UFP Industries Inc (UFPI) 2008 Q2 法說會逐字稿

Great day ladies and gentlemen and welcome to the Second Quarter, 2008, Universal Forest Products Incorporated conference call. My name is Katina, and I will be you coordinator for today. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to our host for today's call, Ms. Lynn Afendoulis Please proceed.

Good morning and welcome to Universal Forest Products Second quarter, 2008, conference call. On the call today our executive chairman, William T. Currie, CEO and President Michael Glenn, CFO Michael Cole. Please be aware that any statements included in this call that are not historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements are based on the belief that the company's management as well as on assumptions made by information currently available to the company at the time such statements were made. The company does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that could (inaudible) forward-looking statements were made.. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: adverse lumber market trends, (inaudible) activity, negative economic trends, government regulations and weather. These risk factors and additional information are included in the company's report on Form 10K and 10Q on file with the Securities and Exchange Commission. The file is the property of Universal Forest Products. Any redistribution, retransmission, or rebroadcast of this (inaudible) without the express concent of Universal is strictly prohibited. At this time, I would like to turn the call over to Bill Currie.

Thank you Lynn. Good morning everyone and thank you for taking time out of your busy schedules to be part of the Universal Forest Products Second Quarter conference call. Mike Glenn and his team have done a good job of right sizing our business. The opportunities that are available in the marketplace and that isn't just something you do and it's over with. This is something we constantly do, and the senior team is consistently evaluating what we think business will look like in the next 18 months and where we have to be and what size we have to be. The process will continue on a daily basis. Over our whole history, we have opened and closed plants in tough markets and in good ones. We did make $0.61 for the quarter, which was a little better than we expected. The amazing part of that number is that if you were to take out the huge spike in our cost of energy, I'm talking about transportation cost inbound and outbound fuel, and take the percentage increase for 2008 versus 2007, our second quarter in 2008 would have been as good or better than it was last year. It was impossible to keep up with the constant price increases and we are now making the adjustments in our delivered prices to reflect these new costs.

We are watching our business, and we are very confident that we will continue to weather this storm in a positive healthy manner, and that we will be in very good shape as this economy makes its turn. We are watching our competition, what there is left of it, as we've lost a tremendous amount of competition and are going to lose a lot more. Even the big guys now have serious problems, and we are sitting with a under leveraged balance sheet that will be near no leverage by the end of the year, we are going to continue to drive and manage our business, exceed customer expectations and grow where we can grow. Mike Glenn will give you a good update on the markets and where we are going, but first I would like to have Mike Cole fill you in on the numbers. Mike?

Thanks Bill. I'll start by reviewing our income statements for the quarter. As you noticed in the press release, our total net sales for the quarter decreased by 8%. We estimate this was comprised of a 6% decrease in unit sales and a 2% in overall selling prices. Reviewing by market, our sales to the DIY market decreased 7% compared to the first quarter last year. Primarily due to a decline in-- second quarter last year, primarily due to a decline in unit sales as a result of the effect of the housing market on our retail customers whose business is more closely correlated with single family starts and a declining consumer spending.

Our sales for the manufactured housing market decreased 20% for the quarter, primarily due to a decrease in unit sales. HUD (inaudible) shipments were off 8% in April and May, and we believe modular production which was off 27% in the first quarter was down similarly this quarter. Our sales for the secular construction market decreased 18% due to an estimated 10% decrease in unit sales and 8% decrease in our average selling prices due to low lumber prices and intense pricing pressure. Single family housing starts were off over 40%. We've been able to mitigate some of the challenges of the single family market on our volume by pursuing multifamily and light commercial business, and increasing our turnkey framing activities. Finally, our sales to the industrial market increased by 6% for the quarter, primarily due to a 9% increase in unit sales, partially offset by a 3% decline in selling prices. Unit sales growth this quarter was a result of acquisitions and continuing to gain market share and add new customers including concrete forming.

Moving down the income statement. Our second quarter gross margin decreased at 12% from 13.2% last year. And, our gross profit dollars decreased 16.5% A decline in profitability from last year was primarily due to on going pricing pressure on sales for the site built market, and higher fuel and other transportation costs, as Bill mentioned earlier. Selling general and administrative expenses decreased by over $7.9 million.for the quarter which included approximately $1.4 million in SG&A of newly acquired operations. The operations we previously closed reduced our expenses by $3.2 million this quarter and existing locations decreased by $6.1 million. Decrease in existing locations was primarily due to decreases in wages and incentives (inaudible) almost $8 million. And that was partially offset by increases in several other areas, for example bad debt expense. Our affective tax rate was 38% this quarter compared to 37.1% last year. This year;s rate was impacted by the R&D tax credit that's still awaiting legislative approval for 2008., and an increase due to nondeductible amortization expense associated with recent acquisitions.

