TriMas Corp (TRS) 2013 Q1 法說會逐字稿

Good day, everyone. Welcome to today's first quarter 2013 TriMas earnings conference call. As a reminder, today's call is being recorded. Now, at this time, I'd like to turn the conference over to Ms. Sherry Lauderback. Please go ahead, ma'am.

Thank you and welcome to the TriMas Corporation first quarter 2013 earnings call. Participating on the call today are Dave Wathen, TriMas' President and CEO; and Mark Zeffiro, our Chief Financial Officer. Dave and Mark will review TriMas' first quarter 2013 results as well as provide additional details on our 2013 outlook. After our prepared remarks, we'll then open the call up to your questions. In order to assist with your review of our results, we've included the press release and PowerPoint presentation on our Company website, www.trimascorp.com under the Investors section. In addition, a replay of this call will be available later today by calling 888-203-1112 with a replay code of 1372622.

Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas may contain forward-looking statements that are inherently subject to the number of risks and uncertainties. Please refer to our Form 10-K for a list of factors that could cause our results to differ from those anticipated and any such forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website where considerably more information may be found. And at this point, I'd like to turn the call over to Dave Wathen, TriMas' President and CEO. Dave?

Thanks, Sherry. Good morning to everyone on the call. My goal this morning is to share with you another positive quarter of TriMas results, insight into the rest of 2013, as well as our plans to continue performing well in the future. I will provide some opening remarks. Mark will share financial and segment highlights, and then I'll look forward. After that, we'll go out and take your questions.

During the first quarter each year, we refresh and update our rolling three-year strategic plans in each business and for overall TriMas. We've just finished these reviews and I'm upbeat on our ability to continue our track record of sales and earnings growth.

Let's recap first quarter 2013 on slide four. Despite a tough low-growth economy, TriMas revenues were up 13.5% and [income] increased 28% excluding special items. That two-to-one ratio of earnings to revenue growth matches my own centerline metric for what a company like us should be able to accomplish while investing for the future. EPS was up 13% while absorbing 14% more shares outstanding than a year ago. After May, comparative share counts will be more consistent.

We are continuing to actively invest for the future in both growth and productivity programs. We have a good pipeline of both. So it's great to have the financial horsepower to capitalize on these opportunities. We prioritize these investments based on payback, strategic alignment, and our ability to implement. If there is a constraint to accelerating growth, it's usually technical capability. We successfully added some highly capable technical people, but like all companies, we do see a shortage of qualified candidates, especially in the US.

With all that said about investments for the future, long-term success comes from continuous short-term successes. So we keep after making sure our acquisitions are delivering synergies, we measure all our growth and productivity programs for attainment; and we stay focused on our short-term metrics, including cash flow, working capital, and leverage.

I'm asked questions about the current environment. So we've provided some highlights on slide five. TriMas has a good track record of revenue growth despite slow economies. I submit that the key to achieving this growth is that we find the bright spots, focus on these opportunities, and execute well. We see ongoing strength in the energy and petrochemical markets, aircraft build rates, middle-class populations growing in Asia and South America, a construction recovery.

We follow our customers where they need us. Our recent acquisitions are performing well and we've closed on four more acquisitions so far in 2013. The four acquisitions include Martinic Engineering, which is now an integral part of our aerospace offering and provides nice upside in our highly profitable growth of aircraft content; GVT in Brazil to expand our coverage in that key energy growth area; Wulfrun in the United Kingdom for specialty fasteners to grow content with refining customers, plus reduce cost for fasteners that we previously outsourced; and we are just now announcing our acquisition of Witter towbars in the UK, which is another step towards globalizing our Cequent business.

I'm not here to convince you that our jobs are tough at TriMas, but I do have the knowledge there are headwinds ranging from slow economies in the US and Europe to rising costs in China and plenty of barriers to getting ourselves well established in places like Brazil. Of course, we all would seek the silver lining. Acquisition prices in Europe are becoming more attractive, for example.

Slide six is a summary of the bright spots each of our businesses is pursuing to ensure continued growth. The themes are common. You could almost say textbook approaches. The differentiators for TriMas are the businesses we're in and the skills, experience, and focus of our business management teams. Many of you have met the people who lead our individual businesses. They invariably know their customers and businesses thoroughly and know the avenues to pursue for growth. Our compensation system rewards revenue and margin improvements. I want all of our management teams to succeed and be well paid for their successes.

