Standex International Corp (SXI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 Standex International Corp earnings conference call. My name is Erica, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. David Calusdian from Sharon Merrill. Please proceed.

Thank you. Please note that the presentation accompanying management's remarks can be found on Standex's Investor Relations website, www.Standex.com. Please see Standex's Safe Harbor passage on slide 2. Matters that Standex's Management will discuss on today's conference call include predictions, estimates, expectations, and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's recent SEC filings and public announcements for a detailed list of risk factors.

In addition, I would like to remind you that today's discussion will include references to EBITDA, which is earnings before taxes, interest, depreciation and amortization, adjusted EBITDA, which is EBITDA excluding restructuring expenses and one-time items, non-GAAP net income, non-GAAP income from operations, non-GAAP net income from continuing operations, and free operating cash flow. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States.

Standex believes that such information provides an additional measurement and consistent historical comparison of the Company's performance. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in Standex's fourth quarter news release. On the call today is Standex Chief Executive Officer, Roger Fix, and Chief Financial Officer, Tom DeByle. I would now like to turn the call over to Roger.

Thank you, David, and good morning, everyone. Please turn to slide 3.

The fourth quarter was a solid finished to a good year for Standex. We delivered year-over-year top-line growth in all of our 5 business segments. Total sales were up 14.8% from Q4 last year, reflecting organic growth of 9.3%, and a 3.7% growth contribution from acquisitions completed in the last 12 months, plus some favorable foreign currency exchange.

For fiscal 2011 as a whole, sales grew 9.6% year-over-year, and reflecting our improved cost structure that we implemented across the entire business, adjusted operating income was up 16%. This level of organic growth is well in excess of the growth we're seeing in most of our end user markets, which indicates the sales initiatives which we began to implement approximately 18 months ago, are driving the market share gains that we expected.

On the bottom line, reflecting nearly 3 years of cost-cutting and restructuring, we're clearly seeing improved profitability from incremental sales. Non-GAAP earnings for fiscal 2011 increased by 26% to $2.83 per share, which is a record for the Company, led by engraving, electronics, and hydraulics.

Non-GAAP operating income for the quarter was up 19%, and non-GAAP EPS grew 34%. As you will see later in the presentation, our comparison of last year's cash flow, working capital turns, and net debt were all very favorable. Solid working capital performance and a strong full-year cash flow led to a substantial improvement in our net debt to capital ratio. As a result, we believe we are well-positioned to continue the bolt-on acquisition activity that we initiated in fiscal 2011.

The 2 areas where we were not able to leverage our sales growth into improved bottom-line results in Q4 were in food service, and to at a lesser extent, in engineering technologies. As we noted in our Q3 conference call, in engineering technologies we were negatively impacted by purchase accounting related to the Metals Spinner business which we acquired late in Q3.

EBIT in the Metals Spinners business was negatively affected by -- in Q4 by the impact of step up in inventory, and amortization of the acquired backlog flowing through the P&L. With the impact of purchase accounting behind us, we expect to see a more normal sales and EBIT contribution from Metal Spinners in the first quarter, and continuing through fiscal 2012.

The leverage issues in Food Service centered on the refrigerated solution side of the business. Our refrigerated solutions product line has a significant amount of metal content, making it particularly sensitive to commodity inflation. We are also currently seeing shifts in our customer mix, from direct sales to lower margin dealer sales, and from walk-in to reach-in refrigeration products which also carry lower margins. Due to the volatility in commodities, and the changes we are seeing in our sales and product mix, we have been focused on implementing price increases and additional cost reduction initiatives.

In addition, we have initiated factory consolidations in both our refrigerated solutions and cooking solutions groups, which we anticipate completing by the end of the first quarter of fiscal 2012. We expect to begin experiencing the benefit of these factory consolidations beginning in the second quarter of fiscal 2012. I'll discuss these topics in more detail, after Tom reviews the financials.

Stepping back to the broader outlook, we have seen to differing degrees, recovery in most of our end user market segments over the past fiscal year. The biggest exception being the US housing market where housing starts remain at more than a 50 year low. Given the tenuous nature of the global economic recovery, we remain highly focused on operational improvement, and very conservative regarding operating expenses as we begin fiscal 2012. We have, however, identified some attractive opportunities for investment in both productivity and organic growth that we will be funding with capital as the year unfolds.

