Ferro Corporation
Q1 2013 Earnings Call Transcript

Published: 25 Apr 2013

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Ferro 2013 First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, April 25, 2013. I would now like to turn the conference over to John Bingle, Treasurer and Director of Investor Relations. Please go ahead, sir.

[John T. Bingle:]

Good morning and welcome to Ferro Corporation's 2013 First Quarter Earnings Conference Call. Before we cover our earnings results, it's important to note that we had a second important announcement last night. The company's Board of Directors appointed Peter Thomas as Ferro's next President and Chief Executive Officer effectively immediately. It's a pleasure to introduce Peter in his new role for the first time. Congratulations, Peter. Joining me on today's call, along with Peter, is Jeff Rutherford, Vice President and Chief Financial Officer. Jeff will start the call by covering our new reporting structure, which aligns with our recent business reorganization and he'll review first quarter results. Peter will follow with a discussion about our progress in executing against the Ferro value-creation strategy, and he will provide further details on our cost-reduction initiatives. Finally, Jeff will provide an overview of our outlook for the full year and the revised earnings guidance. We'll address questions at the end of the call. Our quarterly earnings press release was issued last night. You can find the release as well as the reconciliation of reported results to non-GAAP data that we'll discuss this morning in the investor information portion of Ferro's website. Please note that statements made on this conference call about the future performance of the company may constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to a variety of uncertainties, risks and other factors related to the company's operations and business environment, including those listed in our earnings press release and more fully described in the company's annual report on Form 10-K from the end of the -- end of December 23 -- 31, 2012. Forward-looking statements reflect management's expectations as of today, April 25, 2013. The company undertakes no duty to update them to reflect future events, information or circumstances that arise after the date of this conference call except as required by law. A dial-in replay of today's call will be available for 7 days. In addition, you may listen or download a replay of the call through the investor information section of ferro.com. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Ferro is prohibited. I'd now like to turn the call over to Jeff.

[Jeffrey L. Rutherford:]

Thank you, John. Good morning, everyone. As John mentioned, you can find reconciliations of our non-GAAP results discussed during this conference call in our press release and also in the supplemental financial data that is posted in the investor information portion of our website. During the first quarter, we accomplished a great deal with respect to our value-creation strategy, with much of what we have accomplished having a direct and meaningful impact on our first quarter results. The accomplishments include the following

[Peter T. Thomas:]

Thanks, Jeff, and good morning, everyone. Thanks for joining us today. As you have already heard from Jeff, we are making excellent progress in our value-creation strategy, and I want to take a few moments to expand on this topic. However, I want to first acknowledge and thank our global team for their contributions to our progress. Our team is working diligently to create a leaner, more efficient organization. I'm very proud of the focus on enhancing value for our shareholders, while maintaining our high standards for product quality and providing outstanding service to our customers. As you know from previous announcements and our discussions with many of you, there are 3 key value drivers underlying our value-creation strategy. Our team is moving ahead aggressively with all 3. The first key value driver in our strategy is improving return on invested capital. Our commitment to improving returns on invested capital has penetrated the Ferro organization. We are rigorously reviewing all product lines, assets and relationships to determine their current and future potential to create value and generate cash and we're taking appropriate action when necessary. As part of the value-creation strategy, we divested the solar pastes and pharmaceutical businesses in the first quarter and we are taking corrective action with other product franchise that are not meeting our expectations. We're also looking to sell or exit excess or underutilized assets. As an example, we have been moving aggressively to sell or exit real estate assets that are no longer needed. In the first quarter, we disposed of 3 idle European properties in Holland and Spain and in Italy. The real estate actions I just noted have generated over $3 million in cash and approximately $1 million in annual savings. The second driver is streamlining core operations and reducing operating costs. On April 8, we announced an increase in our estimate for cost savings to $70 million by 2014. This new target was an increase of $20 million over the prior goal, driven partially by the new agreement we entered into with Capgemini. While some have taken -- have been skeptical of our targets, I'd like to assure you that we are confident that the $70 million is achievable. We have spent a great deal of time assessing our operating structure and identifying opportunities to restructure our organization and activities to become leaner and more efficient. I'd like to point out that our cost take-out projects actually total $85 million in savings. Of this, we have modeled $70 million of savings with $30 million realized in 2013 and $40 million in 2014. Generally, our cost savings initiatives fall into 3 distinct buckets

[Jeffrey L. Rutherford:]

