Park-Ohio Holdings Corp. (PKOH) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the ParkOhio First Quarter 2016 Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, the Company will conduct a question-and-answer session. Today’s conference is also being recorded [Operator Instructions]. Before we get started, I want to remind everybody that certain statements made on today’s call maybe forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relative risks and uncertainties maybe found in the earnings press release as well as the Company’s 2015 10-K, which was filed on March 14, 2016 with the SEC. Additionally, the Company may discuss as adjusted earnings and EBITDA as defined. As adjusted earnings and EBITDA as defined are not measures of performance under Generally Accepted Accounting Principles. For reconciliation of net income to as adjusted earnings and for reconciliation of net income attributable to Park-Ohio common shareholders EBITDA as defined, pleased refer to the Company’s recent earnings release. I will now turn the conference over to Mr. Edward Crawford, Chairman and CEO. Please proceed Mr. Crawford.

Good morning, ladies and gentlemen. Welcome to the first quarter 2016 Park-Ohio conference call. Matt Crawford, President of the Company and Pat Fogarty, the Chief Financial Officer, will be covering in great detail the operating activities of the Company in the first quarter of this year. Before we begin, I would like to answer a question that has been asked of me earlier this morning. And the question is about the most recent release of information. The quarterly reporting process here at the Company begins with a meeting of the audit committee. Historically that's been on a Thursday, information released on Friday and conference-call on Monday. At the most recent meeting, a decision was made to take a charge for an effect of earnings due to a decision made by one of our customers. Being material, we released information to ensure that trading on Friday would be done with full disclosure all the current facts. Now I would like to turn over the conference call and we will begin with Matt and Pat and at the end here we’ll be glad to answer any questions. Matt.

