Kaman Management Discusses Q2 2013 Results - Earnings Call Transcript

| About: Kaman Corporation (KAMN)

Kaman (NASDAQ:KAMN)

Q2 2013 Earnings Call

July 30, 2013 8:30 am ET

Executives

Eric B. Remington - Vice President of Investor Relations

Neal J. Keating - Chairman, Chief Executive Officer and President

Robert D. Starr - Chief Financial Officer and Senior Vice President

Analysts

Arnold Ursaner - CJS Securities, Inc.

Matt Duncan - Stephens Inc., Research Division

Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division

Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division

R. Scott Graham - Jefferies LLC, Research Division

Michael Callahan - Topeka Capital Markets Inc., Research Division

Operator

[Operator Instructions] I would now like to turn the call over to your host for today, to Eric Remington, Vice President of Investor Relations. You may begin.

Eric B. Remington

Good morning. Welcome to the Kaman Corporation Second Quarter 2013 Conference Call to discuss our earnings results. Conducting the call today are Neal Keating, Chairman, President and Chief Executive Officer; and Rob Starr, Senior Vice President and Chief Financial Officer.

Before we begin this morning, please note that some of the information discussed during today's call will consist of forward-looking statements setting forth our current expectations with respect to the future of our business, the economy and other future events. These include projections of revenue, earnings and other financial items, statements on the plans and objectives of the company or its management, statements of future economic performance and assumptions underlying these statements regarding the company and its business. The company's actual results could differ materially from those indicated in any forward-looking statements due to many factors, the most important of which are described in the company's latest filings with the Securities and Exchange Commission, including the company's 2012 Annual Report on Form 10-K and the current report on Form 8-K filed yesterday evening together with our earnings release. With that, I'll turn the call over to Neal Keating. Neal?

Neal J. Keating

Thank you, Eric. Good morning, everyone, and thank you for joining us. Kaman delivered a strong second quarter with diluted earnings per share of $0.67 compared to $0.61 from continuing operations in the prior year, representing a 10% increase. This performance was led by Aerospace, where we delivered a 17.8% operating profit margin due to a favorable product mix.

Distribution improved significantly over the first quarter, achieving an operating margin of 5.1%. In Aerospace, the favorable mix resulted primarily from higher sales of Specialty Bearing products, JPF and various missile fuzes programs and initial sales under our contract to deliver SH-2 helicopters to the New Zealand Defense Force. Higher Specialty Bearing product sales were driven by continued growth in our base business and several retrofit and upgrade programs that are not related to current aircraft production.

In addition, our fuzes product lines delivered a strong performance, with JPF revenue up more than 40% over last year's second quarter, on 12% lower unit volume due to higher DCS sales. Also in Aerospace, we continue to make progress on the AH-1Z, with 6 aircraft currently in process. However, revenue recognition has shifted a bit to the right, as we work with Bell on formal acceptance of initial deliveries and tooling.

In addition to the AH-1Z, which has a potential value in excess of $200 million, we are in various stages of development or early production on a number of other new programs, including the Learjet 85 composite door for Bombardier, the Global 7000, 8000 fixed leading edge for Triumph and the self [ph] panels for the Rolls-Royce Trent 700 and the Gulf Stream G280 winglet program for Spirit. Each of these is important to us, as they add additional scale and broaden our relationships with key customers in the Aerospace industry.

We saw some modest revenue from these programs in the second quarter, which contributed to the sequential improvement of profit margins. And we expect to see some further acceleration in revenues from these programs as we progress through the second half. With the additions of the New Zealand SH-2 contract, we ended the second quarter with a solid backlog of $646 million. As we have discussed, we also have a very active Business Development pipeline, including our next JPF contract with the U.S. Government. And there are a number of other encouraging opportunities that, if we are successful, would fuel even further growth.

