泰利福醫療 (TFX) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Teleflex Third Quarter Earnings Conference Call. My name is Shana 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 today's conference. At that time, if you wish to ask a question please press "star" followed by "one". If at any time during the call, you require assistance, please press "star" followed by "zero" and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

At this time, I will turn the presentation over to your host for today's conference, Ms. Julie McDowell, Vice President of Corporate Communications. Please go ahead, ma'am.

Thank you, Shana, and good morning, everyone. Teleflex issued a news release yesterday reporting financial results for third quarter 2005. The release is available on the Investor Relations page of our corporate website at Teleflex.com. We have also posted accompanying slides and in the historical financial information section, you will find a revised schedule for our discontinued operations.

I'd like to remind you that today's call is being webcast in a listen-only mode. In addition, a replay webcast will be archived and available on our website. An audio replay will also be available by dialing the following phone number, 888-286-8010 or for international calls, 617-801-6888, pass code number 34278708.

First, Jeff Black, President and Chief Executive Officer of Teleflex, will discuss the results and update you on Teleflex's strategic initiatives. Then Martin Headley, Teleflex's Executive Vice President and Chief Financial Officer, will outline the details of the financial information in the press release.

After formal comments, as usual, Jeff and Martin will take your questions.

Before we begin, I want to remind you that our comments today will contain some forward-looking statements, including, but not limited to, statements regarding earnings, conditions in the markets that we serve, economic assumptions, expected volumes and the like. Comments will certainly contain forward-looking statements relating to planned actions under the restructuring program, cost benefits, expected reductions in location workforce, timing of divestitures, phase-out or consolidation of Teleflex businesses, charges related to the restructuring programs and expected diluted earnings per share from operations before and after giving the effect of charges related to restructuring.

Please remember, these statements are subject to various factors that could cause actual future results to differ materially from those that may be contemplated in today's statements. Among other things, inability to sell businesses at prices within time periods anticipated by management, unanticipated (inaudible) I in connection with the effectuation of the restructuring programs, cost and length of time required to comply with legal requirements, applicable to certain aspects of the restructuring program, unanticipated difficulties in connection with consolidation, manufacturing and administrative functions and other factors described in Teleflex's filings with the Securities and Exchange Commission.

For more information, please review our most recent Form 10-K and other SEC filings.

And with that, I will now turn it over to Jeff.

Thanks, Julie. Good morning, everyone. Thanks for joining us today. We are happy to join you after another solid quarter for Teleflex in a year that has been marked by consistent and steady execution. 2005 has been a busy year, with our restructuring initiatives and portfolio realignment moving on a steady parallel path to unlock shareholder value.

I'm please to announce that the plan is working. We had some key objectives in mind when we kicked off these programs in 2004. One was to position Teleflex for consistent growth on the topline and reflecting this core growth was a healthy 4%, both in the quarter and on a year-to-date basis; this, despite some softening in the key commercial markets.

Another objective was to better utilize our existing infrastructure to unlock earnings leverage on the bottom line. Evidencing our success here, operating profits, after corporate expenses, is up 34% in Q3 and 25% on a year-to-date basis. This is a function of our improved utilization of manufacturing assets as we migrate production towards larger centralized plants in low cost locations, as well as the elimination of certain loss-making businesses through our portfolio realignment program.

There are some areas we are watching with a cautious eye. In the commercial segment in the third quarter, we saw a few storm clouds on the horizon literally and figuratively. Hurricane Rita and Katrina, in addition to devastating the Gulf Coast, devastated the boating industries and we are seeing marked softness in our customers' forecasts for the next few quarters. Market conditions in marine generally had a negative impact in the third quarter, when you compare it to last year, which was a record year for Teleflex in our marine business.

In the auto industry, the employee pricing initiatives, which fueled growth throughout the year, came to an end. And we are anxiously waiting to see how new platform launches progress. Commercial margins in the third quarter were also impacted by delay in product transfers to a plant in Mexico.