Great Thank you very much and good morning. Before I start my formal remarks, given the poor performance in Q1 and the pronounced reaction in the stock price late last week, I would like to begin by making the following points. Number one, the Company has had five-years of consecutive growth in sales and EPS, compounding growth rate in sales has been 11%, EPS has been 10%. Secondly, while sales and earnings were behind expectations, operating cash flows for the quarter exceeded $10 million during what is typically our most challenged quarter and is expected to be $50 million to $55 million for the year. Even with the revised forecast, we expect current year’s sales, earnings and EBITDA to be strong on historical basis. Thirdly, while sales were surprisingly soft during the beginning of the year, they improved each month of the quarter and we expect continued expansion for the second quarter and the rest of the year. Number four, Chrysler’s decision to discontinue to 200 and the Dart have created a significant impact on 2016. Approximately two thirds of the reduction in guidance is related to this decision. And lastly to address these issues, some of which are temporary and the Chrysler issue, which is long-term at least that we have found this on this part, we have instituted additional operational comp savings totaling in excess of $15 million, which will have a positive impact on future earnings. Having made those five comments, I’ll now move to my formal remarks. Despite some strong performances in our portfolio, our first quarter was challenged by the softening of many end-markets, including heavy duty trucks, rail, power sports and electronics. In addition, the unexpected reduction in volume on two Fiat Chrysler small car platforms, the Dodge Dart and the Chrysler 200, and the likely end of production of these vehicles significantly impacted the first quarter results and will impact our aluminum business for the rest of 2016. Lastly, the oil and gas and steel demand for our induction and pipe threading products were at their lowest quarterly levels in several years. We have reacted to these challenges by reducing headcount by more than 11% in the affected businesses and are cutting all discretionary spending and streamlining manufacturing processes in many situations. On a positive note, as mentioned previously, demand did strengthened throughout the quarter and continued into the second quarter. Also on a positive note, our faster manufacturing, fuel and rubber and plastics businesses enjoyed strong performances, which continue to meet our sales and income expectations as we position each for growth in the near-term. We expect the combination of improved demand and restructuring action to provide improved earnings performance through the balance of 2016. Specifically, our first quarter U.S. GAAP earnings decreased to $0.22, compared to $0.87 per share in the first quarter of 2015. Our first quarter as adjusted earnings were $0.46 per share compared to $0.93 per share in a prior year. The most notable adjustment to our earnings was the $0.20 add back related to the non-cash rate down of the previously discussed Chrysler assets. Net sales during the quarter decreased 12% to $328 million compared to $375 million in the first quarter of the prior year. Gross profit decreased $10.6 million to $47.8 million in the first quarter. The gross profit was 14.6% compared to 15.6% in the first quarter of last year and the fourth quarter of 2015. The decline in gross margin is largely due to the reduced absorption and certain locations affected by low customer demand. Consolidated SG&A expenses decreased $1.6 million to $32.5 million compared to $34.1 million in the prior year, but increase as a percentage of net sales to 9.9% in 2016 from 9.1% in the prior year. As I mentioned, we've been issued a cost reduction including headcount reduction and reduced professional fees and marketing fees which will benefit remaining quarters throughout the year. Interest expense of $7.1 million is compared to $6.8 million in 2015. Our effective tax rate for the first quarter of 2016 was 35.7% compared to last year's of 36.6%. Our full-year effective tax rate is estimated to be approximately 35%. I'll now cover segment results. First, let's review the Supply Technologies segment performance. Supply Technologies segment revenues represented 40% of consolidated revenues during the first quarter of 2016. Revenue decreased to $21.5 million or 14% from the prior year, to approximately $130 million. The majority of the decline in revenue in the first quarter was related to the reduced demand in heavy truck, power sports equipment, semiconductor and agricultural land markets. Of particular note, was Volvo Mack delivering 33% less trucks during Q1. Bright spots included our fastener manufacturing business and the ongoing implementation of nine new customer accounts in our Supply Chain business. Within the segment, we expect end-market demands to improve throughout the year, indications of improvement began in late February and March as our average daily sales in every major end-market increased. Segment operating income decreased $4 million to $10.2 million. Segment operating income margin was 7.9% in the first quarter of 2016, compared to last year's operating income margin of 9.4%. Despite some sequential improvements in volume, Supply Technologies has identified and implementing cost containment strategy focused on headcount and wage reductions, travel and entertainment and other significant areas of discretionary expense while maintaining focus on investment and resources to support future growth. The full benefit of these cost reduction effort started to be realized in late Q1, which were apparent as margin trends improved between January and March. We expect the decreases to further benefit our financial results in Q2 and beyond, in addition to our ability to leverage this lower cost base as industry sectors trend upwards and recover. Next, let's discuss Assembly Component segment. Assembly Components revenue represents 40% of consolidated revenues. Net sales decreased $8.8 million or 6% to approximately $132 million in the first quarter of 2016 compared to 2015. Sales in our aluminum products business were down $11 million year-over-year primarily due to Fiat Chrysler's decision to significantly reduced and likely end production of the Dodge Dart and Chrysler 200 and convert our production line to small to medium size SUVs. The full-year impact of loss revenues resulting from this decision is approximately $40 million to $50 million over the next few years when the platform would have been retired regardless. As a result, we recorded an asset impairment of $4 million during the first quarter of 2016 to write down certain assets relating to these two platforms. We are currently in discussions with Fiat Chrysler to determine how they will support General Aluminum during this transition. As expected we've implemented several actions at General Aluminum in response to Fiat Chrysler's decision, including eliminating over 275 jobs, reductions in discretionary spending, including mandatory reduction over-time, implemented a total employee wage freeze and accelerated implementation of production savings initiatives. Unfortunately these issues with Fiat Chrysler have masked what continues to be strong performance in global growth in our fuel and rubber and plastics business. We are particularly excited regarding our growth in new business awards in Mexico and China. These are relatively new investments, which we anticipate will contribute a $100 million in annual revenue in the near future. We also continue to see strong growth in our direct injection technology, which grew 18% quarter-over-quarter. We are also excited to have started shipping aluminum castings related to our previously discussed 10-speed transmission order, which we estimate will exceed $30 million in annual sales beginning in 2018 and up to $50 million shortly thereafter. Additionally were actively quoting numerous other new parts. In the first quarter of segment operating income decline to $10.2 million, although segment operating income margin improved to 7.7% due to lack of absorption in the aluminum plant affected by Fiat Chrysler's decision. We estimate the earnings per share effect of the volume productions at our aluminum products business to be approximately $0.20 in Q1 related to the reduction of the Fiat Chrysler's volume. This is separate from the asset write downs. Not surprisingly and as already discussed our most aggressive cost cutting has been in this segment. The significant headcount reduction as well as other operational material improvements will began to benefit meaningfully in the second quarter. Moving on to the Engineered Product segments. Engineer Products revenue represented 20% of consolidated revenue. Net sales decreased $16.4 million to approximately $66 million in the first quarter compared to the prior year. The year-over-year decline in sales was primarily in our induction and price threading business, which shows the oil and gas and steel end-markets. New equipment in aftermarket sales were down 24% and 17% respectively year-over-year. Sequentially, in the first quarter of 2016 new equipment and aftermarket sales were down 15%, while these markets continue to be weak, we have seen some improvement in aftermarket activity recently and some subtle but encouraging signs in new equipment enquiries. Our Forging revenues were approximately the same year-over-year, but down significantly to our internal plan, as bill rates for railcars declined over 30%. We expect this market to be challenged throughout the rest of 2016. Our cost reduction and restructuring efforts in the segment have included reducing headcount by 13% domestically, elimination of noncore operations and department consolidations. The cost reductions have largely been completed in this segment and total in excess of $8 million on an annual basis. Segment operating income decreased $4.8 million to $1.4 million. Segment operating income contribution for the forging business was down a $1 million a $3.8 million of the decrease was related to industrial equipment. In conclusion, we were subject to a bit of a perfect storm in the first quarter. The Chrysler's decision explained much of their performance miss but not all. Although we do expect improvement through the year as end-markets normalize, some of which have already begun, we have also taken this opportunity the address the cost side of the business aggressively. Also each of our segments has aspects which continue to perform at a higher level and each continue to have opportunities for growth. Nothing has changed fundamentally and we still expect current year sales earnings and EBITDA to be strong on a historical basis. Despite this optimism, the loss of aluminum business and the slow start to the first quarter will impact our profit plan for the year. As a result, our previously issued guidance is being revised to $3.10 to $3.30 as adjusted. Thank you very much.

