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Precision Castparts (NYSE:PCP)

Q1 2015 Earnings Call

July 24, 2014 10:00 am ET

Executives

Mark Donegan - Chairman and Chief Executive Officer

Shawn R. Hagel - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Assistant Secretary

Analysts

David E. Strauss - UBS Investment Bank, Research Division

Howard A. Rubel - Jefferies LLC, Research Division

Gautam Khanna - Cowen and Company, LLC, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Noah Poponak - Goldman Sachs Group Inc., Research Division

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Operator

Good morning, and welcome to Precision Castparts' Webcast and Conference Call to discuss its first quarter for fiscal 2015. The duration of the call will be 1 hour. This event is being recorded and will be available on PCC's company website at www.precast.com shortly after the conclusion of the presentation and discussion. [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 all of you by now are very familiar with our forward-looking statement and you need to take this into consideration when you're analyzing about what I have to tell you.

If I look at the overview of Q1, I think there are 2 significant aspects to it. First, I think it was a quarter that delivered solid operating results, but equally or more important was the positive shift we saw in the ordering dynamics of our customers with a number of areas where customers have now placed increasing demand on us that's going to require us to continue to input -- increase our output levels as we move through the back half of this year and into next year. I will go over some of the key areas as we move through the segments in a little more detail.

With that, if I look at Q1 in total, we saw sales increase of roughly 7% versus last year, going from $2.36 billion last year to $2.53 billion this year. We saw operating income increased 14%, going from $644 million last year to $736 million this year. We saw margins expand 190 basis points going from 27.2% to 29.1%. And all this generated EPS growth of 15% versus last year, going from $2.88 last year to $3.32 this year.

If I look at the key drivers, first of all, overall, to put an apples-to-apples comparison, we had $55 million lower of material pricing and pass-through. And we also had significant higher intercompany activity of roughly $62 million more this year versus last year. A large component of that certainly has been the -- TIMET will have been able to deal with that. And we talked a number of times. This will continue to be a primary objective of ours to take our assets and drive our volume across them to give us both in terms of cost-benefit, as well as being able to solve a number of our customers' problems that have been having that integration. And I think, all in, we are certainly seeing the benefit of that driving through our cost structure.

Overall, we had organic growth of roughly 4% excluding the negative impact of metals. We have higher aerospace sales of 9% versus last year. We also saw a strong Power Generation sales. We saw Power Generation up by 8%. And our IGT sales for us, even in a market that's existing today, we saw our IGT sales up by 7%.

We saw strong interconnect growth, up 50% versus last year. And we saw a decline of 9% oil and gas, but that was off of a very high point of where we were last year.

If I look operationally, we saw strong incremental margins in our base business of greater than 50%. We've talked frequently about how we extract the value day in and day out across our businesses, whether you look at our machining side, where we've been able to get a significant uplift in our cut time, turn time, material yields, productivity. All of that has enabled us to extract more value of the assets we have, and that all delivered that 50% up on our base.

We also saw continued operational performance out of TIMET, talked about, overall, the value of TIMET has been for us. But what I've tried to do is give you the magnitude of some of the things we're seeing in TIMET.

If I look at 5 primary assets that we have, and I look at the average of those assets from the point in time from when we get them to now, when I look at some of the key metrics that we use to measure our business with and I look at those results over a period of time, if you look at our sales per employee, they're up 30% today from where they were at the time we acquired. As you can imagine, productivity is a big piece of the puzzle. Our productivity is up 40%. Seeing it's a metals business, utilizing, extracting every item, every dollar of value, and then metals becomes key for us. Scrap is down 50%, and our yields are up 20%. I think this team has done a very, very good job. They've accepted what we're trying to do. They're driving results. They're delivering the results. I will say we are not done. This is early stages of what we have to do in terms of TIMET. We still have the volume to go across the assets. We still got the vertical integration across the SMC assets. But if you look at what we've accomplished over 1.25 years, I think they're reasonable results.

We're also seeing similar dynamics in our other recent major acquisitions, Centra, PB, Permaswage, they will all have the same type of performance out of where they are at this point in time. Again, they've got a long way to go.

If I move off of the company in total, moving into the segments. Investment Cast Products, we saw sales up roughly 1% versus last year, going from $616 million last year to $625 million this year. We saw operating income up 5% versus last year, going from $213 million last year to $224 million this year. We also saw margins expand 120 basis points, going from 34.6% last year to 35.8% this year.

