World Kinect Corp (WKC) 2009 Q2 法說會逐字稿

Good afternoon. My name is Marcello and I will be your conference operator for today. At this time, I would like to welcome everyone to the World Fuel Services Second Quarter Earnings Call. (OPERATOR INSTRUCTIONS) I will now turn the call over to Mr. Frank Shea, Executive Vice President and Chief Risk and Administrative Officer for World Fuel Services Corporation. Mr. Shea, you may begin your conference.

Good evening everyone, and welcome to the World Fuel Services Second Quarter Conference Call. I'm Frank Shea, Executive Vice President and Chief Risk and Administrative Officer, and I am doing the introductions on this evening's call with, as we did last quarter, a live slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit our website, www.wfscorp.com, and click on the webcast icon.

With us on the call today are Paul Stebbins, Chairman and Chief Executive Officer; Michael Kasbar, President and Chief Operating Officer; Ira Birns, Executive Vice President and Chief Financial Officer; and Paul Nobel, Senior Vice President and Chief Accounting Officer.

By now, you should have all received a copy of our earnings release. If not, you can access our release on our website.

Before we get started, I would like to review World Fuel's Safe Harbor Statement. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding World Fuel's future plans and expected performance, are forward-looking statements that are based on assumptions that management believes are reasonable but are subject to a range of uncertainties and risks that could cause World Fuel's actual results to differ materially from the forward-looking information.

The summary of some of the risk factors that could cause results to materially differ from our projections can be found in our Form 10-K for the year ended December 31, 2008, and other reports filed with the Securities and Exchange Commission.

We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period. At this time, I would like to introduce our Chairman and Chief Executive Officer, Paul Stebbins.

Thank you, Frank. Good afternoon, and we appreciate you joining us today. Today we announced earnings of $28 million, or $0.93 per diluted share, for the second quarter of fiscal 2009. Our earnings increased 35% over Q1 of 2008 and 7% sequentially over Q1 of 2009, again demonstrating our ability to deliver strong financial results in a difficult operating environment.

We were pleased to be able to grow gross profit by 5% sequentially, and our efforts to drive efficiencies throughout the Company were reflected in our operating income, which was up 21% year over year and 9% sequentially.

Throughout the quarter, we focused on four primary objectives. One, continuing to aggressively manage risk in an uncertain global economy.

Two, defending our leading position in the Marine market at a time when the shipping industry is challenged by a slump in global trade.

Three, rebuilding commercial Aviation volume while reducing risk and improving our cash position.

And four, further strengthening the platform for growth in our Land business.

We were successful in accomplishing all four of these objectives while achieving a record 4.9-day net trade cycle, achieving a 99% return on working capital, delivering a 17% return on equity, and generating $31 million in cash from operations.

We continued to maintain a very strong balance sheet. Our debt-to-capital ratio was under 3%. We closed the quarter with $366 million in cash, cash equivalents, and short-term investments, and our overall liquidity position remained substantial.

Our solid financial performance in this quarter highlighted the adaptability and resilience of our business model in challenging market conditions. It also demonstrated the ability of our global team to respond to fast-changing market dynamics, which has become a hallmark of our continued success over time.

In our Marine segment, results were down sequentially from Q1, consistent with the overall demand trend in the shipping industry. But our relative position in the market remained strong, with core traded volume down less than 1%. In a market which saw sharp drops in secular demand, we were successful in holding on to volume while our margin saw only a modest decline. As we look forward, our objective is to continue to optimize the balance between credit risk and return to drive the best overall result possible in a challenging operating environment.

At a macro level, the problems facing the shipping industry in a depressed global economy have been well publicized. Most of the world's large fleets have posted significant losses as they struggle to shed capacity and reduce their costs. This has been particularly evident in the container sector, where we have seen considerable demand destruction. All industry estimates suggest that bunker demand will be significantly lower throughout the year of 2009 than in 2008 due to the slowdown in global trade.

