TriMas Corporation
Q1 2014 Earnings Call Transcript

Published: 29 Apr 2014

[Operator:]

Good day, everyone, and welcome to the First Quarter 2014 TriMas Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Sherry Lauderback. Please go ahead, ma'am.

[Sherry Lauderback:]

Thank you, and welcome to the TriMas Corporation First Quarter 2014 Earnings Call. Participating on the call today are Dave Wathen, TriMas' President and CEO; and Mark Zeffiro, our Executive Vice President and Chief Financial Officer. Dave and Mark will review TriMas' first quarter 2014 results, as well as provide details on our outlook. After our prepared remarks, we will then open the call up to your questions. In order to assist with your review of our results, we have included the press release and PowerPoint presentation on our company website, www.trimascorp.com, under the Investors section. In addition, a replay of this call will be available later today by calling [phone] with a replay code of 6663958. Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website, where considerably more information may be found. At this point, I would like to turn the call over to Dave Wathen, TriMas' President and CEO. Dave?

[David M. Wathen:]

Thanks, Sherry. For all of you listening, good morning, and we appreciate your support and involvement with TriMas. We are off to a very good start for 2014 with record level first quarter results for revenue and operating profit, and sequential improvement in many of our key metrics. Revenue increased 9% and operating profit, excluding special items, increased more than 13% versus first quarter 2013. And our Q1 earnings per share of $0.43 is in sync with our full-year guidance. While our businesses generated more operating profit during the quarter, we faced 2 headwinds impacting our EPS. Our effective tax rate was higher at 31% in the quarter compared to 14% a year ago, and we had more than 13% higher weighted average shares outstanding in first quarter 2014 as compared to first quarter 2013. On Slides 5 and 6, I'd like to update you on our top initiatives across TriMas, grouped as either a growth or margin initiative, and all of which aligned with TriMas' strategic aspirations. Of course, many of our initiatives are designed to grow revenue and increase margins. Those have the highest priority and get the most resources. The 2 segments we plan to grow the fastest, Packaging and Aerospace, combined, grew more than 16% through organic and acquisition efforts. It's also worth noting that Engineered Components grew 20%, resulting from our Q4 Cylinder acquisition and the moderate recovery in multiple actions in our Arrow Engine business. Both of our Energy-related businesses, Lamons and Arrow, showed recovery versus a challenging second half of 2013 through the execution of a long list of improvement plans and some market bounce-back. The management teams at both Lamons and Arrow have done very well, reconfiguring for the market changes. You've heard me discuss before seeking bright spots for growth to offset the lack of tailwinds, particularly in the U.S. and European economies. Two comments

[A. Mark Zeffiro:]

Thank you, Dave, and good morning. Before we move on to the financial results, I would like to reflect on our start to the year, as there are some themes that are important to note

[David M. Wathen:]

Thanks, Mark. Now I would like to look forward, share some updates on our planning processes and strategic aspirations, and then comment specifically on 2014. I'm a fan of consistent, easily understood processes. We all know that standardizing and commonizing as much as possible in a business provides more time to concentrate on the uncontrolled variables that come its way. We've had the same planning processes and strategic aspirations for 5 years at TriMas. We have modified and tweaked them periodically, and I'll point out some recent updates. Our planning process on Slide 17 lays out our ongoing cycle of strategic planning, people plans for implementing those strategies, operating plans for shorter-term metrics and incentive plans to reward success. The update is an increased emphasis on risk mitigation. All successful companies evaluate risks and all successful companies take on risk. The differentiator is both risk identification and preplanned mitigations that set trigger points. TriMas's board reviewed these risk mitigations and certainly hold me responsible for overall risk management. On Slide 18, strategic aspirations. We have modified the bullets slightly as highlighted. The change is an increased emphasis on margin enhancement. While we previously looked at margin in the background while growing revenue and EPS, this change acknowledges our need to enhance focus on margin improvement in our strategic aspirations as we make choices on programs, investments and operating plans. We are working on the quantification of some longer-term goals with specific metrics that will measure success in achieving these aspirations. Stay tuned for a future earnings call or better yet, join our Investor and Analyst Day on May 14, for each of our division presidents will share their plans for increasing TriMas' value. The next slide provides our 2014 outlook for sales, EPS and cash flow. For now, we are leaving these ranges the same as we previously communicated in February. While I'm optimistic due to our many programs achieving positive results and the recent indications that the energy markets are stabilizing, it is too early to make any significant changes in our outlook. As Mark mentioned, we face headwinds in our tax rate year-over-year. As always, we will update you on outlook next quarter. I will close with a reminder of our TriMas value proposition. I suggest that our balance portfolio is providing stability, productivity is helping drive enhanced margins, and our ongoing concentration on bright spots for both growth and margin, successful acquisition integrations and a pipeline of potential new acquisitions will keep our growth rate in high-single digits. Thanks again for your attention, and now we will gladly take your questions.