If I look at the key drivers in Investment Cast, first of all, looking at material pass-through, we had lower material pass-through of roughly $5 million. From there, we saw, overall, our aerospace sales are up 1%. In that, large commercial was up 5% versus last year. And as we've seen in the last couple of quarters, we did see a decline in military and regional of roughly 8%. However, it is starting to move up that bottom from where we were in Q4 going into Q1.

IGT. Kind of touched on this in the front side. Even in the current market conditions with the share, the position, the value we have on these platforms, we saw our IGT sales up roughly 5% versus last year. It's made up of OEM sales being flat, but we saw good growth in both our spares and the engine upgrade.

Sales. If I look forward, I look at aerospace, they have a solid base load in the platforms that are there. And the solid, stable in terms of the base load is a very good position for us. It allows us to get a strong volume base with known products that we're able to drive the cost down and continue to get performance out of that. So that baseload being stable is a strong driver for us.

If I look from there, we do have increasing demand over the next 12 months. We have to support the next narrow-body rate increase. We're also going to have to support the step-up on the 787, going from the rate of 10 to 12. You should use for us a range of 6 to 9 months from when the rates go up to when we expect to see that rate step-up coming through our operations. And we also have a substantial development load in front of us now on the re-engining for both the 737 and the A320.

If I look at the value of the making, going from the base platforms to whether it's the Max or the Neo, and I look at the incremental value for Precision Castparts on the engine side of the equation of this re-engining, and this would include both Investment Cast and Forged Products. You're looking at a value per aircraft from the engine only of roughly $300,000 to $500,000 per plane. So one 737 versus one 737 MAX from an engine standpoint is a substantial step-up for us in what the value is.

After development moves through, we have a significant, probably the most aggressive ramp-up I've seen as we move through '16 into '18.

On IGT, we had an extremely strong incoming order rate. This is an area that we saw a significant shift in the quarter of incoming orders on us. And it now puts a very strong demand on us for the next 4 to 5 quarters. We saw the increase in 3 areas. We saw an increase in spares. The upgrade programs are significant, and the new high-efficiency platforms have put a very strong load on us as we move again through the next 4 or 5 quarters, and it's certainly going to continue to drive our growth rates up from where they are today. So this was an area that we did see a significant shift in the quarter.

If I move on to Forged, overall, our sales are up 3% versus last year, going from $1.06 billion last year to $1.1 billion this year. We saw operating income increase 15% versus last year going from $267 million last year to $308 million this year. We saw margins expand 300 basis points, going from 25.1% last year to 28.1% this year.

If I look at the key drivers, in Forged, putting everything on an apples-to-apples comparison, we saw a decline in material pricing and pass-through of roughly $15 million versus last year. And of the $62 million intercompany increase, $44 million of the intercompany increase was here in the primary driver that was TIMET. And again, this is on TIMET's watch. This would have been sales to them that would have shown as incremental share gain and organic growth. Since it's inside of us, it now shows and it gets eliminated at our corporation level.

We saw aerospace sales up roughly 2% versus last year. We saw strong power sales growing by roughly 12%. We saw the same dynamics in IGT, which is up by 10%. We saw a strong interconnect pipe, up by 50%. And I'll tell you that there certainly was a need for more pipe. So the 50%, that number, demand would drive that even further. We saw oil and gas down by roughly 9% versus last year. But again, this was off the high point of shipping those large projects a year ago.

In Forged, if I look forward, first, in Q2, we are going to have the normal outages that we have in Q2 across our major Forged complexes. We're going to have the normal maintenance we do, plus we also have capacity upgrades that we've been planning to do and that are required. Again, for example, in that interconnect pipe, the upgrades we'll do will allow us to push the output capability up significantly. This is also the first time we'll be putting TIMET outages in the same timeframe. In the past, TIMET would have taken the outages throughout the course of the year. They will be taking their outages in the same timeframe. And you can use in your analysis an average of roughly 2 weeks outages on average across our major complexes.

Beyond that, if I go to aerospace, the dynamics are very similar to where we were at Investment Cast. We have had very stable base that allows us to go after the dynamics of driving the cost up. We have next the growth rate coming from the rate increases. Again, that step-up in that narrow-body, as well as step on the 787 are significant for us.

And then we have sustained dynamics on engine. That $300,000 to $500,000 per plane is shared between Investment Cast and Forged Products, so you have not only the development, and then moving rapidly into the ramp-up, the aggressive ramp-up.