However, offsetting the general malaise in the container segment is renewed activity in the bulk market, primarily driven by demand for raw materials in China. The tanker market was still relatively weak in the quarter, but is expected to rebound as the economy begins to show signs of recovery.

Despite the difficult industry conditions in Q2, World Fuel continued to feature as the leading fuel services provider in the space. And it is clear that the operating environment has proved more challenging for our less well-capitalized competitors, several of whom have been burdened by high debt levels and negatively impacted by poor credit control.

Our offering in the market continued to be differentiated by the scope of our network, the strength of our balance sheet, and the reliability of our service. As we look forward to the balance of the year, we will continue to focus on maintaining our position in the market while continuing to observe a tight risk management discipline.

In our Aviation segment, we spent the last year shedding volume and reducing our exposure to risk. Our disciplined approach to risk management was effective and enabled us to protect our core profitability in the segment.

However, in Q2 we began the process of complementing our core commercial business with the addition of new volume at lower gross margins per gallon, but secured on a prepay basis. By beginning this process of restoring volume to our portfolio, we were able to fortify our competitive supply position, reduce risk, and improve our cash position, which serves as a hedge against rising prices and helps us fund growth. Our results were good despite the different market, and we believe we are well positioned to continue to adjust and optimize our business model in response to evolving market conditions.

At a more macro level, the aviation industry continues to be challenged by an uncertain economy and volatile fuel costs. Capacity cuts continue, with major fleets fighting for survival and seeking ways to improve revenue by charging for ancillary services. The industry faces an unprecedented economic environment and losses have been estimated to reach $9 billion in 2009. IATA has estimated that air cargo demand will drop 17% in 2009, and overall passenger traffic will be down 8% compared to 2008. Furthermore, business aviation traffic remains sluggish given the economy and negative public perceptions about private aircraft travel.

These realities will certainly result in further rationalization in the industry, but will also create opportunities for the survivors. It will also create opportunities for World Fuel as companies increasingly look to reassess their traditional procurement procedures and look for more robust integrated procurement offerings. Our global system will continue to differentiate our offering and create opportunities to more closely partner with our customers in managing their total spend.

In our Land segment, we had a record quarter. We are excited about the developments we see in the space and the promise of continued growth. Having endured several years of challenges as we work to refine the business model and find our place in the supply chain, we are beginning to see real progress. Our wholesale unbranded rack business is finally right-sized and our wholesale branded business continues to perform very well despite a challenging economic environment. The segment performance has improved considerably and has become a meaningful contributor to our results. We believe we have a good platform in place and anticipate further growth going forward.

Q2 was a great quarter for World Fuel. We delivered strong performance and defended the franchise in a challenging operating environment. We held our own on margin and volume, we managed risk, maintained a strong balance sheet, and achieved excellent results on trade cycle, working capital, and return on equity. The team proved once again that a strong, smart defense wins the day.

We continue to innovate, refine our offering, invest in technology and people, and see an abundance of opportunities to grow our business going forward.

We appreciate your continued support, and I'll now turn the call over to Ira for a detailed financial review.

Thank you, Paul. Before I review our results, I would like to point out that our second quarter revenues were impacted by an increase in fuel prices compared to the first quarter and a significant decline in fuel prices when compared to the second quarter of last year. For those of you participating by webcast, you will see this reflected on the consolidated revenue slide.

Consolidated revenue for the first (sic) quarter was $2.5 billion, up 26% sequentially, but down 55% compared to the second quarter of last year. The Aviation segment generated revenues of $832 million, up $122 million sequentially but down $1.4 billion from last year's second quarter. Of this amount, approximately $900 million is a result of lower fuel prices and approximately $500 million was a result of reduced volume.

Our Marine segment revenues were $1.4 billion, up $279 million sequentially, but down $1.7 billion year over year. Of this amount, approximately $1 billion is a result of lower fuel prices and approximately $700 million was a result of reduced year-over-year volume.