I'm about to turn the call over to Mark. But first, let me remind you of how we approach continuous margin improvement on slide seven. Our acquisitions and our longer-term investments tend to mix our overall margins down. So we need to stay focused on the actions that pull overall margins back up over time. Again, this is almost textbook management, but our differentiators are the combination of tactics at the product and account level and overall TriMas-wide initiatives that combine for better results. All of us understand the need for continued improvement of margins now and in future quarters.

Now, I'll turn it over to Mark to provide more details about our financial results, then, I'll be back for closing remarks. Mark?

Thank you, Dave, and good morning. Before we move on to the financial results, I would like to reflect on our start to the year. There are some themes that are important to note. First, Q1 represents yet another quarter of double-digit sales growth. Our organic growth initiatives are working and we believe we can generate sustainable long-term growth. Second, our bolt-on acquisitions are adding volume. Although there are short-term impacts related to the cost to complete them, purchase accounting adjustments and the fact that businesses we buy often have margins lower than our legacy businesses. We drive incremental sales; we better support our customers and create more value for all of our stakeholders. We now have a track record of targeting, acquiring, and integrating complementary businesses that add value over time.

Thirdly, we remain focused on productivity and Lean initiatives; and we have plans in place to optimize our footprint and improve margins. This program continues to gain momentum across the enterprise. Finally, Q1 tends to be a quarter where we build working capital. We've experienced real global growth, driving needs for new customer-focused capital. We still have businesses, which have real opportunities for improvement as well, as the organization will continually focus on improving working capital as a percentage of sales, cash flow, and our leverage ratio, as the year progresses.

Let's continue with a brief summary of our first quarter results on slide nine. Our first quarter sales were $338 million, a 13.5% increase compared to the first quarter 2012, with growth in five of our six segments. This was our 12th consecutive quarter of double-digit year-over-year sales increases. Our organic growth efforts, focused on new products, growing end markets, and market share gains, represents approximately 40% of our growth. In addition, our bolt-on acquisitions contributed as expected to the top line.

First quarter 2013 net income attributable to TriMas would have been $17.4 million excluding special items related to restructuring costs associated with the Cequent's manufacturing footprint optimization. This represents an increase of 28% compared to Q1 2012, primarily due to our efforts to lower interest and tax expense. For the quarter, we achieved a diluted EPS of $0.44 per share, excluding special items, an increase of 13% compared to Q1 2012 while absorbing the effect of 14% more shares resulting from our May 2012 equity offering. Free cash flow and working capital were in line with our expectations. Our results reflect our seasonal increases in working capital as well as the result of acquisitions, actions to support our customers, new product inventory levels, and geographic expansion.

A few comments on margins. First quarter margins were tempered by recent acquisitions, investments in growth, temporary costs and efficiencies driven by our long-term productivity efforts, and higher cost associated with the full run rate of our long-term incentive programs. We have plans in place to enhance these margin levels and are committed to productivity and Lean initiatives.

A few examples though of margin improvement in the businesses evident in the quarter include Rieke. Q1 was a good quarter for our packaging businesses. Margins were up sequentially as well as compared to Q1 2012. Arminak and Innovative Molding have been part of our business for more than a year now. And we're continuing to see the improvements expected. We achieved an overall operating profit margin of 20% in Q1, with an EBITDA margin exceeding 25%.

In our Lamons Energy business, gross margins improved in all product lines, as compared to Q1 2012. Operating profit margins also improved approximately 370 basis points compared to Q4 2012, while continuing to invest in expanding the global footprint and bolt-on acquisitions. We're positioning this business for -- to improve margins over time. Another example is our Cequent Performance Products business. Gross margins continue to improve in Q1 and we will be even more positively impacted when certain production moves to Mexico are completed.

One final comment on margins and SG&A overall. SG&A remains flat as a percentage of sales when you pull out special items related to the Cequent restructuring and the cost related to the full run rate effect of our long-term incentive plan. While we continue to invest significantly for the future in growth and productivity programs, including spending on projects-related tax improvement and restructuring of the supply chain.

Moving on to slide ten, capitalization. We ended the quarter with approximately $506 million in total debt as compared to $499 million as of March 31, 2012, and an increase from year-end. The higher debt level was due to the seasonality of the working capital to support our businesses as well as using more than $28 million in cash on three bolt-on acquisitions during the quarter. As a result, we ended the quarter with a leverage ratio of 2.7 times compared to 2.68 at Q1 2012. We expect it to be the high point for the year and still target a leverage ratio between 1.75 and 1.5 as our long-term goal.

