EnerSys (ENS) Q1 2018 Earnings Report, Transcript and Summary

Good day ladies and gentlemen. And welcome to the Q1 2018 EnerSys' Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce President and Chief Executive Officer of EnerSys, David Shaffer. Please go ahead, sir. David Shaffer Thanks, Andrew. Good morning and thank you for joining us. On the call with me this morning is Mike Schmidtlein, our Chief Financial Officer. Last evening, we posted on our Web site, slides we will be referencing during the call this morning. If you didn't get a chance to see this information, you may want to go to the webcast tab in the Investors section of our Web site at www.enersys.com. I'm going to ask Mike Schmidtlein to cover information regarding forward-looking statements.

Thank you, Dave, 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 date of such statements. For a list of factors that could affect our future results, including our earnings 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 fiscal year ended July 2, 2017, which was filed with the 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 9, 2017, which is located on our Web site at www.enersys.com. Now, let me turn it back to you, Dave.

Thanks Mike. On Wednesday, we announced our first quarter results of $1.12 per share which was in the middle of our guidance range of $1.10 to $1.14. You will notice on Slide 3 that in spite of a commodity price recovery of only 70%, our earnings per share was lower by just $0.02 versus last year's first quarter. As we've mentioned in the past, it takes several quarters to fully implement price increase due to rising commodity costs. It is also important to note that the simultaneous increase in sales and cost of goods sold from rising commodity costs will mathematically dilute the gross profit percentage. An additional impact on operating earnings was an increase in operating expenses from higher spending on our Lean initiatives, Digital Core installation and new products development. Although, this rise in spending will not lead to any meaningful benefits this fiscal year, it is imperative to invest to position ourselves for the expansion of our addressable market, future growth and cost reductions, from which increased profitability will follow. Please turn to Slide 4. There were several offsetting factors that impacted operating earnings in our first fiscal quarter. In the Americas, we were able to match our first quarter operating earnings percentage record of 15.4%, in spite of the increased expenses in engineering, SAPs European human resource information systems, salesforce.com and Lean consulting. These additional expenses were offset by our cost reduction efforts and lower selling expenses. Europe, Middle East and Africa, experienced similar cost reductions and operating expense increases as the Americas, with the exception of SAP which is already installed in EMEA. However, reserve power volume was down almost double digits as the telecom and aerospace and defense businesses caused the majority of the volume decrease. In addition, reserve power pricing recovery in the region lagged the Americas. These were the main reasons for operating earnings percentage dropping to 6.8% for the quarter. In Asia, the operating earnings percentage dropped 1% to 4.7%, which was mainly a function of decreased reserve power volume for lower telecommunications spending in China and India. Motive power experienced strong volume growth. Please turn to Slide 5. I want to briefly review our global businesses. In motive power, the Americas had a very strong fourth quarter of FY '17, in part because customers responded by buying in advance of the April pricing increases. Currently, we're back to a steady order growth pattern. EMEA continues to experience low organic growth, while Asia enjoys much higher order rates. As we discussed at our Investor Day, Chinese motive power market should grow at double digits and become the world's largest market by 2025. In reserve powers EMEA region, sales from some recent large orders should fall into our third quarter. Code activity in the EMEA region is currently strong and this may turn into more increased orders and sales in our second half of fiscal year 2018. So far this fiscal year, EMEAs reserve power business has remained a disappointment. In Americas' telecom business, we're taking market share, which keeps our organic growth flat in a market that is slightly down. The uninterrupted power systems market in the United States and Europe continues to good. We recently announced the award of approximately $60 million in global space contracts, for lithium ion cells and batteries. This award illustrates the continued strength of our market position within the aerospace and defense sector worldwide. Sales from this award will be spread over two to three years. During our second fiscal quarter, we expect our pricing recovery rising from commodity cost will be 85% or better. Based on the above trends and information our earnings guidance for our second quarter is between $1.03 and $1.07. Our second quarter has traditionally been our weakest quarter. Please turn to Slide 6. As I mentioned earlier, we experienced a year-over-year increase in general, administrative, and engineering operating expenses due to long-term investments in our digital core, lean initiatives, and product roadmap. These additional costs will not always match up perfectly with our savings, but we are on track with the cost reduction plan outlined at our Investor Day. In addition, we elected to accelerate product development, which is putting additional pressure on our operating expenses in Q2. Our key focus is to expand our global addressable market and sales CAGR, increase new product innovation and be less reliant on the motive and telecom markets by expanding into energy storage systems and transportation. Engineering expenses have risen year-over-year in quarter one as we build our engineering systems group to enhance our electronics, battery management systems and new products development capabilities. I am really excited about the progress our CTO Jörn's team is making. As a reminder, under our battery - our modular battery concept, we have flexibility in chemistries and applications to address multiple markets, which we will provide advanced capabilities and economies of scale. In the Americas, we have trained all of our sales personnel in the use of salesforce.com and approximately 75% of all cotes are going through the new system. This represents a significant first step in our sales order automation process. Our EMEA sales team will launch salesforce.com at their September sales meeting. SAP is online in our Hays, Kansas facility and the implementation was successful. Our transformation to lean concepts has begun in Richmond, Kentucky and France. To date, we have only touched 16% of our cost of goods sold in value streams. We estimate that this transformation will last over many years, but it is already exciting to see how our employees embraced the new lean ideas and processes. Please turn to Slide 7. We will continue to provide investors with information metrics pertaining to key initiatives and cost assumptions, which we introduced at our Investor Day. In closing, our core organic markets are stable and at good historic levels with the exception of reserve power in AMEA. However, with the recent large wins and increased code activity, we are hopeful this market will also improve in our second half. The lean transformation has begun and our new product development efforts are on track. We remain excited about EnerSys' future in the short and long-term market opportunities we are pursuing. And now I will ask Mike Schmidtlein to provide further information on our results and guidance.