Another single issue to point to here, delays in the final transfer of manufacturing, led to redundant costs and were compounded by a host of other issues, things that obviously happen when a transfer doesn't go well. Just to complicate matters, hurricanes and power outages challenged logistics and operations since the facility we are transferring from is in the Houston vicinity. Honestly, we are not happy about it. And the strategic development team is working hard to get these issues resolved in this quarter. But I am encouraged by the fact that we've had -- that we've completed a large number of manufacturing product transfers already this year and this is really the first one where we have experienced extended delays.

All told, we had a good bottom-line result in the third quarter with diluted EPS from continuing operations excluding special charges of $0.87. On a year-to-date basis, diluted EPS from continuing operations, excluding special charges, is $2.67. The Medical and Aerospace segments carried the day , while the Commercial segment momentum was slowed by the market and product transfers, which I just mentioned. We continue to be on track to meet our overall guidance for the year.

In the third quarter, Teleflex continued to be a good cash flow story, with operating and free cash flow growing at 31% and 37% year-to-date. This has enabled us to exit the quarter with a very strong balance sheet with a 26.7% ratio of net debt to total capital. Essentially, we paid down debt and returned to pre-Hudson balance sheet strength in just 5 quarters, no small accomplishment considering the Hudson acquisition was our largest ever.

The Medical segment again posted solid operating margins of 19.8%. We expected more of a downtick here with the seasonal lower revenues, but we are obviously pleased with the performance. When I step back and look at what we've done since we acquired Hudson in July of last year, I'm very impressed with the work that has gone on and the team that has been very dedicated to this large project.

In the Aerospace segment, we've also had a remarkable turnaround from just this time last year. One year ago, we were still struggling to get out from under the IGT businesses core financial performance, and we are anxiously awaiting for the uptick in the end markets to drive growth for the cargo handling and precision components group. Today the Aerospace segment is in execution mode. It has posted $20 million of operating profit this year and has a steadily growing backlog.

We continue to have some nice wins in our cargo systems. During the quarter we also benefited from a long-term sole source agreement for repairs, signed with a major engine manufacturer. At the same time, another manufacturer notified us that they will be in-sourcing repair business starting at some time next year. In any case, you can imagine that the tone of the internal conversation around Aerospace is quite positive compared to just a year ago.

Last quarter we announced the buyback program of $140 million, and someone asked on the call if it was window dressing or if we were serious about buying back shares -- again, not something Teleflex has done in the past. This quarter we showed the Street that we were serious, buying back $39 million of our shares in the open market.

We also completed the automotive pedal systems divestiture, concluding the sale of the business to private equity firm, Sun Capital Partners Incorporated. Last year we were spending a lot of time, both internally and externally, discussing the performance of the pedal systems business, which overall was an overhang for Teleflex. It's good to have this behind us and to be focusing on ways to grow our business as opposed to fixing it.

To-date, we've completed actions or made decisions on businesses representing more than 360 million in annual revenues under our broad portfolio evaluation program. As noted here, this week we completed the sale of some intellectual property to Boston Scientific related to a stent product. In this regard, we will continue to act as a contract manufacturer for this product and only solidifies our strong relationship with Boston Scientific.

In summary, we continue to make good progress during the third quarter and we're headed in the right direction. The Aerospace business is carrying the day at the moment with expanding backlogs and a topline growth driving manufacturing efficiencies and obviously, better operating margins. Medical had a solid performance thus far in 2005 and heading into the fourth quarter, we're closely monitoring restructuring moves. In the commercial segment, the marine industry is adjusting to lower demand, automotive is in the midst of the transition from employee pricing to a new model year. And we had a self inflicted restructuring snafu that pressured our results in commercial as well.

