Woodward Inc (WWD) 2015 Q1 法說會逐字稿

Thank you for standing by. Welcome to the Woodward, Inc., first-quarter fiscal 2015 earnings call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. (Operator Instructions).

Joining us today from the Company are Mr. Tom Gendron, Chairman and Chief Executive Officer, and Mr. Bob Weber, Vice Chairman, Chief Financial Officer, and Treasurer. I would like to turn the call over to Mr. Bob Weber.

Thank you, Operator. We would like to welcome all of you to Woodward's first-quarter fiscal-year 2015 earnings call.

In today's call, Tom will comment on our markets and related strategies and I will discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com.

We have again included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available by phone or on our website through February 3, 2015. The phone number for the audio replay is on the press release announcing this call and will be repeated by the operator at the end of the call.

Before we begin, I would like to refer to and highlight our cautionary statement, as shown on slide 3. As always, elements of this presentation are forward looking or based on our outlook and assumptions for the global economy and our businesses more specifically. These elements can and do frequently change.

Please consider our comments in light of the risks and uncertainties surrounding those elements. We also direct your attention to the reconciliations of certain non-US GAAP measures included in today's slide presentation and our earnings release and related schedules. Management uses these non-US GAAP measures in monitoring and evaluating the ongoing performance of Woodward and each business segment.

Turning to our results, net sales for the first quarter of fiscal 2015 were $488 million, compared to $429 million in the first quarter of last year, an increase of 14%. Earnings per share were $0.66 for the first quarter of 2015, compared to $0.34 for the first quarter of last year.

EBIT for the quarter was $63 million, compared to $39 million for the same quarter of the prior year, an increase of 61%. Free cash flow was an outflow of $9 million for the quarter, compared to an inflow of $7 million for the first quarter of 2014, including $9 million of increased capital expenditures.

Now I will turn the call over to Tom to comment further on our results, strategies, and markets.

Thank you, Bob. Welcome to those joining us today.

Our financial results for the quarter were strong compared to the prior year, driven largely by higher sales across the Company. Sales related to aerospace, industrial gas turbine systems, and natural gas systems for buses and trucks in China were particularly strong.

Before I get into our markets in more detail, let me first address the very prominent topic of oil price impacts on our business. Overall, we do not believe Woodward will experience a significant impact in 2015 related to oil prices. We believe low oil prices will have a neutral to positive effect on our aerospace business, related to increased aftermarket sales.

Since our exposure to oil production is relatively small, we believe low oil prices will have only a slightly negative or neutral impact on our energy business.

Overall, we think the impact on fiscal-year 2015 is well within our guidance. We will continue to monitor the situation, but believe the broader economic impacts of lower oil prices should provide additional GDP growth.

Turning to aerospace, commercial aerospace continues to be a very robust market as production rates, air traffic, and aircraft order backlogs are all at healthy levels. Major new programs, such as the Airbus A320neo and Boeing 737 MAX, are nearing launch and will produce significant revenue and earnings growth for Woodward as they enter into service.

Defense aftermarket sales were strong in the quarter, due to the pent-up repair demand resulting from the timing of contract awards. We believe the conflicts around the world support a stable overall defense business this year.

Commercial aftermarket remained solid, and our results for the quarter, as compared to the prior year, reflected positive variability across various aircraft. The regional jet market continues on a positive trend and the business jet market continues to strengthen. Large cabin jets continue to lead the recovery, but small cabin jets are now showing improvement. We continue to expect growth in this market as a result of new aircraft launches.

As anticipated, the commercial rotorcraft market is softening, mainly as the result of the oil and gas industry moderating capital expenditures.

Our new aerospace facility in Niles, Illinois, was completed on schedule in December. The Rockford, Illinois, facility is to be completed in the coming months and the Fort Collins, Colorado, facility in early 2016, both as planned.

Turning to energy, in the quarter many of our markets continued to strengthen as a result of the availability of globalization of natural gas and domestic oil production. The robust demand for aftermarket services related to industrial gas turbines continues to drive increased sales for Woodward. The market for new heavy frame gas turbines, however, remains soft.

The oil and gas industry continues to drive the aero-derivative gas turbine and gas engine markets. We could see future softness in this market if oil prices remain at low levels.

