MSA Safety Incorporated (MSA) Q2 2012 Earnings Report, Transcript and Summary

Welcome to the MSA Second Quarter Earnings Conference Call. My name is Christine, and I will be your operator for today's conference. [Operator Instructions] Please note today’s conference is being recorded. I will now turn the call over to Mark Deasy, you may begin.

Thank you, Christine, and good morning, everybody. I too would like to welcome you to our second quarter earnings conference call for 2012. With me on our call this morning are Bill Lambert, President and Chief Executive Officer, Dennis Zeitler, Senior Vice President and Chief Financial Officer, Joe Bigler, President of MSA North America, Ron Herring, President of MSA International who is responsible for Europe, Northern Africa, Russia, the Middle East, and India and lastly Kerry Bove, President of MSA International who is responsible for our business in Asia, Australia, Sub-Saharan Africa, and Latin America. Our quarterly press release was issued this morning at 8:30, and we hope everybody has had an opportunity to review it. The release is available on the homepage of our website at www.msasafety.com. This morning, Bill Lambert will provide his commentary on our second quarter performance and then Dennis will review our financials in more detail. After Dennis’s comments, we will open the call up for your questions. Before we begin, I want to remind everybody that the matters discussed on this call, excluding historical information are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward looking statements, including without limitation all projections and anticipated levels of future performance, involve risks, uncertainties, and other factors that may cause our actual results to differ materially from those discussed here. These risks, uncertainties, and other factors are detailed from time-to-time in our filings with the Securities and Exchange Commission, including our most recent Form 10-Q, which was filed on April 25th of this year. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. Our SEC filings can be easily obtained at no charge at www.sec.gov, our own website, and a number of other commercial sites. That concludes our forward looking statement. So at this point, I’d like to turn the call over to Bill Lambert for his comments. Bill.

