美國西屋制動公司 (WAB) 2008 Q1 法說會逐字稿

Good morning and welcome to the Wabtec first quarter 2008 earnings release conference call. (OPERATOR INSTRUCTIONS). Please note, this conference is being recorded. Now we would like to turn the conference over to Mr. Tim Wesley. Mr. Wesley, you may begin.

Thanks, Denise. Good morning, everybody. Welcome to our first quarter call. I'd like to introduce the rest of the Wabtec team who are here. We have our President and CEO, Al Neupaver, our CFO, Alvaro Garcia-Tunon, and our Corporate Controller, Pat Dugan. As usual, we will make some prepared remarks first and then we will be happy to take your questions. We'll make some forward-looking statements during the call, so please review the disclaimers from today's press release.

With that, I'll turn the call over to Al Neupaver, our President and CEO.

Thank you, Tim. Good morning, everyone. What I'd like to do is cover our first quarter results with a strategic update and then take a look at our current market conditions and the outlook for the rest of the year. We'll have Alvaro cover the financials in more detail.

We had a record first quarter with many things going right for us. This gives us a good start for 2008. In the quarter strong sales increased at 22% to a record $383 million. We had record earnings per share of $0.66. That's 27% higher than a year ago. Our backlog is at $1.1 billion. That's up 11% from year end. That's a strong performance, given our record sales in the quarter.

These numbers demonstrate our good progress on our strategic growth initiatives, those being global and market expansion, new product development, aftermarket expansion and acquisitions.

Let's talk a little bit about those strategic initiatives. On the global and market expansion aspect, in the first quarter we posted record high- - 44% of our sales were from outside of the U.S. We view the global expansion as a good growth opportunity for us from two standpoints. Firstly, they are very large markets and we have a small market share as of today. Secondly, a number of these emerging markets are growing nicely, especially being driven by the Asian expansion and mining countries, like Australia, South Africa and South America.

From a new product standpoint, we continue our work on vital ETMS development and we're supporting a number of existing pilot programs. We now have an ECP, that's Electronic Controlled Pneumatic Train, in service on the Southern Company cars running between the Powder River Basin and Alabama. We also have a lot of activity with other railroads on the ECP programs.

From an acquisition standpoint, we've had significant activity in corporate development area with potential acquisitions and JVs, some of which we hope to report on soon.

Based on our performance in the first quarter and the outlook for the rest of the year, we are increasing our 2008 guidance, with sales growth estimated to be in the high single digits and earnings per share of about $2.55. Our last guidance was at $2.50.

Our Freight business is holding at a high level and we continue to see growth in Transit and our international markets. Keep in mind, this is the second year in a row that our sales and earnings are forecasted to increase significantly, even as the U.S. freight market is down. This shows the strength of our diversified business model. Our strategic initiatives are paying off. We are driving margins higher with our Wabtec Performance System.

All that being said, we do believe it's prudent to be cautiously optimistic about the rest of 2008, due to the uncertainty about the economies in the U.S. and abroad.

Let's now talk a bit more about our current market conditions. Rail traffic- - so far this year, ton miles are up 2.2%. This is being driven by the economy, so we will watch this very closely. As expected, railcar deliveries will be down this year, but still at a good level. Most industry analysts expect the deliveries to be between 50,000 and 55,000 cars. The official first quarter numbers have not been released.

We expect that deliveries will be near that of what we saw in the fourth quarter and that orders will be down significantly, because there was this one large order in the fourth quarter that really drove the orders up to around 23,000, I believe. So, we expect that to come back down. All that said, we think there will be some erosion in the backlog.

Key point is in the first quarter our Freight group sales were up 4% versus expected car deliveries being down, possibly as much as 10%. Once again, this demonstrates the diversified business model we talk about, with only 20% of our sales directly related to new freight cars.

The locomotive market is strong right now. OEM builds are expected to be up in 2008. As we look at the transit market, which is driving quite a bit of our growth, if you look from fourth quarter to first quarter, we had growth of about 5%. There was 7% growth in Transit and about 3% growth in Freight.

