World Fuel Services Corporation Q2 2009 Earnings Call Transcript

Aug. 6.09 | About: World Fuel (INT)

World Fuel Services Corporation (NYSE:INT)

Q2 2009 Earnings Call Transcript

August 6, 2009 5:00 pm ET

Executives

Frank Shea – EVP and Chief Risk and Administrative Officer

Paul Stebbins – Chairman and CEO

Ira Birns – EVP and CFO

Michael Kasbar – President and COO

Analysts

Jonathan Chappell – JP Morgan

George Pickral – Stephens

Steve Ferazani – Sidoti & Company

Operator

Good afternoon. My name is Marcello and I will be your conference operator today. At this time, I would like to welcome everyone to the World Fuel Services second quarter earnings conference call. (Operator instructions)

I will now turn the call over to Mr. Frank Shea, Executive Vice President and Chief Risk and Administrative Officer for World Fuel Services Corporation. Mr. Shea, you may begin your conference.

Frank Shea

Good evening, everyone, and welcome to the World Fuel Services second quarter conference call. I am Frank Shea, Executive Vice President and Chief Risk and Administrative Officer, and I am doing the introductions on this evening's call with as we did last quarter, a live slide presentation. This call is also available via webcast. To access this webcast or future webcasts, please visit our website, www.wfscorp.com and click on the webcast icon.

With us on the call today are Paul Stebbins, Chairman and Chief Executive Officer; Michael Kasbar, President and Chief Operating Officer; Ira Birns, Executive Vice President and Chief Financial Officer; and Paul Nobel, Senior Vice President and Chief Accounting Officer. By now, you should have all received a copy of our earnings release. If not, you can access our release on our website.

Before we get started, I would like to review World Fuel's Safe Harbor statement. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding World Fuel's future plans and expected performance, are forward-looking statements that are based on assumptions that management believes are reasonable, but are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information.

The summary of some of the risk factors that could cause results to materially differ from our projections can be found in our Form 10-K for the year-ended December 31, 2008 and other reports filed with the Securities and Exchange Commission. We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.

At this time, I would like to introduce our Chairman and Chief Executive Officer, Paul Stebbins.

Paul Stebbins

Thank you, Frank. Good afternoon and we appreciate you joining us today. Today, we announced earnings of $28 million or $0.93 per diluted share for the second quarter of fiscal 2009. Our earnings increased 35% over Q1 of 2008 and 7% sequentially over Q1 2009, again demonstrating our ability to deliver strong financial results in a difficult operating environment. We were pleased to be able to grow gross profit by 5% sequentially and our efforts to drive efficiency throughout the company were reflected in our operating income, which was up 21% year-over-year and 9% sequentially.

Throughout the quarter, we focused on four primary objectives. One, continuing to aggressively manage risk in an uncertain global economy. Two, defending our leading position in the market at a time when the shipping industry is challenged by a slump in global trade. Three, rebuilding commercial aviation volume while reducing risk and improving our cash position and further strengthening – and four, further strengthening the platform for growth in our land business.

We were successful in accomplishing all four of these objectives while achieving a record 4.9 day net trade cycle, the achieving a 99% return on working capital, delivering a 17% return on equity, and generating 31 million in cash from operations. We continue to maintain a very strong balance sheet. Our debt to capital ratio was under 3%. We closed the quarter with $366 million in cash, cash equivalents and short-term investments, and our overall liquidity position remains substantial.

Our solid financial performance in this quarter highlighted the adaptability and the resilience of our business model in challenging market conditions. It also demonstrated the inability of our global team to respond to fast changing market dynamics, which has become a hallmark of our continued success over time.

In our marine segment, results were down sequentially from Q1, consistent with the overall demand trend in the shipping industry, but although this position in the market remains strong with core traded volumes down less than 1%. In a market, which saw sharp drops in sector demand, we were successful in holding no to volumes while our margins saw only a modest decline. As we look forward, our objective is to continue to optimize the balance between credit risk and return to drive the best overall results possible in a challenging operating environment.