As always, we will also continue to focus on evolving and maximizing the value of our overall business portfolio. In that context, executing on our acquisition strategy continues to be a top priority for us. Our recent acquisitions are all performing well, in terms of sales and profitability, and in terms of strategic contributions they are making to the growth of our business. We are well prepared for additional acquisitions from a balance sheet and liquidity perspective.

Please turn to slide 4. Q4 was our sixth consecutive quarter of year-over-year sales growth, and the seventh straight quarter of non-GAAP trailing 12 month EPS growth. And the chart illustrates non-GAAP earnings per share for fiscal 2011 were up 51% from the high point prior to the recession in the first quarter of fiscal 2009, on 10% lower sales.

As I mentioned, the non-GAAP earnings of $2.83 per share in fiscal 2011 is a record for the Company, and reflects our ability to leverage additional sales volume and the new lower cost structure that we have put in place over the last 2.5 plus years. I will have more to say on the growth outlook as well, after the financial review. So with that, I will turn the call over to Tom.

Thank you, Roger, and good morning everyone. Please turn to slide 5. Net sales for the fourth quarter were up 14.8% to $174.6 million, from $152.1 million in Q4 of fiscal 2010. Reflecting our volume leverage and cost reduction initiatives, operating income for Q4 which includes $421,000 in pre-tax restructuring charges was $14.7 million, up 20.8% year-over-year.

Operating income and EBITDA for the fourth quarter of fiscal 2011 excluding special items grew 18.8% and 15% respectively, from Q4 of last year. Earnings per share from continuing operations excluding special items grew 34.4% year-over-year. As Roger discussed earlier, engraving, electronics and hydraulics contributed to the fourth quarter year-over-year margin performance improvement.

As slide 6 illustrates, fourth quarter 2011 growth in net income and earnings per share from continuing operations exceeded 20% year-over-year. Net income from continuing operations for the quarter includes post tax, a $276,000 restructuring charge, and $378,000 of acquisition-related expenses. The fourth quarter of 2010 included post-tax, a $56,000 restructuring charge and $634,000 post-tax non-recurring charge related to the resolution of a supplier dispute, which was more than offset by a $1.1 million discrete tax benefit. Excluding these items from both periods, non-GAAP net income from continuing operations increased 34.8% to $11 million or $0.86 per diluted share, from a $8.2 million or $0.64 per diluted share in the fourth quarter of last year.

Let's turn now to our full-year fiscal 2011 results, starting on slide 7. Net sales for the fiscal 2011 dropped 9.6% to $633.8 million. For the full fiscal year, we delivered 7.6% organic top-line growth. Acquisitions and FX contributed 1.7% and 0.3%, respectively. Operating income and EBITDA for the full-year fiscal 2011 excluding special items, grew 16.1% and 10.1%, respectively from fiscal 2010. Earnings per share from continuing operations excluding special items, grew 25.8% year-over-year.

Turning to slide 8, fiscal 2011 growth in net income and earnings per share from continuing operations were approximately 29% year-over-year. Net income from continuing operations for the year includes post-tax, a $1.3 million restructuring charge, a $1.2 million of acquisition-related expenses, offset by $2.2 million in building sales, and a $500,000 pre-tax benefit.

Fiscal 2010 included post-tax, a $2.5 million restructuring charge, and a $634,000 post-tax non-recurring charge related to the resolution of the supplier dispute, as well as $920,000 in building sales, and a $1.5 million non-recurring discrete tax benefit. Excluding these items from both periods, non-GAAP net income from continuing operations increased 25.6% to $36 million or $2.83 per diluted share.

Slide 9 illustrates the impact of our strong free operating cash flow for both the fourth quarter and full fiscal year. Our conversion of free operating cash flow improved significantly year-over-year to more than 305% and 142%, respectively. We used $1.1 million in cash for capital spending in Q4, and consistent with our expectations, $6 million for the fiscal year. Fiscal year 2011 free cash flow per share is a record (inaudible) for the quarter, and is in excess of $4.00 per share. Please keep in mind for comparative purposes, the 2010 free cash flow figures have been adjusted to exclude the impact of $16.7 million of voluntary pension contribution.