In Transit, the strong market drivers are federal funding and passenger ridership. Federal spending is up 6% this year. Ridership continues to increase across the U.S. The American Public Transportation Association has reported that ridership hit a record 10.3 billion in 2007, up 2.1% from 2006. What's driving this is the high fuel costs and environmental concerns about emissions.

Alvaro will now drill down into the financial results for you.

Right. Thanks, Al, and good morning, everyone. As I know you know by now, we had another record quarter, which we're very pleased with. A few highlights of the quarter would include continued sales and earnings growth. The growth in the top line is very important to us. Good operating margin improvement- - we'll talk about that a little bit more- - but that's something that we've been targeting. A growing backlog signifying the stability of the Company. And good projects, as Al mentioned, in executing our growth strategy.

To hit a few of the specific numbers, sales were about 22% higher than the prior year quarter and hit a record $383 million for the first quarter of '07. [Sic- - see Press Release] One particular number that we're proud of is that about three-quarters of this sales increase over the prior year was organic. The only acquisition that we added from the first quarter of last year was Ricon, and that added about $18 million worth of sales quarter-to-quarter.

The Transit group led the way with a strong increase, due mainly to higher sales from car refurbishment projects in the UK, commuter locomotives in North America and the Ricon acquisition, which I briefly mentioned a second ago.

The Freight group sales, as Al again pointed out, also were higher than a year ago quarter, in spite of the lower car deliveries, and this was in line with our expectations. This was a good performance, as we've been able to offset lower demand for OE freight car components with growth in other areas, such as electronics, which we've been targeting, and the aftermarket.

Margins -- as you all know, we're really focused on driving margins higher, with particular attention on the operating margin. With the expansion in Transit, we expect gross margins to basically remain flat, maybe decrease a little bit, but we think we can use our operating leverage and our lean techniques to increase operating margins.

For the quarter, operating margins increased 14 points- - I'm sorry, for the quarter, operating margins were at 14.1% versus 13.4% last year. Again, this was mostly due to the sales growth in Transit and the Ricon acquisition. Improvement, as I mentioned earlier, is really due to our lean manufacturing efforts and the increased volume.

Now, to get to the balance sheet and some of our working capital numbers -- working capital as a percentage of sales was pretty stable with the fourth quarter of last year. If you do the ratios, you'll see that they're very similar, because sales have increased quite a bit.

Receivables increased by about $64 million from the fourth quarter of '08 [sic], because the higher - - really for a variety of reasons. One was higher sales. Sales were particularly strong in March, as compared to December of last year. And what happens is the March receivables won't get paid until the next quarter. December is typically a slow month, because of Christmas and the holidays. We also had higher international sales and they get paid slower, as well as we had a - - because of our 52, 53 week year, we cut off on the 28th of the month, and you get a lot of checks, believe it or not, arriving at the 31st as people pay in their normal course. So, all those factors led to the increase in receivables.

Inventories were about $10 million higher than the prior quarter, than the fourth quarter. And payables decreased by about $7 million. We're not happy with this working capital performance. We think we can do better. It's largely driven by volume, but as a lean company, we think we can offset some of the impacts of decreased volume and we think we can do better on working capital.

Cash balances -- we spent about $24 million during the quarter to buy back our own stock. And this, combined with a higher working capital, resulted in a net use of cash the way we measure it, which is just cash on the balance sheet compared to the prior quarter of about $60 million. Cash generation is one thing that you well know we pride ourselves on, so this is an area where I think we can make continued- - some improvement and then hopefully we'll be able to show that improvement as we continue through the year.

A few of the basis statistics that we always include as part of this phone call --

Depreciation for this quarter was $6.4 million versus $6.1 million last year.

Amortization was $903,000 this quarter versus $541,000 last year. The increase in amortization is basically due to the higher intangibles of two of our most recent acquisitions, Beckwith and Ricon.

Our CapEx is very stable, $3.9 million this quarter versus $3.4 million last year.

Backlog, another number that I know you all like to keep current with. For us, this is another positive indicator for the future. Total of multi-year backlog is up 11%, even with the record sales this quarter, at just over $1.1 billion. The rolling 12-month backlog- - this is the backlog that we expect to execute during the current, during the next 12 months- - not during the current year, but during the next 12 months- - right now, that number is $582 million. At 12/31/07 it was $532 million.