Thanks, Dave. For those of you following along on the webcast, I am starting the Slide 8. Our first quarter net sales increased 4% over the prior year to $623 million due to 1% increase in the volume and a 4% increase from pricing offset by 1% decrease from currency. On a regional basis, our first quarter net sales in the Americas were up 8% to $355 million and Europe's were up 1% to $199 million, while Asia decreased 7% on the first quarter to $69 million. The Americas enjoyed a 5% increase in volume and 3% from pricing. Europe had a 5% price increase offset by 1% in negative currency and 3% decrease in volume. In Asia volume decreased 8% and currency declined by 2% while pricing increased 3%. On a product line basis net sales for motive power were up 4% to $318 million, while reserve power was up 3% to $305 million. Motive power had a 4% increase in price and 1% volume increase offset by 1% currency headwinds. Reserve power had a 4% increase in price offset by 1% decline foreign currency. Please now refer to Slide 9. On a sequential quarterly basis, our first quarter net sales were down 1% to the fourth quarter of fiscal 2017 from the 6% decline in volume offset by 2% currency improvement and 3% pricing. The Americas region was down 2% while Europe's was flat and Asia was up 8%. On a product line basis motive power was down 4% while reserve power was up 3%. Now a few comments about our adjusted consolidated earnings performance. As you know, we utilized 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 9, 2017 for details concerning these highlighted items. Please now turn to Slide 10. On a year-over-year quarterly basis, adjusted consolidated operating earnings decreased approximately $3 million to $71.3 million with the operating margin down 100 basis points. The decrease in operating earnings from the prior year reflects a $34 million in higher lead costs offset by higher volume, pricing, and lower manufacturing costs. On a sequential basis, our first quarter operating earnings dollars were down $5 million on higher lead costs and lower volume. Operating expenses when excluding highlighted charges were at 14.7% for this first quarter compared to 15.3% in the prior year. I expect 2018 full year op expenses to remain near the rate of prior years of approximately 15%. Excluded from operating expenses recorded on a GAAP basis are net charges of $1.7 million, primarily related to the EMEA restructuring charges and ERP implementation costs. Excluding those charges, our Americas business segment achieved an operating earnings percentage of 15.4%, which was comparable to the first quarter last year. Higher volume in pricing offset the impact of higher lead cost. On a sequential basis Americas first quarter increased 70 basis points from the 14.7% margin posted in the fourth quarter due to cost savings and pricing more than offsetting higher lead cost. Europe's operating earnings percentage of 6.8% was down from last year's 10% and from last quarter's 9.7% on higher lead costs. The operating earnings percentage in our Asia business declined 100 basis points in the first quarter of this year to 4.7% operating profit from 5.7% income in the first quarter last year and was down from last quarter's 5.1%. Asia's decline on a year-over-year basis is on less China telecom revenue and higher lead, while sequentially it is mostly from higher lead. Please now move to Slide 11. As previously reflected on Slide 10, our first quarter adjusted consolidated earnings of $71 million was a decrease of 4% in comparison to the prior year, with the operating margin decreasing 100 basis points to 11.5%. Please see our press release issued yesterday for details of these items. Our adjusted consolidated net earnings of $49.4 million decreased 1% from the prior year of $1 million and declined 40 basis points to 7.9% of sales. The $1 million decrease reflects the higher volume pricing and cost savings on and a lower tax rate overcome by $34 million in higher lead costs and $1.5 million in higher FX losses. Our adjusted effective income tax rate of 21% for the first quarter was higher than the prior quarter of 18%, but lower than the prior year's first quarter rate of 26%. Timing on discrete tax items calls most of these variations. We believe our tax rate for the full year should be in the 23% to 24% range. However, this assumption anticipates no significant changes in tax rates or legislations in the countries we operate in. EPS decreased 2% to $1.12 on lower net earnings and higher - slightly higher shares outstanding. We expect our second fiscal quarter of 2018 to have approximately $44.2 million of weighted average shares outstanding, which assumes no benefit from our recently announced $100 million share buyback authorization. Please now turn to Slide 12. Now, some brief comments about our financial position and cash flow results. Our balance sheet remains very strong. We now have $543 million on hand in cash in short-term investments as of July 2, 2017, with over $422 million undrawn from our credit lines around the world. We generated $22 million in cash from operations in our first quarter fiscal 2018. Our credit agreement leverage ratio is just above 1.5 times. Capital expenditures were $13 million in the first quarter of fiscal 2018 compared to $7 million in fiscal 2017. We expect to generate adjusted diluted net earnings per share of between $1.03 and $1.07 in our second quarter of fiscal 2018, which excludes an expected net charge of $0.04 per share continuing our restructuring programs and acquisition activities. We anticipate our gross profit rate in the second fiscal quarter will be comparable to our first quarter rate of approximately 26%. In conclusion, we incurred $34 million in higher lead costs on a year-over-year basis in Q1. We recovered nearly 70% of that increase in pricing with the balance recovered by cost savings and higher volume. Our $7 million in lower adjusted net earnings can be attributed to $2.6 million in FX losses, which exceeded the prior-year loss by $1.5 million. In Q2 and beyond, our pricing efforts will recover lead cost more fully, however our increasing investments in our digital core and new products will offset these improvements. Now let me turn the call back to you, Dave

