Simpson Manufacturing Co Inc (SSD) 2013 Q1 法說會逐字稿

Good morning ladies and gentlemen, welcome to the first quarter 2013 Simpson Manufacturing Company, Incorporated earnings conference call. This conference call, the Company may discuss forward-looking statements such at future plans and events. Forward-looking statements like any prediction of future events are suggest to factors that may vary, and actual results might differ materially from these statements. Some of these factors and cautionary statements are discussed in the Company's public filings and reports. Those reports are made available on the SEC's or the Company's website. Please note today's call may be recorded.

Now I would like to turn the conference over to Thomas Fitzmyers, the Company's Chairman. Go ahead sir.

Thank you. Thanks everyone. Good morning everyone, welcome to Simpson Manufacturing's first quarter earnings call. Our earnings press release was issued yesterday, It is available on our website at SimpsonMfg.com. Today's call is also being webcast, and a replay of that webcast will be available on our website. As usual, joining me in presenting for today's call are Karen Colonias, Simpson's CEO, and Brian Magstadt, Simpson's CFO. I will start, followed by Karen and Brian, then we will be delighted to take your questions.

As you can see in the press release, we have again included about segment sales and profits, which we have previously discussed on the earnings call, and they now are a part of our quarterly or annual report filing that follow. Housing starts are up, and this should mark the turning point for building products. Simpson, along with other building materials suppliers will benefit from the housing recovery. As we have mentioned in the past, our building products will lag starts, but we are beginning to see an improvement as we look at our April numbers. Our foundation products, a leading indicator for us, are up low double-digits over the last four months of the year. However, unlike other billing material suppliers, many of our products are not used in every house,depending on geographic locations.

The quarter sales were negatively impacted by inclement weather, in many markets where we operate, especially the Northeastern part of North America, and all of Europe. Last year, weather was not an issue. The European financial uncertainty is also affecting our operations.

Sales were flat in North America, despite the price reductions in the latter half of 2012, and the loss of Lowe's in May of 2012. Lowe's accounted for over $6 million in sales in the first quarter of last year. Home center business excluding Lowe's was down 13% for the quarter. North America operating profits were down $2.6 million due to lower gross profits, primarily from the price decrease and unabsorbed factory and tooling. Europe's operating loss increased $1.8 million due to lower gross profits, and as we mentioned last quarter about a likely impairment, that is the $1 million charge of the Irish real estate.

Speaking of Ireland. We have moved the majority of the remaining assets, and are preparing the building for rent or sale, depending on the best use for that facility. Asia-Pac had an increase in Q1 sales, helping to improve our gross profit, but the revenue is not yet enough to have a positive impact on the operating income line. We continue to have a very strong financial position which gives us a lot of flexibility.

Now I will turn the call over to Karen.

Thank you, John. We are starting to see progress on our recent acquisitions. In our European operating segment, our plan for S&P was to take their products to new markets, and we have done that by expanding into France. France is the second largest economy in western Europe, with needs for infrastructure and road repair. France requires high quality, code accepted products, and this fits well within our strategy to differentiate our product line. Already we are seeing the benefits of having the S&P products, and our technical sales engineers in this market.

In our North America operating segment, we are targeting the Builder Components Manufacturing Conference being held in October for our next major truss software release. We are developing software in stages. This will allow us to target customers with the very needs, while at the same time continuing to provide enhanced features, which will open up more market to us. We have a road map for improving our software that will take us a few years, and we want the software to provide the features and benefits the industry is requesting. We are anticipating that the next few years will be an exciting time for the Company in the integrated component systems industry. We believe that this is over a$500 million market at today's housing starts.

We are continuously reviewing our operations around the world, to ensure our resources are focused on earnings returns that are satisfactory to us, as well as our shareholders. We are always looking to improve operating results, and reviewing our strategy to make sure that they are aligned. We have in the past taken steps to improve operations, or to divest if a unit or business no longer fits our Company's strategy. The two most recent examples are Dura-Vent in 2010, and Liebig last year. Neither of these two operations fit our long-term strategy, so we exited those businesses.