Freight -- you can break that down between Freight and Transit -- Freight is $180 million in the 12-month backlog versus $154 million as of 12/31/07. And transit is $402 million versus $379 million at 12/31/07. So, all three- - both of those segments improved.

The multi-year backlog, which again includes the 12 months numbers, but also includes the backlog we would expect to execute after the 12-month period, was $1.1 billion versus $1.02 billion last quarter. Freight was $228 million versus $225 million last quarter, so basically stable. Transit, $902 million versus $796 million last quarter.

And with that, I'll turn it over back to Al for a quick summary and then we'll do Q and A.

Thanks, Alvaro. Once again, we had a strong performance, with a record $0.66 quarter, record sales and a growing backlog. The momentum is building the growth of this business. Most of our in markets continue to be positive, which gives us confidence to increase our sales and earnings guidance, although we are keeping an eye on the U.S. and global economy.

The diversity of our business model, Freight and Transit, aftermarket and OEM, NAFTA and international, is serving the Company well. The Wabtec Performance System provides the established culture of lean manufacturing and we have an experienced and a dedicated management team. With that, we're all happy to answer some questions for you.

(OPERATOR INSTRUCTIONS) Our first question comes from Jim Lucas from Janney, Montgomery Scott.

Thanks. Good morning, guys.

Morning, Jim.

Glad you're happy to field questions, Al.

I'm always happy to answer questions.

Alvaro, on the working capital, receivables and inventory in particular, what impact did FX have on the increase?

FX, we normally would compare it quarter-to-quarter. In other words, if you compare it to 12/31/07 versus right now, it basically had a very small increase. I think it was one million bucks, one way or the other. I think it was a one million buck actual decrease from 12/31/07 until 3/31/08 and you do the balance sheet on a spot basis when you translate. Exchange rates were relatively stable, so there wasn't a real big effect.

From last, from the first quarter of '07 to now, there was a more significant impact because obviously the dollar has weakened more between that period of time. And that was more like $8 million or $9 million or something like that. But quarter-to-quarter it hasn't been that much.

Okay. And, Al, when we take a look on the Transit side, it seems as if from a macro standpoint, funding and a good position through next year. But if we look longer term, I mean, clearly the economic impact is a lot easier to delineate what it means to the Freight side of the business. But with regards to Transit funding, can you give us a little sense of what you're hearing from your customers there?

Sure. I think if you look at North America first of all, Jim, what you find is that this increased spending and the spending bill has been approved through September 2009. Now, what that means is that the funding bill stops, but the programs don't. And these programs that we're working on right now that have funding should run well into 2010 and actually some of them could go into 2011. And if you look at the last time this bill was approved, there was a law before they actually approved the next spending bill. I think it was almost an 18-month period. But in this case, there is a tremendous amount of activity being driven by the ridership that I think what we're seeing is -- we're already working on next bids for New York City. The design is already being developed. So, I think that activity is very good.

The second part of the Transit is the expansion globally and we are really seeing nice growth at our UK business in the Transit area where we do repair of transit cars, as well as locomotives now. And that business has grown very nicely. As a matter of fact, we're hosting next week an investor conference that, if anyone's interested, more than welcome to visit to see that operation.

And we're also, as you know, in the Asian arena, there's a tremendous amount of activity in the Transit area. And, as I stated earlier, these are very large markets that we have a very small percentage in.

So, we think that we're pretty happy with obviously where we're at. The backlog is very good. And that backlog runs out almost five years where we have business. And there's a couple of contracts that extend out to 10 years.

I hope that answers your question.

That is very helpful. And then finally, on the Freight side of the business. The results you've been able to put up are- - definitely stand out. When you take a look at clearly all the mixed signals out there, could you talk a little bit about what, how you've been able to drive that above market growth share versus new markets, for instance? And just any other color you can provide on the overall outlook for the Freight market?

Yes, in the Freight market we are able to calculate the impact of every thousand car drop in deliveries. And we know what that number is and we're very focused in all those areas that aren't tied to railcar build to have growth strategies in place.