Looking into Q4, we see ourselves coming in at the lower end of the $3.65 to $3.80 range we've been forecasting for earning from continuing operations excluding special charges and gains. At the same time, favorable gains on divestiture of non-core businesses and asset sale has us increasing our expectations for earnings from continuing operations including special charges and gains to $3.30 to $3.40.

And we are looking at acquisition opportunities as many are, nothing specific to talk about at this time but we're seeing some good ideas on the acquisition front from some very creative investment bankers. Our corporate development team seems to be enjoying the chance to be more active in terms of buying, not just selling.

With that, let me turn it back over to Martin for the financial review. When he is done, I'll make a few closing comments and then we'll move on to your questions. Martin.

Thank you, Jeff. As indicated on the next slide and on the chart in the press release, Teleflex earned 35.7 million or $0.87 per fully diluted share from continuing operations during the third quarter. On a year-to-date basis, we've reported 98.7 million or $2.41 per diluted share from continuing operations. With special gains associated with the restructuring program but were very nearly offset by gains on sales of non-core businesses and other assets freed up by the restructuring actions. We also earned 35.8 million or $0.87 per fully diluted share from the underlying continuing operations during the third quarter, excluding the special charges and gain on sale.

For the 9 month period, earnings, excluding these items, were 109.2 million or $2.67 per fully diluted share for that 9 month period. (Inaudible) change to our reported number to make it difficult to simply describe our progress from the divestiture and restructuring actions. This might be best portrayed by picking up last year's third quarter earnings release and comparing the reported earnings there of $2 with the $2.67 shown on this slide for the comparable period of this year

As you see on Slide 12, it was a solid quarter for Teleflex. Revenues increased 2% from an overall basis, which included a healthy 4% core growth component. Divestitures completed over the year resulted in a 1% decline after the distortion in last year's comparative from the inclusion in the third quarter of the first 9 months revenues for variable interest entities consolidated for the first time during that 2004 third quarter.

Gross margins have decreased 180 basis points compared to the third quarter of 2004 and 60 basis points from a year-to-date basis. This is largely attributable to the commercial segment owing to the manufacturing efficiencies that Jeff mentioned earlier, as well as the softness in our high end margin marine products.

The trend in reducing sales, engineering and administrative cost continue to abate. SG&A expenses were down over 17% compared to the third quarter of 2004. The net result is operating income, that is, net of corporate expenses, but excluding special charges and gains, are up 33% for the third quarter to 61.4 million and operating margins are up 250 basis points to 10.5%. Year-to-date operating income is a very healthy 24% with margin rates expansion of 140 basis points.

Looking through the segments, for the medical segment, the highlight for the quarter was our ability to maintain margin operating just below the 20% goal we set for the segment during the seasonally slow quarter. In part, we achieved this by making permanent through process enhancements some of the cost savings attained during the second quarter.

On the sales side, we had core growth from new product sales of surgical devices and specialty products from medical device manufacturers. This tempered the negative impact of increasing competitive pressure in the urology segments. We are working to combat this with the transfer of manufacturing to lower cost plants which will increase our cost competitiveness for these products.

Overall, medical continues to make excellent progress. We expect fourth quarter operating margins in the same 20% range with continued improvements above this threshold in 2006 of restructuring activities.

In the commercial segment, sales of products for industrial OEM markets continue to be strong, while the marine market took it on the chin. Automotive revenues were strong during the quarter driven by employee pricing initiatives and the strength of some big three programs in Europe.

Operating margins in the commercial segment were disappointing with an accelerating adverse mix that favors tougher industrial OEM markets. . This had the strongest impact on the year-on-year margin rate decline. We also experienced the significance in efficiency costs of a couple of facilities that Jeff explained more fully earlier in the call.

The strengthened Canadian dollar also reduced margins in the segment. But was offset by for Teleflex as a whole with favorable Canadian currency effects in corporate expenses. As a result, operating profits decreased 44% to $9.2 million for the segment during the quarter. We've tempered our forecast for the segment in the fourth quarter outlook with impacts in automotive and marine market.