To repeat from prior calls, we manage our business from geographic business prospective. You have seen this in our recent 10-Q's and 10-K's. Within those regions we have two broad categories, wood construction products and concrete construction. Wood products are compromised of connectors, fasteners, shearwalls, and truss plates. Concrete products include adhesives, mechanical anchors, specialty chemicals, and other repair and strengthening products.

The plated truss business and the recently-acquired Shear Brace assets fall under the wood construction. Fox, CarbonWrap, and S&P are categorized as concrete. We are just over a year into the integration of most of these new lines. Some are progressing faster than others. These new product lines are essential to help us diversify our product offering. The businesses acquired bring products that are highly specified and have worldwide applications. As always, we are dedicated to our core products, and we work hard every day to ensure that we meet our customers needs for service, support, and product availability.

I would now like to turn the call over to Brian, who will share some additional financial information.

As noted in the earnings release, Q1 2013 gross margin was 42.0%, compared to 43.7% in Q1 last year. The relative sales mix of the two products groups affected gross margins, in that we sold more lower margin concrete products relative to the total, 14% this quarter compared to last Q1 at 13%. That is compared to the higher margin wood construction products which went to 86% this quarter, as compared to 87% last Q1.

Also mentioned in the press release, the margin differential of wood-to-concrete products is 15% this quarter compared to 18% last Q1. The wood products margin was affected more by the price decrease than was the concrete products. We previously estimated gross margin for the year 2013 to be in the 42% to 43% range, and we believe that is still the case. Now that it has been over a year with our recent acquisitions, their operating results are fully integrated into our system. Truss, Fox, and CarbonWrap are in the North American segment results, and S&P is in the European segment results.

We continue to invest in our recent acquisitions. R&D and engineering spending is approximately $1.5 million going towards developing the plated truss software offering, consistent with what we mentioned last quarter, what is difference this year is that this group is Simpson employees, versus last year we were paying Keymark fees for software development services. We feel we have much more control over our own destiny now that the group is in-house.

Cash profit sharing is a function of operating income and return on assets, and it decreased $1.8 million compared to last Q1. The amount of the cash profit sharing decrease included in operating expenses was about $1.5 million in Q1 2013. Regarding taxes,we continue to have non-deductible foreign losses affecting the tax rate. This quarter it was about $2 million that we did not take a tax benefit on. The Irish real estate impairment which has no tax benefit today was nearly 5% of the tax rate, and we reaffirm our annual estimate for 2013 to be in the 41% to 42% range.

2013 CapEx is looking for be around $29 million, again consistent with what we mentioned last quarter. Q1 2013 CapEx spending was nearly $5 million, primarily for manufacturing equipment in the US, and IT hardware and software. For 2013, depreciation and amortization expense is expected to be $26 million to $27 million, of which $20 million to $21 million is depreciation. Intangible amortization expense in the quarter increased by $0.2 million compared to the prior year, all in admin expense, due primarily to the acquisitions of the Weyerhaeuser Shear Brace assets, and the software development team in Boulder.

Before we turn it over to questions, I would like to remind you that if you would like further information, please contact Tom at the phone number listed on the press release. Also look for our Form 10-Q to be filed in the next couple of weeks.

We would now like to open it up to your questions.

Thank you. (Operator Instructions). We will go first to the site of Peter Lisnic with Robert Baird.

Good morning, everyone.

Good morning.

Good morning, Peter.

I guess the first couple of questions on gross margin if I could. On the price impact you mentioned that was a material factor in the wood piece of the business. Can you give us a sense as to what that headwind was from a price perspective on wood?

Peter, this is Brian. It was mostly wood. There may have been some concrete products, but on the wood side, we estimate about $4 million would have been the price impact.

Okay. Alright. Presumably as we go through the year, does that headwind sort of abate, or can you give us a feel for how that might move through the remainder of the year?