As we look forward to the railcar build, it's a little bit fuzzy and one of the reasons why we want to be cautiously optimistic. We do -- if you look at the divisions and the products that are tied to the railcar build, our estimate of the impact is right on. So, we know what that impact is. We build models around that and try to plan growth strategies to offset that.

The other thing we've done in the freight area is, again, there's a lot of activity offsetting that railcar build on an international basis. Mining countries that I mentioned, Australia, we have a great position in the Australian market. We established our platform there early along when we acquired a friction company. But since then, we've grown a business that supports our Freight market down there that's actually larger than the friction business. So, we have two separate divisions there.

We're also seeing a lot of activity, not just in Australia, but South America. South Africa, we're working on signing a joint venture to supply product. As you know, we already have a project down there with our electronic controlled pneumatic breaking system on the Spoornet Line. So, we're seeing quite a bit of activity there.

The other thing about the freight car is our diversity. When you look at what we do from a service standpoint, as you know, we have a stated strategy to grow our aftermarket. And our aftermarket sales have maintained 50% of our total sales again this quarter, which means as we continue to grow, we are continuing to grow our aftermarket at the same pace and that's really an important aspect of ours.

And not only diversity from an aftermarket standpoint, but think of some of the products where we're on leading edge technology in our electronic areas where we're really putting a lot of development time and getting a return for some of that, now that we've got our electronic control pneumatic braking programs out there on pilots, as well as the electronic train management systems.

So, it really takes a lot of effort to look at every different division we have and maximize the growth potentials that we know we're going to be offset. We accept the brutal fact that 20% of our business is directly tied to railcar. When you look at a share type of thing, as you know, most of the types of business we're in, we're in a duopoly, so share goes back a little one way or the other. But it's normally not those big swings that you would see.

All right. That is very helpful and look forward to seeing you next week.

Okay, we'll see you then, Jim.

Our next question comes from Cindy Caplan from Wachovia. You may go ahead, please.

Cindy, okay.

Cindy, nice. Is that your middle name or- -?

No, it's not even my middle name. But that's all right.

I've gotten used to it with Alvaro, because they can butcher up Alvaro. But I thought Wendy, you know, was pretty straightforward.

Right, pretty straight forward. Anyway, just a couple of questions. I know you don't give segment margin detail until the Q is filed, but is it fair for us to assume that the Transit margin was close to or better than last year's peak of 10.9% in the [offset]?

We -- it's obvious that we have to be improving the Transit margin in order to get our results. And we have done a- - I think that you will see when you look at the Q, and if you look at back over the last couple of quarters, you'll see that improvement. There may be a quarter where it fluctuates a little bit. But if you looked at the trend, what you're going to see is good improvement on the Transit margins.

And what we're doing there, we're extremely focused on this, because we knew the mix was coming. It became very important for us to address this. And what we continue to do is look at lean manufacturing opportunities, sourcing opportunities, outsourcing some of the vertically-integrated processes. We've moved some of the business to lower-cost platforms. So, we've really had a lot of focus in- - yes, you're correct in assuming that you're going to see a good trend and we're going to stay focused on continuing that trend.

Okay. And the backlog -- Al, can you talk about kind of pricing margin, some detail on the backlog's profitability, relative to what you're shipping at this point?

That's a tough question, Wendy. I think that what we've tried to do going forward on a continuous improvement type of aspect, we want to try to continue our margins. We are getting some pricing on those products where we have the level of differentiation from the competition. On those products we don't have it, we're really focused on cost reduction, so that we continue to add value to our customers.

So, I think that what you would see is that it should be equal, if not better, as we go forward and I'm pretty sure that would be the case.

Okay, thanks, Al. And one more, just kind of thinking strategically about your share repurchase that you did in the quarter. Despite your prepared remarks about your positive view of the acquisition environment, I'm trying to understand whether you're saying something bearish about it. And with the stock near record highs, what this says about your confidence in the shares of Wabtec.

