Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Precision Castparts (NYSE:PCP)

Q4 2010 Earnings Call

May 06, 2010 10:00 am ET

Executives

Mark Donegan - Chairman, Chief Executive Officer and President

Shawn Hagel - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Assistant Secretary

Analysts

Kenneth Herbert - Wedbush Securities Inc.

Cai Von Rumohr - Cowen and Company, LLC

Noah Poponak - Goldman Sachs

J. B. Groh - D.A. Davidson & Co.

Robert Spingarn - Crédit Suisse First Boston, Inc.

Eric Hugel - Stephens Inc.

Joseph Nadol - JP Morgan Chase & Co

Howard Rubel - Jefferies & Company, Inc.

Robert Stallard - Macquarie Research

Samuel Pearlstein - Wells Fargo Securities, LLC

Peter Arment - Broadpoint AmTech, Inc.

Operator

Good morning, and welcome to Precision Castparts webcast and conference call to discuss its fourth quarter earnings for fiscal 2010. [Operator Instructions] Now I will turn the floor over to Mr. Mark Donegan, Chairman and Chief Executive Officer of Precision Castparts.

Mark Donegan

Thank you, operator. I'm sure you're all familiar with the forward-looking statement, and you need to take it into consideration when you're analyzing the following information.

In our Q4 castoff, an extremely challenging year. There's been a number of moving pieces throughout the course of the year, and I think that Q4 kind of stayed in that same tone. Given that, I think throughout the year in Q4, I think the organization has stayed aggressively focused on where opportunities were and did a solid job in extracting value in a number of areas the same way we have done throughout the course of the year. And we'll get into those in more detail as we go through the specific segments.

But looking at Q4 in total, sales declined compared to last year by just under 10% going from $1.6 billion last year to $1.4 billion this year. Operating income decreased by 9.6% versus last year going from just under $400 million to $361 million this year. And operating margins increased slightly going from 25% last year to 25.1% this year, and all this generated an EPS of $1.66 this year versus $1.87 last year.

If you look at some of the key drivers on the sales side versus last year in putting at the beginning, putting everything in an apples-to-apples comparison, the lower material pass through and the external metal selling prices in the primary mills negatively impacted sales by roughly $53 million. And from there, the major drivers of the same have been basically in the last two quarters, kind of that significant destocking that occurred on a year-on-year basis in the aerospace side across all of our operations with the disconnect from the bill rate and compounding that in the fasteners was a consolidation of the distributor base, contributing a significant reduction in orders.

We had a continuation of the European IGT customer destocking. And versus last year, we had a decrease in the general industrial. But one additional element that did start in the quarter versus last year and it impacted both year-on-year and sequentially was the destocking that we talked about in mid-quarter conference of the seamless extruded pipe of the Chinese realigning their demand. And again, we'll get into more detail on that when we get in the Forging segment. But helping to provide counterbalance to all of these negative impacts on the year-on-year comparison was a full quarter of Carlton was not in last year's numbers, and we had a favorable currency of $22 million.

Looking sales sequentially versus Q3, we did start to see a slow recovery of our aerospace OEM shipments, varying levels across all of our segments but we did see, again, some traction compared to where we're going on the down side, it was a positive note. But we also saw, as expected, on the aerospace aftermarket distribution sales holding steady, very flat.

The European IGT destocking held steady but at depressed levels, and this continues really again through the first half of the year. And again, the one challenge from the last conference call, but the one we covered in the mid quarter was the beginning of the seamless extruded pipe and where we're seeing the correction going from the smaller to the larger-sized coal plants. And again, those carry into Q1 and Q2. We did see a gradual pick up sequentially in our general industrial markets, and we also had $9 million versus Q3 of unfavorable currency.

Moving on to the EBIT. Comparing year-on-year as with previous quarters, kind of the challenge remained the same, had significant loss in the volume from the aerospace and the IGT destocking. And again this quarter, we had to face additional challenge in that with deduction on the seamless extruded pipe. And year-on-year, the decrease in the general industrial.

There's one additional item I do give kind of a value to it and we get back in the Forging segment. But specifically, in SMC in Q4, we did have increased pressure from the rapid rising nickel prices towards the end of Q4. We do recover these as the sales prices match up with the higher material content. But again, all these provided kind of a negative pressure on us.

And as it has been throughout the year, the primary job for us was to find ways and focus on those areas that we could control and get that operational improvement that we've done throughout the year. And again, we did have in the EBIT side a full quarter of the Carlton Forge back in '09.

Given all that, Q4 by set is looking really set. About 15 weeks ago, I think Q4 played out pretty close to certainly what we had expected. The only addition now was the seamless extruded pipe. And again, we'll get into more detail in those segments.

As we move forward, if I look at kind of the year, I think the same market factors play out in Q1 and Q2 as in Q4. And then the second half of the year certainly gets some very solid catalyst that start to drive or come bottom line. And again, we will cover these as we go through the particular segments.

Looking at our sales by market versus last year, our aerospace grew from 54% last year to 56% this year. I think the primary reason for that was kind of the power dropping from 29% last year, 24% this year, and general industrial went from 17% to 20% this year.

Taking a quick recap of '10 in total, for the year, we saw sales decline by roughly 19.3% versus last year, going from $6.8 billion to $5.5 billion this year. We saw operating income decrease by 11% going from just under $1.6 billion last year to $1.42 billion this year. In an extremely challenging environment, we did see margins expand year-on-year going from 23.5% last year to 25.9% this year, and all that generate an EPS of $6.50 this year versus $7.37 last year.

We've talked about this all year, and I think that certainly there was a tremendous amount of negative pressure across really all our end markets. Given this, I think the employees of the company really focused on where we had opportunities and drove hard to control those areas we could improve. We talked about productivity, material, product yields, revert, all of these and most of our operations are sitting near or at record levels. Though the operations were focused on where they could control, and again, that's the kind of challenge that we had. Get people to focus on what they could control, not what kind of was out there from the economic environment. I think what this has done is it establishes a very solid base line for us to leverage that volume as it comes back in the second half of the year.

We've done this before, but to put some value and kind of what we're able to get out of our operating toolbox and using the methodology we've used before, if I take true volume drops so I took out the materials pieces of the puzzle and applied that 30%, 35% drop through we target on the upside and apply that against the volume decrease, our operating income would've decreased by somewhere between $300 million, $340 million using that model. We actually decreased on operating income by roughly $150 million. So you're looking at an ability to extract value out of this business somewhere between $134 million and $183 million in a down environment. And again, I think this took a significant effort by every employee in this company to take that challenge on and kind of do what was required. And I think it does position us very solidly to take this cost position and move it through the second half volume.