Turning to slide 10, net working capital at the end of the fourth quarter was $113 million, compared with $122.9 million at the end of Q3, and $103.6 million at the end of Q4 last year. The increase both year-over-year and sequentially was primarily due to higher inventory and receivables, which are directly in line with higher sales volumes. Working capital turns improved to 6.2 turns from 4.9 turns in Q3, and from 5.9 turns at the end of fiscal 2010. Inventory turns were at 5.6, compared with 5.7 a year ago. Q4 is historically our best quarter for working capital turns, so this was another quarter of good performance. Looking ahead, we would expect working capital turns will plateau at near the 6.0 level. However, seasonality in our working capital will cause our turns to fluctuate from quarter-to-quarter.

Slide 11 illustrates our net debt position as of June 30. Strong cash generation allowed us to pay down debt in the quarter. As a result, net debt decreased to $37.2 million from $59.7 million a year ago, and $68.3 million at the end of the sequential third quarter. We define net debt as short-term debt plus long-term debt or funded debt, less cash.

For the full fiscal year, we generated in excess of $56 million in cash flow from operations, and invested roughly $6 million in capital projects, and nearly $27 million in completing 4 bolt-on acquisitions. Our balance sheet leverage ratio of net debt to capital was 13.2% at the end of the fourth quarter of fiscal 2011, compared with 23.7% a year earlier. Our funded debt decreased from $92.4 million in the sequential third quarter, to $51.6 million at June 30, 2011.

Please turn to slide 12. As Roger mentioned, our long-term capital strategy is focused on a balance of growth initiatives and productivity improvements. For the past 3 fiscal years, however, we have constrained our capital spending to support only critical capital projects. We felt that this was prudent measure, given the global economic recession.

As you can see from this slide, our capital expending in fiscal 2009 and 2011 was in the range of $4 million to $6 million, or approximately 40% to 50% of depreciation. In fiscal 2012, we are anticipating our capital spending to return to more normal levels, which generally is approximately equal to 100% of depreciation.

Our current forecast to capital spending in fiscal 2012 is in the range of $10 million to $13 million. These investments, which Roger will discuss in a moment, will focus on driving volume growth and cost reductions in several areas of our business segments. With that, I will turn the call back to Roger.

Thank you, Tom. Please turn to slide 14, and I'll begin our segment overview, starting with our food service equipment group. Food service sales were up 9.8% in the fourth quarter year-over-year, but operating income was down 8.2% due primarily to margin deterioration in the refrigeration side of the business, which I'll discuss in detail in just a moment. Our top-line growth this quarter reflected continuing strength in demand for our cooking solutions and custom solutions business units. The refrigeration side of the business had only moderate growth, as the sales activity we had anticipated in retail and Dollar Store segments has been slower to develop than originally expected. However, we still expect, particularly the Dollar Store segment, to be an important sales driver for us, as fiscal 2012 unfolds.

The decline in refrigeration margin was driven by 3 issues. The first issue was commodity inflation, which impacted the year-over-year cost comparisons in the quarter. With a significant amount of metal and foam content, this business is particularly sensitive to commodity inflation. During the quarter, the refrigeration group was impacted by higher metal prices, and was not able to capture sufficient price increases in the market to offset inflation. Metal prices have recently stabilized, and first, certain types of steel actually softened somewhat. At the same time, most of our major competitors have recently announced price increases. We are hopeful that the combination of improved pricing environment, and moderating commodity costs will lead to improved year-over-year profit comparisons later in fiscal 2012.

The second issue we faced in Q4 was that a larger percentage of our sales and refrigeration group came from the large dealer buying groups, where we have lower margins due to the impact of discount and rebates. The third issue affecting our leverage in refrigeration stem from a mix shift in our retail drugstore and Dollar Store business away from walk-in products to cabinets, or reach-in refrigeration, which is a lower margin business as well.

Our cooking solutions group delivered it's third straight quarter of double-digit year-over-year sales growth. This growth was driven by solid product demand in both domestic and international markets. During the quarter, we saw positive results from our efforts to penetrate new large chain accounts. As an example, our exclusive arrangement with 7-11 convenience stores to fulfill all of their hot dog roller grill requirements served as a growth driver this quarter. We also benefited from initial sales related to the contract we won last quarter, with a prominent quick service hamburger chain to supply griddles for their premium burger roll-out scheduled to begin on a national basis later this fall.

