FELE
#Good morning,
Good morning.
Yes Ed, I would say that any region where we have a concentration of groundwater pumping equipment, so that may be is more cross mix than it is geography mix, but our Asia-Pacific business is a highly profitable business because it has that concentration.
Generally our European business is highly profitable business because it has that concentration as well.
So any of our geographic region that have a greater concentration of groundwater versus surface equipment where the Company has discussed in the past is more vertically integrated from a supply chain perspective, are generally going to be more profitable and have higher margin than those that are more concentrated in surface pumping equipment.
As we discussed, it has been ongoing for several quarters.
Europe is flattish.
We say that in the Middle East it's hard to get a record of current local currency that's been impacted by the strengthening dollar and the weakening Turkish lira.
Where we see in weakness been in the Gulf region, particularly in Saudi, we thought we would start seeing sales actually kind of back half of the first half of this year, it just did not materialize and it's clear that Saudi is reducing infrastructures spend, splitting over to couple of the other smaller countries in the Gulf region as well.
We're just not seeing infrastructure spent.
We are beginning to see some inquiries as we're coming into the back half of the year particularly (inaudible).
That's tough to call.
<UNK> do you have a point of view on that.
They are very much intertwined.
Certainly war has impacted us in the near and Middle East.
The oil situation in Saudi has been, in our opinion, relatively stable, but the oil prices are killing their economy and they do have cash, quite honestly, to spend on infrastructure and other development.
Broadly, as we have discussed several times, and we have very large replacement component, that exists throughout the globe in our water business.
It's a very large replacement markets generally, that is why availability is so important when we have products out in regions (inaudible) to have products closer to the customer.
As we look at that from a broad point of view, we would say that it's more related to economic factors, weather conditions, and overall GDP growth.
We would expect in that region, if you see some stability in the environment, that we would expect to see improving sales.
I think the oil price has worked its way through the region, say the Gulf, as we go into 2017, our comp obviously in Saudi would be easier and around the globe for those areas of the globe that have trickle-down effect of the lower oil price, we should see easier comps going to 2017 has pretty much worked its way through our sectors.
We haven't historically.
I think that as we look at the fourth quarter, on a total fixed cost basis which would be both SG&A and the fixed cost that is in our cost of goods sold, I think, we're thinking something pretty much in line with the third quarter.
In total number was $79 million and in the third quarter we think it will be $79 million to $80 million in the fourth quarter.
The big point that happens in the fourth quarter as you know is we can really lockdown some of the compensation of reserve balances of the fourth quarter as we get much clearer picture of where we are going to be to some of the targets.
Last year in the back half of the year, we were actually lowering those types of reserves but this year the back half of the year we are actually increasing those type of reserves so that becomes a meaningful maneuver for our back half and more specifically for the fourth quarter.
That is correct.
We are expecting growth in the fourth quarter in fueling and our international markets.
Yes.
To respond to the first part of your question, we saw a push out of orders in India which we expect to see going into Q4, we saw some push out in orders in Australia and the Asian market more broadly.
We expect improvement in Q4.
We will have a little easier comp on the underground floor, it's not a major part of the business, but the margin was part of the sales falloff with North Sea oil production coming down before last year so it will be a little bit easier.
We generally just see a little breather here to see if international we expect to see that start picking up in Q4.
With respect to your question about competitive dynamics, again, the consolidation effectively is in a dispensing stage, which we do not plan and it has yet to actually occur.
I think the acquisition of (inaudible), I believe their pending acquisition is still subject to review by authorities, so certainly there is no consolidation yet that occurred and it's in dispensing state which we do not currently operate.
Sure.
We continue to get steady organic growth for the US market.
We continue to gain traction with our products and you can look at the change on payment systems as being somewhat of a double-edged sword, on the one hand it diverts capital to do that change out.
On the other hand, if you look at, there was a major upgrade of other ground tanks in the US market back in the late 1990s.
And that is when many of the stations were refresh at the same time when we put in double wall tanks in the 1990s.
Those tanks are all, those stores are all now15 to 18 years old.
I think you're just seeing as you point out a general refresh and people looking at payment systems, putting in expenses, doing kind of ground-up restoration of stations, moving stations because stations that were built 20 years ago may not be in the right areas for where the population is today.
And so you just barely see a ---+ it's been a good stable market for us.
We are continuing to gain share.
Our approach to the whole system package, we can deliver an underground package to a customer that is complete for the tanks, the dispensers.
So it has been generally favorable conditions for us and we looked into a trade show and it was an upbeat show.
