BRC
#No, I was absolutely coming at it from the perspective of less of an improvement.
Thanks, <UNK>.
We are not breaking that split out.
We have given you some guidance about growth in the past, and we will continue to do so.
But I will say this: we believe that there are typically step functions in change as you go from one model to the other.
They are somewhat based on technology changes, somewhat based on generational changes.
And so we do expect to see platforms of change or steps of change in the future as we go through literally the next decade.
And so you will see a continuing shift in models to a much more real-time interactive approach as opposed to a more reactive catalog approach as we go forward.
Right.
So we clearly continue to spend in that area and will continue to invest in that area, but as you noticed, we had to turbocharge it in the beginning of the process as we were converting a number of our sites and making some very dramatic changes.
I believe just a couple of years ago we were behind the curve in our digital resolve.
I believe we are now in some cases ahead of the curve, although we have a lot more opportunity.
So you will see us to continue to invest in this area, but we are not investing at quite the rate that we were in the past.
Yes, actually we did.
And I will actually just go right back to the script, because effectively our comment was that we expect our segment profit to be in the upper teens as a percent of sales, which of course would be a slight expansion over what we just saw this year.
Oh, no, it's okay.
Don't worry about it.
I just didn't want to misquote it.
Well, I think historically our second quarter is always our most challenging quarter for revenue, and that definitely has a margin impact.
So I would look at it from the perspective of we typically have a very strong fourth quarter, although as an overall company, in IDS we also have a reasonably strong fourth quarter; whereas our second quarter, because a variety of timing issues in our industries, is our slowest revenue quarter, hence our most challenging margin quarter.
We were making significant improvements that were able to offset that this year.
Yes, we continue to expect good results in our margins in the first quarter.
If you go back to my very first guidance, I believe I spoke about the need to reinvigorate our product development pipeline.
I also spoke about the fact that that would take an extensive period time, in the range of three years.
We are on track.
We are in industrial segments where new product development, and more specifically the revenue stream coming from new product development, takes longer.
The positive of that is the revenue streams last a lot longer.
So once we do invigorate that pipeline, once we do start developing those streams, which we are, it will take ---+ it will have a longer-term benefit.
I will say that we did not anticipate the challenges at this point from the overall industrial economy that we are having.
And I am pleased that we are able to overcome those, but there is no question that the economic environment that we are in today is a challenging one.
The good news is despite that, I think you have seen some changes and some turnarounds in the area particular of a WPS, but overall in our approach.
And some of that comes from a better focus on what we are really good at, and some of that comes from the fact that we are creating a stronger, more exciting product line that ---+ I think you're going to continue to see more significant results down the road.
But it is going to take a while, as I have said.
Correct.
<UNK>, you hit it on the head.
We continue to expect our efficiency and effectiveness efforts to garner improvements in our profitability, but the most significant factor, we believe, in the longer-term that is really going to impact us in a positive way is the innovation initiative that we are in the middle of right now.
We are very excited about the products that we are working on and the opportunities that we are working on.
But those obviously take longer.
And as I mentioned, looking at that longer-term horizon, you're going to see, therefore, a bigger benefit from those.
And given that we expect to those products to garner better margins being newer products for us, that should have a very solid impact on our earnings.
<UNK>, I will handle that question.
So the first part of your question, with respect to G&A expense being up in fiscal 2016 versus 2015, that certainly is true.
And there is really two primary drivers ---+ actually, two primary drivers offset by one item.
First would be our equity-based compensation, which you can see is up this year versus prior years.
And it is not that we have issued more equity.
In fact, that's not the case at all.
It comes down to the fact that in prior years, we actually had some reversals due to turnover in executive team, et cetera.
So that's a piece of it.
Another piece of it is our bonus expense is actually up this year as well.
As you know, in 2015 the bonuses were pretty ---+ I will say modest, but basically nil throughout the organization.
And a piece of that has come back.
And that has been offset, at least partially offset, by the efficiency gains that we've been talking about that, like I said, have clearly now garnered some traction.
So that's the reason that G&A expense was actually up slightly in 2016.
And as far as F 2017, I don't want to get too granular with respect to that level of detail what we expect.
Now, switching to the normalized SG&A, so looking out into many, many years, so the hypothetical question that you raised: I really struggle to answer a question like that, to be quite candid.
The guidance that we just laid out that we slightly modified with respect to our three-year plan ---+ you can see that those targets are 33.5% to 34.5% of sales for SG&A.
And frankly, we also look at it the same way you do, <UNK>, and that is: it is lofty compared to our peers.
But the reality is that we can't pull it down overnight without having a very significant impact on our customer experience, et cetera.
So we will continue to chop away at it.
We will continue to drive efficiencies everywhere that we possibly can within the organization.
But beyond what you see in our three-year plan, that's basically what we are willing to commit to at the moment.
But rest assured we are pushing efficiencies everywhere we possibly can.
