POWL
#Clearly, the first quarter was burdened a little bit by project cost overruns on a transit project that wasn't anticipated and that we had ---+ our service revenues in December particularly was a little bit short of where we expected.
But when you're looking at the outlook for the balance of the year, particularly the next couple of quarters, the backlog is filling in and we are pretty confident on the short-term production requirements.
We have seen and are continuing to see operational improvements from an efficiency standpoint.
They were somewhat masked in the first quarter; we think those will start dropping through in the coming quarters.
And the overall outlook is still in line with the guidance that we had provided at the beginning of the year.
So we did have a couple of bumps that held us back a little bit in the first quarter, but overall, things within the business are shaping up fairly nicely.
The biggest challenge we have is the market conditions and making sure that we can fill in the backlog in the last few months of the year.
It's still too early to call for 2017, but clearly the pipeline is getting tougher.
Competition is getting stronger.
In general, I would say the projects ---+ while there are still several projects out there, a lot of projects out there, they tend to be a smaller nature.
So when you look at them in an aggregate dollar volume, it's harder to reach the numbers that we've had in the past.
But overall, there is still a couple of sizable projects that we expect to close in the current fiscal year and we think that we are in a competitive position for those, but by and large we are seeing more small projects than large projects when you're looking at the next couple or three fiscal quarters.
I'll bet the quantification of it ---+ it depends on how you ---+ where you want to draw the line on the issues, but there is a couple or three projects that we did incur some late costs, and in total I would say the pretax impact was in excess of $1 million, partly due to some rework that occurred late in a project, on the transit project.
Then we had ---+ with some of these large projects that we've been building in the last ---+ this past summer that are beginning to ship, some of these that we've been responsible for freight to site, and we were a little bit short on a couple of those relative to what we had anticipated in our planning.
So that gives a little bit of pressure.
Unlike, I say, the third item, which was more of a December issue than a quarter issue, was that service in December came in a little bit lower than we anticipated, which would have benefited us in the quarter.
But when we're looking at the balance of the year, we're still expecting that to be in line with the full-year expectations.
First off, I would say that we haven't exited any markets.
I would say that clearly we've been much more dominant in the oil and gas because of the size of the market in the last couple of years.
But when you're looking at the non-oil and gas markets, the activity that we're seeing, clearly we are participating and actually seeing, I would say, marginal improvement in market opportunity in utilities, particularly in the distribution side.
We've had some success there.
Last year, our fiscal 2015 exceeded 2014 at this point in time.
I would say that trend is likely to continue, that we think we will see good opportunities through fiscal 2016.
We've talked about it in the past.
We spent time and effort growing our relationships with utilities in Canada with the long-term goal of making that a secondary market for <UNK>.
We are having success there.
We've booked some business late last year, and when we're looking at the opportunities in front of us for fiscal 2016, we think we'll have more success.
Looking at the oil and gas, the oil and gas has not gone away.
We're still booking business in petrochem, we're still doing a lot of bidding activity ---+ or more budgetary ---+ in pipelines.
There's a lot of activity out there, but the question is which and how many of these projects will actually be funded in the near term.
But there is still ---+ I would say when you're looking at number of quotes by market sector, that's still probably one of the strongest sectors that we're seeing from a budgetary perspective for a quote.
But again, most of them are budgetary.
International, oil and gas is still stronger than I would say it is here.
We're seeing it particularly in the Middle East; we've booked some business.
And we're also booking some business in the Middle East in the generation area, so we're not fully dependent on US oil and gas, but clearly that is where the market is the softest.
There's not a lot of different; it's just more issues and more people to deal with.
This came on rather quickly, in fact, this downturn, and I don't think we quite saw it on a timely basis.
We had some difficulty in the implementation of Oracle systems, and that caused us to back up and not make some deliveries.
So we spent a lot of time on overtime and contract labor and so forth.
But we are getting back to the size that we can manage and prepare for the future more adequately.
It's the same ---+ it's a lot of the same people.
We've got the talent.
We've certainly got the energy to get it done, and I think we're on the right track and we will get it turned here very quickly.
The biggest issue is communications, getting people to communicate and getting communications between departments.
And we'll get there.
We're getting there now.
So, I'm confident that it's going to get better.
There's a number of initiatives that we're undertaking.
We're working with customers to improve those relationships and communications.
We're strengthening our partnerships with our suppliers.
Again, opening communication between employees and the various departments; greater emphasis on improving the functions of project management.
Certainly we're continuing to work on cost-reduction focus areas, and we're going to pick up the pace in research and development.
I'm confident we can get the job done.
<UNK>, clearly we are continuing to pursue cost-reduction activities, both from a supply management.
We're looking at it from an efficiency standpoint.
Our capital investments that we're targeting this year are all based on cost improvements, quality, and efficiency related.
So when you're looking at our guidance and our anticipated results, clearly we're looking for improvements in several facets.
When you're looking at the second half of the year, which I think you're looking at are we ---+ what requirements are we going to have to overall look at our size of the organization, it's too early to call the impact there because that's strictly going to be tied to the success we have in the marketplace.
And I would add an attitude adjustment helps.
I don't know that it will be more dollars; it will just be to expedite some of them ---+ some of the products we're working on more quickly.
Not more dollars.
We just completed our stock repurchase program in December.
Clearly, how we utilize our cash is something we constantly evaluate and discuss with our Board.
At this point in time, there is no authorization to have a second repurchase, but we will be evaluating the best use of cash over the coming year.
Hey, Thomas.
How you doing, buddy.
Thank you, sir.
Clearly, there are several small projects going on.
I would say right now when you're looking at the actual order flow, we're getting several projects that are coming in.
From a larger size projects, from a capital capacity standpoint, there is at least one project that we believe will be awarded this year, probably in the coming quarter or two.
And there are several others that are in the pipeline, but the others of any size, I think, will be falling into our fiscal 2017.
I don't see any others that appear to be close enough to be awarded between now and the end of September.
LNG, we've been fairly successful the last 12, 18 months.
We have several projects that are in our backlog.
There are other projects that we are currently working on.
Again, there is at least one that I think that may come to an award this fiscal year, but at this point in time, we have several projects in the backlog that will be generating revenues between now and the end of the fiscal year.
Down the road, I think it could from an infrastructure standpoint.
Clearly, it's going to take time to see exactly how the industry responds to that opportunity and where the demand is.
But when you start looking at increased exports, then you have to say there would be some opportunity for capital investments in export terminals.
It's an area we will be watching closely.
<UNK>, we're actually evaluating that and have been evaluating that now for a number of weeks.
Obviously, one of the first things you would look at is the contract labor, which is expensive and frankly not quite as efficient as our in-house people.
But at some point, we may be forced to look at our staff and certainly the workforce in the shop.
It's a difficult thing in our business because we are relationship oriented and our talented and very skilled and knowledgeable employees are not easily replaced.
But we will do what we have to do.
I wouldn't dare give you the magnitude or so forth at this point, but let me tell you we are on top of it and we'll do what we have to do to improve the outlook for the business.
Obviously, I'd rather be more focused on closing more orders, but if there are not opportunities out there, you have to deal with what's there.
<UNK> has been through a number of these downturns in our 70 years of business ---+ certainly, I have ---+ and we've managed through those very effectively.
Right now, our focus again is on strengthening our relationships with our customers, our suppliers, and certainly our employees.
We are making progress and I'm encouraged with the attitude and dedication of our employees.
We've got great people and thank you for joining us today.
We look forward to talking to you at the end of next quarter.
Have a good day.