[Operator:]

[Operator Instructions] And your first question will come from Scott Graham with Jefferies.

[R. Scott Graham:]

So my question is, one of the things you talked about last quarter was -- and in fact, I asked a question about it, was this really using -- really, whittling down the number of initiatives that the company was undertaking in '14 versus that in '13. And you don't stop that on a dime. So I guess my question is, as you -- now we're sort of 2 months later, we're 4 months into the year. Maybe, what are some of the larger things, and I know you've pointed out a couple of them in your handouts here, but maybe more on the productivity and the acquisitions side, some of the larger things and some of the bigger businesses that you're focusing on? And how has the team kind of responded to, "Hey, we're still expecting this much EBIT from your business unit, but we're just looking for you to do fewer things to get there." Is there kind of like a collective sigh of relief and maybe more focus on realizing more larger numbers from fewer programs? Or kind of just talk about that transition and maybe some of the examples behind what you're focusing on the most?

[David M. Wathen:]

All right. Scott, I would -- well first off, you're right. You listen well. We are like always, we've been trying to prioritize what makes the top of the list, and more importantly, therefore, what do you put on the back burner and not work on. Now it's easy to say, and as you know, culturally, it's a little bit difficult to implement. One lever that affects all this is where do you spend -- where do you put investment money? Would it be CapEx or increase spending on development work? We're not really researchers, we're more developers of new products. And that's the lever that Mark and I get to have the most influence on, on what we're choosing to spend on. And we have -- I hate to say it's all that much different, but I will admit we've got a much higher attention level on the programs that get us growth and margin rather than just growth programs. And that is, in some of the acquisitions, we are -- Mac Fasteners, I mentioned on purpose. I mean, the crew running that place is doing a great job, they had been kind of held back on investments in the business. We, right away, started adding capacity but it's specifically for products that grow and increase margin. And I even -- you probably heard me comment, average -- one thing we're tracking is average selling price, so that's not price increase with a [indiscernible] average selling price, although there's a little of that, it's more about going after the higher tech, higher spec, therefore, more expensive products that we tend to make higher margins on, too. So that's kind of going on across all the businesses. We're definitely seeing the -- I'll just run through the business. Packaging continues to see high demand in Asia by the big global -- our big global customers who want higher-end products. And you could probably sit in a whole lot of strategic reviews and hear the premise, the middle class is growing in x China, India, whatever, and here's what we're going after. And it tends to be higher-spec products. That's certainly, in Energy, we've got heavy emphasis -- Kurt told me about running all-new training programs for some of the products that have been introduced recently that are -- they solve a problem for a customer. They tend to be higher priced and higher margins. And so again, easy to say, but we've just got an emphasis on those kind of things, and I'd say letting some of the other programs drop to the back. I have a concern that I don't want to pendulum the swing too far because we'll get away from organic growth and only concentrate on margins. A part of my job, as in everybody's job, is to keep that in balance. I mean, that's kind of a long, winded answer, to say. I think it's prioritization and the levers are -- I'm willing to spend CapEx and I'm willing to put more people on very attractive programs, so we're doing it. And I think -- I believe we're starting to see the results in the numbers.

[R. Scott Graham:]

I'd just say this, that at your analyst meeting, would it be fair to expect that -- and this is something you might not be able to answer, but forever you guys have had this high-single digits top line growth aspiration and that, of course, includes acquisitions, which, as we all know, are impossible to know their timing and realization. So my -- I guess, my follow-up question would simply be, as we look out over a 3-year horizon, would it be maybe more -- would it be fair to say that you guys are maybe targeting a little bit slower organic growth? Let's say, organic growth equivalent to 1 or 2 points above market growth, which would, I guess, put you somewhere in the 4% to 5% range as opposed to kind of -- I'm not saying that you're chasing high-single digit, but since that includes acquisitions, that's always a tougher one to zero in on. So would it be -- can we expect, when you talk in your meeting in a couple weeks' time, that maybe the organic is a little bit lower in favor more of profitable -- more profitable organic?

