CIR
#So I think that ---+ yes, we came into this year thinking global CapEx spend would be down around $20 million.
I think we are optimistic that it would be $15 million earlier in the year and I think we've kind of concluded it's around $20 million this year.
We are in the middle of budgeting for next year right now.
We're expecting it gets worse next year, probably an incremental 10% of CapEx down again next year.
At least that's how we are thinking about our budgeting process for next year.
If you think about the short cycle business specifically going into next year, we're assuming ---+ right now, we're assuming at least early in the year that the market is ---+ we're not going to see a recovery here in the short term.
We'd expect to see the run rates ---+ the run rates that we see out of our distributed valves that we are seeing now we do expect to continue at least into the first half of next year.
So we actually have ---+ we actually track this pretty closely.
And if you look at the average time it takes from when we quote a project and when a PO is issued, we've seen that creeping up.
I would say moving up pretty deliberately over the last two quarters.
Our win rate has not changed.
We are more ---+ when you look at projects that are decided and projects that we win, it is more or less the same as it has been all year.
So we haven't seen a change there.
We are quoting smaller projects than we have in the past.
So more projects, but smaller.
And so I think from an individual project standpoint, we have not seen anything canceled out of our backlog.
So orders that were won, we haven't seen anything canceled yet.
That could happen.
I will say that it certainly could, but right now, we haven't seen a single order canceled.
And we're still generating pretty good quoting activity.
It seems to be just ---+ everything just seems to be moving out to the right.
Of course, we're not alone in that.
So it's both.
And keep in mind, I don't want to overplay this.
It's still a small base for us.
But it's a very profitable base, and we've done a couple of things.
One is we've invested in production capacity.
So we were running our MRO business through normal production ---+ through our normal production lines.
And the turnaround time was around 80 days.
We've driven that down to 28 days now, which is about the market expectation, and we expect to cut that ---+ actually cut that in half before the end of the first quarter.
So we've dedicated capacity to MRO.
And this is focused largely on the commercial sector of the aerospace business.
So the dramatic reduction in turnaround time ---+ we are seeing very significant growth off a small base.
We've also added a dedicated salesperson to that business who is out working with airlines and the Tier 1s to grow the business.
So we're pretty excited about it, but I don't want to overplay it yet.
It's still relatively small in the big picture for CIRCOR.
Let me just add to that, <UNK>.
A couple other areas that we're looking at from a growth perspective.
Obviously, if the Boeing and Airbus production rates pickup, that's helpful to us.
And then the new product development, we are continuing to focus on that, whether it's looking at new motor operated valves or attitude control systems, high flow regulators.
Those kind of products that we can drive into the marketplace.
So MRO production rates and then the new product development ---+ those are the three key ones.
Yes.
So right now, we are running a little bit about half of the business in defense-related sales, and that will turn as we start to ramp up on some of the commercial programs, in particular the A350.
But with that said, the key point to remember here is that as we sell our components that are vital to the particular system, we own the intellectual property and that allows us to drive the better pricing.
And what we are selling as it relates to the total system is a small piece of the puzzle.
So we are able to get very good margins off of that.
Now as we continue to drive for incremental military type of sales, you're right.
You start to run into the innate margin pressure of dealing with the Pentagon.
But right now, we make some good margins on some of the products that we sell into that space.
Sure.
I'd be happy to talk about that.
I am spending, I would say, a significant amount of my time on this now.
So as we've started to get the business on track operationally, I've been spending more of my time on M&A and more of my time on the organic growth side.
With respect to M&A, it's ---+ let's talk about energy.
We have a ---+ I would say a well-developed pipeline of opportunities on the energy side.
It's very difficult to say if or when something is going to happen, as you know, but we're having active discussions with a number of targets right now.
The targets span across the segments that we are in.
So we have companies that we're talking to in upstream.
We have a couple in power that could be interesting for us.
With respect to multiples, there's really no changes from a multiple standpoint that we are seeing outside of upstream.
But inside of upstream, the discussions are a little bit different.
I would say that if you are ---+ if it's a company in upstream, the starting point is still earnings in 2014.
But I would say that the discussion pretty quickly goes into the downturn and the outlook and being realistic.
So I think the upstream, we are starting to see changes in expectations on valuations.
The last piece that I would mention is that we are looking pretty broad across our product line as well.
We are seeing potential opportunities for our instrumentation and sampling business, control valves, and engineered valves.
All three of those ---+ there's quite a bit of fragmentation in these markets and some interesting opportunities.
With respect to aerospace and defense, we're still, I would say, early in building up a pipeline of opportunities, but we are active.
And we are out talking to companies and building relationships.
But I would say it's still early days there.
As you know, we've been more focused on execution in that segment over the last couple years and we are just now turning our attention to potential M&A there.
Sure.
We ---+ I will talk and then you can jump in, <UNK>.
I think we are ---+ the more we learn about Schroedahl and their customer base, and the more we integrate with our existing control valve business, the more excited we get about the growth opportunities that we have.
And you may remember, <UNK>, when we put our financials together for this deal, we did not consider growth synergies as part of the valuation.
But we are finding as we dig into this that that looks like that's going to be the biggest part of the value creation over the next few years here is being able to drive the growth.
So in addition to the auto-recirculation valves that we acquired with Schroedahl, they have an interesting and complementary product line on the steam conditioning valves and other control valves as well that work with our Leslie brand of products out of Tampa.
So we've trained up the sales forces on both sides of the business to sell each other's products.
We've had some pretty good success in North America so far in selling the automatic recirculation valve from Schroedahl into North America, which was a market they had no presence in before.
And we are having some success is well and selling our Tampa product through the Schroedahl channels into Asia.
So overall, we're pretty excited about the top line.
As far as the cost side, we are seeing some synergies on the sourcing with Schroedahl.
So we've integrated the spend, the purchasing from Schroedahl with our global sourcing group, and we're getting some savings there as well.
So all in all, we're feeling pretty good about the business.
And as you know, it's pretty high margin.
So for us ---+ it's very high margin.
So for us, the biggest lever here is to drive the top line.
And along those lines, <UNK> ---+ just to add a little color.
As we mentioned in our prepared remarks, the results from this business from an ROIC ---+ or return on invested capital ---+ standpoint are very strong and the cash EPS is also accretive.
So ---+ in year one, so we like that.
And from a top line ---+ we would drive a target of getting at least 5% to 10% growth in this business.
We have been delivering product on the F35.
It's just a question of going out of low rate initial production into the full rate production.
So same thing with the MM8 ---+ the P8.
It's really just a question of ramping that up a notch.
And more importantly, getting the orders in to the right period that we would expect.
So there's always movement.
More often than not, the movement is to the right versus to the left here.
But it's really more along those lines as supposed to new incremental business.
We have expected it to have started towards the end of this year, early next year.
But it feels like the F 35 is probably going to move a little bit into the later next year or potentially even into 2017.
And the P8s will be next year.
We've been talking about go in to 2016 rate, but we are pushing to make that for the full quarter, <UNK>.
The commitment we made was the going in rate, but we're going to try and do better.
Okay.
I would just like to thank everyone for joining us this morning.
Have a good day; thank you.
Thank you.
