EnerSys (ENS) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 EnerSys Earnings Conference Call. My name is Steve, and I'll be your operator for today. [Operator Instructions] And as a reminder, this call is being recorded for replay purposes. Now, I would like to introduce the call to John Craig, Chairman, President and CEO. Please proceed, sir.

Thanks, Steve. Good morning and thank you for joining us this morning. Last night, we posted on our website slides that we're going to reference during the call this morning. So if you didn't get a chance to see this information, you may want to go to our website, which is www.enersys.com, and look under the Investor related tab to view the slides. Before we get into the details of our first quarter results, I'm going to ask our CFO, Mike Schmidtlein, to cover forward-looking information. Mike?

Thanks, John, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are based on management's current views regarding future events and operating performance, and are applicable only as of the dates of such statements. For a list of factors which could affect our future results, including our ending estimates, see forward-looking statements included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in our quarterly report on Form 10-Q for the quarter ended June 30, 2013, which was filed with U.S. Securities and Exchange Commission. In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's Form 8-K, which includes our press release dated August 7, 2013, which is located on our website at www.enersys.com. Now let me turn it back to you, John.

Thanks, Mike. Last night, we released our first quarter financial results of $0.83 per share, which exceeded our guidance of $0.78 to $0.82 per share. Reflecting on our results was an increase of lead cost of $11 million or approximately $0.16 per share. As you may have seen, last night, we also released our second quarter guidance of $0.81 to $0.85. Typically, our second quarter is our lowest-revenue quarter due to vacation season in Europe and the Americas. However, in the second quarter, we will start to see the benefits sequentially declining commodity cost, which will help offset some of the seasonal drag. Our second half of fiscal results should be much improved over our first half of fiscal '14 due to the combination of higher selling prices, volume and stable commodity costs. As you can see on Slide 3, we reported record quarterly sales of $597 million. Our gross profit was 23.5%, operating profit margins were 10.6% and earnings per share were $0.83. It's important to note that the first quarter marks our sixth consecutive quarter of operating earnings that exceeded our minimum target of 10%. On a year-over-year basis, our earnings per share were down $0.12 due mainly to the increase in commodity costs. When these costs rise, our pricing actions typically trail by 1 or 2 quarters. Now I want to update you in some recent actions we have taken to continue to decrease shareholder value. In June, we paid our first-ever quarterly dividend. And on August 1, our Board of Directors approved a quarterly dividend of $0.125 per share payable in September. Also during our first quarter, we bought back $22 million of EnerSys stock, and we will continue to buy back stock in our second quarter. Our board previously authorized repurchase of approximately $82 million on our stock. On August 6, we announced an amendment and term extension of our $350 million credit facility. This amount extends the maturity of our credit agreement to September of 2018, ensuring the company access to committed liquidity so we can execute our long-term goals. We have a number of acquisition opportunities, some of which we anticipate completing before the end of this calendar year. As you can see on Slide 4, we have been very successful in our M&A activities and we will continue to invest in companies that are good value and provide an appropriate rate of return to our shareholders. And I'd now like to comment on current business activities. Both our incoming order rates and order backlogs support our projected second quarter guidance. Over the past 3 to 4 months, our Europe, Middle East and African business has experienced year-over-year growth in all segments. The Americas growth is positive, with the exception of our aerospace and defense, which is down slightly. Our Asia business continues to be a see-saw horse. This order activity, along with the global economic data, also supports our belief that our second half of fiscal 2014 will be stronger than our first half. In closing, EnerSys employees are highly motivated, focused and driven for growth and to see our company reach the $4 billion range in the coming years. We have a minimum of 10% operating earnings. With that, I'd like to turn it over to Mike.