And finally, the Land segment generated revenues of $320 million, up $119 million sequentially, but down $46 million from last year's second quarter. Of this amount, $112 million was a result of lower fuel prices, which was partially offset by a $66 million increase in revenue which related to increased year-over-year volume principally related to the Texor, Henty, and TGS acquisitions.

Our Aviation segment sold 459 million gallons of fuel during the second quarter, up 8% sequentially, the first sequential increase in volume since the first quarter of 2008, but year over year, down 23%. As mentioned on last quarter's call, volumes began to increase in the second quarter, driven in part by increases in secured, lower-margin commercial business.

Our Marine segment's total business activity for the second quarter was 5.2 million metric tons, down 4% sequentially and down 30% year-over-year. While volumes did decline sequentially, the rate of decline eased significantly in the second quarter. Second quarter volumes were impacted by our continued efforts to aggressively manage risk as well as the impact of continued challenging market conditions.

The credit quality of our Marine portfolio remains strong as we continue to shift a greater mix of our business to (inaudible) ship accounts.

Fuel reselling activities constituted approximately 79% of total Marine business activity in the quarter, slightly higher than the average percentage of such activity over the past several quarters.

Our Land segment sold 169 million gallons during the second quarter, up 26% sequentially, and up 65% compared to the second quarter of 2008 due to a sequential increase in our unbranded wholesale business and sequential and year-over-year increases related to the acquisitions of Texor, Henty Oil, and TGS Petroleum.

Gross profit for the second quarter was $92 million, an increase of $5 million, or 5% sequentially, but down $2 million, or 3%, compared to the second quarter of last year. Our Aviation segment contributed $40 million in gross profit, a increase of $7.7 million, or 24% sequentially, but a decrease of $5 million, or 12%, year over year.

During the quarter, we opportunistically increased our inventory position without a significant incremental working capital investment. Our self-supply models jet fuel inventory position was approximately 25 million gallons, or $43 million at the end of the second quarter, up from 20 million gallons, and approximately $27 million, in the first quarter.

Jet fuel market prices rose approximately 32% during the quarter, from $1.36 to $1.80 per gallon. This significant increase in prices, combined with our increased level of inventory, resulted in a positive impact to gross profit related to inventory average costing of approximately half of the overall sequential increase in profit.

The Marine segment also generated gross profit of $40 million, a decrease of $7 million, or 14%, sequentially and down $4 million, or 9%, year over year. The sequential decline in gross profit related to slightly lower volumes and a greater mix of business with low-risk blue chip customers.

While blended margins declined approximately $0.90 per metric ton from the first quarter, they remain well above historical levels. We have continued to outperform historical averages for a few principal reasons. We remain focused on risk-adjusted returns on capital. Our global size and scale has allowed us to continue to strengthen our supply position, and our strong and liquid balance sheet, combined with the strong value proposition offered to our customers, allow us to remain the counterparty of choice in the markets we serve.

Our Land segment delivered record gross profit of $11.5 million in the second quarter, an increase of 40% versus the first quarter, which as you remember was impacted by a sharp decline in gas and diesel prices and severe winter weather conditions in the Midwest. When compared to the second quarter of 2008, gross profit increased by 146%.

The sequential and year-over-year comparisons also benefited from the acquisitions of Texor and (inaudible) caps.

Operating expenses in the second quarter, excluding our provision for bad debt, were $55 million. This is at the bottom of the range I provided on last quarter's call. Expenses were up $1 million sequentially, but down $1 million compared to the second quarter of 2008.

Excluding the impact of acquisitions, our operating expenses were flat sequentially but down $6 million year over year, which is evidence of our continued focus on managing our operating costs as well as increasing leverage from our global ERP platform implemented early last year.

For modeling purposes, I would assume overall operating expenses, excluding bad debt expense, of approximately $55 million to $59 million in the third quarter of 2009.