TIMET. As we move into the back half of '15, we have a couple of dynamics that are going on. There was some destocking that was occurring from some of the European customers. That goes away and gives us a step-up. And then we also have in it the share gain that we've already won that starts moving through the back half of '15 and accelerates into '16. And again, that is shared. That is already won. We're also under discussion for a number of significant share gains in TIMET, again, on contracts as they expire. So if I look at the TIMET side of the equation, I think we've done a great job of attacking the cost. I think as you move into the back half of this year and the next year, you're going to see the volume moving across a much lower cost structure, which should gives us a significant pop from there.

In Power. Again, as with Castparts, as you move into the cycle of IGT, we see the same dynamics moving through there. As we go in the -- after the outages, the interconnect output needs to go up. So if I look at the demand that's sitting on us, we're going to be required to accelerate our throughput on that asset after the upgrade as we move into Q3 and Q4 to support our customer demand.

Oil and gas is another area we saw a very strong order intake in the quarter. It capitalizes both in terms of the product we've been manufacturing, as well as our proprietary alloys. So what we've been talking about, we started seeing significant bites of volume coming in for long-range projects. If you look at what this means, I think as we go into the second half of '15, you're certainly looking at double-digit revenue growth in this particular product line.

Moving to Airframe Products. Overall, sales are up 18% versus last year, going from $686 million last year to $807 million this year. Operating income also increased 18%, going from $205 million last year to $242 million this year. And we saw margins improve 10 basis points, but it's important to know that, that was absorbing a number of lower performing businesses at the time we acquired them. So it kind of tells you a couple of things, the underlying strength in our businesses, as well as the rate of performance we got out of those. But all in, we went 29.9% last year to 30% this year.

If I look at the key drivers, overall, our aerospace sales are up 22% versus last year. Our base aerospace sales are up 3%. We did start to see -- again, this was an area that we started to see a significant shift in the ordering parameters of our customers so we've began to move some of that product through. However, we still got the 787. We're not at 10 a month. We're roughly 8.5- to 9-a-month range, but we did start to close that gap. We also saw positive contributions from a full quarter of Permaswage and 2 months of ADI.

If I look forward in Airframe Products, again, this was an area that we saw the order rate accelerate, both now we have a line of sight to the closure on the 787 to the 10. We saw increased demand placed on us on the base platforms. And if you look at that, we certainly have to move the back half of the year. We will close the gap to 10, and then we will have the support beyond that.

In aerostructures, another area that we also saw acceleration in our order rates, we saw -- whether it was opening up shipping windows or discrete orders or pulling in from the right to the left, we also saw similar dynamics being driven by both the base, and we now have orders on us to close the gap on the 787 through 10.

We also won -- we've been talking about some of these large statements of work that our customers have been looking for us to take over for them. In the statement of work, it's not just necessarily the machine parts. In some cases, it's assemblies, and it's also controlling the material buy in the side of the equation. But if I look at just one example of one of these that came in, in the quarter, one statement of work has the value of an annual run rate of $40 million that begins in our Q4 and ramps up over the next 12 months. We are seeing the request for multiple packages that have this type of value as we move through. So the base rates went up. The demand we've got to move through is accelerating, and we're seeing follow-on orders that continue to -- will continue to keep that moving as we go through next year.

If I move off the segments now and on to cash, I'm going to turn it over to Shawn.

Shawn R. Hagel

Thanks, Mark. During Q1, we completed the acquisition of ADI for a purchase price of $625 million, and we also finalized 2 small non-core divestitures for which we received $15 million in cash. We bought back 637,000 shares of stock at an average price of $249 a share, utilizing $159 million of cash. Excluding these items, we generated $439 million in cash for the quarter.

As of the end of the quarter, our cash balance is $373 million, an increase of $12 million, and our total outstanding debt was $3.9 billion, an increase of $342 million.

Our debt-to-cap ratio went up by 1 percentage point during that quarter as a result of the additional borrowings associated with the purchase of ADI. And that gets us back to you.

Mark Donegan

Okay. What do I do now is I really want to move off the segments and off the quarter and I want to spend some time on what I consider an enormous amount of work in terms of positioning, contracts, share, value platforms that create a significant amount of long-term value for this corporation that's sitting in front of us right now.