We ended the quarter with $177 million of cash in aggregate availability. In addition, as a result of retiring all remaining 9.75% senior notes in amending our credit facilities to reduce borrowing rates during Q4 2012, we reduced interest expense more than 50% in Q1 2013 as a result of Q1 -- as compared to Q1 2012. We also have swaps in place against approximately 80% of our term loan, which should yield effective borrowing rates below 4% through 2017.

At this point, I would like to share a few highlights on our segments, beginning with packaging on slide 12. Q1 packaging grew 37% compared to Q1 2012, as sales increased across the board, with the exception of European industrial closures. Q1 was our first quarter of full production at the Ohio Beauty Park facility and our sales efforts in Asia continue to gain traction. So we'll continue to improve margins on the new business as we ramp up higher efficiency production in Asia. So the combination of Rieke, Arminak, and Innovative has enabled us to advance our targeted growth initiatives more quickly and we continue to receive positive customer responses. We believe in the end market growth prospects for this segment and continue to support the launch of new dispensing and closure products.

Moving on to slide 13, Energy. Energy sales increased approximately 9% for Q1 2013 compared to a year ago. This growth was a result of multiple initiatives, including our July 2012 acquisition of CIFAL in Brazil, the increased focus on customers in engineering and construction space, and incremental sales from our new branches to support our global customers. We continue to lever CIFAL and our January 2013 acquisition of GVT that further support customers in Brazil given the expected growth in the region's energy sector. Entering a new market like Brazil has proven to be rewarding and challenging who are new to the market and continue to gain commercial traction through our acquisitions. We're also pleased with our March 2013 acquisition of Wulfrun, a European manufacturer and distributor of specialty bolts which rounds out our product offering in that region.

On slide 14, Aerospace & Defense sales increased 17% in the first quarter, as we extended our content on aircraft with the acquisition of Martinic Engineering in January 2013. We continue to experience higher order activity as aircraft build rates climb, which resulted in some temporary stress on the manufacturing process. Backlogs remain at record levels and we are proceeding with the ramp-up of our new facility in Tempe, Arizona, where we will manufacture new products for our key customers. We have also been installing new, more efficient equipment for plant productivity and capacity gains. We expect this business to continue to grow as a result of increasing aircraft build rates, our efforts to obtain new product qualifications and our expanded geographic coverage.

Moving on to slide 15, Engineered Components. Q1 sales decreased 7%, primarily due to the lower demand for engines, compressors, and other well-site products, as a result of reduced levels of drilling and natural gas well completions. Q1 drilling weaknesses appears to be improving going into Q2 with gains in incoming orders. This temporary volume stress added pressure in that quarter on margins from manufacturing inefficiencies. Sales in our Industrial Cylinders business increased during the quarter primarily due to market share gains. We continue to develop new products that expand our international sales efforts in this segment.

On slide 16, we show this performance of Cequent split into two segments. Overall, Cequent Americas sales increased approximately 13% in the first quarter as a result of higher sales levels from the auto OE aftermarket and retail channels. We continue to outperform the economy as a result of market share gains, new product introductions, and the July 2012 acquisition in Brazil. As evidenced by our continued footprint optimization, we remain focused on making these businesses more efficient and are pleased with our results today.

Cequent Asia Pacific sales increased 14% when compared to Q1 2012, due to the July 2012 acquisition of Trail Com and our new customer awards in Asia and South Africa. Our recent acquisition of Witter towbars in the UK will allow Cequent to leverage its full product line and strong brands around the world. We remain focused on productivity, product leverage, and regional expansion in the Cequent segments.

At this point, I would like to summarize the first quarter on slide 17. During Q1, we invested in growth and took advantage of areas where we saw real opportunities to capture share or launch new products. We react with speed to better support our customers' needs. These actions are benefiting us now, most notably in the top line, and we'll continue to do so plus generate margin improvement in the future as witnessed by our sequential margin improvements.

In addition to our organic growth, we have been active with bolt-on acquisitions during Q1, to expand our geographic footprint and product lines. While these acquisitions come with some incremental cost in the beginning, we have consistently proven that we know how to drive value over time from these acquisitions. Lastly, we continue to remain focused on margins, cash flow, working capital levels, and leverage. We strive to demonstrate continuous improvement in all that we do.

That concludes my remarks. Now, Dave will provide some comments on our 2013 outlook. Dave?

