Cooper Tire & Rubber Company
Q1 2013 Earnings Call Transcript

Published: 9 May 2013

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Cooper Tire First Quarter 2013 Results. [Operator Instructions] Thank you. I will now turn the conference over to Mr. Jerry Long, Investor Relations at Cooper Tire.

[Jerry A. Long:]

Thank you, operator. Good morning, everyone, and thank you for joining our call today. My name is Jerry Long, and I serve as the company's Assistant Treasurer responsible for Investor Relations. To being with, I would like to remind you that during our conversation today, you may hear forward-looking statements related to the future financial results and business operations of Cooper Tire & Rubber Company. Actual results may differ materially from current management forecasts and projections. Such differences may be a result of factors over which the company has limited or no control. Information on these risk factors and additional information on forward-looking statements are included in the press release and in the company's reports on file with the Securities and Exchange Commission. With me today are Roy Armes, Chairman, CEO and President; and Brad Hughes, our Chief Financial Officer. In association with the press release, which was sent out earlier this morning, we will provide an overview of the company's quarterly operations and results. The press release contains a link to a set of slides that are a summary of information included in the press release and 10-Q that will be filed with the SEC. These slides are intended to help investors and analysts obtain information quickly. They will not be used as a focus of today's call. Following our prepared comments, we will open the call to participants for a question-and-answer session. Questions may also be directed to our e-mail address, which is [e-mail]. Today's call will begin with Roy providing an overview of our results. He will then turn it over to Brad for a detailed review of our quarterly results. Roy will then summarize and provide comments on our outlook. Now let me turn the call over to Roy Armes.

[Roy V. Armes:]

Thanks, Jerry, and good morning. I'm pleased to say that Cooper carried the record-setting momentum of 2012 into the first quarter 2013 by achieving a first quarter operating profit record of $97 million, or 11.2% of net sales. This compares to $48 million, or 4.8% of net sales, in the same period a year ago. Operating profit in the North American segment was $71 million, or 11.9% of net sales. In the International segment, operating profit was $30 million, or 8.8% of net sales. First quarter earnings were $0.87 per share compared to $0.34 per share for the same period last year, and we're pleased with the effort of our teams around the globe who really helped achieve these results despite lower volumes during the first quarter. This speaks to the strength of our brands and products in the marketplace and to our ability to balance disciplined pricing and volumes across a wide variety of conditions to deliver on the bottom line. Now let me elaborate on the lower volumes. As you recall, Cooper previously guided toward lower volumes for the first quarter, as we anticipated that 2 issues specific to Cooper would have negative effect on volumes during the first quarter. And the first one was related to our ERP system conversion. At the beginning of February, we launched a significant phase of this deployment, primarily in the U.S. And as we explained on our prior conference call, we expected that this activity would likely impact manufacturing efficiencies, production and shipment volumes in the first quarter. In addition, we saw some of our customers order conservatively in the initial months of this deployment. Our deployment plan was well communicated to customers in advance, and some chose to wait and see that Cooper could continue to provide our typical top-notch service and delivery. And with these reactions, there was a meaningful impact on our unit volume performance during the first quarter attributable to the ERP conversion. Now in saying that, I should point out that the U.S. deployment has progressed quite well, not without a few bumps in the road, of course, but generally a smooth transition, given the scale of the project and my past experience. While we have more ERP deployments ahead of us, we believe that we have taken a big step forward and that future deployments will have less impact. In addition to ERP, Cooper is also affected by inventory adjustments made by certain U.S. customers during the first quarter. Again, this was anticipated, as these customers ended 2012 with an unusually high inventory of tires, including, we believe, a significant number of Chinese tires imported immediately following the tariff expiration. As a result of these inventory adjustments, which we expected and did indeed experienced reduced orders in the first quarter. Responding to our customers, we adjusted our production schedules to manage Cooper's inventory levels. And we believe customer inventory adjustments are beginning to mitigate, yet there'll be some carryover into the second quarter but to a lesser degree. On top of these 2 anticipated volume impacts, the global tire market was extremely soft in the first quarter, and we saw a continuation of the aggressive promotional activity that began in the latter months of 2012. And for the most part, Cooper chose to limit our price and promotional activities. In addition throughout the first quarter, the global economy continued to struggle and did not show meaningful signs of improvement. Recovery in the U.S. has been limited and has likely been negatively impacted by the payroll tax increase, higher gasoline prices and delayed tax refunds, all of which constrained consumer spending. China's economy continues to grow at a slower pace than recent historical rates, and Europe's economy remains stalled. Combined, all of these challenges resulted in Cooper's shipping volumes being 8% lower than the prior year first quarter, and consolidated net sales for the quarter were $862 million, a 12% decrease compared to the first quarter of 2012. If you look at the North American segment, unit volumes declined 14% compared with prior year first quarter, and U.S. total light vehicle shipments were down 14% compared to Rubber Manufacturers Association, or RMA, member shipments, which declined 6% and total industry volumes that decreased 1%. Shipment volumes in the U.S. were particularly weak in the beginning of the quarter and strengthened throughout the end of the quarter. In the International segment, unit volumes increased 1% compared to the same period a year ago. And within the segment, European volumes increased 10% over the same period last year, led by incremental volumes from our operation in Serbia. Total Asia unit volumes declined by 2% in the first quarter, which was more than explained by lower intercompany shipments of TBR tires to North America. Despite overall slow growth conditions in China, our domestic PCR volumes outpaced the industry as driven by our house brand products. As I said earlier, we delivered record operating profit in the face of these volume declines, I think, is a testament to the quality and performance of our products and the strength of our brands in the marketplace. And we're proud of what we've achieved. Moving onto raw material prices. Our index was down 10% compared with the prior first quarter and was flat sequentially. We believe raw material prices have been constrained due to the relatively low growth in the global economy and other factors. However, we continue to maintain that on a longer-term basis, raw material prices will generally trend higher and, at times, may be volatile as economic growth gains momentum in the future. As we begin the second quarter, we envision an external environment that will remain challenging due to continued softness in the global tire demand. And at Cooper, our long-term focus will remain on executing our strategic plan and continuing to deliver strong shareholder value across a wide range of conditions. Now before we transition to Brad's portion of the call, I'll wrap up by reinforcing that our balance sheet remains strong. We ended the first quarter with $272 million in cash, and this gives us the flexibility to invest in our business in order to drive profitable growth for the long term. So now at this time, what I'd like to do is turn it over to Brad and let him provide you with a lot more detail for the quarter.