Thank you, Peter. Our 2013 forecast assumes slow, but positive economic growth in the major regional economies around the world. We expect sales growth to be approximately 2%, excluding Solar Pharma and the impact of changes in foreign currency rates. As we've indicated in the past, we expect to generate $30 million of additional profit through our cost savings initiatives, and these savings, along with the positive impact from the solar paste asset sale will be the primary driver for increased earnings. The savings, however, will be partially offset by inflation and the normalization of incentive compensation accruals. Taking all this into consideration, we expect adjusted earnings in 2013 to be in the range of $0.35 to $0.40. Cash flow is expected to be in the range of $5 million to $10 million. Our estimates exclude special charges, including restructuring impairments and the annual pension mark-to-market adjustment. In addition, no acquisitions or acquisition-related costs have been built into this plan. Additional assumptions that are part of our outlook include

[John T. Bingle:]

Thank you, Jeff. Operator, we're now ready to begin the question-and-answer session. [Operator Instructions] And we'll then take the first question.

[Operator:]

[Operator Instructions] Our first question comes from the line of Mike Harrison with First Analysis.

[Michael J. Harrison:]

Can you talk in a little bit more detail about the rationale behind shifting to segment gross profit instead of operating profit as the performance metric?

[Jeffrey L. Rutherford:]

Yes, Mike, I can do that. This is Jeff Rutherford. It really stems from how we're going to manage SG&A and how we're driving costs out of the SG&A line. Historically, SG&A was direct and allocated into the segments and the segment teams were expected to manage those costs. And those costs were coming from multiple locations and being managed by commercial leadership teams. And we made a change late last year to change that structure. Now we manage that bifunctional growth out of this office, and so it's my responsibility, Peter's responsibility and the people who work with us to drive those costs out globally. That's the only way we can drive the costs out the way we are versus doing it through segment teams. So they no longer manage SG&A. What the segment teams manage are sales and gross profit. So when we do a review of operating results like we just did for the first quarter, the segment teams, those 5 segment teams, they come in and their responsibility is to sales and gross profit. Then we have a second meeting, which is SG&A-oriented, which is the functional leadership, which would be operation. So as Peter talked in his discussion, we've divided operations between materials and chemicals, the Materials group owns SG&A, the chemical group owns SG&A. That's disclosed -- those numbers are disclosed in both our release and in MD&A of the Q and then there's a corporate piece of SG&A. And we are responsible for that management. So the way it lines up -- and you could see it, it's not in the segment footnote, but it's in MD&A, and it's in the earnings release. You can see how that lines up and rolls up for SG&A by the Materials group and the SG&A for the Chemicals group and for corporate, and that's how it's being managed now. Now, could you individually take that and allocate it back to the Materials group or to the Chemicals group? Yes, and so could we, but that's not how we're going to manage it, that's not how we're modeling it and so by segment reporting requirements, we are disclosing it the way we are managing our segments and our costs.

[Michael J. Harrison:]

Okay. And let me ask you this. As I think about the cost savings initiatives you guys have in place, it sounds like most of those costs then are going to be coming out of SG&A and we should assume that gross profit drivers are sort of more going to be driven by volume, things like that, versus big changes in the cost structure. Is that fair?

[Peter T. Thomas:]

Yes. What you would want to look at, Mike, is, as it relates to the $70 million of savings that we've put out there, roughly 20% to 25% of that savings will be at the COGS level and the balance at the SG&A level.

[Jeffrey L. Rutherford:]

So, Mike, when you look at that from a targeting perspective for '15, right? What SG&A is running right now, it's running at approximately $60 million a quarter. We need to drive those costs down to $50 million a quarter to get our goal. And that's our goal. So you can measure our progress in the SG&A section by driving costs from $60 million a quarter to $50 million a quarter, okay? And then in gross profit, the way you measure it is how far we can drive gross profit percentage above 21%. So those are our standards and those are our goals and that's what we've modeled out and we have the plan to get to those goals by the end of '15 and end of '15, and that's how you can measure our success in driving those. We'll report it on a quarterly basis, but we're telling you upfront what we're modeling and how we're going to drive the costs out of the model.

[Peter T. Thomas:]

Yes, so, and again, Mike, just to close your question about how is that going to come about. As it relates to volume, it's a good point because what we're showing here moving forward, as Jeff mentioned, gross profits that are greater than 21%. That will be on volume, as it relates to our expansion into new geographies, our new -- the product development initiatives, plus the fact that we have improved operating leverage on that $70 million of cost that allows us to be more competitive in areas where we haven't been in the past, and that, too, will also increase sales.