At a macro level, the problems facing the shipping industry in a depressed global economy had been well publicized. Most of the world's largest fleets have posted significant losses as they struggle to shed capacity and reduce their costs. This has been particularly evident in the container sector where we have seen considerable demand destruction. All industry estimates suggest that bunker demand will be significantly lower throughout the year 2009 than in 2008 due to slowdown in global trade. However, offsetting the general malaise in the container segment, there is renewed activity in the bulk market, primarily driven by demand for raw material from China. The tanker market was still relatively weak in the quarter but is expected to rebound as the economy begins to show signs of recovery.

Despite the difficult industry conditions in Q2, Global Fuel continues to feature as the leading fuel services provider in the space. And it is clear that the operating environment has proved more challenging for our less well-capitalized competitors, several of whom have been burdened by high debt levels and negatively impacted by poor credit control. Our offering in the market continued to be differentiated by the scope of our network, the strength of our balance sheet and the reliability of our service. As we look forward, to the balance of the year, we will continue to focus on maintaining our position in the market while continuing to observe the tight risk management discipline.

In our aviation segment, we spent the last year shedding volume and reducing our exposure to risk. Our disciplined approach to risk management was effective and enabled us to protect our core profitability in the segment. However, in Q2 we began the process of complementing our core commercial business with the addition of new volume and lower gross margin per gallon but secured on a prepaid basis. By beginning this process of restoring volumes to our portfolio, we were able to fortify our competitive supply position, reduce risk, and improve our cash position, which serves as a hedge against rising prices and helps us fund growth. Our results were good despite the difficult market and we believe we are well positioned to continue to exist and optimize our business model in response to evolving market conditions.

At a more macro level, the aviation industry continues to be challenged by an uncertain economy and volatile fuel costs. Capacity cuts continue with major fleets fighting for survival and seeking ways to improve revenue by charging for ancillary services. The industry faces an unprecedented economic environment and losses have been estimated to reach $9 billion in 2009. IATA has estimated that air cargo demand will drop 17% in 2009 and overall passenger traffic will be down 8% compared to 2008. Furthermore, business aviation traffic remains sluggish given the economy and negative public perceptions about private aircraft travel.

These realities will certainly result in further rationalization of the industry but will also create opportunities for the survivors. It will also create opportunities for World Fuel as companies increasingly look to reassess their traditional procurement procedures and look for more robust integrated procurement offerings. Our global system will continue to differentiate our offering and create opportunities to more closely partner with our customers and managing their total spend.

In our land segment, we had a record quarter. We are excited about the developments we see in the space and the promise of continued growth. Having endured several years of challenges as we look to refine the business model and find our place in the supply chain, we're beginning to see real profits. Our wholesale, unbranded rack business is finally right sized and our wholesale branded business continues to perform very well despite a challenging economic environment. The segment performance has improved considerably and has become a meaningful contributor to our results. We believe we have a good platform in place and anticipate further growth going forward.

Q2 was a great quarter for World Fuel. We delivered strong performance and defended the franchise in a challenging operating environment. We held our own our margin and volume, we managed risk, maintained a strong balance sheet and achieved excellent results on trade cycles, working capital and return on equity. The team proved once again that a strong smart defense wins the day. We continue to innovate, refine our offering, invest in technology and people and see an abundance of opportunities to grow our business going forward.

We appreciate your continued support and I will now turn the call over to Ira for a detailed financial review.

Ira Birns

Thank you, Paul. Before we do our results, I would like to point out that our second quarter revenue was impacted by increasing fuel prices compared to the first quarter and a significant decline in fuel prices when compared to the second quarter of last year. For those of you participating by webcast, you see this reflected on the consolidated revenue slide.

Consolidated revenue for the first quarter was $2.5 million, up 26% sequentially, but down 55% compared to the second quarter of last year. The aviation segment generated revenues of $832 million, up $122 million sequentially, but down $1.4 billion from last year's second quarter. Of this amount, approximately $900 million is the result of lower fuel prices and approximately $500 million was the result of reduced volume.