You know, that ---+ an important point as we take a look at how we are configured and the complexity of our Company: we are more complex than some of our peers.
That provides us with some great benefits.
In addition, it provides challenges in the area of G&A.
The benefits being that really we come at the market in many different ways and are in many, many different markets that often our peers are not.
That's a great foundational strength we have, and that makes us a very robust company year in and year out.
As you noted, though, the result of that is we are going to be challenged to hit best practices rates or peer rates of G&A.
That does not mean that we aren't going to work hard to drive to that effect.
One of the mantras that I think you have repeatedly heard me say is: we are driving decisions down into our organization by creating a structure they can work within.
By doing that it will inherently drive our G&A down.
And that's one of the big focuses we have.
If they know the limits with which they can run and they can make the decisions, we don't have to have a larger overhead structure, particularly in our corporate area, to accommodate that.
I think that had a very modest factor.
In fact, it was extremely modest.
Effectively, we're at employment rates that are similar to when I arrived two years ago.
We are not doing this by attacking people directly.
We are doing this by truly making ourselves a much more efficient and effective organization.
I think when you delay hiring in a significant manner, or have temporary riffs or things of that nature without a huge disconnect in the economy, it really is counterproductive to our long-term goals.
So our efforts really are designed to two always look at the long-term as we make the short-term decision.
So yes, we did have some limited delayed hirings, but we don't believe in any way did that impact our ability to grow in the longer term.
Well, obviously, volume has a solid impact in our ability.
If we can get a little help from the economy, it helps us disproportionately, without question.
That said, we regularly and carefully look at our pricing models.
We do a lot of beta testing of those and making sure that we are at a price point that is positive for our customers and positive for us.
You know, we try not to break out our different segments below that point.
However, as you know, healthcare is a little healthier at the moment.
Admission rates are down, but there are opportunities there.
In addition, any time that you're looking at legislative changes, that helps us.
And those segments that are involved in some of the legislative changes out there certainly are able to do better, because despite the economy, people have to respond to those type of factors ---+ health and governmental requirements.
Well, let's start with: yes, it is hurting us today.
There is no question about that.
I think the real factor involved in that has so much to do with the macroeconomy that I am reticent to make unequivocal statements.
Clearly, our history is that as a economy turbocharges and capacity ends up running out, we end up benefiting more at the end of that cycle than the beginning, because people are changing the configurations of their factories; they are expanding; so on and so forth.
So I think as you look at us, and you see construction or the capacity issues coming into play, that is a good sign for our future.
That said, right now we have ---+ and you have, and you can read, just as I do, all the models; and we can look at our customers ---+ so many different indicators in the economy right now.
I would not plan on forecasting a stronger model in the near future.
I would actually prefer you entering your own questions, but I certainly will do that for you if you'd like.
It is so market dependent at this point.
I mean, giving you a great example, oil and gas ---+ that is a huge segment of the US economy, the Canadian economy.
You look at a couple of the Scandinavian countries, like a Norway ---+ it had a huge impact.
You look at mining industries and things like that in Australia, where those are significant, not only to their economy, to us.
And there is no question those are in a moribund state in some cases.
So in the future you would hope and expect that those could improve.
But there are other cases that are unrelated that we may see different trends coming the other way.
But some of the major ones that we are really being hurt on right now ---+ there is very, very little movement in those spaces at all.
So you would hope in the next couple of years, as things work out to a more normalized state, you would expect that those would improve.
I would have preferred you entering the question, though, but hopefully you're happy.
Sure.
I think the key to us moving the margin over the long-term has to do with the products we innovate and how we innovate them.
We are unequivocally putting more effort, more consistent effort, and I think really more focused effort ---+ I know more focused effort ---+ into how we develop our products and what products we are developing.
Receiving a lot more customer input into what their problem sets are that allow us to be much more creative in our solution sets.
So I am very excited about that.
But that excitement is not just a revenue excitement.
My history and the history of this Company is the newer ---+ and most companies ---+ the newer the products, of the better you can gain margin traction.
So I would say the most significant way we can change our margin mix in IDS is to have a fresher, more vibrant product introduction.
Unequivocally.
So the 1.5% ---+ two things to comment on.
First of all, it is based on exchange rates as of the end of our fiscal year, so as of July 31.
So that is item number one.
And then item number two is it really comes down to where our business is.
So, for instance, we have a very vibrant business in the UK, as an example.
And if you look at what happened with the pound, I think it was probably $1.46 at the end of our third quarter and somewhere in the $1.32 or $1.33 range at the end of July.
So, you look at a big market like that ---+ clearly, that will provide a headwind.
You look at the euro, on the other hand, and the euro has been somewhat stable, frankly.
But it really comes down to the basket of currencies where our revenues ultimately come out at.
So it is a very calculated number.
I don't want to get into the revenues, but I will say this: it is a very nice-sized business for us in Europe.
But I don't want to give the exact revenues.
No.
No, it is not.