Sales were also driven by a defense contract we were awarded to supply cooking equipment to the military. Elsewhere in food service, Q4 was a strong finish to a very good year in our Procon pump business, driven by strong demand in both the global beverage and industrial markets. Procon's product development initiatives are showing good results, and we are looking forward to continued growth in this business in fiscal 2012.

With that as background, I'll take a moment now to talk about the margin outlook in food service, and the actions we are taking in that area. First, we believe the combination of price increases that have been announced over the past 3 to 4 months, coupled with rigorous price management and controls, will have a positive impact on the food service group margins in fiscal 2012.

Implementing price increases is often a customer by customer initiative that takes time, and doesn't always deliver the desired outcome. As we move through Q1 of fiscal 2012, we're clearly getting price, where we weren't able to get it 6 months ago. At the same time, we are driving costs out of the system across all of our brands, both on commodity metal side, and in terms of discretionary expenses.

As I mentioned in my opening remarks, the work that we are doing to improve margin in food service also includes factory consolidation initiatives to further rationalize our manufacturing capacity in both the hot and cold side of the business. With that goal in mind, we have been in the process of transferring our Tri-Star manufacturing operations in California, and moving all of our range and fryer manufacturing to Mexico. Both plants have been running in parallel for the past 6 months.

Upon completion of this move this month, we will have relocated over 40% of our North American hot side production to Nogales in the past two and a half years. Simultaneously with this transition, we are moving our Kool Star walk-in refrigeration manufacturing out of Mexico into our existing Master-Bilt facility in Mississippi, in order to improve overall capacity utilization and reduce costs in this part of the business. Compared with operating in Mexico, our capacity in Mississippi is inherently lower cost, despite the favorable Mexican labor rates, due to lower material costs and labor efficiencies achieved through higher levels of automation that are available to us in the Mississippi plant.

In addition, we will be eliminating the redundancies that come with operating 3 walk-in refrigeration plants versus 2. Other benefits include the ability to streamline our [front-end] activities such as customer service, order entry, and application engineering, as well as no longer carrying redundant inventory.

I also mentioned earlier in my remarks that we plan to invest capital in growth and productivity opportunities in fiscal 2012. In that regard, we have installed new laser metal cutting machines and related production equipment at our plants in Mexico and Mississippi, to address additional sales volume, improve material yields, drive productivity, and achieve additional savings in labor costs. As with the range and fire consolidation in Mexico, the cold side consolidation in Mississippi is scheduled to be completed by the end of the first quarter of fiscal 2012. The total cost savings resulting from these 2 factory consolidations, which will be $1.5 million on an annualized basis, should begin ramping up in Q2.

Please turn to slide 15, in the engraving group. The fourth quarter was a strong finish to a very good year in our engraving segment. Our globalization strategy for the mold texturizing business is working well. The mold texturizing business is taking share essentially across-the-board, driven by both our superior technology, and the customer proximity and access provided by our global footprint. Total sales for the group in Q4 were up 10.9% year-over-year. Operating income in engraving was up 18.9%, demonstrating that the operational streamlining and cost reductions we have implemented over the past several years, are continuing to improve our leverage in this segment of the business.

During the fourth quarter, our mold texturizing businesses benefited from strong demand in North America, Europe, China, India, and Asia-Pacific, and we see good sales momentum going into fiscal 2012. This is an outstanding conclusion to a record year for our engraving business in China, which continues to deliver strong growth on both the top and bottom lines. We are expecting to add a new greenfield Chinese plant to our portfolio in fiscal 2012. The business that we recently acquired in India is also running very well. We're in the process of expanding capacity, labor hours, and technical personnel in our [printing] facility to keep up with growing demand.

Although global quotation activity continues to improve, sales of engraved rollers and machines remain essentially flat in the fourth quarter. As I mentioned last quarter, the new cigarette packaging labeling requirements in North and South America represent a roughly $1 million to $1.5 million sales opportunity in fiscal 2012. In anticipation of this, and other significant engraving opportunities, our CapEx plan for the year includes roughly $1 million investment to further automate our roll engraving processes.