The natural gas truck and bus market in China remained solid with strong sales in the quarter. We anticipate continued volatility in this market as a result of government incentive and the relative price in natural gas to diesel.

In summary, we had a great quarter as a result of strong sales, ongoing cost control, and positive leverage on earnings. Despite ongoing global uncertainty and challenges, most of our markets are showing strength or improvement. New aerospace programs are getting close to launch and natural gas usage continues to expand globally. Both are expected to drive significant future growth for Woodward.

Now let me turn it back to Bob for our financials.

Thank you, Tom.

We did deliver a solid first quarter in both sales and earnings. Increased sales volume and operating leverage were partially offset by higher Companywide variable compensation.

In aerospace, higher commercial aftermarket sales, steady growth in commercial OEM compared to the prior year, and strong defense aftermarket sales contributed to a strong quarter.

Commercial aftermarket increased 16%, a significant increase compared to the prior-year quarter. Aerospace segment earnings for the first quarter of 2015 were 14% of sales, compared to 9.8% in the same quarter a year ago. Segment earnings in the quarter were favorably impacted by the higher sales volume and improved manufacturing margins.

In our energy segment this quarter, increased sales resulted from higher service-related sales for industrial gas turbine systems, fuel systems for natural gas trucks and buses in China, and wind turbine power converters. Foreign-currency exchange rates had an unfavorable impact on sales of approximately $12 million compared to last year's first quarter.

Earnings as a percent of sales were 16.9% this quarter, compared to 13.6% in the same quarter of the prior year. Segment earnings for the quarter were primarily impacted by the higher sales volume, partially offset by an unfavorable impact due to foreign-currency exchange rates.

At the Woodward level, research and development costs were $34 million for the first quarter of 2015, compared to $29 million for the first quarter of 2014, reflecting quarterly variability primarily due to the timing of achieving development milestones and related testing.

As a percentage of net sales, research and development was approximately 7% in the first quarter of both 2015 and 2014.

Selling, general, and administrative expenses were $40 million, or 8.2% of net sales, for the first quarter of 2015, compared to $37 million, or 8.7% of net sales, in the first quarter of 2014.

The effective tax rate for the first quarter of 2015 was 23%, compared to 29% for the first quarter of 2014. The decrease in the income tax rate was primarily due to the $5.1 million, or $0.08 per share, retroactive impact of the research and experimentation tax credit extension through December 31, 2014. We still anticipate a full-year effective tax rate of approximately 27%.

Looking at cash flows, we generated $38 million of cash flow from operations for the first quarter of fiscal 2015, compared to $44 million for the same period of the prior year, primarily related to higher sales in the first quarter of 2015. Free cash flow for the first quarter of fiscal 2015 was an outflow of $9 million, compared to an inflow of $7 million for the same period of the prior year.

Capital expenditures were $47 million for the first quarter of fiscal 2015, compared with $37 million for the same period of the prior year, reflecting growth in spending related to our capacity expansion projects.

Also in the first quarter of fiscal 2015, we repurchased $32 million of Woodward stock under our $200 million share repurchase authorization.

Lastly, turning to our fiscal 2015 outlook, we are maintaining our full-year outlook for fiscal 2015 with sales anticipated to be between $2.05 billion and $2.15 billion and earnings per share expected to be between $2.65 and $2.90 per share. We believe our cost-control initiatives and improved operating leverage will offset any potential negative sales impact of global economic uncertainty.

This concludes our comments on the business and results for the first quarter of fiscal-year 2015, and Operator, we are now ready to open the call to questions.

(Operator Instructions). Sheila Kahyaoglu, Jefferies.

Good afternoon, guys, and thanks for taking my question. Maybe can you talk about current order trends? You stated that the oil and gas impact is expected to be neutral for the year. Can you tell us what you are seeing in the current business, and just within energy, what your expectations are for revenue growth for the rest -- remainder of the year in the different subcomponents?

On the order book, actually our order book is continuing strong at this point, relative to -- through one quarter. Orders are still coming in.

As we said, we're monitoring to see if we see some impacts from the oil industry. We have seen -- I would say there's a little bit that we've seen, but nothing material, and that we're still holding to the sales growth that we highlighted earlier when we launched the fiscal year. We are on track for that and we haven't changed that outlook.

