Kaman Corporation
Q1 2016 Earnings Call Transcript

Published: 4 May 2016

[Operator:]

Good day ladies and gentlemen and welcome to the Kaman Corporation Q1 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce the host of this conference call Mr. Eric Remington. You may begin.

[Eric Remington:]

Good morning. Welcome to the Kaman Corporation first quarter 2016 earnings call. Conducting the call today are Neal Keating, Chairman, President and Chief Executive Officer; and Rob Starr, Executive Vice President and Chief Financial Officer. Before we begin this morning, please note that some of information discussed during today's call will consist of forward-looking statements setting forth our current expectations with respect to the future of our business, the economy and other future events. These include projections of revenue, earnings and other financial items; statements on the plans and objectives of the Company or its management; statements of future economic performance and assumptions underlying these statements regarding the Company and its business. The Company's actual results could differ materially from those indicated in any forward-looking statements due to many factors, the most important of which are described in the Company's latest filings with the Securities and Exchange Commission including the Company's 2015 Annual Report on Form 10-K and the current report on Form 8-K filed yesterday evening together with our earnings release. In addition, we expect to discuss certain financial measures and information that are non-GAAP measures as defined in applicable SEC rules and regulations. Reconciliations to the Company's GAAP measures are included in the earnings release filed with yesterday's 8-K With that, I will turn the call over to Neal Keating. Neal?

[Neal Keating:]

Thank you, Eric. Good morning and thank you for joining us on today's call. Our first quarter results reflect our continued focus on execution across the company and positions us to maintain our full year outlook. At a consolidated level, sales increased approximately 2% to $451 million compared to the prior year with strong sales growth at aerospace offset by sales declines at distribution. We delivered adjusted diluted earnings per share of $0.41, largely inline with expectations for the quarter. Taking a closer look at the results of distribution, sales for the quarter, as anticipated, were lower versus the prior year declining 6.8% on a same-day sales basis. This decline reflects continued difficult market conditions in a number of the end-markets we serve. Operating margins declined 60 basis points versus the prior year, a good relative result given the extent of the organic sales decline. Our operating profit dropout rate was approximately 11%, far better than our historic performance in similar market conditions. Our ability to mitigate the negative margin pressure was largely driven by two management initiatives. First, we are realizing the benefit from the workforce reduction and facility rationalization measures undertaken in the fourth quarter of 2015. Second, our efforts to drive improved productivity and profitability as discussed on the fourth quarter call are beginning to yield results. In spite of the difficult market conditions during the quarter, these initiatives helped us to deliver sequential margin improvement of 60 basis points on relatively flat organic sales levels. In reviewing end-market performance over the past number of years, our three platform strategy has shifted us to a higher percentage of OEM sales. This shift exposes us to the increased cyclicality of the OEM markets, which in the current business cycle has negatively impacted our top-line sales growth. For the quarter, OEM sales on a daily sales basis declined approximately 12% compared to a low single-digit decline in our MRO business. Industry performance for the period was mixed with seven of our top-10 industry markets experiencing sales declines. Continued weakness in our oil, gas, mining and metals markets accounted for about 260 basis points of our sales decline in the quarter. While these markets now represent less than 5% of our sales, their collective decline of 38% year-over-year had a meaningful impact on our top-line sales. These declines were partially offset by improvement in our food and beverage and non-metallic minerals markets. In our Aerospace segment, sales were up nearly 24% compared to the prior year to $162.5 million, driven by record sales for our JPF and legacy missile fuses and the contribution of approximately $17 million in revenue from the recent acquisitions of EXTEX and GRW, partially offset by lower sales from our New Zealand helicopter program, which substantially was completed in 2015. Segment level organic sales increased approximately 11% during the period versus the prior year. While segment level revenue was encouraging by almost any metric, operating margin dollars were flat on a lower margin percentage during the period reflecting several factors. These factors included difficult margin comparison for our legacy bearing product-line sales; acquisition-related costs, retroactive adjustments from our structures programs, higher intangible amortization and the recognition of previously capitalized G&A expenses due to deliveries associated with certain military programs. I am pleased to report that both our acquisitions favorably contributed to first quarter results and the integration and profitability of these acquisitions are inline with our expectations. During the quarter, we incurred one-time acquisition and inventory step-up costs, which we expect to moderate as the year progresses. Despite the difficult comparison to the first quarter of last year, our organic bearing product-line continues to perform well. It is important to keep in mind that due to our industry best lead times, our sales patterns are determined by customer requirements which will typically result in increased demand in the second half of the year. Turning to fusing products, revenues accelerated in the first quarter as we shipped almost 6800 JPFs which was up 16% compared to the prior year and a substantial increase in delivery of our legacy missile fuses as well. We expect fusing performance to remain strong for the balance of the year as a result of the more than $200 million in JPF orders received in 2015 and a combined backlog for our fusing products of over $300 million at the end of the quarter. The strength of our diversity and the execution across our businesses provided offsets to some of the challenges which impacted our results for the quarter. This enabled us to deliver results inline with our expectations and positions us to accelerate our performance as the year progresses. Now, I’d like to turn it over to Rob to provide you with some additional details. Rob?