If I look at the year and look at our two primary markets a little closer, breaking aerospace out, so again, aerospace was roughly made up of 67% large commercial, 25% military and 8% regional and business jet. And then breaking out our second significant segment of power at 27%, we had 47% was IGT, 55% was seamless pipe and 18% was oil and gas.

That pretty much goes over when I want to cover on the company as a whole. Taking a closer look now at each segment, beginning with the Investment Cast for the quarter. Investment Cast saw a 13% reduction in sales growth versus last year going from $536 million to $470 million this year. And on those lower sales, our operating income increased by 31.1% [ph] versus last year going from just under $143 million last year to $145.3 million this year. And as you expect, certain margins expand from 26.6% last year to 31% this year.

If I look at the primary drivers, beginning with sales on the year-on-year, they remain the same. A substantial disconnect that we face in the aerospace bill rates due to the destocking on both the OEM and the aftermarket. And the lower IGT, and that's kind of broken into two pieces of the puzzle for the year. So the first half of the year was the OEM bill rates which those market share gains we've gotten to overcome. But certainly in the last quarter, it was that the European, the new customers and the European destocking, and we just have not been able to overcome all that with the share gains we've got.

If I look sequentially, we did start to see slow improvement of OEM order rates. Again, as we expected, the aerospace aftermarket volume held steady. So it certainly didn't erode, it didn't pick up, it held steady. And again as we expected, that was going to do it during this quarter. And we did see a full quarter of the European IGT destocking, but at the levels, once again that kind of we anticipated.

But in the quarter, we also had some interesting things too. So if I look at kind of what also happened in the quarter, we certainly start seeing some key catalyst getting loaded in to the second half of our year. If I look at the base aerospace, we are seeing schedules now loaded in the back half of the year that closed the gap on that destocking. And even though expected, this is going to be a very common theme to carry out the other segments, we did get loaded in the last 13 weeks of those schedules for the 787 to start moving into new production. Again, we expected it. But in fact, we did see those schedules get loaded in, and that was a change from kind of where we were 15 weeks ago.

We also had, in castings, two additional significant additional wins on the 787 that continues our penetration on that platform. And again, these are really the last significant parts that we have had targeted to get. So as that program continues to move into production to next year, we'll be picking up kind of an additional content in the casting world.

And we see both the aftermarket beginning to improve in the back half of the year with schedules. And the destocking today, the current look we have kind of shows that coming in the back of the year. So in this quarter, we did see some significant solidifying of the back half of our year. If I move on to the EBIT, challenges remain the same, just taking that tremendous pressure from the sales and fighting it and driving the operating improvement through the margin side and overcome the sales drop.

For us, if I look at the challenge now facing, kind of just as we start looking at the second half of the year, we got to start. We're in this cost mode for two quarters, and then as we shift from Q2 to Q3, we kind of throttle up into that sales growth in the 77 OEM schedule. So now the goal is to make sure we hold firmly. Do not let go of those improvements we've gotten in productivity yield. Keep those in place and drive that leverage across the bottom line. And I think we spend a lot of time discussing how we're going to make that transition from this Q1, Q2 through the back half of the year. And again, it's just kind of running that play book and executing and excruciating detail and paying attention to it on a day-to-day basis.

Moving off of Investment Cast into Forged Products. Forged sales decreased by roughly 5.6% versus last year, going from $670 million last year to $640 million this year. Operating income decreased by 18.6% going from $162 million last year, $132 million this year. And margins went from 23.9% last year to 20.6% this year. If I look at the key drivers, on the sales side year-on-year, again, putting in an apples-to-apples comparison, roughly $53 million as lower material selling prices and contractual material pass-through kind of puts that back on a constant basis.

And from there, the most significant challenge faced on the year-on-year was the same as the aerospace destocking that went on with the disconnect between the bill rates. And then again, on a year-on-year comparison, in the SMC side, reduction in general and industrial. But the one that did come in, and again this impacted both the year-on-year comparison and the sequential was a decline in the seamless pipe as the Chinese customers again changed their ordering patterns in the back half of the year to large, more efficient coal-fired plants, and they got to work through the inventory that was in place to support the smaller, less efficient coal plants.

If you add up all of these, certainly we would've seen a sales number much below where it was. But countering that was the most significant, was the addition of Carlton which was not in last year's sales. So Carlton did play a significant role in helping to offset a lot of negative pressures that we face on a year-on-year comparison.

If I look sequentially, same with cash is we did start to see a slow recovery in the OEM demand, kind of in the Wyman-Gordon side heading back towards those bill rates. And again, we saw a steady aerospace aftermarket and did see a low single-digit general industrial growth. So all those kind of played out pretty much as we expected seeing there 15 weeks ago. The one change again, I know I keep bringing this up, but it kind of impacted all of these was that the start of the downturn we saw in seamless extruded pipe.

As with castings, we also saw the same dynamics that drove those schedules in the casting side start to load in and drove the firming of the schedules in the back half of the year for our forging side. By far, the biggest primary drivers at 787, demand now getting loaded across our Wyman-Gordon side, as an impact in the SMC side, and then to that, also, the demand coming back where we begin to close the gap to the bill rates.

On the back half of the year, we also have seen a lot of action in quoting in China and India on the new large high-efficiency plants, and we do see it return to our sweet spot which process that P-91, P-92 large diameter seamless extruded pipe. And as these projects start coming into play in the back half of the year, we see that coming back to a more normalized level. And we also are now quoting so we've had, roughly, 10 or 12 weeks now to quote packages more complete with Chengde and we begin to see that start that whole increased package coming across on the back half of the year.

If I look at the EBIT versus last year, certainly the most significant headwind was a reduction in volume from the aerospace and then again the seamless extruded pipe. But we're possibly able to offset this again by the Carlton. But sales were being replaced with a lower margin product compared to what was taking out.

If I look at sequentially, we've talked about the rapid-rising nickel prices. Again this is material that we had to bring in at the end of Q4, with nickel going up roughly 25% and about a fixed certain period of time, we had to bring the material in for Q1 and Q2, which did impact the way we account the material line. We do match up with the sales prices of product ships in Q1, Q2. The impact of this was at least $10 million in the quarter. So it wasn't a small number that we had to overcome. But again, we recover this as the product ships out in the following quarters.

And again, the challenge here remains the same. We're moving in the second half of the year, holding on to the improvements that we've gotten in driving that growth from the aerospace 787 and the OEM bill rates aligning and again the seamless extruded pipe coming back.