Moving on to Distribution. Sales in the quarter showed improvement, up 6.9% over the prior year. Organic growth increased 4.7% sequentially, as we recover from our December lows. And operating profit improved to 5.1% from the 1.8% reported in Q1, as we effectively leveraged our lower cost base and revenue growth. Organic sales year-over-year were down slightly, mostly as a result of the challenging environment for our customers in the OEM market. This sector has been impacted by decreased export sales due to the lack of growth in Europe and slowing growth in China, as well as the strengthening dollar.

Mining and primary metal manufacturing end markets have also been difficult. The sequential increase in sales resulted from a modest improvement in several end markets, including chemical manufacturing and fabricated metals. We have also continued to execute our acquisition strategy, announcing 2 since our last conference call. These include Northwest Hose & Fittings, a Parker distributor with 4 locations in Washington and Idaho, that will significantly strengthen our competitive position and provide sales synergies to our existing Kaman distribution locations in adjacent territories.

In addition, we also announced an agreement to acquire Ohio Gear & Transmission, increasing our ability to serve the Cleveland market. As we move through the second half, we anticipate additional growth from acquisitions and improving organic sales as the economy continues its slow, but positive recovery.

We've also seen encouraging leading indicators of further improvement to come, such as quote activity and positive book-to-bill ratios in our OEM business during the first half of the year. While the recovery in Distribution is not as robust as we would have liked or had planned for, the trends are favorable. We have reset our cost structure in this business and are well-positioned to leverage our future growth. Across the organization, we continue to invest in new programs, infrastructure and other initiatives including: a new facility that will double the capacity of our German Specialty Bearing operation to meet higher demand and drive productivity improvements; a significant expansion in our U.K. tooling business; new machinery equipment and robotics in our U.S. Specialty Bearing locations to drive improved efficiencies; ERP investments in both of our segments; the formation of our Indian joint venture; and the new programs in Aerospace we mentioned earlier, which will enable us to achieve higher levels of profitability. So it is a busy time, but we are excited about the progress we are making. Now I would like to welcome Rob Starr to his first call as CFO, and turn it over to him to provide you with some additional details and color. Rob?

Robert D. Starr

Thank you, Neal, and good morning, everyone. Beginning in Aerospace, during the first half, we delivered strong performance from our Specialty Bearing product line. As Neal referenced, this performance was aided by the completion of a number of customer orders for retrofit programs not related to current production. These programs included our Tornado retrofit program, KAflex retrofits for the Bell 205 and AW 139, as well as a onetime project for the entire Dreamlifter aircraft fleet used to support the 787 production line. These types of programs occur regularly. However, the activity level in the first half was higher than expected. Our base Specialty Bearing product line revenues are projected to remain strong during the second half. However, we anticipate overall product line sales will decline sequentially from Q2 to Q3, before trending higher in the fourth quarter. This reflects our expectations for normalized order patterns of retrofit programs during the back half of the year.

In the second quarter, we began to recognize revenue under our New Zealand SH-2 contract, recording almost $4 million in sales. In addition, we received an advanced cash payment from the New Zealand government of $14 million shortly after contract signing. So the benefits from this program have been immediate.

Distribution operating margin was 5.1% for the quarter. This was below last year's Q2 level of 5.6%, primarily due to the lower leverage associated with our negative organic sales growth and lower rebate income. On a sequential basis, operating margin improved significantly from 1.8% to 5.1% due to a number of factors. First, we reported signaling and restructuring charges in Q1 that did not recur in Q2. These restructuring actions have resulted in $2 million in quarterly cost savings. Thirdly, acquisition sales were accretive to overall segment margin. And finally, sales were up sequentially in total by approximately $13 million. And the associated leverage from these higher sales favorably impacted operating margin performance. We continue to expect the operating margin to increase through the second half as sales increase sequentially each quarter, and while we maintain our expense management efforts on a higher level of sales.