I guess in terms of expectations for the year within the subcomponents of the business, would you say you are at the high end of the aftermarket services for IGT? How would you rank where expectations are? Could you provide some glimpse into that?

Sure. I think we are doing quite well on aftermarket services across the energy market. I think that's what you are asking. Also in the aerospace market, they're doing quite well at the moment.

I don't know that we would see a huge shift in that, but one of the positive things is that the installed base keeps getting larger, so we're working to capture more of the aftermarket, so some of our aftermarket strategies are working and that's growing.

As you break into some of the other segments, as we said in the prepared remarks, the large turbines is a little soft still. That hasn't changed. Aero-derivatives has been strong. That's probably one of our watch items.

You move into natural gas, CNG vehicles, that's been strong, order book still okay, but that's a watch item for us. Large natural gas, wind are all doing well. Order books are good, so overall, there is some puts and takes, but we still think the outlook is in the range of our growth projection.

Got it, and then just one last one for me and I will hop back in. You mentioned the rotorcraft market is slowing down. Is that more rhetoric from the OEMs you are hearing or did you experience a decline in the quarter?

There is a little bit of a decline, very, very marginal, but we're watching that one. That's one of the commercial rotorcraft. The [size] serving that market was down slightly.

Sounds good, thanks.

Pete Skibitski, Drexel Hamilton.

Nice quarter, guys. Guys, on energy, pretty solid margin rate. I think typically you think you could ramp the margin rate there with higher volumes the rest of the year, but is there any reason you're thinking maybe you can't do that? Was there any special mix this quarter or something or something that will give us headwind the balance of the year in energy in terms of the margin?

I don't think there's any headwinds that we are particularly seeing. I think it's really the uncertainty. Clearly, we had a great quarter.

Yes, there are mix elements and so on that can go into that. I think we have said that the 16 we still were holding as our long-term target. We do believe, as we have shown lately, that we can overachieve that from time to time, but as we saw last year, we are also still knocking on the door, but not quite there.

So I think a lot of the work we have done, whether it's lean manufacturing capabilities, et cetera, et cetera, has allowed us to increase the base layer to a much higher level, but holding that above 16 is not always easy to do.

Got it, okay. And then on the softness in the heavy frame gas turbines, is that just a big power plant type stuff and -- I guess that's my question.

Yes, it definitely is the large power plants and it's unchanged. It's still soft. There wasn't really a shift there and we just haven't seen the anticipated pickup that we believe will come most likely moving into 2016.

Okay, and then just lastly, guys, the growth in energy revenue, was that all unit growth or did you get some pricing in there also?

Primarily unit growth.

Okay, thanks, guys.

William Bremer, Maxim Group.

Very nice quarter. My question is definitely on the -- specifically on energy, on the pricing, whether or not the bookings coming in, are you able to hold pricing or is it more in essence volume related?

Pricing is overall -- we are holding pricing and through our -- through volume, our cost initiatives, and lean manufacturing is what is really expanding our margins. Margins aren't being expanded with price. It's a tough market out there, but we are doing our best to hold price and then build margin through those other activities.

As we look throughout 2015, do you expect the margins, I guess, hey, this is an outstanding quarter for energy on margins. Do you expect it to be tempered as you go into the back half or how should we look at that? Because at the analyst day, you always say 100 bps on both segments year over year. Are you still seeing that play out or do you think it's going to be more heavily weighted in terms of aerospace versus energy?

Right now, we think that's still good guidance, that's still our outlook, and we think that's about right on both segments.

Okay. Then my final question is definitely -- is on the inverters. Can you give us a little bit what you are seeing? They had a nice quarter, but what's the visibility in that market, and also we could throw in the compressed natural gas engines for the Chinese market?

On the wind converters, wind is a volatile market and we're in a good phase of the market right now, so we are seeing sales growth. We're also seeing earnings improvement in that business and we feel real good in that we got the earnings back where we want them.

A lot of that has come from both new platforms, which have leveraged Woodward technology, as well as we do run those converters down a lean manufacturing line, so we have got productivity coming out of that.

So that one is looking good. Just remember, it's a volatile market, but we're in a good phase of the market right now.