First, I want to be clear in regards to the fiscal '16 targets. I want to reaffirm a target and a framework is in place. We've also completed several acquisitions, a couple of larger ones, Permaswage and ADI, that would be additive to that, as well as any reduced share count.

From there, I think there's a significant amount of value that is sitting in front of us. And if I think of the way we look at our business, the way we run our business, the unique capabilities that we have, it starts with our business model. It has 5 basic components to it.

Always at the core of this, it's the basic theme in this corporation we talk about all the time, and I think the results certainly bear that we are committed to this, is going to be that manufacturing operating system that we drive through our businesses, live, breathe, eat by and manage our businesses by.

The second, we're going to use that vertical integration on a number of fronts. We're going to use it to attack our internal cost structure, whether it's looking at revert utilization being able to pull it back and increase the revert in our blends, whether it's going at supplying a more complete capability to our customers, whether it's solving some of their issues in terms of procurement, ease of procurement chain, we're going to use that vertical integration to go after share, cost and drive long-term value. We are going to constantly be searching and be out there in terms of leading in technology and manufacturing leadership.

If I look at the parts that we're manufacturing today for the advanced programs that were out there that are going to be carrying us into 2020 and beyond, we are making parts and components today that probably 5 years ago, we didn't think we're going to be able to manufacture. So the technology is out there. It's on the platforms, and it is a significant piece of what's driving the value and the capability of those platforms moving forward.

If we do the top 3, we will be the preferred supplier. That is going to be a drive of ours. If you look at the positions we have in the long haul, the content, the share, that is what allows us to do that.

And the last is going to be continued acquisition performance. And I put performance into a number of categories. Having a very stringent disciplined acquisition strategy which entails finding the right assets, not just an asset, finding the ones that continue to create value for us in the long haul, being patient for the right ones to come along. That is the core of it. Once we get them, rapidly integrating them. We've talked about what we saw out of TIMET. We've shown, over a period of time, the value of SMC, SPS, Cherry. The list goes on and on, TIMET, the list goes on and on and on of the way we think of the first year, 3 years, 5 years. That will be an unyielding way in which we approach this. And I think we have demonstrated to be great stewards with what we've done in terms of M&A.

So what? So we do these things. Well, if I look at what it means to us and what we've been able to get in terms of contracts, positions and I think of them in groupings of product. So if you look at where we are and just take us through some of the rate increases, that would be the first category. If I look at our position that we're at on the 787 and you start seeing it goes up to over the course of the next 16 months, the value of that platform to us is significant in terms of the content, what we have and what it means to us versus a 737NG or A320. It's the value from that standpoint.

If I then look at the next piece of work, the position on the new platforms, we've worked to get a strong position on the 350, both in terms of the platform and inside the engine, as that comes through from where it is today, ramps up into production, it's all additive to where we are today, and it is a substantial step-up.

I look from there in terms of the re-engining. We've talked about it. So if you look at the value we're getting as it moves into the next platform, 1 does not equal 1. So as it moves from a 737 or A320 to the Max and the Neo, and you just say we're going to keep the same rate, that would give us 1 would equal another 1.5. And so the multiple we get out of the content and the share we have on those platforms gives us a growth driver on its own without the rates even changing.

If I then come back to where TIMET is and I look at the share we already have, one under contract that starts moving through, as I said, into '16 and beyond, if I look at the opportunities that were out there, quotings, and would expect to see some success on those, that gives us another growth accelerator.

Moving off of Airframe and IGT. I look at the programs we're on, the share of content, the value. You look at the new programs. We can go up to 2, 2.5x the value per platform as we move into the more advanced upgrades than we have today. And then in that, you'll also get a cycle that will be a multiple to the value we have.

And then we've also talked about the interconnect. It's sitting on top of us now. We'd expect that to continue to go from up through the '17, '18 timeframe. And then the projects we're seeing in front of us right now, the oil and gas, the success rate was very high as we went through the quarter. And the value that we're looking at that would carry us over the next 2 to 3 years would be a substantial step up from where we are today.

If I take on the aerospace side, the announced rates or planned rates that our customers want to go against what we've put out there on the value per platform and I look at the values of other ones, you get out into that timeframe when we're at rate. Now I cannot give you the exact date where a customer will or will not get the rate. But at rate, with the share, with the content, with the contracts we have, you start looking at a value of roughly $2 billion to $2.5 billion a year when we get out of that timeframe.