[Rob Starr:]

Thank you, Neal and good morning, everyone. I would like to begin this morning by providing financial details and adding some additional context to our results. Overall, while our earnings were lower than last year, they were inline with our expectations. GAAP earnings per share was $0.35 compared to $0.46 in the prior year and on an adjusted basis, diluted earnings per share were $0.41 compared to $0.47 in 2015. The primary difference between our GAAP and our adjusted earnings per share or cost-related to the acquisitions of EXTEX and GRW. Earlier Neal provided an overview of the overview of the results for the segments, and we thought it would be helpful to provide some additional color on the aerospace operating profit performance for the quarter. On a GAAP basis, operating margin declined 350 basis points to 13.1%. This decrease was driven in part by the recognition of previously capitalized SG&A expense of $3.1 million, which was really from inventory based on deliveries occurring under certain US government contracts, EAC retro adjustments of $1 million and acquisition and integration costs of $2 million. Moving to the consolidated results for the period, gross profit margin for the quarter was 29.8%, representing a 90 basis points improvement over the prior year. This improvement was driven by the improved gross margin performance at distribution and the mix of DCS and USG JPF sales. Taking a closer look at SG&A expenses, we experienced a 10% increase in consolidated SG&A, primarily the result of increased SG&A at aerospace, split evenly between acquisition and organic growth. The increase in organic SG&A expense at aerospace was driven by the recognition of previously capitalized SG&A discussed earlier, partially attributable to lower than anticipated deliveries of legacy fuses in 2015, which we now expect to occur in 2016. A process of capitalizing SG&A expense on certain government contracts is a normal part of our business and as noted, a capitalization of these expenses or relief of previously capitalized amounts is dependent on the timing of deliveries to the US government. At distribution, SG&A expense was flat when compared to the prior year reflecting the benefit from our workforce reduction and facility rationalization which we have partially redeployed toward the development and implementation of our productivity and profitability initiatives Neal mentioned earlier. Our free cash flow in the quarter was a use of $1.9 million. First quarter cash flows are typically the lowest of the year due in part to working capital requirements and our annual pension contribution and incentive payouts. Our balance sheet position remains strong as we enter the quarter with a debt-to-capitalization ratio at 44.6% and a debt-to-EBITDA ratio of 2.9 times, both within our long-term target ranges. I would now like to turn to an update of our 2016 outlook. Based upon our performance in the first quarter and our expectations for the balance of the year, we are reaffirming our full year outlook and review at aerospace, we are expecting a significant year of top-line growth between 17% and 20%, which corresponds to a sales range of $700 million to $720 million. Aerospace’s full year growth rate is lower than the rate we experienced in Q1 due to the strong sales comp we will be up against in Q4 of last year and the fact that our acquisitions will lapse to organic growth during the fourth quarter. We expect full year aerospace operating margin to be in the range of 18.3% to 18.6% and an adjusted EBITDA range of 21.8% to 22%. The margin forecast is unchanged from our prior outlook and excludes one-time acquisition-related cost of approximately $5.5 million related to the inventory step-ups and integration expenses. The full year sales outlook at distribution remains $1.125 billion to $1.165 billion which translates into an organic sales decline between 1% and 5%. This compares to the 6.8% organic sales decline we experienced in Q1. Our expectation is that our comparative organic sales growth rates will trend – will tend to improve most notably in the second half as the comps get a bit easier. Operating margin expectations at distribution remain at a range of 4.4% to 4.6% as we benefit from the restructuring and productivity initiatives we have taken. Distribution EBITDA margins are expected to be in a range 5.8% to 6%. The expectations four our quarterly earnings cadence remains back half-weighted with slightly more than 60% of our full year earnings coming in the second half. We remain on track to achieve our free cash flow outlook for the year of a range of $50 million to $60 million, which is within our long range target for free cash flow conversion of 80% to 100% of net income and our outlook for 2016 would produce a three year average free cash flow conversion rate in excess of 100%. With that, I will turn it back over to Neal for his closing comments.