China CNG was a very good quarter. That one is -- I'd remind everybody that can be a volatile market. We're going to keep a close eye on that one because the price delta between diesel and natural gas equivalent does have an impact on that market, and that price delta has been reduced, as everybody knows. So that's one area of potential variability we have going forward. We believe that's well factored into our guidance and into our growth projections.

But that is -- those two, Bill, you picked up on, those are two of our higher variability markets and we think this year that pattern will continue being our highest variability.

Nice starts to the year, gentlemen.

J.B. Groh, D.A. Davidson.

Thanks for taking my call, guys. On the incrementals in aerospace, that was very, very strong. How much of that is strength in aftermarket? I'm guessing that's a fair contributor?

It was, yes. We had 68% growth in commercial aftermarket and we called out both sides, both defense and commercial, as being a cause of the increase, so you're right. Incremental had a lot of aftermarket carry with it.

Then on neo and MAX, I guess neo first, when do you start to see meaningful ramp on that?

We'll really start seeing it in 2016. There will be some more sales in 2015, but meaningful ramp is really 2016.

Okay, okay. Then a couple for Bob. Bob, what do you have implied in the guidance on the interest cost and the tax rate for the year?

Tax rate, we're still holding to the same 27% that we called out early on in the year, so that we are holding on.

You have heard a lot of the press with respect to raising interest rates and so on, but we don't at this time see any overall change in our interest expense for the year, so no variation at this point in time. We have probably heard I don't know how many times now that they're going to raise them and they never do.

With everything going on globally, we will see what happens, so no change in overall guidance on interest and it will probably hold almost even with the quarter for the full year.

Okay, thanks a lot.

Tyler Hojo, Sidoti & Company.

Just a first question is just on seasonality. During the last earnings call, I think you told us all to expect a seasonally weak Q1, and certainly not complaining about the strong results in Q1. I'm just kind of curious, though, what came in stronger than expected this quarter? I am guessing aftermarket, but what else?

We called out a little bit of pent-up demand that we had from the fourth. We called that out as well.

When you look at from an eight-quarter standpoint, you will notice that even though this was a very strong quarter historically, based on first quarters, we still have improvements as we go through the year. Last year's first quarter was a tough one, that's for sure. But we did see some nice increase predominantly, as you point out, related to aftermarket in this quarter.

I think, as Bill said, we're off to a good start and we hope we can maintain that.

Okay, great. Just a question on aero-derivatives, and I guess that's where the bulk of your oil and gas production exposure lies. Have you seen any softening in that market yet? And I guess, maybe, it might be helpful to provide a little bit of context. How important is aero-derivatives to the energy segment overall, and at what level was aero-derivative sales at, say, at the last trough of the cycle?

Aero-derivative is -- it's a nice chunk of business for us, so, yes, it does have a significant -- can have a significant impact.

I don't think as yet we have seen a significant drop in aero-derivative orders for the full year. It was down a little bit sequentially. It was up over the prior year, so we had a typical seasonality that we saw in the quarter.

They are used in extraction, pipelines, processing, and so on, so there is a lot of utilization of those that you may not see any impact for some period of time.

Yes, and also, and this is maybe a broader comment on the oil and gas market, we also believe there is really an opportunity as some -- you say the price comes down and maybe there's the opportunity, and we see that there is going to be more maintenance being done in the short term while prices are down. So with that, we could see some offsets to any production on the OE side.

Okay, got it. I guess just as it relates to aero-derivatives, I am assuming the low end of your guidance takes into account some softening there, but I just want to make sure that's the case.

The guidance takes into consideration the market areas that we said have potential for softness, and that was definitely on the aero-derivatives. It was definitely potentially on the China CNG applications. Those were ones that we could see some in. We could see minor in some of the other markets, but that has been factored into our outlook.

Okay, great. Lastly, I just wanted to ask you about a line that was in the press release, just in regards to the fact that cost-control initiatives are an offset to global economic uncertainty. I guess the question is, does the guidance bake in some sort of quick hit or actions that you can take if things materially devolve in some of these markets?

If that was the case, we can adjust fairly quickly, but it depends how severe of a change, Tyler. I would say that any manufacturing company can handle a certain band of sales reduction quickly, and if it goes way beyond that, you have a little more trouble.

We don't -- we are not seeing and do not forecast any collapse, so we do believe our ongoing cost initiatives and our ability to flex will handle the variability that we are currently forecasting in all our segments.