Thanks, John. For those of you following along on our webcast, I am starting with Slide 5. Our first quarter net sales increased 1% over the prior year to $597 million, primarily from volume. On a regional basis, our sales in Asia decreased 25% in the first quarter to $51 million, while Europe's first quarter net sales decreased 3% to $231 million, and the Americas were up 9% to $316 million. In the Americas, organic volume was the reason for the increase. In Asia, volume declined 21% due to the completion last year of a large order from a customer, along with lower pricing of 4%. Europe had a 4% volume decline, partially offset by 1% higher pricing. On a product line basis, net sales from Motive Power were flat at $304 million, while Reserve Power increased 1% to $293 million, reflecting 2% higher volume, offset by 1% currency declines. Please now refer to Slide 6. On a sequential quarterly basis, first quarter net sales were up 4% to the fourth quarter due to 5% higher organic volume. Asia was up 14% and the Americas region was up 11%, while Europe declined 5%. The decline in Europe was primarily in reserve power line of business. On a product line basis, our global Reserve Power business was up sequentially 5%, while sales in our Motive Power product line were up 4%. Now a few comments about our adjusted consolidated earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our company's operating performance, specifically excluding highlighted items. Accordingly, my following comments concerning operating earnings and my later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our company's Form 8-K, which includes our press release dated August 7, 2013, for details concerning these highlighted items. Please now turn to Slide 7. On a year-over-year quarterly basis, adjusted consolidated operating earnings decreased approximately $8 million, with the operating margin down 130 basis points. On a sequential basis, our first quarter earnings increased over $4 million with the sequential operating margin up 30 basis points. From a historical perspective, operating earnings remained strong at 10.6% of sales. The declines from the prior year reflect higher commodity costs, while the increase from the prior quarter is due to higher volumes. Our Americas business segment achieved an operating earnings percentage of 13.2% versus 15.4% in the first quarter of last year, primarily from the effect of higher commodity costs. On a sequential basis, the first quarter declined 30 basis points from the 13.5% margin posted in the fourth quarter, also on higher commodity costs. Europe's operating earnings percentage of 7.0% was below last year's first quarter of 7.3% and previous quarter's 7.4% on higher commodity costs. The operating earnings percentage in our Asia business segment decreased in the first quarter of this year to 10.3% from 13.1% in the first quarter of last year, but was up from 5.5% in the prior quarter. Asia's operating earnings were $5.2 million for the first quarter, reflecting 25% lower revenue from the prior year as discussed earlier. Please move to Slide 8. As previously noted on Slide 7, our first quarter adjusted consolidated operating earnings is $63 million with a decrease of 11% in comparison to prior year with the operating margin declining 130 basis points to 10.6%. Excluded from our adjusted operating earnings for the first quarter was approximately $0.4 million of highlighted items. Our adjusted consolidated net earnings of $41 million also decreased 11% from the prior year to 6.9% of sales for a 90 basis point decline with the book tax rate decreasing to 28%. EPS decreased 13% to $0.83 on lower net earnings and higher shares outstanding. The higher average diluted shares result primarily from our convertible debt, which become dilutive when our shares rise above $40.60. This dilution added over 600,000 shares to our EPS calculation, which decreased the EPS by $0.01 in our first quarter. Our adjusted effective income tax rate of 28% for the first quarter remained flat with the prior quarter. We believe our tax rate for the second quarter of fiscal 2014 will be between 26% and 29%. And for the full year, we expect a 28% rate. Please now turn to Slide 9. I have some brief comments about our financial position and cash flow results. Our balance sheet remains very strong. We now have $240 million on hand in cash and short-term investments as of June 30, 2013, with over $450 million undrawn from our credit lines around the world. We generated over $34 million in cash from operations in our first quarter of fiscal 2014. Even after $28 million of share buybacks and dividends in the first quarter, our leverage ratio remained near 0. As John mentioned and noted in our subsequent events footnote to the 10-Q and our press release, we recently concluded an amendment and extension of our U.S. credit agreement and comparable pricing with greater flexibility. This new agreement expires September 30, 2018. We believe current market conditions are favorable and that having over 5 years remaining on this facility allows us to execute on our longer-term goals. Capital expenditures were $13 million in the first quarter of fiscal 2014 compared to $16 million in fiscal 2013. We expect to generate adjusted diluted net earnings per share of between $0.81 and $0.85 in our second quarter of fiscal 2014, which excludes expected charges of $0.05 per share from our restructuring programs and acquisition activities. This guidance reflects slightly over $0.01 of dilution caused by our convertible debt's conversion premium, which I previously mentioned, becomes dilutive when our shares exceed $40.60. This may add between 800,000 to 1 million shares to our diluted shares outstanding, depending on average share price in the second quarter. We anticipate our gross profit rate in the second quarter to rise to the 24% to 25% range as a result of lower lead cost. On a longer-term basis, we expect to sustain our goal of 25% by the second half of our fiscal 2014. In conclusion, we continue to believe we are well positioned to take advantage of future opportunities. Now let me turn the call back to John.