Well, we took that decrease in the latter part of 2012, so we will see that comparable throughout, at least through the first half of the year.

Okay. Then strategically with the market doing what it is doing, stronger demand and presumably the competitive landscape getting better. Is there something that you can do to improve that price cost relationship, if that is the right way of describing it, in the back half of the year, and then in 2014?

Well, from the cost standpoint, obviously, as our volume increases, that is going to help our absorption. We are certainly looking at all elements associated with costs from our Lean initiatives, as well as our raw material purchases. We do a lot of work on our supply chain for our items that we buy out. So we will definitely be trying to control all issues when it comes to the cost standpoint.

Okay. How about on the pricing side? Is the competitive landscape just at the point where it remains somewhat difficult to perhaps increase price on the back half of the year or into 2014? I would assume that you would have a pretty good umbrella due to the strong demand out there. I am wondering competitively if the pressures are too significant to be able to do that?

I think competitive pressures as we look into 2013 would be pretty tough for us to do some sort of price increasing. That may change as we get into 2014, but certainly I think it would be a difficult situation for our suppliers and our distributors in 2013.

Okay. Then last question, just on gross margin. The compression in the gross margin wood versus concrete, so it shrunk from an 18 point spread in last year's first quarter, to 15 this first quarter, so making good progress there. Can you just give us an idea of how that is occurring? Is that just volume, or is it mix, taking costs out? Just an idea of how that trend is working in your favor?

Peter, this is Brian. So price had a little bit do with that on the wood side of course, so that brought that down, and then the mix on the concrete side helped bring that one up a little bit.

Okay. Alright. That is perfect. I appreciate your time and help.

Thank you.

We will go next to the site of Steve Chercover at D.A. Davidson. Go ahead, sir.

Thank you. Good morning everyone. I would like to understand a bit more why your sales are lagging starts so materially? I understand you are not used in foundation work, but it just occurs to me that the whole pie is getting bigger, and therefore, why is, even if your slice is proportionally smaller, why do we see no growth?

In the US, this is Brian, Steve, in North America, if we pull out the comparable with having Lowe's business in there last year and the price decrease, we would see volumes up there. And in Europe, we are still struggling with the economy there and such, and weather did have a pretty big impact this quarter versus last quarter. Last year we had great weather all around our system, and this year, even in North America we had some pretty significant weather impacts, but we are seeing some improvements as we move into April on our sales.

The loss of Lowe's, was that strictly do to competitive pressure? I thought to a certain extent the margins weren't good, so you never want to lose business, but doing business for practice isn't the reason why you show up either?

Well, this is Tom. We spent a lot of time thinking about that, and we don't like to lose business either, but we just didn't feel that the request they were making from a pricing standpoint fit our long range strategy, so we declined to move forward on what they wanted us to do from a price reduction standpoint. It is almost that simple.

I would think that is good for margins. To the extent, I am not sure if it will be the long-term way things pan out, but if Americans are moving more towards multifamily structures, do you have a strategy to have your content per start, continue to rise in multifamily? Is that what concrete is all about?

Well, let me explain it to you. Just want to mention one thing. So one of your questions was the lag, and as we mentioned, we are seeing, we use our embedded products into the foundation as one of our leading indicators as to what we should see in the future, and we are seeing an increase in those concrete products. Those concrete products will be used both in residential and in multifamily, so we are seeing a slight uptick on the business based on what we are seeing in these embedded products.

On the multifamily, we have a complete line of products that are used in multifamily, and depending on how those structures are built, there is an opportunity to use a significant amount of our joist hangers, and our fasteners, and also our Anchor Systems products. So we have a group that focuses on multifamily, as well as single family residential, and by that I mean our sales people, and certainly that is a market that we are keeping a high watch on, and ensuring that we have got a good part of that business.

Certainly the folks who makes engineered products, the Boises and Weyerhaeusers of the world, are seeing their volumes, or expecting their volumes there to pick up, so hopefully that is why you are seeing better trends in April. Alright. Thanks for taking my questions.

