Alamo Group Inc. (ALG) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Alamo Group Second Quarter 2017 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. [Operator Instructions] This conference is being recorded today, Thursday, August 03, 2017. I will now turn the conference over to Mr. Bob George, Vice President of Alamo Group. Please go ahead, Mr. George.

Thank you and good morning everyone. By now you should have received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3746 and we will send you release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for one week. The replay can be accessed by dialing 1888-203-1112 with the passcode 3509415. Additionally, the call is being webcast on the company's website at www.alamo-group.com and replay will be available for 60 days. On the line with me today are Ron Robinson, Chief Executive Officer and President; Dan Malone, the Executive Vice President and Chief Financial Officer; Richard Wehrle, Vice President and Corporate Controller; and Ed Rizzuti, Vice President and General Counsel. Management will make some opening remarks and then, we’ll open the line up for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliation of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release. Before turning the call over to Ron, I'd like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risk and uncertainties, which may cause the company's actual results to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following; market demand, competition, weather, seasonality, currency-related issues and other risk factors listed from time-to-time in Company's SEC reports. The Company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Ron. Ron, please go ahead.

Thank you, Bob. And we want to thank all of you for joining us today. Dan Malone, our CFO will begin our call with a review of our financial results for the second quarter of 2017, and then I will provide a few comments on the quarter's results. Following our formal remarks, we look forward to taking your questions. Dan, please go ahead.

Thank you, Ron. Our second quarter and first half 2017 operating results again set several records for Alamo Group. We saw record net sales for the first half of 2017, while our earnings performance, including gross margin, operating income, net income, earnings per share and EBITDA, all set records for both second quarter and first half. Second quarter 2017 sales of $213.3 million beat second quarter 2016 sales of $211.5 million, and first half 2017 sales of $428.7 million exceeded first half 2016 sales of $422.5 million. Our second quarter and first half sales compared favorably to prior year in both the Industrial and Agricultural divisions, while Europe was down slightly in U.S. dollars due to translation effects. However, both second quarter and first half European division local currency sales grew 5% over the comparable prior year period. Industrial division 2017 sales of $117.3 million represented a slight increase over prior year second quarter sales of $117.1 million. First half 2017 sales of $243.2 million, increased 1.1% over first half 2016 sales of $240.4 million. For the second quarter, higher sales of vacuum trucks, sweepers and excavators were largely offset by lower shipments of snow removal equipment. Agricultural division second quarter 2017 sales were $54.2 million, up 4.6% compared to second quarter 2016. First-half 2017 sales of $106 million were 5.5% above prior-year first half sales of $100.5 million. This division continues to benefit from new product introductions and continued improvement in demand for our mowing products, despite generally weak agricultural equipment markets. European division second quarter 2017 sales were $41.7 million or about 1.8% lower than the second quarter of 2016. First half 2017 sales of $79.5 million were 2.5% below prior year first half sales of $81.5 million. As already mentioned, excluding the unfavorable currency translation effect, this division's local currency sales were up about 5% compared to the second quarter and first half of 2016, as U.K. market conditions continue to recover from last year's post Brexit slump. Second quarter 2017 gross margin of $54.7 million grew by almost 5% over the prior year second quarter. Our second quarter 2017 gross margin was 25.6% of net sales, which compares favorably to 24.7% of net sales for the prior year quarter. These favorable comparisons continue to be helped by pricing actions, improved production efficiencies, new product introductions and purchasing initiatives. Second quarter 2017 operating income of $20.2 million was about 12% higher than the prior year second quarter. Second quarter 2017 operating income was 9.5% of net sales, which compares favorably to 8.5% of net sales for the prior year quarter. Net income for the second quarter was $12.3 million or $1.05 per diluted share, which favorably compares to net income of $10.6 million or $0.92 per diluted share for the second quarter of 2016. Net income for the first half was $24.5 million or $2.10 per diluted share, up more than 25% over the first half 2016 net income of $19.2 million or $1.67 per diluted share. Our second quarter and first half 2017 net income and earnings per share comparisons to prior year were helped by a lower effective income tax rate. This favorable comparison was due in part to a prior year foreign subsidiary losses for which we did not record a corresponding tax benefit, as well as excess tax benefits related to share based payments. First half 2017 EBITDA of $50.3 million exceeded the 2016 first half results by 11%. And trailing 12-month EBITDA of $93.8 million is about 6% higher than full-year 2016 EBITDA of $88.6 million. Excluding a fourth quarter 2016 non-cash charge related to a pension plan termination, adjusted trailing 12 month EBITDA of $96.7 million is also trending about 6% ahead of the full year 2016 adjusted EBITDA of $91.5 million. We continue to see steady growth in our trailing 12 month operating cash flow. As of the end of the second quarter 2017, our trailing 12 month net cash provided by operating activities totaled $83.1 million, which is a 10% increase over the $75.6 million provided in full year 2016 and about 25% better than the $66.2 million provided in the second quarter 2016 trailing 12 month period. As a result, we were able to reduce our debt, net of cash position, by $48.8 million over the past 12 months, even after paying $26.4 million for acquisitions on top of outlays for capital investments, interest and dividends. Our order backlog ended the second quarter at $157 million, which is nearly 21% higher than second quarter 2016 backlog of $130 million. This $27 million backlog build is primarily due to increased new orders, as our recent business acquisition account for less than a quarter of this increase. In summary, our second quarter and first half 2017 results were highlighted by continued year-over-year improvements in sales and earnings, a record for first half sales, new records for both second quarter and first half earnings, continued growth in operating cash flows, and significantly higher new orders and order backlog. I would now like to turn the call back over to Ron.