Please turn to slide 16, the engineering technologies group. Reflecting a lumpiness we expect in our engineering technology segment, as well as the acquisition of Metal Spinners, sales for the fourth quarter are up 51% year-over-year, and operating income was up 27.1%. As I mentioned in my opening comments, profit leverage in the group during Q4 was negatively impacted by the purchase accounting associated with the acquisition of Metal Spinners. The write up of the initial inventory and backlog flowed through the P&L in Q4, and we expect our profit leverage to be more normal beginning in Q1 of fiscal 2012.

In line with our expectations, during the quarter we saw good sales performance in our legacy Spincraft aerospace markets, which we expect to continue into fiscal 2012. However, we expect our sales in the energy area to be down in the first half of fiscal 2012, as one of our major OEM customers in this market segment implements an inventory correction. Based on forecast information from this customer, we currently expect our energy business to return to more normal sales levels, beginning in the second half of fiscal 2012.

Because a large percentage of our aerospace business is focused on the unmanned Delta 4 and Atlas 5 heavy lift platforms, which are primarily used for satellite deployment, we are unaffected by discontinuation of the space shuttle program. However, we do expect that the end to the space shuttle program will create potential growth opportunities for Standex, as NASA and the aerospace industry seeks alternatives for manned spaceflight, and specifically for resupplying the international space station.

For example, one of our key aerospace customers is United Launch Alliance, or ULA for short, which is a joint venture between the Boeing and Lockheed heavy launch vehicle business units. These 2 companies, collectively, have launch vehicle heritage and capability dating back to the 1950s, which we feel positions them extremely well to assume a leadership role in the next generation of manned flights for the US.

ULA recently announced that with cooperation from NASA, they plan to complete a man-rating project for the Atlas 5 vehicle. As such, this vehicle could be used for manned space flight for resupply of the space station, as well as potentially deep space exploration. The Atlas 5 vehicle, which has benefited from decades of continuous technology improvement, and 97 consecutive launch successes, has launched 27 times over the last decade with a 100% mission success. If ULA is successful in man-rating Atlas 5, this would provide another growth opportunity for our Spincraft business.

In addition, we continue to drive initiatives to capture new business in the energy market, where we are making progress in forging the customer relationships we need to penetrate additional land-based turbine opportunities, and to penetrate the aviation jet engine business, which is a new market opportunity for the group. As expected, the Metal Spinners business contributed to both our sales and our profitability in Q4, driven by initial success in the global oil and gas sector, as well as continued solid demand from existing customers. Our fiscal 2012 capital expenditure plan includes roughly $1.5 million of investment in the newly acquired Metal spinners business to provide additional capacity to support new business that we have captured.

Please turn to slide 17, the electronics and hydraulics group. This was another excellent quarter for the electronics and hydraulic segment. Electronics and hydraulics delivered a 18.2% year-over-year top-line growth, along with strong operating leverage resulting in operating income growth of 41.7%. We are continuing to see strong recovery in our hydraulics business, and electronics posted a sixth quarter in a row of year-over-year top-line growth.

We continue to capitalize on the competitive advantages we have created in electronics. First and foremost, this business offers solid new product engineering and proprietary technologies that we have developed for a wide range of applications in the aerospace, automotive, industrial and medical markets. We also have the advantage of low-cost manufacturing in Mexico and China, as well as recent investments we have made to expand our global sales force and coverage.

A key priority for fiscal 2012 is to improve our magnetics and sensor penetration in the domestic China market. At the same time, we expect several new industrial customer projects in other international markets to begin ramping up in the first half of the fiscal year. In addition, we have a committed approximately $1 million of capital spend in fiscal 2012 to expand our production capacity of Reed switches.

Q4 was another good quarter for hydraulics business. The North America market for hydraulically-operated telescopic hoists continues to strengthen, but not uniformly. Some of the weakness in US appears to be related to the ongoing changes in heavy truck emissions standards, as operators are keeping their existing vehicles in service as long as they can, to avoid the higher fuel and maintenance costs associated with lower emission trucks. Nonetheless, the overall market conditions in North America have continued to improve, and we recently received new longer-term commitments for telescopic and rod cylinder orders in the quarter from 2 large US-based OEM customers.