Thank you.

Thanks, Steve.

We will take our next question from Robert Kelly from Sidoti. Go ahead, your line is open.

Good morning.

Good morning.

Good morning.

The last couple of quarters you gave us a look at the acquired sales, what they were contributing or taking away in EBIT. Can you give us an update of where we are with the acquired businesses, of what their profit contribution is for 1Q?

Robert, the reason we had been doing that was for comparative purposes, because they were affecting the 2012 results, but they weren't in the 2011 results, so this year they are in both quarters, and that is why we hadn't had or we don't have that information to disclose. It is not materially different than it was last Q1, though.

So the losses are pretty steady with a year ago?

They are similar.

Okay. Point of clarification in Europe. The operating profit was down to $4.2 million, but $1 million of that was the write-down of the Irish real estate?

Correct.

Okay. As far as the North American big box channel. You said X-Lowe's, the business was down 13% or is that including Lowe's?

No, X -Lowe's.

What describes what is going on there? Why is the business that you are sticking with strategically down so much?

Again I hate to go back to it, but we think weather had a pretty good impact with a lot of those customers in North America. Last year, they may have had more product moving through the stores because of more favorable conditions, whereas this year a lot of the Northeast and Midwest had some pretty severe winter conditions, so we believe that may have impacted it.

Okay. You kind of referenced in your prepared comments that the foundation products were picking up in April. Are you seeing a similar bounce back in the home center channel that would suggest that it was in fact weather hurting you in 1Q?

That is correct.

Okay. That is all I have got. Thank you.

Thanks, Robert.

(Operator Instructions). We will take our next question from Barry Vogel with Barry Vogel & Associates.

Good morning, ladies and gentlemen.

Good morning, Barry.

Back to the home centers. Your largest customer, how did they do in the quarter?

Give me just a minute. This is Brian. They were down about 11%.

So the same factors that affected all of the home centers affected them?

Correct.

Okay. Now on these gross margins, I recall last year that there were a lot of what we could have called unusual items as the year progressed, there were acquisition-related expenses, there were impairment charges, there were step-up costs, and general acquisition costs. There were severance costs. A lot of stuff. There were Ireland exit costs, so there was a lot of that stuff. When you give us these gross margin figures, do any of those things that I would consider unusual and not ongoing, are they included in those gross margins figures or are they excluded?

They are included.

They are included.

So the gross margin figures include any of those atypical charges that we would have had.

Okay. So that means that they are one-time in nature, looking at 2012, the gross margins would be higher for 2012 if we subtract these things as one-time situations, is that correct?

Yes.

Okay. So therefore, the decline in gross margins on an apples-to-apples basis, looking at the first quarter of 2013, both in Europe and North America, probably the decline is worse? Does that make sense?

We would agree with that.

Okay. Now going back to the dead horse of sales growth. It has been beaten around, two or three of my colleagues have beaten you to death on that. I was a little surprised on that because in North America, sales gained 9.9% in the fourth quarter of 2012, and that wasn't a terrible improvement. I would think that Lowe's was in there, because Lowe's I think occurred in the second or third quarter of last year. But I am not sure exactly how much Lowe's is in there. So can you give me another comment, could you give us a little bit more color on what you are seeing in April, other than just saying that they are improving?

Well, we are a few weeks in, they are looking pretty good. I mean that their April would be up say low double-digits.

Okay. I have one more question. as far as the affect on Liebig pulling out, how would they affect, or maybe not affect the first quarter's profitability versus last year's profitability in Europe?

Let's see if I've got that. Hold on just a second. I don't think it would have been on gross profit, a material difference.

How about on operating profit?

Let's see. Bear with me just a second, Barry. So operating Liebig in Q1 of 2012 had a little less than $1 million of loss on the operating income line.

In 2013, were they gone?

We are doing some cleanup activity. It was minimal activity there, so no significant impact.

Okay, thank you very much.

You are welcome.

Our next question comes from Arnold Ursaner, CJS Securities.