Thank you, Dan. And as you can see, Alamo, I think, had a very good second quarter and certainly a very busy second quarter, lot of activities going on. The results for the second quarter of 2017 were in some way similar to our first quarter and in fact I think some of my comments are going to be almost the same as I made in the first quarter, the main thing being that sales growth has continued to be a bit of a challenge but margin improvement and earnings growth was very favorable and our net income, as in the first quarter, was at record levels. Sales for the quarter were up less than 1%, as we continue to face a number of headwinds in our markets. This has really been our -- I think, the challenge in the last several years has been sales growth. This has been further compounded by the strong U.S. dollar, which has reduced the value of our non-U.S. denominated sales and earnings. For instance, once again as we have pointed out our European operation sales were up nicely in local currency, but down in U.S. dollars. In our Industrial division, with two mild winters in a row have constrained our sales of snow removal equipment and this has offset gains that we saw in other areas, such as street sweepers, excavators and even vacuum trucks. I think the vacuum trucks were -- it was particularly gratifying to see some -- the demand stabilize there and show some -- start moving up, because this is a product line that has been soft for the last certainly the last 12-months. So good to see some positive movement there even though it's -- as I said, was offset by softness in snow removal products. Our Agricultural division, the weak market conditions there continue to limit sales growth though as we have been doing for the last several quarters, our sales have outpaced the overall market. And so, while challenging market conditions have limited our sales growth for the last few quarters, we are finally starting to see some signs of improvement. Other than in snow removal products, most of our Industrial division had solid and stable performance and as I said, without snow removal, it was actually up for the quarter. And the agricultural market, we believe is also showing some signs of bottoming out and moving in a more positive direction, but I think that will be next year before this is fully realized. But I think something’s contributing to that is that, I think dealer inventories are in better shape for us today for manufacturers, that will help manufacturers even this year and even more so next year, so I think incomes will start to move up next year. And even Europe seems to be finally moving in a positive direction following several years of little to no growth in the overall market there. We believe further that the currency situation, which is where local currencies have dropped versus the U.S. dollar for the last couple of years will finally stabilize a little bit. And in fact, I think the second half of this year, the comparables to last year will be much more reasonable and be able to -- and so that I think growth in the second half of this year in local currency will also equal growth in U.S. dollars as well. So, I think for the second half this year and the next year that will be much more favorable comparisons. But the real tangible evidence that our markets are starting to improve is in our bookings and backlog. Compared to a year ago our backlog is up, as Dan reported, over 21%. This is up over $27 million ahead of last year at this time. And of this amount, a little over $5 million came from acquisitions, but the bulk of it, over $21 million came from internal growth and improvements and so it is good to see the sales outlook start to move in a more positive direction, after the last several years of very little growth. It's still too early to know if this is a true trend or just a blip, but I mean -- I think we are feeling better about the outlook for most of our markets at this point. But of course for our results, the real story in the second quarter is again, was the continued improvement we were able to achieve in the bottom line, despite the lack of top line growth. Our earnings were up over 16% in the quarter and over 27% for the first six months of 2017. And both of these were at as we said record levels for Alamo Group. These improvements were not achieved as a result of any one thing, but as has been the case for the last several years, this is the result of a number of initiatives that we have been pursuing for several years now, that have been driving our margin improvement and contributing to better asset utilization. These initiatives include actions on pricing, purchasing, operating efficiencies, overhead spending, inventory control and other aspects of our business. And we believe these ongoing programs will continue to benefit us, no matter what the sales level is, but as I said, with a little more sales they'll benefit us even more. And on top of all this, we are very pleased that in the second quarter, we closed the two previously announced acquisitions of Old Dominion Brush and Santa Izabel. Both of these are good additions for our company. Old Dominion strengthens our position in the aftermarket for street sweepers wear part components and also brings a new range of leaf vacuum equipment, which will broaden our product offering in that sector. And Santa Izabel in Brazil not only expands our local market presence and brings some new products and some better distribution, they also strengthen our manufacturing capabilities in Brazil and this has been an important goal for Alamo Group. And together, these two acquisitions should be while small, should be accretive to our results in the second half -- even starting in the second half of 2017. So as I said, this was a busy quarter, but a good one. And certainly, some of the market headwinds we have been facing, while they are still there, it is encouraging to see some signs of growth begin to emerge. We hope these growth trends will continue, but as usual, we will proceed with caution. Still we continue to like where Alamo Group is today and feel we're in good position and good markets and good products and like where we are financially and remain very optimistic about our future. So we want to thank you for your interest and support and we would now like to open the floor for any questions you may have.