Oh, we've got tremendous in the shares of Wabtec. And we think that the Company is still a good value, a very good value. And we're going to be opportunistic from the standpoint of share repurchasing. And I've said before, if we have our way, we would prefer to invest in internal development, internal growth first. Second, acquisitions. And third, we're very open to stock repurchases. And each board meeting we spend a lot of time talking about dividends and special dividend type expenditures as well. So, we're very focused on it and we really feel that Wabtec is a good value at this point.

Just to kind of focus again, does it say anything- -it seems like you're saying two different things. You're positive on the acquisition environment, but it's not your number one focus in terms of cash deployment. Can you kind of tell us why you're optimistic on the- - help us understand why you're optimistic relative to acquisitions?

Yes, the reason we're optimistic is that we continue to see opportunities and we've been working- - and I think, if you go back to the last conference call, I talked about some of the activities we're working on is really trying to expand globally. And in some of those cases, it takes an extreme amount of time and effort to do that.

So, we are optimistic that we're seeing the things, but we're going to continue to be selective and we're going to continue to make sure we do the right things going forward. I don't think that it means that we're any less focused on that at all.

Okay. That's helpful. Thank you very much. And I'll see you next week and Jim as well.

Okay, thanks, Cindy.

Yes.

Our next question is from Art Hatfield from Morgan Keegan. You may go ahead, please.

Yes, thank you. Hey, Al, I've actually got a bunch of companies reporting today, so I may have missed some of your comments initially, so bear with me if I ask you to repeat something.

No problem.

On the acquisition- - well, first of all, on your guidance for the year, it does not include any anticipated acquisitions or any of these potential JVs that you talked about?

That's correct.

Okay. As we, as I think about the acquisition front, relative to what you've been saying over the last couple of quarters, has the progress eased up a little bit? And is that- - and if so, is that a function of your seeing better kind of asking prices for companies currently?

We haven't seen much relief in that area. I think that what you find, especially as you look at the credit markets, and I think it's out there, but we haven't witnessed any of that where they've eased off at all. So, I still think we're finding the environment very competitive.

Okay.

And one thing, Art, you've got to remember, we're not looking at the multi-billion dollar companies. We're not looking at these billion LBOs that are highly dependent on financing. The companies that are in our sweet spot are still financeable. And so, some of the- - the market was ridiculous and some of the ridiculousness, if I could say that, has decreased. But you're still seeing a pretty competitive market out there.

Okay. That's fine. I've never been worried about your ability to finance the type of deals you want to do. So, that's not been a concern of mine.

You had mentioned something about possible joint ventures. If you mentioned it, it's just slipped my mind, but I don't recall you ever talking about that before. And if I'm correct in that, kind of what has spawned your thinking in that regard? And what kind of, without being specific, what kind of opportunities have you looked at?

Let's take a look. One thing I do talk about in strategy as we try to globalize the business is that, no matter where you go in the world, there's a different strategy. As you get into South Africa, for example, if you want to have preferential ability to sell the product, you have to have a minority partner. A minority partner, depending on the percentage and the rating they get, that depends on how much money you can sell to the government that runs the railroads. So, that's the type of JV that I'm talking about.

If you look at China, if you're going to sell to the Ministry of the Railroad, which is the government, the best you could do is a 50-50 JV. So, if there's a direct sell to that -- that's considered a strategic industry in China -- so if you were to try to develop a partner, you would have to do it from a joint venture standpoint.

Say for instance in China, you mentioned selling to the Ministry of Railway -- ae they pretty much the only customer that you'd be seeing in that country?

Well, if you're talking about Freight, the answer is probably yes. If you get into the Transit markets and some of the short, what they would consider short line railroads, there are some public railroads that you can sell to, but the main market is driven by the Ministry of the Railroad.

Okay. And I did hear you allude to ECP earlier in the call and I don't know if you alluded to EPMS, but did you generate revenue in the quarter in either one of those products?

Yes.

Do you care to tell us how much?

I probably don't have that at my fingertip. I think if you follow up with Tim later, we could- -

We could say that, in general, it was meaningful to us in the sense that it showed the projects had gotten underway. But it wouldn't be what I would call, say, material to our financial position, Art. I'm just going to give you a wild swag, so everybody hears the same number. But, it's under $15 million for both.