[David M. Wathen:]

It's a matter of degrees. I hope it doesn't swing too far that way. But yes, I have, for some time, clearly been willing to trade some margin for growth because it is -- the toughest thing is growth, in my view. And we all know how to go after more margins. And that might include slowing down some programs that are not at the higher margins. But that said, you're going to see division presidents talk through some mighty impressive programs. And they may be different than you've seen in the past because the world changes, but there are some great programs. And we won't back off on getting organic growth. I want TriMas to be known -- I want us to be -- you all to see us as an industrial company that knows how to grow. And we will do the things that makes that happen. And so I want everything, Scott, as do most of us.

[Operator:]

And our next question will come from Walter Liptak with Global Hunter.

[Walter S. Liptak:]

I wanted to ask about the Engineered segment, and you talked in the presentation about compressor sales picking up. I wonder if you could kind of quantify the order that you got and provide a little bit of color around that, what's happening at the well site?

[David M. Wathen:]

The compressor event was, we, 7 or 8 months ago, started leasing compressors with service, we bought some pickup trucks and trained some people. And while that is clearly an attractive business, I would say, we didn't realize how negatively some of our customers who buy compressors and then have their own serves fleets would see us doing that. I was clearly a part of that decision, like I was a big fan of it. We reversed course. I give the management team at Arrow, Len and crew great credit for not just reversing course, they found a way to actually sell the fleet that we had already leased at a decent price. And so that's in the numbers. So we sold it and then they sold it, normal sorts of profitability. Now that said, so therefore, that's kind of a timing thing and it made first quarter look pretty strong for Arrow. The -- underneath all that, the compressor business still continues to be good. We've got some pretty neat activities in nontraditional markets outside the U.S. that are using the same technologies that we're used to. The -- big, both compressors and engines. There's, I mentioned in the line of higher horsepower, we tend to kind of slowly creep up in a controlled way, expand our product line. Because these aren't products that you can have any kind of issues with. They have to run 24/7 almost forever. So we are -- have been carefully continuing to add new products. And they -- what Scott asked about. I mean, they are new sales, we are careful going in that we're going to get decent margins. And then we concentrate on those. The other thing in the Engineered segment that you see is that the effect that you know we bought the small compressor business out the semi-competitor in fourth quarter. And I was at Huntsville and it really is as straightforward as adding some people in Huntsville, adding a second shift, bring them some equipment out of that plant and you get great leverage those -- and those are rare situations to have something that attractive to go after. And it makes sense for both parties. And so you jump on those when you find them. So and this is not one of those, and I'm going to have to sort of apologize for "Hey, we made an acquisition, the margin's low, but we're going to get up there." This is one that's hitting the ground running, as you would expect, when you put it in an existing well-run plant and just add volume. And bring in some equipment that in spots is more productive than we had. So good all around. So that's why you saw the positives. The one unusual was the sale of the compressor fleet.

[A. Mark Zeffiro:]

I would tell you that, Walt, that's -- Walt, that's a preexisting customer so it's somebody that we'll have ongoing commercial relationships with. So we're -- the business team obviously is focused on servicing them as a customer over the long haul. Just one point of clarity, the acquisition from Worthington was under the cylinders segment, the segment of this business. I tell you, this is one where Jerry Van Auken and the team, they did a great job with the Taylor-Wharton acquisition and the integration and this is just another example where that business team is doing a fantastic job.

[Unknown Analyst:]

Okay, okay. Just so we could back out the event, the leasing event. What was -- can you quantify that number for us?

[A. Mark Zeffiro:]

It will be in the Q, but it's circa $5 million. And to that end, this is just a matter of when, during the year, that kind of activity was going to happen. So I don't see this as a onetime event. It's a matter of...

[David M. Wathen:]

It's a timing thing.

[A. Mark Zeffiro:]

This is that customer wanted this particular well-site equipment, and it just so happens that they were able to secure the number of packages necessary by doing this with us.