Okay. Before I open for questions, there's a correction that I do want to make. I misspoke my prepared comments. I said that our Asia business were soft orders. What I should have said is, our Asia business continues to see solid orders, that the Asia business is doing very well for us right now. So with that, let me open the line up for questions.

[Operator Instructions] It's from the line of Michael Gallo from CLK. Michael W. Gallo - CL King & Associates, Inc., Research Division: A question on Europe. I thought I heard you say, John, in your prepared remarks, that the orders in Europe, Middle East and Africa were positive the last 3 or 4 months. Is it a steady kind of improvement that you're seeing in Europe? Is it broad-based across Motive and Reserve? Were there certain areas that you're seeing pick up and others that are still kind of lagging behind?

When you take a look at the data on reserve power in Europe, the order's coming in right now. They're running higher than they were in last year, while we still think there's a lot of opportunities once 4G kicks in for our reserve power business in Europe. So it's running much better than it did a year ago. The total Europe, you're look at 4-week average, were up over 3% compared to the prior year. So there's an article on Wall Street Journal this morning about things starting to get better in Europe and specifically in Germany. We happen to see the same thing as in that article. We are seeing a gradual and slow increase in business over there. Our motive power business is doing very well right now. And as I said, our reserve power business is up and anticipates it's going to be up by quite a bit more. But I think there's going to be a -- I agree with the article this morning, it's going to be a slow comeback.

And your next question comes from the line of John Franzreb of Sidoti & Company. John Franzreb - Sidoti & Company, LLC: Just to stick on the European thing here. Sequentially, revenues were down in the region, but the operating margin was up. Looks like you're starting to get some traction in your cost savings initiatives. Can you just update us on the status of that when you expect to hit that 10% target? That would be great.

Well, I think what you see coming through is there is some cost savings, so I think bigger than that or larger than that, it's really the pricing. And you recall from prior calls, I made a statement that in Europe, we are going to go after pricing, we're willing to walk away from low-margin business. We want our competitors to have the low-margin business. If we have to resize our business in Europe to get our 10%, we will do that. The action plans is not something you can do overnight, because there are long-term contracts that we have. But we are steadfast on going after pricing in Europe. The investments that we've made in our product designs, the investments in our people, that what we do from a quality standpoint, what we do from a service standpoint, we believe that we're best value and we want to be sure that we're getting the proper price to match that best value. So to answer your question, I think you're going to see more coming at us in cost reductions in orders going forward than they actually did in this quarter. I think, again, what picked up in this quarter was pricing and I think you're going to see additional pricing take place in future quarters. John Franzreb - Sidoti & Company, LLC: Great. And John, you mentioned, you expect M&A to some sort of an acquisition between now and year end. How about a little more color there. Are we talking about product extensions or is the priority still a regional acquisition to extend and maybe a geographic reach?

Well, John, I never get specific on these things at this stage. For a lot of reasons for that, we are under nondisclosure agreements with a number of different companies that we're looking at acquiring right now. There are these... John Franzreb - Sidoti & Company, LLC: [indiscernible] That was broad enough.

