Alamo Group Inc. (ALG) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Alamo Group Fourth Quarter and Fiscal Year 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, Friday, March 02, 2018. 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 all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3773 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 7883065. 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, President and Chief Executive Officer; Dan Malone, 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 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 risks and uncertainties which may cause the company's actual results in future periods 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 here today. Dan Malone our CFO will begin our call with the review of our financial results for the fourth quarter and fiscal year 2017. I will then provide a few more comments on the quarter and year-end results. And then following our formal remarks, we look forward to taking your questions. So Dan, please go ahead.

Thank you, Ron. Alamo Group's fourth quarter and full year 2017 results again set company sales and operating income record. Except for onetime charges related to U.S. Tax Reform, net income and earnings per share also would at all-time record levels. In the fourth quarter of 2017, we recorded as additional income tax expense a net $10.2 million one-time charge related to the Tax Cuts and Jobs Act. This consistent of $13.1 million of additional income tax expense related to the mandatory deemed repatriation of foreign earnings which is payable over an eight year period, partially offset by the revaluation of net differed tax assets and liabilities due to the lowering of the U.S. corporate tax rate. In the fourth quarter of 2016, we recorded a one-time non-cash pretax charge of $2.9 million related to the early termination of our pension plan. For the balance of my comments any reference to adjusted earnings simply excludes from above charges from the GAAP results for the applicable time period. Our 2017 results also included the effects of three acquisitions, Santa Izabel and Old Dominion Brush in June and R.P.M. Tech in August. Santa Izabel is included in our Agricultural Division operating results, while Old Dominion Brush and R.P.M. Tech are included in our Industrial Division operating results. These acquired businesses contributed $13.9 million and $25.5 million to fourth quarter and full year sales, as well as $1 million and $1.7 million to full year and full year operating income respectively. For the balance of my comments, excluding acquisitions means we excluded the operating results of these acquisitions from divisional our total company results as applicable. Fourth quarter 2017 sales of $243.3 million were up 18.4% over fourth quarter 2016 sales of $205.5 million. Excluding acquisitions, fourth quarter 2017 sales grew 11.6% over the prior year quarter. Full year 2017 sales of $912.4 million dollars were 8% higher than full year 2016 sales of $844.7 million. Excluding acquisitions, the full year 2017 sales exceeded prior year sales by 5%. Net income for the fourth quarter was $3.2 million or $0.27 per diluted share. Adjusted net income was $13.5 million or $1.15 per diluted share, an increase of about 43% over fourth quarter 2016 adjusted net income of $9.4 million or $0.81 per diluted share. Full year 2017 net income was $44.3 million or $3.79 per diluted share. Full year 2017 adjusted net income was $54.6 million or $4.67 per diluted share, an increase of about 30% over full year 2016 adjusted net income of $41.9 million or $3.62 per diluted share. Our fourth quarter and full year sales compared favorably to prior year periods and across all divisions both including and excluding sales attributed to acquisitions. Industrial fourth quarter 2017 sales of $147.2 million represented a $20.2 million increase over the prior year fourth quarter and full year 2017 sales of $522.7 million increased 8% over full year 2016. Excluding acquisitions, sales in this division increased 10.5% and 3.9% over the prior year fourth quarter and full year periods respectively. Industrial Division operating income for the full year 2017 was $51.9 million compared to $36 million in 2016 which included the previously mentioned $2.9 million non-cash pension termination charge. The Industrial Division 2017 results also included the effects of acquisitions which contributed net sales of $11.8 million and operating income of $1.3 million dollars to the fourth quarter