We are monitoring production changes or last minute shutdowns at some of our marine and automotive customers. We've actually not seeing significant changes in the models we're on in North America, but we did have a few additional shutdown days called by a European customer in August and October. We are also monitoring a couple of new product launches closely to review their impact.

Backlog in automotive is strong right now. And we expect fourth quarter counts to be favorable compared to last year's fourth quarter. That's the best way to characterize automotive because this business should be a positive story year-over-year, but just not to the extent that we projected as recently as August.

Turning to the aerospace segment. The businesses in the aerospace segment accelerated their continuing improvement this quarter with all three of the businesses performing well, full growth for the segment being 15%. Cargo systems significantly outperformed last year with increased deliveries of both main deck and lower deck systems

The quarter was particularly strong from delivering an extra system, previously scheduled for the fourth quarter. We also have a nice increase in sales of narrow body cargo loading systems.

Operating profit growth is more even more dramatic for the quarter, improving from 2.5 million to 11.5 million. Obviously, elimination of the loss making IDC business was a big contributor here, accounting for approximately 2/3 of the margin rate improvements.

But coal business fundamentals are also important and contributed by both cargo systems and precision-machined components driving to higher margins. Cargo systems have methodologically improved standard product costs and additionally benefited from [Euro-price] during the third quarter.

Restructuring charges totaled 5.8 million in the quarter. Of this, approximately 2 million was for severance and stay bonuses for terminated employees, 200,000 was for contract termination costs. Other restructuring costs totaled 3.6 million and include planned transition expenses, such as moving and relocation, direct costs associated with the implementation of shared service initiatives and the allocation of HR costs for employees who were 100% dedicated, implemented to the restructuring programs.

There are no changes to our expectations regarding overall restructuring program costs. We continue to expect total costs in the range of 203 million to 211 million and cash cost in the range of 68 million and 76 million. When we first forecast cost savings from the divestiture and restructuring program, we were anticipating cost savings of 75 million to 85 million on an annualized basis in 2005. With the restructuring schedule changes we've discussed today, the fourth quarter impact will be slightly less, but this is largely accounting difference. And we anticipate the full level of savings in the fourth quarter of 2006.

The cash flow performance continues to be good. Throughout 2005, we have continued to set new records for operating and free cash flow. And the third quarter was no exception. We expect the year to come in at the high end of our guidance for cash flow provided by operating activities from 20% to 25% of the prior-year performance, which was 237 million.

Capital expenditures have increased somewhat in the second half of the year with IT spending, new product support and expansion expenditures required. For the full year, predicted capital expenditures were just shy of 70 million. Depreciation and amortization for the full year can be expected to be between 100 million and 105 million.

We also continue to return cash back to shareholders. We've increased our dividend for 28 years, generally with double-digit percentage increases. And as Jeff mentioned, we returned 39.3 million of our stock buyback program this quarter. We believe the purchase of our shares in the open market continues to represent a good investment to the prices at which we've participated in the market.

We've now successfully repaid much of the incremental debt that we took on when we acquired HudsonRCI for 458 million in July 2004, the balance sheet debt and leverage returning to about March 2004 levels. As Jeff said, this is quite an accomplishment in a short period of time.

Looking at working capital, our asset velocity slid a little during the third quarter, as anticipated, with the effects of the July and August shutdowns. Additionally, we have inventory (inaudible) in conjunction with plant transitions in the medical and commercial segments. Also, accrued liabilities reviews, as restructuring and integration accruals were spent. Continue to focus on asset velocity is a critical metric to measure our balance sheet effectiveness. We expect this to continue a long-term positive trend.

Looking to the fourth quarter, as Jeff mentioned, we see Teleflex completing the year at the low-end of our $3.65 to $3.80 per share guidance for fully diluted EPS for continuing operations, before restructuring charges and gains on sales of asset and businesses. Gains recognized in the third quarter from assets and business dispositions were resulted -- have resulted in us increasing our guidance for reported diluted earning per share from continuing operations to $3.30 to $3.40.