Our marine segment revenues were $1.4 billion, up $279 million sequentially but down $1.7 billion year-over-year. Of this amount, approximately $1 billion is the result of lower fuel prices and approximately $700 million was the result of reduced year-over-year volume. And finally, the land segment generated revenues of $320 million, up $119 million sequentially but down $46 million from last year's second quarter. Of this amount, $112 million was the result of lower fuel prices which was partially offset by a $66 million increase in revenue which related to increased year-over-year volume, principally related to the Texor, Henty and TGS acquisitions.

Our aviation segment stowed 459 million gallons of fuel during the second quarter, up 8% sequentially, the first sequential increase in volume since the first quarter of 2008, but year-over-year down 23%. As mentioned on last quarter's call, volumes began to increase in the second quarter, driven in part by increases in secured lower margin commercial business. Our marine segment's total business activity in the second quarter was 5.2 million metric tons down 4% sequentially and down 30% year-over-year. While volumes did decline sequentially, the rate of decline eased significantly in the second quarter.

Second-quarter volumes were impacted by our continued efforts to aggressively manage risk as well as the impact of continued challenging market conditions. The credit quality of our marine portfolio remains strong as we continue to ship a greater mix of our business to each of our accounts. Fuel reselling activity constituted approximately 79% of total marine business activity in the quarter, slightly higher than the average percentage of this activity over the past several quarters.

Our land segment sold 169 million gallons during the second quarter, up 26% sequentially, and up 65% compared with the second quarter of 2008 due to a sequential increase in our unbranded wholesale business and sequential and year-over-year increases related to the acquisitions of Texor, Henty Oil and TGS Petroleum. Gross profit for the second quarter was $92 million, an increase of $5 million or 5% sequentially, but down $2 million or 3% compared to the second quarter of last year. Our aviation segment contributed $40 million in gross profit, an increase of $7.7 million or 24% sequentially, but a decrease of $5 million or 12% year-over-year.

During the quarter, we opportunistically increased our inventory position without a significant incremental working capital investment. Our self-supply model jet fuel inventory position was approximately 25 million gallons or $43 million at the end of the second quarter, up from 20 million gallons and approximately $27 million in the first quarter. Jet fuel market prices rose approximately 32% during the quarter from $1.36 to $1.80 per gallon. This significant increase in prices combined with our increased level of inventory resulted in a positive impact to gross profit related to the inventory average costing of approximately half of the overall sequential increase in profit.

The marine segment also generated gross profit of $40 million, a decrease of $7 million or 14% sequentially, and down $4 million or 9% year-over-year. The sequential decline in gross profit related to slightly lower volumes and a greater mix of business with low risk blue chip customers. While blended margins declined approximately $0.90 per metric ton from the first quarter, they remain well above historical levels. We continue to outperform historical averages for a few principal reasons. We remain focused on risk-adjusted returns on capital. Our global size and scale has allowed us to continue to strengthen our supply position and our strong and liquid balance sheet combined with a strong value proposition offered to our customers allows us to remain the counterparty of choice in the markets we serve.

Our land segment delivered record gross profit of $11.5 million in the second quarter, an increase of 40% versus the first quarter, which as you remember was impacted by the sharp decline in gas and diesel prices and severe winter weather conditions in the Midwest. When compared to the second quarter of 2008, gross profit increased by 126%. The sequential and year-over-year comparisons also benefited from the acquisitions of Texor, Henty and TGS.

Operating expenses in the second quarter excluding our provision for bad debt was $55 million. This is at the bottom of the range I provided o last quarter's call. Expenses were up $1 million sequentially but down $1 million compared to the second quarter of 2008. Excluding the impact of acquisitions, our operating expenses were flat sequentially but down $6 million year-over-year which is an evidence of our continued focus on managing our operating costs as well as increasing leverage from our global ERP platform implemented early last year. For modeling purposes, I would assume overall operating expense excluding bad debt expense of approximately $55 million to $59 million in the third quarter of 2009.