Thanks, Mark. On slide 19, we are reaffirming our 2013 outlook that we provided two months ago. Our recent acquisitions of Wulfrun and Witter add revenue that we expect to move us toward the higher end of our 6% to 8% range. Because we rapidly assimilate our acquisitions and expense those costs, we won't see earnings upside until late in the year. So we are holding our EPS range with the reminder that the point is a 19% improvement on 2012 and free cash flow is forecasted at $40 million to $50 million for 2013. All of this is well in line with our long-term strategic aspirations. Slide 20 is a reminder of these.

I mentioned earlier that we've just completed our 2013 update of our strategic plan and I'll share some key takeaways. First, on slide 21, some overall considerations. The first filter for finding higher-growth bright spots is to align with faster-growing markets. Middle-class populations, the end consumers for most of TriMas' products, are growing fastest in Asia and South America. But we will prioritize investments, capacity, people, and tech centers, aligned with our customers who are pursuing these markets. Environmental concerns ranging from recyclability to energy efficiency, to varying forms of energy or another higher growth driver we are using to identify bright spots and there are other considerations, including competitor dynamics, customer loyalty, and return on capital. Overall, we've agreed and focused on our top priorities in each business from growth of revenue and earnings.

So on slide 22, we've listed some key objectives that you will see as progression toward. I'm happy that our current group of businesses all have plans and capability to achieve TriMas' strategic aspirations in aggregate. We have a pipeline of potential bolt-on acquisitions, the financial capability, and the management horsepower to continue with several acquisitions per year. Our highest-margin businesses, packaging and aerospace, will continue to grow such that we'd have capacity additions planned through the next few years. Cequent will evolve from regional to global and gain the advantages that come with this. Energy will substantially complete its branch expansion and therefore be able to gain its margin potential. Norris and Arrow have solid product expansion opportunities to continue their growth.

And a comment on our TriMas Team. Our success depends on our people. We have clear, well-communicated plans and metrics. We fix issues fast and we reward performance. And I have a goal to continue to put TriMas shares in the hands of TriMas employees. To that end, during the first quarter, I was able to award TriMas shares to many key people around the world. Our Compensation Committee agreed to double the number of participants compared to the prior two years in this stock award program that targets high-potential employees.

Overall, we intend to continue to outperform our peers in revenue and earnings growth and to increase the value of TriMas by way of our value proposition on slide 23. The pleasure of working at TriMas is the ongoing opportunity to identify bright spots, capitalize on them, improve and increase value for all of us.

Thanks for your attention. And now, we're glad to take your questions.

Okay. (Operator Instructions) We'll take our first question from Joe Bess with ROTH Capital Partners.

Good morning, gentlemen; good morning, Sherry.

Good morning.

Good morning, Joe.

First, on margins. Mark, you talked a little about the nice improvement in the Energy business on a sequential basis. I was hoping that you could talk a little more about where you see this playing out going forward through the year, given your acquisition in Europe and your penetration efforts in Brazil.

Yes, the reality of it is, is we're obviously absorbing and have made the right steps towards [the] European structure. We expect as we said continued improvement in this business. I wouldn't consider a huge improvement in the year. But I would consider it, as Dave mentioned in his comments around the strategic plan of achieving back to historical levels over the strat plan horizon. So, an improvement in the year with continued improvements in the outyears.

Okay, great and then --

But let me -- Joe, let me reinforce that. I sort of mentioned it, but part of the [act] was reason to acquire Wulfrun in the UK was to get specialty bolts and fasteners for Europe like we have from -- in the US.

[The large] Texas acquisition.

Yes, the South Texas Bolt & Fitting acquisition and tell you a quick story. I was in Rotterdam in December which is our hub for that business in Europe and while Kurt and the crew fully knew this, it really sunk into me that our customers have been more and more evolving to -- they don't just want seals and gaskets, they want new fasteners each time, and a lot of those are specialty fasteners that we would happen to outsource those. So we already had the business. We just were paying somebody else to make them for us. And we clearly have the opportunity within an acquisition to both expand the offering but bring our cost down. And you'll see some of that going on. This premise of insourcing some things that we've had to outsource as the demand has gone up, (multiple speakers) but that's -- we've got some real leg-up opportunities in that.

Okay. And then, thinking about Cequent, what's the timing of the completion of the Mexico production or the move to the Mexico facility? And what sort of margins coming really expect out of this business once that completion is -- once that is completed?

Let me take the timeline question first. The timeline is in front of the business as most of the heavy lifting will be if not all of the heavy lifting will be done in 2013. There may be some things that spill over into the Q1 time period in 2014, but we expect that it largely will be completed in 2013. The opportunity in terms of margin expansion in that particular enterprise is indeed obviously labor arbitrage between the US manufacturing activities versus the Mexican manufacturing activities. And if you were to look at it, we're looking at a circa $20 per employee differential on approximately 450 employees. So you can do your own math in terms of what you decide there. It's clearly some offset associated with transportation cost along the way, but it should be a meaningful improvement in margins on a go-forward basis in 2014 and beyond.