Hi, good morning. You had a pretty sizeable drop in your cash and pretty big increase in inventories, and in your prepared remarks you indicated that you felt that prices still would be moving up sharply in the second and third quarters. Is there a relationship between the two changes?

Well, this is Brian, Arnie. Looking at cash, when we look at the total changes in all of the asset and liability accounts, I am doing the change from March 31st of last year through this year, so basically that is rolling 12 months. Total change in the asset liability accounts was about a $35 million decrease, that is among inventories, AR, and such. Some of the other impacts to cash were CapEx, again on the rolling 12 months, about $23 million. Asset acquisitions or businesses acquired, about $14 million. And then we paid about $30 million in dividends. We have got to remember that we actually had an extra dividend that we paid that we won't pay in Q2, so there is about $6 million that we won't have going out, so I am not sure if that answers your question.

I was looking at it more on the year-end versus the current quarter?

Cash used in operations for the quarter, it is about $18 million. And then between CapEx and asset acquisition, about $10 million, then again about a $6 million dividend paid.

Okay. And then going back to the software expense and the fact that you mentioned you will have a major software release in October. Is part of the reason it will be in October the fact that most of your customers wouldn't put in software increases in the middle of their season, or is it just taking you longer to create a software program that you are comfortable with?

Arnie, this is Karen. The builder component show, which is always held annually in October, is usually the showcase opportunity for that industry to be able to show new products and new software, so we are really targeting that. It is an opportunity to have most of the industry at that show to be able to see where your improvements and enhancements have come from.

Okay. Then going back again to the steel price increase that you expect in your gross margin assumption and the competitive environment. If your prices still go up, normally you would raise prices to offset that. Are you able to do that in this competitive environment, or saying it a different way, how do you hope to maintain gross margin if your costs are going up, and your selling prices aren't?

Arnie, it is Brian. It would be a pretty tough situation to increase prices, but if we got some really significant increases on material, we would have to take a hard look at that, but given competitive pressures today, we believe that we would in all likelihood be holding those prices steady.

Okay. Thank you.

You are welcome.

Our next question comes from Garik Shmois at Longbow Research.

Thank you. First is more or less a housekeeping question with respect to general and administrative expenses. They started to come down towards the back of last year, now they have moved back up a little bit sequentially to around $26 million. Just wondering how we should think about those expenses in 2013 compared to 2012?

Garik, this is Brian. I think we ought to be seeing some, I wouldn't call significant changes in those line items. There is some variability based on profits regarding the cash profit sharing component, but items such as the software development costs that Karen mentioned, some other general SG&A, we believe would hold fairly steady in that regard as far as the fixed costs go.

Okay, so modeling relatively flat year-over-year isn't a bad assumption?

Right. Other than there is a bit variability when it comes to sales and commissions and such, that do change with volumes, but I would say a pretty good amount of that cost will be pretty steady.

Okay, thanks. Then the second question is bit more higher level. As concrete products continue to gain share as part of being a bigger part of your mix, the margin spread is narrowing, think of it as generally lower margin product line? How should we think about impact on mix over the next several years, concrete versus wood? Mainly what I am getting at is potentially structural negative mix component margins, when looking out as concrete becomes--?

So this is Karen. Let me see if I can answer that one. We are continually working on improving our margins on our concrete products. We are starting, and the reason we can do that is we have products which are highly specified and we can differentiate them, so that helps us from the selling price standpoint. So as we look at the products that we are adding to our concrete line, we are not adding commodity type products. We are adding propriety type products, so over time that will help us on that gross margin expectation that we are seeing from that concrete line.

As far as the mix of products,the concrete type products, although many of those are sold in the residential market, most of our opportunities for our new product lines are in the commercial market, so the mix of wood-to-concrete is really going to be a function of that mix of residential multifamily wood construction, to what we see as commercial concrete infrastructure projects, but I would reiterate again, we are certainly working to improve that margin expectation, and we are starting to see some positive steps in that direction on those concrete products.

Okay, thanks for the help. Best of luck.