Finally, moving on to fasteners. Fasteners saw a sales decrease of roughly 13.5% versus last year going from $385.6 million last year to $334 million this year. We saw operating income drop by roughly 9.1% going from 119 last year to $108.4 million this year. And we saw solid margin expansions versus last year going from 30.9% last year to 32.5% this year.

As we look at the major drivers on sales, again, it's been the same as it's been the last couple of quarters, significant destocking both on the OEM side and the distribution as a result of the consolidation and pretty much a non-existent biz jet demand.

If I look sequentially, again on the OEM side, we did start to see a slow recovery towards those bill rates. But on the flip side, we saw very, very flat aftermarket and distribution compared to where we've been running. But no significant change there. But as with the others in the quarter, looking at the second half of the year, fasteners does see some very significant growth drivers. The primary one for them by far being that 787 moving into production against an extremely strong Fastener content. We need to remember that roughly 50% of our content on the 787 is sitting in that fastener. So this plane moving in towards production does start to put a very healthy load on the back half of the year as we support that particular movement. And then, there is a closure in the distribution base does start to come in the back half of the year.

In the biz jet, anything is a positive. So the fact that the biz jet now is starting to move back towards some production level, eating up the inventory they had. Again our expectation is towards the back half of the year, we'll start getting demand from that side of the business.

If I look at the EBIT side in fasteners, their biggest challenge as with other ones, but more so with them is has been overcoming that substantial drop in volume and getting everybody to focus on those operational improvements across our Fastener business.

Fasteners, more than any of them, this switch or this change that we're going from a Q4, Q1, Q2, into that volume increases, it tends to come at a very, very, very rapid rate. So we are keenly focused of that transition in that Q2, Q3 timeframe, and the sensitivity to the incoming order being able to make sure we have it in place. So again we spent a lot of time kind of looking at that transition, how we're going to handle it as it comes through. But for all intents and purposes, making sure we get the leverage and holding on to the improvements we've gotten in this operation is going to be key if this doesn't move forward.

So that's the way in the segments. If I move beyond that, now I go into kind of the cash. If I look at where we ended the year, we had cash on hand of $112 million, and we had debt of $250 million. And I think fact this is given the fact that we had two major acquisitions in the last six months between Carlton and Chengde, kind of say that we're squarely focused on that cash generation and know what we need to do.

Having said that, I am extremely disappointed in where we are in our operating and working capital as a percent of sales. There are reasons. We consciously made the decisions in some cases to use our balance sheet. But having said all that, if I look at the growth towards the back half of the year, our target is clear that we will keep kind of working capital dollars flat. And then below that volume across that and bringing that ratio down. But as I said, I am not satisfied with where we are, and I think there is opportunity as those schedules recover to kind of get a much better leverage on our working capital than we're getting today.

So in summary, beginning with Q4, I think it just is a battle, it's been a battle. We don't mind it. That's kind of what we look to fight. But I think we fought our way through a very challenging sales environment and has been that way, and I think it continued in Q4 overcoming that sales decline.

In the quarter, I think on aerospace, we did begin to see kind of that closure of the slow recovery from aerospace destocking. Have not yet seen that aftermarket effect recovery or the fastener distribution base recover. And in power, we did see a full quarter of the IGT destocking. But again, the challenge for us in the quarter was kind of that seamless pipe coming in and that does carry through in both Q1 and Q2 as the balance of that inventory gets worked out, and we did see modest upticks in the oil and gas.

We did see low single-digit growth in general industrial again as expected. And I think as we look in most through the year, we kind of talked about this, I think the first half of the year is consistent where we have got to keep that relentless attack on that cost model, responded to the slow return to aerospace OEM demand. Again the flat aftermarket and fast distribution is kind of in play. And we will face two full quarters of that reduction in the seamless extruded pipe as those adjustments are made. But it's kind of like a knife edge.

As we then move into the second half of the year, we're shifting some very significant growth drivers. We've talked about these. The closure demand in the OEM bill rates. That demand coming from the 787 as we're loosing the production, and we're going to have to back off that six to nine months. So as we come into Q3 and into Q4, we're going to be supporting rates of mid '11, calendar year '11. So those are kind of the rates we have to go through and then we'll move up from there.

And then again I think we see a gradual return to distribution base and the seamless extruded pipe and new orders that we're quoting now come back in the larger platforms. So it's two quarters of relentlessly attacking cost, shifting basically the Q3 and beyond, supporting that growth drivers and leveraging that volume across our cost base to the bottom line.

So I know I went a little longer than normal. I thought we had a lot to cover today. But with that, I'll open up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will take our first question from J.B. Groh with D.A. Davidson.

J. B. Groh - D.A. Davidson & Co.

You've established this wave that's going to come in the second half of 2011. Maybe you could talk about kind of your capacity utilization and your ability to handle that wave? And how should we think about CapEx in that regard and capacity utilization in that regard?

Mark Donegan

I think from a capital standpoint, I think we obviously have the capital in place. Remember we kind of capitalized with the 78s. We've put enough capital in place to build bill rate of roughly seven per month, 787. So that, if you kind of going back to what, Jesus, two years ago now. And you look at what we did in the adding the DS singles to furnaces. We put the extra isothermal press in place. We expanded our ties. So I think from a capital standpoint, we're good. Certainly we will not need the number of people that we would've needed two years ago. So if you look at the productivity of the yields, we can get back to those levels with less people than we kind of went into the downturn with. Obviously our biggest challenge is kind of bringing on those people in a manner that we can train them effectively, and I think that's where we're going to have to start bringing on people ahead of kind of this recovery to make sure we don't have our overdue of delinquencies kind of go up. So that, as I would see it, is our biggest challenge. It's not going to be a capital challenge, it won't be a material problem. It will be kind of a people problem, getting them in. Now again, we've got a lot of trained people on the streets that we can draw back on. But it's getting them in, getting them back at speed, things have changed. So if you been out of this facility for a year, a year and a half, you're going to come back, it's different. Ways that we run, the way we run, the way we look at things is different. But that's going to be our biggest challenge.

J. B. Groh - D.A. Davidson & Co.

So that seven month is a pretty hard cap, I mean, you couldn't get to eight with some other lean initiatives or anything like that?

Mark Donegan

No, I think we could. I think that, again, that was going back two years ago. So it was with the productivities we had, it was with the yields, it was the material utilization. So I think, to answer your point, no. I don't think when it goes to 7.1 we have to sit and go. Somewhere as it shifts to seven to 10, I think there are small capital. We're not looking at big. Real big ticket item for us was that isothermal press. When that was all said and done, that was probably close to a $40 million capital. That's -- we have plenty of capacity at this point in time on that. Maybe another two DS single crystal furnaces, that's $5 million. So maybe $10 million to make another leap was kind of what we need. It's not a big number.