Moving on to our cash flow statement. Our cash flow from operations was $25.6 million for the first six months of 2008. Our net earnings of $7.1 million included $25.8 million in noncash expenses, which were offset by a $7.3 million increase in working capital since year end due to seasonality and a slight increase in our receivable cycle, primarily with cyclical customers. We continue to curtail our capital expenditures which decreased to $10.5 million for the year, so far.. We currently anticipate total capital expenditures of approximately $20 million for the year. Business acquisitions, for the year have totaled $23.3 million, primarily for the purchase of certain assets of (inaudible) mills, manufacture of industrial wood products in Oregon and the stock of International Wood Industries that we announced in the first quarter. During the first quarter, we completed the sale of Idol Real Estate totaling $26.8 million, which was previously classified as held for sale on our balance sheet. The book value of remaining properties that are still held for sale is over $10 million at the end of June.

We repaid almost $29 million of debt so far for the year and continue to anticipate strong cash flow for the balance of the year, which will allow us to pay off certain notes that are maturing in December of 2008, totaling $78.5 million. Couple of points I'd like to make about the balance sheet. Our total interest bearing debt at the end of the second quarter decreased to $178 million from $206 million last December and $247 at the end of June last year. Included in long-term debt there was $26.8 million outstanding on our five year credit facility which has a remaining availability of $242 million after considering the amounts outstanding and the amounts reserved for letters of credit.

I'll conclude with a brief review of the targets for 2008. As we mentioned in the press release, we've reduced our sales target to the range of 2.3 to $2.35 billion and reduced our net earnings target to a range of 12 to $15 million. Unfortunately conditions have worsened in each of our four markets and higher fuel and transportation costs have had a dramatic effect on our profits and we expect these conditions to continue for the balance of the year. That completes my comments on the financials. Bill.

Thank you, Mike. Now Mike Glenn will give you a business update and where he is taking the company, Mike.

Thanks, Bill. These really are some of the toughest times in markets that I can remember. But I really am proud of what we were able to accomplish. Price pressures are tremendous, fuel costs are eroding margins and the economy is shaky and consumers aren't buying. Some of our markets are affected in ways no one predicted like the prolonged impact of site built on the manufactured housing industry. In spite of all that, we were profitable in the second quarter. We gained market share, we were successful in our focus to diversify our business and we're getting leaner and stronger by the day. When the markets return, we are going to be ready to charge out the gate. In the meantime we have some tough work to do.

One of our priorities for the rest of the year is building our margins. Our division presidents are holding weekly calls with each of our plants to talk about the strategies for doing that and to provide and support and guidance. We are capitalizing on our knowledge of procuring and using lumber efficiently. We continue to bring our cost in line with our business. We're managing our inventory better and making sure it stays in line with business. And we're working to pass through the fuel surcharges so they don't have such a severe impact on our business. We are making sure everyone is focused on it. Our management team prides itself on managing forward, not looking back. We are focused on controlling the things we can to improve our business, and we're making tough decisions daily, in the interest of our shareholders. Now, let me run through the markets and I'll start with site built. Single family housing is terrible. It will stay that way for the rest of 2008. Our sales were off 18%, single family housing starts were off by about 42% in April and May.

The price pressures in this business are incredible. Fuel, and steel cost increases are hurting us. So we are focusing on what we can to control and to improve our margins. We are also increasing our diversification by adding light commercial, multifamily and custom builders. Until the market comes back, site built is a tough place to be. Let's look at DIY. We picked up market share in a number of areas, but, our sales are hurt by weak consumer demands and margins were hurt by fuel surcharges, by fuel costs. We believe it's costing us somewhere around 20 bucks a thousand, and all our treated lumber, and we treat more than one billion board feet annually. We are working with our customers on fuel surcharges where we can get them. Where we can't get them, we will requote the business.