Outside North America, our global sales expansion initiatives continue to produce good results. Over the past several quarters, we have forged new customer relationships in Brazil, Peru, and Chili in South America, and China, Australia, and Thailand in the Asia-Pacific region.

Please turn to slide 18, the ADP group. In our air distribution segment, sales are up 5.2% year-over-year in the fourth quarter, despite lackluster housing starts, and extremely difficult conditions in the new home construction market. This growth demonstrates that our continued focus on gaining market share, and introducing new products is showing some positive results. In terms of the bottom line, ADP's operating loss from Q4 improved versus the prior year.

As I mentioned last quarter, the market has pushed through price increases during the quarter in the range of 12% to 15%. This helped us from a leverage standpoint in the fourth quarter, and we should continue to see the effects of a more favorable pricing environment as we move through fiscal 2012. Coupled with higher pricing, we're targeting in excess of $1 million in operating cost reductions at ADP in fiscal 2012, which should further improve operating profit performance in the business.

Please turn to the summary on slide 19. In conclusion, as we begin the new fiscal year, we believe we are moving in the right direction, in terms of our sales, earnings, working capital, and cash flow, as well as how our balance sheet is positioned. Over the past 3 quarters, we have delivered high single-digit or low double-digit year-over-year sales growth, despite low global GDP growth. Further, the Metal Spinners acquisition only began to contribute to our sales in Q4.

Despite disappointing leverage in food service in Q4, our fiscal 2011 adjusted EPS was up 51% from it's previous session high point, on 10% lower sales. We believe it is important to recognize that the current global economic outlook is less certain than it was at the start of Q4. As a result, our focus for fiscal 2012 remains on driving market share gains in a low growth market environment, implementing price increases in order to offset the impact of commodity inflation, and to remain aggressive in our efforts to reduce costs and improve our productivity, with a strong emphasis on the food service equipment business.

Highlighting our plan in this area for fiscal 2012, our plant consolidations and restructurings at Kool Star and Tri-Star, as well as capital investments that I mentioned, aimed at driving both growth and productivity across the organization. At the same time, we will remain focused on the evolving and optimizing our business structure to ensure that we continually add to the overall valuation of the Company. As always, we will continue to evaluate both our existing portfolio of businesses, as well as acquisitions that could potentially accelerate our growth.

The 4 acquisitions we completed in fiscal 2011 have met or exceeded our expectations, both strategically and financially. We have a good pipeline of potentially similar deals in front of us, as well as the balance sheet strength and liquidity necessary to capitalize on the right opportunities. With that, Tom and I would be pleased to take your questions. Operator?

(Operator Instructions).

And our first question comes from the line of Michael Saloio, Sidoti & Company. Please proceed.

Hi, guys.

Hi, Mike. How are you?

Good. My first question is are you willing to give what the revenue contribution from Metals Spinners on a dollar basis was in the quarter?

I think in our acquisition announcement, we gave you the trailing12 month sales.

Right, was are they performing relatively in line with that? I am trying to figure out how the core -- how much growth we saw in the quarter?

And again, it would be relatively in line with the previous 12 months that we provided in our announcement.

Okay. The second question was just on food service. The mix shift that you saw towards distributors and away from direct sales early -- that's how I'm understanding it -- but why is that something that we are going to continue to see moving forward?

Well, we don't know that we will. There does seem to be in this particular quarter, and in the last 3 or 4 months, that there was a slowdown in our retail side, not as many new store openings on that side, and more strength on the dealer distributor side. It really has a lot to do with, what will the new build programs look like on some of our large chains going forward. Definitely, we are seeing that Walgreen's, as an example, has slowed down there build program. We expect that to continue. But CVS and the Dollar Store side seem to actually be strengthening. So, we really have a difficult time at this point, predicting exactly what is going to go on over the next 6 months.

Okay. So a lot of the restructuring that you are going to start doing in the food services has a lot more to do with, just near-term commodity costs or?

I would just say, that we see opportunities for ongoing factory consolidations. Our approach of -- that we have identified strategically, is to constantly look for mechanisms and initiatives to optimize our footprint. We do that through a number of mechanisms. First of all, through lean, reducing the footprint through the application of lean principles inside of our existing facilities. But also we have identified strategically that low cost manufacturing, is also a key to what we are doing. So, therefore, the optimization of the move out of our Tri-Star facility into Mexico.