[Neal Keating:]

Thanks, Rob. While we are not satisfied with our headline results in the first quarter, we are encouraged by the underlying trends in both of our segments. In aerospace, we are progressing with the integration of both EXTEX and GRW, have broken ground on our bearing addition here in Bloomfield and increased our backlog to over $700 million. In distribution, our daily sales rates stabilized and we were able to improve margins by 60 basis points. As we progress through the year, we expect to see further improvements across our businesses and we remain on track to achieve our outlook for the year. With that, I will turn it back over to Eric for questions. Eric?

[Eric Remington:]

Thanks, Neal. Operator, may we have the first question please?

[Operator:]

[Operator Instructions] Our first question comes from Edward Marshall with Sidoti & Company.

[Edward Marshall:]

Good morning guys.

[Neal Keating:]

Good morning, Ed.

[Rob Starr:]

Good morning, Ed.

[Edward Marshall:]

So, I wanted to ask, I guess, the 18 to 3 to 18, 6 on aerospace and looking at the year-over-year comparisons, especially in the first quarter, that suggests a pretty healthy recovery on the margin throughout the balance of the year. I am assuming that that’s related to fusing and maybe even some bearings like it has historically. But maybe you can walk us through some of the expectations in the – on the aerospace side that anticipates to get that margin to earnings to be hedge your guidance for the year?

[Rob Starr:]

No, Ed, this is Rob. Good question. As we look towards the remaining three quarters of the year, we do expect to see – there are couple key drivers to meeting those margin expectations. Those really – largely being on account of a ramp up in bearings, both in sales and margin as we go through the year because as they increased our production, they typically will get better overhead results. So we certainly expect to see improvement in bearings as we move through the year. Also on the aero systems side of our business, we do expect to see sequential improvement in those performances, in those businesses. On the fusing side, we certainly had a very strong quarter as we talked, we had a good shipment at DCS in this quarter and we remain on track. We are not going to – we don’t expect to see as much seasonality in fusing as we have in other prior years. That we expect to be more level with some potential upside base on the mix of shipments that we ultimately deliver between DCS and USG.

[Edward Marshall:]

Got it. And the $1 million charge in the quarter or I guess, the impacting that charge from the dispute of the contract, if I think about some of the programs that they are related to – for every monthly change of say, one aircraft in particular, is that the kind of expectation I should think in your – I am assuming it’s the revenue recognition kind of assumptions?