With half a year behind us, we have updated our outlook for the full year. In Aerospace, we have maintained the outlook for sales, but have raised the lower end of our operating profit margin guidance to reflect the strong performance in Q2. We expect Aerospace sales to be relatively equal in quarters 3 and 4. However, Q4 is anticipated to be more profitable than the third quarter due to product mix. Distribution sales are forecasted to sequentially improve as we progress through the year, and end markets improve. We expect acquisition growth will help offset a slightly lower than expected level of organic sales growth, providing a confidence to slightly raise the low end of our full year sales outlook. Along with increasing sales, we expect operating margin to continue to increase sequentially as we benefit from the operating expense leverage of higher sales. Operating margin for the full year is now expected to be between 4.7% and 4.9%, driven by record segment operating margin performance in the second half. Our updated distribution outlook reflects our updated market forecast for the balance of the year. Based on our current market outlook, we have lowered our expectations for organic sales growth and rebate levels. And we expect our sales mix to reflect a higher level of MRO sales due to challenging conditions in OEM markets. Our full-year estimate for corporate expenses has been revised downwards to $49 million based on our most recent estimate.

Our full year free cash flow is expected to be between $15 million and $20 million. This adjustment reflects an anticipated delay in cash receipts related to our direct commercial sale of the Joint Programmable Fuze, which we now expect to collect in the first quarter of 2014. Based on the sequential ramp-up of Distribution sales and profitability and the mix in Aerospace, we expect net earnings in Q4 to be approximately 15% higher than in the third quarter. Other elements of our outlook remain unchanged. Overall, we are pleased with our results to-date. And we continue to manage toward meeting our full-year outlook. With that, I will turn it back over to Neal. Neal?

Neal J. Keating

Thanks, Rob. Overall, we delivered a strong quarter, actually better than we expected when we were together last quarter. We have a long way to go to reach our expectations, but the results in the quarter build confidence in our ability to deliver through the balance of the year. With that, I will turn the call back over to Eric. Eric?

Eric B. Remington

Thanks, Neal. Operator, may we have the first question, please?

Question-and-Answer Session

Operator

[Operator Instructions] First question is from the line of Arnie Ursaner.

Arnold Ursaner - CJS Securities, Inc.

I had a question regarding the $2.7 million negative impact of adjustments you made in the Aerospace segment. Were it not for that, your margin would have been closer to 19.5%. Yet your guidance for the year is several multiple points, several percentage points lower than that. What specific items were unusual in Q1 -- in the quarter? And why are they likely to reverse, or if your will, or change in the balance of the year?

Neal J. Keating

Arnie, the charge that you referred to was the charge that we took primarily related to multi-year 7 units on the UH-60. So it is an adjustment that goes back over all of the multi-year 7 units that we have already shipped. And you're probably aware that we're near the end of multi-year 7. So it was a change in estimate. So it's really not appropriate to add that back and get to a 19%-plus -- actually 19.2% operating margin for the quarter. It really impacts a multi-quarter -- multiple quarters. So -- and it is also a relatively small adjustment, given the overall size of that program. But to your point, more so on our expectations for the balance of the year and the fact that they will be slightly below where we were in the second quarter, there's a number of factors that are going to impact that, Arnie. And I know it's probably a question on a number of people's minds. So I think that, as we outlined in our prepared comments, we had a higher profit contribution from a very favorable mix in the second quarter from Specialty Bearings, from legacy Missile Fuzing programs, from DCS sales of JPF. So that really helped us significantly in the second quarter. We do expect during the second half of the year that our Specialty Bearings growth will moderate. We will have a slight increase in JPF unit deliveries, but lower non-JPF fuze revenue. We will also have some higher internal research and development expenses in the second half of the year. And also, as we've outlined, we expect to have a significant increase in revenue from some of our new build-to-print Aerostructures programs. And obviously, early on, those are at much lower operating margins than our segment average. And finally, we've got good gross margins on our SH-2 sales to New Zealand, but they are below the segment average. So that's what's led us to raise the lower end of the guidance, but not to raise the upper end. I think Greg Steiner and the entire Aerospace team would certainly like to over-deliver. But as we looked at it, we didn't think it was really prudent to raise the high end of the outlook at this point.

Arnold Ursaner - CJS Securities, Inc.

Okay, very helpful. My final question, what organic sales trends are embedded in your guidance for Distribution for the balance of the year?