J. B. Groh - D.A. Davidson & Co.

Can you remind us kind of your shutdown schedule with -- I know that it's a little different initially with Carlton and with some of your other plants and how that sort of factors into your flattish first half?

Mark Donegan

Yes, well we're going to try to bring Carlton down. So pretty much, if you look at the big quarter that we fight, all the shutdowns, it occurs in two fronts, it occurs in the forging side where we bring everybody down for roughly two weeks in Q2. And then in Q2, we also picked up somewhere between two to four weeks and all of our European operations have a shutdown due to the holiday season.

Operator

We'll now take our next question from Robert Stallard with Macquarie.

Robert Stallard - Macquarie Research

On forged margins, you said that the high cost of nickel in the quarter, $10 million. So that would've taken Forged to roughly at 22% in the fourth quarter. How do you expect this to progress through 2011? Is it going to stay roughly flat about level in the first two quarters and then move up nicely in Q3 and Q4?

Mark Donegan

Yes, I think that that's kind of, and again the challenge, the challenge we're going to face is that seamless extruded pipe. The seamless extruded pipe is a strong contributor for us. So we're going to have to find additional ways and be aggressive to kind of fight through those two quarters. So I think your model is pretty sound, and then you'd start moving your way through there. We're obviously not going to just roll over. I think you know us well enough. We're not going to roll over and say the hell with us. I mean, we're going to deal with it. We got to find those areas where we can improve on. We got to deal with the pipe as it moves through. But, yes, I would say you're looking more at that type of feeling you just brought out and then we'll go from there. And then again, the only thing I want to add to that, Rob,is Q2. We're going to have that shutdown, and that just is what it is.

Robert Stallard - Macquarie Research

But what about the impact of Carlton within there. I know you haven't broken out specifically where Carlton's margins is. But looking at 12 months from here, do you feel comfortable as a good timeline to get up to sort of forged-style averages in tough months?

Mark Donegan

I actually do. I mean, the one thing I was going to do, Rob, I was going to maybe cover some of that when we're together next week just to kind of give an update. But I think the Carlton forged integration has done very, very, very well. So we are on track or better to move along from where we thought we're going to be. So I think as that starts to play out, and we get the volume coming back across them, I think that there's a lot of upside to that. So you're right. When it compares against a seamless extruded pipe, it's not where it needs to be. But if I look at where it is and where it can go to, I'm very pleased with how that business integrate into us. And again, with the strong attribute without that, we would've been down. Sales in the Forged Products would have taken a pretty significant whack year-on-year without it.

Robert Stallard - Macquarie Research

And then secondly, you mentioned about some inventory build up in the quarter and some concern about the working capital. Could you give us an idea of just how big the inventory build up you've had and how would you expect that to move through '11 coming back out of the system?

Mark Donegan

I think it's somewhere between $175 million to $200 million. We're probably carrying over what we want to carry right now. So as a percent of sales, I think that my goal is to hold that and not have to add in as we go through. So if you look through the course of the year, I think there's that type of pent-up value in terms of a cash kick up that we won't have to employ to get to -- help to get to those sales levels.

Robert Stallard - Macquarie Research

And is this just a buffering case? Some of the demand comes through quicker than you expect?

Mark Donegan

It's was really done by a number of things. It got us started back where the world was imploding. We had the right contractually to kind of force material down. I think we chose not to do that because that just would've created a massive hole in the back drive. So we tended to bleed it out. We had an opportunity to buy revert when it was low. So we made sure we went out and maxed out as much as we could and that was kind of across nickel and titanium. Those are probably the primary drivers. We level-loaded. Start of our operations, we level-loaded them, kind of figured out that we couldn't handle some of the slopes that were going to come. So it's kind of a combination of those three. So again, I'm not satisfied with where we are. I'll be abundantly clean on that one.

Operator

Our next question comes from Peter Arment with Gleacher.

Peter Arment - Broadpoint AmTech, Inc.

Could you give us maybe your assumptions of what you're thinking about the 737 are on the build rates as you look out at your schedules over, say, the next 12 months?

Mark Donegan

I've been saying all along, I think there was probably 25-ish type of sets that were out there in one form or another across our board. So I think that if you kind of listen to what Boeing is saying, and they want to have somewhere between 25 and 30 planes. By the time they deliver plane number one, I think that it says that what we have in the system will take care of that. I think that we didn't start moving into a rate of three or four a month is kind of what we're going to have to start supporting or putting schedules in play. And then I think as we move through, we certainly get to a rate of probably -- I think we'd move to maybe six a month as we get to the mid to back half of the year.

Peter Arment - Broadpoint AmTech, Inc.

And how about the 737 in terms of your -- what we're talking about in terms of Boeing, talking about increases in...

Mark Donegan

I don't think we've seen anything in there yet. There's no assumptions. The biggest thing we've seen in 737 is that destocking going away. So I don't think we've yet seen any change of anything loaded into our schedules yet on the 737. I think we have -- we do see again on the back half of our year, I think we see the demand on is now of the 777 going back up. And I think in the back half of the year, we do see the Airbus narrow-bodies going up. But we have nothing yet loaded in different from kind of what the current bill rates are in the 737.

Peter Arment - Broadpoint AmTech, Inc.

So we could do that as upside potentially if we get that announcement.

Mark Donegan

Yes.

Peter Arment - Broadpoint AmTech, Inc.

You mentioned two wins from the 787 on the casting side. Could you size that for us, or at least maybe gives us an update of how your content for 787 has changed?

Mark Donegan

Those two parts together will be greater than 100 per set. And I'm not sure -- what's the latest. So a shy of, that would be 5.5 plus these parts.

Peter Arment - Broadpoint AmTech, Inc.

Just on the M&A, I mean, again you've generated a lot of cash and paid down your debt. What are you seeing out there now? And what are your assumptions for fiscal '11?

Mark Donegan

There are a number of things that we've been watching. I think towards the back half, I think some of them will become -- I don't think there's any actionable in the short term. I think there are some actionable that we've been watching for a while as we move to the back half of the year. So what I'd say is, again, we'll follow the same model. We'll start putting cash on the balance sheet and then start -- hopefully, the transactions that we think makes sense for us will come into play again.

Peter Arment - Broadpoint AmTech, Inc.

But I guess no shortage of opportunities longer term.