During November, we completed our analysis -- October, sorry, we completed our analysis with the impact of the American Jobs Creations Act. We've decided to repatriate 300 million during November and December with potentially a small net tax benefit to be booked in the fourth quarter. We will continue to look at future utilization of foreign tax credits in the fourth quarter, in order to bring this estimation process to a close. With that, I will turn the call back to Jeff for closing comments.

Thanks, Martin. So, as we wrap up the third quarter and head down the home stretch for 2005, we've accomplished quite a bit. When I take a stepback, and think about the tone of business on our third quarter 2004 conference call, and the tone of of business today, I find the change quite remarkable.

Today, we have some pockets of softness in our business and some operational efficiencies to work through. But, on balance, we are executing and delivering good financial results. Cash flow has been solid all year and our balance sheet is rock solid. We're looking outward at what we can acquire to augment our core businesses and we are investing real dollars in our share buyback program. So, the game plan going forward is more of the same. To that end, we will be back in touch with you in mid-December to discuss our outlook for 2006, as we did last year. With that, I will turn back over to Julie for questions.

Before we take questions, I'd like to ask all participants to please limit questions to one and follow-up. And we will cycle around again. I appreciate your consideration on this. And we are ready to take your questions now.

Operator?

[OPERATOR INSTRUCTIONS]

And the first question does come from Deane Dray of Goldman Sachs. Please go ahead.

Thank you. Good morning.

Morning, Deane.

Morning, Deane.

Morning.

The first question would be the margin improvement in medical, a very pleasant surprise, because you had thought you might see a little bit of a downtick there. Could you give us some color as to what the key factors there, why this has sustained a 20% target? I know this is good news. But how much of it is Hudson? Is your volume price mix issues, and how concerned would you be about the urology competition?

I think, Deane, the benefits come largely, as I said, from systemizing in process some of the cost benefits we got in the second quarter and making those permanent benefits by getting the costs completely out of our cost structure. Compared to really our expectations, the topline was actually on the softer side because of some of the urology competitions. So if this was not volume driven, this was a cost driven part of the process across pretty much the whole organization. It's a taken a very disciplined look and revisit to the extent to which they needed to bring added resources in a way which they did various other processes.

Now, but when we look at the Hudson factor, you are basically taking an existing product line and putting it through -- a new product line and putting it through your distribution channel.

Um-hum.

Is that kind of your operating leverage on the distribution channel factor here?

That's a continuing one. And we have continued -- we have achieved a large part of the distribution channel leverage. At this time, there are some distribution benefits that will come through probably in the early part of 2006, when we've made a final distribution structure change that's occurring on for the Western US later this year. But we're largely getting that through now. There are some more benefits to come through next year. Clearly, the most important things still to come through are further of the restructuring benefits in the medical business that will impact more of the gross margin.

Okay. And then just a follow-up on the commercial, leisure and marine business. We've seen the impact of hurricanes before. And often times, the view is towards what the rebuild and some of the after market repair business that will come through, and it sounds like your tone here is more on the impact on some of the OEM's and shutdowns. And how do you see this? Is this a temporary phenomenon and take us out the next couple of quarters.

Well, I think there is a factor here that the hurricanes really have impacted, which was the (inaudible) effect into fuel prices. And that just exacerbates a a trend that was continuing to be an issue in marine businesses of not just at the OEM level, but in the after market, people not utilizing their boats because they couldn't afford to on a discretionary basis. So I think we're seeing that impact as much stronger in the current period. It's very difficult for us to see forward as to what the impact into 2006 might be from a rebuild point of view on the marine market.

