AIT
#I just want to make sure I understand the expected tax rate.
What are you projecting for the fourth quarter.
Fourth quarter will be back to 33% to 34% effective tax rate, as we go through the final remeasurement.
Here again, we're on the blended tax rate since we straddle the tax act change at 28% this year.
That will step down to 21% as we exit our fiscal year and move into fiscal '19.
And the final remeasurement, there's that cost that spiked then in Q4.
As we round the corner, obviously, then we're looking at a 23% to 25% ongoing effective tax rate as we move forward in fiscal '19.
All right.
And if you could comment on the industry performance in the quarter as well as the performance of the oil and gas markets and the expectation for the oil and gas for the fourth quarter.
Okay.
So our sales performance in the top 30 industries, we would've had 21 with increases.
Positives around oil and gas, so we'll get to that.
I think primary metals, machinery OEMs, aggregates, chemicals are doing well.
Food and others that are either close to or demonstrating encouraging trends on oil and gas, if we think about it on a sales-per-day basis sequentially, it would have improved 10%.
It's predominantly in the upstream, drilling and ongoing production.
The U.S. is faring better in many areas, but especially the Permian basin.
Many will say Permian output is going to approach 3 million barrels a day in May.
Looking out over a longer-term horizon, some say that will go to, by 2023, to 4 million barrels a day.
So that's encouraging.
There's more pipelines that's connecting the Permian that are being built to either Corpus or Houston.
So that's also good for those businesses located there, including FCX and [Eed].
So that's driving a lot of that activity.
And looking forward, we would expect that performance to continue.
So in the quarter, it's probably a teens-type year-over-year improvement.
And then if I could just squeeze one more in.
Performance in April, how are sales tracking.
As we think about month-to-date, April is as expected.
Year-over-year, it's upper single digits comparison.
So good activity going on.
If we look at the quarter point to March, a very similar with a few days ago, maybe slightly down.
But I think it's going to be in a good rate in comparison sequentially and set up well from a year-over-year standpoint.
So our fluid power performance continues to be strong.
I think plus 13 backlog from a year-over-year basis, plus 20% sequentially in the quarter it grew.
So that's productive.
And the teams continue to do a nice job, connecting technology to the designs and offering and helping mobile and industrial OEMs improve their products and offerings with features and benefits.
So businesses are performing well.
And then on the MRO side, we're just active with industrials, helping them either with machine control, energy savings around pneumatics.
So that side of our business has been positive as well.
And then we think about it, take one step going forward, the natural link with process controls is very positive and should aid the business as we move into future quarters as well.
Yes, as we work through delevering, that would be an expectation for sure to continue to mitigate the interest expense as we move through fiscal '19.
I think, here again, they had a slightly different business model, thinking about the MRO nature there and the engineered components.
It might akin more to our fluid power versus the industrial distribution piece of the business here.
But I think we'll continue to share best practices and leverage here again, since we're on the same systems, there's operational excellence initiatives to try to leverage the inventory benefits across both pieces of the business.
We still expect incrementals to be ---+ so 11%.
11% includes the impact of onetime cost if you strip those out.
Okay.
We would expect, obviously, FCX mixing this up, we talked about $0.14 to $0.15 fall-through expectation on the incremental dollar.
We would expect that to continue to edge up, as we roll in the complete benefit of the FCX acquisition.
Correct.
Well we kicked off our annual planning process.
And so we're working it bottoms up right now and we'll be having sessions with the teams and the business units in the coming days and weeks.
But I think most are positive on their outlook as we go through the rest of calendar '18 and really going into '19.
And know there will be some economists and others that will talk about perhaps '19 in the back half could have a little bit of softening.
And I say to that, right, to be determined.
But if we look out over the horizon and our order rate and our backlog was relevant in some of those business, the activity that's going on in shops right now are at good, high levels.
So I think that's what we continue to see through '18 and we would expect it to carry through a good portion of '19.
After that, I guess, to be determined.
To me, it's a nice, blended mix across, I don't know, 7 or 8 of those segments and including others that could in some cleaner industries that are doing that as well.
So it's a nice blend.
No.
Really no outliers.
And a portion of it is technology-driven.
More and more electronic capabilities coming in, those being desired to come into products.
So that is very encouraging.
And then now with FCX, we think we have an extended opportunity to increase those from a value-added service standpoint, right.
Today, they'll work on pump skids, valve stands, providing component and repair services that get actuated by something we're doing today in either hydraulics or pneumatics.
So that will be a nice combination on the service side that can provide some additional work.
I'd say we are extremely encouraged and excited about all of them.
I don't know that we learned anything new in categories as you have the opportunity to get more in specifics, clearly, there is learning.
We probably have up to 18 work streams established, teams identified on them, building action plans around them, with a focus on hey, what can we do to help ourselves in the very near term.
What are good midterm plans and how do we pursue them.
And what will even be a little longer term, later term as we think in that synergy horizon.
So we are encouraged about those, and we have in our mind, the right focus.
The teams are delivering on their core responsibilities, while also seeking the additional opportunities that would either enhance competitiveness and cost or enhance the opportunities for sales and the margin.
Yes.
I think it's ---+ I would say in general, they're pretty similar, as they would go across.
I think as suppliers are trying to, perhaps, move away from either older technology or slower moving products to promote new products or some SKU consolidation, they will put more increases on truly older legacy products to help encourage that migration.
So we see that and we help our customers work through and sort through that transition in adopting or translating to some of those new products.
But I don't think a great deal.
And probably a little bit of thought comes up around tariffs, but there's really been kind of low, no activity to date to be determined how it plays out.
But also, I think, if it occurs on those products, it's going to come through in the form of on the products on price, which is that mechanism we know how to handle, right.
It is not going to come in as an additional item on the invoice, which makes it more challenging for everyone to handle on that side.
And then the other side, as the potential of some of those tariffs in those industries, we could see the early signs of maybe some added activity, right.
Hiring, staffing, shifting capacity.
So if there's more activity on that from the customer side, at least in an early period of time, that can or will contribute to the volume side of it, which can be positive.
I just had a few housekeeping items.
What's the current debt-to-EBITD<UNK>
And how much of the debt is fixed.
So we're at about 3.6% gross debt-to-EBITD<UNK>
3.3% on a net basis.
About 17% of that (inaudible) that we're working towards fixing a greater portion of that with some interest rate hedging, as we move forward here.
And what's the cash flow target, if you have one, to end fiscal '18.
Targeting $140 million to $150 million.
We've got ---+ here again, part of the story is, the great backlog build we've seen in fluid power, up $25 million in backlog there has been a bit of a headwind for us.
But still working through inventory reductions, as we work through some of the pre-buy activity and made some nice traction this quarter in terms of about 2.4% reduction in our past due collections as well as some payables extension initiatives that will continue to contribute here in the Q4.
I just want to thank everyone for joining us today, and we will look forward to seeing many of you as we move into the quarter.