and net sales of $19.8 million and operating income of $2 million to the full year results. Agricultural Division fourth quarter 2017 sales were $56.5 million, up 15.5% compared to fourth quarter 2016 and full year 2017 sales of $227.4 million or 10.5% above prior year. Excluding acquisitions, sales in this division increased 11.3% and 7.7% over the prior year fourth quarter and full year periods respectively. Full year Agricultural Division operating income was $24.1 million compared to $20.7 million dollars in 2016. This division's acquisition contributed net sales of $2.1 million and an operating loss of $200,000 to the fourth quarter of 2017 and net sales of $5.7 million and an operating loss of $300,000 to the full year results. European Division fourth quarter 2017 sales were $39.6 million or about 16% higher than the fourth quarter of 2016 and full year 2017 sales of $162.3 million or 4.8% above prior year. Operating income for the full year was $12.8 million compared to $10.9 million in 2016. Our profit margins continue to grow faster than our top line. Fourth quarter 2017 gross margin of $60.9 million grew by about 27% over 2016 fourth quarter gross margin of $47.9 million. Our fourth quarter 2017 gross margin was 25% of net sales, which compares favorably to 23.3% of net sales for the prior year quarter. Full year 2017 gross margin of $234.7 million grew about 14% over full year 2016 gross margin of $205.1 million. Our full year 2017 gross margin was 25.7% of net sales, up from 24.3% of net sales in the prior year. These favorable comparisons continue to be held by pricing actions, improved production efficiencies, new product introductions and purchasing initiatives. Fourth quarter 2017 operating income of $20.9 million was about 38% higher than fourth quarter 2016 adjusted operating income of $15.2 million. Excluding acquisitions, fourth quarter 2017 operating income was about 31% higher than the prior year adjusted result. Full year 2017 operating income of $88.7 million was about 26% higher than full year 2016 adjusted operating income of $70.5 million. Excluding acquisitions, full year 2017 operating income was about 25% higher than the 2016 adjusted result. Fourth quarter 2017 operating income of 8.6% of net sales, which compares favorably to 6% of net sales for the prior year fourth quarter. Full year 2017 operating income was 9.7% of net sales which compares favorably to 8% of net sales for the prior year. Our full year 2017 EBITDA was $109.4 million. This represents about a 24% increase over full year 2016 EBITDA of $88.4 million and about a 20% increase over prior year adjusted EBITDA of $91.3. Our full year 2017 operating cash flow remained very strong at $70.4 million, despite the fact that double digit sales growth drove higher working capital and high utilization rates caused us to begin to rebuild our vacuum truck rental fleet. These strong cash flows allowed us to improve our debt net of cash position by $18.6 million over the 12 month period even after paying out about $39 million for the Santa Izabel, ODB and R.P.M. Tech acquisitions. Our order backlog ended 2017 at a record $218 million, about 48% higher than yearend 2016 backlog of $147 million. This backlog build is primarily due to increased new order levels. Excluding acquisitions, our year end 2017 backlog has increased 34% since the end of 2016. One more comment regarding income taxes before I close. Most of our consolidated taxable income will be subject to the new 21% U.S. corporate tax rate. Going forward, we expect significant reduction in the effective tax rate as a result of U.S. Tax Reform however much is still to be determined regarding the impact of certain provisions of the Tax Act as well as among other things how it will affect the income taxes of certain U.S. states. As a result, we are not giving specific forward looking guidance with respect to our effective tax rate. In summary, our fourth quarter and full-year 2017 results were highlighted by new sales and operating income levels for the fourth quarter and full-year periods, record net income and earnings per share excluding the onetime effects of the new U.S. Tax Law, profit margins continuing to grow faster than top line, sales and operating income growth across all company divisions both with and without the effects of acquisitions, record full-year EBITDA $109.2 million, continued strong operating cash flow exceeding $70 million and a record year-end backlog of $218 million. I would now like to turn the call back over to Ron.