(Operator Instructions). We will take our next question from Robert Kelly at Sidoti.

Hi. Just a question on the competitive arena, and the price reductions you saw compared to last year. Are they in the highly specified differentiated products that you are selling to the wood connector market, or is it in concrete construction? Just maybe a little more help on where the price competition is being felt?

Robert, this is Karen. I would say that competitive pricing is always felt in all product lines. We are probably running into a little bit more pricing competition from our wood product lines. We have mentioned the Lowe's example, and certainly our salespeople and our branches are working very hard every single day with all of our customers, so that we can really justify really our price difference. It is more than just price of our product. It is the service behind the product, both inside and outside sales, it is the engineering support, it is the training that we provide. So we are working very hard on a daily basis to really differentiate our particular product line, both in concrete and wood, and there is a lot more behind than just the product that people are holding in their hands. So we spend, our sales force spends a huge amount of time working, to make sure that the customers understand that there is more than just a product, but there is a lot of Simpson support behind that product.

Right, understood. Even with all of that, you historically have been able to charge a pretty nice premium in the wood connector market. That premium has been narrowed a little bit compared to your peers? Is that the way to think about it?

Yes, I think that is a reasonable statement.

Ideally, you would want to duplicate what you have done in wood connectors on the concrete connection side. How do we get there? Is there a way to specify concrete construction products to the degree that you have done so in the wood connector market?

Yes. We certainly, again we have a sales force that focuses on that commercial side of the concrete products. We are calling on specifiers. We are testing system approaches on these products that we have, so we can provide the specifiers a complete picture of how our products perform. We have got marketing information that helps both the customers from the specifier standpoint, as well as installers and distributors become very familiar with our product, so it is a very, very similar model, and as I mentioned, we are always looking for ways of differentiating our product so that we can have that better pricing point.

One follow-on, and it is on the wood connector side. For a while, you were able to kind of compete against, maybe you can characterize it as a disengaged rival. That rival has now been acquired by I guess a more engaged competitor. Is the price reductions or the competitive pressures you are feeling just a function of having a more engaged competitor back in the market, or is it some bigger threat?

I would say that the more engaged competitor that has got some, maybe not quite all of the standards behind that we have, but it is maybe leading with price, is where we are see something of this pressure.

Fair enough. Thank you.

Our next question comes from Trey Grooms with Stephens.

Hey, good morning. Just most of the questions have been answered, but just real quick on the operating expenses. Kind of going forward, with where we are with the acquisitions. Do you guys see some of the operating expenses, sales and marketing, and R&D as far as like a percent of sales. Should we expect those to kind of come in some as we look forward, or is this a pretty good run rate? Can you give us some guidance on how to think about OpEx, operating expenses as we look forward? Thanks.

Sure, Trey, this is Brian. We have got a lot of expenses in there that we would expect to continue at the run rate, but we don't have necessarily all of the revenue that is going with that, so as we add in the additional revenue from those businesses, we should see the percent of sale for those expenses goes down.

Okay. So there might be opportunity as we go through this year to see a little bit more leverage on OpEx, I guess is the way to take it?

We would expect that, yes.

Okay, that is all I had. Thanks.

You are welcome.

Our next question comes from Howard Smith. Go ahead, sir, your line is open.

Good morning. I apologize if I missed this, but I was wondering if you could talk about your China operations a little bit? Maybe a little more detail, and when you think you will get some meaningful contributions from it? Thank you.

Yes. I think as we mentioned in our report that we were seeing revenues up in China. We certainly have the opportunity with some of these acquisitions to have a bigger product line that we are selling. We are a ways away from seeing profits from, the bottom line profits from that area, but we now have both products that give us, again a bigger portfolio to go after a more sizeable area there.

Do you have everything in place? Are you happy with the personnel and everything? I know going back a few years, there was some movement involved with getting the right people into place.

