Piedmont Lithium Inc.
Q4 2011 Earnings Call Transcript

Published: 15 Sep 2011

[Operator:]

Welcome to Pall Corporation's Conference Call and Webcast for the Fourth Quarter for Fiscal 2011. Today's call is being recorded and simultaneously webcast. [Operator Instructions] We'd like to remind you that the company's fourth quarter press release is available at www.pall.com. Management's remarks this morning will include forward-looking statements. Please refer to Slide 2 or request a copy of the specific wording of this qualification of the company's remarks. Management also uses certain non-GAAP measures to assess the company's performance. Reconciliations of these measures to their GAAP counterparts are included in slides at the end of the presentation. At this time, I will turn the call over to Eric Krasnoff, Pall Corporation's CEO and President. Please go ahead, sir.

[Eric Krasnoff:]

Good morning. Thank you all for joining us for our fourth quarter and year-end conference call. I'm here this morning with Lisa McDermott, our Chief Financial Officer, and Frank Moschella, our Corporate Controller. Now 2001 overall was a decent year. Life Sciences turned in another excellent performance. Pall Industrial faced challenges in the fourth quarter of the year. This morning, we'll provide an exposition of the factors that, despite achieving targeted top line growth, combined to place Pall Industrial profit below our expectation. Along with that, we will outline actions that were taken to address those issues. We'll also talk about what we saw as we exited the year and the current outlook for fiscal 2012. And, of course, there will be ample time for your questions. We're not going to make excuses for the disappointing finish to the year. We will keep some perspective. To paraphrase an English aphorism, one swallow does not a summer make, and for Pall, one quarter does not a trend make. The hard work we have done has produced solid results over time, and the company is well positioned to capitalize on tomorrow's opportunities and continue to deliver sustainable profitable growth. Now let's start with overall fiscal 2011. Sales grew by double digits in both Life Sciences and Pall Industrial, as all of our markets grew. While the earnings per share we achieved were not what we wanted, they are 32% better than a year ago. This quarter's results show there are still some bumps in the road, but they are basically either discrete, onetime issues or correctable. Now this is my 68th earnings call, earnings cycle. As you know, it is also my last call. I'll be retiring shortly as CEO. Our management transition is well under way, and I'm confident that our next CEO, Larry Kingsley, will build on our solid foundation and strong culture to take Pall Corporation to ever-greater heights. So now, let's turn to the business. Life Sciences, which represents just over half of sales and 63% of segment operating profit, had a good year. Sales increased 11%, and operating margin rose to 24%, achieving a 34% incremental margin year-over-year. BioPharmaceuticals, the largest and most profitable piece of Life Sciences, grew about 16%. Medical sales increased 5%, and Food & Beverage was up 10%. Industrial also had strong top line growth of 11% on good performance from all markets. Microelectronic sales increased over 14%. Aerospace sales grew 11%. And Energy & Water, the largest of the Industrial markets, was up almost 9%. Pall Industrial's operating profit, while less than we expected, increased 19% over fiscal '10. It's clear we still have work to do, and Lisa will discuss this in more detail later. Now going to the fourth quarter, sales came in at $780 million, and this is up 15% over last year on an as-reported basis and 6% in local currency. Life Science sales grew by 8%, and Industrial moderated to turn at 5% growth. Sales in the Western Hemisphere increased 2% after 4 consecutive quarters of double-digit growth, and Europe posted its third consecutive quarter of 10%-plus growth. Asia grew about 6%. A better measure for that is to exclude Japan, and then we see Asian sales increasing 14%. Q4 orders were up 1% compared to 19% a year ago. Orders in Life Sciences increased about 1.5%, and Industrial orders were flat, reflecting 29% growth in systems, offset by a 5% decline in consumables. Almost all submarkets showed a decline in consumable orders, with the exception of M&A within Industrial. So what's happening with orders? On the full Industrial side of the business, we are seeing signs of contraction in Microelectronics. In the Western Hemisphere, OEM activity, a leading indicator for this industry, slowed. We also saw a slowing in Asia. Microelectronics orders in August continued to be down. We believe some of the slowing in orders, particularly in the more lumpy Energy & Water markets, is due to timing. Some is the comparison to the prior period. This is the case with Aerospace, where orders were flat in Military compared to last year's 41% increase. In August, we saw Military orders almost double compared to August of last year. Now looking at Life Sciences. Pharmaceutical consumables orders grew by mid-single-digits after double-digit growth all year. Systems were down in the quarter, and this is the lumpy part of BioPharmaceuticals' business. Lab orders were also down high single-digits. In August, BioPharmaceuticals orders rebounded to double-digit growth, actually 45%, and order growth at Food & Beverage was driven by systems in the quarter, and this continued into August. Both consumables and systems orders were up in August. Clearly, we are in a period of economic uncertainty that is unlikely -- is likely to drive some cautious customer behavior. We have all seen this movie before, and I believe that this has impacted our Q4 orders, but by how much, it's hard to say. Many of our customers across markets are now carrying less inventory, perhaps a lesson from the last financial crisis. Assuming customer production levels keep up, full consumable orders should continue to flow. We started fiscal '12 with a backlog of over $800 million, which is up almost 15% from the prior year end. Not all of this will shift in fiscal '12, but it is a very good place to start the year. Now let's look at the markets with an eye toward specific trends or issues that we factored into our fiscal year '12 performance, starting with Life Sciences. BioPharmaceuticals, representing a quarter of total Pall Corporation sales, grew over 9% in the quarter. Sales, which are derived from both classic Pharmaceuticals and the biologicals markets, outpaced annual growth rates in the biotech market. 3/4 of BioPharm sales are now derived from the filtration-intensive biologicals markets, that is biotech drugs, vaccines and plasma derivatives. Consumable sales grew almost 12% in the fourth quarter. Biofilters and single-use technology did particularly well, and all regions grew, led by Europe. These results reflect our broadening presence on a growing number of biotech drugs and vaccines that are now in full production. They also reflect increasing adoption of single-use technologies and a strong new Pall product pipeline. We have good reason to believe fiscal '12 will be another sound year for BioPharmaceuticals, with growth in the high single-digit range. That said, economic uncertainty may hamper customers' capital investment plans, which would likely impact system sales, while consumables are tied more closely to drug production. Medical grew almost 5% in the quarter, and this growth reflects the impact of adoption of new products. Approximately 1/4 of Medical sales for the year came from products introduced within the last 5 years, such as the RC2D blood filters, Acrodose and our Aquasafe water filters. We expect Medical fiscal '12 performance to be in the low single-digits. Food & Beverage grew 10% in the quarter with all regions up. Pall is now pacing market growth by helping producers economically realize their quality and yield targets. New products and applications for emerging regions have been driving growth. Q4 orders grew 10%, driven by systems, and the backlog here is up 37% over fiscal '11. A strong order rate is carried over into the early days of fiscal '12. August, in fact, was over 30%. The fact that system sales remained strong is encouraging to us. So based on what we see today, Food & Beverage sales could be up mid-single-digits in 2012. Now to switch gears for a review of Pall Industrial. Energy & Water accounts for about 20% of Pall's 2011 sales and is composed of 3 submarkets