It's a tough market for everyone and some aren't making it. One of our competitors in DIY went out of business recently, we picked up market share in lattice and composite decking. We believe we will see more of that in the DIY as well as the site built construction. We have also been successful in growing business with independent retailers. What's our out look for the year at DIY. We expect the market to remain soft for the year. (Inaudible) joint business center for housing (inaudible) predicts that consumer spending on home improvement will fall 4.8% in 2008. We expect this business to pick up slightly in 2009 and beyond as home ownership and turnover begin to rise again.. We'll focus on growing our market share by adding new products and new customers.

Now let's look at manufactured housing. This is our biggest disappointment. At the peak of the industry there were nearly 360,000 shipments of HUD homes, this year the industry will struggle to hit 85,000 shipments. No one predicted the impact of the housing crash on manufactured housing. But, as more and more affordable site built homes hit the market manufactured housing and it's channel financing became less and less attractive. Until there are fewer available low end site built homes or until finance reform fosters conventional financing of manufactured housing, this market will remain depressed. We will hold on to our commanding market share and we'll see better results when the market returns.

Now let's look at industrial. Although our sales gains weren't in double digits, there is is a tremendous opportunity for growth in this market. We are adding new customers, growing with existing customers. And we are growing our concrete forming business in capitalizing on the success of recent acquisitions like our California based IWI. The market was hit by a challenging economy, manufacturers are simply producing less. In addition, price pressures started hurting this market in the quarter. But we gain market share and we believe we will continue that trend through 2008, and beyond. Our concrete forming business is growing nicely, our sales are approximately $24 million on a year to date basis, we believe we are on target for $60 million for the year. Our forms and lumber are used in projects like the TCF Bank Stadium at the University of Minnesota. The Atlantic Botanical Gardens, and a 4600-foot Arkansas croche bridge for the new US-82 bridge which spans the Mississippi River. Many of the areas that we're going after in concrete forming like hotels, utility buildings, arenas, office buildings and manufacturing facilities saw strong increases through May of 2008. For example, lodging inn projects increased 41%. And health care projects were up 8%. Public safety projects grew by 31% and power facility projects were up by over 38%.

We modeled our concrete forming organization structure after a successful industrial operations, by going after national customers, who are looking for a national supplier to serve them in multiple locations. We continue to see opportunities for strong growth in this market, even if that growth is slowed somewhat by today's economy. So that's our business update and out look. We've achieved profitability in market share gains even in the face of many challenges. Our sales were hurt by weak economy and our margins were impacted by ongoing price pressure and soaring fuel costs. We don't believe there will be a reprieve in the economy or markets any time soon. We believe that single family housing will remain weak for the next 18 to 24 months. We believe consumer spending will remain soft. We believe manufactured housing will continue to be impacted by the housing slump.

So we're focused on the things that we can control, increasing our diversification, containing costs to continuous improvement, sizing our organization to our opportunities, and growing our market share. It's not going to be easy, but we've never been afraid of hard work, that's what we are putting today. We're rolling up our sleeves to ensure the long-term success for our shareholders and for everyone else with the vested interest in Universal Forest Products.

Thank you, Mike. Now we'll open the floor for questions and try to give you honest, candid answers.

Thank you. (OPERATOR INSTRUCTIONS) Your first question is from the line of [Tom Hayes] representing Piper Jaffray. Please proceed.

Good morning. I guess an area I would like to focus on first is on AR. Coming out of the first quarter, good indicator that probably-- didn't see any particular problems but sounds like through second quarter perhaps some problems have picked up. You mentioned that the addition of bad debt expense and stuff like that. Can you just give a little more color about what you're seeing and what-- the extent that you added to the bad debt expense

I'll give you some data just to kind of put it in perspective. Our now percent current is only about a percent worse than it was last year. Our bad debt expense for the quarter was up, it's up about $600,000 from what it was last year. For the year to date I think it's about a million three. There is certainly more credit risk now than we had last year and are feeling it, but, it's not a huge magnitude at this point.

As far as DSO goes for our site built customers, it's off a few days. That's been a challenge, but, like we said before, we continue to work on that very hard. We're very focused on it, and in the grand scheme of things we've got a track record there that's very good.

Have you moved anyone to COD basis yet? Anymore than you had expected?

There is a handful of those cases for COD. But for the size of our company it's very small.

Okay. I know you said--- both you and Mike talked about the fuel surcharge. Can you talk about-- Are you getting a lot of push back or is it pretty much everyone knows it's coming?

Tom, here is what happened, a lot of our business is contractual. And, when we started-- in the beginning we did these contracts last November and so we weren't able to push through a lot of the fuel costs that came through until late in the quarter and starting now. It significantly impacted-- especially our big box business.