[Neal Keating:]

Actually, Ed, I’ll start with this and Rob can fill in any details. These are really estimates at completions of contracts. So they are not contract disputes that rather they are changes in either the learning curve that we are experiencing on the program or what you hit on, as we have changes in volume, it impacts our overhead rates and those changes in overhead rates will also impact our estimated completion of the contract. So, we did have lower volume in a couple of our aero structures facilities and as we re-ran our EACs as we do at the end of every quarter, that lower volume was a big impact in overhead rates and that’s what really result was the major driver in the $1 million charge that took for EACs in the quarter.

[Edward Marshall:]

And just to clarify, is that a charge or is that just impact of, kind of the assumptions on a go-forward basis?

[Rob Starr:]

That’s just a change in estimates going forward.

[Edward Marshall:]

So that will be an impact of about $1 million a quarter for the remainder of the year?

[Rob Starr:]

No, no, I mean, the way that the EAC’s work is, we take a look at the projected delivery overhead rates. Everything that’s related to completing the program and then we do a retro adjustment based on what we expect…

[Edward Marshall:]

Got it. Okay, got it.

[Rob Starr:]

I would look at it at the true-up.

[Edward Marshall:]

Yes, no problem. And then, the distribution, you gave some pretty good color on what’s been backing you there on – I was curious if you could kind of walk through how that business trended on a monthly cadence and the year-over-year comps didn’t look as good as maybe the sequential comps there. So, I assume that there was some pick-up throughout the first quarter.

[Rob Starr:]

You are right, Ed. We did pick-up through the first quarter. As you know, our first quarter and second quarter of last year in distribution were really quite strong. So our year-to-year comps are pretty tough, but as you pointed out, sequentially, they looked quite a bit better. During the first quarter, we started out a little bit weak and we kind of firmed up in February and March, pretty much consistent sales in February and March and so far, April has come in at about the rate that we had for the first quarter. So, pretty firming and flat, but when we do it on a comparison to a very strong first half of last year, clearly down.

[Edward Marshall:]

Got it. Thanks very much guys. Appreciate it.

[Rob Starr:]

Thanks, Ed.

[Operator:]

[Operator Instructions] Our next question comes from Matt Duncan with Stephens Inc.

[Matt Duncan:]

Hey, good morning guys.

[Neal Keating:]

Good morning, Matt.

[Rob Starr:]

Good morning, Matt.

[Matt Duncan:]

Neal, maybe if I could ask that last question a bit more directly. Do you have the percentage year-over-year organic daily sales change – rate of change for January through April? Just sort of curious what that trend-line does look like?

[Neal Keating:]

Sure. We are down about 8% in January, down about 3% and February and down about 8.5% - between 8.5% to 9% in March when we look at our – as we look at the cadence of our sales though last year, Matt, we went from – we increased in sales about 10% from January through March last year or so. The sales rates, the daily sales rates were relatively consistent between February and March and just that March of last year, it was a record month for us.

[Matt Duncan:]

Yes, and then, April, Neal, do you have that handy? How does it look on a year-over-year basis?

[Neal Keating:]

On a year-over-year basis, we are down about 6% to 7% and the daily sales rate is as I said about the average that we had for the first quarter.

[Matt Duncan:]

Okay, that’s helpful. As you guys…

[Neal Keating:]

It’s pretty firm.

[Matt Duncan:]

Okay, as you guys talk to your customers right now, what are you hearing from customers at KIT or are they feeling any better or any worse? Is there any sense that things could be bottoming? Are you hearing anybody talk more positively? Or is it really just sort of more of the same?