[Lisa McDermott:]

Thank you, Eric, and good morning, everyone. I'll begin with a discussion of each of the businesses results and will then move on to a recap of Pall's financial results for the quarter and year and conclude with our current expectations for fiscal year 2012. So let's start with the profit issues in Pall Industrial. While sales growth of 5% in the quarter came in at about our expectations, mix was different than forecast. Why? Fuels & Chemicals and Aeropower sales contained lower-margin capital goods, including both systems and housings, which outperformed in volume but underperformed in profit. Looking year-over-year, systems and capital goods sales in Pall Industrial grew by over 20%, or about $25 million. Taken together, these comprised over 40% of sales in the fourth quarter compared to about 35% in last year's fourth quarter. Moreover, as Eric mentioned earlier, the gross margins of these incremental sales were 20% or less. The combination of negative mix and suboptimal gross margins were a headwind of about $10 million, or 270 basis points compared to last year. Now Pall Industrial's profitability profile can be lumpy with the timing of systems and capital goods. This is the nature of much of that business. That said, we won't sugarcoat it, this was sloppy execution on several fronts, including contract execution, pricing and forecast of capital timing. We are taking measures to improve margins on capital goods and the annuity pull-through. This includes improving our contract risk assessment, pricing and costing review and approval processes to enhance governance and transparency. It also includes exiting from certain low-margin product lines, such as the example that Eric cited earlier. Unfavorable absorption from lower production levels were offset by the favorable impact of foreign currency, driven mainly from Asia but also in the eurozone. Margin degradation was also related to 3 key operational performance challenges

