AIT
#Yes, <UNK>, on the foreign currency things, for the most part within each of our countries, we are buying our product from our suppliers in local currency and then selling it in local currency.
That's not 100% true because we do have some currency losses through translation-type items.
But for the most part, if they are operating within their own countries in local dollars, we're not hedging that.
Let me start on that a little bit.
I think within the sales guidance numbers that we have, our perspective is that our sales-per-day run rate, which is $10 million a day in the September quarter, is going to stay relatively flat for the remainder of fiscal 2016 with the opportunity for a very slight improvement.
But there's ---+ that improvement may happen, let's say, in the third and fourth quarter as we get more traction on some of our strategic initiatives.
But we don't have a big hockey stick or anything on our sales guidance numbers.
So with that, our view is we're going to manage the business as the markets are presenting them to us today in an aggressive way.
And then with that, maintaining our gross profit percent strategies and initiatives and our cost savings or cost management initiatives should be able to take that sales number and convert it into the EPS guidance number that we have presented today.
What I do have is I know this quarter compared to year ago, our ---+ for the oil and gas subsidiaries that we owned a year ago at this point in time, our overall sales are down 50% from them.
And like we mentioned in the call ---+ or I think <UNK> may have mentioned in one of his comments ---+ for the oil- and gas-focused subsidiaries that are serving producing-type wells, we've seen some stability in their sales over the last several months.
And their sales decline is smaller than the subsidiaries that are focused on drilling-type customers.
And they have had a much larger percentage that more closely mirrors the reduction in rig counts.
But for them, we've seen some stability as well with their numbers because the rig count has been down for so long.
Until we get to December 31, our year-over-year comparisons with our oil- and gas-focused subsidiaries are going to be difficult.
But starting in, I guess, near the beginning or mid-January is when we saw our sales numbers with our oil- and gas-focused subsidiaries turn around in a negative way.
So our comps for the rest of the year will be more modest.
Yes.
I would say overall, I think 13 of the 30 would be up, so you can do the reverse math.
The obvious headwinds ---+ challenges around the energy markets ---+ both oil and gas and mining ---+ I think also in metals and some of the OEMs, providing or feeding into some of those segments, so that group.
I would say positives would be around aggregate food, lumber and even automotive.
So those would be more on the positive side.
I think the short answer is yes, that we do.
Obviously with our guidance coming down, our perspective on net income is coming down a bit.
But our view is we should have solid cash provided from operations each and every quarter as we march through fiscal 2016, and then it should exceed it.
When I take a step backwards and I look at our overall cycle of cash provided from operations, the first six months of any fiscal year is when our cash from operations is more modest than our second six months of the year.
And some of that reason for the modest numbers is, hey, we've got to pay our federal income taxes a little earlier with our estimated payments.
Uncle Sam makes you pay more up front.
And so that impacts cash from operations earlier in the year.
And as well as some of the incentive plans that we have; annual plans that we've paid out in the beginning of the current fiscal year.
So those have a natural cycle that provide lower cash in the first half of the year but then a little bit higher cash in the second half of the year, which is sort of our normal perspective.
I don't really have those.
<UNK>, maybe you want to lead off with a little ---+
Yes, I think our 8.6% year-over-year sales change that we experienced for the September quarter ---+ we are seeing a similar situation for the month of October.
And <UNK> mentioned on the call that our run rate from the month of September to the month of October is down about 2%.
But I think our view on the sales numbers is still similar to the 8.6% down.
Let me start on that.
I think in this current quarter, our fluid power business segment had a greater sales decline than the service center-based business segment.
And I think from the fluid power perspective, just like when we look at the major manufacturers of fluid power components, when they are looking forward into the fluid power market and they are seeing that the downturn that they've experienced is going to continue into the foreseeable future, I think that's what we're seeing with the fluid power guys.
A year ago ---+ and we've been talking about our increases in fluid power sales and had seen that for many quarters, even throughout fiscal 2015.
And now we are seeing the decline that the manufacturers have started experiencing six or so months ago.
So I think when we look forward with that, the fluid power business segment, we will see a continued challenging environment for that.