We recorded a provision for bad debt of $500,000 this quarter, flat with last quarter but down $7.7 million compared to last year's second quarter. Our receivables balance was $763 million at quarter, up approximately $175 million in the first quarter, reflecting the increase in fuel prices during the quarter. Year-over-year, our receivables balance declined over $1 billion. Income from operations for the second quarter was $36 million, an increase of $3 million sequentially and $6 million from the second quarter of 2008. Income from operations for our aviation segment grew $18 million, an increase of 52% sequentially and flat compared to last year's second quarter. Our marine segments income from operations was $23 million in the second quarter, a sequential decrease of 23% and 4% compared to last year's second quarter. Our land segment had record income from operations of $3.9 million, up $2.8 million sequentially and up $4.5 million over last year's second quarter. The sequential improvement was driven by improved results in our unbranded wholesale and structural [ph] businesses as well as the impact of the Henty Oil and TGS acquisitions.

The company had other expense net made which includes net interest expense and other financing costs as well as foreign exchange gains and losses of $600,000 for the second quarter compared to $1.4 million in the first quarter and $2.7 million in the second quarter of 2008. Excluding any foreign exchange impact, I would assume other expenses net to be approximately $1 million to $1.5 million in the third quarter of 2009.

The company's effective tax rate for the second quarter was 21.4% compared to 18.7% for the first quarter and 24% in the second quarter of last year. Our second-quarter tax rate is higher than last quarter due to an increase in domestic earnings combined with a decrease in earnings generated in countries with much lower tax rate. As I stated in the past, our quarterly tax rate can vary quarter to quarter, sometimes significantly, based upon shifts in our distribution of earnings worldwide. We estimate that our effective tax rate for the third quarter of 2009 will be between 20% and 24%.

Net income for the second quarter was $27.7 million, in increase of 7% from the first quarter, and an increase of $7.2 million or 35% year-over-year. Diluted earnings per share of $0.93 increased 7% sequentially and increased 31% over last year's second quarter. This marked the seventh consecutive quarter of year-over-year EPS growth and we're proud of this accomplishment and continue to remain focused on delivering strong results for our shareholders.

Return on equity was 17% for the second quarter compared to 15% in the first quarter and 16% in the second quarter of 2008. Return on assets was 10% in the second quarter, flat from the first quarter, and approximately double the 5% return in the second quarter of last year. Our effective management of working capital has delivered strong results as our net trade cycle decreased to a record low of 4.9 days in the second quarter, down slightly from the first quarter, and down three days from last year's second quarter. We posted a record 99% return on working capital, up from 24% return in the second quarter of last year. In the second quarter, despite a 40% increase in crude oil prices, we generated over $30 million of operating cash flow. We have now generated over $600 million of operating cash flow over the past four quarters.

Our cash, cash equivalents and short-term investments decreased from $394 million at the end of the first quarter to $366 million reflecting both the positive impact of operating cash flow offset by the acquisitions of Henty and TGS completed early in the second quarter. Our balance sheet remains strong and liquid which will allow us to continue to capitalize on opportunities that can provide added value to our customers and shareholders.

In closing, we delivered strong results, generated solid operating cash flows despite rising fuel prices, improved upon the quality of our receivables portfolio and completed two strategic acquisitions. Our balance sheet remains strong and liquid which will support our continued strategy to grow the business both organically and through strategic investments. We continue to execute well as we remain focused on our core competencies and operating discipline. Adapting to difficult economic conditions, we have more become more efficient as an organization, which provides us with significant operating leverage as the economy begins to recover.

Finally, we remain focused on enhancing our relationships with both our customers and suppliers and improving returns for our shareholders. I would now like to turn the call back over to the operator to open up for questions and answers.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from the line of Jonathan Chappell with JP Morgan; please go ahead with your question.

Jonathan Chappell – JP Morgan

Thank you. Good afternoon guys.

Paul Stebbins

Hi, Jonathan.

Jonathan Chappell – JP Morgan

Paul, in your first slide, you talked about defending the marine market, defending you position in the marine market, I was just wondering if you could expand a little bit on that. I haven't had a chance to run the volume information that Ira just gave us in the model, so curious about the margins and how you are defending margin versus volumes in what is a weak market?