[Eric Krasnoff:]

Well, maybe I'll stay, then, Lisa. No, I appreciate that very much, and, certainly, what you accomplish in your career is very important, but if you leave that career without having sound personal relationships and a deep affection for those that really did most of the work, then you've left with nothing. Fortunately, I leave with everything. Thank you. And we've covered a lot of ground this morning and appreciate your patience. In closing, I want to say that it has been an honor and a privilege to nurture Pall from a $700 million enterprise to its current size and stature. I've also enjoyed meeting with so many of you as CEO and sharing our plans and progress over 17 years. Larry Kingsley takes over as CEO and President on October 3. The transition is going to plan, and our Board of Directors deserves a great deal of credit for what will be a very smooth management succession process. So at next quarter's earnings call, I look forward to joining you in the audience and sharing on Pall's progress. And now with the help of the conference operator, we are ready for your questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Jon Groberg with Macquarie capital.

[Dane Leone:]

This is actually Dane in for John. So maybe we could just start with what happened in the Industrial production margins in the quarter. You mentioned mix profitability of capital goods and SG&A kind of in the context of onetime in nature. But looking at the order growth rates that were probably negative across the board for Industrial segment, and I recall that a significant portion of your recorded overhead utilization in a given quarter is a function of forward demand. I guess, how do you get comfortable that these utilization rates will come back in the next quarter or as we go ahead further into fiscal 2012?

[Lisa McDermott:]

Well, the underutilization rates or the underabsorption mainly related to some plants in the U.S. for Microelectronics, which we are forecasting to be down or flat to down, what we saw in orders in the quarter. That having been said, we are forecasting growth in some of our other markets, particularly Aerospace, M&E, which is one of the higher-margin quick consumable marketplaces that we serve, and our forecasts contemplate higher absorption in those areas, offset by continued challenge in some of our Microelectronics facilities.

[Dane Leone:]

Okay. But looking at the slides from the presentation, you kind of have out there that orders in Aerospace were down, MicroE was down, like you just mentioned. What -- you're forecasting mid-single-digit growth, but even in BioPharma, which is one of the largest segments in the Life Sciences side, orders were down there as well. So I'm just trying to understand what's baked in your assumptions that's going to change going forward? Why is this just a onetime hiccup with the decline in order rates?

[Lisa McDermott:]

Well, like we said, we think Microelectronics is a secular trend, but -- or cyclicality of that market. But for BioPharmaceuticals, one quarter does not a year make, and we are forecasting that BioPharmaceuticals will continue to grow. August was up solid double-digit in orders...

[Eric Krasnoff:]

Orders were fairly strong in a number of the key segments in August.

[Lisa McDermott:]

Through to September, down to date. So some of what we saw in the quarter was timing, and some of it was just some difficult comps in terms of when you're talking about growth year-over-year. When we look at Industrial in the fourth quarter of '10, some of it was just timing. We are forecasting growth for next year.

[Dane Leone:]

Okay. It's just -- so there's no real fundamental concern that a drop-off in consumable growth rates could lead to a drop-off in CapEx demand. Is that the message?

[Lisa McDermott:]

That is the message.

[Eric Krasnoff:]

Right. And I think we're also -- we're scaling our structures for 2012 for a much more conservative outlook, so we're prepared and preemptive in it.

[Dane Leone:]

Okay, great. Can you just provide a little color on the geographic segments? With the, I guess, the Western Industrial business, the decline there just purely MicroE? Or some -- there are some other parts of that decline?

[Lisa McDermott:]

Microelectronics and the water business and Industrial were the drivers for decline in the Western hemisphere.

[Dane Leone:]

And for water, that's more of a timing issue that you expect to make up later in fiscal 2012?