Okay. Thank you, Dan. Appreciate that. As we can see in the results we released yesterday, Alamo finished 2017 with strong fourth quarter which made the year in total best ever in our history. Certainly during the last few years, Alamo's made a lot of progress on improving margins, strengthening our market presence, upgrading our product offering and a number of other achievements. But during this time, our markets were constrained our results due to a variety of headwinds, which we have talked about each quarter for the last couple years, things like the weak agricultural sector, soft conditions in the European markets, the negative effects of the strong U.S. dollar on our translation of our results and a variety of other headwinds. But going into 2017, we were pleased we started seeing some relief from these conditions and these continue to show improvement as the year progressed and this can be seen most vividly in our sales. I mean in 2016, our sales were actually down slightly and then as we went into the first half of 2017, I mean they were up 2% the first quarter, 1% in the second quarter, so it's positive but modest. But then in the second half, they were up 11% in the third quarter and finished the year up 18% in the fourth quarter, a dramatic change and certainly there were a few acquisitions during the year which helped the sales, but sales were up like in the fourth quarter even 11% without the acquisition. So this was a very welcome development after several years of little to no market growth. And we were real pleased that this growth was fairly widespread, is nearly every one of the headwinds we talked about, you know commented on over the last few years, showed some form of improvement, especially in the second half of the year. So it's good to finally get some top line growth. And this sales growth combined with our ongoing efforts to improve our margins led to a record operating profits for Alamo both in the fourth quarter and for the year in total. And as the operating profits rather than net profit, because as you all are all aware and have been hearing repeatedly, our tax results were impacted by the effects of the U.S. Tax Reform measures adopted in December of 2017. With this resulted in a onetime net charge to our income tax expense of over $10 million. We covered this in our press release, Dan mentioned this in his presentation and I mention it again here because like any U.S. company, public company can comment on 2017 results without mentioning the effects of the U.S. Tax Reform. So you probably hearing it more than you want. But while this onetime tax reduced our 2017 after tax results, we're actually very pleased with the tax reform measures. We think even this will give us a lot more flexibility to repatriate cash held in our international operations without significant incremental taxation. And of course moving forward, the reduction in the U.S. corporate tax rate should allow for a variety of benefits which we believe will sort of make us more competitive in the international market in what we participate. So but ignoring tax reform for a minute, Alamo Group had a great 2017. And we believe we are well positioned for an even better 2018. I would not go so far as to say that our markets are strong, but we certainly believe they are continuing to improve. And it helps that due to a record backlog, we should be able to start the year on a positive note. In 2018, we will also get the benefits of the full-year effects of the acquisitions we completed in 2017. And while individually these were relatively small, actually they were strategically good bps with Alamo's development plan brought into nice products and build nice gaps. And we feel optimistic that we will continue to be able to complete acquisitions going forward that will contribute to Alamo's growth, despite - in spite of this climate we're in now, where our valuations have certainly impacted our acquisition activity. But we're pleased that we're seeing well there's nothing else imminent at this point, we're very pleased that we're seeing a reasonable flow of opportunities to look at in this area and even with our sort of self-imposed criteria on pricing and valuation, we feel good about our prospects that they will continue to good bps with our company. We also feel very good about our internal operations. In 2017, we exhibited continuing margin improvement as we have shown for several years now and we believe there is still further opportunity in this area. In 2018, we will be spending more effort and more money on our operations according. This is definitely an area where we will benefit from tax reform that actually provides a better climate for capital investment. As a result, we anticipate increasing our capital expenditures in 2018 over the average levels of recent years as we work towards eliminating some bottlenecks in some of our operations and to continue to invest in technology and to work to improve our overall operational efficiency. So with improving margins, acquisitions, further investment in our operations and the benefits of a better U.S. corporate tax structure, we're optimistic about the outlook for Alamo Group in 2018. As always, we've remained cautious and conservative in our approach as we know our markets can and do change quickly. But we feel good about where we are positioned today. Alamo Group is stronger than it's ever been and we are very optimistic about our future. So we thank you for your support. And with that, we'd now like to open the floor for any questions you may have.

Thank you. [Operator Instructions] And we'll go first to Mike Shlisky from Seaport Global.

Good morning.

Good morning, Mike.