Mark Donegan

No, there's not. I mean there's a number of things that we just continue to watch, and for one reason or another, they were taken by somebody else. It was a sponsor a while ago, and then the market kind of got bad. And so what I would expect is there's going to be a cross point where some of those investments do make sense for them to say, "Okay, we now can get some positive money out of it. We want to move in that manner." And that's kind of when we'll hopefully be able to make some traction in that world.

Operator

We'll now take our questions from Howard Rubel from Jefferies & Company.

Howard Rubel - Jefferies & Company, Inc.

You talked about a flat first half and then a fairly strong second half. Could you kind of give us a sense of how much you're operating below in the first half versus where you think the second half will be? Is it like 20% differentials?

Mark Donegan

I think it accelerates, and it's not going to be a cliff going from Q2 to Q3. So I think that we go from Q2, and then Q3 will be a midpoint, Q4 continues to accelerate from there. I don't know if it's 20, but it's a...

Howard Rubel - Jefferies & Company, Inc.

It's a jump. I mean it's very clear in...

Mark Donegan

It's a jump. It's a jump. It is a jump. Yes. I think we start -- we're different. So I can say, we start migrating our way kind of back towards where we were before the world imploded, we're going to do it with different things. So we had an inventory build, theoretically, before the market imploded. We're going to be doing with the 787. But yes, I think we start kind of moving back in that direction.

Howard Rubel - Jefferies & Company, Inc.

I'm actually frankly surprised that it's not happening in your second quarter versus the way you're sort of looking at it, given that we've sort of seen all of the capacity taken out of the world's airlines and sort of the -- I would think the supply chains are stretched pretty thin in a number of cases.

Mark Donegan

What I have started paying attention to, obviously, over the course of the last five or six quarters, I just was focused squarely on what are we going to do to survive. What I spent a lot of time in and my concern is somewhat in the realm of what you're saying is that I'm going to get a call saying, "I need it now." So where I become very, very sensitive to, delinquencies, schedules, mismatches. Whether it is Q3 or it's the back half of Q2, I think your concern is valid. Right now, I'll tell you, the schedules support Q3 and then moving stronger to Q4. But are we starting to get some calls, "I need things." Yes, we are starting to get those calls.

Howard Rubel - Jefferies & Company, Inc.

I'm surprised SMC pricing doesn't improve, given the improvement or the higher scrap prices. Could you kind of square that box for me a little bit?

Mark Donegan

I think it does. I think that a lot of the projects and everything we quote on -- SMC does a fair amount of project work, so you tend to quote on projects that are three, four, five, up to six months out. I mean we have a number of projects we're looking at right now that are six to nine months out. So I think the fact that SMC tends to be more project-related -- and we're not seeing -- what we haven't seen yet is any real shift in spot buying, so it's more controlled from that standpoint. I think if the spot buying starts coming in, whatever may be. The distribution base on high nickel content needs more rounds and more flats. I think that, to your point, could drive more immediate. But kind of the model we're using is that these contracts that stay in place with the material we're quoting now at $12 a nickel will allow it six to nine months. That's why if we do see a change in the spot buys, your comment would hold merit.

Howard Rubel - Jefferies & Company, Inc.

If I look at the minority interest, it was about $1.4 million. Was that all Chengde, or is it something else? And how should we think of -- I mean, did you apply any cost of -- they have extra borrowings or something? It just seems like the number should be larger at some point.

Mark Donegan

I think that where Chengde gets's a little -- the bulk of it is Chengde. There are other ones in there, but the bulk of it is Chengde. We got Chengde and we got in the new year, so we basically lost a month. And then what we really were interested in Chengde was their plant number three, which was brand spanking new, which is kind of that large diameter pipe. They just turned that on in the quarter and started qualifying it. So they had a large amount of qualifying cost with no real output going on at all. So again, Chengde, as we said, we're out there. We're quoting that capacity in our longer-term projects. We've loaded and work in on them from a cost structure for ours. But it's a two to three quarter-type of timeframe when all of that starts coming into play. We have to qualify them to U.S. standards in terms of quality inspection. So we went through that in Q4, and we're just completing that in Q1. So there's a number of things that get them prepared to kind of handle what we want to do. But it will be Chengde, but that was kind of the primary drivers behind it.

Operator

Our next question comes from Cai Von Rumohr with Cowen and Company.

Cai Von Rumohr - Cowen and Company, LLC

So it looks like Forged sales x the material impact would've been up in the fourth quarter from the third. So should we attribute all of the decline in margin from 23.2% to the raw material? Or is there something else happening there?

Mark Donegan

I kind of gave you the number for that. So you get that -- I gave you one hard number. You should be thrilled, Cai, that I gave you that hard number.

Cai Von Rumohr - Cowen and Company, LLC

Actually, you gave us. The number was at least. So if I look for...

Mark Donegan

No, there was another -- again, the seamless pipe for us is a strong margin contributor. So the reduction in that seamless pipe replaced by a Carlton or general industrial does not carry with the margins. But I think it's a combination of those two that are the gap closers.

Cai Von Rumohr - Cowen and Company, LLC

And then as we look forward, could you refresh my memory what the delay is in your surcharges at SMC? And just looking at where the material prices are, it would look like this material headwind would be an issue in the first quarter, if material prices hold more or less where they are, but then would start to reverse in the second quarter. So as we look forward, how's that all going to play out?

Mark Donegan

I'd say, again, on our long-term projects, we were in between three and six months. So I think you'll see -- and again, it was the rate of acceleration. It's not necessarily the acceleration. It's the rate. So when you go up $2 to $3 in an eight-week period of time, that is the situation that you kind of take this negative hit. If it climbs $0.02 a week or something like that, you don't see it because it's not that significant. The fact that it's now seems to be settling in at that $12.25, $12.50, that's kind of where it's hovering around right now, it will purge itself out Q1. And then by Q2, it certainly will be through at all. If it goes $12.50, $12.55, that's okay. If it goes $12 to $15, we may take another pop from that. So it's the rate of acceleration in a short period of time that causes the problem. It's not necessarily an elongated increase in raw materials. It's that rapid slope that tends to get us. And it does catch up. We price it. But we're basically pricing today a sales price of $12 and bringing them a total of that, but we don't get that pricing until it goes through to the customer.

Cai Von Rumohr - Cowen and Company, LLC

So as we move forward, once it starts to stabilize, should you get a double whammy, both of a 30% to 35% incremental margin, plus the catch-up from this timing impact of the raw materials, so that we would get a big recovery in margins?

Mark Donegan

Yes, on its own merit, the answer to that question would be yes, those two would add up to that way. The only caveat put in there is, again, we have this pipe that we're going to be replacing in sales with the general industrial or a Carlton or a oil and gas, that's not going to carry that. But yes, if it was a stand-alone business on the purity of the numbers then it was that we're looking at, yes, your math would be correct.