[Lisa McDermott:]

Yes.

[Eric Krasnoff:]

Yes, the backlog is strong, orders are coming in. So we're confident in that sector. Asia, as we said, was, in general, up 14% when we take Japan out of the equation. So with Japan coming back online and a lot of government spending on capital there and getting production running for this year, that can be an upside as well.

[Dane Leone:]

Okay. And finally, for me, just in the ROTC estimate for next year. I think some of the comments over the course of fiscal 2011 was that, that expense would trend lower going forward, and it seems to be just at the same rate as it's always been. Was there a change in the NAV restructuring that management plans to do going forward?

[Lisa McDermott:]

Yes, there's been a change. And quite frankly, it's trending higher than fiscal 2011 because we will be taking some significant actions directed at not only reducing cost but putting together the groups of businesses that are very capital-intensive, that good [ph] growth is very directed towards the emerging market. So there will be -- and plus we'll be taking -- we'll be investing in emerging markets by redeploying out of our mature markets, so there will be significant restructuring costs to do that.

[Operator:]

Your next question comes from the line of Jon Wood with Jefferies.

[Jon Davis Wood:]

Lisa, my math may be wrong, but it looks like systems were about 16.5% of REVs in the fourth quarter, is that correct?

[Lisa McDermott:]

I think it was about 18% in the quarter.

[Jon Davis Wood:]

Okay, 18%. And does that -- so that mix is actually at the bottom end of kind of what you guys talked about, the 18% to 20% last quarter. So I'm assuming that the mix shift is more on the capital goods side. So can you give us some parameters around the capital goods piece that's outside of the systems piece, what that did in terms of the P&L mix year-over-year?

[Lisa McDermott:]

Well, the capital goods piece was an incremental 5% in Pall Industrial, which is primarily where it resides. And the capital goods were very low-margin as well as some of the systems book of business was very low-margin. And like I said, those things taken together cost us about $10 million in the quarter in terms of against expectations. That's the parameter.

[Jon Davis Wood:]

Okay. Did you actually make money on systems in capital goods in the fourth quarter? I know you've mentioned the gross margin, but what do you estimate that did on the OP line? And I'm talking overall Pall.

[Lisa McDermott:]

Well, it made money, not a lot, and it cost us on operating profit probably about 10%.

[Jon Davis Wood:]

Okay. And then what have you assumed in terms of mix in your 2012 outlook? How does the mix look between systems and consumables?

[Lisa McDermott:]

For 2012, focusing on Pall Industrial, where it's more relevant, the systems mix is fairly comparable to fiscal year '11. The capital goods will be a little bit higher but offsetting that, so we'll have positive mix relating to the increase in sales and M&E, which those consumables are the highest margin consumables now in Pall Industrial. So overall mix will be slightly positive, we're forecasting, for Pall Industrial next year.

[Jon Davis Wood:]

Okay, great. And then just in terms of the discretion on the outlook here, curious to know if kind of the new leadership here has had some sort of input into the guidance you guys have given, or is this -- should we look at this guidance as y'all's only?

[Eric Krasnoff:]

The new CEO has had significant meetings with all of the Pall management. He's done a lot of diligent homework, and we've kept him appraised of what the quarters look like and what we're planning to say today. So I think he is fully understanding and cognizant of it and is coming in with this being part of the game plan.

[Operator:]

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

[Jeffrey J. Zekauskas:]

Your estimate of your cash outlays for restructuring next year is $30 million to $40 million. I assume that at least half of that is people reduction. Will the people reduction come at the beginning of the year or the end of the year or the middle? And are there any plants that are going to be closed next year? And if there are, in which areas?

[Lisa McDermott:]

Much of -- most of that is people reduction in terms of the restructuring. Yes, there are also 1 or 2 facilities that we're looking at closing. Ireland, we've already announced, that'll actually be -- it's actually being closed now. There's another facility that we're looking at, more to come on that. But most of, as I said, the restructuring is cash and people.

[Jeffrey J. Zekauskas:]

So is that -- are these people leaving early in the fiscal year or late in the fiscal year?