Well, we're going to keep it that way, too. But I can assure you if you look back in our history, since 1994, we bought something like 34 different companies. We have a track record -- pretty good track record of integrating those companies, and our management team right now is extremely busy with a number of things that we have going on. And we're going to continue to invest our shareholders' money into things that give good returns and continue the history that we have.

Your next question is from the line of William Bremer from the Maxim Group.

Let's go into Europe here. If I heard you correctly, you said Reserve Power is up through -- about 3% year-over-year. Can you give us an update on the Motive side there? And then secondly, let's go into Asia, you said the order's coming in. Incoming order rates are solid. Also same question, both sides, Reserve and Motive? And do you believe that pricing in Asia is better than it was year-over-year?

Yes. I think a couple of things [indiscernible]. If I said 3% on reserve, I misspoke. It's 3.2% in total within the 4-week average. And then that Motive is up considerably higher than the Rreserve Power business, and I don't want to break those down any further than that, the European side. In the Asian side, Asia is kind of an interesting thing to take a look at. Because last year, we had a program going on, on a major build out that took place in Japan. It was very high volume for us. It was very good margins. If you look at this year, we do not have that same contract in place. In other words, the build out has been completed. Now we are seeing some orders coming in from that customer, but not the same magnitude as last year. So what we did was we said, let's take that particular customer, that program, out of both years and look at them. And what we found is that our business x that 1 contract, that large program that we had going on, our business in Reserve Power in the rest of the Asia market has picked up very nicely. And more importantly than that, the margins have picked up very nicely, and we are getting pricing. What we found -- in fact, one tender offer that we went out with that out of the battery companies that put in on us, there were roughly 30, and on pricing, we were #29 on the list. The next year, we held the same pricing and we went from #29 to #3. The point the story is, all of our competitors went up in pricing. And the reason they went up for pricing was because of the added cost associated with what's happening with lead in the China market. So I'm pretty encouraged right now in what I see in the base business in the Asia market. Reserve Power business and telecommunication companies are spending again, and it's working out very well for us. Now you questioned on Motive Power side, we've all read about the slow up in China, and we're seeing a modest slow up in our Motive Power business in China, but nothing that bad. It's still going to be north of a $70 million business this year for us. So we're very pleased with it, given that you go back 8, 10 years ago, we weren't in that business at all in China. So all in all, looking pretty good.

Good color, John. And then let's go into the Americas. Very nice, and if I believe I'm correct on this, 9% -- a little over 9% organic growth there, very solid. Just wondering, were able to secure any material wins due to one of your peers having some issues?

Well, it goes back again whether our peers are having issues or not. We're looking at the competitive market and it goes back to what I said earlier about Europe, that I believe that we provide a value to customers that is higher than what our competitors do. And there are certain customers out there that are going to buy just on price, and that's all they're going to buy in. There are other customers out there, they're going to buy on the total cost of ownership. And those are the customers we want, that's our business model. It's really looking at the total cost of ownership. From the time you buy the battery to the time the battery is worn out, and how we service that battery, how we take care of that customer. So we've had some business come our way because of the competitive phase, but I think a lot of that has to do because of what I've just talked about, about in providing best value. I also will say that, in Europe, I don't think that the customer base over there looks at the value equation as when they do in the Americas. So that's why I think in part we'll do better in the Americas than we do in Europe. We plan on changing that in Europe, however.

And John, my final one. Just briefly, what is the average length of time on these industrial contracts? It a year, is it 2 years?

They vary across the board. But some of these, there are multiple years, typically it's going to, I would say, average more than 1-year period.

And your next question comes from the line of Tim Mulrooney from William Blair.

I just wanted to make sure I heard you correctly on that last question, John. Did you say that recent orders in the European Motive business are up year-over-year?