[Operator Instructions] We will take our first question from Mike Shlisky with Seaport Global. Please go ahead, your line is open.

Good morning, guys.

Good morning, morning.

Hey, I wanted to touch on your margins in North American Ag first. There were a little short of where, I may have felt they were going to be they were down from the prior year's quarter. I was wondering if you could give a little bit more color as to what was going on in that segment. I would imagine there were some raw material impacts there. And was there any mix impact? And can you give any color on the procurement and efficiency initiatives there? Are the benefits starting to level off in that particular segment?

Yes, I think the -- probably the single key factor there was a little mix difference probably not there. Our spare part sales were probably not as you know you saw that we had almost 5% sales growth there and that was all in new equipment and so our spares as a percent of sales was down a little bit versus the -- and so it was more mix that -- and our Ag group has been producing quite nice margins since lately, but -- and like I said, it really wasn't much on cost -- on input cost I mean steel.

Steel was lower in the second quarter of last year. So that had some impact not as big as the parts mix.

That's right. So steel had a little bit, but I think pricing took care most of that. But yes, I mean -- so there was a little bit on purchasing, but I don't think -- I mean, the main difference was the mix and it was just spare parts as a lower percent of the total sales.

Okay. Got it. A little further in on Ag here. I had more of a contextual question for you. We're hearing a little bit about something of a shift to no-till farming going forward in an effort to kind of save cost on the farm usually involves cheaper equipment to get that method done than usually heavy tractors and heavy tiller stuff. So I was kind of wondering if you could kind of educate us, if we see more no-till acreage next year is that a positive for Bushhog or is it a negative or it is neutral for that brand and other of your Ag product lines?

First of all, no-till is not a recent trend. I mean, this has been going on for a decade or longer. I mean even like 15 years something like that. So -- and I don't think -- we're slightly neutral on that. I mean, I don't see it being a big -- contributing big to Bushhog, but certainly don't hurt it. I mean, the main thing, it would help it more than hurt it. But like I say, I don't think it really has much of any effect. And it's just -- because it's not a recent thing, it's something that's pretty well established in -- I mean, it kind of wane and waxes and favor -- they've been around local farming conditions and everything, even including moisture levels and a lot of the other conditions. But, yes, I don't see that as being a material driver either way for us.

Okay. Got it. Quick balance sheet question for you as well. Your cash, still very strong this quarter, it might have been up from last quarter a little bit and up versus your recent history certainly? And you also though had higher debt this quarter as well than the previous quarter. So I'm curious, if you can give us kind of your plans for the excess cash that might be on your balance sheet and your plans to maybe pay down some additional debt going forward? It was as low as $17 million couple of quarters back. I kind of want to know how that might trend going forward?

Couple of things, I mean certainly this quarter is a seasonally high like -- inventory and receivables are higher in the second quarter for us than say in the third or fourth quarter. And so, I mean, there were seasonality involved in that. Obviously, there were two acquisitions in the second quarter.

And that's about $30 million, Mike, that we borrowed on the line for that.