Okay, great. Thanks so much for the color. I appreciate it.

Steve Levenson, Stifel.

Thanks for giving us a good end to the day. On the aftermarket stuff, I am sorry to harp on it, but I know there had been some pent-up demand on defense-related aftermarket. Is this a level that's sustainable growing or was there a chunk of business that you got during the quarter that won't continue?

We definitely had some contracts -- I think we're talking a little bit about it last year -- that migrated towards the end of fiscal-year 2014 and into 2015, so there was a little -- if you want to say a little benefit from that.

We do see defense being stable to slightly up this year. We are seeing signs of that. We will have to wait to make sure all the order books and the contracts get let, but right now, that's our outlook for it. It was a good quarter on defense. We do see year-over-year defense being solid and slightly up.

Got it. Thank you. I know MRO Prospector is suggesting there is nearly $10 billion of MRO work on the CFM56s, B2500s, GE90s, and CF6s out there. I know you've got a little less exposure on the CFM56 than you do on the LEAP, but do you find this generally something you agree with or do you think that's a pretty big number?

No, I think that's pretty accurate. If you look, we -- just as a reminder, on the current generation of CFMs, we are on what they call the Dash 5 version, which is on the A320. We're also on the V2500, so that A320, if you look at the enormous installed base, the hours, and where they are in the cycle, there is a large forecast for MRO. Same thing on the 777 for the G90.

Those ones we think are accurate, and we have seen and are planning for aftermarket flowthrough on those to our business.

Got it, great, thanks. Just one last one for Bob, you mentioned the amount of money you had spent on buyback; do you have the number of shares you repurchased?

About 600,000 shares.

Got it. Thank you very much.

Michael Ciarmoli, KeyBanc Capital Markets.

Thanks for taking the question. Nice quarter. Guys, maybe just a little bit, we were talking about a lot of the different end markets, what are you guys expecting or seeing in terms of Caterpillar sales? I know the mining markets in particular have been weak. Can you track how much of your sales into Caterpillar feed into oil and gas that you might not have direct line of sight into that market?

A lot of times with the oil and gas market, some of those engines are used in a lot of different -- where we sell -- are used in a variety of markets, so it is a little challenging for us to tell exactly where they're going. So I don't know that I can really comment on their engine production in those areas.

Okay, and even on Caterpillar sales in general, can you comment on the booking trends there? It looks like their business will probably start to weaken. It seemed like at one point some of those Cat sales were at trough-type conditions. Does the low end of the guidance adequately take into account further weakening of Caterpillar sales?

I think what I would turn around and say, I don't want to say Caterpillar sales are weakening. It factors in what we believe are the right sales to Caterpillar, and so I think we have to be real careful about saying they are weakening.

They definitely have different exposure than Woodward does because we are not on all their equipment, but we have factored in. Caterpillar is a great company, and they run their supply chain very well and they're very good about their order forecasting and flow down, so we do believe we have the right numbers in for CAT for the full year.

Got it.

We do usually have the luxury of listening to their call before our call, and they will be on next week, I guess it is, so we will be watching that as well.

Got it. I guess, Bob, there is clearly not an apples to apples. If I look at the oil price decline and how it hit you guys, from 2008 to 2009, we obviously had a much deeper recession there. But I struggle with 85% of the segment being exposed to oil and gas. I get the engine systems back in 2008 and 2009 had a big collapse.

It just doesn't seem like the offsets. You have got some China projects that are going well, although China appears to be slowing. How do we get comfortable with just 85% of this segment being exposed to oil and gas, and we're already hearing from a lot of the oil services companies, they are scaling back on CapEx. I think we had a couple companies today trying to push through price concessions.

I guess that's the struggle. Do you guys think there is enough offsets on some of your natural gas and compressed natural gas and other opportunities to really keep this at a neutral?

I think you are referring -- when we use that 85%, we refer to our energy value stream, and within that energy value stream, 85% of our equipment ends up in oil and gas.

Now the way we say that is oil and gas -- and I think the terminology and where you are seeing some of those statistics you're talking about are in the extraction part of it. But when you get to the utilization side, and that could be power gen, petrochemicals, transportation, whether it's rail, by sea, or on highway, low energy prices are really good for those markets.

