VMI
#<UNK>, this is <UNK>.
The first quarter operating cash flows actually were pretty strong ---+ I think were around $80 million, which historically has been pretty strong for us.
The second quarter is not as strong, and sequentially we had an interest payment on our debt which was $20 million.
Sequentially, sales were up between first and second quarter, which drove some increase in receivables.
And our inventories are higher in part because of inventory we took on hand to help protect ourselves against rising steel prices.
So if you take all that into consideration, our cash flows on a quarter-by-quarter basis do fluctuate somewhat, but we expect good cash flows the second half of the year.
Okay.
Let's start with the last part of your question.
We expect to realize very little in 2016 because a lot of the expenses are spread also into the fourth quarter.
We expect all of it to see that in 2017, so it is less than a year, or about a year payback.
We are probably going to end up within access system and galvanizing to lower our number of facilities by four: three in the access system side of the business and one in galvanizing, where we are consolidating into other facilities.
So I think over the last year or so, we have probably reduced our footprint in Australia from a number of facilities by more than 10 facilities, and we will end up with about 30 ---+ we will end up at 26 facilities at the end of it.
A lot of those are small facilities and we have been able to consolidate some of those without giving up the ability to serve the customer bases that we have in those businesses.
In the Utility segment, we actually expect the operating margin to remain about where it is now.
So a good solid improvement over last year's levels.
In ESS ---+ yes, we just talked about that and I think for certain in the third quarter we're going to have an unfavorable comparison in earnings in ESS, and hopefully that will turn around in the fourth quarter.
Irrigation is more a question of seasonality than it is quality of earnings as a result of pricing.
In the third quarter, which is the weakest quarter, we're going to have less factory absorption and that's going to translate into lower margins like we had last year in the third quarter and the years before that.
And in the Coatings business, we expect to continue to see margins about where they are now, with low margins in Asia-Pacific and higher margins in North America.
Well probably part of it was the acquisition of American Galvanizing.
Otherwise I don't see anything particular.
You'll see a slight increase in custom revenue and a slight decrease in internal revenues, but nothing out of the ordinary.
I'll turn it over to <UNK>.
But just in general, he addressed the pricing issue and how steel is less of an effect in price [range] margins in the Utility business because of the escalators or de-escalators that are inherent in how we do contracts in the Utility business.
But otherwise, I will have <UNK> talk about it.
Hello, <UNK>.
The affect of competitive pressure is still pretty marked out in the marketplace right now.
So we do see the ability to continue to raise price as being fairly limited until the market becomes even more robust or there is more capacity taken offline.
We don't believe in our forecasting that, that will happen anytime soon.
So we are just working on what we control, and what we control is our operating performance, our pricing discipline.
And as you mentioned with new products, we have introduced a number of new products over the past number of quarters.
But the life cycle of products in the utility industry is pretty long, and so it takes a while to get traction.
But those products have gained good market acceptance over the past couple of quarters.
Good morning, <UNK>.
No.
There is not really a change in behavior that we see from rising or declining steel price to any major degree.
On some of the very small structures, there may be some stocking programs that they may time, but it is very small part of the business.
From the project base business, with the timelines and again with our overall structures only being about 10% to 15% of the project cost for Utility, the bigger movers are in construction and right of way issues and not really our product costs.
So it tends to be minimal.
<UNK>, this is <UNK>.
I don't think it has changed very much.
I can't give you the exact numbers, but over time we have been one-third new development, one-third conversion, and one-third replacement.
And when corn and other commodities were very high, the new market portion of it approached 50%, but I think it is settling down to the more traditional combination.
Internationally, as I said, the international market has actually been performing better than what I would have expected.
We have good activity levels throughout the world, and we have actually seen good ---+ surprisingly good ---+ activity in Brazil, which is a country that is dealing with lots of both economic and political headwinds.
But FINAME financing and the general robustness of agriculture there has performed better than I would have expected.
Hey, <UNK>.
We have had very good relationships with virtually all of the major utilities that are in North America, and so we have also noticed how the mergers and acquisitions pipeline has really kicked in.
What we tend to see is very different each merger by merger.
One may leave a unit to operate independently, and so therefore we see no change in behavior.
In other cases, they will consolidate the purchasing groups, and in some cases we may have to re-bid an alliance contract.
But we have been successful in maintaining all of those through this process, and we have been competitive and be able to keep those customers.
So it does vary, and we will just keep an eye on it.
We know that we can be competitive, and if there really is a push to try and get new prices we feel we are capable of handling that.
I think the answer is yes.
The answer is yes.
I think that the Irrigation business over decades, because they have always been cyclical and they have been very good at adjusting cost to market conditions without cutting off investments in the future.
And I don't see us having any major restructuring as a result of a continued weakness in that market.
We are actually surviving through this downturn in much better shape than I have expressed my concerns about on previous calls.
Because even though pricing is competitive, we have been able to offset some of that competitiveness with better productivity, better supply chain management, and until now, also lower steel costs.
So I think we will continue to probably do a good job in doing that, and I don't see, apart from constantly looking for cost takeout through operations, I don't see any major restructuring coming.
Yes, <UNK>, we have seen a couple of the RFQs already come out.
So we have already bid a number of those.
There is expectations of awards later in the quarters, the third and fourth quarter.
Then there is a couple of projects that are later in 2017, and we have not yet seen those RFQs come out.
Although there is a lot of discussion with those customers at this point.
As was mentioned on some earlier calls, one way to take out capacity is to adjust your shifts and the number of stands that you man.
And so the combination of taking out the facilities last year as well as then adjusting shiftwork, really allowed us to tune in our capacity to match demand.
And we continue to do that now as we add capacity back in to meet this increased production.
It is really being done in the existing facilities by just changing shifts and adding people to stands.
From a competitive perspective, we have heard a number of our competitors basically doing the same thing, albeit it lagged a little bit to our own activities.
It is really just along the historical trend line.
We always were successful in capturing a certain percentage of those large projects, and then a certain percentage in the bid market as well.
And so they are nice to have projects because you can tend to tune your capacity and your engineering and drafting resources towards those, so you get some efficiencies.
But from a revenue perspective, if it is really at the historical trend, it would most likely be relatively flat.
Okay.
I will just answer it on a general pattern.
FERC 1000 was intended to create a competitive market within the utility transmission industry.
And to that end, I believe it has been successful and really is now baked into the mentality of almost all of our customers.
So even if a customer has not had a FERC project, their Boards would have challenged them to go out and analyze their costs, benchmark it across the industry to make sure that if there was one in their service territory or they wanted to go out and get it, that they have the ability to do that.
So you saw all of the customers really take a hard look at cost, their engineering specifications, what kind of selection of product meant for construction costs.
And so part of our broad array of products is to help address that market in any which way that, that customer believes they can be competitive in the marketplace.
There was at least an initial movement towards lower voltage classes as people work through the idea of having to get competitive before going into some big projects.
But I think what you see now is really a settling down in the market and a new normal that is just going to be a competitive marketplace, and you're going to have to provide value and good costs.
And I think we are in a good position to do that.