Okay. And that's fair and I didn't expect it to be a big number, but kind of something for us to watch going forward.

And, Alvaro, on the backlog, you recently, I think it was earlier this week, announced an order from the State of Maryland. Is that correct?

Right, for commuter locomotives for the State of Maryland.

Right. Was that in the- - that was not in the quarter ending backlog numbers you gave us, correct?

Yes, that is in there, Art.

It is. Okay. And then, finally, what was the- -

I think what happened probably, Art, is we got the order beforehand, but a lot of- -

It's [moving out].

Yes, exactly. What you have to do with the announcement, especially when you're dealing with a state, is you have to run it by the state and you can imagine the challenge that you have to run it by the state. So, there's typically a pretty long time lag in announcing a municipal contract.

Oh, no, I understand that, but it was three weeks. I didn't know if you were able to- -

Yes, no. I just wanted to- -

- - after the quarter, not- - I just wanted to clarify that. And then, what was your share count at the end of the quarter?

Let's see. I'm looking at our release and our release shows the weighted average shares diluted to be 49,037.

Right, but that's not your- -

That's your weight average. I think, what number is that? 48,306,864.

Okay.

That's issued and outstanding.

All right. That's all I've got. Thanks, guys.

Thanks, Art.

Our next question is from John Barnes from BB&T Capital Markets. You may go ahead, sir.

Hey, good morning, guys.

Good morning, John.

Hey, in terms of your comments on the pneumatic brakes, again, $15 million on the revenue line in the quarter- -

I said, under, under, so - - I'm going to give myself some room there. Give me some room.

That was $15 million.

That was both electronically controlled pneumatics and- -

ETMS.

ETMS.

But that's combined.

Yes.

Okay. Are you, were you positive margin on that business?

We're covering our costs.

Okay. All right.

That's the significance of it, because, if you go back a couple of years, that was not the case. In development of these products, with our stress to try to be the, in the front of technology as far as you go with efficiency productivity and safety of the railroad, we spent a lot of money over a number of years. And we are now at a point where we're covering our costs in both of those products.

Okay, very good. And then, in terms of orders for the brakes, and we're starting to see some uptick in strength in certain commodity types for the rails. I know their total volume is still under a lot of pressure, but some of the coal demand and listening to them talk about investment in coal infrastructure to support the export markets. And Norfolk Southern was talking yesterday about the multi-year demand cycle for export coal and the number of European coal-fired utilities and things like that. Are you beginning to see an uptick or any strength at all on the Freight side of your business? And especially as it relates to the pneumatic brakes on the freight side of your business?

Yes, where we're seeing a lot of interest, or I think the uptick, not interest, is the uptick, if you look at ton miles. I mean, ton miles being up year-on-year of 2.2%. What that drives for us is, one, the aftermarket business, because that's a direct relationship to ton miles. I think that's a very positive thing.

Now, when you look at the railcar build, what we very easily are seeing is a correction related to the high backlog and the rapid build over the last couple of years and still a lot of that backlog being related to product that is tied to ethanol. And the one area in the railcar build that we're seeing a drop off is intermodal, and that's really economy driven that we're bringing in less imports now, because what we- - as we all know, we're in what seems to be in much more of a consumer type of recession, than a manufacturing recession. So, it's kind of mixed signal on the Freight side, John.

Okay. All right.

As far as ECP is concerned, yes, it's growing momentum. First you saw Norfolk Southern do a test and then BNSF is doing a test with us on Southern Company. And I think you're going to see- - and we're seeing interest by other railroads to follow suit. So, I think you're going to see most of the railroads are going to be testing this technology and verifying the benefits of it.

Okay. And then, I don't want to put you on the spot too bad on your guidance or anything, but I got the ask the question. I mean, your backlog is very robust and you've gotten a couple of nice orders here recently. And I'm just kind of curious, with kind of the momentum building and that backlog is among the best in the industry. You put up a great margin this quarter. What makes you- - what concerns you the most that leads you to temper your enthusiasm? And, yes, 255 is a solid number, but with the backlog the way it is and the margin performance, I'm just kind of curious what tempers your enthusiasm?