Okay, great. And then, switching to some revenue, thinking about packaging, it had -- you had good demand from North America and Europe, and you quickly commented on Asia. I was hoping you could talk a little bit more about some of the developments that you guys are seeing in that market and then also just the Asia market in general given the strong growth that you guys have had over the last couple of years in Asia.

You can almost track the middle-class population in the countries, whether it be India, Thailand, or China and lay the glass out against demand for all kinds of dispensers and so that demand continues to grow. And as you know, our real strategy is we follow our customers who have gone after that volume. And you also know that I tend to want to capture the volume first and then go in later and build the capacity. Each costs for a while until we're well established and then go in and establish the capacity. We are exactly on that path. And just quarter-after-quarter, we're getting new orders, we're getting additional countries that we had only been minorly successful in. We're not getting significant orders, then, we keep aligning our capacity plans with that.

Additionally, you've heard me talk before that our big 600-person plant in China for packaging is in a call it export-only zone. But between us figuring out ways to move some things and interestingly, the call it the Chinese authorities deciding to be sort of loosening some of those rules, we got upside coming there to allow us to rank capacity faster. So I mean it's all positives, I won't pretend that there is not costs involved in moving things and ramping up and happen to put inventory someplace for a while until we've got the new plant there, I don't know, but it's -- Joe, it's -- feel pretty good and the drivers are there.

Okay.

We will keep after it.

Right. And thinking a little bit more about revenue on a geographic basis, and your penetration in Asia as well as just geographic expansion, what do you really see the mix going forward in terms of the US versus international sales?

If you were to look at where we are today, it's largely still US domiciled in terms of our sales. The growth outside the United States is clearly outstripping on a percentage basis. So the shift of the Company will continue to change over time as part of our strategic aspirations, Dave and I have consistently said, we hope to get to about 40% of our total revenues either domicile are exported outside the United States and we're about 10 percentage points away from that at this point.

Okay, great. And then, last question, thinking about natural gas prices going up nearly $1 year to date, are you seeing any influences on your guy's business for natural gas at this point in the short, near-term?

Yes, I think, Mark mentioned that while natural gas drilling and well completion had actually dropped, and you could look at any of the industry reports on that, what did they do in fourth quarter and first quarter, it is picking back up again.

Yes, in the background of that is kind of a permit thing about the federal government seems to have its own schedule on permits. But yes, definitely, the higher gas prices are turning back [on their need for capacity].

Okay, great. Thank you, gentlemen.

Thanks, Joe.

And next, we'll go to Steve Barger with KeyBanc Capital Markets.

Hi, good morning, guys.

Good morning, Steve.

So first, you've bucked the trend of most of my company this quarter by beating on revenue, which is great, but obviously, some puts and takes in the margins. Can you give us some detail around the comments that you made that you delivered $0.44 even while absorbing costs related to the acquisitions? Is there any way you can quantify where you think consolidated op margin would have been on this revenue number, if the acquisitions have been fully integrated?

On a fully integrated basis, Steve, post obviously purchase accounting and obviously the cost associated with actually buying the acquisitions, if you put that in context, plus also full run rate in terms of optimization maybe in the full year, it's easily 100 basis points higher and it's probably more like 125 basis points higher.

That's great.

Well, Steve, you would love sitting in [operating reviews, there are] -- I'm not going to let you, but you would love.

I'm waiting for the invitation.

Because the folks running the business has come right out with, okay, here is my sales and margin in my core business, here is what the acquisition did, here is how it performed, here is what all those acquisitions cost me, and then if they've got [some] going on in a restructuring that peel that out. I mean we are pretty -- it's pretty entrenched to keep our core margins up and then understand what our change stuff is doing to us and then keep after that.

As another reference point, Steve, in terms of the legacy business, price was also positive for the quarter.

Got it.

Yes, for the quarter and for the total business. So when you think about the first year full absorption associated with the acquisition, you get through purchase accounting, you get through the stuff, obviously, the assets as well as the cost associated with actually completing the transaction, including diligence, et cetera, yes, there is -- that's -- the numbers I said are accurate.

So PPA aside, [how the volume] takes to run that out, is it your expectation that that's the margin profile? If you didn't do anymore acquisitions, is that the margin profile of the quarter in the back half of the year or in the first half of next year, when do you think you'd get past some of these absorption issues?