One of the things -- we are trying to highlight where things could go down, the people that utilize energy, the low prices is a big plus, and there is an upward opportunity there with GDP growth not only in our country, but around the world.

Now, the people that are and the companies that are tied to the extraction is correct, there is a slowing there. And so, we actually, when you look at our value stream, have a higher exposure to the utilization side than we do to the extraction side. We see slight drop or a drop occurring in the extraction, stable to up over time here on the utilization side benefiting from the low prices.

When we sum it altogether, that's where we get the slightly negative to neutral. We feel very comfortable with that. I think as you look at Woodward, yes, we play in the market, but we play across the whole value stream and that's why we have always used that value stream chart. So remember, the utilization side is good for us and low prices will benefit the utilization side.

Got it. Then just the last one, more on the aerospace. Any sort of update on the 777X additional work or R&D spend or thoughts on your work package as we move forward?

Yes, well, right now it's in our R&D numbers because the way it works, we are working on a lot of programs, doing the bid and proposal work. The awards, we think, will start coming out over the next six to nine months. Some of them will be earlier and some later, so we feel positive about it, but to date we have only released the one win and we expect more, but we are not in a position yet to highlight what that will be. But we're pretty confident we'll increase our content over the current generation 777.

Got it. Very good. Thanks a lot, guys.

Robert Spingarn, Credit Suisse.

I just wanted to ask a couple of follow-up questions on most of what's already been discussed. But just going back to energy and understanding what you just said about the upstream and the downstream, at what point do you think what you are seeing will reflect the price of oil that we see now, the $50 Brent? In other words, it sounds like you are just starting to see the impact. When should we have a better idea of what the real impact is?

I think over -- based on what we are seeing, if you are looking at the -- this is my view is that on the extraction side or if you are looking at -- be more clear on the drilling side, I think we'll start feeling that in the second quarter here.

The utilization side, I think it sometimes takes a little time to work -- the low prices to work through higher use, and as such I think it will be late third, fourth quarter, and going into 2016. That balancing there will determine exactly if we are slightly down or neutral, but that's why we have that little bit of a range, but well within our guidance.

Yes, so the tailwind lags the headwind a little bit.

Yes, you can cut faster than you can increase.

Yes, okay.

That happens in any market, any business. You can cut quick. It takes a little more time to increase, so that's why I think there would be a little bit of a phased lag here as we go through the fiscal year, but we think it's enough that we are captured towards the end of the year on the used side.

Your usings are current in what you said today, we are looking at $48 type Brent in your guidance?

Yes, that's still -- we're using current prices both for oil and for natural gas.

Got it, got it. Then just quickly on the aerospace aftermarket, you talked about the 16%. It really is a very good number for you, and I understand there's some pent-up defense in there. But the last time you had an aftermarket number this strong is really going back a couple of years ago. I think it's the second quarter of 2012.

What type of -- how do we think about the aftermarket going forward for the rest of the year? What type of growth expectation is embedded in the guidance?

I think generally we're saying the aftermarket will follow -- aftermarket growth in total will follow passenger miles, and I think right now the projection is about 5% to 6% there. Then that goes up and down based on the aircraft types you are on and new aircraft launches, which help drive initial provisioning sales from aircraft coming out of production, take that down. So we think we will be more tracking for the full year, I would say, more closer to traffic growth.

Okay. Then just -- yes.

I think that's about right.

Okay, okay. Then just lastly on the cash flow, I don't think the trend is a whole lot different than it has been, but you expect it to ramp through the year? And then, in that vein, how do we think about working capital as the year progresses?

Yes, we do expect it. The first quarter is historically always a heavy cash quarter for us. There is usually tax payments, et cetera. We have the CapEx spend on the major projects, which will probably peak here in the middle of the year and then start to taper off, but there is still -- they're going to be strong for the year.

We have called out a target to remain neutral with a free cash flow standpoint on the capital expenditures. That's still our target. That's still our intent. But as you guys know with any major projects, and we have three of them going, weather and everything can cause some very significant fluctuations with respect to the end of the year and what we end up seeing, but that's our intent for the year.

Did you say neutral on free cash flow?

Neutral on free cash flow.

Okay, so in other words if there is a hiccup in the -- any of the plant work, it could be slightly negative?