[Unknown Analyst:]

Okay. If we backed that out, you're at kind of high-single digit revenue growth. Is that sustainable throughout the year?

[David M. Wathen:]

Well, you'd have to -- the other positive is the fold-in of the acquisitions. So I wouldn't count on -- well, there's been a lot of positive things going on, but I am cautious about Energy in total. And while the short-term order rates are sort of encouraging, I'm staying pretty cautious in Energy. The cylinders business in total is a pretty -- they do -- it's a GDP-plus-a-little kind of a business. And the ups and downs have more to do than with events like an acquisition or big export orders which we, of course, pursue actively.

[Operator:]

And next, we'll hear from Rob Kosowsky with Sidoti.

[Robert A. Kosowsky:]

Yes. I was hoping, on the Aerospace side. Can you perhaps do an operating income bridge with fourth quarter? Because the margin did come down pretty considerable amount, and I'm wondering -- trying to get a handle on how much was mix versus any extra can be cost versus anything else that impacted the margin?

[A. Mark Zeffiro:]

There's a couple of things that affect it. Yes, obviously, the acquisitions in terms of rolling into first quarter, there is still step-up in terms of purchase accounting-related activities that roll through. So there's a degree to which the amount in Q4 versus the amount in Q1 has a full effect in terms of within the quarter. That's number one. Number two, when you think about the implications around Tempe, we first got rolling with fill orders out of the Tempe facility in Q4. I tell you, that run rate is a little lower on a run-rate basis quarter-on-quarter as we filled -- we fill necessarily orders in Q4 as we first started getting rolling. That -- the margin rate of that is a pretty sizable uptick for this business. And those are the major drivers to the step-down in rate quarter-on-quarter basis.

[Robert A. Kosowsky:]

Okay. So as far as Tempe, it's like you have the initial stocking order in the December quarter, and inventory was billed through the customer so you didn't don't have as high a throughput?

[David M. Wathen:]

Exactly. And in particular, Boeing is going to where we directly fill mid-Mac programs and all that. And so a new product, you get a big bump in quarter #1.

[Robert A. Kosowsky:]

Okay. And then how did the core -- the margin profile of the core business, trend in the quarter versus fourth quarter?

[David M. Wathen:]

The Aerospace business?

[Robert A. Kosowsky:]

Yes.

[David M. Wathen:]

It's all positives. The order rates continue as -- you can read any industry report and tell what's going on with order rate. Our backlog continues to build across, we really run -- we really got 3 Aerospace-related businesses now that they all report in to David, but they are all seeing the ramp in the industry.

[A. Mark Zeffiro:]

Yes, if you look at, though, the legacy business, if you want to use that term or the core business of Monogram, margin rates were basically flat -- flattish year-on-year. Not -- no increase, so it's really a discussion of mix of the business as a year-on-year comp of the acquisition. The second element, obviously, as Dave pointed out, was the stocking orders out of the Tempe facility.

[Robert A. Kosowsky:]

Okay, then we should probably expect sequential margin expansion to this business as you get further past some of those acquisition-related cost and perhaps in more normalized Tempe production rate?

[David M. Wathen:]

That's correct.

[Robert A. Kosowsky:]

Okay. And then also an Cequent North America, with the facility move complete, could you quantify or say how the core margins looked versus your plan? And some of the, I guess, some other cost headwinds from higher distribution and maybe moving some higher cost inventory? Is there any way to quantify that or at least tell us when those are going to subside?

[David M. Wathen:]

The core product margins, if anything, are slightly better than, call it, planned. The -- I've been at this a long time. The -- that said, I went through the plant. The plant is running at the same line rates that Goshen used to run at. That is stupendous. But I also know that it's not yet running small lots very well. So there's work to do there. That will hit it going forward. But that's time and a lot of work to get it there, and the team is at it. The only delay and when you'll see it in a lot in the numbers is, of course when we had pretty good stocking inventory for safety stocks, both ourselves and some of our customers. We also are still working the supply chain, both incoming, still qualifying some steel suppliers that are in the south rather than the north. We are -- still got a warehouse system that is close but not quite there. So it's going to take into -- and this is no change. I've told you before, this is going to take until the middle year until you see it starting to kick in the numbers in the business. But -- and I don't want to -- this is normal, I would say. But I don't want to minimize the amount of work. This team has done a stupendous job of doing all of this and I love to go into the plant and seeing all the folks and of course, the receiving end of this kind of a move, you got that some pretty fired up people because this is a lot of business and a lot of production and training welders and all that. So it's all first-class. I'm proud of the crew, they're doing a nice job.