For that so -- and I don't know if you're comparing it against last year or versus -- at year-end, we actually sort of went upside down on some of our -- and paid -- used some European cash to pay down debt in the U.S. at the year-end. But then that was -- then we repaid those debts back to Europe, so the cash went back up there. Most of our cash on the balance sheet is still outside the U.S., almost all of it, mostly in Europe, some in Canada, but definitely all outside the U.S. And so, like I say, so there were some short-term balance sheet adjustments for that. Right now, the main things though are the acquisitions and seasonality, and I think you'll see that literally by the end come around. So end of the third quarter, you'll see our debt go back down again significantly and cash probably go up. And the main thing cash is always -- our focus is acquisitions. So I mean, like I said, we can do -- we've done almost $30 million in acquisitions already this year and still we'll pay down cash by the end -- pay down debt by the end of the year. And I think, we're looking at some other acquisition opportunities. We think we could even do something else again this year and another thing this year, but nothing major at this point. We are looking, but pricing still is a bit of a challenge in acquisitions, though we are finding things that we can buy. And like I said, did two acquisitions this quarter alone so -- but we need to do more.

Got it. One last one from me and that's the outlook for Europe. It looks pretty clear that we're going to be getting little bit better FX here in the back half of the year, that could be more of a tailwind than a headwind and that could probably include 2018 as well. Do you think the maximum digit [ph] organic growth rate that you've been experiencing here might be able to be continued into the back half or was some of this due to some fill-in, in the second quarter after some -- a little bit slower trend in late 2016?

I think we're seeing -- you're right, the FX, we think will be broad as you said, maybe even a little bit of a tailwind. But I think the markets in Europe, I think the -- we are just seeing more growth. I think even like the same things that are affecting the U.S. Ag markets are starting to affect the European Ag markets. I think governmental there are getting a little more growth oriented and really try -- and plus they've, like I said, they've been through literally three or four years with almost no growth in the overall European economies, and I think, you're starting to see some pent-up demand and some real growth coming out of there. So I think that's -- like I said, I don't know to what extent, but believe that will probably continue as we move into, like I said, the rest of this year and especially into next year. I mean, I think next year, I think Ag, I think Europe, I think everything will all be more positive than it's been for the last several years.

Got it. Thanks guys. I’ll leave it there. Appreciate it.

Thank you, Mike.

Thanks Mike.

And we'll take our next question from Tyler Etten of Piper Jaffray. Please go ahead. Your line is open.

Good morning, guys, and thanks for taking my questions today.

Good morning.

I guess we could start in Agriculture. We've seen quite a few, as you said, quite a few quarters in a row of growth here, while the market remains weak. I guess, I would be curious to hear your thoughts on what is driving that growth? Is this taking market share, getting products into new dealerships and regions? I guess any color there would be helpful.

I think, if you look at the overall Ag market, I mean certainly big ticket items like combines and the heavy horse -- big horsepower tractors, the four-wheel drive tractors; those are still off, way 25%, 30% below the peaks of like 2014 and 2015 in this. So those markets are still soft. There is still, I think, a bit of an overhang of inventory of those types of items at the dealer level. But if you look at like the smaller tractors, say like 40 horsepower and less, those sales are up, probably in the last two or three years, it was up 25% cumulative. But those sales -- and so I think the smaller farms, the hobby farms, ranching has done better than row-crop farming. So there is -- the whole Ag is not been as weak. The problem is for the big tractor guys, the Deere and the New Holland, I mean, big horsepower tractors, big Combines. I mean, that's where a lot of their money is -- you of course see that 100 horsepower tractor sales were more than you could buy three or four small tractors for less than what it cost to buy one big one. So you could buy, in some cases, eight or 10, for what it cost to get a big combine these days. So the overall market, I think, has not been quite as bad. I mean farm incomes have been down and when farmers have less money, they spend less. So it certainly affected the overall market. But like I said, I think that the -- our type of products which are little bit lower ticket items have been -- have held up a little bit better than the big-ticket items. I think, like I said, I mean since the small tractors are selling, we're selling mowers for those. I mean we don't -- even our bigger mowers, you don't need a 100 horsepower tractor to pull most of them. I mean you know those with half that size -- the sales of smaller tractors are going better. Sales of mowers would hold up a little bit better. And then on top of that, I think dealer inventories are in a little bit better shape. I think dealers have been working down inventories for the last several years with the slowdown in Ag. And I think, what that means for us is now that if the dealer sell the same this year as they did last year, they'll have to buy more of it from manufacturers like us, just because they have less of it on the dealer lot. So I think -- as I said, I think dealer inventories are in a little bit better shape for us. I think smaller ticket items like our mowers have been --have held up better. And I think, like certain sectors; like I said, say ranching has held up better than row crops. Well, we sell a lot of mowers to ranchers; I think other types of farms, maybe some orchard farms, some sod farms. I mean, other than -- row crop has been the hardest hit and we've been, like I said, I'm not saying we haven't been affected, but given the diversity and the ticket point of our items, you know, if a guy needs a new $15,000 mower farmer, I mean, he's more likely just to go out and buy it, than if he needs the new $300,000 Combine, he's probably -- hears about the interest rates and trade in values and all of this investment tax credits and a lot more considerations that he does, if he is buying $15,000 mower. So, as I said, so I think that's why we've held up a little bit better than the market. I think that everything -- I think row crop farming is going to be the big ticket items there, are going to be some of the slower ones to come back, even next -- like I said, even if farm incomes are up next year, they may be up, but I think they're going be still a little bit more constrained. But I think, the smaller-ticket items on the overall Ag market is showing some positive signs and those should continue nicely into next year, especially as I think farm income start to finally go up after three years of declines.