Thanks, Mark, and good morning, everyone. Let me begin by saying thank you to all of you for joining us today on this conference call and for your continued interest in MSA. Presumably, all of you have seen our second quarter press release and have our financial figures with all comparisons corresponding to the equivalent period in 2011. Our second quarter results reflect continued demand and preference for the MSA brand around the globe and the focus that our team is placing on successfully executing our corporate strategy, which as I’ve talked to you in the past about, our strategy is aimed at: one, growing MSA’s core business in both developed and emerging growth markets throughout the world; two, focusing on developing innovative new products that help keep our customers safe in the workplace; and three, Diligent management of our operating costs and improving business efficiency under initiatives like Project Magellan and recently announced Europe 2.0 which is the next step we have taken in our European transformation, focused on the integration of common processes across Europe enabled by our common SAP platform. When completed, Europe 2.0 will further simplify our business model there, result in sustainable efficiency gains and help us generate more robust financial performance with higher levels of customer satisfaction. Approximately 55% of MSA Europe is currently operating under SAP, so this is an expansion of that and this effort will over time get that percentage to 100%. Our Q2 incoming order book of activity benefited from large orders during the second quarter and was up 8% compared to a year ago. However, the underlined base business was somewhat uneven during the second quarter. Additionally, a strengthening dollar and economic uncertainty throughout Europe and Asia are tempering our optimism as we head into the second half of 2012. As you saw in our press release, our consolidated sales for the quarter were $295 million. When you exclude the impact of weakening foreign currencies, sales actually increased 6% or $16 million. The increase in sales volume across most of our core product lines combined with our efforts to improve margins and expand MSA’s presence in emerging markets had a positive impact on our quarterly results. The increase in local currency revenue in the second quarter was driven by the focus our team is placing on driving demand for our core product lines, which are fixed gas and flame detection instrument systems, portable gas detection instruments, industrial head protection products, supplied air respirators and fall protection products. Core products comprise 63% of total sales during in the quarter and had local currency revenue growth of 10% when compared to the second quarter of 2011. I think what is especially encouraging is that sales across these same product groups in emerging markets grew by 18% year-over-year. As we have stated previously, driving demand for core product groups into global growth markets is a critical element of our long term corporate strategy, and we remain focused on executing this initiative around the world. Another critical element of our strategy that contributed to our quarterly performance was the continued progress we’re making in managing manufacturing costs and improving gross profits as part of our operational excellence initiatives. Our multi-year efforts to optimize our manufacturing footprint and to improve our supply chain processes globally are yielding solid results. Overall, the focus on these initiatives helped contribute to a 140 basis point improvement in gross profit margins that we saw in the quarter. What continues to be encouraging is the progress we are making in improving core product margin levels. Gross margins of core products improved 180 basis points when compared to the second quarter of 2011, and have improved 250 basis points through 6 months this year. Operating margin was 11.8% for the quarter, an improvement of 30 basis points over the same period a year ago. As always, Dennis will provide more detail about this progress in his comments. As we’ve mentioned to you in the past, we remain committed to developing innovative, new core products that enhance the MSA brand and advance the level of worker safety in the industries that we serve. Quarterly Research and Development expense was $10 million, increasing 10% from the same period of a year ago. We continue to invest in developing innovative, new core products like the portable and fixed gas and flame detection instruments that I’ve mentioned to you on previous calls. To give you a sense of the impact these product introductions and our strategic pricing efforts are having, gross margins in our combined gas detection product lines, that’s fixed gas and flame detection and portable gas detection instruments, are up 280 basis points year-to-date on sales growth of 17% year-to-date. While we continue to see increased competition in the markets that we serve, our new product development efforts are helping to improve profitability and improve our position in the market place. We remain committed to investing in R&D and we think we have a pretty exciting pipeline of new core products that emphasize innovation and durability while lowering cost of operations for our customers and improving profitability for our shareholders. As I look out over the next 3 to 12 months, products scheduled to be launched include the new Galaxy GX2 Instrument Management System. This is an automated instrument calibration system designed to provide customers with the lowest cost of ownership and advanced safety management capabilities. We’ll also be introducing additional value adding accessories for our V-Guard branded industrial helmet line, a range of fall protection products designed to meet the unique requirements of key international markets. Eight brand new MSA developed gas detection sensors that nicely expand the capabilities of our already successful ALTAIR 4X and ALTAIR 5X portable instrument line. Several new supplied air escape devices targeted for the global oil and gas market. A brand new thermal imaging camera platform designed to meet the new NFPA 1801 standard, our