Yes.
And <UNK>, I would just add with that, it's going to be a challenging environment.
I think we see it from the large suppliers going forward.
I think with that, if we look back and even at the current results with some of the industry forecasts and such, we are performing better.
It doesn't necessarily feel better with the result, but we are.
And the teams are working very closely with many key OEMs on adding more technology into these solutions.
So we think that will help us in a slow softening environment.
No better time to work on designs and their product offering when there's a little bit of lull.
We wish not to have the lull, but it creates that opportunity.
And what I'm impressed with our fluid power group on two fronts.
They are continuing to be very aggressive on that, but they are also being near-term accountable to their costs in these environments as well.
I think I touched on them a little bit earlier.
I would say ---+ I think, one, we're just bringing better focus, better rigor around price and price variation.
So if we can reduce the variation across products and some customer groups as we go through this, that's different and that's helpful.
The teams, especially in our service center-based businesses, have a focus on current customers, many large ones, but also a very good heightened focus on local accounts.
So that customer mix is helpful.
And then as we go through and look to expand our product offering and our solutions around services, that's helpful.
And in consumables, which right, those products have a typical higher or longer margin.
So the better we do at that, that helps us in the overall gross profit.
So it's no one thing, no one easy lever in these.
It's a host of activities.
But I like we've got progress; I like that we've got momentum.
And that's why we believe it continues throughout ---+ even in this environment throughout the fiscal year.
Yes, I would say our pipeline reflects our business, so they will be core bearing and power transmission.
There will be fluid power opportunities, and they will be maintenance supplies and solutions, consumables in that.
So our preference would be to be active in all of those.
And I would say with that, we would expect them to be in our served geographies as well ---+ where we operate today, not extensions into new geographies or play.
This is a ---+ many North America opportunities in that, and so those are the ones that we would be pursuing.
But I want us to be active in all of those areas because I think it's helpful and added to our business, and I think we are proven to be very good from the acquisition standpoint to the companies coming in.
I think ---+ so, oil and gas that you mentioned, probably <UNK> can lay out a little bit on currency.
But I think if we continue in some of these patterns, FX will be less of a ---+ less of a drain in the back half of the year and do it.
And so, hey, we think we are in this environment.
We know it.
We can't make the market, but we can respond to it, and I think that's what we've done from a cost accountability standpoint.
But we are also responding to it where we see market opportunities.
They may not turn into perfect incremental growth as we go through, but we think it narrows some of those headwinds that we're going to be having.
Yes, I don't know that I would agree with best guess, but ---+.
So I think a couple things.
In operating in break-fix MRO, we're not perfect predictors, especially out of the service center is what's going on.
But higher activity in those segments, higher-capacity utilization, those things are helpful.
In bearings and power transmission, the OEM is doing better is a segment.
They are big consumers of those products.
That is helpful.
And so I think as we went through, we knew we had challenges to start the year.
As they continued into that first quarter, I think they just ---+ they developed more.
So from our perspective, we think we have those accounted for.
We're not overly pessimistic, nor are we overly aggressive.
And while these are our guidance, our teams are working very hard to do better than that.
I don't have the exact number, <UNK>, in front of me, but I will tell you that we do expect operating inventories to come down and our turns to improve as we march throughout the year.
I just don't have a number for you here.
Yes, <UNK>, this is <UNK>.
I would say no real closures.
We've taken the opportunity, like we usually do or annually do, to look at where the end markets are and do we have the opportunity for consolidations.
And so there would be a modest number of those that we would But there is not a radical change in footprint.
I think <UNK> said that we expect there to be some expense in the coming quarter, the December quarter, around severance and such to be coming through.
But all of those then will help that SG&A rate continue at that sequential movement going through the fiscal year.
No, it would mainly be there, and the leaders of those businesses are experienced.
They have worked through many cycles from greater than four to as many as seven or eight.
So I guess I would ---+ our focus, my focus on those would be they're an allowance.
We think that's prudent, but it is not our plan for those to materialize.
Yes, I would say it's got that into account.