Okay. Lastly then on the industrial segment, with the success you guys had with acquisitions, I was kind of expecting a little more growth in the unit volume. Could you talk about what your expectations are for the organic growth within the industrial segment for the balance of the year?

We are continuing to add new customers, the challenge we had was we did a lot of slowdown, they are not manufacturing as many air conditioners as they used to. They aren't doing as many lawn mowers as they did. All that has slowed down, so we are not doing as many crates as we did for some of these folks. But, we did pick up a lot of customers in the quarter. We are picking up a lot of organic growth.

Okay. I appreciate it, thank you

Your next question will come from the line of [John Emrich, representing IM Merk Capital]. Please proceed.

Could you make comments about what acquisitions, if any, had impact on the quarter, therefore what organic trends might look like?

Yeah. I think that was in the opening statements that I gave. The acquisition had a couple of percent impact on the unit sales. The acquisitions that had an impact on the quarter were [Desec] had a very, very small impact because we bought it in June. Primarily, International Wood Industries. Bought in February. Okay, a couple of percent impact on volumes.

Lastly, I'm a generalist here I don't follow commodity prices, or anything like that, but if you look at what lumber prices are doing, do you see relief either from the negative year-over-year trends or even an opportunity for sequential improvement as far as it impacts your financial reports.

We don't think there's going to be much change this the lumber market for the rest of this year, and until the supply demand really makes a change we think we are going to have a fairly stable market. Now-- and I would say that's for the near term. John, if you look out, if you look out a couple of years, and we really do believe before there is any serious recovery, we are not looking around the corner, we are looking out there.

With the tremendous amount of supply restriction and the primary, the primaries at the levels they are producing, when this thing does recover, there is going to be some tremendous price escalation in the forest products related -- products because it's--, when you are talking about 600,000 housing starts versus what do we think we need over the long-term, about two million, it's going to take a long time for the supply to catch back up with the demands. You are going to see it, at some point in time in the future, you are going to see some severely escalating forest product prices.

Okay. Thank you.

The next question comes from the line of Steve Chercover representing DA Davidson. Please proceed.

Good morning, Steve.

First question, please. Second quarter I think exceeded everyone's expectations and yet guidance for the full year has come down, so is this a pipeline thing beyond what you can attribute to escalating fuel costs? Do you really see in the order book come down? And in a related question. Was the upside in the second quarter due to maybe some orders that weren't delivered late in Q1 due to the weather?

Steve, I think the first part of your question is we are seeing, we are seeing a slowdown in our orders, in our business, we've seen a slowdown starting probably a month ago where they just weren't as great as we watch them on a year-over-year basis and they have cut back, a pick up in the second quarter, business, from the first quarter-- we got a little bit of that. Not a lot. We got a little. To be honest with you, although we did $0.61, and beat everyone's estimates, we were disappointed in ourselves, we thought we could have done better. We thought we just missed a few opportunities.

Understood. Bill made a comment he thought you guys would end the year, virtually without any leverage, that does not imply debt free, but just you're extremely comfortable with the balance sheet?

That implies I'm extremely comfortable with the balance sheet. Our forecast shows us throwing off a lot of cash the second half of the year. and really-- If we don't do any acquisition or we don't decide on a major stock buy back, everything which is all on the table, we will have a balance sheet that anybody would be proud of.

With respect to the competitors that are falling by the waste side, are there names we would know that maybe I can't just think of? And would you be willing to pick around the carcasses there or just go and rebid the business if they go away?

And we will rebid the business if they go away.

No comment on the first.

Last thing you guys have been on the call so the housing starts just came out, permits around just shy of 1.1 million, up 11%, does that bode well?

Yeah, that bodes well. I don't know if I believe it or not but it bodes well.

Would recovery maybe be sooner than the 24 months you were discussing?

We're not that confident, jay.

I don't think the worst is over yet. Steve I think you've still got foreclosures coming and you've still got some repricing of some sub primes coming, and you've also got the government working to help it. But, we are not going to give you a rosy picture and then disappoint you, we would rather give you a realistic picture and exceed it.

Understood. Last question, sorry if I'm taking too much time. I believe your initiatives called go 2010, is that whole target being revisited this stage?

Correct.

We are working on a new plan and should be able to give you something probably by the next time we, next time we talk.

Great, thank you.

The next question will come from the line of [Jay McCanless representing FTN Midwest.] Please proceed.

Good morning everyone.