[Michael J. Harrison:]

All right. And then maybe just one more and then I'll let other people have a chance. But looking across your businesses, I think you've probably sold the most obvious couple of pieces that are either problematic or don't fit what you're trying to do going forward. Can you give us a sense though as you're sort of looking strategically at these product lines, how many other divestitures might we expect to see over the next several quarters? And maybe just some idea of order of magnitude. Are they big, small, medium?

[Peter T. Thomas:]

Yes. Part of our -- well, of course, you just hit one of our key value drivers, which is the financial piece around return on invested capital. And as we've mentioned, every one of our product lines, assets, businesses, if you will, are under current review, and they will be analyzed and assessed for their ability to deliver shareholder growth. So you're right. The first 2 seem to be pretty obvious. One of the things that we're doing internally is making sure that we have clarity around a true look at those businesses and assets as the cost reductions move through them. So to answer your question, we do have a cut of other businesses that are in question. And as we go through the course of the year and we measure the cost reductions impacting those businesses, we'll have more clarity around the other things that could be jettisoned from the portfolio, but there are others under review.

[Operator:]

Our next question comes from the line of Mike Sison with KeyBanc.

[Michael J. Sison:]

Over the years, I don't disagree. It does seem that Ferro has done a good job of identifying costs, taking those costs out. I sort of wonder if you can give us a little bit more sort of substance in why you think you can grow the business. And so it seems to be the area that -- and maybe give us by segment to sort of collaborate that 4% growth you expect to do over -- by 2015.

[Peter T. Thomas:]

Yes. One of the best parts of this -- the best part of this value-creation strategy for me is the fact that we have one strategy going forward. There are not -- there are no -- there are not multiple strategies within the company. So our ability to target and identify growth opportunities and prioritize them in a way that those opportunities could come to fruition quicker is better managed in this particular environment, in this strategy. We do have a wonderful core set of businesses. They serve some very commodity markets, as you know. But quite frankly, with us focusing on one strategy, we can make many of our product lines less -- in the case of color and glass, less euro-centric. And we could put more emphasis on moving that technology as we mentioned, like glass to China to take advantage of the growth rates of that market. Or moving glass here into North America because the North American automotive market is great. And our ability to fund, as Jeff mentioned, $25 million of growth opportunities, being able to further globalize our digital inks business, and now, the launch of our digital glazes has occurred. Now we have the money and the focus on one strategy to make that happen sooner than later. Another key point is that with the management of SG&A that Jeff has mentioned, quite frankly, our commercial teams have more time to be in front of the customer, planning R&D programs and making execution decisions much quicker in terms of product expansion. So as a result of that, we've been able to build a 2013 to 2016 opportunity pipeline which would include product and market development, as well as geographical expansion. And after a thorough scrubbing of that platform, we now have a pipeline that represents somewhere between 25% to 30% of our current annual sales of growth opportunities. So the point is, the opportunities are identified. They have been scrubbed. And we're going to work hard on execution. It has to be done to your point.

[Michael J. Sison:]

Okay. And then when I take a look at your guidance for '13, you're off to a good start, but that's never been the issue. It's sort of the end of the year that has caused some havoc in terms of expectations. So when you think about bridging the gap per quarter as the year progresses, does earnings get stronger throughout the year based on the cost savings? Is that sort of the way we need to sort of think about it?

[Jeffrey L. Rutherford:]

Mike, what's going to happen on SG&A, SG&A's going to continue to decline through the year from a $60 million run rate it will decline throughout the year. It's going to be choppy at times, but it will continue to decline. Gross profit, we'll continue to maintain. The issue becomes sales volume and especially as we get into the fourth quarter as European plants begin to shut down and go on their holidays and so forth. That's why we've maintained it at that $0.35 to $0.40 range in anticipation that there could be a bit of a dip in our fourth quarter sales volume, which has been our historical experience. So we would continue to have improvement in the second quarter, third quarter, with the possibility of some softness in revenue in the fourth quarter.

[Peter T. Thomas:]

Hey, Mike, we also would want to add one important point because we didn't hit on it yet. One of the most important pieces of our financial driver, a portion of our strategy is around customer and product rationalization. We are in a process of analyzing a lot of what we might define as being unattractive business, and quite frankly, about $5 million to $6 million of our sales in the first quarter were a result of that target. So as we go forward, it's going to be a bit of a challenge for you all, as well as us to understand the fact that there will be puts and takes on possibly good revenue growth, but we may be taking away from revenue because of poor business financials.