Neal J. Keating

Overall sales are up about 5% in each of the 2 quarters. After really mid-September, most everything is going to be organic, Arnie. I think that it's probably 3.5% to 4% of that 5% is probably organic.

Robert D. Starr

Yes. Arnie, the expectation is for organic growth for the full year to come in the range of about 2% to 3%, largely second-half loaded as we -- because as you know, we consider any company on the books for more than 12 months to be organic. So at that point, both Zeller and Florida Bearings will be on our books for more than a full year. So as Neal had mentioned, it's about 5% sequentially per quarter in the back half of the year for total Distribution sales.

Arnold Ursaner - CJS Securities, Inc.

And just again to clarify. In Q3, do you expect positive organic sales growth? And maybe, I'm sure you'll get asked this momentarily anyways, the trend of organic sales during the course of the quarter?

Robert D. Starr

Yes. I would just say, Arnie, that our organic sales trend during the quarter improved each month during the quarter. And that trend has, based on initial estimates for the month of July, has continued in July. So we're feeling pretty confident that we'll see the tipping point in organic sales as we progress through the third quarter.

Operator

The next question is from the line of Matt Duncan. [Operator Instructions]

Matt Duncan - Stephens Inc., Research Division

Just to piggyback on Arnie's question there, the -- I hate to pin you down, but just to try and get a little better idea of what these sales trends are looking like. Have organic sales gone positive as of July?

Neal J. Keating

We don't have final numbers yet for July, Matt. We did an initial estimate last night, and we think that they're down about 1% organically. But again, we don't have everything consolidated yet. So that could move a little bit either up or down. We'd certainly prefer the upside of that. But as we looked at the trend through the first -- excuse me, second quarter, and as we looked at preliminary results for July, I think the way Rob said, it was really good that we would -- we're anticipating a tipping point during this quarter to go positive.

Matt Duncan - Stephens Inc., Research Division

Okay. And then sticking on this point, you're talking about sequential sales improvement at KIT throughout the balance of the year, which is pretty atypical. I don't remember the last time your fourth quarter sales were above the third quarter. What's the driver that you're seeing that would result in your 4Q sales being up? Because seasonally I know that's a little bit tougher quarter than the 3Q.

Neal J. Keating

Yes, Matt, you're right. Usually, the fourth quarter is the toughest quarter because of the timing of the holidays and everything else. However, we believe that we'll be able to have an increase from year-to-year driven by, a, the trends that we see right now. And also, as you know, the third quarter, particularly the late in the third quarter and the fourth quarter of 2012, really deteriorated. So quite frankly, the comparative period is weaker for us as well.

Matt Duncan - Stephens Inc., Research Division

Okay. And then last thing for me on M&A, can you give us an update on what the M&A pipeline looks like on both sides of the business?

Neal J. Keating

Certainly, Matt. And I'd like to add one more thing, if I could, on the last comment that I was just reminded of. And that is that we commented quite a bit in the earlier conference calls about the deterioration in our OEM market segment. And we've seen a nice book-to-bill ratio in the first half of the year. So that also provides us some confidence in continued recovery in the second half of the year. And actually, our OEM business is slightly higher margin as well. So -- and I'm sorry, Matt. Could you repeat your question again?

Matt Duncan - Stephens Inc., Research Division

Yes. Just the M&A pipeline on both sides of the business. What's that looking like right now as you guys kind of progress towards the goals you've laid out for future revenues for the 2 segments?

Neal J. Keating

Certainly. We, since our last call, as we commented, we announced either the intent to acquire or an acquisition for both Northwest Power (sic) [Northwest Hose] and Ohio Gear. So we were very pleased to have both of those companies either added to Kaman's lineup or to be added in the near future. The pipeline in the Distribution side continues to be very active. And we have a significant level of confidence that we'll be able to complete some additional transactions during the course of the year. Of course, you can never say that for sure. On the Aerospace side, a little bit less active, as we've characterized, primarily driven by what we see as a continued very high acquisition multiples. Again, we've kind of talked about priced for perfection, in particular in some of the Aerostructures areas. And so we think it's a little less likely that we will be as active in the Aerospace side.