If I move beyond that now and say, "Okay, look at our M&A," again, I think we've been a good steward in terms of deploying our cash in an effective manner. I think we've delivered tremendous value when we do that. I think we have a long track record over years of being able to deliver that.

But if I look at what we would expect to do, I have to also say that most of what we are -- have gotten to go after is not for sale. So we are constantly in some sort of negotiation on assets that take us a period of time. TIMET, we're on for 5 years. Carlton, we're at for 3 years. You can go on and on and on. I'd say the average time is somewhere between 1.5 years to 2 years that we are in negotiations, in conversations, working with a particular acquisition target to be able to acquire. So if I start looking at what we would expect to deploy now in that period of time, I would expect to deploy somewhere in that $4 billion to $6 billion range between now and fiscal year '17.

If you take that and think of both in terms of the revenue and then the acceleration of performance, again, we would expect to get from the revenue standpoint, I would expect to get somewhere between $2 billion to $2.5 billion. Now that $2 billion to $2.5 billion starts out low in terms of value from its operating income side. But again, over many transactions we've done, we've demonstrated how rapidly we can integrate and deliver above, equal or above corporate averages. So you get an acceleration from that standpoint.

If I roll all this up in how I think about this business, in the long haul, from day to day, I really drive after a blend of organic, cost takeout, M&A, acceleration in that M&A, we drive after EPS growth year-over-year around midpoint of that low-to-mid teens. That is how we think about this business.

If I look at how we've done over the last 4 years, we've averaged over 16%. So through many different aspects of the cycle, organic growth, customer destocking, materials moving, M&A, 4-year track record, that is our track record. So to center around this with the share we have, the contracts we have in place, the right platforms, the value, I think this is how we think, and I feel strongly, it is a very deliverable item over the long haul in the value that's sitting in front of us right now.

So I know we went a little longer than normal, so we'll probably let the Q&A go a little longer on the backside. But with that, we'll open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from David Strauss with UBS.

David E. Strauss - UBS Investment Bank, Research Division

So following up on all that detail you gave, how are you thinking about the balance sheet? Because if you talk about the $4 billion to $6 billion you're looking at deploying, that, for the most part, would just use your -- the free cash you're going to generate. But longer term, kind of how are you thinking about potentially optimizing the balance sheet?

Mark Donegan

Yes, I think we'll do -- I think we'll continue to see us strive to blend out. So we covered -- we certainly covered the M&A side of the equation. I feel pretty confident that those type of numbers. But I think you'll see us continue to be very opportunistic and take bigger bites over time at the share buyback program. So what I would also say is that in that same timeframe going out beyond '16 or through -- continuing up through '16 and beyond, you'll continue to see us probably expand that program. And again, we tend to do things in a very methodical, organized, structured manner. I think you'll see us continue to do -- deploy in that. So you'll probably see the balance sheet being used primarily in those 2 areas. I think you'll continue to see us expand it.

David E. Strauss - UBS Investment Bank, Research Division

Did you have any sort of target leverage level in mind going forward relative to where you are today?

Mark Donegan

I don't -- we've talked -- it's funny because if I go back to when we originally started, I would say typically, you'd probably want to be around 35%. But I'd say now, probably want to bounce around that 25% is probably a reasonable point we'd want to be at.

David E. Strauss - UBS Investment Bank, Research Division

Okay. Last one for me. Can you talk about TIMET? So the share gains that you're anticipating coming through beginning in the second half of the year, can you just give some little more detail, exactly where those are coming from, platform or -- I think you've talked about Boeing on the TMX program, but where exactly are they coming from?

Mark Donegan

Yes, I'd say that they fall into a couple of categories that are kind of sitting here now. I mean, we certainly -- one of the areas, I mean, that we've worked with Boeing on the Partnering for Success. Then an area of opportunity for us was certainly getting into that side of the equation. So I'd say that as we start moving into the back half of this year, that would be a piece of the puzzle. I will tell you that it spreads over and will continue to expand over a wide array of the Airframers. They had a -- TIMET had a fairly good position coming into it from the inside of the equation. So the opportunity, obviously, is going to continue to expand in the Airframe side. And I think that there are certain dynamics that are going on out there in the world that will also kind of help foster that expansion for us to the balance. But you kind of touched on the near-term ones that we did in terms of the Partnering for Success was kind of a big catalyst for us.

Operator

And we will take our next question from Howard Rubel from with Jefferies.