I wanted to ask about different topic of today's view and that is the price of steel and metal. You've seen in media about price been raised as early as next week on steel as well as on aluminum. I'm just kind of curious, what leverage can Alamo pull if and when we do see substantially higher steel price time with early on which already is pretty high. You have additional operation for this or pricing power at this point or could the price of steel just be still so much higher than it's been over the last couple of years that it might actually be a very, very tough to us climb this year to kind of have any kind of growth in your gross margin?

Certainly, the talk of that we need to see how that's going to play out. I mean I know President is for instance not particularly keen on NAFTA but NAFTA is there and you can't exactly just - without do something with NAFTA, so I think it's going to - we have to wait and see what happens. Certainly I mean I think we're, no worse off than any of our competitors with steel, so I think the market it's not like I think we would lose a competitive advantage. You were - if steel prices go up rapidly in the short term, I mean there's always certainly a lag effect we seem to feel on pricing versus getting recovering it. But I think in general, I mean I think back to 2008 when - in first half of 2018 steel prices went up like 50% and yet our margins actually increased to that same six month period, because I think we were fairly proactive on pricing and even quicker to react on things such as the steel surcharges, fuel surcharges and so, where we saw you know specific things, in some cases we were able to add surcharges which mitigated some of it. So you know I we would try to react quickly, we need to see exactly how it develops. And in some of our steel pricing, I mean we were usually locked in about a month to a quarter in advance, but which is a long period, but most of our backlog flows within that period time too. So we're able to match the two quite well. But all the players will work on it, I think it's too early to see what exactly how this comes down. And I mean I'm concerned that in many of the cases that I mean there's you know not enough capacity at the U.S. to take on all the steel. So I mean you know the U.S. almost today needs some imported steel but you know just have to wait and see. I think we like it, I think we'll respond to whatever happens, there could be some but I think historically we've shown we can adapt to this. But I mean just even raw steel is about 10% of our cost of goods sold, so it's definitely an area of concern.

Okay, got it. That's great color. Thank you. And maybe turn more broadly to the supply chain, you had mentioned previously the backlog increases of course, you also mentioned in your press release there's been stretching out some of your lead time, are you finding any components or perhaps current parts and assembly in short supply right now or are the sort of lead times simply bottleneck as your own facility where you just have so much demand you can catch up?

I mean we have a couple of the internal bottlenecks, but the supply chain it's not you know we are not missing deliveries or anything due to supplier issues though I mean you know truck chassis is certainly the lead time is growing there and look you know looks like it's going to continue to grow, things like hydraulic components, certainly the lead times there are growing as well. And I mean you know we'll take this into account in our time frames recording, the lead times recording. But we still get availability of the things is just that the lead times are growing but as I said it's been within a manageable range so for, actually think like truck chassis lead times are going to continue to grow. I think hydraulic components lead times are going to continue to grow. And we're trying to probably order a little bit ahead not a lot, I mean we're controlling it fairly well. But we're trying to get a little bit ahead of that and just try to respond as quickly as we can. And you know as I worked in the improved three bottlenecks in our areas, internal areas that are due to heavy backlogs.

And as far as spring time deliveries and Ag, in March the basket does not appear to be at risk, you have enough, what you need to make the most early deliveries on time?

Yes, I think we're in good shape to get all the preseason out, I think most of it is out already but to get it all out before the spring.

Great. And then one more for me about Europe. In the fourth quarter, there were some states regulation changeovers in Europe on the heavy machinery side where some dealerships opted to buy ahead, register ahead, some did different things for different for the various OEM. Was there any effect on your business with the European regulation in the fourth quarter, was any kind of either demand from folks trying to get the regulations or any kind of push out of demand as some dealers were looking to buy their tractors rather than buy their attachment?