[Bradley E. Hughes Hughes:]

Thanks, Roy. As reported, our total company results included an operating profit of $97 million, or 11.2% of net sales, compared with $48 million, or 4.8% of net sales, for the same period last year. As a reminder, we incurred $29 million of incremental costs related to the labor situation at our Findlay facility in the first quarter of last year. North American segment operating profit was $71 million, or 11.9% of net sales. In the International segment, operating profit was $30 million, or 8.8% of net sales. Our higher operating profit was driven by $90 million from lower raw material costs, $19 million in lower manufacturing costs, $6 million of lower product liability costs and $3 million related to the non-recurrence of startup costs in Serbia. These factors were partially offset by $44 million of unfavorable price and mix; $15 million from lower unit volumes; $3 million of higher SG&A costs; and $7 million of higher other costs, which include increased distribution expenses incurred to manage the company's higher inventory levels carried through the ERP deployment, as well as currency impacts at our foreign operations. Now turning to the North America Tire Operations. Reviewing our segment performance, segment sales were $602 million, a 14% increase compared with the first quarter -- decrease, excuse me -- 14% decrease compared with the fourth -- first quarter of 2012. Unit shipments for the North American segment decreased 14% compared with the first quarter of 2012, largely due to the issues noted by Roy earlier in the call. Total light vehicle tire shipments for the U.S. were down 14% during the first quarter as compared to a quarterly decline of 6% as reported by our RMA members. Industry shipments also decreased by 1% as compared to the same period in 2012. Our UHP product line outperformed RMA members, as unit shipments grew 13% during the quarter compared with the prior year, and we continue to improve our premium mix within our distribution channels. Commercial truck tire sales of the Roadmaster brand were down 33% for the quarter compared with the first quarter of 2012. In comparison, total industry shipments within this category, as reported by the RMA, were down 5%. North American segment operating profit was $71 million for the first quarter, or 11.9% of net sales, increasing $49 million compared with the first quarter of 2012. Allow me to summarize the key drivers in the form of an operating profit walk-forward

[Roy V. Armes:]

Thanks, Brad. As we begin the second quarter, we continue to be cautious about volumes, as weakness in the global economy and tire demand is likely to continue and impact consumer spending. And with that said, we believe most of the volume impact of the ERP deployment is behind us, and key customer inventory adjustments are beginning to mitigate. While there may be some carryover from our customer adjustments into the second quarter, it will be to a lesser degree than what we experienced in the first quarter. Now beyond the second quarter, we expect volumes to continue to be challenged by industry and economic conditions, yet we are hopeful that the global economy will improve. And we are confident, in any case, that Cooper's transformed business model and continued solid execution of our strategic plan will position us well to drive customer and shareholder value. Now that completes our prepared remarks. And what I'd like to do, operator, is turn it back to you and we can start with the question-and-answer session.