new structural firefighting helmet platform designed for international markets, additional cross branded MSA in general monitors fixed gas and flame detection products. And lastly a new self-contain breathing apparatus product designed to meet the requirements of the anticipated revision to the NFPA 1981 standard, which is due to be released at the end of this year. Needless to say, we are very excited about this line up of new product offerings. We’ve been working very hard to better understand the unmet needs of customers in our key vertical markets and our core product segments and to execute exciting designs that meet those unmet needs. Cash flow is another important area of focus for us and it was strong in the quarter. Operating cash flow for the first 6 months of 2012 was $65 million, compared to $19 million in the first half of 2011. We’ve used this cash to continue to invest in the business, increase our dividend and to pay down $40 million of our debt. Once again, Dennis will be providing more details on cash flow in his commentary. Now I’d like to turn your attention to the results in each of our geographic segments and I’ll start first with North America. In our industrial North American markets sales grew 12% over the same quarter of a year ago on strong performance across core MSA product lines. To give you just bit more insight into this performance, sales of gas detection products increased $11 million and the sale of industrial head protection products increased $2 million. Along with the solid sales growth in core product groups, our profitability in North America also improved with gross profit margins on core products, increasing 340 basis points due to the combined effects of strategic pricing and lower costs of recently introduced products. In the North American military market, sales declined $4 million on lower sales of ballistic helmets and vests. As we announced during the first quarter conference call, we had previously signed a non-binding letter of intent to sell our North American ballistic helmet business. I am pleased to report that we completed the transaction to divest of this non-core business in June. This follows the divestiture of our non-core ballistic vest business during the fourth quarter of 2011. In the North American fire service market, although municipalities continue to deal with lower funding levels and municipal budget pressures, quarterly revenue in these markets were up 2% from a year ago. Now, turning our attention to Europe, ongoing economic uncertainty and governmental austerity measures continue to provide headwinds across much of our pan European business. But I was pleased that for the quarter local currency sales were up 1%. Year-to-date local currency sales in Europe are up 8% from 2011 as we expand our channels of distribution for our products and increase our presence there. As is commonly recognized, business in economic conditions remain very challenging across much of Europe. In a highly uncertain environment with forecasted declining GDP growth rate from much of Western Europe in 2012, a key focus of ours continues to be lowering our overall cost of doing business in this region and the results we’re seeing there are encouraging. While we continue to invest in the emerging markets that are included in our European segment. Markets like Russia, the Middle East and Eastern Europe, we are controlling our operating costs across Western Europe. For the quarter local currency operating costs throughout Western Europe are down 4% from the same quarter a year ago. I’m pleased to report solid results in our international segment, which includes the geographies of Asia, Sub-Saharan Africa, Australia and Latin America. Our focus on emerging markets and the efforts we’re putting forth in this segment are very much related to the positive results. Growing our business in international emerging growth markets, as I noted earlier is, and will continue to be, a key element of our corporate strategy. We continue to grow business in areas like Latin America, where local currency core product group revenues increased 37% during the quarter. Due to strong demand for industrial head protection products and in part, to a $3 million SCBA order to the Chilean National Council of Firefighters. Our team remains highly committed to advancing our strategy, while the results in international regions are encouraging. Economic and business conditions in parts of Asia and in Australia do somewhat temper our optimism going into the second half of 2012. In taking a look at what’s ahead, and our focus for the next 6 months, the revenue earnings and cash flow improvements we have reported over the past several quarters I believe demonstrates success in how our global team in effectively implementing our corporate strategy. We must remain committed to staying this course and we will, while we continue to closely monitor uncertain economic conditions, especially in Europe and in parts of Asia. I assure you that we remain focused on those areas of our business that will help us to accelerate growth, increase market share and ensure the company’s long-term success. While we are seeing stability and some signs of strength in the U.S. industrial market and continued strength in many of the emerging growth markets we are in around the world, we do expect uncertain economic conditions to remain in much of southern and Western Europe for the remainder of 2012, as well as in parts of Asia and Australia. And while this economic uncertainty is tempering some of my optimism going into the second half of 2012, it does not affect our determination. I believe MSA’s business strength and our position in the marketplace affords us many opportunities for continued and profitable growth. I continue to believe our strategy is appropriate, it is working and it is most certainly providing us with sustainable competitive advantages that we intend to continue to leverage in the months and years ahead for the long-term benefit of shareholders. Now, I would like to turn the conference call over to Dennis Zeitler, our CFO, who will provide you with more insight into our quarterly financial results. Dennis?