It could be, yes.

Okay. Okay, thank you.

(Operator Instructions). Pete Skibitski, Drexel Hamilton.

Tom, I want to ask just a slightly different question about energy. If the decline in oil, if it ends up to be more demand driven -- demand destruction driven than supply driven, in other words, if global GDP is slowing, should that impact energy, do you think, this year or do you think maybe we're going through a pent-up replacement cycle that maybe offsets that to some degree?

It's an interesting one. We are more in the camp that it's supply versus demand at the moment.

Historically, I do believe that lower energy prices will help stimulate worldwide economic growth. I think your question is if economic growth goes down, will that impact us, and the answer would be yes. We would feel that across our business because we run forecast and correlated against industrial production, whether in the US, China, Europe, Southeast Asia. We track all that and we correlate with industrial production fairly well.

Low energy usually drive increased industrial production. I don't think this oil is being driven by a recession. If you go back into last time oil dropped -- I think somebody mentioned that earlier, it was tied to a recession. That's not what -- I don't see that's what's driving it today.

So I think it is going to be more stimulative than not over time here. So I guess that's our view and the way we have modeled it.

Good, fair enough. Then just can you give some color -- you touched on energy aftermarket earlier. How much was the aftermarket for energy up in the first quarter and what are your expectations for the full year?

Energy aftermarket is extremely difficult for us to really track. It's not the same as the aerospace side of the house.

So we historically, other than dialogue with the customers and so on.

We do know, as you saw in some of these areas, that there is increased utilization and we have seen on the aero-derivative and heavy frame side where we are getting a little better information. On the engine side of the house, it's much more difficult, so at an energy level, it is very difficult to say. But we do know that with lower oil prices, you get some of the increased utilization and that usually drives aftermarket.

Okay, fair enough.

Gary Farber, CL King.

I just had two questions. Can you also talk about, just bigger picture away from your end markets, how you see your three major geographies -- North America, China, and Europe -- as far as relative strength and if there anything during the quarter that they -- did one or two markets strengthen or slow during the quarter?

Then also talk about market-share gains, how that might have played into the first-quarter results. Are there any particular end markets where you think you're gaining market share?

Yes, I will just give you [11 at] the function. I don't think what we see is any different from what we all read in the papers.

But North America has been strong and I think the outlook is for it to -- strong is relative. It may not be historically strong compared to what we've seen in the past, but stronger than it has been.

Europe, I think we have seen some softness there from an overall economic standpoint, currency issues and so forth. I think we believe in the comments that have come out that North America as a net importer and so on will help the European economy. Whether or not that's enough to allow it to stay flat to grow, that remains to be seen. So that's been softer.

Then I think China, we agree with the position on it's down a little from what it was in the past, but it's still higher than was expected, and so overall for us, it's more of that concern regarding volatility, that they still have some very nice growth figures. 7.3, 7.4 are still nice growth figures. Whether or not we will continue to see that in the CNG area, it is -- remains to be seen.

Just on market-share gains, is there anything that -- any particular end market or product line where you are seeing much deeper market penetration than other markets?

Not from a geographic -- I think clearly we have talked a lot about share gain on the aerospace side of the equation and that's predominantly a North American and European with Airbus driven phenomenon. But that's driven by global demand for the aircraft, so it is a global overall phenomenon that we are gaining share aerospace-wise.

We have talked a lot about things like common rail diesel, dual fuel, et cetera, that we believe will lead to market-share gains as we go forward in our energy areas as well. We are with all three of the big three when it comes to industrial gas turbines and hopefully increasing our share with all of them.

So we do believe market share is probably the longer-term phenomenon in the energy side, and as Tom said, we're going to start launching in 2015, start seeing meaningful lines in 2016 on the narrowbodies, and that will contribute to market-share growth, then, for aerospace.

Then just one last one back on Europe. Even though the quarter is a short time period, as you move through the quarter was there any discernible change in the order pattern in Europe or was it just generally soft?

No discernible change. Yes.

Okay, all right, thank you.

Mr. Gendron, there are no further questions at this time. I will now turn the conference back to you.

Okay, appreciate all the questions and the discussion and look forward to talking with you in the upcoming quarter, so thanks for joining us today. Bye.

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