Paul Stebbins

Sure. Well, I think as you saw with – in Ira's comments, there was a $0.90 sequential decline quarter to quarter on the overall blended basis.. And when we talk about – so there was a little bit of pressure on margins but we saw some modest declines but again compared to historical levels we think we are doing pretty well. When we look at the overall sector trend in the shipping industry, certainly you follow transportation and you know what has been out there, it is certainly well publicized that shipping in general has been challenged on the back of a very difficult global operating environment. We have got a global economy that is stressed and global trade in general has been down. So there has been a lot of evidence in the press that the year-to-year demand destruction on the volume side is significant, so – and in some cases we've heard as much 30% drops year-over-year.

So I think that is just the reality we have to deal with. So when we think about defending our position, we are the premier player in the state, we have got a superior offering, we have tried to use that strength to not only diversify our mix of business but also stay very focused on the best in class customers that we think have got the ability to sustain a viable business model throughout this period. Certainly global trade is not going to stop, 80% of the worlds good do travel by ship. So I think it is a reality that shipping is going to be with us. So from our point of view, you can see that the primary focus has been risk management. So as good stewards of this franchise and with our primary asset being receivables, our primary and first and foremost focus is defending the franchise from a credit risk perspective. I think we have done a superb job of that. Frank and his team have been excellent.

In terms of maintaining our market share, we stayed very focused and sort of very proprietary about that core customer base which we think is the best in class and well financed and we are going to have sustained success over time. And with regard to margin, we frankly think that we gave up – we think we did a pretty good job of holding on to that given the market circumstances. So I think we have done all. I think that we have watched the competitive landscape that has been pretty stressed. We see some of our less well-capitalized competitors under financial duress, both by carrying a lot of debt and the fact that there has been some credit losses out there, which we have managed to navigate around. So I think we are still the premier player. I think we are intent on defending that going forward and there is every evidence that the maturity of our model and our ability to buy strategically is going to allow us to do and still provide great value to the customer.

Jonathan Chappell – JP Morgan

I just want to follow up on some of the things you said there, especially the counterparty risk, obviously a provision for bad debt stayed pretty well, but as the blue chip customers continue to lose money on the container side or even some of the blue chips on the tanker side are losing money, and there is a bigger focus on costs now, do you really get paid for your value add or your liability or at the end of the day, are they just going for you know the best price out there?

Paul Stebbins

No, I think we actually do, and it is something that you know of course as you see from our discretion and the transcript of what we've said, we are obviously going to be optimizing the sort of combination of credit risk sensitivity and return. But if you think about what is going on with these large fleets and they are under a lot of scrutiny just to save costs, but there is some pretty high-profile problems out there on the liquidity side, on the credit side, on the banking side, so they're very focused on who their counterparties might be. And again, in a market that has you know to some extent been characterized by smaller, less well capitalized companies that could come in and just simply play the price game, there is much more security at a high level in the company by counterparty risk and who has got the liquidity, the balance sheet, and the transparency, and who should be their business partners. And I think that we feature pretty prominently in that calculus and I think it is going to be something that does have an impact on our ability to continue to be sort of a preferred status player. It isn't just going to I think revert to a total blood bath on price. Now obviously there may be some of that but I think our feeling is that as these customers, they need help, they're looking for counterparties they can rely on, transparency is very, very important because there is certainly evidence that if you don't have transparency, people can get in trouble. So you know I think we are going to do pretty well.

Jonathan Chappell – JP Morgan

Okay. And then, just one last one and then I will turn it over, also on the competitive landscape, you mentioned you know not as well capitalized, people who might take too much risk. Clearly your business is an asset light business for the people really ultimately matter, forget – I mean we have talked about acquisitions in conference call past, but are there good people out there that have good regional relationship, you know that their overall firm is struggling who are coming to you proactively and wanting to get on board with somebody who has the balance sheet and the global scale?

Paul Stebbins

Yes.

Jonathan Chappell – JP Morgan

Okay. We will leave it at that. Thanks a lot.

Paul Stebbins

Good. Thanks, Jonathan.

Operator

Our next question is from the line of George Pickral with Stephens. Please go ahead with your question.