No, we did not see, in fact I mean you know Europe for us was very strong in the fourth quarter and you know very nice even improvements in backlog. Those like I said I think some of the state regulations affected people like more like the tractor manufacturers themselves than us. And so that seem to cause the shift. I mean I don't think this effect was anything near as strong as even say like the Tier 4 engine transformation in North America you know something I think we've been able to adapt to pretty seamlessly.

Okay, Ron, thank you very much. I will pass it on.

Okay, thank you, Mike.

Thank you. And we will go next to Tyler Etten from Piper Jaffray.

Hey, good morning, guys.

Good morning, Tyler.

I was wondering if you could talk a little bit about snow removal equipment, we obviously had some rough years in the past but there has been quite a bit of snow fall across the footprint this year. Could you just talk about how orders were in the fourth quarter and kind of your outlook for that side of the business?

Yes, you know of the snow removal, we had a couple soft winters, this winter is starting on like - this winter is snowing like it's snowing heavy, right, if you are not in west. But it started off reasonably. And so what we really think is the spare parts in the fourth quarter started off nice, I mean that's the small part of the business but that's the most profitable sector of the business and so it was good to see some early snow and some continuing snow. So you know a little bit more return to normal winter weather patterns and I think you know - it's not the whole goods backlog that picked up a lot in the fourth quarter, I mean that usually comes - that usually likes a little you would either have to have before the season or they don't get it till after the season. But it's the spare and wear parts that were nice in the fourth quarter that contributed to our results and seem to be holding up pretty good even as we moved into 2018.

Got it, thanks. And then maybe if you could talk about where you're seeing strength and you're up just kind of the regions and maybe which ones, which markets are stronger or weaker?

You know I think Europe is pretty good across the board. C3ertainly we're strongest in Central Europe, I mean England, Ireland, France, Germany those type of countries in central Europe. And for us that I mean you know it's pretty broad spread. England had been had sort of dropped off the bowls, especially following the Brexit vote and I mean they kind of you know saw orders and business decline as farmers and everybody was sort of playing a wait and see game. But you know certainly the Brexit situation is still not totally resolved. But I think you know the market has come back, form commodity prices have improved some, one of the issues was farm subsidy payments and you know what was going to happen in the U.K., you know who are they going to get their subsidies from, they've been getting it from the EU. You know England came back and sort of gave them some confidence that they're sort of going to mirror what they were getting at least for the next several years until everything sorted out, but they are going to mirror little what they had, so that helped. But generally, I think you know there's a little pent up demand I think and even in some of the governmental you know like applications for mowing and vacuum trucks and we saw very nice pick up in orders in vacuum trucks in Europe. So you know it's really sort of you know broad spread like I said probably the biggest improvement was England just because of - from the low ends of the Brexit plus it's also help that as I've said currencies there has been a headwind. I mean you know the year before, we're actually up in England, but we're down due to currencies. Now we're only up in local currency, we're up even further in dollars just because the dollar softened a little. So you know we like it, that it's pretty broad spread. Ag was good, but even like I say some of the non-Ag governmental applications were also good and then backlog has improved nicely.

Thanks. I'll pass it along.

Thank you. And we'll go next to Joe Mondillo from Sidoti & Company.

Good morning, everyone.

Good morning, Joe.

Just a follow up on that last question. Just curious, you saw organic revenue in Europe up about 7% excluding the current gains, yet segment profits were actually flat and I assume if you probably include or if you exclude currency, your profits are probably down year-over-year I would think. So just wondering what exactly going on there, is that just unfavorable product mix shift and if so do you think that sort of bounces back?

Yes. One thing as much of the mix shift is with the growth was in whole good that's like we had been often whole goods and so when it came back I mean the growth in there has been more in and the whole goods are certainly like I say spare parts that are better margin products. So I think we saw some growth in the whole goods. And the fourth quarter anyway is always a little soft usually on spare parts in that way I mean that's when the activity is little bit less, so it's - those are usually better in second and third quarters anyway. So I think it was kind of the little bit of the mix between whole goods and parts. There was - as part of some restructuring that we did last year in Europe, there was some severance expense and a few other things that probably few other expenses like that when you restructuring in a little bit I mean that's a little bit more expensive exercise in Europe than it is in North America and so we had some of that in the fourth quarter as well. And in fact I think that was probably the single biggest sort of a normal in factor.