Sure, <UNK>.
On the residential, our business was very strong East of the Mississippi which is where you have the majority of residential pumping systems.
We have a strong distribution base.
We are recovering some share we lost and we are building share based on new product introductions.
We have had a refresh in our drives and our new center of connect and generally Franklin is more visible in the marketplace and it's paying off.
When you look at agriculture, you point out, agriculture West of the Mississippi, we've got rains which precluded probably second growing season or that second irrigation season where we often see in the central region of the country.
Certainly the wet weather has improved the climate in California with reduced drilling activity in California so we see generally West of the Mississippi is a softer environment.
But as we talked before, we have a large replacement for business so even again with comp rates where they are, with what are conditions, we had a positive year-over-year comparison.
Well, we saw in the quarter about 80 basis points of improved rights over last year's third-quarter on a consolidated basis.
All of that was in water and almost all of that was in our international units, including in Brazil.
The price, environment in North America on the water side remains very difficult and competitive and our price in fueling in the quarter was down from last year as well.
So as we look to 2017, to answer your question, I do not think our expectation is going to be too different from what we historically put into our annual operating plan.
I think it will be something in the 200 to 225 basis point assumption.
We are optimistic that we will recover more in North America as we kind of get through this agriculture situation which is weighed heavily on price and we are confident in many of our international market stability to get price.
So I would say if anything versus what we normally would be looking at, this time of year, maybe it's backed up 25 to 50 basis points, something like that as we look at 2017.
I mean, North America water is still very competitive.
We're happy with the growth we've had there but it's a very competitive end market.
A lot of that will depend on mix and realized price, <UNK>.
What I can say to you is as we look at the fourth quarter on a input raw material costs, we are still expected to see in a deflationary position versus last year's average price.
But it is going to be a tighter one than what we have experienced so far year-to-date or experienced in the third quarter.
In terms of 2017, and we have not fully vetted 2017 from a full margin perspective, and it's better to leave that to another day when we can talk more candidly about our guidance there, but I think the key moving parts are we still expect that we will get some raw material benefit.
For example, we look out at our full purchases of copper and other steels, we feel pretty good about where we are at on some of that.
But mixed as I said, we will plan for the role in that as we will achieve price.
Hello, <UNK>.
Really, we have distribution in place across the country that we need so really that is 2015 type news in our mind.
Clearly with the achievement on the residential side and broadly east of the Mississippi, I think we're getting good traction and I think it is also a reflection of the product development we have had as well.
Yes.
We do not hear a lot about real expensive inventory levels, <UNK>.
I think the channel inventory level as a core groundwater distributor market in North America are not bad.
They are about right.
So yes, I think there is the possibility.
We're certainly expecting growth in the fourth quarter in our core water business in the US.
How much growth is the key question.
I think there's a possibility those distributors could be reaching for some of their year-end incentives, so that gets all in play as we move though this quarter.
It is not baked into the guidance.
Our distribution in the Southeast could be better than it is.
There is still again ---+ for the pump growth companies, the fuel aquatics, while many of those pumps that we sold were fracking they redistributed those pumps to other locations.
So I wouldn't think we would see much of the margin, we haven't heard a lot from our guys on that.
There was a little bit of construction for groundwater business in the Southeast, obviously.
We lose power and the ability to get in to do the normal work.
That now appears to be behind us because people have moved back to kind of a normal business here and certainly in Florida and I expect the Carolina's to follow.
What I would say is not a ton of change.
It's still, it's not a very good outlook.
Let's put it that way.
I think if anything, it's marginally worse for us now than it has been.
What we're seeing is our large rental customers still dealing with a fleet that is in excess of what they need and trying to manage through that.
We are busy, our intention is to find new outlets and find new distribution capability that we can tap into.
Our business in that area I would not say looks much better.
What we've been doing, we've been refocusing activity to other channels, more industrial so we are expecting Pioneer to have a higher top line next year than this year.
You're speaking, I believe, of Centera as divestiture, their business, where we were directly aligned with them is a relatively small part of their business.
The competitive nature of the North American market to really be similar to where we are now, I do not expect it to change much with the decision on divested valves.
Outside the United States, we really don't run against Centera in very many markets.
Because of our more groundwater focus in their focus in other areas.
Let's be a little clear though that the pricing environment internationally is also highly competitive.
We have been able to see price in areas that are seeing a fair amount of inflation.
Exactly.
Right.
Thank you for joining us today and I look for to speaking to have our fourth quarter and the new year.
Have a good week.