[Neal Keating:]

It varies by the end-industry group that you are talking with, Matt, but I think we are seeing the rates of decline in oil and gas and mining is lower simply because it’s an easy – it’s beginning to be an easier comp when you look at it sequentially. So, we don’t - oil and gas is – we don’t see as anybody getting positive on it. We had a little bit of weakening of the dollar up until last couple days and so, some of our exporting OEMs were feeling that would give them an advantage. We kind of come down to our stalwarts of food and beverage that are really helping our product mix. But, we are really – as you can tell from what we’ve said in our prepared remarks and also in answers to questions both in the fourth quarter and now during this call, we are not counting on an uptick in volume through the balance of the year to get to the low end of our range. We’d like to see a little bit of uptick, especially in the second half of the year where the comps are easier. But, we are really structuring our business and focusing on being able to deliver acceptable levels of profitability and improvement year-over-year in a flat sales environment.

[Matt Duncan:]

Okay, and then, last thing from me, just with the margin improvement initiatives at KIT. If you were to start to seeing your sales growth return to sort of a mid to high single-digit a bit more normalized level of sales growth for that business and a normal environment, whatever that is these days. How much operating margin expansion do you think that business would be capable of, given the things that you are doing there?

[Neal Keating:]

Matt, it would enable us to make a nice step towards the 7% target that we’ve set.

[Matt Duncan:]

Okay, and anyway to quantify how much of one, I mean, are we talking, it could be up 100 basis points or is that a little much?

[Neal Keating:]

It could be up 100 basis points.

[Matt Duncan:]

Okay, all right. Very helpful, Neal. Thank you.

[Operator:]

Our next question comes from Pete Skibitski with Drexel Hamilton.

[Pete Skibitski:]

Hey, good morning guys.

[Neal Keating:]

Good morning, Pete.

[Pete Skibitski:]

Just a couple clarifications. I guess, Rob, on the transaction integration cost in aero, I think it was about $2 million in the quarter and I think you are still expecting $5.5 million for the full year. Is that just level loaded through the final three quarters, maybe, $1.1 million, $1.2 million or so per quarter or is it more so aggregated in the second quarter or third quarter? And then, does it go to zero in 2017?

[Rob Starr:]

Yes, Pete, good question. Of the $2 million, the majority of that was inventory step-up in the first quarter. I mean, we did have integration expenses, but the integration expenses we expect to pick-up for the second, third and fourth quarter. It’s hard to say exactly the timing, but I would say that, of the $5.5 million, we do expect it to be first half-weighted with certainly some cost in the third quarter and some certainly in the fourth. But it should be at a lower level by the time we get to the fourth quarter. In terms of moving to 2017, it’s possible that some of those expenses could move over to 2017, but certainly that’s not the current thinking.

[Pete Skibitski:]

Okay, got it. Got it. And then, just one follow-up I guess, on the $3.1 million SG&A in aerospace that came on inventory, it sounds – is it sure are you expecting this, because I know you didn’t change your guidance. So we are expecting it and just a little more color on why related to fusing in particular and how often is that – because I couldn’t remember another time or something like that. So little more of a color you can give will be great?

[Rob Starr:]

Yes, no, no, it’s a good question. That release of G&A was in large part due to the delivery on certain of our missile - legacy missile programs, Pete, and if you recall, we had anticipated those deliveries, a lot of that those two have occurred in 2015, but due to the customer requirements and some other challenges with the programs, we are really beginning to deliver that. So you are seeing a larger than normal release of capitalized G&A just based on the timing of those shipments and the fact that had built up over an extended period of time.

[Pete Skibitski:]

Okay, okay. You carried of an inventory longer, so, yes, and it builds up the longer you have it for the SG&A it builds up basically.

[Rob Starr:]

That’s correct. So, it’s a bit of an unusual for us. I mean, we typically don’t have those types of extended delays, but it’s just something we wanted to highlight. In particular as a point of comparison to the first quarter last year.

[Pete Skibitski:]

Okay, okay. It makes sense. Thanks very much guys.

[Rob Starr:]

All right. Thank you, Pete.

[Operator:]

Our next question comes from Ryan Cieslak with KeyBanc Capital.

[Ryan Cieslak:]

Hi, good morning guys.

[Neal Keating:]

Good morning, Ryan.