[Michael J. Sison:]

Okay. And then just last question. Peter, can you sort of give me a feel for how you -- well, let me just -- do you and the board have a value of what Ferro worth based on your value-creation plan and give us a little bit of maybe qualitative understanding of how you're sort of getting there. And obviously, just curious relative to Schulman's bid, why did -- help us understand why you think the value is much greater.

[Jeffrey L. Rutherford:]

Peter, let me start and you could fill in. Mike, we've given you our targets for '15. That's our model. So you can obviously model from that based on the information we've provided relative to cost takeouts and where we think we're going to be in '15. And everybody runs the same model. We can all get -- depending on discount rate to a number, we can all do that. One thing I would encourage you to do is to remember that $100 million of tax assets, put that in your valuation model, and you're going to get to a number. Everybody gets to the same number. We've talked to all of our shareholders. They all get to the same numbers. And the range varies by discounting. And you obviously have those same models. We have the same models, and that's the discussion relative to valuation. We're not going to quote you a number, but we're all going to get to the same place.

[Operator:]

Our next question comes from the line of Rosemarie Morbelli with Gabelli & Company.

[Rosemarie J. Morbelli:]

I was wondering -- so as a few people have already touched on, the focus is really on SG&A at this particular point, but how much -- and you talked about the gross margin, but is there any possibility of eliminating some of your manufacturing plants? For example, you talked about Southern Europe. But my understanding was that, that particular facility in Spain is actually operating at 100% capacity utilization. So can you help me understand a little more how you are going to proceed on that gross profit line?

[Peter T. Thomas:]

Yes. The gross profit -- well, let me answer your question around manufacturing facilities... [Technical Difficulty]

[Peter T. Thomas:]

Oh, good, okay. So you know how many plants Ferro has worldwide and because we make multiple products across many of those manufacturing locations, it would be consistent to think that further consolidation of those manufacturing facilities would take place. Now, those types of activities are not near-term, meaning this year or probably the beginning of next year, but certainly they're there. We understand them. I'll give you an example. We make -- we have 6 manufacturing locations making pigments. Okay. So that has to be addressed somewhere. Now, back to the growth element, again, I wanted to lay out there to make sure that everyone understands. Even though this is a value-creation strategy, and one thinks it's all about cost reductions, we do have that growth pipeline that I mentioned that's made up of both market and product growth opportunities, as well as geographical expansions with our current asset base, particularly in end markets that are doing quite well, particularly automotive and most of the glass applications. So there is an emphasis on growth even in this mile, and that's why we laid it out there and laid out the volume for you to see how we can get to that growth range that Jeff has mentioned, at 4% to 5%, and those higher-valued activities will move our gross profit to greater than 21%. So there is a strong focus on growth here.

[Jeffrey L. Rutherford:]

And, Peter, I would add that we track our return on invested capital and our valuation by location. So we have an ROIC and a value-creation model that goes to the site level and so there are facilities that we are operating today that aren't providing adequate return and they know who they are, and that's part of the gross profit and SG&A plan would be those facilities and the products that they support have to have adequate return. So there is -- we just don't measure return on invested capital by the total company or by materials or chemicals. We run it and we evaluate it by site, by site location and then relate that back to the products that are being serviced. So there are -- this is a continuous process. I mean, it's not a project. It's a process. And that's going to continue, and that's why we're going to continue to evaluate not only our product lines, but also our product -- our manufacturing location.

[Rosemarie J. Morbelli:]

Okay. And looking at product lines, in the Polymer Additives, which is being affected by some changes in regulations, I am assuming you are talking about the phthalates being out?

[Peter T. Thomas:]

Yes.

[Rosemarie J. Morbelli:]

And that is no news. So it sounds to me as though nothing was done at that particular level, I mean, in this business level, to work towards finding other alternatives. Am I looking at this the wrong way and therefore would be Polymer Additives kind of in trouble?

[Peter T. Thomas:]

No. You are looking at it the wrong way. We do have a solution, an alternate technology to the benzyl phthalate program. It's something that's been in-house, and I think we've mentioned it in the past. It's a certain type of technology that's more environmentally friendly. We've had the model internally for over 7 years. And we have a plant design. We have a customer base who wants the product and technology, and that is now under this value-creation model, something that we can now take a look at because under this strategy, moving to that type of substitution will create additional value for us. And that's under evaluation and consideration right now and maybe we'll be talking about that in a little bit.