Andrew, we will now open the line for questions.

[Operator Instructions] And our first question comes from the line of John Franzreb with Sidoti. Your line is now open.

Good morning, guys.

Good morning, John.

I'd like to know a little bit about the regional differences here, most notably in Europe where despite a soft volume environment here with we've got some price increases, can you give us a little color of why the volumes were weak in the region and how you're able to get price increases in a weak environment, but I would think that will be a little bit tougher.

I would say that you have to remember and we've said this before that our European reserve power business is largely built a lot of the OEMs are in Europe, so a lot of the pressures in the developing markets around the world are specifically felt in that P&L. In addition, we have the Middle East and Africa is there as well. So we're subject to a lot of the fluctuations of the developing markets, it's boom or bust, it was a low quarter for us. And I think with regards to price increases that we've seen slower performance from that group than the other groups. We definitely got off to a late start. But based on the order rates we're seeing today, the prices are sticking, the prices are definitely up and really it just comes down to our ability to get and execute on the recent new order that's coming in. And really the - we're excited about as I noted in my prepared remarks about the coat activity in that region. So we are seeing some signs of life there, but it's always important to remember that the developing markets around the world are often reflected in that portion of our P& L. But I'm very encouraged about the price recovery we're seeing right now.

Okay. And then in Asia, in Asia reserve, are you still finding yourself at a disadvantage on a price basis with your offerings? It seems to me that business was a little bit weaker than I expected, can you talk a little bit about the competitive landscape and how quickly the areas loaning out upgrades to its infrastructure?