Well thank you Matthew. Okay, we are now ready to proceed with question from the queue.

Thank you ladies and gentlemen. We will now be conducting our question-and-answer session. [Operator Instructions] Our first question comes from the line of Marco Rodriguez with Stonegate Capital Partners. Please go ahead

Good morning, guys. Thank you for taking my questions.

Good morning Marco. How are you today?

Doing well and yourself?

Very good. Thank you.

Alright. I was wondering if you could walk us through perhaps the reductions in expenses that you are planning to take. If you can help us understand how you expect that to flow into the specific line items on your P&L through the remainder of this year would be helpful.

Marco, this is Patrick Fogarty.

Hey Pat.

Hi. Let me address the expense reductions that have taken place. You are relative to the employees, there is really two aspects of the jobs that were eliminated. First of all, you have the direct labor side of the business, which has been reduced based on reductions in production and the production lines that we operate in several of our plants, you know those in generally are variable, but you also the people there are in supervisory rolls that have more salaried, more fixed in nature type cost. The second aspect of the labor reductions accrued in management expenses, which typically would flow through our SG&A. So when you ask which areas of the P&L or which areas would be affected, cost to good sold would be affected as well as the SG&A lines in our income statement. In addition to that you know Matt mentioned, several operational related type reductions, which will flow through our general overheads in our various manufacturing plants, which will have a significant impact on our future earnings.