First of all, I think it's prudent to be conservative and we're trying to be conservative. And we're also, if you look forward, the uncertainty with the economy is what really dampens that enthusiasm. We're very excited about our opportunities. We think that we're going to be able to perform nicely going forward. But I think when you take a look at the uncertainties of the economy here and globally, we want to be conservative. I- - we want to build credibility and deliver the results and that's what we're focused on.

Okay. Very good. Nice quarter, guys. Thanks for your time.

Thank you.

Thank you, John.

Your next question comes from Scott Blumenthal from Emerald Advisors. You may go ahead, sir.

Good morning, gentlemen.

Good morning, Scott.

Good morning, Scott.

Al, I didn't think there was anything that could temper your enthusiasm.

Well, when it comes to looking forward, it's always a little difficult.

I understand. I guess just to kind of follow up on what John was saying, I was- - of course, we're all pleasantly surprised to the strength of the performance this quarter. And last year in Q1 you delivered I think a 20% revenue growth. And so, this is a pretty tough comp and that may be the basis of his question as to why your- - why it appears your enthusiasm is tempered, because you're not coming off single digit sales increases. You're coming off 20, 30% sales increases and you're delivering on them, basically the same type of increases year-over-year.

So, I guess my question is, we've moved from single to, I guess, high single digits here, but we haven't seen a quarter over the last five where you've been lower than 20% revenue growth. So, can you talk a little bit about maybe the geography, the geographic distribution of the sales and where you're kind of thinking that that's going to- - well, can you talk about the quarter and where you think it's going to kind of play out for the year?

I think the quarter is pretty indicative of what we see in the market right now. We've, as you know, we grew, were able to grow outside of the U.S. We think that that market will continue to be strong. You look at the U.S. market because of the backlog and the spending in the transit area. We think that's going to support especially the business we have. And I think the uncertainty lies primarily with the North American freight market. I think that the global freight market should continue to be strong, unless there's some type of major problem in the expansion in Asia and other emerging parts of the world.

We are very excited about the opportunity, as I said. And the enthusiasm not just comes through from me, but the whole team here. And I think we've got some great opportunities ahead of us and we're going to get focused on delivering those opportunities. But at the same time, we think it's really important to be very prudent and conservative as we look forward.

Understood. Alvaro, do you have a breakdown geographically of what the sales mix was for the quarter and how much Forex?

Yes, outside the U.S., it was 44%. Within the U.S., it was 56%. We don't really break it down much further than that, Scott.

Okay.

And that was up, I think, say for all of the, last year at the same, for the same quarter, it was closer to 60-40 split. So, it has gone up on an increasing revenue, which shows that our attempts to basically broaden our product distribution are working.

Yes. And one thing we have given in the past, we'll give, we're about 29% outside of NAFTA.

Okay.

And that was a few years ago, you were talking 20, 22%.

And, Alvaro, do you have any idea of what Forex might have contributed to the quarter?

In general, this year we almost have like a natural hedging strategy. In the past, we've had more exposure to the Canadian dollar than we did to the other international currencies. See, what happens is we have a cost center- - we have cost centers in Canada and then profit centers outside. And our exposure in the cost centers outweighed what we were getting from, say, Europe and Australia, et cetera, et cetera. So, we hedged.

This year, we actually found that the two tend to offset each other. In other words, our exposure in the cost centers in Canada as the dollar softened tends to be offset by the strength of the operations outside of the U.S. So, basically, it never is an exact wash, but in terms of material numbers, not a material number.

Yes, if you look quarter-on-quarter, FX contributed about $5 million on the revenue line. And on the EBIT line, it really had no significant impact, based on what Alvaro just said. But from the sales standpoint, about $5 million.

Okay. That's very helpful. And can you talk about pricing? I understand that in the Transit, when we're delivering Transit backlogs, that that's probably pretty static. But can you talk about the rest of the business and where you see pricing?

Overall, pricing is stable. There are areas where we feel that we have some ability to raise prices and we're very focused on them. A few divisions have done a great job at that. And these are places where we really have a lot of value to add to our customers. And those are the ones that we're focused on. In general, it's still pretty competitive out there and- - but we feel that the pricing is stable.