Matt Duncan - Stephens Inc., Research Division

Okay. And just quickly on the KIT pipeline. Is there anything larger in there? Is it mostly the smaller deals you guys have been doing more recently?

Neal J. Keating

It varies. We look at a number of different size ranges, Matt. As you can imagine, a lot of times, that's not up to us. It's up to the seller.

Operator

The next question is from the line of Steve Levenson.

Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division

Could you tell us, on the Specialty Bearings and the additional demand that you see and the reasons behind the new plant, is that from new customers, increased content in airplane models or higher build rates or a combination of all 3?

Neal J. Keating

Steve, you could have been on Greg Steiner and Rob Paterson's team when they came in for the authorization for the capital, because it's really all of the things that you touched on. We've had -- we've been in our facility in Germany since we first acquired what was the RWG business, gosh, 10 years ago. And it was not the best layout, as you could imagine, for an older facility. But we've had -- multistory, et cetera, but they've had very good performance. They continue to build their business and grow volume. They are getting more content on new aircraft models. And also, as you know, you can look at the aircraft rollout rates. And those are going up. So for us, it made a lot of sense for a number of reasons. And we think that they've got a very good plan and are well underway on construction of the new facility. And we are really looking forward to the benefits that it will provide to our customers and our investors.

Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Is A350 one of the models? And if so, is the content going to be similar to what's on 787?

Neal J. Keating

Well, it is going to be one of the models. The content on the A350 for our combined Specialty Bearing product lines is actually quite a bit better than the 787. It's actually around $275,000 or $280,000 per aircraft. We're over a $300,000 total, I think, for the aircraft. So we were very excited to see the A350 fly. In fact, we kind of joked that it brought a tear to our eye because we'd love to have that much Specialty Bearing content on any new high-volume aircraft.

Robert D. Starr

And, Steve, just as a relative point of reference there. On the 787, we have about $100,000 of content per ship set.

Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division

So it's a big bump, sounds great [ph].

Robert D. Starr

Correct [ph].

Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division

Last one is, Boeing's been talking a lot about its partnering for success, and that they want to go deep into the supply chain with that. We've heard some people say it really is a partnership. And we've heard other people say, "Well, they're really just trying to squeeze us a little bit." Could you comment on that a little bit, and how it might work for Kaman?

Neal J. Keating

Steve, it's an interesting dichotomy, to be frank. But I'd like to say that we work, whether it's with Boeing, whether it's with Sikorsky, whether it's Airbus. Any opportunities that we have that we can deliver product to them at lower overall costs and we can both benefit, that is certainly something that we are very interested in. And we look for opportunities to do that, where we can really demonstrate the value that we can provide. They've also talked about increased volumes that goes to those suppliers. We are certainly interested in increasing our volume with Boeing and all of our customers. So I think it depends where you are and what kind of capabilities you have to bring to that equation. But we feel pretty good about it. And in fact, it was interesting. The very supply chain guys at Boeing that we work with on a day-to-day basis were the people that came into us and helped to expedite the special work that our bearings folks did on the Dreamlifter fleet. So they're pretty integrated from their supply chain on both sides. And we'd certainly like to grow our business with them.

Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So in other words, they've already provided some value engineering help. Do you now or do you think you might be able to purchase materials under their blanket agreements?

Neal J. Keating

Steve, actually, we do currently purchase under their blanket agreements. So where it's to our collective advantage, I think that likely, in some of the areas in our Specialty Bearings area, I don't know that they would provide any leverage there. But certainly, in the composites area, Steve, it's a big deal to be able to acquire on their contracts.

Operator

The next question is from the line of Jeff Hammond.

Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division

So it sounds like, just to kind of round out the quarterly, your revenue in Aero kind of similar 3Q to 4Q, margins better 4Q versus 3Q, and then kind of the sequential build in revenues and margins in Distribution, is that how we get to the 15% higher earnings in 4Q versus 3Q?

Neal J. Keating

Yes.

Robert D. Starr

That's correct.

Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division

Okay. perfect. And then can you just talk about -- so your revenue is kind of largely unchanged. I think you fine-tuned maybe the organic number within Distribution. But just help me understand the lower margin guidance within Distribution relative to kind of unchanged revenues?

Neal J. Keating

Well, I think the reality of it, Jeff, is that we had significantly lower performance in the second -- excuse me, in the first half of the year than we had originally anticipated coming into the year because of lower organic growth rates, and in particular lower sales in our OEM segment, which again carry higher margins for us. And also, we, because of that lower organic growth, we had an impact of lower rebates as well, which came through in the second quarter. So those things in combination really drove the reduction in our overall annualized operating margin for Distribution. As we look forward, we saw good improvement in the second quarter. And we expect continued strong improvement in the third and fourth quarter to be able to get to that updated outlook.

Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division

Okay. Because it seems like most industrial companies are maybe suggesting a little more muted second half recovery than people anticipated. But it sounds like you have a good level of confidence that we get some snapback here?

Robert D. Starr

Yes. Jeff, I think the way to characterize that is, relative to our initial guidance that we went out late last year, we do expect a more muted -- economic recovery in the second half, but certainly, relative to our performance in the first half, we do continue sequential improvement.

Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division

Okay, okay, good. And then, Neal, you talked about kind of robust quoting activity and some potential forward wins. I mean, as you kind of shake that up and consider defense spending over a multi-year period, I mean, how are you thinking about maybe the 3 -- the growth rate in Aerospace over the next few years?

Neal J. Keating

Jeff, we'll provide more color on that as we get into the fourth quarter results. But I think overall, we've continued to believe that we can be in the mid- to high-single digit organic growth range for our Aerospace business. There's a number of things certainly that help us there. We've commented on the ramp-up rates several times on commercial aircraft, which certainly helps us from a structures perspective, as well as a bearings perspective. And on the defense side, certainly there's going to be reductions in the Department of Defense spending. But as we look at the programs that we have in-house right now and the anticipated ramp-up of those over the next couple of years, we still believe that we can support that, again mid- to upper-single digit range.

Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division

Okay. If I could just sneak one more in. Can you just talk about what's going on with the Global Aerosystems or your engineering design services business?

Neal J. Keating

Sure. I think similar to many companies, we've encountered a significant reduction in demand for our engineering services, from Boeing in particular, over the last 4 to 5 months. We did comment last time that we were actually awarded Supplier of the Year for our engineering services business. So we were not real pleased that, that business level is down. However, based on where they are in their program cycle right now, that's not all that surprising. And we have been able to win a nice order from another aerospace company that we're not able to identify at this point. So it's down based on Boeing because so much of it is related to supporting their engineering. But it's something that we recognize is going to ebb and flow a little bit with Boeing's demand. What we really -- one of the things that we've highlighted that's really important for us was to get that capability so that, a, we could certainly continue to serve Boeing. But more importantly, to reposition our capability to be able to effectively pursue design-and-build programs. And that's really what we think is going to be the ultimate payoff for that acquisition.

Robert D. Starr

Yes. And I would just -- further there, Jeff, that to Neal's point, that we are seeing the benefit of the engineering competencies in our ability to participate in a lot of the bid packages for design-to-build packages as they come out.

Operator

[Operator Instructions] And the next question is from the line of Scott Graham.

R. Scott Graham - Jefferies LLC, Research Division

So I was just wondering if you kind of took a look at the first half of this year versus the first half of last year. What would you say, roughly, would be sort of the breakdown between commercial versus defense in your Aerospace business sales?

Neal J. Keating

Actually, one second, please. We have that. Give us a second on that. Actually interesting, our military is up just a little bit. And I guess that makes sense when you think about a lot of the special work that was done by the Specialty Bearings group in the second quarter of this year was more defense-related. And so just -- it's not a lot, Scott, but it's a little bit more.

R. Scott Graham - Jefferies LLC, Research Division

So the mix in Aerospace is trending toward commercial, pretty much as you -- I think all of us would've expected. And so that needle is moving. And that's helping you, obviously, right?