[Rob Starr:]

Good morning, Ryan.

[Ryan Cieslak:]

I guess, the first question I had is on the distribution side and the cost actions that you guys had taken in the fourth quarter. How do we think about the benefits from those cost actions? Are they now fully realized in the numbers at this point or do you expect some incremental benefits to bleed through here into the second quarter?

[Neal Keating:]

Yes, Ryan, those costs, we’re largely realizing the benefits of the actions we took in 2015 and those actions – the benefit of those are reflected in our outlook. So, we would expect to see that continued benefit. I mean, we thought, I think it was around 7 or so million dollar annualized benefit relating to those actions.

[Ryan Cieslak:]

Okay, gotcha. And is there a way, Rob, to think about the cadence of the trajectory of the margin at distribution going into the second quarter? I think, there was some beginnings of improvement sequentially from the fourth. Do we think about it at the same magnitude into the second or is there something that feels different about the second quarter that would change that in your direction?

[Neal Keating:]

Yes, a couple of things there, Ryan. We had touched on the fourth quarter call that we have some kind of timing issues around some of our employee-related costs. So, relative to the first quarter that should be about a 60 basis point release relating to those expenses. Certainly, we would anticipate to see that come through. In terms of the overall balance for the rest of the year, in order to achieve our outlook, we got to deliver margin between 4.6 and 4.9 for the balance of the year and we feel pretty confident in being able to do that.

[Ryan Cieslak:]

Okay, gotcha. And then, I just would be curious to know, Neal, any sort of updates on the KMAX program and what you are seeing there that would be helpful?

[Neal Keating:]

Okay. Ryan, we – as we’ve reported, we’ve got firm contracts on five aircrafts today. We have deposits on three additional aircrafts. We are hoping to turn those deposits to firm contracts here in the next few months when you think about from a production perspective, we are on track at our various facilities to be able to support the delivery of the first aircraft in early 2017. And last month, actually we had HAI which is the big helicopter show and it was really a very active show for us across – quite frankly, everything from our new EXTEX business, but also a lot of interest across a very broad customer group on the opportunities that they see now with KMAX going back into production. So, we need to turn those opportunities into contracts, but we are pleased with the progress so far.

[Ryan Cieslak:]

Okay, thanks guys. Good luck.

[Neal Keating:]

All right. Thank you, Ryan.

[Operator:]

[Operator Instructions] Our next question comes from Shannon Burke with Gabelli & Company.

[Shannon Burke:]

Hi, good morning.

[Neal Keating:]

Good morning, Shannon.

[Rob Starr:]

Good morning, Shannon.

[Shannon Burke:]

So, just going back to distribution, if you could just give any more color on product-line breakdown in the quarter? How is fluid handling performing versus bearings and power transmission, automation control?

[Rob Starr:]

Okay, sure. Shannon this is Rob. For the quarter, our fluid power business was down in the high single-digits, year-over-year. Our bearing and power transmission was down more or less inline with segment average and our automation control and energy was down low to mid single-digits over the years. So, pretty much inline with what we are seeing with our competitors fluid power, in particular with some of the OEM and oil and gas pressures probably bearing, a little bit worse than our other product lines.

[Shannon Burke:]

Okay, and do you expect these trends to continue throughout the year?

[Rob Starr:]

I think really, we certainly expect the year-over-year comparisons across all three of these to improve as we move through the year, Shannon, just given the relatively easier comps. In particular, in the second half, I mean, the second quarter is a very difficult comp. Our daily sales rate in the second quarter last year was actually a record for us. So, certainly, the oil and gas markets will play a fairly large role as we look at fluid power in particular and what the impacts maybe, but we certainly expect to see relative improvement.

[Shannon Burke:]

Okay. And then, just switching to aerospace, with GRW, how is the integration progressing and have you identified any synergies that you aren’t expecting or if you could quantify anything there?

