KMT
#Good morning.
I am going to let <UNK> answer that question.
He is closest to it.
Sure.
In our industrial business we get very good access to inventory information at our distributors in Asia and very strong support from our distributor customers in the Americas in the form of point of sale data.
We did see a slight amount of destocking in distribution in the quarter for industrial.
I think about $2 million versus over $20 million in the first half.
There has been a significant reduction more positive for us as February and March that was definitely nearly zero.
We have very good data that shows with our sales into the channel was being supported by the sales of our customers into the end markets.
You know I think the aggressiveness in the company needs to start this afternoon.
It is always going to be this afternoon.
We are going to keep the pressure on improving the speed of execution in this company every day.
So it will take some time to get the new organization in place effective.
Although I think less time than people think because I think it will be a very natural transition for the organization.
How long will it take us to get to double-digit margins.
That is a really good question.
I am not going to be able to answer that question for you today.
But I think double-digit margins are clearly possible with our existing revenue base about where our existing revenue base is.
Whether or not I can pull that off in 2017 with a lot of the changes underway, we are going through our planning process right now and I probably would say that is a hard road to achieve because I have got to recover wage increases, I have got to recover bonuses that weren't paid in 2016, and we have got to recover some additional costs that are embedded in our organization.
So I have got to offset those.
So it will take some work to do but certainly it is not that long but we are going to be working on trying to get there as quickly as possible.
Let me answer the latter part and I will turn it over to <UNK>.
It is my desire and I think it is the company's view that we really can capture a lot more business among our major customers.
We have the top 100 customer list.
That top 100 customer list is a great list of tremendously successful companies.
We want to build our share of wallet among those customers.
If we do that I think whatever dislocation that there might be by shortening our product line, making changes in our manufacturing operations a little bit, I think we can more than offset.
So the first part of the question I think, <UNK>, I will turn it over to you.
<UNK>, we have set a goal to move the majority of these smaller customers to an indirect model within 12 months.
We have already started the process and have already met with customers to start this discussion.
But again the customer in the end will help us make the decision on how they best buy, what the best model to service their business is.
There are some very loyal customers that utilize our engineering services.
They utilize custom solutions and much of their buy that are sub suppliers to those very large customers that <UNK> talked about that we are going to begin to focus very heavily on, that will continue in a direct model even if they do buy lower amounts per year from us.
This isn't a one solution fits all.
We have already begun to meet with our bars and our large national chain here in the Americas and they support this initiative completely.
So we have jumped into starting the process probably in the last four weeks.
I am not sure we are going to see our inventory metrics change a whole heck of a lot in the near term.
We have got to get some raw material efficiency in our organization.
We have taken quite a bit of inventory out of our company.
I want to get our revenue growing.
If we get our revenue growing I think our efficiencies will drop to the bottom line on inventory.
<UNK>, many thanks for that question but we do not provide forward looking information on that so we will report obviously as we go through the year 2017 on those numbers.
Obviously you can back in to it but ---+ because most of the information is available to you.
I would like to not comment on it as a percentage of revenue and more just in the range of about where it is today for now.
If it goes up a little bit it will go up $20 million but it is in the $130 million to $150 million range.
We will continue to focus on collecting our receivables faster and making sure the inventory turns faster and extending our payables.
So this is a continued focus from the company.
We will try to move our working capital lower but obviously depending on how the sales numbers evolve there may be less or more progress.
The way I would answer that is, a lot of our future free cash flow is going to be driven off of the amount of progress we are making on profit.
Alright, <UNK>.
Thank you and I appreciate everybody's participation today.
We have probably gone a little bit longer than the company normally would.
Please follow up with <UNK>, <UNK> <UNK>, myself, <UNK>, the rest of the team.
We appreciate your interest in Kennametal today.
Thank you.