Okay. So at our Investor Day, we focused on two key areas for the Asia region, the motive power side in China as we noted was still very strong and going along very well. Specifically on the reserve power, let's - the two big markets are China and India. In the China market, we did experience in Q1 a dramatic slowdown in spending from our number one customer China Tower that order rate has picked back up. I can't explain exactly what happened with the China Tower orders, but certainly we haven't seen or feel any major share loss that we think that all of our - all of the China Tower suppliers were experiencing a summer slowdown. The good news is that that order rate has increased markedly. And that hopefully is isolated to Q1. The EMEA situation in reserve power specifically telecom is much more dramatic. There seems to be a bit of a price war going on. And I just told our guys to sit on the sideline. When I was over there years ago, we went through something similar, it was amazing how skinny the pricing got. And it comes and goes. Right now, we've been able to repurpose the factory in India to help offset some of the volume increases we're seeing in motive power in the region. So we've been trying to keep busy that way and export business while the market clears itself up. But in reserve power in the rest of the region, Southeast Asia, Australia, Japan that's pretty much business as usual.

That's perfect, Dave. And one last question, can you update us a little bit on your lithium initiative from what I recall I think there're decisions supposed to be made this summer buy or build or how far you want to proceed with it? Any updated color would be helpful.

Sure. As I noted the - I couldn't be more excited about the progress of the program and the platform this new modular concept is a bit agnostic to which chemistry that goes into it and we want to put ourselves into a position where we control the user experience and as best as we can and make it fairly seamless and target specific technology solutions for the specific applications and needs of that customer. And always our focus is in providing the lowest total cost of ownership. As I know you know we think lithium is going to be a part of that there's going to be certain markets and applications where we think that lithium is going to provide the lowest total cost of ownership. One of those big markets that we're very excited about is the energy storage market. We think that lithium is winning that technology. And so as you know we have - we're in the midst of qualifying suppliers in the short run and I don't want to name any names so it's too confidential, but we, ERN's team is ERN or CTS team is working aggressively to qualify external suppliers. And I'm not yet in a position to formally announce anything with regards to the make decision. I just will remind everyone that we do currently manufacture lithium ion cells in our Sylmar, California facility for the space business which is going great guns right now. We were very proud of the team on that $60 million award that is all lithium and we want to grow from that base. So that's where we're at but I just - we haven't made any announcements yet but we're working on it.

Okay. Thank you. I'll get back in queue.

Thank you.

[Operator Instructions] Our next question comes from the line of Brian Drab with William Blair. Your line is now open.

Hey, good morning, Dave. Hey, Mike.

Hey, Brian.

Good morning, Brian.

So, I'll start with just the so-called house-keeping question on the electric fork truck orders, if you could - if you would mind just stepping through that quickly trailing three months and if you could give us the regions and global orders? And if you're able to get give it, is this ending - the three-month period ending in July or in June that you have?

All right, Brian, I have the three months period ending in June, July is not out yet. So if we take this by region and in total, the year-over-year for the three months ended in June in the Americas total Americas is up 9%. In total Europe, it was up 9%. When you throw in the Middle East and Africa, it went to plus 10%, so EMEA as a region is 10%. Asia, year-over-year three months ended is up 26 %, for worldwide total up 14%.

And so it seems like that discontinues truck along and run upon and even accelerated here since the last period, is there anything in those figures that surprise you or is this kind of as expected?

Brian, I think it's progressing, we remain bullish on the markets that electric forklift serve, the food industries. I think one sector that slowed down a little bit which I was watching but seems to be okay is the automotive sector, the car companies use a lot of electric forklift trucks but that seems to be being offset well with lot of the e-retailing and lot of the explosive growth in that area. So and just as a reminder that these statistics that we're quoting are for trucks but there's just not a good one-to-one correlation with battery sales, the replacement new mix is part of that story. The life of the batteries is another part of that story. The batteries are lasting longer than they did in the old days, it's one of the problems of making a high quality product.

And the high quality charger.

And then the last piece, Mike, I was just getting to is the new chargers were coming out with actually in the new batteries they can be charged much faster and we can do things called opportunity charging. And as such the average number of batteries per truck is changing and that's why I mean we've been, this has been an ongoing cycle for a long time, but I just don't want you to ever think when you hear those with statistics that that we must be losing share, that's not the case. We have industry statistics from Europe and the U.S., our share is fine, very stable. So I just wanted to give you that I aspect. It's a very technical explanation, explanation why there's a disconnect between those growth rates, but to your point I think it's still a very good indicator of overall economic activity in the electric forklift markets.

Now that extra color is helpful. And I don't know if you touch on it too but I always think clearly one of the biggest factors driving a disconnect between those numbers and your sales is that those numbers are going to be correlated more strongly with obviously OE sales or not.

Right.