But also as we work closely with our customers, some will or contemplate some added timeout around the holidays for adjustments of their production to what they see as their demand environment.
We know in some of the other segments, and we reference them being up, some of them are going to work clear through.
So that's factored in.
There's also the opportunity, especially when we have projects with customers that are around productivity initiatives to kind of help their ongoing competitiveness.
The little longer timeout does create that opportunity for that work to fit in.
Now, will that overcome added time being out.
That's to be determined.
But we expect some to take more days off around holidays in the calendar year end, but we already know they are ---+ there's works and plans underway for some of those maintenance projects and capital initiatives in those times.
I think the short answer is no.
Obviously supplier support is a critical component for us with their gross profit percent, and we continue to work with them on that on a daily basis.
Yes, <UNK>, let me start with this.
We do not expect to have any LIFO layer liquidation benefit during fiscal 2016, so there's nothing in our numbers that would have a boost from that.
So we think the gross profit percentages that we're talking about is just core operations from that view.
Regarding supplier support, we expect the supplier support to be relatively stable year over year from a gross profit percentage perspective.
We don't expect to see a big boost or a big decline from that.
So I think that's just business as usual.
Yes, I would say that that's a ---+ would be about maybe 1% of revenue on an annual run rate type of a thing.
So, little over 1% would be my guidance on that.
Yes, <UNK>, I would say our gross profit percentage view is the same as what we've had before with this improvement that we accomplished in Q1 and what we expect to accomplish.
And I would say our view on the SG&A is that we are able to make sure that we're making the appropriate moves to deal with that.
So for instance, if you look back on our conference call that we had in August when we were trying to project out on some of our SG&A going forward, at that point time we said, hey, in Q1, we think SG&A might be lower by $5 million versus prior year.
Well, we ended up being $8.8 million lower, and we layered in a small acquisition on top of that, too.
So we were able to do a little bit better.
And so when you think about SG&A, when you think about planning and for the guidance for fiscal 2016, with higher sales levels we are ---+ we did plan for, let's say, additional positions and headcounts that are not going to happen.
So the moves that we make on SG&A for headcount is not just trying to not have replacements and folks leave, but it's also to maybe work with ---+ and not have ---+ and have fewer open positions, I guess is what I would say.
Let me start on this one.
I believe we have a guide of a run rate from our oil and gas folks to be relatively stable.
Obviously no snap-back for an increase, but no real major decline either from what they have been experiencing the last couple of months.
<UNK>, I'd say ---+ I was just out with the teams and the business units all across Texas a few weeks ago.
And so we would agree in the fiscal second quarter towards the calendar year end, it's likely what we're in now; maybe a little softer.
But there is variation in that.
And obviously the ---+ still the upstream production guys doing a little bit better in comparison.
There's a fundamental belief including with customers that I meet with and talk with as well, they think that the first quarter is slightly better.
Obviously no snap-back, but they think there will be some more activity as they are looking at consolidating from where they were producing to where they will continue to produce.
So we think that creates a little bit of work.
There is some weather seasonality and reliance side of the business on the maintenance side.
They will see a little bit of benefit of that in the third quarter of the fiscal year.
And then we think the fourth is the sequential carry-out.
So we do not have a big improvement.
We think there's a little variation around Q2 and Q3 in those timings, but that's what we have in.
<UNK>, obviously we would prefer to be investment-grade, which we have been and have always been.
Investment-grade gets you up to a 3-to-1 debt-to-EBITDA ratio.
We are currently tracking about, I'd say, 1.7-to-1 ratio.
And so we still have lots of room to go to potentially add some debt to do additional acquisitions.
I would say when we look at our short-term interim-type goals for that, we would feel extremely comfortable being closer to 2 to 1 on a debt-to-EBITDA ratio for acquisitions.
And obviously we're not scared about going over 2 to 1, but we feel that we have a very conservative balance sheet and we have lots of capacity to expand the business through debt on acquisitions.
I think there's opportunities for that, yes.
Hey, I want to thank everyone for taking the time and joining us today.
We look forward to talking with and seeing many of you throughout the upcoming quarter.