[Rosemarie J. Morbelli:]

So it sounds good. So while you have been sitting on it, if you pardon the expression, for 7 years, why isn't it out in the market right now? And why are you losing business to competitive products?

[Peter T. Thomas:]

Yes, so quite candidly, there's only so much capital that can go around and under a different type of strategy, capital is prioritized in a way that would be most prudent for growth. And under this model, capital is being prioritized around advancing return on invested capital. And as such, with the new model, it now is on the table for review.

[Rosemarie J. Morbelli:]

Oh, great. That is helpful. And lastly, if I may. Some believe that you can save a lot more than $70 million and the numbers of $100 million to $150 million have been thrown out, and that is not taking into consideration whatever synergies there would be with Schulman. This is Ferro by itself. How do you feel about that? Do you think that as you get further into your valuation, you can actually get at the same stage as the $100 million or is that expecting too much?

[Peter T. Thomas:]

Well, I think you've heard my comments. Our target is now $85 million.

[Jeffrey L. Rutherford:]

What we've committed to -- the programs we have in place total $85 million. There are things in the queue that are coming, right, that we're not prepared to talk about. But there is additional opportunity.

[Peter T. Thomas:]

Yes, to answer your question. The more and more we get into, the more and more we see opportunity. But we have to be very careful and surgical because quite candidly, everything that we have done around cost savings so far has not been a disruption to our customer. And that's the most important thing because the customer is the only person I know that sends us checks every month.

[Operator:]

Our next question comes from the line of John McNulty with Crédit Suisse.

[Abhiram Rajendran:]

This is Abhi Rajendran calling in for John. First, Peter, congratulations on the formal CEO role because as you've already made some significant changes. A quick question with regard to the new gross profit reporting structure. I guess, what if anything has changed as to how your divisional leaders are compensated based on the new metric to track segment performance over the next couple of years?

[Peter T. Thomas:]

No. Actually, our business leaders have always been incented on a wide variety of metrics, but in this new model, more of the bonus, if you will, or target, is centered on gross profit improvement. It always has been, but there's more of an emphasis on it now.

[Abhiram Rajendran:]

Okay, great. And then just a quick follow-up on the Electronics business. I guess how are the fundamentals in that business based on what you're seeing with regard to industry inventory levels, utilization rates at your customers and also I guess where do you see trends going kind of over the course of the year?

[Peter T. Thomas:]

Yes, it's interesting. And of course, we don't have the solar business left. So a lot of that forecasting, if you will, has been eliminated, and our ability to be more predictable is going to be a lot easier. The remaining product lines -- to give you a perspective, the remaining 4 product lines in EMS have been split and folded into the 2 other divisions. One would be Color and Glass and the other would be our new Powders, Pigments and Oxides. But in consideration of maybe thinking someone would ask that question, we did take a look at it that if they were together what might that look like. And what I could tell you is, it's pretty diverse. Right now, the Surface Technologies business is not performing that well. However, our metals powders business is up a bit because there's been some demand in passive components and also the adhesives for silicon chip adhesion as it relates to our MLM business, which is the ceramic capacitor business. We see some uptick in military applications and medical applications, but down in others. So all in all, it looks pretty much like our first quarter for the rest of the businesses coming from a year-over-year look.

[Operator:]

Our next question comes from the line of Kevin Hocevar with Northcoast Research.

[Kevin Hocevar:]

Question on the -- the increase, the $20 million increase in cost savings here to $70 million. It looked like that Capgemini to the global shared services was a big part of that. And I know in the initial $50 million savings that global shared services was part of that as well. So just wondering, how much incremental savings do you expect to realize because of this Capgemini part of the savings? And then what's the other puts and takes to get to the $20 million beyond Capgemini?