Right. I would agree. I guess for the last couple years, you guys have taken pretty conservative, very cautious approach at these markets. But more recently it's looking as if the Ag market and the European market, especially with maybe some FX tailwinds here are actually looking better and the Industrial kind of the wild card. My guess is, would you be looking at, I know you guys don't provide guidance, but at least -- or expecting modest growth out of those two segments? And then maybe in Industrial, depending on the confidence of these municipalities and dealers that you sell to, at least looking more positively at 2018?

Yes, I think that's right. I mean, I think our industrial side is being very solid. We'd like maybe a decent -- some decent snow this year, which I don't know if we'll get it. But the industrial side has been very stable and solid and a good earnings producer for us. And I think, even with the acquisition of ODB, Old Dominion, that all contribute. So acquisitions will contribute as well in the second half of this year and all of next year. But you're right. I mean I am expecting a little more growth in Ag and certainly a little more growth in Europe, not only in local currency, but dollars. So little more, I don't know how much and how strong. I think global economy is still little along the fragile side, but -- so it's hard to predict exactly how much and when. But just our growth in the backlog, I think in bookings was very welcomed and favorable and I think that's an indication. And I'd say with the growth in backlog, with some positive trends, little bit in Ag and Europe and with some acquisitions, yes, I think we will have little more growth than we've been experiencing over the last year or two.

Right, you have the backlogs looking great. I know it's -- you guys say that it's not a great way to look out, but to up 20% year-over-year is certainly a good positive sign, maybe just two more from me. One being the margin came in great year-over-year and for the quarter. I guess, is this more of a mix or is this factory absorption or I guess any specific reason why this wouldn't continue through the back half of the year?

No particular reasons why wouldn't. Like I said, I commented earlier about Ag's spare parts as a percent of the mix was actually down a little bit. But spare parts were probably a little bit favorable -- more favourable -- in total for the whole company spare parts were actually more [Indiscernible] than I would I said, they were up in Europe and up in the Industrial division. So we got to help a little bit out mix there on spare parts, but I think the progress we're making on margins, I mean, even -- I thought it was good. But now, steel prices are up a little bit right now compared to where we were at the start -- like the end of last year. But we've been able to absorb that without -- and still improve margins. And so I think our pricing has covered most of that. I mean our price increases were modest this year but I think they're showing to be above our cost increases. So I think that the -- like I say, barring anything catastrophic happening in the world. Yes, I think with the margin improvements we've seen, we should continue to make throughout the year and in the next year and then possibly even a little bit more. I mean we're getting -- we've said we needed to be at double-digit operating profit margins and we were close this quarter but not there yet, and I think the potential to get there is pretty good.

All right. Great. Thanks. I’ll get back in line.

Thank you, Tyler.

[Operator Instructions]. We'll take our next question from Joe Mondillo with Sidoti & Company. Please go ahead. Your line is open.

Hi, guys. Good morning.

Good morning, Joe.

Just was curious, what segment or product category you're seeing the biggest percent increases in the backlog?