Hi, Jay.

First thing, wanted to touch again on the competitors, and not to pick on you guys, but other companies have (inaudible) building materials have said our competitors are going away -- hasn't happened yet. Can you give me color as to why not and what do you think the time line is for thinning out the field a little bit.

Well, you-- you're -- you're looking a at the people in your public space and public company space but you have to remember that a tremendous amount of the competition is not public, it's private. And there are hundreds of plants that have closed that are manufacturing components the same as us and stock and DMHC and Pro built and a few biggies that are public or closely watched. The mom and pop side of this business has been devastated. Even-- including us, all of the big guys have closed, I can't even imagine how many facilities have closed or moth balled or sold that are in the component scheme. Understand you read the numbers, I don't have to tell you, what is happening, anybody that's in that one segment and in it big is taking an ass kicking. We lost competitors in the DIY side of it.

Okay. And that's good because I wanted to ask you about DIY next. With Home Depot announcing they are dramatically slowing the growth rate. Lowes, not sure what (inaudible) plans are now. Can you talk about how if the unit growth is slowing down for those guys, that you're going to grow the business, are there areas of the store you're not in now, can you get deeper in decks and decking products than you already have? Can you talk about that a little bit?

Sure. Even as we talk, we are picking up-- we are picking up different product lines in different parts of the country that we don't currently have. I guess an example I could give you-- this part of the country may not be right for you, but In northern California, the other day we. picked up $20 million worth of tickets with the company. A product that we didn't have today. And earlier in the year we picked up some plastic lattice with some folks that we didn't have that amounted to 3 or $4 million worth of business. With the boxes, we continued to pick up share in --

We just picked up Puerto Rico?

We opened up Puerto Rico and we're doing close to a million dollars a month there. We are picking up other skews within the box, that we don't presently have. We're very comfortable with our position in the DYI side of it. Our folks are doing a really good job out there.

Okay, great. Jumping over to manufactured housing. The 85,000 numbers are pretty scary for manufactured housing overall. What are you seeing in terms of DSOs for your-- not DSOs but maybe a bad debt expense for your manufacturer and modular guises, is it improving, is it getting worse, how do things look there?

It has not moved much. Haven't had a lot of write offs in the area, and the DSO has not changed hardly at all. So the (inaudible) has been good.

What about an RV market?

Well, I think that market -- if the fuel thing doesn't change, that's a serious problem.

Okay, then last one, thank you for letting me ask all these questions. The last one I have is on industrial. We heard anecdotal discussions about the commercial mortgage backed securities market freezing up, potential slowing of projects later this year-- what's your take on that, how does the book look to you right now?

We are seeing some of the projects that we had commitments for being pushed back some as much as a quarter, we've seen some of them where they asked for more money and haven't been able to do that. So we are seeing a slowdown in some of that light commercial and multifamily side of stuff.

But if you're also talking about industrial, I will tell you that we still have -- we probably still have a thousand accounts that we are working through the process of redesign, testing, and some of these are very large accounts. So don't look for our industrial business to deteriorate on us. 'Cause I think you were talking about industrial, I still think we got lots-- lots of room there.

And okay. In terms of doing more of the packaging side than the construction side or?

Correct.

Great. Thank you.

The next question comes from the line of Keith Johnson representing Morgan Keegan. Please proceed.

Good morning.

Good morning, Keith.

Couple of quick questions, could you talk a little bit about the trends here in the second quarter, I think you touched on it a little bit earlier. Did things start off okay for you in the second quarter and then just basically slow way down when we got over into June or was it different channels pretty much slow the whole quarter?

I think business was pretty good for the quarter, we just swa downward trends in the DIY side of it that we thought maybe we had picked up because of the slow first quarter. To be honest with you, it was with the exception of manufactured housing it was what we thought it was going to be.

When you take a look at the revised guidance for 2008, how did you handle or what were your assumptions around fuel surcharges. Did you assume you were making up in the second half of the year or are you keeping it similar impact as maybe what you saw in the second quarter. Or exactly how are you handling that?

We expected the impact would continue for the second half of the year, but mitigated some because of the fuel surcharge.

I caught part of the comments at the beginning of the call, but how much of the fuel surcharges lit the quarter or lack of fuel surcharges.

We can't be exact on it but somewhere between 6.5 and $8 million.

So you are only expecting maybe to get a little bit of that in the second half?