Thanks, Bill. Good morning. I would like to give you some further insight into our second quarter performance and comment on the balance sheet and cash flow statements. Additional information will be available later today when we file our Form 10-Q with the Securities and Exchange Commission. As Bill mentioned, sales in the second quarter of 2012 were a record $295 million, only a slight increase over the second quarter of 2011, but still a record second quarter. In local currencies, our sales actually increased 6% over last year, but currency translation decreased this quarter’s sales by over $16 million. In U.S. dollars, North American sales were up 6%. International sales were flat and European sales were down 10%. By markets, the fire service was up 9%, military was down 26% and our industrial business which was 69% of our total sales was flat compared to last year. However, in local currency terms, our industrial sales were actually up 6%. Our North American segment sales in the second quarter were up 6% compared to 2011, comprised of a 2% increase in the fire service, a 34% decrease in military sales and a 12% increase in industrial sales, which was 69% of our total North American sales. In our industrial business, head protection was up 10%, portable gas detection up 14%, and fixed gas and flame detection was up 30%, with a strong contribution from General Motors. In North America, our sales of ballistic helmets and ballistic body armor decreased to $5 million this quarter compared to $10 million in 2011 and will be 0 in future quarters, as we have exited both of those businesses. Our reported international segment sales were flat this quarter in U.S. dollars, but were up 10% in local currency terms. Fire service was up 54%, as we continued to deliver on our order for the Chilean fire service, military was down 28% as we have exited the body armor business and industrial sales, which were 81% of our international sales were down 6% in U.S. dollar terms, but actually up 4% in local currencies. In local currencies, our sales in Latin America and Africa are up 23%, but our sales in Asia and Australia are down 7% from last year. In Europe, our reported sales were down 10% in U.S. dollars, but up 1% in local currency terms. European fire service sales increased 2%. Military was down 13% and industrial sales comprising 54% of our total European sales were down 16% in U.S. dollars and down 6% in local currency terms. The impact of the economic issues in Europe along with the fallen value of the euro have certainly impacted our business there. We did have a very good start to this year in Europe and it’s worth noting that in local currency terms, sales in the second quarter were equal to sales in the first quarter. However, the prior-year comparisons were quite different. And our European net income has more than doubled over the past 6 months compared to last year. The other’s view of our sales performance is separate to 2 portions of our business that historically have been the most volatile, the U.S. fire service and the U.S. military from everything else. Our U.S. fire service sales of $32 million was an increase of 7% and our U.S. military sales of $7 million was a decrease of 45%. Then, when we look at all of our other globally diversified sales, which has risen to 87% of our total sales this quarter, these sales were up 1% in U.S. dollars and up 8% in local currencies. Our gross profit rate for this quarter was 42%, up 140 basis points from last year. Our global efforts to reduce manufacturing costs, the increased production volume in our factories, more effective pricing, all contributed to this gross profit improvement. It is our ongoing expectation that we will continue to improve our gross profit margin by higher volumes, continued cost discipline, increasing focus on our core product groups and value-based pricing. Selling, marketing and administrative costs in this quarter were up 3% in U.S. dollar terms, but up 7% in local currencies due to wage inflation and increased local currency sales. There were no restructuring charges in this quarter. We did record a non-cash foreign currency gain due to intercompany transactions of roughly $1 million. Our investment in new product development this quarter was $10 million, up $1 million from last year. We continue to invest in exciting new products that will be coming to market in 2012, such as our all new Galaxy GX2 Instrument Management System, more of our V-Gard branded Hard Hats accessories, more of our best-in-class XCell sensors and cross-branded MSA and General Monitors fixed gas and flame detection products. The resulting operating income, excluding those foreign currency gains, is $35 million, an increase of 3% over the second quarter of 2011. That is an operating margin of just under 12% of sales this quarter and an increase of 30 basis points over our comparable performance in the second quarter of 2011. We are doing better than last year, but not as well as we did in the first quarter of this year. Issues in Europe, Asia and Australia have negatively impacted our profitability this quarter, while North America, Latin America, Africa, and General Monitors are performing better than our expectations. This quarter did have an unusual amount of other income, as we sold another parcel of land near our corporate offices, and sold to North American ballistic helmet business. These 2 transactions generated a total of $17 million of cash, $8 million of other income and $5 million of net income. Our consolidated tax rate this quarter was 32%, down 180 basis points from last year, due mostly to the relative increase in our taxable income outside of the United States. If the R&D tax credit is renewed later this year that would reduce our effective tax rate by roughly another 1%. The bottom line is record quarterly net income of $28 million or $0.76 per basic share compared to $0.53 last year, an increase of 43%. On a pro forma basis, excluding the non-cash currency gain and the one-time income items, which together total $6 million, our net income would be $22 million, which is $0.59 per share and 7% above the comparable 2011 calculation, even though our reported sales did not increase. In local currencies, our pro forma net income is up a respectable 14%, on a 6% increase in sales. As for the cash flow statement, we had another good quarter, as we generated $32 million from operations and another $17 million from asset divestitures. Our cash position is up $8 million, composed almost entirely of cash outside the United States. Our total debt at the end of the quarter was just over $300 million, down $19 million in 3 months and down $40 million so far this year. We spent $10 million in capital improvements this quarter and paid $10 million in dividends. As you know, it is our plan over the next several years to continue to significantly reduce our outstanding debt. Those are my comments. At this point, Bill, Joe Bigler, Ron Herring, Kerry Bove, and I will be more than glad to answer whatever questions you may have. Please remember that MSA does not give what is referred to as guidance, and that precludes most discussions related to our expectations for future sales and earnings. Having said that, we will now open the call to your questions.