[Jeffrey L. Rutherford:]

Yes. We haven't disclosed all that detail. I would say, what it is, is -- and we're going to be a little sensitive because of the cultural aspects of some of this global shared services. A major portion of that was the finalization of the $20 million was the finalization of the agreements with Capgemini. And what we've done, and as Peter talked, as we go forward on a project and it's approved and moves forward, it moves into our model. That's why we talk today for the first time that there's $85 million of projects now, right? So there's $85 million of cost reduction projects that are being managed within Ferro. When we're talking about, $30 million and $70 million, we're talking about the timing of that $85 million. And one of the reasons we moved from $50 million to $70 million is the acceleration of the timing of some of the Capgemini-related cost reductions. So the $70 million isn't the total that we're working on. The $70 million is what we believe we can realize between now and the end -- or beginning of this year and the end of '14. And to answer another question, is there anything beyond the $85 million? Certainly. But we're not ready to commit to anything above $85 million because we don't commit to it until it's a project and it starts moving forward. So maybe we confused people with the way we've been talking about it and saying that it's going to be $50 million and people were thinking we only have $50 million of cost reductions. It was $50 million that were going to be realized through '14. So what we've done is based upon the projects that are in place of the $85 million, $70 million of that is going to come through between '13 and '14. Peter, do you want to add so more?

[Peter T. Thomas:]

No. I'm glad we clarified that because I think a lot of skepticism may have been built or a lot of folks may have been discounting us, right, Jeff? Do you think on the $50 million or the $70 million. We'll, in essence the way we look at it...

[Jeffrey L. Rutherford:]

Yes, and it's our own fault. I mean, we're going to give it to you like it is. There's $85 million in projects out there, $70 million are going to come through before the end of next year and are going to be reflected in our earnings. And then there's more to come. And stay posted and when we have -- when we're ready and we're committed to the projects, we'll provide that information.

[Kevin Hocevar:]

Okay. And just a real quick follow up. So the 4% sales -- 4% to 5% sales growth, annual sales growth through 2015, with all -- it sounds like there could be rationalization of certain product lines if they're not meeting certain profitability expectations. Could you give a sense for how much of that might be volume? Would volume be fairly flattish then because of some of the rationalization and more price mix? Or how should we think of kind of the components of that growth?

[Peter T. Thomas:]

Yes. I think you should look at it this way. There is a component of increased volume because of the improved operating leverage that we'll realize from the cost reductions, that's number one. Number two, you should look at it as being our ability to expand some of the higher value products that we have in our pipeline that will enrich our mix going forward. Let me give you an example. Like our digital inks, for example, those products run at a gross profit that are 35% to 40%. Our digital inks that are coming out that will follow that product line are priced a bit higher, and they're quite a bit above the aggregate portfolio of that tile of business, so that as those sales come in, the mix improvement will be realized. Again, I want to emphasize the point about the operating leverage. There are pieces of business that may not have been attractive to us because of the metric, but once the leverage comes through, they may be more exciting again in a way that will lift our gross profit.

[Operator:]

Our next question comes from the line of Dmitry Silversteyn with Longbow Research.

[Dmitry Silversteyn:]

A couple of questions. And I'm a little bit pressed for time, so I'll ask them quickly. When you look at the Polymer Additives, and to follow up on Rosemarie's questions, the headwinds that you're facing with the loss of business, it sounds like you're probably at least a year away from getting a competitive product in the market. So should we expect this business to continue to provide some headwinds for the balance of 2013 and into 2014? Or has this been a one-time thing and we're done anniversarying it?

[Peter T. Thomas:]

No. Thanks for bringing it up because we do want to make sure that we clarify it. The answer is, yes. The deselection will continue through the balance of this year, and we've made that adjustment in our models already. So we have taken that into account.

[Dmitry Silversteyn:]

Okay, okay. Your working capital metrics have gotten a little bit softer over the past couple of years. We're looking at days sales outstanding and inventory turns all not being as good as they were a year ago at this time. Should we read into this anything or is this just a question of you sort of cutting businesses and shutting revenues faster than you're adjusting your inventories and, say, accounts receivables?

[Jeffrey L. Rutherford:]

Yes. We're not going to make excuses for it. We look at it as an opportunity. Some of the issues we get into on receivables is mix issues and geographic mix issues relative to business climates and so fort as we move in and have higher concentration of business in the Middle East and Asia, but that's not an excuse. There's opportunity in inventory. We talk about it every day, and we continue to look at how we can better collect and reduce those day sales. So there are reasons that's happening, but there's no excuse as to why it's happening.

[Dmitry Silversteyn:]

Would you say that going forward, working capital would be more like a source of cash?

[Jeffrey L. Rutherford:]

We -- yes, we haven't modeled it yet as a source of cash. What we have done in our models is that it would be flat year-over-year with some level of growth, so they're better leveraged. We didn't see that in the first quarter, but that our goal in our model in return of invested capital of 15% by '15 is for working capital to remain flat to 12/31/12.