Cai Von Rumohr - Cowen and Company, LLC

And what sort of incremental margins should we attribute to the sales at Investment Cast and Fasteners going forward? Is it still 30% to 35%, or is it higher? Because at one point, you said, in an acceleration mode, the incremental margin would be higher from what you're saying. I wouldn't think it might be higher in the 30%...

Mark Donegan

What I've always said, Cai, and I think it holds true, a good long-term average over a period of time to use for us is that 30% to 35%. There are sweet spots that we will hit where we will get acceleration. So if we get volume coming in, we don't have to add people. We'll get a pop. So I think that you will see some spots where you'll get one that could be up over that 30% to 35%, and you get another one that we have to go bring on a new forging crew, do whatever it is and then we'll go the other way. But I think a good long-term analysis to use is that 30% to 35%. But yes, could you see incremental hits? If you go back in time, you'll see points where various segments got a pop, went above that, went as high as 40%, 45%, and then came back down again. So yes, I think there are those areas of opportunity. Can you sustain those high? No. I think a good sustainable number to drop through is at 30%, 35%, and over a five, six-year period of time, it's held true.

Cai Von Rumohr - Cowen and Company, LLC

And so as we look at next year, overall, it sounds like we should still use the 30% to 35% for...

Mark Donegan

Again, overall, I think it's a good number to use. Could there be sweet spots in there? Absolutely. But I think it's a good number to use as a long-term range projection.

Cai Von Rumohr - Cowen and Company, LLC

And then refresh my memory, we have 5.5 on the 787. With the two wins, what does that number go to?

Mark Donegan

It goes up, those two parts together, about $100,000.

Operator

We'll now move on to our next question from Joe Nadol with JPMorgan.

Joseph Nadol - JP Morgan Chase & Co

On the power, just looking at the sales sequentially, I mean it was down, but it doesn't look like it was really down all that much, Mark. And IGT isn't doing -- the IGT and the pipe, both are down, but we're not really seeing it. Is that going to fall further in the next couple of quarters?

Mark Donegan

I don't think the IGT falls any further to any great degree. I think pipe does handle a lot of pressure. Now again, we have some things going the other way. We get general industrial going the other way. So I don't think we're sitting here again saying, "All well with us." But yes, you did not see full quarter of the pipe. Q1, you will see a full swat of the pipe.

Joseph Nadol - JP Morgan Chase & Co

So you were at $346 million if you just use your graph, $346 million in Q4 of power sales. That was only down $10 million from Q3 and $20 million from Q2. So that drops another $20 million or $30 million or something in Q1 then stabilizes and starts to grow again? Is that the way you're thinking about it?

Mark Donegan

I think that's probably a pretty reasonable assumption.

Joseph Nadol - JP Morgan Chase & Co

And then on the inventory, when we look at that 14 40, I guess, in terms of the components sequentially, what grew? Was it the finished goods in the LIFO?

Mark Donegan

I think the two biggest changes were raw material and WIP [work in process] were the two biggest changes.

Joseph Nadol - JP Morgan Chase & Co

So a little bit different than what we've seen in prior quarters. So as we think through that LIFO component, which is a couple of hundred million, and sort of you talked about the inventory liquidating over the next year or a year and half. You're not happy with inventory. How do we think about where that goes and what the implications are for cash flow?

Mark Donegan

Well, and I'm going to answer something and Shawn is sitting here, so she can trip in if I say something either wrong or she wants to add to it. But number one, I think we understand that our LIFO layer is abundantly clear. So I think we know at what point we can liquidate material at a certain. The value of the schedule is going up from a LIFO standpoint. As long as I hold my total inventory dollars flat, I'm good. So again, the point that same inventory level across a higher sales base lets me not take any negative LIFO hit, and at the same time, lets me get better leverages of working capital as a percent of sales. And then to that, as materials may rise, we know the strike points, so we may choose at some point in time when it crosses that threshold where there's no impact to do make additional reductions in that environment. Is there anything there that you want...

Shawn Hagel

No, that's exactly correct.

Mark Donegan

So we have that type of clarity to it.

Joseph Nadol - JP Morgan Chase & Co

Can you give us a sense as to what material price might kind of get you there where you can start bleeding some of that off?

Mark Donegan

I think we're damn close right now.

Joseph Nadol - JP Morgan Chase & Co

And then just getting back to what you were saying about the quarterly profile over the next few quarters. So Q2 was really where you have the European vacations and the forge shutdowns. Is that offset by maybe the beginnings or the continuations of a ramp? And so when you say it's flat, it's really up but offset by the lower working days?

Mark Donegan

Yes, what you get is -- again, that is forging, so you may see some plus side in the casting and the fasteners. Forging's Q2, if you go back and look, I think it's a pattern that falls. Forge in Q2 is, I call, a stall quarter. So usually see a stall and then we reaccelerate Q3, Q4. It becomes very difficult to overcome a shutdown in your primary mills and your pioneer forging presses for two weeks. So certainly a stall quarter is what I would classify that.

Joseph Nadol - JP Morgan Chase & Co

In terms of the 787 shipments, we're seeing a lot of the other parts of the industrial base starting to crank up. You haven't been seeing much at all. Are you seeing any pickup yet at all?

Mark Donegan

We saw the schedules truly get loaded in, and we saw a pull-in. We saw an increase, but they all got loaded into the back half of the year. We saw nothing really get loaded. And again, I think a lot of it is because we had somewhere between 20 and 25 sets already out there. We did see additional demand get loaded in specifically to the 787, but it got loaded in our Q3, Q4.

Operator

We now move on to Robert Spingarn with Crédit Suisse.

Robert Spingarn - Crédit Suisse First Boston, Inc.

On that last question on the 787, when you say three to four per month and loading it in into the back end of this year, is the three to four apply into Q3, Q4? Or is that next year's fiscal '12, Q1?

Mark Donegan

It's kind of getting in, in our Q4, which would support basically the end of -- I got to think. Our Q4 would be March. So you'd be delivering at the rate of a Boeing delivery in August, September October.

Robert Spingarn - Crédit Suisse First Boston, Inc.

And then also talking about the flow this year in revenues. If we talk about power having sort of bottomed here. Pipe was a little bit more downside. And then it sounds like aero is largely flattish at this point. Do we see sequential downtick in revs in Q1 do we see sequential downtick in revs in Q1 and then again, we have all the things we just talked about in terms of Q2? How should we think about sequential revenues?