And I don't know what percentage of it is currently but it's been about half in aftermarket.

Yeah. There's more to the story. Yeah, that's probably that there's more to the story. I think the technology piece is the batteries, the systems let's just say the charger and the battery together are getting better, they're lasting longer and but that's okay, that's why you see our margin profile changing so in a sense we exchange margin per volume there. But we're very proud of the performance of our motive power group globally. And we are especially in the China market, we're still starting to see some very good growth.

Can you say a couple more words on average number of batteries for truck?

That's too complicated, yeah, there're different applications and trucks sizes and all that but just say the general trend is the more premium chargers you put and this is a slow trend, this isn't something that's changed yesterday or happening overnight, this is just a long-term trend that we've been on for a decade. And just helps to bridge that gap between why you don't have a one-for-one type of growth between batteries and trucks.

Okay. But it's basically that the batteries are getting better on average the number of batteries per truck comes down a little bit.

Correct.

Okay. And then when it's back in terms of operating margin in EMEA, what sort of trend for the balance of fiscal 2018?

It's definitely forecasted to improve dramatically. We don't usually provide too much color there, but I can just say that we had a tough quarter. The team knows it and we're deeply committed to getting that business back on track and back on track which is the new normal is to maintain a 10% return on sales.

Okay. And can you make any comment possibly on what you've seen in terms of pricing catching in EMEA in July and August?

Yeah, it's definitely improving.

Okay.

The price recovery situation is improving. This is our best year ever in terms of price recovery and I could testament not only that the efforts of our salespeople but also the maturation of the business, but unfortunately it just takes - it's never fast enough and I feel like I've aged 10 years in the last two quarters, but as such it's our number one, it's our number one focus. And as I said or as Mike in his remarks, we're moving up dramatically in Q2, Q2 is always soft for us. And –but the price recovery is improving and I'm very confident the guys based on what the forward looking stuff looks like is we're going to get close to 100% and we've actually finally we have a couple competitors that really went slow and we had a couple of competitors recently announced price increases, which is going to take some of the pressure of the sales guys.

Okay. One more quick one and then get back in line. In a large order, what region is that coming from specifically?

It was in the - it's in the EMEA region, it's a com based and we're excited about we've been working out a long time, I was hoping that would kick in Q2, but it's going to really start shipping in Q3. It's well over $10 million and has a lot of upside potential. So the guys are super stoked about it and they needed it, that team has been getting its tail kicked. So and then again that it's not just out of world or but just in general the coat activity has really ramped up in that part of the world, so we're looking for -

Are you able to say is that Europe or Middle East or Africa or where we're talking about?

I would say I'm looking at Todd right now, I would say Africa and the Middle East are the two areas which seems to be improving.

Anything specific to that big order, is there where you're seeing that big order come from?

Kind of that part of the world, yes.

All right. Okay. Thanks very much.

Hey, Brian, one final piece to fall around that not only the European operations, but the price recovery points that Dave made was the last time we saw lead in this price range was in our fiscal 2014. And at that point, our gross profit rate was 23.5% versus this last quarter's 26.2%. So 270 basis point improvement I think that is a testimony to the fact that the pricing were becoming more proactive on it. So that, that lag or drag time between the rise in lead and the rise in pricing is we're tightening up.

Right that's definitely noted. Thanks, Mike. Thank you.

And our next question comes from the line of Noah Kaye with Oppenheimer. Your line is now open.

Good morning. Hey, Dave and Mike. Thanks for taking my questions. Maybe we could start with something you touched on in your prepared remarks, Dave, around accelerating product development you mentioned expanding addressable markets also mentioned increasing your product innovation. And I think you discussed some of that in the Q&A around the lithium decision, but at the Investor Day you also previewed some pretty significant improvements around the lead products. So can you just give us a sense of where that initial stands and to what extent that might also be factoring in these accelerating product development costs?