[Rob Starr:]

Sure, Shannon, the integration activities are going actually quite well. So, they are actually going according to plan, because we plan for them to go well. But, I’ll tell you what’s interesting to us is, from a sales synergy perspective, I think we are seeing more opportunities. We counted on opportunities in leveraging our specialty bearing’s sales organization across the globe. I think that what we are realizing is that we may have more opportunities sooner in the US than we’d otherwise anticipated. So, very strong business, great products, great reputation in the marketplace and now we are hoping to provide them some additional exposure and focus in the aerospace industry, because that’s really been our sweet spot.

[Shannon Burke:]

Okay. And could you quantify that at all or is it too soon to?

[Rob Starr:]

I think it’s too soon. I think, probably as we get in later in the year, we will be able to give a little bit of a retrospective on that. But, we feel really good about both GRW and our EXTEX acquisitions as I commented earlier, even at HAI, the opportunities for our EXTEX business were really coming through.

[Shannon Burke:]

Okay. Okay, thank you so much.

[Rob Starr:]

Thank you, Shannon.

[Neal Keating:]

Thank you, Shannon.

[Operator:]

Our next question comes from Chris Dankert with Longbow Research.

[Chris Dankert:]

Good morning guys. Thanks for taking my question.

[Neal Keating:]

Good morning, Chris.

[Rob Starr:]

Good morning, Chris.

[Chris Dankert:]

Just, one quick follow-up, in the past, you had mentioned that you are expanding JPF production capability and I think specialty bearing as well, can you just kind of give us an update there? I mean, I assume - excuse me, you’ve got all the shifts filled now. You play out of the working capital, is it that you’re kind of on track?

[Neal Keating:]

We are on track for – let’s start with our JPF ramp up. Gerry Ricketts and the team there are on track for that ramp up. We made very good progress in the late fourth quarter and now through the first quarter of this year and we feel comfortable being able to get to the 30,000 to 34,000 unit outlook that we’ve provided. We continue to add some staff. We are adding it at a measured pace, so that we can assure that we have them trained fully before they begin to participate on the production lines. So we feel good about that and actually, we just broke ground within the last three weeks on the expansion here for our specialty bearings business. So, that was right according to schedule as well.

[Chris Dankert:]

Fantastic, fantastic. And then, I guess, as far as our checks go, we’ve been hearing a quite a bit of cannibalization in the oil field, but elsewhere as well guys, taken parts off, idled machines that kind of thing. Has that been a major impact for your business or not so much?

[Neal Keating:]

It’s a good question, Chris, because that’s so hard to quantify. So, I guess, I would be – without try and duck the question, I don’t know that it would impact us any more that it would impact any of our competitors, but clearly, they are doing everything to minimize any expenditures whatsoever. So, it’s very common for them to cannibalize existing equipment.

[Chris Dankert:]

So that I guess that, that’s kind of continuing apace right now from what you’ve heard at least?

[Neal Keating:]

Yes, I would say so. When we talked about our year-to-year decline in oil gas and we put mining in that, because it’s commodity-related and for us, metals as well, because a lot of our exposures in metals has been in specialty metals that are focused on oil and gas end-markets. We were down 38% year-to-year. We were down about 10% to 11% sequentially, so we are seeing that that start to run its course and that’s why we anticipate that, even given no uptick in those markets that we would have a favorable comps in the second half of the year. But again, as everybody looks at their modeling and assessments, for our distribution business, the second quarter of last year was an all-time record from revenues. So that’s going to be a very difficult compare for us.

[Chris Dankert:]

All right, that’s helpful. Thanks guys.

[Neal Keating:]

Okay, thank you, Chris.

[Rob Starr:]

Thank you, Chris.

[Operator:]

And I am not showing any further questions at this time. I’d like to turn the call back over to Mr. Eric Remington.

[Eric Remington:]

All right, thank you for joining us for today's call. We look forward to speaking with you again when we report second quarter results in July. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.