Mark Donegan

I don't think we see down. I don't think we see any roll up. I think your revenues, Q1, Q2, look pretty flat. And then I think we start to see that acceleration in Q3, and then Q4 starts to move pretty aggressively.

Robert Spingarn - Crédit Suisse First Boston, Inc.

Given the destocking on the OE side that you'd started talking, I think, about a year ago.

Mark Donegan

It was more than that.

Robert Spingarn - Crédit Suisse First Boston, Inc.

Yes, maybe five, six quarters, clearly the customers, and I think particularly the engine companies, were planning out increased rates and maybe buying above the end customers' build rate. How do you think about that going forward this time? Do you look more of what Boeing or the power generation manufacturers are going to be, what their build rates are? Or do you look at your intermediate customer demand in terms of the prats from the geese. How do we avoid overbuilding?

Mark Donegan

I think the overbuilding was different. If I, not this cycle, go back a couple of cycles ago, the overbuilding in my opinion was kind of slop. So everybody had a lot of inventory in the system. There was a lot of -- the queue times was huge. We're backing up nine to 12 months. This one was different. I think that there was indicator, there was direction, there was going to be an increase in the bill rates. So I think we were building to a point. And again, you got to remember, the lead times were about a year. So if you kind of go to what were all the raw material guys were fighting, we're placing our oil in the water a year ahead of time, and we're going back to our customers saying, "What do you want us to do? What amount do you want us to order?" So you kind of had, from that standpoint, a perfect storm where the lead times are probably at their all-time high, and again, there was a expected true increase in narrow-bodies. Boeing is going to go up and Airbus was going to go up. And 777 is going to keep going. And 787 was going to be flying. So it wasn't as though I think our customers are out there, just willy-nilly placing orders. I think there was true demand signals they're operating to, given an environment that they buy stuff a year out. I think right now, you get huge pendulum swings. I think this has been a tremendous reluctance to do anything. So you start going back and saying, "You're not ordering. You're not ordering. You're not ordering," and "Don't worry. Don't worry. Don't worry." And then now you're start saying, "You're right," and you start placing orders in.

Robert Spingarn - Crédit Suisse First Boston, Inc.

What I'm getting at is you're going to start getting these phone calls, you just mentioned, "I need it now." And there's going to be...

Mark Donegan

Yes, we're starting to get those.

Robert Spingarn - Crédit Suisse First Boston, Inc.

And then there's that temptation to get ahead of that.

Mark Donegan

Well, I think it will take a while for the momentum to build. So do I think anybody's going to berserk in the course of the next 12 months? No. I think you'll see a very controlled -- I think we will see some pull-ins. So I think there is more -- and I've told all the operations this too. If I go back to where we were a year ago, my old mindset was there is certainly more risk of additional push-outs and cancellations, so therefore, we're going to throttle back and cut. On the flip side now, I told my operations, there is probably a higher risk of pull-ins, so we need to make sure we're responding appropriately. So I think that it will be controlled for the next six to eight months. Now what will be the $10 million question is, if Boeing 787 continues to stay on track, what will they want to do with those rates? I think that's going to be kind of the next scratch shoot, how quickly and what do they want to do and how do they want to ramp up and how do we respond to that. That will be kind of the next catalyst.

Operator

We'll now move on to Sam Pearlstein with Wells Fargo.

Samuel Pearlstein - Wells Fargo Securities, LLC

Mark, if I look back to what you said at the end of the last quarter, you seem to be talking about seeing initial 787 in the second quarter, the alignment of the build rates around that time and even some aftermarket pickup. And it seems like it's all shifted out into the third quarter. I mean, can you just talk about what might have changed? Or am I reading into that slide a little differently?

Mark Donegan

I don't have it sitting in front of me, in fact I did look at it. I think what it said is the dynamics of Q4, Q1 and Q2 were the same. I think what we said is, we didn't know whether the transition would occur in Q2 or whether it would occur in Q3. I think what's happened is that it's firmed itself today, more up in a Q3 environment then kind of accelerating its way through Q4. But I think I'm going to have a problem, my main recollection was that Q4, Q1 and Q2 dynamics were relatively similar. Because I remember saying, it was a tale. Looking at '11 is a tale of two cities where Q1 and Q2 were held pretty flat, and then Q3 and Q4 wanted to start to accelerate.

Samuel Pearlstein - Wells Fargo Securities, LLC

And then is there any way to think about the second half versus the first half in terms of just the percentage change as to how you -- without giving us quarterly guidance, but I mean just how big of a swap of the change is there?

Mark Donegan

I don't know. I think it's a fair question that I need to take some time and think of a way to communicate some sort of value to that without giving guidance, as you all know. And I think I got to have to do that over the next -- sometime in the next public forum. So I think it's a fair question and I need to try to give a better clarity to.

Samuel Pearlstein - Wells Fargo Securities, LLC

On the pipe, you talked about some of the opportunities in the past on the boiler side with Chengde. And you just mentioned that one of the plans is just getting qualified. Are you able to go out and bid between Chengde and Hackney and Wyman?

Mark Donegan

Yes. We are quoting completed packages. Because again, you're quoting packages that are due six to nine months out. So yes, the qualification is going well. We're not in any streaks of imagination. We're not able to quote. We are quoting completed package. And the plant will be well qualified by that period of time. So yes, we are floating ahead of qualification.

Samuel Pearlstein - Wells Fargo Securities, LLC

But if it's six to nine months out, do you need to be seeing wins now or soon in order to be confident that the pipe starts to improve later in the year?

Mark Donegan

We're seeing wins now. The pipe, in fact, now is not wins on what we're getting. It is a shift of products that was in line for the 300, 600 megawatts going real more into 1,000 megawatts, so that's bleeding out. We are winning orders today. I get every single week an update of orders, quoted orders won on that pipe world, all for Chengde and our base business.

Operator

We'll now move on to Eric Hugel with Stephens.

Eric Hugel - Stephens Inc.

You've quoted a number in your sides sort of like $134 million to $183 million of sort of cost take out based on sort of the formula that you did. Can you sort of maybe give us sort of a ballpark of how much of that cost take out would you think is more sort of structural in nature are you not coming back versus volume-related?