Marco this is Matt Crawford speaking. I would add that mostly operational changes we’ve made at this point, while both the SG&A line and the cost of goods will be effected. The reality of it is as I said multiple times in the call, everyone of our business is still seeing growth opportunities, is soliciting new business, is landing new business and is growing. I think that I’ve looked into a number of other industrial calls this year, so I think many of them echoed the concerns of the end of the fourth quarter in the beginning of the first quarter this year. So we’ve been very careful, not to dismantle an organization that is build to grow. So I’ve threw out a lot of numbers, there are lot of big numbers relatively cost cuts, they will disproportionally hit the cost to good line, because it’s not just about headcounts, it’s about material savings, operational savings. So there is slew of different items at each business that is been impacted. But I want to remind everyone, even the businesses that struggled are still positioned to grow and are soliciting new business. So let’s take Supply Technologies as an example, Supply Technologies is was really crushed by the significant impact of Class Eight particular Volvo in January and February. We’ll we are not just going to close the shop and not solicit new business. We’re in positioned in that business for growth, we've significantly increased our footprint and we’re still soliciting and implementing new accounts. So while we’re being aggressive on the cost side, you know I asked you and others to remember that some of these volumes volatility were abortion, it doesn’t change what we’re trying to accomplish. So we’re not going to gut the SG&A line, because the short term volatility.

Marco this is Eddy, this reminds me a little bit of 2008 and 2009 in 2008 and 2009 the first quarter of 2009, we were down 42% in revenues year-over-year and we had implemented considerable restructuring. But we’re looking for the future, we don’t think this is a permanent damage and whatever reduction we’ve made, they are done very carefully, where they were done throughout the whole quarter. They are pretty much in place at this particular time, but we’re not compromising our ability to grow here because of one quarter. We didn’t panic in 2008 over 2009 and believe me it was good because as soon as 2009 started to role, we were there, we had the people we didn’t lose good key personal. So it’s easy to overdo some of these things. But we have been through this before and this comes another 2008, 92009, I was shock about that’s firs t quarter. Well I’m shock about this quarter and that doesn’t mean that we can’t are not building a long-term business.

Got it. That's very helpful, guys. And I apologize if I missed this. There were a lot of numbers being thrown out here, but what is the total savings you guys are expecting to obtain from these reductions?

And Part can confirm this for me, but I think my opening comments, I did do, I consolidated them to cost savings, operational cost savings totaling in excess of $15 million, which were put in place during the first quarter. So may be the impact 2015 - Those were just the ones that were implemented in the first quarter.

Got you. Okay and so we will see that immediately coming here in Q2 then, if I am understanding you correctly?

Correct.

That’s right.

Got you. Okay. In terms of Supply Technologies performance in the quarter, I know you mentioned the Volvo, the heavy-duty truck impact there. It kind of sounds like that perhaps took you guys by surprise. Can you give us some more insight into what you see there and how it's tracking thus far since quarter-end?

This is Matt. I think I’ve said in much of that want to, which is I think in my comments I said every market improved, average daily sales which is a key metric in the Supply Technologies business, improved throughout the quarter so you know February is better than January, March was better than February. So I think that we’ve seen those improvements, but are right unquestionably we were surprised and candidly I think some of our key customers were surprised at some of the shutdown and the demands softness that occurred early in the first quarter, but no we've seen a recovery in most end-markets on an average daily sales basis throughout the quarter.

Got it. And last quick question and I will jump back into queue, coming to the Chrysler Fiat issue there, can you give me perhaps a little bit more color? When did the client come to you and basically express the fact that they are going to be stopping those two lines and it kind of sounds like again you guys were taken by surprise there. Any kind of color you could provide?

This is Matt. I'll start, I'm sure others will have a comment on this as well, but you know I once again, I think that it's public knowledge that Chrysler reviewed these product lines somewhat surprisingly I think towards the very end of last year beginning of this year. So I don’t know that their review of these product lines was the most recent shock. I think that while that was a surprise to us relative to overall business plan, I think what surprised us more recently is how abruptly it appears that they had decided to not produce this car. So I know originally there were rumblings that this car would stay in production through next year and then it was early next year and then maybe one longer than the other. You know these cars are still actively being marketed and sold, in fact you can see a commercial still on TV. So I think we were under the impression as were a lot of suppliers that the production rates would continue at similar volumes. We have chosen at this point to believe that that is not likely and as recently as last week, we chose to take the conservative position that we just can’t expect anything from them at this point. It appears clear that strategically they have chosen at whatever cost so those two car platforms and current sales to move that production to SUV production. It's probably a good decision long-term, probably a good decision for their interest in selling the company to sell more jeeps than Darts, but the reality of it is it has been sort of a disappointing tale that's accelerated since their strategic decision which was a few months ago.