I said that they're not up at the same level as they're up on the Reserve Power level. When you take a look at our orders right now, you got to remember, we are going into the seasonal slowdown. They are running down to where they were. But if you look on an 8-week average, the orders year-on-year are up about 4% over prior year. Now the other thing to take a look at is the Industrial Truck Association data. When you look at electric fork trucks and what's being ordered, and this is looking at Europe, Middle East and Africa in total and looking at the month of June, which is the most recent data we have, the Europe, Middle East and Africa data, electric fork trucks is up 4% this year over last year, which again is indicative of a turnaround that we're seeing start to take place in Europe, because companies are ordering new electric fork trucks. Obviously, there's a reason for that, that we believe that to be the economy is picking up. And usually, when you see that data in June, it's about 10 to 20 weeks later that we actually will see the batteries orders come in that we will ship towards those.

Okay. And then just overall in the motive business, can you talk about how it trended throughout your first quarter from month-to-month? Was June better or worse than April and May?

Mike, do we have that data here? I can tell you on the orders and we tend to look at it more in quarters. I can tell you, if you're asking specifically in the Americas that -- let me try it this way when Mike is looking up that information. When you look at the Americas in total, again, looking at the ITA data, and June compared to June last year, it's up 8%. When you look at the trailing 3-month average. This is June, May and April, you look at that period of time and compared to a year ago, that same 3-month period, it's up 10%. So the trajectory on electric fork trucks is up about 10% in this last quarter compared to what it was a year ago. Now do you have numbers on our actual month-to-month?

Well, if we're talking about ITA order activity, you can see how that looks on a monthly basis. And then broadly, in the Americas, it's increasing.

Well, that supports what I just said on the increase...

So in terms of Motive on a global basis, I don't have that data in front of me.

And your next question is from the line of Elaine Kwei from Jefferies.

I think on the last call, I think you guys have said that the 4-week average order rate held up, that revenue could be as much as $2.5 billion this year. I was wondering if you have any update on that, and it sounds like orders are still doing well.

Orders are doing well. We are seeing the seasonal slow up that we've talked about in the past. So if you look at the order pattern today compared to what was, let's say, 2 months ago, it's obviously down. But if you look over the history of our company and you take into account the seasonal slowdown that takes place because of vacation time in Europe and the Americas, we're running quite well right now. And we do anticipate that orders will pick up considerably in the third quarter as they have every year. I said earlier that I think our second half is going to be much stronger than our first half. And I want to give you a little bit more color on why I say that. We take a look -- and I would go back a little bit on lead cost here. I'm going to talk about the LME lead cost which -- and I'm going to line it up on how it hits our P&L. In other words, I'm not going to give you the exact numbers of what our lead cost was. I'm not going to take into account any hedging programs or anything like that, but I'm going to talk about the LME and how it hits our P&L. And I think this will really give you a picture of where I think we're going as a company. I'm going to go back to third quarter of last year. The third quarter last year with the LME equivalent, it hit our P&L during that through the of time of lead, was $0.87 a share. Our EPS during that period of time -- I'm sorry, $0.87 a pound. Our EPS for that period of time was $0.88 a share. In our fourth quarter, lead went from $0.87 a pound up to $0.99 a pound. Our EPS went from $0.88 down to $0.80. You can see the impact of lead, what happened to us, $0.88 in Q3, $0.80 Q4. Then we come into Q1. As you know, we reported $0.83 for Q1. Lead jumped from the fourth quarter at $0.99 up to $1.05. So when you look at them from $0.80 to $0.83, and lead went from $0.99 to $1.05, I'm pretty pleased on how we ended up this quarter, that's why we beat our guidance. I'm pretty excited about that. Now look at Q2. Q2, what happens is lead goes from $1.05 on the LME equivalent, down to $0.94, our EPS base at $0.83. And doing the math, we looked at it, the reason it's come down so much, the lead savings that we are seeing in Q2, that we're forecasting in Q2, is offset by the lower volumes that are coming to because of the seasonal shutdowns that take place. Now let's look at lead in July and August. We're halfway through the quarter relative to last time it hit us in the third quarter, that's because the price was flat. Lead right now, that's going to be us in the third quarter is approximately equal. In fact, it's slightly less than the $0.94. So if you take a look at the whole thing that's going to happen here, on the second half this year, I'm anticipating we're going to see lower lead cost, which the numbers support that, I'm anticipating we're going to see higher pricing come through. Because when lead was at $1.05 back in Q1, we haven't recouped all that yet, but we plan on recouping that in Q3 and Q4. And the third thing, once that summer slowdown or vacation goes away, we'll come back with higher volumes. Lower lead cost, higher pricing, higher volumes Q2, while a stronger second half than the first half.