[Operator:]

And moving on, from Goldman Sachs, we'll hear from Samuel Eisner.

[Samuel H. Eisner:]

Just this going back into the questions on Engineered Components. It sounds as though that the top line benefit was about $5 million from the compressor order. Can you maybe hash out what the EBIT benefit was in -- within that segment?

[A. Mark Zeffiro:]

Yes. I'll tell you that it's in circa about 20% operating profit.

[Samuel H. Eisner:]

Understood. That's helpful there. And then again, not to maybe preview what you guys are going to discuss at your analyst event, but it sounds as though you're focusing more on margin enhancement. Maybe just talking about the high level. I mean, obviously, there's some big -- there was some restructuring that's going on within Energy, as well as Engineered Components. Maybe you could talk a little bit about some of the repositioning that you guys have done that you indicated on the fourth quarter, how that's been flowing through and kind of what the expectations are for 2014?

[David M. Wathen:]

It would be better to let Kurt and the crew there talk about it. But you have seen what I said. The start of a few moves, you saw we closed a branch that decided -- we are the point that I talked about before. We had built our branch network, we just finished strategic planning process. We will continue to add a handful of branches in Lamons because -- into geographies that we need them, and the team could tell you where those are at. But the work, the pendulum has swung towards margin improvement. It's all the things I've talked about before. Some vertical integration and we've now got, production going, we've consolidated a couple of facilities that we got by acquisition in India, so that we've got something we can count on there. We -- and I don't want to preannounce anything, but we are hard at work on what are the next moves that improve that business in margins. I still -- I love the business and what it serves and what you can count on, and the -- our ability to bring new products through a channel. All those are great for the top line. But we've also got a whole series of events going. So I don't want to preview too much, and I don't want to get ahead of the team. My style sometimes is to share my opinion about what we might want to do but then ask the team to put together their plans, and put the numbers around them. And we're in that stage.

[Samuel H. Eisner:]

No, understood. And then just on the Asia Pacific business in Cequent. I mean, on a quarterly basis, this is some of the lowest margins that you guys have seen in the last 4 years or so. So I'm just curious, are you seeing a point where profitability should improve in that business? Is that more structural? Is that FX-driven? Just trying to understand. Again, I realize it's not a huge portion of EBIT, but it does matter. So just curious, any additional color there will be great.

[David M. Wathen:]

Well, there's a few things that are a drag. We made an acquisition in Germany, which got us designs and a production point that allows us to serve some customers. Serving the customers are going well and the orders are occurring and all. But it's -- we knew, going in, it was an acquisition out of another company that they sold us their plant, but they left some of their stuff in it. That actually isn't -- their stuff isn't moving out until July. So we've still got some drags like that, and so we're trying to ramp up production. It's a little bit of a disadvantage. But again, we knew all that, and it's just a matter of getting through that. I would say, the ramp up of a couple of customers in South Africa has been a little slower than they had forecast. Other than that, Australia is itself is it kind of in its season and probably hitting the other opposite seasons for us. And the -- all looks good in the home markets. We've done quite a bit of work on the aftermarket retail sales part. We've had some of the retail crew out of U.S. who are very good at that, different packaging and all in Australia and vice versa. So we got a lot of that kind of stuff going on. I think you're just seeing effects of change in the business. And like you say, yes, it isn't a big enough part that we can't allow it to go through those changes and spend some money. So you're seeing the effects of that.

[Operator:]

From Deutsche Bank, we'll hear from Karen Lau.

[Karen K. Lau:]

So just going back to Engineered Components real quick. So it looks like if we back out $1 million of EBIT from the compressor sale, the EBIT margins would be running at 12.4% in the first quarter. Is that the run rate that we should expect for the rest of the year?