[Operator Instructions] Richard Eastman from Robert W. Baird is online.

Dennis, could you just repeat your local currency growth rates for fire service and military? I am not sure if…

On a global basis, the fire service increased 14% this quarter and the military was down 22%.

So, 14%, that’s the LC number and down 22% is the LC number, right?

Right, correct.

Okay. And then also, I had a question for Bill. One of the new product areas that you mentioned was teed up here for introduction. These 8 new gas detection sensors, is that benefitting the gross margin on your portable and fixed instruments or are those products, those sensors being sold to third parties?

Those sensors, Rick, are benefitting our portable instrument line. They are not yet benefitting our fixed gas and flame detection product line. That’s an effort that we will likely see in years to come, but right now, those were designed specifically for low-power consumption, increased durability, lower cost of manufacturer, lower cost to total cost of ownership for customers for the portable instrument product line only.

And we do not sell those to third parties at all. These are totally proprietary to MSA in our portable instrument line.

Okay. So, this again, you had sourced those before, correct?

That’s right, Rick. We did source those before. We always manufactured a small number of those, a certain percentage of those, but we also sourced them and we have moved entirely away from external sourcing to internal sourcing.

Okay. And then, I think a somewhat related question, but when you were talking about the gross margin, Bill, on the core products being up 180 bps year-to-date, I assume when you say core products, that’s on the 63% of sales that you defined as core products, is that right?

That’s exactly correct.

Okay. Understand. So, some real benefits are pretty visible there from the value engineering side of the story.

That’s right.

Yes. And then, Dennis, just one question. I think you grouped these together, but the 2 other income items, the sale of the land and a gain on the ACH sale, can you just, are those both -- those combined to be $8 million, and in the P&L, those are both in that other income line?

Yes, those are both in the other income line. So, the other income line is, what, $8,259,000. Most of that is those 2 transactions. It’s an interesting comment, a few other things, but most of that is those 2 transactions.

Okay. And then, that again combines to be $5 million net income?

Exactly.

[Operator Instructions] The next question comes from Walt Liptak from Barrington Research.

Wanted to ask, first about the gross margin improvement, which looked nice, you called that volume and pricing, I wonder if there is a way that you can quantify and talk about either of those.

We hope to be able to do that next quarter, Walt. We have our new Pricing Director here, actually one year ago, today. We hired him July 25 of last year. And he’s working on that report for the second quarter, but it’s not ready yet, but I am hoping that by third quarter, we will have a nice report that shows gross margin improvement is attributed to price, to cost, to product mix.

Okay. All right, got it. All right, then if I can switch gears and just ask about the Europe. You mentioned the industrial part in local currencies declining, can you talk about just what you saw during the quarter? Is it kind of consistently down or are you seeing the trend improving? Obviously we are all focused on what’s happening in Europe and any color that you can provide would be helpful.

Yes, when we take a look, if I were to compare what was reported in Dennis’s comments, where Dennis reported our European industrial core part of the business, down about 6% in local currencies, what that does not reflect is the incoming order book that we saw out of Europe during that same time period. So we actually saw nice sales growth in Europe in our incoming order books. So we are pleased by that. Most of that is coming out of Eastern Europe and into Russia in the oil and gas region, supporting the oil and gas region. So, we are seeing -- I would say more difficult conditions in the established regions of western and southern Europe. There is no question about that. We are offsetting quite a bit of that through our industrial distribution strategy. But just as we have reported here, in local currency sales we feel if we can just hold ground even move sideways in western and southern Europe, I think that’s a bit of a win and I see that happening with our industrial distribution strategy success that we are having over there in those areas. And then we are looking to Eastern Europe and into Russia, the Caspian Sea region or even down into the more Middle East area for real growth markets, and that’s exactly what we are seeing and we are seeing nice improvement in those regions of the world to offset some of that which is in western and southern Europe clearly those areas have headwinds.