Marco, in the auto industries there is all surprises and if anybody wants to get a real discount on a Dodge Dart, I would be glad to arrange it for you. I was following the Dart last night thought it’s a pretty attractive car. This was I think kind of a universal - my view the big picture here is this is not only Chrysler, this is Ford and General Motors. With the gas coming down quickly all of a sudden all the SUVs became a very-very important thing. No one wanted the sedans anymore, no one wanted those four doors, they wanted the SUVs and they could afford it. So I think they are just spinning around quickly, they can't make enough Jeep Cherokees and they want this production range and capabilities for the Dart. Now this is not special equipment that cannot be used, we're in the marketplace right now and we've advised them that we are going to replace this business that production to whoever wants to buy it including them. I mean the biggest platform at Chrysler right now is the front-end of the truck of the Ram truck is going to get aluminum. Well we should be in that maybe we can get part of that. So it's not all this equipment went away and we had to shut it down and we had to let the hourly employees go, but the equipment is still there, it's not special equipment it will do any, many have aluminum parts. So we'll get it, but it hurts when they decide to knockout one or two of your platforms especially when the businesses are very substantial part of what we are currently doing. Yes we've lost the revenue of it, but we haven't lost our interest in the fact that the auto industry and the big picture particularly with everything happening in China has been very positive. So we were in the wrong place at the wrong time, the Dart goes, this goes, the equipment is still there, the equipment is ready to go, we're going to replace that business. And keep in mind, we've been talking about two or three quarters here, fact that we didn't make any acquisitions in 2015 and we were going to have to grow organically. And I've been saying for the last two or three conference calls, it takes a while for that organic investment to come on stream like the 10-speed transmission. It's coming up now, it's just starting to ship, in 2017 it gets into full speed, but I mean we made investments CapEx investments internal things for our growing organic growth and despite the latest 18-months it's not make an acquisition you get it the next day. So yes we're disappointed in this, but I’m not heartbroken over it and we'll redeploy the capacity.

Got it. I appreciate your guys' comments. Thanks so much.

Thank you [Operator Instructions] our next question comes from the line of Steve Barger from KeyBanc Capital Markets. Please go ahead.

Hey good morning guys.

Morning Steve.

As you look across your other aluminum customers, do you expect any other platforms or programs are at risk?

I'm not aware of any programs that we're currently on that would be using your term at risk, okay. It's clearly the ones that we are on are doing very well particularly the Jeep Cherokee and others. So no I don't think there is anything there that I hope and let's say discontinues in Jeep Cherokee which I doubt that will be hit with this in the near future, hopefully not.

Okay. And you talked about taking that capacity to market. Can you just talk about the industry in general in terms of is capacity tight? And realistically, do you think that you stay with Chrysler for that on a new program, or are there other customers that could move more quickly potentially?

We have active in the marketplace for considerable time, as soon as the rumors started to fly above this, just we started reducing our overhead in the Company in the first quarter, because of what we saw coming, although it creeps in, but we have been out marketing this thing for sometime already to all the companies. So standard equipment, it’s not specialized for Chrysler, we can do work for anyone of the big tree and quite frankly there is still a tight market for this and we feel that we're going to be able to deploy it. I'm going to be able to deploy it as soon as better, but I would hope that we would be on the way to deployment of this sometime this year. I don't know if in order it will be up in production, but we have production lines ready to go and we're bidding on business, but let's see the big job comes with RAM front-end. I mean you get that we have the equipment. We don't have any of the CapEx we had, but we do have the timeline between now and when it comes to the production in 2018. So it's great it's about $60 million in business, but that's a long time between here and Tipperary. So we've got to do something else, but we're not sitting idly by, we haven't been sitting idly by. But the facts are they are going to stop making those cars and they are going to stop advertising. We know now, because we can sense the amount of pieces they are buying. I think they are just filling the bank, because they have the responsibility to supply spare parts for the next 20-years or 10-years. It's a terrible place, but that's it, but on the other side, we're going where there are platforms with the same type of people. So I mean it's not until we lost the customer, we didn't lose the customer we lost two cars.