We recorded a provision for bad debt of $500,000 this quarter, flat with last quarter but down $7.7 million compared to last year's second quarter. Our receivables balance was $763 million at quarter end, up approximately $175 million from the first quarter, reflecting an increase in the fuel prices during the quarter. Year over year, our receivables balance has declined over $1 billion.

Income from operations for the second quarter was $36 million, an increase of $3 million sequentially, and $6 million from the second quarter of 2008. Income from operations for our Aviation segment was $18 million, an increase of 52% sequentially and flat compared to last year's second quarter. Our Marine segment's income from operations was $23 million for the second quarter, a sequential decrease of 23%, and 4% compared to last year's second quarter.

Our Land segment had record income from operations of $3.9 million, up $2.8 million sequentially and up $4.5 million over last year's second quarter. The sequential improvement was driven by improved results in our unbranded wholesale and Texor businesses as well as the impact of the Henty Oil and TGS acquisitions.

The Company had other expense net, which includes net interest expense and other financing costs, as well as foreign exchange gains and losses, of $600,000 for the second quarter compared to $1.4 million in the first quarter and $2.7 million in the second quarter of 2008. Excluding any foreign exchange impact, I would assume other expenses net to be approximately $1 million to $1.5 million for the third quarter of 2009.

The Company's effective tax rate for the second quarter was 21.4%, compared to 18.7% for the first quarter and 24% in the second quarter of last year. Our second quarter tax rate is higher than last quarter due to an increase in domestic earnings combined with a decrease in earnings generated in countries with much lower tax rates. As I've stated in the past, our quarterly tax rate can vary quarter to quarter, sometimes significantly, based upon shifts in our distribution of earnings worldwide.

We estimate that our effective tax rate for the third quarter of 2009 will be between 20 and 24%.

Net income for the second quarter was $27.7 million, an increase of 7% from the first quarter and an increase of $7.2 million, or 35%, year over year. Diluted earnings per share of $0.93 increased 7% sequentially, and increased 31% over last year's second quarter.

This marks the seventh consecutive quarter of year-over-year EPS growth and we are proud of this accomplishment and continue to remain focused on delivering strong results for our shareholders.

Return on equity was 17% for the second quarter, compared to 15% in the first quarter and 16% in the second quarter of 2008. Return on assets was 10% in the second quarter, flat from the first quarter and approximately double the 5% return in the second quarter of last year.

Our effective management of working capital has delivered strong results, as our net trade cycle decreased to record low of 4.9 days in the second quarter, down slightly from the first quarter and down 3 days from last year's second quarter. We posted a record 99% return on working capital, up from a 24% return in the second quarter of last year.

In the second quarter, despite a 40% increase in crude oil prices, we generated over $30 million of operating cash flow. We have now generated over $600 million of operating cash flow over the past four quarters.

Our cash, cash equivalents, and short-term investments decreased from $394 million at the end of the first quarter to $356 million, reflecting both the positive impact of operating cash flow offset by the acquisitions of Henty and TGS completed early in the second quarter.

Our balance sheet remains strong and liquid, which will allow us to continue to capitalize on opportunities that can provided added value to our customers and shareholders.

In closing, we delivered strong results, generated solid operating cash flow despite rising fuel prices, improved upon the quality of our receivables portfolio, and completed two strategic acquisitions. Our balance sheet remains strong and liquid, which will support our continued strategy to grow the business both organically and through strategic investments.

We continue to execute well as we remain focused on our core competencies and operating disciplines. Adapting to difficult economic conditions, we have become more efficient as an organization, which provides us with significant operating leverage as the economy begins to recover.

Finally, we remain focused on enhancing our relationships with both our customers and suppliers and improving returns for our shareholders.

I would now like to turn the call back over to the operator to open up for questions and answers.

(OPERATOR INSTRUCTIONS) Jonathan Chappell, JP Morgan.

Thank you. Good afternoon, guys.

