NX
#It's actually ---+ in both cases, it is taking market share.
As we said before, we're relatively new in that market with new technology, and we continue to slowly gain share.
So, in both cases, we're outpacing the market.
Morning, <UNK>
Good morning.
So, the pricing story is a double-edged sword.
The good news is we're getting good margin expansion in a year where we're not getting price from our customers.
The bad news is we're not getting price.
And in some cases, as the numbers would show, we're actually making some minor price concessions in some areas.
My belief is that we will start getting price in 2017.
Typically, we start negotiating prices on a calendar-year basis, not our fiscal year, and we start doing that in the final calendar quarter of the current year.
So, we've known all along, and I think we've been clear to lay down expectations that, while we'll get volume growth, we'll get margin expansion, we will not get price in 2016.
That's exactly the way the year is turning out.
We'll be going into price negotiations with many of our larger customers in the last calendar quarter of this year.
And my expectation is we will get price, but in the low single-digit range in 2017.
And that because we're at the far end of the food chain here, and everybody else in the chain has been able to get price in 2016.
We continue to see strong data that house prices are increasing.
Our customers, we know, have gotten price increases almost across the board.
It hasn't trickled down to us yet.
Next year is the year for that.
Not really.
As you can see, 10% growth in the aggregate here, and low double digits for HL specifically, would indicate business is still pretty strong there.
I think the economists would say there's been some slowdown in capital investment, some slowdown in new construction, but not significant.
And, of course, new construction is not a big part of the UK window business.
So, I think the reality is we have not seen any material slowdown or hesitation at this point.
And of course, three weeks from now, we'll have the answer anyway.
Yes, it definitely is, because the first half of the year was a little stronger than our expectations.
As you know, <UNK>, we typically have a significantly stronger second half than the first half, and we've planned and budgeted that way.
So, most of this expectation really is because the first half came in a little stronger than expected, and mostly on the margin improvement side.
At HL specifically, we still have some room to move in terms of capacity there.
We added some capacity early this year that was already in the works when we acquired them, so we're in pretty decent shape there.
Our European operation is getting close to the level where we may need to think about an expansion there as we get into 2017.
Still very early ---+ not an issue right now.
But relative to the US, capacity utilization in all three operations there is significantly higher.
Look, as we continue ---+ if we can continue the growth rates that we're seeing throughout Europe, I think we'll continue to see some margin expansion because of leverage in those operations because we're getting to a level of capacity utilization where leverage could start becoming meaningful.
So, I do think we'll see improvements in Europe as we go through 2017.
It is a different dynamic.
We have had price increases there ---+ not this year, but in prior years.
And a little too soon to talk about what may happen in Europe in 2017.
It's really the US we're focused on, in terms of price.
At the time of the acquisition, we had targeted end of this fiscal year, early part of next fiscal year for a potential refinancing.
That being said, we are always active in looking to see if we can do something sooner, so we're definitely looking at that now.
As it relates to priorities, clearly focused on paying down the debt.
It does not, by any stretch, have us on the sidelines related to acquisitions.
That being the case, if we were to do something in the near term, more than likely would be a smaller, bolt-on to an existing business, ideally something with some cost takeout, but really stay laser focused with paying down the debt.
Typically in Europe, the dynamic of putting through a price increase and not getting it to stick ---+ that's not as common there at all.
Because, keep in mind, we have two product lines there that are still growing market share in the early stages of their evolution.
We have not been particularly aggressive from a pricing standpoint, and I still believe that's the correct strategy.
We're still actively trying to get warm edge Spacer to be used on a more frequent basis in Europe, hence, outgrowing the market.
In many respects, a similar story at HL.
That's an old business that's new again, and they continue to grow their market share.
And if you recall, their growth rate prior to us acquiring them was extremely large.
I think 50% over the prior three years, again, because they're re-entering a market, and that's not the time to try and put through price increases.
In addition to which, as you can see from the information we've given on the segment, margins are pretty decent there anyway.
We don't have to raise prices.
We're happy with the margin profile as it is.
In North America, legislation continues to move at a snail's pace in that direction, but not aggressively so.
In Europe, because energy costs are so much higher than they are in the US, legislation there continues to strongly favor our current product lines, hence, the disproportionate growth rates to what you would consider general economic conditions in Europe.
So, legislation unquestionably continues to drive more energy-efficient windows in Europe, and we're benefiting from that.
We are not seeing that to any significance in North America.
Thanks again, everyone, for joining the call.
And just to sum up, we clearly had a very good first half.
The stage is set for a strong finish to our fiscal year, and we expect to continue executing on all of our operational initiatives.
Based on the current outlook, as you've seen, we've increased guidance for 2016.
Next, hope to see you all at our June 29 investor meeting at the New York Stock Exchange.
Thanks for joining us.