We called it -- we closed on the Tri-Star acquisition in October of last year. Candidly, we were not in the position at that time to make the announcement that we would be moving to Mexico, but that was our intent, as part of the acquisition. And so that move was a structured path, if you will, from -- for the acquisition into low cost operation. In the case of the Kool Star, again, that is just looking at the relative cost of operations, looking at both the material costs and labor costs under the higher level automation, and making a decision that it made more sense to put that into the Mississippi plant. So not really in response to the quarter's performance at all, because the move of Tri-Star was anticipated as essentially a year ago. We have been looking at the Kool Star thing for some time now, and made the decision to make the move.

Okay. You talked a lot about the growth drivers at the Spincraft business. Was there any -- you mentioned lumpiness, was there anything lumpy about the quarter, or is that just kind of your prediction moving forward?

Well, again, we had -- again, we have identified that the lumpiness can be quarter to quarter. We had a very strong aerospace side -- aerospace sales during the quarter, which drove the lumpiness in the legacy business. And obviously, we got the full quarter benefit -- on the sales side from Metal Spinners, so those were the 2 drivers there.

And again, we were signaling that our largest customer on the land-based turbines side will be soft for us, for at least the first 6 months of fiscal 2012. So we are signaling that that would be lumpiness going the other direction. So, it will be quarter to quarter, and there is several end users segment, several large customers, and that can swing quarter to quarter. And in many cases we don't always have great visibility of that. In this case, we do know what is going on with that land-based turbines customer, and so we are signaling on that through our announcement.

Okay. I guess, just lastly, for now at least, the focused diversity strategy that you outlined, maybe 1 year ago, as you talk about that being a top priority going forward, would you say it is relatively in line with the 3 core segments you initially identified? Or is it kind of changing as the profit's really starting to kick in, at some of the other businesses here?

No, I think we remain committed to our focused diversity strategy, as we've outlined it before.

Okay. That's all for me, for now.

Thanks, Mike.

Our next question comes from the line of John Walthausen, with Walthausen & Company. Please proceed.

Yes, good morning.

Good morning.

A couple of questions. In the first quarter in the food service business, you are outlining an awful lot of changes as well as the issue of pressure for raw material prices and slowness in getting prices up. Should we anticipate that that's going to be a challenged quarter for that segment?

Well, certainly, we are not going to see any benefits out of the consolidations in the fourth quarter. In fact, we will record restructuring expense, as we complete those moves this month of September. So, no benefits out of the $1.5 million on -- that we mentioned on the consolidations (technical difficulty) that we identify that we beginning to see at least some of those savings beginning in Q2.

On the pricing side, as I mentioned in my comments, it is literally a customer by customer, I won't say battle, but it is an issue that we negotiate customer by customer. We have implemented pricing increases beginning on July 1. Each brand and frankly each product line within each brand will tend to have its own price increase strategy. So, I can't say that there is a light bulb that turns on, and all of a sudden there is pricing coming through overnight. But you can expect it will filter in during Q1, and then continuing into Q2.

Okay. In terms of price increases there and in other segments, I would think with the economy showing some signs of slowness in raw materials tapering off, aren't you seeing a lot of push back from -- on price increases?

Not yet, until you mentioned it. (Laughter).

Well, thanks.

Obviously, the big one that is out there is the CRU, and the CRU peaked out probably, what 8 weeks ago, and then started to tail off. And so, that would be the one that gets the most visibility on the part of manufacturers, as well as on the part of customers.

And I will say this, though, that even though there has been some softening on a year over year basis, the CRU is still up very, very substantially. So it is relative to product that we are, or raw materials that I should say we were buying, say 3 or 4 months ago, yes, we have seen softening, but we are still up very substantially year over year.

Okay, good. That is helpful. And then with the signs of softening in the economy, if when we look at your different businesses, of course, you are reporting just through June, but as you look at the -- at how the fourth quarter unfolded and the subsequent months, are you seeing signs of softening of your order rate in some of the businesses?

Well, we really don't give forward-looking statements that in that regard. What I can tell you is again, outside of our Spincraft business, our average backlog is around 4 weeks. So, we have very limited perspective, but what I can tell you is, that we haven't seen a dramatic change yet, but we have very limited visibility.