Yes. We have a good solid sales force that has been in place, and certainly we have the infrastructure from the standpoint of the marketing and accounting, that group and engineering. We have also done a very nice job in our manufacturing facility in Zhangjiagang, that they manufacture our mechanical anchors, and again, they are doing a good job there. So, I think overall, we are seeing some definite positive steps with our China operations.

Okay, great. Well, thank you.

Thank you.

And our next question comes from Arnold Ursaner with CJS Securities.

Hi. Wanted to try to spend another minute or so talking about S&P cleaver. I'm looking at your European sales that are down and I know S&P cleaver is focused in Europe, profitability down. What are you seeing in S&P Clever, I am looking at your European sales which were down, and I know that S&P Clever is more focused in Europe, profitability down. What are you seeing in S&P Clever, and just remind us of the investment you have made to build out the sales force?

So the S&P Clever operation is definitely a European operation, as I mentioned, we are expanding that product line. This year we expanded that into the French market. That was a very well-organized business with a good sales force located in each geographic region. We have added sales force to the French region, and we have added some accounting people at some of our other locations. We have also added by the way a couple of engineers to support that more in the Swiss operation. At this point from a build-out of employees, we are in pretty good shape to take us through 2013.

Well, fiber reinforced polymers, FRP has been a pretty good growth area when you bought it, very high margin. I am trying to look at your European results, given what hopefully would have been a much more positive benefit from that. Obviously Liebig is in there. Again, can you give us a little more color on what is actually happening? Is it continuing to grow?

Yes. When you look think of S&P, again you think to need from the building standpoint. Many of their products are asphalt repair and restoration, so if the roads are covered with snow, it is not possible to do some of those projects. Some of their projects that they had booked for first quarter have been pushed back into second quarter, because those roads were under snow. Also, most of their fiber reinforced polymers are used for buildings and bridges. Again depending on the conditions of those buildings and bridges, the location, if they are in conditions where they are again under snow or in ice conditions, they cannot do those repairs. So they were certainly hampered by the weather that we saw in Europe.

What is your expectation for the year for that segment, or for that part of the business?

We are expecting S&P to definitely have a little bit of an impact hit from the European economy, so I think they are scheduled to be flat to slightly up from what they did last year.

Okay, thank you.

And our next question comes from Barry Vogel.

Brian, I want to ask you about the utilization rate for the North American wood operations. Can you give us some color on that?

I think the factories may have been a little less busy this Q1 versus last Q1. This is the time of year where they are ramping up for the busy spring and summer selling season, so they are still fairly busy, and we will expect, as we always do, in Q2 and Q3, a little better utilization of the factories, but I don't know if there has been any real significant change there. I think just a little bit.

Can you give us an idea of what the utilization rate was in the quarters of 2013 and 2012?

No, Barry, I can't.

Okay. I have another financial question. The outlook for Europe. You lost on an operating basis according to your press release,$4.2 million, and I know weather affects you that the time of the year anyway, and weather was worse this year last more and affected you more. Can you give us some idea of a range of where you think, notwithstanding unusual items, hopefully there won't be too many of those this year, what the operating loss might be for the year, in a range?

We think it should be better than last year just because we have removed $4 million to $5 million of Liebig losses. I don't know if I would be able to say any more than that at this point.

Although those Liebig losses are unusual, and the fact that they are gone now?

That is right.

So last year if you took out the Liebig losses, it wasn't a terrible year in Europe. In fact, I think you had a slight operating profit if you took out all of the unusual items but the Liebig losses, you may have been breakeven in Europe last year?

I am just really not sure right now what to expect. I would think we ought to be fairly comparable on that basis.

That would be flat, that wouldn't be a big loss.

Well, we are still going through pretty tough, some pretty tough economies over there. Some of our countries that we operate in there are having some fairly difficult economic situations, so we are trying to work through that. I would think that X-Liebig being comparable to last year would be about right.

Alright. Thank you very much.

You are welcome.

(Operator Instructions). It appears that we have no further questions at this time.

Thank you very much.

Thank you for attending. This concludes today's conference call. You may now disconnect.