[Operator:]

[Operator Instructions] Your first question comes from the line of Aditya Oberoi.

[Aditya Oberoi:]

I had a question on your North America numbers for the first quarter, and it's more of a housekeeping item here. Like your sales were down 14% on a 14% decline in units. That should imply probably a flattish kind of a price mix performance, right? But you guys had the price mix of negative 14%. What am I missing here?

[Bradley E. Hughes Hughes:]

Well, I think there was a little bit -- the primary contributor to the sales decrease that we had in the first quarter was clearly the volume decline, and then there were a combination of lower price and changes in our mix. It ended up being in North America, in totally a change of 14% as well. But I don't think there's anything that's sneaking around in those numbers, Adi. I think that it's just the way that we picked out the highlights of what changed during the quarter.

[Aditya Oberoi:]

Got it. And the 14% decline in volumes, there are 3 factors that it can be attributed to, right, industry declines and then the ERP implementation and the inventory adjustment at your customers. Can you provide some kind of ballpark on what, in fact, impacted and by how much?

[Roy V. Armes:]

It's going to be -- we're not going to get into breaking these out, but there were really 4 factors here. One was the ERP. Secondly were the key customer inventories that were pretty high at end of the year, including what they had picked up or how they built inventory, the Chinese imports after the tariff expiration. The third one was industry demand. And the fourth one on impact on volume was really our reluctance to give up price for volume. We tried to maintain some pricing discipline within our own house. And we saw January and February, January being kind of an okay month, if you would. February, we underperformed for the reasons I just mentioned. But in March, we outperformed the industry. So it's really a fine balance right now between all of those factors, but we haven't and don't plan to separate those or carve those out specifically.

[Aditya Oberoi:]

Another follow-up on that, if I may. What are you guys seeing in terms of pricing now that the yen has weakened and there are some concerns that the Japanese manufacturers might be pushing the pedal on discounting? And just curious to hear your thoughts like versus where you ended March and what you have seen in April and May so far. Has pricing deteriorated further or it's still the same?

[Roy V. Armes:]

Well, first of all, last year -- tail end of last year, we started to see a lot more promotions in the marketplace than price changes. We're starting to see right now more and more these promotions being converted into invoice price changes. And if you think about the lower raw material costs and the currency changes that are taking place out there, there is some of that, that's getting into the market in the form of lower prices.

[Aditya Oberoi:]

Got it. That's helpful. And the last one for me. Any updates on the -- on any new business that you hope to win on the OE side?

[Roy V. Armes:]

Nothing that we're in position to talk about at this point in time. We're really very pleased with the relationship we've got with Ford and the business there, and we've really just been concentrating on that at this point in time.

[Operator:]

Your next question comes from the line of Rod Lache with Deutsche Bank.

[Rod Lache:]

Just a follow-up on the pricing comments, wanted to clarify. You mentioned that your pricing is flat sequentially from Q4 to Q1. Can you just give us some color on how we should be thinking about your pricing sequentially as we go into Q2? Are things actually flattening out? It was a little just unclear from how you described it.

[Bradley E. Hughes Hughes:]

Yes, Rod, from the fourth quarter to the first quarter for Cooper, it was relatively flat, which is what we described in the prepared remarks. As we're looking forward into the second quarter in addition to the raw materials continuing their decline from the fourth quarter, some currency changes that may impact the way people are reacting, we don't see anything alarming with regard to pricing, but it does appear that there are some pricing actions in addition to the promotional activity that we've seen up to this point. And we're going to make sure that we've got our products positioned correctly to compete, given the change in our cost structure both from the lower raw materials and cost improvement activity that we have and will continue to see contributing to the bottom line. We think that we'll be able to continue to maintain a competitive position out there and deliver strong margins.