It will be the first half of next year.

Okay. And I got --

Remember, we will keep -- as long as we find the right ones and the prices are right, we will keep doing acquisitions, because I mean I think that the most difficult task is keeping the topline growing and we're going to keep after that.

Right. I did get on this call a couple of minutes late. Can you give us anymore detail on the tax rate? What drove it lower and what should we expect going forward? And if you've already said this, I'll just go look at the transcript, you can let me know.

What drove it, I did not talk about it specifically, Steve. What drove it as low as it was, was that the tax effect associated with the special items and the restructuring activities in terms of where the profit of the total Company was recognized. So that's not -- the [14%] is not a sustainable level. The right answer is sub-30 and our [point rates] are like in the 28%, 29% level.

Okay. And that's where you would expect the full year to come in, 28%, 29%?

It will be sub that, but that's (multiple speakers).

Well, I guess, yes, for the next three quarters, we should think about that level?

Exactly right.

Okay. And question on packaging, in your comments, you said you were able to target growth initiatives more quickly. Can you put some more detail around that in terms of how you're thinking about organic growth rates this year or maybe on a normalized basis longer-term in the segment?

I'm not sure what you are specifically asking, Steve. The organic opportunities are global. I mean we -- there is this ongoing drive towards -- you've heard us say it, towards more concentrated materials and therefore tougher dispensers. There's more and more cosmetic [as in colored and nonmetallics] and things like that -- that will do and they tend to drive the growth rates above the middle-class population growth rate. And our job is to stay on top of every one of those and facilitate for it and it's not a trivial thing. You will see us adding product feature capabilities over the next few years to keep after that. It's a good, it's a very attractive kind of business.

Sure. I guess I'm just looking for your expectation of what that segment growth rate should be given the product footprint and geographic exposure that you have right now. Is it mid-single digit or how should we think about that?

Well above that.

Well above, okay.

I said packaging and aerospace are the two higher-growth businesses and the four high-single digit for the (inaudible) ones that pull us up, so --

Got you. Okay. I'll get back in line. Thanks.

(Operator Instructions) We'll next go to Scott Graham with Jefferies.

Hey, good morning.

[Hi, Scott].

So the question that you answered before, Mark, great answer on the 125 basis points. So if we were to add that back, continuing this theoretical, would you say that the balance of the margin decline was, let's say, start-up costs and behind growth initiatives? Is this -- it looks like the portfolio mix was not a factor, but also it looks like maybe sales mix was a factor within the segment, so maybe kind of the reason why the margins didn't go up was due to individual segment sales mix and some of the start-up costs.

Exactly right, Scott. I'd also add to that above and beyond the intra-segment sales mix. I'd also point to you some of the challenges that we had in terms of that volume stress that we felt in engineered components.

Got it. Right. Could you tell us what's going on in the defense business right now?

It's -- we are under -- we have a contract that's purpose is to keep some people idling and employed, and while we were pursuing business under the capabilities of that line, it's the same every place. Yes, we think we got something and then it goes on hold, there is not much there. But we've taken the hit in the business.

Scott, [very big here].

No, I got it.

I'm sorry, but I -- I'm going to be mighty surprised if anything positive happens.

Yes. And you've been consistent on that all along. So I guess my only thing was that it's -- I think I read somewhere in the release that [there is a sense] sales were up, I'm not to read anything into that. Right.

No, no, no. No. In that context, they were up in the quarter, but I mean we're talking less than $0.5 million, [put it in] perspective, right.

Well, that is putting in perspective.

Okay. So we realize this business is about a $5 million business at this point, on a full-year basis.

All right. So you know I've asked this question before, so at what point does the branch expansion in energy slow to where we could actually see some of the read-through of the initiatives, I know are going on there, but are not reading through.

Well, I implied some of that in my comments of our strategic plan and we really -- this was the first time in a three-year strategic plan, we really talked about are we coming up -- and we are coming up against the footprint we need. And so we've still -- it's still a couple of years out before we're done, but the branch addition -- the rate of addition is -- it will start slowing a year from now.

Okay, okay. Last two --

Go ahead. [It all] depends on the map, it's not what we know where we need to be and then it comes down can we do it by acquisition or drill by greenfield or that will control the speed.

Okay, got it. Last two questions. Over in the packaging business, we've been working on a lot of new things on the consumer side for a while. I was just wondering, is there anything new there to report, anything new business wins, what have you that -- that's a pretty cool business for you guys, very proprietary and I was just wondering kind of what the development of that business is looking like now.