Right. And so I think the volume on those had been a little lighter than expectation, so is it reasonable to think that you can sell that capacity at a better price or margin even if it's just from absorption coming from higher volume?

Well, I think we definitely will get margin enhancement for redeploying the equipment and keep in mind, as we have discussed Steve, these programs were taking in the crisis period where our competitor who subsequently went bankrupt, was out there cutting prices. So we will look ahead and it's a good point we should be able to get better margins.

Okay. And you talked about $15 million of cost savings. How much of that was actually realized in 1Q, or how much of a benefit was in the numbers and how much is yet to come?

Steve this is Pat Fogarty. The restructuring that was taking place in the first quarter, much of that was not realized in Q1, because of the nature of the changes that were being made. So most of those savings will start to be realized in Q2 and forward. We did see some of the improvement in Supply Technologies, but in general, most of that is more forward-looking that will start to kick in Q2.

Got it. When you factor in the lost business in assembly and what's going on in other end markets, can you help us with our models? What do you think full-year revenue looks like for the assembly segment and the full Company?

Steve, we typically don't give the segment information guidance out, but relatively to full-year sales guidance, we haven't given that guidance out as well.

Okay. I guess I will try one other way. When you look at the revenue run rate of $131 million in that segment assembly in the quarter, is that a reasonable way to think about the rest of the year, or the full impact of the lost program is not reflected in that $130 million run rate?

Pat, let me ask you a question. We have new guidance out. What is roughly the number on sales that connects that number?

Roughly Steve in the total business sales will be about $1.4 billion in revenue this year. That number could increase based on quick replacement of that work or quicker implementation on some new orders and Supply Technologies, but that's our total business estimate of where revenues will end up.

Got it. I will ask one more and I'll get back in line. You talked about operating cash flow, if I heard right, of $50 million to $55 million this year. What do you expect from working cap this year? Does that become a source due to the revenue reduction that you are seeing in assembly?

Right the operating cash flow asking about $50 million to $55 million does include some investment in working capital to support future programs and future growth in our other businesses.

Got it.

Thank you. We have no further questions in queue at this time. I would like to turn the floor back over to management for closing remarks.

Well some suggested he would be back into queue, do you want to run that by the two previous individuals asking questions to make sure.

[Operator Instructions] Our next question is a follow from the line of Steve Barger from KeyBanc Capital Markets. Please go ahead with your follow up.

Thanks.

I didn’t want to lose you Steve.

No I appreciate you sticking around.

I got no place to go. I could tell you, I'm sitting right here waiting for you, and everybody else, I will stay here all day.

I wanted to switch gears to the Supply Technologies. Did I hear you right that you signed nine new customers in the quarter?

We’re implementing nine new customers, meaning that we’re bringing them on stream.

Understood. New industries or regions; how did that evolve? Where are you finding the customers? And really how long did the sales process take from the initial conversation to converting them to a customer?

As you know, this is a very sticky business with a very comprehensive service package extending from upfront engineering through supply chain. So the sales cycle depending on the customers can be years, in some cases it could be much quicker depending on the size of the product suite and the service package. So it would be very hard I think to comment on sales cycle. Other than to say that good long-term relationships aren’t born overnight. So no, it's impressive for us to have that many new customers in implementation, some of them bigger than others. As we’ve discussed in the past, a lot of great big customers, top-10 customers for us start as smaller customers. We also see penetration often in industries where we’ve had some success with one particular participant and move to the others. We have seen some of that recently in the RV industry and caravan industry, particularly outside the U.S. and in the UK and so forth as well as inside the U.S. So I would say that the implementations are global in nature, but I would tell you that I think we’ve continued to see and leverage some of the strength out of the growth we’ve seen in the UK and in the international business specifically.