[Lisa McDermott:]

The plan is earlier rather than later. Some of it is challenging, because we have to deal with some statutory and internal matters. But we would look for it as early in the year, first half.

[Eric Krasnoff:]

Yes, and it's really the -- it's the tale of the activities that we're taking to build up, selling people and infrastructure in the major emerging regions, which are getting us 22%-plus compounded annual growth rate. Once those are established and we're getting much more traction, we need to then reduce in the areas that are being slow to grow. But you can't do it on day one cut off A and add B, because you need some additional support in training and transition, so I think we're through that. And as Lisa said, early in this fiscal '12, we'll be able to start showing the benefits of focusing our manpower in the faster-growing markets and faster-growing regions.

[Jeffrey J. Zekauskas:]

Okay. And then just as my follow-up, can you talk about why the returns in Industrial look so good for the first 3 quarters and look so much weaker for the fourth quarter? That is, what was it about your systems that didn't allow you to perceive that there was an issue till everything became apparent in the fourth quarter? And then have you changed higher-level managers? Or is the restructuring that you're talking about at a lower level? Or are people who are leading large divisions changing? And who are they, if they are?

[Eric Krasnoff:]

It's certainly premature to start naming names. By and large, we're very satisfied with the people who are leading the business, and they've done quite a good job over the last few years. The June and July, which were the months where we had the major industrial issues, July is the largest month of the year, the fourth quarter is the largest quarter of the year. So there's certainly ample time for things that could be as they happen that are not fully forecast. Unlike our large systems, capital goods ship fairly quickly, and so you don't necessarily get on top of it. We are enhancing our systems both to -- as we did with the systems business, if you recall, as we got better at it, we developed ways to improve margins. We had to create 500- or 600-basis point improvements on our systems business over a 2-year period of time, and, in fact, we're going to apply that same rigor into capital goods now that it’s become a more significant mover and certainly one that surprised us with its volatility and its ability to affect this fiscal year.

[Operator:]

Your next question comes from the line of Tracy Marshbanks with First Analyst.

[Tracy Marshbanks:]

Eric, I look forward to your questions on the next call, I figure they could be pretty interesting.

[Eric Krasnoff:]

Yes. I'm going to say what the hell's going on?

[Tracy Marshbanks:]

You get to be on the other side. A couple of quick questions. Lisa, you sort of quantified the mix impact as $10 million, but I didn't catch it when you were talking about what I would call the operational issues, closing of the plant, commodity price increases, processes and the like. How do you break that out, or can you quantify that? And those, obviously, particularly on the pricing and even some of the process issues, aren't onetime. So how long do you think before you sort of get back to where you feel like you should or could be?

[Lisa McDermott:]

Well, I agree that the mix and the processes surrounding the capital business, they're not onetime. There are underlying process challenges that we need to address, including what's in our backlog currently. So we are very focused on improving those processes going forward. And it may take us a few months to have complete visibility and improve those processes. We're working on it now. We've put in immediate remediation plans. The other items in the quarter were a number of cuts, if you will, that aggregated a few million dollars, which just exacerbated an already challenging situation.

[Eric Krasnoff:]

It's like being late driving into the city, and you get every red light. It doesn't always happen, but sometimes it does. And it is, it's death by 1000 cuts. There's no one really big thing in the quarter that fell apart.

[Tracy Marshbanks:]

On the commodity pricing. Was it -- they ran up faster than you think you really can accommodate, or you're not used to accommodating a run-up, and so you couldn't keep up, but you think you can in the future? I just wasn't quite sure how that might play through.

[Eric Krasnoff:]

Well, on systems, we price these system based upon locking in procurement of the outside purchase components. In the capital goods area, we generally have not done that to that extent. So that's one discipline that we can get much better at quickly. And the reason is the customer generally wants a quote immediately, he wants the product immediately, because he wants to use a filter, as opposed to a system which can be part of a large process that's being developed, and the plant's going to take years to build.

[Lisa McDermott:]

Also on the quarter, you may recall that, there was a very rapid run-up in the price of oil, where it went from being in the $80s to over $100. And it that has a knock-on effect to some of our raw material goods. It's receded rapidly equally, and so we don't see that kind of impact going into fiscal year '12. But one of the things that we need to look at internally is our long-term contracts for some of these commodity purchases.