There have been some new awards in Asia that we've been pursuing for a while, but they are for us new volume. The -- Mark mentioned the plant in Ohio that's part of that. We have -- there's other plants in the Park that make packages and labels and things like that. There's incremental awards going into that such as that plant is ramping up well and then there is the food closures business, the innovative what we required in innovative is also getting -- it's continuing to find geographics. Remember, when we bought that, we said, it was basically a less of the Mississippi business. It's been a balancing act of adding capacity in the business and adding front-end salespeople on the East Coast call it and now some in other parts of the world. So that's the other piece you'll see growing and all of them are solid margins and so there is not really -- you will see growth in each of these areas continuing.

Okay. And certainly the last question is back on the M&A pipeline, which I think you indicated was pretty robust right now, Dave. Is it still kind of the focus is in the better businesses or is there anything that you're maybe seeing out there that's spread across maybe some of the more industrial businesses?

No. We're definitely pursuing the strategic acquisitions in the Gulf platforms, and there are some opportunistic ones that are showing up in other places. I mentioned -- I mean I think, finally, we're seeing more realistic prices in Europe. Now, that said, Europe is probably slow growth for a long time. So that says the prices have to be pretty darn attractive [to go].

Fair enough. Thank you, all.

Thank you, Scott.

Next, we'll go to Robert Kosowsky with Sidoti.

Yes, hi good morning, guys; and Sherry, how are you doing?

Good, Rob.

Good morning, Rob.

Hi. I was wondering if you could -- what is European industrial closures down versus say two years or three years ago?

Versus the big years, it's off 30%.

Yes, I'm sorry, I know the big year is like 2010, 2011?

Well, 2009, 2008, 2009 starts slowing down.

2008.

Yes, 2008 was probably the last, full big year. The silver lining is it hasn't declined more, because you listen to the news out of Europe and you think it'd be taking another 10% hit and at least so far, it hasn't.

Okay, would you think it's down versus the --?

But remember, our big plant is in Germany.

Yes.

And I think Europe, you got to stratify Europe nowadays [to be North and South].

Okay. And do you have any idea what it's down versus say like a more recent datapoint like 2011?

We saw double-digit declines into 2012 and it was heavier in the front half of the year than into the back half of the year, so double-digits rather --

So call it 50% -- 15%.

Okay.

If you wanted to [because] our number is down 30 since the big years and it kind of hit halfway down in 2011.

Okay. And then, I guess right now in 2013, we have quite a few plants going online. It seems like you're installing quite a bit of new capital stock and I'm wondering if 2013 is like a big investment here in this regard and to 2014, we have a cleaner year from an operating standpoint, so that will kind of help facilitate the margin expansion.

Yes. I mean the margin hit -- a lot of the margin hit comes when you're moving factories. Brand-new factories tend to ramp up pretty well, what, all brand-new equipment, [ideals priced] processes and all that. [It should be] actually moving things that you got a lot of extra costs involved in that. So yes, that's true. I mean we will continue -- we need to continue to spend for capacity in aerospace and packaging, but those will tend to be new facilities rather than moving facilities, because you know what we've got going on. We've consolidated in Australia, we've moved equipment into South Africa, we've been moving around and we -- not only do we do acquisitions in Brazil, we needed to make some moves across the street and things like that. So yes, we're incurring heavier move cost this year and obviously Cequent has got -- in North America has got heavy move cost and it's not just factories, warehouses, it's [everything].

Yes. The largest portion of the CapEx spend this year is indeed in Cequent [set] of businesses related to [basing with] productivity.

Okay.

The realization of margins obviously is a 2014 discussion.

Okay, that's helpful and then, I guess one other point on Energy, it seemed like the operating margin stepped up in the first quarter versus the fourth quarter, and I was wondering if you could -- are you seeing some of these new branches really starting to turn the corner and you're getting better penetration there, so the product mix is getting richer?

There is some of that, there's the continuing upside of selling more specialty fasteners. We've had a variety of high-margin, small products coming online. We've mentioned the intelligent molds that you could snap this thing on and checked it to work and things like that. And all those, while they're small, the upside from those is starting to show in the numbers.

And -- okay.

I'd like to think, and I think this is true that safety in refineries is a huge issue and we've got some new products that are more expensive but do adapt to flexing joints and problem areas that they have. It's sometimes [jumble, that just needs the speck]. It's solving a problem that they have. And we've got a lot of action in that area.

