, clearly, the comps start to get a little bit more difficult as we continue to move forward. But we're still pleased to see the order strength versus prior year across all 3 segments.

Right. And that's kind of where maybe I would just -- maybe asking for a little more clarity than even that. Because if you're saying that distribution, which is a big channel for you, looks better in the second half of the year, and again you're exiting with good orders, I guess, I'm just having trouble getting to low single-digit organic in the second half off of those statements.

Yes, I understand the challenges. And we -- believe me, we hope we're to the upside. But the best view we have is low single-digit growth for the year.

All right. Fair enough. Yes?

Scott, I'll mention, too, that the last page in the appendix gives you the shipping days for the past and the future.

Yes. No, I'm aware. The other question I had for you was on the characterization of your second quarter operating margin. Is this just semantics or is there something more? You mentioned that the oil and gas resizing was second -- you mentioned that's second after volume leverage for the margin drivers in the quarter, yet that only affected the one business, whereas Simplification affects 2 segments and you listed that third. Is -- was the oil and gas rightsizing a larger benefit to the margin than simplification and SG&A?

Certainly, the oil and gas rightsizing was a significant contribution to margin improvement for the company. And while it's predominantly in the C&I segment, there's also work that we did across the PTS business, where we had similar impact from the downturn in oil and gas. So I would say it's contributing to both of those segments, probably larger in C&I that PTS. But it was a considerable benefit to our margin progress.

And you would say the second behind volume, then?

Yes.

Behind volume. Correct.

Behind volume. Right.

(Operator Instructions) And the next questioner today will be Chris Dankert with Longbow Research.

I guess, just kind of following up on the last question here. I mean, are you guys want to break out or able to break out what that impact was for the simplification initiative in the second quarter?

We haven't provided that information, Chris.

Yes. I think, Chris, it certainly is flowing through the benefit of all the businesses, lower depreciation and amortization reflects the progress in simplifying our manufacturing footprint globally. So that was a nice contributor. But it really just also enhances the operating leverage that you will see in volume.

Understood. And then, I guess, kind of backing out to a much higher level. At the end of the year, you guys had mentioned that automation was kind of an initiative as far as cost saving going forward. I guess, any update there or any initiative that you had going on in the automation front?

Yes. So thank you, Chris. So we did discuss in our Investor Day that over the next 3 years, while we were already doing some form of automation in the company, that all the hard work we've been doing on simplification for the last number of years is going to put us in a position to shift some of our work and our restructuring investments into automating our manufacturing processes. So we're starting that in earnest, and we got some great plans as we go into 2018. We're doing a few things this year, but we're -- I would say, we're heavily into planning mode as we head into '18.

This will conclude the question-and-answer session. I would like to turn the conference back over to Mark Gliebe for any closing remarks.

Thank you, William. You may recall Jon commenting on our new RegalBeloit.com website, we would encourage you to check out the new site. We have updated the Investor page, and we welcome your feedback. Thank you for your questions and for your interest in Regal. Have a great day.

Ladies and gentlemen, the conference has now concluded. Thank you all for attending today's presentation, and you may now disconnect your lines.