George Pickral – Stephens

Hi. Good afternoon, guys.

Paul Stebbins

Good afternoon, George.

George Pickral – Stephens

First question is on the aviation side, it looks like even if you strip out the 4 million from jet fuel gains, your margins still – your yield still increased sequentially. And on the last call you talked about doing more business on the prepaid basis and lower margins; can you maybe just talk about what you saw on the market and what you did to get the margins higher this quarter?

Paul Stebbins

Sure, George. This is Paul. A couple of things going on here, you can recall that if you looked at the climate we were in a year ago, you had a rapidly accelerating price market, balance sheets were being stressed throughout the entire industry. You know Mike Clementi and his team and Frank and their team did a superb job of sort of shedding some of the more vulnerable, what we thought to be some of the more vulnerable customer base, customers, and really rationalizing and protecting the franchise by reducing our core volumes down to what we thought was sort of a bedrock. And they did an excellent job.

As we look forward through Q1 gong to Q2, we began to take a fresh look at the landscape and decide so where do we have opportunities to both pivot and move with agility in the market to kind of respond to the change in the climate. And what we found is that our supply position was robust enough, but we could actually be competitive and go after new volumes, but we also felt that it was important to see business on a prepaid basis, because it allowed us to kind of diversify our mix, and it allowed us to generate cash and reduce some of our historical anxiety about credit risk.

So I think that it actually you know did a pretty good job there. We also have government business in three. We have also got (inaudible) there are other things that help us drive the overall returns up. So we were driving profitability, we are changing about business model, and I think we have done an overall blended very good job of re-establishing some volume growth. I think we feel pretty good about that going forward as well and I think that the team has just done an excellent job of both simultaneously growing back our volume, showing opportunities to increase profitability, but also reduce risk at the same time.

George Pickral – Stephens

Okay, great. And Paul, I will stick with you, your cost essentially has been flat three quarters in a row which is very impressive and then you made a comment in the press release about significant operating leverage assuming based on your ERP system. Could you maybe talk about or try to quantify how much revenue do you think you could add to the business without significantly increasing your cost and what sort of incremental margins you are looking at on this?

Paul Stebbins

I think we're looking at a pretty scalable model. I don't know that I can give you the revenues and the positions because obviously that is the price of oil and that is very difficult and in terms of what it does to margin.

George Pickral – Stephens

I guess net revenues is what I meant.

Paul Stebbins

You know I'm not so sure that I can give you that with any precision. I think it is important to say that the efficiency drive that Mike Kasbar in terms of driving systems and organizational maturity and real sort of functional discipline throughout the entire organization have begun to yield tremendous results. What Ira has done coming in, sort of world-class CFO, helping us drive a level of sort of financial maturity and sophistication in the model has also driven efficiency. You have got a tremendous accounting department that is just done an amazing job with all the stuff that we have got going on with derivatives and mark to market and all that, you put all those things together and I think we have seen a real deal. And of course the underpinning of all this is something that Mike has been driving for the last several years which is persistent. So we now have a highly robust local system platform and this is getting to reveal to us that we can drive efficiency. I can't give you the metrics with precision, but I would say we have a lot of confidence that we have got operating leverage to exact it out of the model. Mike, do you want to…

Michael Kasbar

I think the other point worth noting is particularly in the land space, there is a highly automated business activity and by virtue of Texor and TGS and Henty, we are now in the process of integrating all of those systems to come up a global platform and I am pretty confident that within a few months we will have that done and that is a highly automated business. A combination of getting a lot of automation in the aviation back office, getting a lot of scalability within our marine front office, which is heavier on the front office and our other businesses, we feel pretty confident that we have got significant efficiency that we never had before in the history of the company.

Paul Stebbins

And I think also if you just look at it year-over-year, you start – if you back out some of the sort of straight line expenses on the added acquisitions, you know the underlying expense number has really done well, and I think that that is a tribute to the efficiency.

Michael Kasbar

And we have got business aviation being integrated back office with our base ops business, which is also a very exciting opportunity for us to develop (inaudible) system in our global platform.