Yes. This is Richard Wehrle. Yeah, our profits in Europe if you look at our segment reporting footnote in the 10-K, they're actually up 1.8 million year-over-year.

In the fourth quarter or without 2017?

This 2017 is on total.

Okay. Okay, so it sounds like it's probably safe to say that those severance expenses and then your random expenses fall off and spare parts most likely will come back obviously so it's probably fair to say that expansion in margins given growth in volume which seems to be the trend should return?

Yes. We think so because like all of our units had nice improvement in backlog, Europe probably had the biggest increase in backlog.

Okay. And I just want to clarify something that I saw in your 10-K and then it also comes through sort of in your release, it's a little confusing to some extent. You're sort of highlighting signs of stability in 2018 maybe some slowing of growth, but on the other hand, you're finishing 2017 with record backlog, it's up like 40% year-over-year. So the order trends seem like they're really strong. So I'm just a little confused on what signs of stability you're slowing are toeing of growth or maybe not toeing but slowing up growth, are you sort of seeing if backlog in orders are so strong?

No, I think what we're trying to say that the comparable are going to be harder in 2018. I mean 2016 sales were actually down, 2017 they were up nicely. Profits were up I mean like 25% almost a quarter. So I think when we say, it's not that the growth slowing but the rate of change is going to be different. I mean we're not going to 25% better in the quarter.

I see, okay. I understand.

But we can still do better. But the comparables 2017 to 2017 comparables were easier but 2017 was records across the board and so to have even do even better in 2018 which we think we will do but it's - the growth isn't going to be double-digit growth across the board.

I see, I understand. In terms of sort of the productivity improvements that you are sort of generally talking about, it sounds like I think you used the word in the release or 10-K sort of increased focus on operational productivity initiatives, which sort of reads to me that you're going to increase what you've maybe done in the 2017, at least. So could you talk about what you're actually doing per se, what segment are you doing it out and we think this helps, if there is a bigger focus this year, that should maybe help drive consistent incremental margins that you saw last year even though you're in see maybe a little slightly slower growth given the comps on a volume perspective?

Yes. And certainly this is being driven somewhat by a slight some increases in backlog and some lead times lengthening that we feel we don't want those to get too far out. And so we've always got a number of it. Every year we're investing in our plants I mean more robot welders, more laser cutter and more technology in general and just that this year since there is more backlog and you know last couple years they have been fairly modest, flat. This year's if we are - we're undertaking a few more of those projects than we have like I say we do a couple every year. Now this year, we're probably going to do twice as many. And so already I think we start off I mean. And it's fairly broad based, we just put in a unit in a little expansion in France with the new press brake and new laser cutter, we just approved literally this week of fiber laser and Gibson City, Illinois, we've already I mean just to prove to put in a new robot and McConnell upgrading our production line and Bush Hog. And so I mean I like to say it's just a few more initiatives than we usually would take just because of the backlogs and us willing to keep our lead times reasonable. So it's not dramatic, it's not like CapEx is going to double or anything, but it will be above, this as we take down a few more projects and probably take them on a few earlier. There's also like I know there was one thing that we had a facility in Washington that we had been under a lease with the purchase option. The purchase option came up, it was a good deal, so I mean it's like $3 million and that's something we usually don't do every year by out of plan but like I say was just the economics were right to do the then. So there's - so that's a bit of normally. But yeah just doing a little bit more than we normally do.

So just in terms of that and then just all the other sort of variables within the business which seem like they were mostly trending the right way. Just thinking about gross margins, you're obviously I think I like record high gross margin, just wondering what you think about how much high, how high could gross margins get, do you continue to expect expansion in 2018, are we going to reach a point given just your business model where there's not a whole lot to squeak out anymore or if you continue to see volume, do you expect gross margins to continue to expand?