Okay, okay, fine. That answers my question. Thanks a lot.

Thank you.

(Operator Instructions).

Our next question comes from the line of Jamie Wilen, with Wilen Management Company. Please proceed.

Great quarter, and great year, fellows. A couple of questions. I know John asked a pricing question, but let me try to do the different way. In the last year, how much have your competitors raise their prices?

Are you are talking specifically, Jamie, food services?

Yes, exactly.

And again, I don't -- I'm not trying to be evasive, but the percentages vary depending on cold side versus hot side, the degree of metal content, the degree of stainless versus carbon, but in the 3% to 7% range, I think we captured the bulk of the increases.

Okay. And we're -- we should be at that level now?

Yes.

Have we recaptured most of the increases at this point?

Yes, we are attempting to put those kinds of type of pricing increases into place, but that -- as I mentioned in my comments, that process is ongoing as we speak.

Okay. Within the factory consolidations, you talk about the savings, but you've also talked about the last year running a lot of dual costs. How much did that cost you this year, and when you talk about $1.5 million in savings does that include those dual costs?

I don't have a number for you for the redundancy costs, I should have. The $1.5 million does not include that. The $1.5 million is just straight moving from one facility to the other, but does not include the elimination of the trailing 12 of the redundant costs.

Okay. And the magnitude would be less than $1 million of the dual costs?

Yes, I would guess, frankly, in the $0.5 million to a $1 million range.

Okay. And the dual costs are now behind us, or we'll still have some dual costs a bit in this quarter, in the September quarter?

And, again, those moves will be finished in September, so you'll definitely have redundant costs in the -- in the September quarter.

Okay. But beginning in the December quarter, we should start to begin to see those savings?

The elimination of the costs will be -- the redundant facilities will go away, as a definitive in our Q2. And then, it will be a question of the ramp-up in productivity in the receiving plants, but so we probably won't be full-year at the $1.5 million level, but certainly the redundancy costs will go away. And it will be a matter then, of how quickly can we drive productivity levels to our standards.

Okay. What you have done in the last year is you've been managing these businesses incredibly well, yet, on the flip side of it, you are one of them more under appreciated management teams on Wall Street. As I look at your capital structure, you have the opportunity to make the acquisitions and buy-back a bunch of stock at the same time, what would be your optimal capital structure, and how much would buy-back play in part of that?

Well, again, as the Board has discussed this issue pretty routinely, our preference, or our stated direction is more toward the acquisition side than the stock buy-back side. The rationale for that is a couple fold. First of all, we think that there is a reduction, if you will in our share price as a result of our small size. And that hopefully as we were to get bigger, that we would see a higher multiple. I think the second side of it is, our float is relatively small. And what we do hear from some of our larger shareholders is that the lack of float or size of the float causes them to not be as willing to get into the shares, because it takes them longer to get it in, and longer to get out, that type of thing. So, in general, our preference has been more to grow the business than to go through the stock buy-back.

And lastly, on the acquisition front, everything you are looking at, I assume must be accretive from the get-go. And what size of acquisition are you looking at? Are they in the $5 million to $20 million range, or are we looking at different things?

That is a good point. More recently, we have started to expand and look at larger potential deals. We haven't obviously done anything. But whereas over the last 12 months, we were trying to stay below the $25 million purchase price. Certainly more recently, as again, our balance sheet continues to strengthen, we are looking at larger deals -- haven't announced yet a specific size, but we would definitely, we'd look outside of that. Our objective is to be accretive in the first year, and thus far we have been able to do that. If a deal was very strategically well-aligned, I think the Board will consider the possibility of being less than accretive in the first year, but our stated objective is to be accretive in the first year.

Okay. What rate are we currently borrowing at?

On the order of, say, on the blend, 2.5% to 3%.

Okay, perfect. Okay, thanks, fellows. Wonderful job.

Thank you.

We have no further audio questions. I will now turn the call over to Roger Fix for any closing remarks.

Thank you for your interest. We appreciate the questions. We look forward to talking to you again next quarter. Thank you.

Thank you for your participation in today's conference. This concludes today's conference. Everyone may now disconnect. Have a great day.