[Tracy Marshbanks:]

Okay. I think before, you provided a strong -- some insight on volume and price and your local currency growth rates. Could you do that, do you have it available?

[Lisa McDermott:]

Price was about 1% in the quarter.

[Tracy Marshbanks:]

Okay, thank you. And then, last question on R&D. I know as a percent of sales, it didn't really sort of stand out, but your sales are pretty substantial, so looking at just sort of even the sequential change, it was pretty dramatic in absolute dollars and a chunk of it in Industrial. Was there anything unusual? And is that sort of the type of level we should think about on a go-forward?

[Eric Krasnoff:]

Certainly, we've established a Chief Technology Officer at the beginning of this fiscal year and have ramped up the R&D project pipeline as well as added some significant quality into the organization. So we're not going to get back to the levels we were at before. Having said that, the major consumers of R&D; BioPharmaceuticals; to some extent, Medical; but certainly Microelectronics; have been showing the overall -- the past levels of growth and the most growth attributable to new products. So I think we're getting closer into what you might call our peer group sweet spot for R&D.

[Tracy Marshbanks:]

Okay. And the fourth quarter absolute number, I forgot, the $24 million and some. That is sort of the level we should think about?

[Lisa McDermott:]

That's about the level, yes. We're forecasting R&D to be, year-over-year, up about 15% going into 2012.

[Operator:]

Your next question comes from the line of Hamzah Mazari with Credit Suisse.

[Christopher S. Parkinson:]

This is Chris Parkinson on behalf of Hamzah. Just 2 quick questions. The first is, can you just talk about a little of what you've seen in the Food & Beverage market and then your assumptions for mid-single-digit revenue growth and when the increase in system sales should lead to more aftermarket revenues?

[Eric Krasnoff:]

Well, we are always seeing it lead to more aftermarket, particularly in that business. So consumable sales were quite decent in the year and should be next year as well. What we're seeing overall in the market, the 2 major markets for us are wine production and beer production, beer being primary. The major developed regions, wine production was actually down a little bit this last year, beer production was up maybe 1.5%. Where it's growing much more rapidly are in the emerging regions. Brazil and Latin America is high. China beer production increased 6% in the last year. I think that's increasingly going to be the trend that we'll see, lower-cost producers producing high-quality wine for international markets and using our products. It's also, I should have mentioned when talking about new products as well, that Food & Beverage has an extensive line of new products that are helping us grow above or outpace the markets.

[Christopher S. Parkinson:]

Perfect, thank you. And then also just a quick follow-up. You mentioned a few costs regarding the factory closure in Ireland as you transition over to the U.K. Can you break down some of the cost in the quarter and kind of particularly on any effect it had on the SG&A within the Industrial segment?

[Lisa McDermott:]

The move to the cost in Ireland moving to the U.K. really didn't have impact on SG&A. It was all impact on margin, and that was within that few million dollars when I -- the death by 1000 cuts that Eric mentioned before. That was excess spend to get that done.

[Operator:]

Your next question comes from the line of Brian Drab with William Blair.

[Brian Drab:]

Just wanted to ask -- maybe it's premature to ask this question, but when you look at the 2013 goals that you've laid out, I think as recently as some conferences this spring and maybe in the summer, do you rethink those at this point? And the reason I ask, of course, as I look at the fiscal 2012 outlook and guidance, for example, EBIT margin of 17% to 18.5% relative to long-term goal of 19.5% to 22%. Is that something that is going to have to be revised downward?

[Lisa McDermott:]

Well, as we look at fiscal year '12, we certainly see a challenge relative to achieving 2013, and that's something that the senior management team with our new CEO are going to have to look at and address. I don't really think that it would be appropriate right now to comment further.

[Operator:]

Your next question comes from the line of David Rose with Wedbush Securities.

[David L. Rose:]

I was wondering if you can clarify a little bit more on your assumptions for the tax rate for next year and what's that risk to that number? And then secondly and lastly, if you can maybe review a little bit more detail of what needs to be done on the forecasting side to provide us with a little bit more confidence for the rest of the year?