That sounds fantastic, John. Actually, there was a small -- there was a blip in the lead cost in -- I think it was in early June. Was that enough to have any impact or not so much, given the purchasing and the hedging that you already had in place?

The blip in early June, again, what we look at on our lead pressing is going to be in a month average. So there may have been 1 day or 2 where it jumped up there. But the June -- well, the average for the month of June came in about $0.95 to $0.955. And to John's point, Elaine, we take for our lead based on the average of the month, so it spikes in 1 week or 2, and that for us doesn't impact us, but on a longer-term scale that the cost that we saw starting to rise last September that started to hit our P&L in January of 2013. This is -- it's flushed its way out now, because back in April, those costs started to recede from over $1.00 into the mid-90 range where they are today. So that's why John feels pretty comfortable based on where lead is today, that we should see margin expansion. Because the pricing that was trailing that blip as it went up over the last 6 months and it's now down. When pricing comes through in a trailing motion and lead stays stable, you will see our margins grow and they will be -- and then as I've said in my script, 24% to 25% or better range for the second quarter and then beyond in that. So I think it's -- right now, we feel pretty good about lead. And if it stays relatively stable, that bodes well for us. Your earlier comment on the orders, you were right. Back when we had our last call, in that timeframe, we were averaging over $10 million a day in orders which would, for the 250 working days that we calculate, we calculate out to $2.5 billion current order rates received, but that always happens in advance of the summer slowdown period. So $2.5 billion, I wouldn't necessarily back down from that number. That would be an optimistic, but it's on the higher range of what is feasible for this year.

That's great color. And just one last quick thing. I think I heard you say earlier that the 5% sequential sales decline in Europe was due to reserve power. I understand that order's up, but I was wondering if I'd heard that correctly, that in the past quarter, that there was actually a decline there and if that was from any weakness or delays in telco or anything else?

Well, on that one, because it is so choppy from program-specific, I would say that, that one becomes a little more difficult to say. And in the Motive side being more tied to a broader base, it is less choppy. So we try not to read too much into the reserve power, because it is so program-specific. But I think your thesis was broadly correct.

[Operator Instructions] And your next question is from the line of Jeff Osborne of Stifel. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Most of my questions have been answered, but I just had a question on the OpEx run rate. It was a little bit lower than what we thought this quarter. Is a high-70s trajectory what you're expecting over the next quarter? Or how should we think about any type of investment you're making in staffing?

Look. Operating expenses were a little bit lower compared to the run rate. Some of that has to do with -- they were higher in previous periods in part because of the recent acquisitions we have made 12 to 18 months ago, which traditionally have higher costs initially. Some of the integration programs started to take effect on those. So those start to go down. There's also the timing issues of, among other things, our incentive comp programs internally, but generally gets settled up in the first quarter, which can have an impact on it as well. So I would say Q1 was a little lower than the run rate you would expect, but we typically measure it as a percentage of sales and not so much as an absolute dollar amount. So I would say it's at the lower end of the range that we think is pretty reasonable. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Great. On the pricing front, maybe just an analogy here, but if it were a baseball game in your attempt to increase prices, what inning would you say we're in? You mentioned that you're trying to raise prices going forward. But based on your end destination, I just want to get a sense of progress that you've made in your own view?