Mark Donegan

Well, I guess I would say that the majority of that would be structural-related, because the volume would've dropped through the 300. I mean that's kind of that math. The way the math model works is that volume would've wanted to drop through 300, 340, if I didn't do anything to overcome it. So if I just took kind of that margin drop through, which is business as normal, it would've dropped through that. So I think that, that 130 to 180 -- let's pick a number, 150 is probably, truly, its improved, material yields, its improved material utilization, its higher productivity. So if you look at a plant, let's say, I had one plant that the productivity went from 110% to 130%, I'm going to hire at 130%. I'm not going to go back and hire at a 110%. So I'll capture all that. If I look at a part where the yields made at a scrap rate of 5%, scrap rate's now at 3%, I won't give that back as more volume. I'll put more volume across that 3%. And one area that kind of comes back and forth is scrap. I've had good benefit of rework. That one gets tougher. Where there's been an excess of it, I got to go find additional stream. So that's one that I may not be able to keep all of it. But the big ones by far, productivity, material efficiencies, scrap and rework, those are the big ones.

Eric Hugel - Stephens Inc.

Can you talk about maybe hiring some people ahead of the ramp? Can you talk about the timeframe of that? Are you already doing that? Are we seeing that in some of the margins?

Mark Donegan

Yes, we are. We are starting the hiring right now. Slowly. I think what we try to do is we've done a -- I think we've gone back and we looked at the previous cycles and say, "What rates did we hire at that we did well and what rate did we hire at that we started to lose efficiency?" I think we have, by plant, what that hiring rate is. And that's kind of the rate we're hiring at. So we may carry some additional -- I mean, we're not talking hundreds and hundreds and hundreds. I think we're probably maybe 50, 60 people disconnected over and above what we need to have kind of by segment. And then...

Eric Hugel - Stephens Inc.

So we're not going to really see that in the margins per se, unless you've had to really scramble?

Mark Donegan

Again, the thing that hurts us more is a very rapidly rising unplanned increase is when we start to become inefficient because we just got to start bringing people in. So we'll have to bring them in at a rate higher than what we consider an optimum training mode.

Eric Hugel - Stephens Inc.

Can you talk about what your CapEx should be for next year? Or any specifics sort of major CapEx investments that you planning of making and also what the tax rate should be?

Mark Donegan

I don't think there's any out of the ordinary. I think you can kind of use the same capital structure that you saw this year. You can use it again for next year. So it's more of the bulk. The bulk, I'd say, probably 60%, 70% of our capital is going to be in terms of maintenance, preventive maintenance, 60%, 70%. 20% will probably be productivity gains, and I'd say whatever the delta is will be new projects. We have some new opportunities we have to go place some capital on. But the bulk of it will be productivity and maintenance. And the tax rate, that 34.4% is probably a good number to use.

Operator

And out take our next question from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs

In the press release, you had mentioned that pipeline of cost reduction projects is filling with the new ideas. I was wondering if you are able or willing to share with us specifically what some of those ideas are?

Mark Donegan

I'd like to stay away -- again, we consider that somewhat one of the skill sets that we do fairly well. But they fall into -- they're such an array. They're going to fall into -- the easy ones and scrap and rework. You kind of go after those by parts. So taking a particular part and attacking whatever the model may be, it could be tooling changes, it could be in special methods, it could be any number of areas. That would be one. Because you look at our gaining ratios, so if you look at how much material we pore, obviously, the more we can get into the park, the more business we pick up. So that was gaining ratios, and some of them we look at consistently the amount of material on the forging press we've put in. So if we're going to make a disk, how much does that material weigh and how much do we get out. So we constantly search of how to peel that back. And then in the casting, in the fastener world, you're always going to come down to productivity. So what does an employee know that we can transfer over? How can we teach them better? How can we consolidate jobs? How can we make it more efficient? They fond of those categories.

Noah Poponak - Goldman Sachs

This has sort of been asked, but I guess, I'm also a little surprised you're not more upbeat on the aerospace side in the first half, given everybody assumed the rates were going lower and you're getting destocked, and now we know they're going higher. Is it fair to say that you're thinking of upside risk in the aerospace side being offset by potentially being incrementally surprised to the downside on the power side in the first half?

Mark Donegan

I don't think there's a lot of surprises left. I hate to say that. But I don't think there's a lot of surprises left. So if you look, we've taken the IGT squarely in the chin. We've taken the European destocking squarely in the chin. We've taken the pipes. So pretty much the power is played out. I don't know how much more surprises can come. What I can tell you is that I think Q1 is probably pretty well laid in. Again, whether we start seeing some pull-ins or whether some of that Q3 load pulls forward, I don't know. But I can tell you right now that our schedules do support that Q3, Q4, but that's kind of the way we're laying out. That's where our customers are.

Noah Poponak - Goldman Sachs

If revenue is flat sequentially, it will be up year-over-year. And if you are to layer in the average incremental, you look for the earnings numbers in the first half would be higher than the fourth quarter. But you do have the unique things going on in the Forged segment. Can you just maybe give us similar clarity on what you think EPS does versus the fourth quarter in the first half, the same way you do with revenue?

Mark Donegan

That gets close to guidance, so I'm going to -- I mean I think the model is in there. I want to kind of stay away from what that EPS is.

Operator

We'll now take our next question from Ken Herbert with Wedbush.

Kenneth Herbert - Wedbush Securities Inc.

I just wanted to see if you could provide any more detail specifically in China when you talk about the shift over to the more eco-friendly power plants on the coal side and the destocking. What's the risk that the timelines over there continue to slip out or your confidence level that you're actually going to start to see the uptick in orders associated with the transition on the power side there?

Mark Donegan

I can only tell you kind of the way we're winning. We have a number of projects. And again, we're seeing two primaries, it's China and it's India. Can I guarantee you that they won't? No. I can only tell you that the projects we have in place and the way the orders and what they say they want kind of fill in that back half of the year. Could it change? It could. But right now, that's the way our orders lay in. And again, it's coming from two avenues where as typically we've been getting driven by just one. So India is something that is kind of a new catalyst in those new project awards.

Kenneth Herbert - Wedbush Securities Inc.

And would you say there's any difference in your thinking around India, say, relative to China?

Mark Donegan

Honestly, in our spot, that P91/P92, no, there is not. I mean that's kind of where our world is, and it's kind of an area that we do very well in.

Kenneth Herbert - Wedbush Securities Inc.

On the aftermarkets, I understand, obviously, sort of flat as you look into the first half of the year. When you talk about increases in the second half of the year, is it possible to put any quantifications around that in terms of what you might be looking for?

Mark Donegan

Yes. I don't think it's double digit. I think it's single digit type of growth, but I think it's mid to mid-high type of single digits.

Operator

That does conclude our question-and-answer session. On behalf of Precision Castparts, Mr. Donegan and PCC management, I would like to thank you for joining the call today. As a reminder, the webcast and call has been recorded and will be available on Precision Castparts' website at www.precast.com for approximately 30 days. This concludes today's meeting.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Precision Castparts Q4 2010 Earnings Call Transcript
This Transcript
All Transcripts