Yeah, I mean we've been saying all along that we need to be a double-digit operating profit margin. I mean this year - last year, we were in 2016 we were at 8.6%; in 2017, we were at 9.7%. 9.7% get awfully close to double-digit. And - but we're not trying to get to 10%, we can do above 10% and so we think that - I think once we hit the double-digits that growth at the top - the operating profit margin may slow a little bit because while we still want to improve it at that point we want to really more focus on sales growth than just continue to see how far we can drive the profit margin. So I mean I thing where we are, we still want to improve our operating margins and I think we can, like sales obviously help in that, we get there quicker, while we made more progress this year than the previous year just because we have more sales. And so yes, there's still room to improve the operating profit margins. And even once we get to the double-digit, we will still work on improving them but I think shift a little bit of the focus more to top line growth than just seeing now how far we can push the margins. We want to take market share, we want to grow the presence in the market, so like I say there will be a slight shift but not - but I mean we'll still work, we're not finished by any means of improving our operating profit margins.

Okay. And in terms of the operating profit margin goals and expanding those, is it more so on a cost of goods sold basis or more so on SG&A basis. I'm just wondering those 26% or so gross margins, how much higher do you think those can get to?

Yeah, I think they have - there's potential at both sides of that you know like yes, top end model.

Okay. Just lastly the steel question. Just wondering more specifically on the Ag segment, which I think is probably the segment that's most affected by steel and if the company's 10% of COGS, I would think the Ag segment is probably more than 10%, just looking at that segment generally. Wondering in this Ag environment that we are in, how easy is it a pass through price given sort of just the overall Ag macro-environment?

I think modest prices are we can pass them along pretty regularly, I mean even during the downturn of the Ag market for the last several years, I mean we've actually had positive pricing increases every year. So very modest, very modest but positive. And you're right, in some pieces of Ag, won't getting pricing in some other specific areas. But I think if we can do it in sort of the worst Ag decline in the last several decades then I think we can do it especially, because this time we won't be alone and I mean like I said everybody's going to be faced with the same thing. And I think - forget us but even the John Deere and the New Holland and those are usually fairly aggressive, it adding steel surcharges and this kind of stuff. And I think when the big players do it, it's much more accepted for people like us to do it.

Okay. That makes sense. All right. Thanks a lot. Appreciate it.

Okay. Thank you.

Thank you. [Operator Instructions] We've got Mike Shlisky from Seaport Global.

Hi, guys. Thanks taking my extra questions here. I'm not sure if I miss this, I've been searching for it. Could tell me if there was a currency benefit in the backlog?

Yeah, there will be a little bit in there, Mike compared to year-over-year.

A little bit?

Yeah.

Okay. Okay, got it. And then just secondly, can you maybe give us just your thoughts of maybe the two or three most important new products to watch in the Alamo portfolio for 2018?

We have so many products between the divisions, but - and things like - and so we - it's not just one or two, it's half a dozen. We've got this week we're coming out, we're real pleased with we've got expanding our remote control more business, some new opportunities on some of our own powered platforms in the governmental mowing business. I mean our Bush, our Ag guys have a couple new mowers that we introduced at the recent February Ag show that we're real pleased with and had a pretty good response from the market on. Like I said it's not one thing that's going to, it's a dozen things, dozen new products that we think it all are going to help in a small way rather than one thing that's going to help in a big way.

Okay. Fair enough. Thank you.

Thank you.

Thank you. [Operator Instructions] There are no other questions in the queue at this time.

All right. Well thank you for joining us today. We appreciate your participation and your interest in the company. Please don't hesitate to give us call if you have any questions. We look forward to speaking with you on our first quarter conference call in early May. Thank you for participating.

That does conclude today's conference. Thank you for your participation.