We're in the fourth inning and that's because of long-term contracts that we have to let expire. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: I understand. And then 2 other quick ones here. Any thoughts, following up on Elaine's question, reserve side, any discussion percolating here on European wireless upgrade? Would you say activity is better, worse than planned?

Yes, just when you think you see things going in a positive direction, whether then something else pops up on -- in Europe on it. But their 4G is starting to be deployed, there's no question about that, it's at a very slow pace though. So it's going to take longer than we originally thought before we really start to see 4G kick in. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Perfect. And the last question I have for you is just with the market share -- or sorry, with the bankruptcy of one of your competitors, at least here in the United States. Is there any irrational behavior on pricing or through distributor channels that may have caused some market share shifts in the quarter that may reverse themselves in the second half? Or just what are you seeing in the channel in general?

No, I don't think it's -- when you have somebody that goes into bankruptcy or whatever, and then they also then get financing come back through. And they know that their situation of margins are low, I would think, and I don't know this, but I would think that they probably would go after pricing as opposed to go in lower pricing. But no, we're not seeing anything out there that is disturbing on people undercutting pricing.

And your next question comes from the line of Howard Rosencrans of Value Advisory.

I'm going to hold you to trying to -- reflecting back on analyst day meeting, John, you talked about being more aggressive in terms of returning money to shareholders and/or on the acquisition front and I know you don't want to provide a ton of color on the acquisition front, but you made what I consider to be in light of your capital structure, and I got the sense it would -- that you concurred a relatively modest return of capital to shareholders. Where do you stand in that regard? Am I accurate in that or do you see it being meaningfully increased over time or...

Well, I think you're right. Since that period of time and some of the actions that had taken place, in fact, specifically the conversation we had and I agreed with you that we have to look at how we return value to shareholders. Since that time, we've been -- and our Board of Directors approved $82 million in stock buybacks, which were, to date, we purchased $22 million. So we have a ways to go in that program. Since we met at that particular point time that we have started the dividend, $0.125 a share. There will be discussions in the future looking at our balance sheet and projecting ahead where we think the balance sheet will be, should we increase that dividend. And I would say that, that's around the possibilities that we would consider doing that. I've also mentioned that we have a number of things going on. In fact, we're extremely busy right now in the M&A front. So we have to mix all things together, the M&A, the stock buyback, the dividends, and ask ourselves what's the best way to return that value to shareholders. And if you go back and you look at -- again, when we were $200 million of the company, that's roughly $2.4 billion. We've increased our value of this company from something like $330 million to about $2.5 billion. And we want to continue on several trends of that and watch it grow. As I've said before, we want to be a $4 billion company at 10% operating earnings, and that's going to come through taking up some quality market share and it's also going to take income and a few acquisitions. So to hit that target, it's going to take some capital. The answer to your question is we need and we will stay focused on getting best value back to our shareholders, a good return. And it will be in the form of acquisitions, it will be in the form of dividends and it will be in the form of stock buybacks.

As a reminder, that -- the $4 billion on 10%, was that a 5-year target?

Yes.

And now I would like to turn the call over to John for closing remarks.

Thank you, Steve. As I think you can see, we're very bullish on where we're headed. We've gone through a tough period here with lead jumping way up. As I mentioned earlier, going from Q4 at $0.99 lead on the LME to $1.05. I'm extremely happy with how our guys, our people, our employees, our associates have worked through this tough period of time of lead going up. And unfortunately, we've hit, what I consider to be, the high point when it was $1.05. Numbers reflect that $0.94 is next quarter and beyond that, even slightly lower than that. And I'm feeling pretty positive with what I'm seeing. Happy the way we've got through the first 2 quarters, but looking very forward to the second half of this year, because I think that we have a potential, a potential of seeing a record second half for our company. So with that, thanks for your interest in the company. And everybody, have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.