Hey, Jonathan.

Paul, on your first slide you talked about defending the marine market, or defending your position in the marine market. I was just wondering if you can expand a little bit on that. I haven't had a chance to run the volume information that Ira just gave us into the model, so curious about the margins and how you're defending margin versus volumes in what's a weaker market right now.

Sure. I think as you saw in Ira's comments, there was a $0.90 sequential decline quarter to quarter on the overall blended basis. And when we talk about-- so there was a little bit of pressure on margin, so we saw some modest decline. But again, compared to historical levels we think we're doing pretty well.

When we look at the overall secular trends in the shipping industry, certainly you follow transportation and you know what's been out there. It's certainly well publicized that shipping in general has been challenged on the back of a very difficult global operating environment. You've got a global economy that's stressed and global trade in general has been down. So there's been a lot of evidence in the press that the year-to year demand destruction on the volume side is significant. And in some cases we've heard as much as 30% drops year over year.

So I think that's just a reality we have to deal with. So when we think about defending our position, we are the premier player in the space, we've got a superior offering, we've tried to use that strength to not only diversify our mix of business but also stay very focused on the best-in-class customers that we think have got the ability to sustain a viable business throughout this period.

Certainly, global trade is not going to stop; 80% of the world's goods do travel by ship. So I think it's a reality that shipping is going to be with us. So from our point of view, you can see that the primary focus as been risk management. So as good stewards of this franchise, and with our primary assets being receivables, our primary and first and foremost focus is defending the franchise from a credit risk perspective. I think we've done a superb job of that; Frank and Steve have been excellent.

In terms of maintaining our market share, we've stayed very focused and very proprietary about that core customer base, which we think are the best in class and well financed and are going to have sustained success over time.

And with regard to margin, we frankly think we did a pretty good job of holding on to that, given the market circumstances. So I think we've done well. I think that we've watched a competitive landscape that has been pretty stretched. We see some of our less well-capitalized competitors under financial duress, both by carrying a lot of debt and the fact that there's been some credit losses out there which we've managed to navigate around.

So I think we're still the premier player. I think we're intent on defending that going forward, and there's every evidence that the maturity of our model and our ability to buy strategically is going to allow us to do that and still provide great value to the customer.

I just want to follow up on some of the things you said there, especially the counterparty risk. Obviously, you've provisioned for that to stay pretty low. But as these blue chip customers continue to lose money, whether it's on the container side or even some of the blue chips on the tanker side are losing money and there's a bigger focus on cost now, do you really get paid for your value add or your reliability, or at the end of the day are they just going for the best price out there?

I think we actually do, and it's something that-- of course, as you see from our discussion in the transcripts of what we've said, we're obviously going to be optimizing this combination of credit risk sensitivity and return.

But if you think about what's going on with these large fleets -- and they're under a lot of scrutiny, yes, to save costs, but there's been some pretty high-profile problems out there on the liquidity side, on the credit side, on the banking side, so they're very focused on who their counterparties might be.

And again, in a market that has, to some extent, been characterized by smaller, less well-capitalized companies, that come in and just simply play the price game, there is much more scrutiny at a high level in the company of that counterparty risk and who's got the liquidity, the balance sheet, and the transparency and who should be their business partners.

And I think that we feature pretty prominently in that calculus, and I think it's going to be something that does have an impact on our ability to continue to be sort of a preferred status player. It isn't just going to, I think, revert to a total blood bath on price.

Now, obviously, there may be some of that, but I think our feeling is that these customers-- they need help, they're looking for counterparties they can rely on. Transparency is very, very important because there's certainly evidence that if you don't have transparency, people can get in trouble. So I think we're going to do pretty well.

Okay. And then, just one last one and then I'll turn it over -- also on the competitive landscape. You mentioned not as well capitalized, people who might take too much risk. Clearly your business is an asset-light business where the people really ultimately matter.