[A. Mark Zeffiro:]

Well, I think you're going to see continued improvement in the north side of the business as they make their way through the acquisition integration. So there's positive tailwind there. And now I'll tell you that the Aero business sequentially showed a nice improvement Q4 to Q1 in terms of planning margin rate. So I tell you, it's too early to call an uptick in that market. But they've done the right things structurally to have a good stable margin across the year.

[Karen K. Lau:]

Okay. So...

[David M. Wathen:]

And that is a -- Aero's a somewhat seasonal business. Remember, if you talked to the folks in Tulsa, they can tell you what the frost level is in Canada in the fields and when do they start shipping, that is only recent some of that turns on. So we do get the uptick that comes from better weather.

[Karen K. Lau:]

Got it. And then on Cequent APEA, could you quantify how much of the margin drag was from acquisition? Are there any onetime integration cost that does not recur for the rest of the year? Because sales were up quite a bit but the affluent OP dollars were down?

[A. Mark Zeffiro:]

Yes, if you look at the effects associated with the acquisitions, you can actually hang the entire -- largely, the entire stepdown in terms of the effects and -- on the acquisition in terms of full-year effect. So that's what you're seeing. You're seeing the AL-KO assets that we purchased, as well as the step-up in terms of SG&A associated with both of those businesses affecting the relative profitability of that, of that segment at this point. And as Dave may have mentioned, they're a little bit behind in terms of timeline here, in terms of their South African implementation of some commercial programs. So we should see that obviously coming more online towards the end of the year.

[Karen K. Lau:]

Okay. And then on Arminak. So I don't think your original guidance assumed acquiring the remaining 30% of Arminak. And by my math, that should add about $0.08 to $0.10 of EPS for the year, and maybe, Mark, you can confirm that math. But is the reason that you don't change your range at this point, is it because we're still early -- you're trying to be conservative or are there any offset that we should think about to the Arminak contribution?

[A. Mark Zeffiro:]

The number of $0.08 is far too high because when you think about the noncontrolling interest, that's kind of an after-tax effect. So make sure that you're thinking about it in that context. And there's a reason why we gave a range around things that we know within the year, that's what we're targeting to do. We clearly already had the right, if you will, to capture 10% of that business. It was opportunistic that we're able to get the full amount.

[Karen K. Lau:]

Okay. And just a quick follow-up on that. The rationale that you accelerated the acquisition of Arminak, does it speak to maybe the absence of M&A opportunities elsewhere? Maybe if you can give us an update of M&A pipeline and the environment?

[David M. Wathen:]

No, there are some pretty decent acquisition possibilities in the pipeline. You know that we've been saying that the board keeps asking us to look at bigger, better, higher-margin kind of acquisitions. I get the pleasure of explaining to the board that, that means higher prices, and we discuss that. So far, they have been very supportive of those. So I'm -- Bob and crew, and the division presidents are finding some pretty decent acquisitions in the pipeline. Arminak was more about -- it's clearly a great business, it's been very good for us. The 10% a year, calculating that, making projections, how the incentives work, was getting cumbersome. The owners came to us and said, "Let's just strike a deal for the rest of it." We looked at it -- and it winded up being a partly financial, partly simpler and easier, and partly as we go forward with where the productions going to be and what products do we put where, we don't get it, it happened to be separated acquisition. Of the -- after a few years, it all blends. And we were in a situation we were going to have to keep it more separate than makes sense. Now it's total Rieke, full speed ahead. So it's just easier.

[Operator:]

[Operator Instructions] And moving on, we'll hear from Steve Barger with KeyBanc Capital Markets.

[Steve Barger:]

Dave, it was good to hear you talk about some glimmers of economic improvement. Obviously, not enough to change your guidance range. But can you talk about what you're seeing that would be most relevant to you from an earnings sensitivity standpoint if that initial activity were to continue to strengthen?