And how about exposure to the raw materials price in your large steel users?

Yes, as you know, if you take a look at year-on-year, there's been a jump in some of the commodities, especially steel and scrap steel. And we have really been focused, since probably- - we got burned I'm sure a number of years ago like everyone else. And we have escalator surcharges or we have agreements with the people we purchase from, so that we get those escalated costs, either in a surcharge or covered by our inventory or purchasing. So, we're not a hundred percent covered. As a matter of fact, you've always got to stay on top of it. There was a bit of a lull for a year or two without much activity. And we've noticed that some of the commodities have spiked and we've responded well to it.

Okay. Very good. Thank you.

Thank you.

Thanks, Scott.

Our next question comes from Paul Bodnar from Longbow Research. You may go ahead, sir.

Good morning, guys.

Good morning, Paul.

Good morning, Paul.

Wonder if you could just give a little more detail on getting into Europe, penetrating Europe with some of your current products and just kind of the status of that?

In the European arena we've obviously made great inroads from the Friction standpoint, based on some of our acquisition activity. In the UK, which is not part of the Continent, they remind us every so often that we've done great there with growing that business. As far as developing some other activity, we've worked internally and have other external activity going on to try to help meet the specifications required in order to do business in that area. And we've had some good successes so far.

Do you think it can be something that kind of develops just periodically over time -- you gain new products, or do you have a timeframe where you'd like to really get in there more?

Yes, it's going to take a number of years in order to get into that market. There's no question about it. It's- - there's barriers of entry, very similar to the markets in the U.S. And you have to overcome those and how you primarily do that is with better technology and that's what we're focused on.

Okay. Thanks. And then one more question, just on guidance for the quarter, you guided towards revenue growth in the, I guess, upper end of the single digits. If I just take a look, is there any reason to think that first quarter rate, either Transit segment or Freight group segment revenues are at their kind of peak levels for the year or that they wouldn't sequentially increase, maybe with a pause in the third quarter for some seasonality. Is that- -?

You might see some seasonality and I think, again, our conservatism and prudence is really related to if something fell off, which we have no reason to believe it would.

So, it's almost a worst case economic activity takes a dive in the Freight market.

I wouldn't use that term.

Okay. Okay, well, thanks a lot, guys.

Okay. Thank you.

Our next question is from Steve Barger from Keybanc Capital Markets. You may go ahead, sir.

Hi, good morning, guys. This is actually Joe Box for Steve.

Oh, hi, Joe.

Can you possibly just update us on some of the large public transit bids that you're currently working on? And also possibly comment on your expectations for the timing of the announcements? And if possible, maybe revenue potential?

Yes, I would- - that would be very difficult to answer. We are working on some large contracts. I could tell you that our total- - let me tell you something I can tell you. I mean, if you look at the options on the current projects that we have, there's about $300 million of options that more than likely will come our way as we go forward. This is -- what happens is you get the appropriation. They make an initial offer and we have options behind it. And that's about $300 million of business that would be very similar to the businesses that we're running right now.

In addition to that, there's a lot of activity at many of the transit authorities here in North America and worldwide. And we have a number of opportunities out there. They fall into- - I would expect we'll see more- - we'll be able to announce some more contract awards this year and I think they'll extend well into next year as well. But as far as the specifics of those particular orders, I'd rather not give that out.

That's good color. Thanks.

Okay.

You had also talked about a solid international market for freight, for freight cars specifically. Are you seeing an increase in freight car exports or is this primarily being served by the local markets?

Generally the freight, the railcars are built overseas and what you'll find is that some of them have a tie to the U.S. builders, but in general, you have local railcar builders throughout the world. And so, we need to work with the local people. And that's why you almost have to have a local presence, if you want to do business.

Great. Thanks for your time, guys.

Al Neupaver; Okay. Thank you.

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Okay.

Any more questions, Denise?

No, we do not have any further questions at this time, sir.

Okay. Well, we look forward to speaking to you guys in three months and we'll see some of you next week in England. Thanks.

Thanks, everybody.

That concludes today's conference. Thank you for your participation. You may now disconnect.