We've talked about acquisitions in conference calls past, but are there good people out there that have good regional relationships who know that their overall firm is struggling who are coming to you proactively and wanting to get on board with somebody who has the balance sheet and the global scale?

Yes.

Okay. We'll leave it at that. Thanks a lot.

Thanks, Jonathan.

(OPERATOR INSTRUCTIONS) George Pickral, Stephens.

Good afternoon, guys.

Hey, George.

First question is on the Aviation side. It looks like even if you strip out the $4 million from jet fuel gains, your yield still increased sequentially. And on the last call you talked about doing more business on a prepay basis at lower margins. Can you maybe just talk about what you saw on the market, or what you did, to get the margins higher this quarter?

Sure, George. This is Paul. There are a couple of things going on here. You can recall that if you looked at the climate we were in a year ago, you had a rapidly accelerating price market, balance sheets were being stressed throughout the entire industry. Mike Clementi and his team and Frank and their team did a superb job of shedding some of the more vulnerable, what we thought to be some of the more vulnerable, customer base, and really rationalizing and protecting the franchise by reducing our core volumes down to what we thought was sort of a bedrock. They did an excellent job.

As we looked forward through Q1 going into Q2, we began to take a fresh look at the landscape and decide, "So where do we have opportunities to both pivot and move with agility in the market to respond to the change in the climate?" And what we found is that our supply position was robust enough that we could actually be competitive and go after new volume, but we also felt that it was important to seek business on a prepay basis because it allowed us to kind of diversify our overall mix and it allowed us to generate cash and reduce some of our historical anxiety about credit risk. And I think that it actually did a pretty good job there.

We also have government business in there, we've also got the AVCARD fees. There's other things that helped us drive the overall returns up. So we were driving profitability, we were changing our business model, and I think we've done an overall blended very good job of reestablishing some value growth. I think we feel pretty good about that going forward as well. And I think the team's just done an excellent job of both simultaneously growing back our volume, showing opportunities to increase profitability, but also reduce risk at the same time.

Okay, great. And Paul, I'll stick with you. Your costs essentially have been flat three quarters in a row, which is very impressive. And then you made a comment in the press release about significant operating leverage -- assuming, based on your ERP system. Could you maybe talk about, or try to quantify, how much revenue you think you could add to the business without significantly increasing your costs? And what sort of incremental margins we're looking at on those?

I think we're looking at a pretty scalable model. I don't know that I can give you the revenue with any precision, because obviously that's price of oil, and that's very difficult, and in terms of what it does to margin--

I guess net revenue is what I meant.

Paul Stebbins; Yes, I'm not so sure that I can give you that with any precision. I think it's important to state that the efficiency drive that Mike Kasbar in terms of driving systems and organizational maturity and real sort of functional discipline throughout the entire organization have begun to yield tremendous results.

What Ira's done coming in, sort of world-class CFO, helping us drive a level of financial maturity and sophistication in the model, has also driven efficiencies. You've got a tremendous accounting department that's just done an amazing job with all the stuff that we've got going on with derivatives and the mark-to-markets and all that.

You put all that team together, and I think that we're seeing a real yield. And of course, the underpinning of all this is something that Mike's been driving for the last several years, which is the systems. So we now have a highly robust global system platform. And this is beginning to reveal to us that we can drive efficiencies. I can't give you the metrics with precision, but I would say we have a lot of confidence that we've got operating leverage exacted out of the model. Mike, did you want to--

Yes, I think the other point worth noting is, particularly in the Land space, that's a highly automated business activity. And by virtue of Texor and TGS and Henty, we're now in the process of integrating all of those systems to come up with a global platform, and I'm pretty confident that within a few months we'll have that done, and that's a highly automated business. So combination of getting a lot of automation in the Aviation back office, getting a lot of scalability within our Marine front office, which is heavier on the front office than our other businesses. We feel pretty confident that we've got significant efficiency that we've never had before in the history of the Company.