Okay. So it sounds like this down 6% for industrial core local currencies, it’s not getting worse as we get into the third quarter? Maybe it’s getting better?

It’s very early in the third quarter, so I would hesitate to comment on just exactly what we will see in the third quarter, Walt. But there are some successes that we hope and that we anticipate will offset some of the declines that we are seeing in the more established parts of Europe.

Okay. And then I wonder you mentioned the industrial distribution strategy, I wondered if you could talk at all, I think last quarter we thought maybe there was a little bit of an inventory build, is that still happening and are you still adding distributors or did you add more distributors during the quarter?

We did add more distributors during the quarter but these are not huge numbers. And I know that a number of analysts had asked questions regarding filling the pipeline, industrial distribution, and I think we played that down on our commentary because you just don’t see that happening over there. So, did we continue to add distributors? Yes. In Europe, I think so far this year, Dennis help me with the numbers, is it 80 distributors that we have added?

We were about 280 distributors at the end of the first quarter and our expectation is to add about 10 per quarter, I don’t have an exact number, Ron might know the exact number for the second quarter, but our target is to get to about 400 total. So, we still have a couple of years to go in this distribution process.

I think in total through 6 months, if I remember correctly, we have added about 80 distributors in our strategy. So the 10-month that you are talking about, 10 per month -- Ron, you are on the line, if you would like to provide Walt with any more input there?

Yes, Bill. I think that’s directionally correct. We have also taken distributors out at the same time, but I think the net number is some place in that 80 distributor range.

Okay. And then if I could just switch again to the fire service being up 14%, is that largely due to the new products or you think that you are starting to see better demand trends out of some of the municipal customers?

Well, I think principally that’s due to some of the success we are having in the international markets. I mentioned $3 million shipment in the second quarter to the Chilean National Fire Brigades and we are seeing our local currency sales in the fire service internationally up 59% in the second quarter and a lot of that has to do with the success we saw in Chile. But even in Europe, we have seen nice improvement there selling fire helmets that’s primarily fire brigades in Europe where local currency sales were up 14% in the quarter. And even in North America, we have talked on this call a number of times about North America and I think on our last call we talked about, or I talked about, how we felt the North American fire service market had really bottomed. I didn’t see it getting all of that much worse, even though municipalities have tight budgets. And in fact, I think when we look at our second quarter results in the fire service for North America, sales were up 7%. So, I see some strength, it’s not coming from a whole lot of new products in North America, Walt, to answer your question kind of directly. I think that business conditions are just not getting any worse in North America, just as we had thought they would not and we are having success outside of North America.

The next question comes from Holden Lewis from BB&T Capital Markets.

This is John Cooper on for Holden. Just a quick question, looking at gross margin, I know it’s good, 140 basis points improvement annually. But if we look at some of the puts and takes versus the very good 43.3% gross margin you did in Q1, what are some of the puts and takes there that saw the gross margin dropped down to 41% because it looks like sequentially sales are roughly in the same level, I believe there is a $2 million delta to the negative side that hurt gross margin in Q1 and you still put up really good number. So, what are some of the kind of differences to look at between those 2?