It was actually several. I mean, I know like said vacuum trucks actually did well. I mean of course they've been really off, so I think the comparables with them helped them. Gradall continues to do or excavators continued to do well especially even more so on margins. I know in Europe, both our McConnel and our Rivard units had very nice increases. So I mean it was, there was no one that was a giant increase, but there were like a -- several of our big units like say Rivard, McConnel, Gradall, VacAll, there were several of them that all had nice improvements. Even in sweepers I mean it was -- I'd say it was nice that it was fairly broad based.

That's always nice when the whole company starting to grow. The Industrial segment, was just curious, without -- if you take out the snow removals, is the growth that substantially greater?

No, I won’t say that substantially. I mean even -- the snow removal was off, it wasn't off a huge amount, but like I say, in the other -- the growth in the others wasn't a huge amount, but they sort of offset each other. But like I said, it was pretty solid across the board.

Okay, and so I guess then I would ask if the whole segment, even if you take out snow removal, is not growing that substantially. What are you doing -- what did you do in the quarter? What are you doing currently to expand the margins so much, so it has expand quite a bit?

It's what I said about a fairly broad-based initiatives, I mean, like I said, we heard a little bit by maybe say things like steel. But I think in general, purchasing initiatives are continuing to pay off nicely. We got a little bit from pricing. We certainly continue to improve our operating efficiencies. And I think even our overhead spend was nicely constrained and inventories were down. And so, like I said, it was a fairly some broad-based initiatives, which I think will continue to help us even in modest growth. But I think that there will be some more, you know a little bit more growth there. I think we will be helped and we are starting to be helped already by some new product introductions that is sort of contributing. We've got a few other -- a few new ones coming down the line, like say there is the acquisition that we'll throw -- that we'll add to that as well. So, like I said, it's not one thing, it's really half a dozen things.

Okay, and then, I know vacuum trucks, I believe, correct me if I'm wrong, carry a little higher margin, and the comparison, I believe, in the back half of this year, should see a really nice comparison, and given what you're talking about the backlog, is it fair to say Industrial, we could see some organic revenue acceleration -- growth acceleration and on top of that, maybe even more margin expansion in the back half than we've already seen? Do you any of the [Indiscernible]?

Sounds awful like you're asking for guidance and I got a little trouble kind of getting that specific on some of those things. I think that, like I said, the chance for a little -- I think top line growth looks better in Ag and in Europe than Industrial, I think it's very stable and solid and so -- but I think, top line growth will not be high in Industrial. Margin growth, I think, like I said -- kind of [Indiscernible] up a whole point in the second quarter. I mean, yes, I think we can hold on to that. I'm not saying we can continue to grow and expand it at that level, expand it further. But I think, we can certainly hold on to those kind of gains we've gotten and like I say, gradually expand it over time.

And just lastly, actually the Ag segment, you talked about the second quarter being a little light in spare parts and now it's a little bit the reason why the margin was down a little bit year-over-year. Is that -- I know this is a seasonal business, so you can't say the second quarter and then look at the third quarter. But in terms of product mix, that sort of trend is that going to continue into the third quarter, would you say, in terms of spare parts?

No, no, no, I mean -- like said, they actually have some decent growth, like say almost 5% growth and that was all in whole goods. So I mean, parts as a percent sort of went down. So yes, I mean, I think parts in general are still a big part and are holding up well and like I say and -- but no, I don't see any -- yes, like I say...

I guess what I'm trying to get at is....

That wasn't a negative trend in the second quarter. I mean, our Ag group is still being quite -- is a really good contributor to our company, growing contributor to our company and I think that will continue.

Great. I guess one thing that I'm just trying to understand is, last year in the third quarter, you saw a 14% Ag margin. That's historically very strong number that seems to be, maybe a tough comp. I'm just wondering, given the fact that margins declined year-over-year in the second quarter and sort of your commentary based on what was going on there? Is that -- are you looking at a pretty tough comp in the third quarter?

I don't think so, because third quarter for us, as you said we're seasonal business especially again Ag and third quarter is generally a very good quarter for us. And so -- and I think it will be again this year. So you can't really compare a third quarter to first quarter or some like that, but I think the third quarter of this year to the third quarter of last year should be a -- we should be -- even though it was a good third quarter last year, I think we'll have a good one this year.

Okay. All right. Thank you. Appreciate it.

Thank you, Joe.

And at this time Mr. George, it looks like we have no further questions.

Alright. Well, again, we want to thank you for joining us today. We look forward to speaking with you at our next quarterly conference call in, I guess, November and appreciate your support and thanks for participating.

This does conclude today's call. Thank you for your participation. You may disconnect at any time.