[Rod Lache:]

Okay. Up until now, there's been kind of a favorable spread so... [Technical Difficulty]

[Roy V. Armes:]

Rod? We just lost you, Rod. Are you still there? [Technical Difficulty]

[Rod Lache:]

That dynamic going...

[Roy V. Armes:]

It's breaking in and out. [Technical Difficulty]

[Operator:]

Your next question comes from the line of Brett Hoselton with KeyBanc.

[Brett D. Hoselton:]

Over the past 2 or 3 years, I've generally thought of Cooper Tires as being a market share gainer. You've done a very nice job with your commercial tires and so forth. Some of your competitors have chosen to, let's say, relinquish some market share in favor of more profitable products, let's say. So I'm wondering is -- how are you thinking about that at this point in time? Do you kind of consider this to be a shift in strategy going forward? Or is this just something that's just kind of slowly evolving?

[Roy V. Armes:]

From my standpoint, Brett, I think the market is evolving. I mean, we've got more and more competitors. We've got product expansions out there. We're not -- we're really not alarmed at that. If you think about the current situation that we're in -- and by the way, while we have been outperforming the market, our strategy was not to go out and gain market share. It was to be profitable and get our margins in line. It was to become profitable and have the right balance between profit and the volume. And it just so happens with the products we had out there and the cost reductions in our business, our positioning of our products, the growth of our house brands, all of those allowed us an opportunity to outperform the industry. Now if you look at current competitive situation that's out there when you think about the lower material cost, we think about the numerous improvements we've made in our cost structure, the several new products that we're launching this year or expanding this year, it really does provide us with a framework to react to any competitive issue in the marketplace. So we're going to continue to monitor that. And if we have to make adjustments back to where we balance -- we can better balance the profitability and the volume, I think we're confident as we have been in the past that we can effectively respond to this and get back to a volume level in the second half that is a good trade-off between the volume and the profitability and deliver strong margins. So we're watching this pretty close. There is more competition out there for sure. There is additional product lines that our competitors are getting into, and we're monitoring that pretty closely. And I think we can respond to that effectively, given what we've done with our business model over the last few years.

[Brett D. Hoselton:]

And then as we think about -- and I know you've answered this fairly extensively, but I'm wondering if you might get a little bit more specific. When I think I hear you saying about your expectations into the second quarter is -- and, again, correct me if I'm wrong, I think I hear you saying that the underperformance you saw in the first quarter is probably going to diminish going into the second quarter, but it sounds like you still might underperform a little bit in the second quarter. I'm just wondering if you might be able to provide some more clarification on that.

[Roy V. Armes:]

Well, I think the second quarter is going to get progressively better, and we're going to improve through there. It's hard to determine right now, Brett, because we are out with our promotions in the marketplace, and we want to see how our customers respond to those. We may have to make some other adjustments to stay competitive to make sure we're positioned well. We're not -- we think that the second quarter is going to continue to be challenging for us. And as we get into the second half with the things that we're putting in place, with the product launches, leveraging our footprint and our cost -- our better cost structure, I think we're going to be able to perform pretty well in the second half of this year. But I think the second quarter is going to remain challenging for us.

[Brett D. Hoselton:]

And then final question, how do we think about the disparity in results between your North American operations and your International segment. And what I'm referring to is, obviously, you saw a more significant decline in price mix in the International segment than you did in North America. Revenue per tire was off 16% versus flat in North America. And margins of 8.8% in the International and, obviously, you're getting great margins here in North America of 11.9%. So how do you -- how do we think about the disparity in those results in terms of why would one be so much, I'd say, better, frankly, than the other?

[Roy V. Armes:]

Well, I think the one thing you have to take into consideration here, particularly in China, they move a lot quicker up and down on pricing in the marketplace as things change there, Brett, much more so than in the U.S. or the North American market, but specifically the U.S. I think that's a big factor and where you see those margins. But on average, in our Asian operation specifically, it's been very consistent with their margins and what they're delivering. But they do react a lot faster with their pricing.

[Operator:]

Your next question comes from the line of Bret Jordan with BB&T capital markets.

[Bret David Jordan:]

A quick question on year-over-year private label in Q1, if you sort of look at what the shift was, and I assume that some of your private label customers bought the cheaper Chinese alternative in the first quarter, but what it was on a unit basis year-over-year than maybe what the margin impact was giving up some of that lower margin private label business.