George Pickral – Stephens

Great. Thanks for time, guys.

Paul Stebbins

Good. I appreciate it. Thanks, George.

Operator

(Operator instructions) Our next question is from the line of Steve Ferazani with Sidoti & Company. Please go ahead with your question.

Steve Ferazani – Sidoti & Company

Good evening. Want to circle back around on the aviation volumes again, you had talked about just how weak global aviation traffic is, it is obviously impressive you're able to pick up so much volume. I mean, one, if you're getting some stabilization or slower decline, can you guys continue the ramp up, and is there any particular spot where you're picking up volume?

Paul Stebbins

Yes to the first question, and I would say that we definitely see that. If you talk about where, I would say it is actually a pretty diversified base, but probably I would say most evidently in the United States because it is the market where we have got very strong ability to work with the self supply model, which we talked about. So I would say that that is probably the single largest place that we have seen the pickup. But what is interesting to us is we're also seeing opportunities in other parts of the world, but I would say the US is primary at this point.

Steve Ferazani – Sidoti & Company

Okay. And you do think you can start to continue to ramp up if the market remains sort of at a stable level here?

Paul Stebbins

We're definitely seeing some stability and you know you see some probably – even today you know you see the Wall Street Journal talking about how you traffic from Asia starting to improve, Atlas Air Worldwide has done well. You know we think these are – the consumer electronics business is time sensitive and you know aircraft is what is going to drive that. So despite some of these doom and gloom numbers which look – we are realists. You have to be cautionary, you have to be practical, you have to understand that this has been a pretty significant blow to the entire industry. So we have to basically do two things, one be sensitive to watching carefully how it impacts our exposure, which I think we have done a superb job of managing. And we have also realized that we have got a robust enough offering that we can continue to be competitive and secure this on the prepaid basis. But we do think that the trend has shifted, we think that there has been some stabilization going forward, we think that the more responsible carriers have done a very good job of rationalizing their business model because you know they know what it is like to live this thing and some are doing a very good job of responding. So I think we are navigating a very good part, I feel pretty good about our ability to continue to grow some volume going forward and do it in a way that is easily – that we can manage the risk on very effectively.

Steve Ferazani – Sidoti & Company

Just one more question just briefly on the land side, margin held up pretty very well there, we know the wholesale margins in some of the US regions were particularly weak, I mean do you owe that to your customer base, your geographic positioning; can you give a little color on that?

Paul Stebbins

Well, I would say – you know, you sort of hit them all. So I would say a couple of different things are going on. I think we talk in my script a little bit about the rightsizing of the wholesale brand and that was something that as you know over the last couple of conference calls, we struggled a little bit to find our sweet spot in the supply chain and really tighten up that highly targeted effort. And yes, there has been a little bit of focus in certain regions. Clearly with the Texor and TGS bolt on, we are seeing a very strong concentration around the Midwest. And TGS, that was a perfect complement to what the Texor platform was. But we're also seeing opportunities to expand beyond that region. So what we like is that we have got a model that works, that has got very tight trade cycles, that is showing good returns on working capital, that shows opportunities to grow in a couple of reasons. So we like that model and we're going to continue to focus on it. We also had a little bit in the international space as well. As you know, we have also got a land presence in the UK and in Brazil. So I think we're committed to beginning to continue to probe these aftermarkets because we see some interesting synergies (inaudible) what we have learned and what we're going to achieve in the US market. So there is some parallel that we see as well.

Steve Ferazani – Sidoti & Company

Great, thank you very much.

Paul Stebbins

Thank you.

Operator

(Operator instructions) And gentlemen, at this time, there are no further questions. Would you like to make any further remarks?

Paul Stebbins

Yes, thank you. Operator, I appreciate it. We thank all of you for joining us today and we appreciate your continued support. This has been a challenging market but we think we have done an excellent job and we appreciate your confidence and we feel very good about our ability to continue to execute going forward. Thanks very much and will talk to you next time.

Operator

Ladies and gentlemen, this does conclude today's conference call. We would like to thank you for your participation. You may now disconnect.

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