[Lisa McDermott:]

Okay. On the tax rate, from a structural perspective, we are where we need to be to achieve that rate. I would say as with any multinational company, what would put that rate at -- potentially at risk would be the jurisdictional mix of earnings. Clearly, BioPharmaceuticals is a big business in Europe, very profitable there, and contributes largely to the tax rate, the benefits that it throws off. Similarly, Microelectronics in Asia. So the overall operating performance of the company and the various jurisdictional tax -- jurisdictional jurisdictions could put that at risk. In terms of the visibility on forecasting, when it comes to capital goods, there's a broad range of when items can ship. Some are very short, order to ship, and some are very long. And we are putting a lot of focus on with the commercial or sales and marketing team, working with our operational/manufacturing team to make sure with finance that we're all aligned on the visibility of order versus forecasted shipment and actual shipment.

[David L. Rose:]

So to be clear, what took place in the fourth quarter, you clearly had as you indicated, the mix shift was a factor. But on absolute basis, your core product, your consumables and system ex the capital goods was actually below your forecast?

[Lisa McDermott:]

Yes, it was.

[David L. Rose:]

Okay, and so how long is this going to be -- how long would you say would take to feel really comfortable with the changes that you're implementing?

[Lisa McDermott:]

As I said, I think it's going to take us...

[David L. Rose:]

2 quarters, 3 quarters?

[Lisa McDermott:]

No. One quarter.

[Operator:]

Your final question comes from the line of Rob Mason with R. W. Baird.

[Robert W. Mason:]

Lisa, I may have missed this, but in terms of your fiscal '12 outlook, what have you baked in for pricing?

[Lisa McDermott:]

We've baked in 50 to 100 basis points in pricing next year.

[Robert W. Mason:]

Okay. And how would you assess the success on the pricing front for this past year, fiscal '11?

[Lisa McDermott:]

I would assess it differently across various markets. Certainly in BioPharmaceuticals, and now in Food & Beverage, I would assess it as pretty well successful. And in Industrial, needs -- is an opportunity for continued improvement.

[Robert W. Mason:]

And in terms of the fiscal '12, would you expect though the 50 to 100 basis points still to be biased towards Life Sciences segment?

[Lisa McDermott:]

Yes.

[Robert W. Mason:]

Okay. And then I know you called out the expectations for the ROTC cost in '12 related to some of your moves. But obviously, as we saw in Ireland through the year, there's some costs and inefficiencies that still leak into the adjusted P&L. What have you assumed on that front as you go about closing some of these facilities and some of the other restructurings within your adjusted EPS number? Any bleed-through that's not going to be captured in ROTC?

[Lisa McDermott:]

Yes. We have assumed that there will be some bleed-through. And there's a number of moving parts. I'm not going to give particular guidance to exactly what view we've taken to where they may be some breakage. But we have put some conservatism into our guidance relative to what our internal targets are.

[Robert W. Mason:]

Okay. And then maybe just last question, your CapEx guidance for next year is again up double-digits off of a pretty good-size increase in fiscal '11. Could you just walk through what is baked into that as well in terms of -- I know you have an ERP implementation that's been ongoing, maybe where that stands? And what would you expect a longer-term CapEx level to be, a more maintenance level for you?

[Lisa McDermott:]

Our longer-term CapEx sustainable level should be 4% to 6% of sales. We're on the high end or exceeding that now. Next year, we have 2 significant outlier projects. Our ERP system continues to be a large outlay. It will be less than the outlay in fiscal year '11, but it is still a sizable chunk, related -- somewhere between $20 million and $30 million in fiscal year '12. We have a large project for a technology center in a facility in the U.K. And the rest of it is our typical CapEx relative to our, mostly, our manufacturing capabilities in the businesses.

[Operator:]

I would now like to turn the call back to Mr. Krasnoff for any closing remarks.

[Eric Krasnoff:]

Okay. Thank you all for participating this morning and for your interest in Pall. Please put December 8th and 9th on your calendars for the first Pall quarter results. The release will be issued on the 8th after the market closes, followed by the conference call on the next morning, 8

[Operator:]

This concludes today's Pall Corporation Conference Call. You may now disconnect.