Bob, one more thing there for you is, if you look at the consistent growth and we had talked about 2012 was a disproportionate sales and the backroom kind of catching up with the sales-related efforts, I would tell you operationally, they've made nice improvements in controls associated with labor, overtime cost, and things of that nature too. So, not only have they launched new products which have garnered better margins, and in my comments I said all -- they said all product margins are up, they've also done a nice job in terms of containment of their labor costs.

A year ago in that, we bought a very small plant in India for a thing for rig joints. We've been moving product between China and India, there's kind of a horse race going on for costs between the two and every one of those things starts [helping] the margin. We've got a lot of margin improvement activities in that business that are -- call them smaller projects, but you add all together and it has a nice effect.

Okay, but is it fair to say that we've turned the corner now, kind of double-digit operating margin is kind of sustainable or is there still a little bit of one-time great product mix that might not list it permanently?

Our job security comes from the fact that things go off track. But, yes, the -- it has made a turn. And I'm much more confident in the run rate stuff.

Yes. And the key word there is run rates because if you were to look at acquisition opportunities, clearly, there is things that will bump margins here and there, but the legacy core business has turned that corner.

Okay, that's good to hear and then, you talked about like the organic growth outlook for the packaging side, and I was wondering if you could give us a way to frame or think about the organic growth opportunities in Cequent North America, especially as we have like a pretty decent or strong farm economy in addition to housing coming back. And just specifically, I'm trying to figure out how to look at housing relative to Cequent North America and the potential organic growth rate over the next few years.

You've got to start with the forecasts of middle-class population in the US, which are basically flat. So, you've got to start from there. The only upsides are like you say, agriculture, construction. Construction continues to climb. There is some upside for us in the downsizing of vehicles and therefore more opportunities for us to provide accessories and shipments and that kind of thing. So that's gone well. And then, the other upside is the side benefit of us putting the big steel plant in Mexico is you know good well that the Fords and the Toyotas and the Nissans are all building plants in Mexico too, and they have their own need for accessories and so we're -- we did a lot of inquiries about that stuff. So, the core base business, call it the middle-class-driven business, I don't think I would just go and mold them with very low single digits for the next few years. So, all the upside we'll get will be because of those [events] like new products and a little bit from construction.

Okay. Thank you very much.

Yes, it's a North America [chance], some of the rest of the world is a lot better.

Okay, thank you very much and good luck.

Thanks, Rob.

(Operator Instructions) We'll next go to Gregory Macosko with Lord Abbett.

Yes, thank you, thank you. Just one question with regard to Cequent. You've made an acquisition recently. How many acquisitions have you made in that area over the last year or so?

In the Cequent lineup?

Yes.

The question, Greg, I'm sorry, I just want to make sure I'm answering the right question. You have the Trail Com acquisition which was done in New Zealand. Obviously, a regional expansion and also frankly something that's part and parcel of the strategic plan. You've got the activity that we did in Brazil with Engetran in terms of entrance into that emerging market that's growing very, very nicely for us, and the most recent acquisition [new towbar] is here in April, that expand that if you're a global footprint.

It's also what we call European spec product. This kind of constructs in the world American and European in it, got us a whole set of design to depend.

And given the growth that we saw in the quarter particularly, is it fair to say that TriMas is fully committed to this sector and it's going to stay that way.

What's interesting Greg, I would say that's -- then wrap it up with your thoughts is the opportunity for growth outside the US in this this particular market space is significant. Most of those markets are developing their standards and most of these markets are providing organically high single-digits which have higher opportunities for us. So South Asia and Brazil are clearly nice opportunities with nice profitability as well. So, most importantly, the opportunity we have, our global brands, global technology and the sharing of that. So we saw the opportunity to continue to expand that global footprint. I think clearly it adds value to the total enterprise as well.

Right now the answer yes. My task is always the same. Can I see it being substantially better, a couple or three years from now. And that includes any business. And Cequent right now is on that path. If you'd asked me that question three years ago, I --- it's better now than I would have thought of this is going to be sitting here three years ago. And so that crew has done a great job of improving.

And that includes North America as well.

Sure.

Okay, all right. Good. I'm glad to hear it. Thank you.

Certainly, Greg.

Okay, it appears we have no further questions at this time.

Well, thank you everybody. We sure appreciate the attention and can tell we enjoy this business, we enjoy the opportunity to keep finding the blind spots and capitalizing on them, and that's what we're here to do for all of you. So again, thanks. We appreciate your inputs. I always learned something from your questions. But it's a good two-way street, thank you.

And that does conclude today's call. We thank everyone again for their participation.