Well sometimes we're on some yearly contracts which we are kind of -- we are kind of cranked on. We are negotiating, but on our day-to-day business we can definitely get it and we are, on some of our longer term contracts it's more difficult to negotiate that.

What's that split, (inaudible) business between day-to-day, long-term contracts?

I can't give you that. Home Depot is a big customer. Lowes is a big customer. Those are difficult to change in mid year with the contract.

Okay. You talked about continue to work to right size the business in today's environment and the environment you guys are looking forward to the future did you make additional plant closures or other right sizing steps that took place in the second quarter?

Yeah, Keith, I think Bill touched on it in his comments, we have always even in good times, looked at the facilities that weren't performing and we closed them. Or we moth balled them. We are doing the same thing today. Looking at the facilities that aren't performing and facilities that we don't think are going to perform in the near future, and we will look at moth balling or closing them.

We did not close any facilities in the second quarter.

Also, Keith, don't be surprised if you see us open up a couple of facilities, maybe with a change of venue.

Okay.

Just where you had an opportunity to make sense to do. Correct, we have some.

Appreciate the answers, thanks.

Next question from the line of Tom (inaudible) representing Lucrum Capital]. Please proceed.

Good morning, guys.

Good morning, Tom.

I don't know, I'm on the call every quarter but -- can you give us sense by markets what is implied in your guidance?

We don't typically break our guidance down by market. We just provide the full sales and net earnings number. We are at a real high level, though, we expect similar types of unit declines as we talked about earlier and across the board and-- but a lesser impact of a lumber market is now it's gotten down to a level where it's more comparable. And the random link composite as it was last year. Then where we had price pressure and that impacted the sales levels, now, we getting to the point where you get into Q3 where it's in both periods. That has less of an impact on the top line sales number.

Was there one item that ---- or was there one business unit that forced you to lower (inaudible).

I think it's been collectively each one of the markets got worse, as the year progressed from Q1 to Q2.

In your commentary industrial, makes it sound like something dramatically happened in June? Can you elaborate on that?

Don't think anything dramatic happened in June necessarily for industrial. I'll say that in our guidance. . We are expecting a unit sales increase as Bill and Mike alluded to earlier, after the balance of the year. Our sales levels were -- there is no question the economy has softened and some of the successes we've had with taking concrete forming market share and the acquisitions of International Wood it's been mitigated some by that, that more than anything else. We have been taking a lot of share in

On the debt side, what do you expect to end the calendar year end with from a debt perspective?

Oh boy, somewhere In the 85 to $95 million range based on current cash flow projections and taking into account the earnings guidance we have now. The big item that is a little bit more of an estimate is the inventory. We built in to the model a pretty good size reduction in inventory based on some targets that we have. We think they are achievable, that's included in those numbers for that debt level.

Okay. Is there any issues with buying back stock from a debt perspective?

No. We have the ability to buy back stock if we wish.

And is anything authorized?

22 million was authorized for us to buy back at our desire.

That's a authorization level we had for years, when we feel like it makes sense and do small lines of shares.

Thank you.

The final question comes from the line of Robert Kelly representing Sidoti. Please proceed.

Good morning, Guys. Thanks for taking my call.

Hey Rob, how are you doing?

Great. I don't know if you covered this already, the outlook that you gave. Was it all the increase in fuel and what not that kind of took you by surprise and forced you to lower it. Doesn't seem like the sales provision was all that material in relation to the EPS reduction.

The fuel number is a big number. That was-- you couldn't anticipate that one. It spiked up on us, as Bill mentioned earlier. That's a big number. We had accomplished a lot of efficiency and cost reductions in the plants and SG&A line, -- (inaudible) the numbers I gave earlier. And it just all got offset by fuel.

Basically the stuff is in control, your contained there and fuel is the one kind of variable. Do you have leverage to go to your next yearly contract and say, fuel, diesel is up X percent and have the wiggle room to pass that through?

That becomes part of the negotiations for sure.

When did that start?

October/November --

All right guys, thanks.

Ladies and gentlemen, this concludes the question and answer session, I would now like to turn the call back to Mr. Bill Currie for closing remarks.

Okay. Thank you, and-- all you guys, thanks a lot for being on the call. We know nobody is having fun in this market. Probably doesn't matter what segment you're in, and you're still taking the time to listen to us and follow us, and we appreciate it, and we'll keep managing the business, the right way. You won't see any surprises and we'll get back to work. We got a lot to do. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference, this concludes your presentation, you may now disconnect. Good day.