[Roy V. Armes:]

Well, we can't get into the specifics there, Bret, but, clearly, it helped our margins by not having the -- as much private label business because most of the more aggressive competition is coming at that opening price point, which is where they're positioned for the most part. So it clearly helped our margins. But there were a lot of other things that helped our margins even more than not having that volume from the private label. And keep in mind, we still are committed to the private label business. It is a volume that we respect. We've gotten more competitive with our private label business. But right now, we're monitoring it pretty close to make sure that we're staying in position correctly to remain competitive in the marketplace.

[Bret David Jordan:]

Okay. But we can't get a feeling for all of your 14% decline, how much of that was a migration of your private label business?

[Roy V. Armes:]

No. No, we really are not going to share that information.

[Bret David Jordan:]

Okay. And then, I guess, as far as a quick question on pricing then. If some of the peers and maybe the Japanese manufacturers are beginning outright invoice discounting and you're still running on a promotional program, is there the probability that you will participate in invoice discounting also? I guess, I mean, is there a feeling for what the level of pain tolerance on market share shift?

[Roy V. Armes:]

Yes, I think that's a very good question. What -- we're looking and watching our promotional activities right now, Brett, and I think what we're going to do is we're going to continue to look at that and see if that needs to be converted into some price decreases or invoice price decreases. And to the extent that we need to do that to be competitive, we feel very good about doing that and still maintaining some very solid margins in our business.

[Operator:]

Your next question comes from the line of John Healy with Northcoast Research.

[John M. Healy:]

I wanted to ask about the inventory levels, up pretty meaningfully year-over-year. And I was wondering how much of that is in the domestic or is in North America and how much of that is in International? And I believe by some of the comments you made, it sounded like you weren't planning for many facilities or much capacity to be idled in the second quarter. It just seemed somewhat surprising, and I was hoping you could add some color to that.

[Bradley E. Hughes Hughes:]

John, it's Brad. I think there's a couple of factors that we need to think about there. One is that our inventory levels a year ago were affected by the situation that we had at the Findlay plant, where we probably went into the second quarter with lower inventories than we would have planned for based on the market and the demand for products last year. And so that was a -- when you look at where we are this year relative to last year, you need to recall that factor. We are probably a little bit higher with regard to inventory. We're at the high end of the range that we planned to for the first quarter, and we'll continue to monitor depending on demand in the second quarter. If we need to make adjustments to our production to make sure that we're in appropriate level of inventory, we will. But at this point, we're looking to accelerated sales to begin to draw some of that inventory down. And I just wanted to -- I'm sorry, John, but I want to follow up on one comment that Bret made. I'm not sure that I would characterize on some of the volume shift with our private label customers as migrating yet. Clearly, there was a significant inventory that some of them brought forward from last year of Chinese tires, and they're going to work through that. Not all of that is a migration to that as a permanent introduction. It is temporary in nature. Some of it may carry forward, but it's not all migration. Sorry, I digressed.

[John M. Healy:]

No worries. And just following up on the raw material benefits that you had this quarter. I know your index came in where you thought it would be, but the dollar impact, at least relative to our model, was larger in terms of the flow-through. And I was wondering if there were any meaningful changes in terms of how you were sourcing product or components of product that were type of -- any changes that we should anticipate going forward? Or if there is just in terms of the transportation costs or any of the, what I would say, input costs that are beyond kind of the actual commodity that might be moving the needle there?

[Bradley E. Hughes Hughes:]

John, the one consideration that would be incremental to the raw material index, which from time to time it's a good indicator of what the dollar change should, but it isn't as precise. There can be some minor tiny differences to that. It's the best tool that we have to communicate with your expectations but it's not perfect, but it's a good indicator. In the first quarter on -- and you may or may not have picked this up, but you would have also seen some of the benefit from the duty reduction on tires that we -- on passenger car tires that we're importing from China that also would have been flowing through the material cost line.

[John M. Healy:]

Okay. And is the offset to that run through the pricing? Or how does -- or to the degree you gave up?

[Roy V. Armes:]

[indiscernible] the pricing and for the tire in the markets in which it's being sold, and that cost would have been incurred in the North American market already. So it wouldn't have affected the source price. It would have been a cost flow-through in the North American market.

[Operator:]

Your last question comes from the line of John Murphy of Bank of America.

[John Murphy:]

Just a quick question on pricing, and sorry to beat a dead horse here. But I mean, it sounds like there's a fairly significant tide to the decline in raw materials and the weakness in volume that is what most of your competitors are reacting too. I'm just curious if we see raw mats pick back up in the third or fourth quarter or even maybe next year, as well as volumes picking up as well, do you think pricing might reverse course and we could see this great discipline that we've seen in the industry for the last few years stay relatively resolute?