Yes, Deane, I think last year, there was several hurricanes that blew through Florida and we would have thought we would have seen uptick both on the OEM side, as well as the after market side. I've got to tell you, I think in spending time with some of the people in the market, what we've seen is many of those people are still trying to get their houses rebuilt, much less work on their boats. So again, I think what we've become is somewhat conservative in this regard and I think we're going to manage the business accordingly, but the marine business has some fairly dramatic swings and I think our attitude is we are pretty well positioned whether we see it on the OEM side or whether we see it on the after market side that we can react accordingly.

But either way, there is some softness in the near term?

Yes. But the one thing about marine people is you never hear that from them. They have a fair amount of bravado that even in light of the hurricanes, they still believe that they can do better than they did last year. To me, that's part of the sprit of the marine business.

Okay. Thank you.

Thank you. And your next question comes from the line of Jim Lucas of Janney. Please go ahead.

Thanks. Good morning, all.

Good morning, Jim.

First question, Jeff, could you give little deeper dive into what you're seeing in the auto market. Clearly, with the recent bankruptcy and one of the big three showing signs of struggling even further, can you talk about what you're seeing there and what kind of steps you're taking to position the auto business going forward?

Sure. I'll give you the first from 40,000 feet is, it never ceases to amaze me when the automotive businesses is struggling, we're an automotive supplier and I think again, people forget about our balance and diversification. I was just recovered from the aerospace downturn and now we're looking at the auto. I think we're cognizant. It is scary when you see someone the size of Delphi taking the steps they have. I frankly think it was quite positive to the UAW concessions and I think everyone was kind of looking at 2007 as the big showdown between labor and management in terms of trying to either get right sized or reduce some of their legacy exposure.

Our real concern is while we -- the big three you can't ignore. We're finding more growth opportunity outside of the big three. And I think Europe, we've done very well especially on some of the new platforms. But the whole supply chain is fragile at best, and I think people are kind of looking and saying is this -- we're finding a lot of the people we compete with in the automotive business are now vastly migrating to the industrial market, so they can find some diversification as well.

So we're seeing some people show up we hadn't seen in the past. But overall, I think again, as we've said in the past, we've taken a pretty conservative approach to automotive. I think we're getting the right structure, both on the front-end and the back-end and frankly, we are a global supplier which has plenty of opportunity. And I got to tell you, I think getting out of the pedals business created a whole different conversation with our customers.

Now, it's still about price and how much can you do for me, but at the end of the day, just having to deal with pedals always took the conversation into a fairly defensive arena for Teleflex. So we understand the dynamics; frankly I think we're dealing with them and I think again, we've got a fairly proactive approach in that marketplace today.

Okay. And next question, I guess would be in two parts. I mean, if you look at 2005, you had quite a lot on your plate and outside of the one consolidation issue that you highlighted in the third quarter, you made some very tremendous in in a short time. This is Wall Street, after all. So we're not looking back; we're looking forward. What is next from -- I guess, one on the cost side, there is obviously more to do. I guess the big question would be is there another big charge to take? And secondly, you alluded to the acquisition, some of creative things coming your way. Can you talk about some of the -- have you switched from cost to growth?

One, there is not another any charge looming on the horizon. I think what we have put forth, we're still executing the restructuring plan that we put forth a year ago. I will tell you -- I think the board understands in some of our markets, you know, dynamics are going to drive some of our decisions. And I think, again, while we'll have plans in place, we will react accordingly. The cost side, Jim, , we talked about it before. Do you want to talk about supply chain management, do you want to talk about some of your internal productivity?

We've seen firsthand with the SD team in place, some of the real benefits of driving that, moving back towards a more leaner organization. And so, I think, those are still opportunities that exist out there. I also would tell you on the working capital side, there is plenty of opportunities to still take cash out of working capital. So I think, from a cost standpoint, there is plenty of opportunity, even if the market and the economy decides to slow even further than it has in the last probably, 60 days.