Are there a lot more new prospects in the pipeline on a global basis, or have you accelerated the process of getting in front of people to sell the value proposition of Supply Technologies?

I don’t know that I would say accelerated, I think that new business has been an emphasis of that organization for a couple of years. So no I would not necessarily by mentioning the nine implementations it wasn’t intended to say if that’s new or different, but just to give you a sense of what is going on in the business. New business in Supply Technologies is a priority, I think that we have on a relative basis under achieved in that area and it’s nice to see that we’re getting some attraction.

It's an impressive number. I think you said the railcar build was down 30% in the quarter. Do you have content on all types of railcars, or just more on one or two types?

No, our rail, I could talk a little more broadly about that it wouldn’t hurt. We talked about railcars. Our rail forging business has content on locomotives, which has been weak the last year. It has content on railcars, which is really what hurt us recently, both on tanking and freight. So we see all types of cars there is the answer to your question. And then we also have track products, making products that help lay down track. So that business candidly is steadiest of the Group as you might imagine. But the locomotive part of the business and the railcar part of it has been particularly weak as of late. Let me back up and say Steve, just to get to the theme of, I feel like a lot of our end-markets, we’ve priced our diversification over the years and I feel on this particular case a disproportionate amount of our markets were weak. This is a classy example, we have dominant market share in these products for supply and into the railcar markets. So in no case is this discussion about losing customers or our price becoming less competitive or less important. This is just about end-market volatility particularly in the first quarter, and that’s maybe one of the best examples I can think of.

Yes, understood. I think it's a good point. Steel prices have firmed up to some degree. Does that typically translate into increased capital spending from your steel-producing customers?

I can’t think of a line in the whole, my whole darn report that we thought about as much as trying to suggest that anecdotally. Well no, we are seeing a little - that resurgence we believe is while we’ve seen small, but important increases in our aftermarket business. So nothing to ride home about but an important rebound however small it may be and candidly also the comment I made about increase enquiries. So the answer to your question is yes, I think it could also be - at some point it's just been too long, people have to fixed equipment even if it's running at half the volume. So whether its rebound in prices, whether it's the age of the equipment, whatever that may be, I do think we're seeing - if we can't say with confidence and uptick, I think we can say that we've at least called the bottom.

Got it. That's a great comment. And last one for me, your CapEx budget for the year. I can't remember if you gave us a number on the last call, or just what are you thinking that's going to be for 2016?

We did give you one on the last call and we didn't give you one on this, because I would say that much like our efforts, which are very granular and business-by-business on the cost reduction side, we're equally reviewing our CapEx budget and expect it to be less than what we said on the last call. We are just not prepared to give a number and once again one of the issues here, and I want to reinforce this is, we have parts of our business that are doing really well and we have a number of parts that aren't just doing well, some of that aren't that we still want to invest in. So our cash flow metrics continue to be strong. Our results on historical basis continue to be solid and we're in a position to take advantage of some of these regardless of the volatility in the first quarter in my opinion, but having said that we are also reviewing it and expect to spend less money in CapEx than previously announced.

Understood. Well, I appreciate the time. I know it's a tough environment out there and hopefully will see some more rays of light as we progress through the year.

Steve, one last comment that as you touch on cash flow, I expect a little bit of an increase in our debt leverage but not significant, relative to what we're expecting for throughout the course of the year.

A little increase to your debt leverage, you said?

Yes. So our net debt to EBITDA leverage, we expect to be about 3.2 for the year, which is consistent.

Oh, understood. I got you. Okay. Thanks.

Thank you.

Thank you. Ladies and gentlemen, we have no further question in queue at this time. I would now like to turn it back over to management for closing remarks.

Well, we want to thank everyone and hopefully for your patience and we are acting as we should and have been through the first quarter getting things tightened up little bit, but again there is a lot of great things happening in the company. And we have a few issues that we have addressed in the first quarter and hopefully things will be positive and grow as we continue through the year and take advantage of the opportunities as they present themselves. Thank you once again and have a nice day.

Thank you ladies and gentlemen. This does conclude a teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.