[Roy V. Armes:]

I think, John, it's -- first of all, it's a good observation. I mean, right now, the raw materials have stayed down for a longer period of time than we've seen in a while. And I think it's -- you can assume that at some point in time as the raw material goes back up, that the industry has to recoup that cost and you could see pricing going back up. It's just too difficult to tell right now because of the many factors that impact that. So I mean, I think your observation might be on track. We've had a lot of good pricing discipline in the industry for a long period of time. At the same token, the raw materials are down significantly and have been for quite some time. So that's where you're seeing the pricing starting to deteriorate a little bit. And if it goes back up, we could see it go back up, but it's too difficult to tell right now.

[John Murphy:]

Okay. And the just a second question on Europe. Your volume is obviously relative to the market performing pretty well because of the Serbia plant. I'm just trying to kind understand, who are you taking market share from there, because those are new tires in a weak market? So, I mean, you've got to be taking share from somebody. I'm just trying to understand if that's really a correct observation or there's some kind of growth in the Easter Europe where the Serbian tires are finding a home in a growing market.

[Roy V. Armes:]

Serbia has been the real plus for us in order to, again, not looking to take market share but to replace some higher-cost business that we've had over there and take advantage of the growth in Eastern Europe and Russia, specifically. That's where some of the volume increase is coming from. We've also started to produce this year our Cooper-branded products that makes its way back into Western Europe. Now, the products we were building before as we were ramping up was basically being targeted to Eastern Europe and Russia. And now with our house brands being built there and going back to Western Europe, it gives -- it does give us a little better of a competitive advantage to be able to utilize it there. So that's really what you're seeing happen.

[John Murphy:]

And the cost of manufacturing there you think is really -- I mean, you're looking at a real LCC there?

[Roy V. Armes:]

Absolutely, absolutely.

[John Murphy:]

Okay. And then just lastly, on ERP, Brad. I mean, I know you guys -- there's lots of puts and takes and it's somewhat mixed as far as its results as you're deploying it in the early stages. But as -- where do you think we really turn the corner on the ERP deployment and what kind of benefits do you ultimately think we get on an annualized basis there?

[Bradley E. Hughes Hughes:]

I think, in large part, we've turned the corner with regard to the kind of effects we saw in the first quarter. The deployments we have going forward will be important but less significant in terms of the scale. So I don't think that we'll see the kind of impact that we saw on the first quarter in any of the deployments that we've got planned, certainly, for the balance of this year as we complete the U.S. deployment. Frankly, some of the -- we will begin to see, when we've completed the U.S. deployment, some opportunities and better inventory management and procurement capability and managing on the levels of raw material inventory that we have. So I would think that by the end of this year, certainly early into next year, that we'll start to look for working capital benefits. The full scale of benefits that we'll expect from the project will largely come when we've completed the global deployment, which is still a couple of years away. So we'll begin to see it towards the end of this year, early next year. But the most substantial benefits will come after full deployment, which is still a year or 2 out.

[Roy V. Armes:]

Just as a summary here, obviously, around the questions and stuff we see and understand there's a lot of concern about the volume. And we have elected to protect our margins and balance profitability and volume. I really believe, and I think we've shown this over the last few years, we've built a very competitive footprint, and we've got a lot of flexibility with this footprint. And as you look at lower raw material costs, you look at the improvements we've made in our cost structure and in our manufacturing footprint, you look at the products that we're introducing and launching and expanding, I mean, all of that is the framework that we have to be able to respond to some of the competitive things that are going on in the marketplace. And we're confident as we monitor this and we do the right balance of profitability and volume, we can respond and make the changes necessary to get back to a volume level that you can feel more comfortable with. But right now, I think we're still making the right trade-offs to protect our profitability, and we're -- I'll say it again that we're confident, as we have been in the past, that we're in a position to make these kind of adjustments, if necessary, to be competitive and position well in the marketplace. And as a result of that, we can do that and still deliver some strong margins. Again, thanks a lot for your questions. Thanks for your attention. And if there's any other questions or comments, don't hesitate to call Jerry Long, our Investor Relations person. Okay? Thanks, operator. You can close it out now.

[Operator:]

This concludes today's conference call. You may now disconnect.