[David M. Wathen:]

Well, certainly, Energy -- and we are not counting on a bounce back of the what you'd call a turnaround business in energy. I mean, the team in Lamons who are beginning top -- are saying that they're running based on 5-year time periods between major turnarounds. And a few years ago, you even said it was 2 or 3 years. But maybe it'll come back, but we're not counting on that. But it's the broader set of partly the business they've been going after and some new products. But partly just the general uptick and maybe a sigh of relief in Energy markets. Because we see it in both Lamons and Arrow, and there's some -- and so there's some -- that definitely improves us because it was quite a drag on us in the second half of last year. Packaging is seeing some U.S. strength. We tend to talk about Asia and a little bit of strength in Europe. So that's certainly a glimmer. Norris is -- we can almost watch GDP and the industrial production and all that. It's not that the order rates are up as much, it's that the cycle time of the orders -- there were times in third quarter or fourth quarter last year that I was hearing an operating reviews that we had plants that weren't full for the next 2 weeks, and they're scrambling like crazy and we're doing more set ups than we normally would and all that. And we're starting to see a little more backlog build. And part of that is some -- got to be some glimmers of hope on our customer's part. So I'm going to reserve -- I'm cautious about it, but there's more of those in the -- kind of indicators than we've seen in a while. I think I purposely said something on the chart about our only retail business is Cequent Retail that we would sell through a Home Depot and tractor supply and all those kinds of people. They had a pretty decent quarter and lots of people said bad weather and all that, but we, if the weather hurt it, in spite of that, we still had a pretty decent quarter. So that's a good indicator. I sound pretty optimistic, don't I?

[Steve Barger:]

You do.

[David M. Wathen:]

Mostly.

[Steve Barger:]

Yes. In Packaging, for U.S. and Europe, is that both industrial and consumer?

[David M. Wathen:]

Yes. Yes, which is real good.

[Steve Barger:]

Okay. And I'm really happy to hear about the renewed focus on margin expansion. Question is how does that flow through you're thinking in terms of free cash flow conversion? Is there a longer term sustainable goal you have in mind there? And any updated thinking in terms of when you can start to improve that?

[David M. Wathen:]

Yes, go ahead.

[A. Mark Zeffiro:]

When you think about that, Steve, there's a renewed emphasis bored down in terms of return on invested capital as well. Obviously, that talks to efficiency of assets that we, otherwise, have already deployed. When you think about free cash flow conversion, I think, the LTM basis was in the 70s in terms of that percentage that you've looked at. The reality is we're through a good portion of the CapEx investment that was needed in terms of -- it will refreshing some of these plants that have been otherwise pretty heavily used. And I will tell you that we should start to see better conversion in terms of D&A, versus new CapEx as well. So we're going to see that naturally improve. The other part of it is that cash taxes continue to get a little better through our better and more efficient tax planning strategies. So we've seen some improvement there in terms of overall cash taxes paid as well. So there's clearly a focus. Dave doesn't want us to slow down in terms of productivity and investment in CapEx. That's obviously the life blood of margin creation. So we're not going to slow that, but there's some of these big events that we've been through that we're past or we're through them, so that, in terms of cash flows efficiencies, we should see that continue to climb.

[Steve Barger:]

Right. So without commenting on dollars for 2015, you would certainly expect the percentage conversion to improve year-over-year next year?

[A. Mark Zeffiro:]

All things being equal, yes. That's things that we're obviously going to be looking at very closely. As Dave presses us in terms of return on invested capital, and making sure that we're focused on that. One of the things that we're going to do is make sure that the CapEx we're deploying is indeed capital-efficient.

[David M. Wathen:]

Mark gives me too much credit for that. I think you know one of our long-term incentive metrics which is to return on invested capital. So we all feel a desire to improve return on invested capital.

[Operator:]

[Operator Instructions] We'll take a follow-up question from Robert Kosowsky with Sidoti.

[Robert A. Kosowsky:]

Yes, just one quick numbers question. With this Arminak acquisition, is there anything left over in the minority interest line item on the income statement?

[A. Mark Zeffiro:]

No.

[Robert A. Kosowsky:]

Okay, so that should be zeroed out.

[David M. Wathen:]

Yes.

[Operator:]

[Operator Instructions]

[David M. Wathen:]

Okay. How about if I give you a final reminder. Our Investor and Analyst Day is May 14. It's in Michigan this time. We've got a new headquarters facility for Cequent that is -- will work great for this. Obviously, it's about all of TriMas, and all the division presidents will be here. But it's your chance to hear directly from them rather than listening to Mark and me. So if you're interested, contact Sherry, and we'll get your information. Thanks again, everybody, for your attention. We sure appreciate your support. We'll keep at it.

[Operator:]

And with that, ladies and gentlemen, that does concludes today's presentation. We do thank everyone for your participation.