Noah, it's good to hear from you. There's three things we talked about at Investor Day. There was lithium, there was advance lead and then there was the system where the modular system to put it all together. And so the acceleration we're putting on right now is principally on the systems engineering piece. We have to move faster. The reception we got from the Americas sales meeting was that was a home run. I mean everyone was super excited about that. We're going to be introducing the European sales team to this new product platform in September. So I'm looking forward to going over there and get in their feedback. but the reception was so good, we decided to I had throttled yarn a bit in terms of how much OpEx we wanted to layer in, in the years going forward because I know how sensitive you guys are to each panic, but we made a conscious decision, I'll take responsibility for it to go faster because we just we couldn't be more excited about this new product platform. So of course it's never fast enough, it won't help this fiscal year, we should be able to do it next year. And the first product will be coming out will be a motive power product and it's going to have capabilities. So the other thing, we're trying to accelerate is the advance lab. And again it's never fast enough, but the feedback from the team and from the customers has been exceptional. And as such we're going to spend probably faster than we thought we would at Investor Day and obviously we'll take our lumps for that but it's the right thing to do for the long run.

If there's some way to sort of think about an order of magnitude on this the higher spend and also I mean as a corollary theoretically if you invest now for better systems engineering will help mitigate any kind of cost pressures down the line if you kind of switch between chemistries and remain agnostic so is that the right way to think about it?

At the Investor Day, we talked about trying to limit our additional engineering expense in this fiscal year to $5 million incremental, it's going to be higher than that number. And so far in Q1, we were sort of at that run rate. If you looked at slide seven, you'd say we were at $1.5 million incremental, but that rate is going to accelerate and we're working hard and Todd's team is working hard to neutralize those costs as best as we can. If you remember what I said there was Todd and the operating team needed to get lean initiatives, operating faster and squeezing cost reductions to finance all of this digital core investment and all this new product roadmap investment and frankly they had a good first quarter, but it just got to go faster, faster, faster because we want to accelerate the products spending.

Okay. And a related question on this is really around capital allocation, your balance sheet is in good shape because of the leverage, you talked in the past about having appetite to do some significant new M&A, you just did have the board authorized a new share repurchase program and you're talking about kind of organic investments here that you think quite excited about. How should we think and what should investors be thinking about in terms of where your capital allocation priorities are now as we fast forward I guess it's been almost five, six months since the Investor Day.

You're very consistent with Investor Day, nothing's changed, really very little changed since Investor Day outside of the acceleration of OpEx, we just noted on engineering and then FX and the price recovery efforts. And then we obviously stumbled out of the blocks, those are the big the big things that maybe have changed since the Investor Day, but the capital allocation, the focus on M&A is still there. And then I'll just let Mike give you a little bit more financial color on the numbers, but I don't want you to think that anything has changed in terms of priorities that we outlined at Investor Day. Mike, do you want to add some color?

As our position has always been we always want to invest in ourselves, first, and I think the initiatives that Dave described with new product development is demonstration of that. Second on our list is M&A. And we are very active there. We did bring on Steve Eaves, who is our new Vice President of Business Development. He's been scouring the globe looking for targets whether they're geographic or new technologies or upstream or downstream opportunities we're looking at all of those. After that if we're still not able to deploy the capital, share buybacks are the discussion and as we noted and you noted the $100 million authorization is there. We're supported by the fact that we just concluded our new credit facility for $750 million with the ability to upsize it over a $1 billion if need be. So we have lots of dry powder to execute on all of those fronts. So our leverage rate shows that 1.5 times, 2.5 does not scare us, 3.0 doesn't scare us if it's for the right opportunities and the ability to pay it down. So I think the M&A activity is robust, although the bigger the fish the longer it takes to get it in the boat, but we are very active in that world.

Thanks. And then just one last one for me I guess in light of the 2Q guide, some of the moving parts you mentioned around higher investment and certainly lead prices continuing to stay somewhat elevated, how should we think about the $5 share prior guidance for the full year, what's your level of confidence to be able to reach those numbers at this point?

Well, I guess the first thing I would say is we think our business fundamentally from the end of February when we had that Investor Day, the fundamental business hasn't changed. So our markets we still feel confident about. The assumptions we made with regard to lead and currency did not have as much headwind as we're seeing today. But at this point I think that the target that I set forth is still achievable although it's going to take a little more effort to get there.

Great.

And then of course we achieving of that target, we don't know what lead is going to do, we don't know what exchange rates are going to do, we're going to respond to those changes as fast and effective ways we can, but in the meantime the fundamentals of the business continue. There's been no real departure since February.

Okay. Thank you. Appreciate it.

Thanks, Noah.

And I'm showing no further questions at this time. So with that I'd like to turn the call back over to President and CEO, Mr. David Shaffer.

Well, I just want to thank everyone for taking the time today to attend the call. And have a great day and enjoy what's left to your summer. Take care.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.