[Dmitry Silversteyn:]

Got it. Got it. Okay. And then final question. On the range of earnings that you've given, both for 2013 and for your 2015 targets, that $0.05 range and $0.10 range, respectively. The performance of the bottom versus the top of the range, is that a function of kind of economic growth and your ability to drive volume? Or is it going to be more a function of your getting $70 million, $85 million, $30 million, $35 million in cost savings for appropriate periods. In other words, is it the pace of cost savings that are going to get you to the top or bottom of that range? Or is it going to be the volume performance of the businesses?

[Jeffrey L. Rutherford:]

It's going to be volume on those ranges, especially near term.

[Dmitry Silversteyn:]

Okay. Okay. And then just a general question, I'm assuming the answer is yes. But I just want to ask, are you going to be providing or you have provided, maybe I just haven't seen them, the restated results for the new divisional structures going back a couple of years?

[Jeffrey L. Rutherford:]

We are. And, John, you want to say anything about that? No, you don't have to, John. We knew this was coming, and John is working on that. We're going to -- do you want to commit to a time right now, John?

[John T. Bingle:]

It will be the next couple of days.

[Jeffrey L. Rutherford:]

The next couple of days, John says. So I would encourage everybody to call in and make sure that...

[John T. Bingle:]

The calls will make that a little longer.

[Jeffrey L. Rutherford:]

Dmitry, we knew that was coming. We're working on it, and it's in process. This change has been a change for our accounting group, too. So we're going back. We're going to pull all the quarterly changes out, and we're going to file an 8-K hopefully. Well, today is Thursday, so by the end of day Monday, are we committing to that?

[John T. Bingle:]

Yes.

[Jeffrey L. Rutherford:]

All right. So by Monday we'll get that out.

[Peter T. Thomas:]

And in the event that someone does want to call John, I can assure you, his time slot is 3

[Operator:]

Our last question comes from the line of Christopher Butler with Sidoti & Company.

[Christopher W. Butler:]

I win the last time slot. Looking at your -- the targets that you have for sales, gross profit and SG&A, could you talk to the fact that these targets could potentially be in conflict with each other and part of this was brought up as you trim sales to improve gross profit, it gets a little bit more difficult to hit your sales target, as you cut SG&A, new products may be slower to come through the pipeline, et cetera?

[Jeffrey L. Rutherford:]

Yes, that's always the dynamic tension. We had that discussion. We had it right before the call started.

[Peter T. Thomas:]

And every day.

[Jeffrey L. Rutherford:]

Between Peter and I. And obviously, that's always one of the risks of focusing on return on invested capital that you lose sight of growth, right? So there's that -- and that's a good tension to have within an organization. Right now, I'd have to say that return on invested capital and cost reduction are taking precedence and there may be some tension, and as Peter talked about, that we're looking at firing our own customers that aren't meeting our profitability objectives. So in the near term, I think that's true. And then as we move out into the model, we don't believe that's going to be the case.

[Christopher W. Butler:]

And looking at the cash flow side of things, the real estate assets, are there more of those to come? Is that -- any significance over time as you look at your holdings and could you talk to where acquisitions might fit into all of this at this point?

[Jeffrey L. Rutherford:]

Yes. We don't have -- I'll answer the second question first. We don't have any acquisitions built into our model. And then as far as real estate is concerned, there are no more right now. Where that could become an issue is -- and what we answered on other questions relative to locations, if there would be a change in locations, we may have to adjust real estate, but our folks have done a really good job of working through that real estate and cleaning that out. So there's not a lot left relative to real estate assets. If there's I could tell, I'll tell you.

[Christopher W. Butler:]

Are there acquisitions that... Sorry...

[Jeffrey L. Rutherford:]

I'm sorry, go ahead. I'm sorry.

[Christopher W. Butler:]

Are there acquisitions that might fit into the long long-term strategy I guess was kind of what I was asking.

[Jeffrey L. Rutherford:]

Well, I mean, there always could be, right? But as I said, right now, where we're at is that in our model, there is nothing modeled in for acquisitions at this point. Our focus is on cost reduction and creating value with the assets that we own right now. That doesn't mean that won't change, but that's our focus right now.

[John T. Bingle:]

All right. I would like to thank everyone for joining us on the call today. With that, we'd like to end the call, operator. Appreciate it. Have a great day.

[Operator:]

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.