John, I think there are 3 things that -- I put into 3 buckets. Well, first of all, let me say that Q1 was a great quarter. We had a lot of things going our way in the first quarter, so the 43.3% that you mentioned in the first quarter that was terrific performance, maybe just slightly above what I think is something we can consistently do, but not by much. But when I look at the difference then, the delta between Q1 and Q2, I look at it and I put them into 3 buckets. About 1/3 of it was related to some large Fixed Gas & Flame Detection orders that we shipped during the quarter. And those were some large orders tightly competitively bid and so we took a little bit of that there. The second impact had to do with a large gas mask order for New York City that we shipped providing them with the best protection for the police officers there and also that Chilean fire service order that I talked about, we had a $3 million order there that was tightly competitively bid. So, a couple of large orders there in that bucket. And then the third area is more internally focused where we took some charges for some tooling asset write-offs and so that’s about the third bucket, and they are all about in the same range from one another. If you take out each of those, that takes us into that 140 basis point range just for those 3, each of those about 1/3 each. So, I don’t see anything going on that makes me overall worried in looking to the future quarters and I think that our gross margin improvement while 140 basis point improvement is great year-over-year, I think we can do a little bit better than that. Dennis, any further comment?

I think Bill did all the major items. We had a little bit of extra warranty expense this quarter compared to the first quarter. Our production variances weren’t quite as good this quarter as the first quarter. I think we are trying to say that first quarter just went very smoothly, didn’t have any big orders and didn’t have anything unusually good, but it had absolutely nothing bad. This quarter we had a few little bad things.

Right. So taking all that into account, it’s something like a high 42% is somewhat of a consistent level borrowing some abnormal larger orders or is there some other noise I guess?

I can’t disagree with that.

Okay. And then I guess, just secondly, just a little bit different here. Looking at Europe, you had talked about some flattish kind of demand in that type of stuff kind of being offset by some of your distribution, and I guess, is the way to look at that even if we do get some flattish demand in that region and some declining, given the steps that you are taking with your restructuring efforts, with the SAP efforts and all these other items, I mean should we still be looking at that region as something that improves profitability even if sales do remain flat?

That is exactly our game plan.

The next question comes from Dick Ryan from Dougherty.

So, Bill, given good color on Europe, can you talk about what you might be seeing in the order book? You have also mentioned Asia, Australia kind of tempered views there, can you kind of give us a sense of what you are seeing there as Q3 has started?

Sure. I will give some commentary and color and then I will ask Kerry Bove to chime in on that as well. In China, and China is the largest part of Asia for us, but also I will include Japan, we saw orders in the second quarter weakened quite a bit. So far in the third quarter we have seen that come back nicely. So we did see a slowdown in parts of Asia, and the 2 most important parts for us really are China and Japan. Australia, we saw some weakening in Australia, we think primarily due to some of the new taxes that government has put in place which has really impacted the coal industry, the mining industry I should say in general, for Australia. I don’t see Australia making strong improvements or rebounding. I do see some strengthening, we are see some strengthening coming out of Asia and I’ll include in addition to Japan and China, South East Asia we are seeing some strengthening in our order book out of those areas. Kerry, is there anything you would like to add on that?

Yes, the only thing I might add from an economic standpoint that allows you to remain a little more optimistic in China is that we have not seen the employment rates at all slip and there is the pending or expected RMB 4 trillion stimulus from China that was yet to defined, we believe that it will keep the economy stronger in the second half.

Great. Dennis, didn’t have anything on the restructuring side, but is there anything going on in Europe that you might anticipate any restructuring going forward there?

At this point we do not anticipate any restructuring charges in Europe for the remainder of this year.

Okay. And is there any additional land sales, any other acreage up there that can be sold or does that complete the land holding?

We still have one parcel to be sold. Right now, it may get sold. In the fourth quarter, it may not.

At this time there are no additional questions. Please go ahead with any final remarks.

Okay. Thank you, Christine. Well, seeing that we have no more questions that will conclude today’s call. I want to thank everybody for joining us this morning. If you had missed a portion of this morning’s conference, I want to remind everybody that an audio replay will be available on our website for the next 30 days. So, on behalf of Bill, Dennis, Joe, Ron and Kerry, thank you for your interest and participation. We look forward to talking with you again soon. Hope everybody has a great day.

Thank you for participating in the MSA Second Quarter Earnings Conference Call. This concludes the conference for today. You may all disconnect at this time.