From an acquisition standpoint, you've probably heard through a variety of calls, prices are fairly high. You've got a lot of private equity money looking to be put to work. So we've seen some of the multiples go up, yet, we've thinking a lot of these markets were a better strategic buyer than a private play, but that's still yet to be determined. So as I said, when you've got 250 million in cash, and you have the debt capacity, we've met of lot of investment bankers in the last 60 to 90 days. And I will tell you, some of them have been very creative and have talked about deals we've never even seen before. So, to me that's a positive.

Okay. Thanks a lot.

Thank you. And our next question comes from the line of Wendy Caplan of Wachovia Securities. Please go ahead.

Good morning.

Hello, Wendy.

I have a couple of just quick questions. First, Jeff, have there been any meaningful management changes -- were there any meaningful management changes in the quarter or any expected going forward over the next 6 to 12 months?

It's been a while since I've talked about management changes, so I'm glad you brought it up, and not me. Yes, we have. Vince Northfield, who was really running our strategic development team, has been put in place as our Commercial Group President and that happened sometime ago. For those of you who don't know, Vince is probably one of the strongest operating individuals within Teleflex, bar none.

But, when you look across our portfolio, our industrial products are somewhat similar to our automotive products. So, again, I think having one person kind of driving some of the synergies in the right structure will benefit us probably in the next year to 18 months. So, Vince would be -- and again, Vince is not new to the organization. It's a new role for him and we've not had a Commercial Group President, oh, probably for 8 to 10 years. But I think it's an appropriate, and again, I have the utmost confidence that he'll execute accordingly.

Thanks. And Martin, a quick Delphi question. In terms of receivables, can you talk about that, please?

Well, as we referred during the call, Wendy, we took a charge of approximately $1 million on the receivables exposure in the quarter and that had an adverse impact on our commercial segment results in the quarter.

Okay. And finally, do you expect commercial to be profitable in Q4?

Yes. We would expect commercial to recover to margins near the the 7 to 9% kind of range.

Okay. And finally, the competitive pressure in urology that you referenced, Jeff, can you give us some more details on that, please?

Well, I think, again, it's a global market. We've been concerned for some time on the global competition. But we've also seen some of the bigger companies who we compete with getting more aggressive on a pricing standpoint, not just here, but abroad when you get into certain product lines. I think our attitude is we have the opportunity to move to lower cost. But at the same time, we are trying to go out there and create different relationships with several of the hospital networks, whether it be the GPOs or the IBMs. So , it's competition. I think we're position to respond to it. But I think the decline we saw probably more than we had anticipated.

And the resolution of that, aside from changing the way you do business with some of your customers, do we worry that it's spreading to other areas of our exposure in medical, first? And second, have we considered kind of selling this business or other alternatives?

No. I think the message, and I'll deal with your second question is the answer for the management is, you can't sell everything. You actually have to manage some of these things through what I refer to as difficult times. And again, I think the management that we haven't placed in medical is very proactive, very in tune to the marketplace. So I do not believe it's a divestiture. Again, if we have divestitures, I think they will be smaller in nature than what we've done recently. But, again, I think you've got to look at this in terms of the channels to market. You have to look at it in terms of who you want to back. And more importantly, this product, the urology products are what I refer to as mature. So when you get into that, it's a whole different strategy in terms of marketing and pricing than you get into one that is growing fairly rapidly. So I think the urology has grown typically in the 1 to 3%. So I think we're trying to deal with it on several levels.

And do you see it spreading to other pieces of that business?

No. I can say at this point, we have not seen that.

Okay. Thanks very much.

[OPERATOR INSTRUCTIONS]. And at this time, we'll conclude the question-and-answer session, and turn it back over to your presenters.

Thank you. Again, the replay of the call will be available on the Teleflex website or by phone. For those of you who may have dialed in late or would like to review, the replay number is 888-286-8010 or for international calls 617-801-6888, passcode number is 34278708. Thanks.

Thank you again for your participation in today's conference call. This concludes the presentation. You may now disconnect. Have a great day.