Neal J. Keating

If you look back over the last couple of years, we've certainly grown our commercial business. And we expect that to continue. I think what's a little bit of a wildcard in there is we looked at our fuzing business, which clearly does not have a commercial market. So as we take that out of the mix and just normalize, we actually are seeing that shift towards a higher commercial content while growing overall.

R. Scott Graham - Jefferies LLC, Research Division

Got you. The restructuring's now kind of behind you. Just kind of wondering, the 7% margin goal in Distribution, is that now just a function of sales? Or do you need to do some more things on the cost side? At what level of sales are you now thinking you kind of need to get there and sustained for how long to get there?

Neal J. Keating

Scott, I think that certainly sales growth will play a key role in that. In the implementation of our ERP system, will also play a key role. I think that I can't be exact enough to say if it's $1.4 billion or $1.5 billion or $1.6 billion, but it's likely in that kind of range.

R. Scott Graham - Jefferies LLC, Research Division

Maybe -- I don't know if I'm following, 1.4...

Neal J. Keating

Billion to $1.6 billion.

Operator

The next question comes from the line of Michael Callahan.

Michael Callahan - Topeka Capital Markets Inc., Research Division

I guess, firstly, is there any updates on the quarter as it relates to the K-MAX program? Or has there been any progress there in general?

Neal J. Keating

We really don't have any update on the K-MAX program right now. We continue to work very aggressively with Lockheed Martin to move that towards a program of record. I see there was something yesterday, Mike, that I don't have my head around yet. It was a bill that was introduced by a number of Senators or Representatives from, I think it was Colorado and Utah, to increase investment or to pursue investment in unmanned firefighting capability. Clearly, with the tragic death of the 19 firefighters in the forest fire, and I know there was some discussion about ways that we might position to pursue those kinds of opportunities as well. So -- but right now, we have no meaningful movement on that program to report.

Michael Callahan - Topeka Capital Markets Inc., Research Division

Okay. And then I was just -- I guess one other topic here on JPF. You mentioned, at least in the release, that foreign sales were an area of strength there. I guess, can you just give us a little color on maybe the trends on foreign sales versus domestic, how the mix looked there? And then also you might have given this already. If you did, I missed it, just what the JPF volume was for the quarter?

Neal J. Keating

The volume, the unit volume that's in the Q, it's around 9,800 units, I think.

Robert D. Starr

For the year.

Neal J. Keating

For the first half.

Robert D. Starr

For the first half of the year.

Neal J. Keating

Right. And we expect to be about 20,000 overall. In the second half of the year, we expect actually slightly higher foreign sales than domestic sales. And again, Mike, that changes from quarter-to-quarter, because typically when we do a foreign sale, it will be a large unit volume in that quarter simply because of transportation and logistic demands, as you can imagine. So that will change a little bit from quarter-to-quarter based on that.

Operator

And the next question comes from Arnie Ursaner.

Arnold Ursaner - CJS Securities, Inc.

Neal, when we have been on the road, I think you had talked about perhaps providing additional cash flow data or information about your various businesses. And I thought we would see it this quarter. Can you comment on what your status is on that?

Neal J. Keating

Sure. Arnie, we -- for everyone else that's on the call, one of the things that we have discussed for a while is to provide a little bit more detail on some of the investments that we're making on programs, et cetera. So in the not-too-distant future, you will see us outline in more detail some of the program-related investments, particularly in Aerospace, that we're incurring right now, and the timeframe in which we expect to convert that working capital to cash. Because, as you can imagine, with as many new programs starting up as we have right now in that business, we have a significant investment in working capital until we begin to make rate production shipments. So it shouldn't -- it's not going to be too long, Arnie.

Operator

[Operator Instructions] As we have no further questions, I would like to turn the call over to Mr. Eric Remington for closing remarks.

Eric B. Remington

Thank you, and thanks for joining us for today's conference call. We look forward to speaking to you again when we report our third quarter earnings in October.

Operator

Thank you for joining today's conference, ladies and gentlemen. This concludes the presentation. You may now disconnect, and have a very good day.

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