And I think also if you just look at it year over year and if you back out some of the straight-line expenses on the added acquisitions and stuff, the underlying expense number has really done well. And I think that that's a tribute to the efficiency.

And the AVCARD business, Aviation being integrated, back office, with our base-ops business is also a very exciting opportunity for us to develop their closed-end charge card system in our global platform.

Great. Thanks for the time, guys.

Thanks, George.

(OPERATOR INSTRUCTIONS) Steve Ferazani, Sidoti & Company.

Good evening. Wanted to circle back around on the Aviation volumes again. You had talked about just weak global aviation traffic. I mean, obviously impressive you're able to pick up so much volume. One, if we're getting some stabilization or a slower decline -- can you guys continue the ramp-up? And is there any particular spot where you're picking up volume?

Yes to the first question; I would say that we definitely see that. If you talk about where, I would say it's actually a pretty diversified space. But probably, I would say, most evidently in the United States because it's a market where we've got very strong ability to work with the self-supply model, which we've talked about. So I would say that that's probably the single largest place that we've seen the pickup.

But what is interesting to us is we're also seeing opportunities in other parts of the world. But I would say the US is the primary at this point.

Okay. And you do think you can start-- continue the ramp-up if the market remains sort of at a stable level here?

Well, we're definitely seeing some stability. Even today, you see the Wall Street Journal talking about how traffic from Asia's starting to improve. Atlas Air worldwide has done well. We think these are-- the consumer electronics business is time-sensitive and aircraft is what's going to drive that. So despite some of these doom-and-gloom numbers, which-- Look we're realists. You have to be cautionary, you have to be practical, you have to understand that this has been a pretty significant blow to the entire industry.

So we've had to both do two things. One, be sensitive to watching carefully how it impacts our exposure, which I think we've done a superb job of managing. And we've also realized that we've got a robust enough offering that we can continue to be competitive and secure this on a pre-pay basis.

But we do think that the trend has shifted. We think that there has been some stabilization going forward. We think that the more responsible carriers have done a very good job of rationalizing their business models-- Because they know what it's like to live this pain, and some are doing a very good job of responding.

So I think we're navigating a very good path. I feel pretty good about our ability to continue to grow some volume going forward and do it in a way that we can manage the risk on very effectively.

Just one more question, briefly, on the Land side. Margin held up pretty well there. We know that wholesale margins in some other US regions were particularly weak. Do you owe that to your customer base, your geographic positioning? Can you give a little color on that?

Well, I would say (chuckles) you sort of hit them all. I would say a couple of different things are going on. We talked in my script a little bit about the right-sizing of the wholesale brand-- That was something that as you know, over the last couple of conference calls we've struggled a little bit to find our sweet spot in the supply chain and really tighten up that highly targeted effort.

And yes, there has been a little bit of focus in certain regions. Clearly, with the Texor and the TGS bolt-on, we're seeing a very strong concentration around the Midwest. And TGS was a perfect complement to what the Texor platform was.

But we're also seeing opportunities to expand beyond that region. So what we like is that we've got a model that works, that's got very tight trade cycles, that's showing good returns on working capital, that shows opportunity to grow in a couple of regions. So we like that model and we're going to continue to focus on it.

We also had a little bit on the international space as well. As you know, we've also got a Land presence in the UK and in Brazil. So I think that we're committed to continue to probe these international markets because we see some interesting synergies and overlaps with what we've learned and what we can achieve in the US market. So there's some parallels overseas as well.

Great. Thank you very much.

Thanks, Steve.

(OPERATOR INSTRUCTIONS) And, gentlemen, at this time there are no further questions. Would you like to make any further remarks?

Yes, thank you. Operator, I appreciate it. We thank all of you for joining us today and we appreciate your continued support. This has been a challenging market but we think we've done an excellent job and we appreciate your confidence and we feel very good in our ability to continue to execute going forward. Thanks very much, and we'll talk to you next time.