Howard A. Rubel - Jefferies LLC, Research Division

Could you talk a little bit more about this dynamic that you have with TIMET and the operating leverage that you've been -- you're getting? I saw the productivity numbers are really spectacular. But could you go a little bit more in terms of how is that helping you maybe win some business outside of your normal channels?

Mark Donegan

Yes. No, I think it's a great question, Howard. And we've seen this happen multiple times. If I look at some of the other acquisitions, whether it was Wyman-Gordon and to some degree, SPS, there was a believed cost capability. And as a result, you find yourself -- with that mindset, you find yourself selecting out certain markets. If you look now -- if you go back to, let's say, 1.5 years ago, into where TIMET thought the costs. Whereas if you look at some of those dynamics we gave you, salesmen employed productivity, scrap, yields in terms of driving more premium grade, and you put those improvements and say, "Jeez, I had a cost structure of x 2 years ago. And now, I have a cost structure that's x minus a big number." Now all of a sudden, the markets that you didn't think you could be competitive in or even traditional markets that you didn't think you were competitive in open up to you. So to be clear, if you look at the Partnering for Success, Boeing also will receive some of the value of the cost we're taking out. And as we're out there now looking across other customer bases, that cost structure goes out to -- and again, it's what we've said to you for years and years and years. The way I think about it is if I could take 1/3, give in -- give it to the customer, 1/3, give it to the shareholders and 1/3 being able to help absorb inside our employees in terms of benefits and whatever it is, and then you put the volume across it, that's kind of the way. So I think you open up a lot of markets. So as these contracts start coming up that were awarded 5, 6, 7 years ago, now, all of a sudden, you have a very attractive cost alternative and those are the contract we're seeing. So it doesn't even have to go outside the normal markets. I think the aerospace provides a substantial amount of upside as we move through given that our costs have come down to the degree they've come down.

Howard A. Rubel - Jefferies LLC, Research Division

And then just staying within Forged. I mean, it's been -- I'll use the word impatient. You've been probably impatient with getting the oil and gas back to where you want it to be. What changed, and how do you think that's also helped your base business going forward?

Mark Donegan

Yes, let me -- I'm going to add one other piece to that puzzle, Howard, if I possibly could. I'd say it falls under 2 categories. We've talked about making round product with a whole. Interconnect pipe or oil and gas downhole, it's all some sort of round thing that goes through an asset. So what we've been doing is kind of looking at the best way to balance that out. There's a couple of things that I'll say is we need -- the upgrade we're going to do will give us a good capacity uplift to being able to make round product with a hole in it. So I have demand sitting on my back right now that is linked to the customer that I need what we're going to bring the press down for this quarter that will up our output. So I have demand sitting on me right now that I need to get out, that I haven't been able to get out. If I then add to that the -- we've been working long and hard to blend what we learned on the casing market with the proprietary and patented alloys we have, getting it out to the market, we went through about 1 year, 1.5 years test phase. We're now through that, and now, we're starting to see the orders come in from that. We won nice bites last quarter. When I give some size of a nice bite, $30 million to $50 million. That's a nice bite coming in, which is a much more digestible way to bring in this load that we want to bring it in. We have a large amount, hundreds of millions of dollars in long-term projects we're now looking at that we would expect to quote and, obviously, want a piece of that as they move through over the next 2 or 3 quarters. So that's how I see it stacking up.

Operator

And we'll take our next question from Gautam Khanna with Cowen.

Gautam Khanna - Cowen and Company, LLC, Research Division

I recognized you managed the company for profit growth. You've made that point very clearly, and the margins were very strong and I just wanted to recalibrate on the sale side. Can you just talk a little bit about the sales growth in the June quarter because if you strip out $30 million to $35 million from ADI and back out the catch-ups from March, the organic sequential looked a little bit below what we were expecting for normal seasonality. And I just want to know what dynamic is that and how should we think about the rest of the year?

Mark Donegan

Yes, I agree. I mean, we had several assets where the load was sitting on literally or is in-hand on top of us. So the demand is there and I -- we faced a couple of dynamics. I'm not sitting here -- it is what it is. I get paid to manage that. But certainly, we needed the upgrades. So if I look at some of the areas that I felt I would have really liked to have the capacity I'm going to have coming out of Q2, that interconnect oil and gas, yes, I would have loved to have that asset upgrade. We had a substantial amount of product with orders on hand that are now overdue. And I'd say, the other area was in Investment Cast. We has the demand come in on us and we were just ramping up the hiring of the people. We've talked about that in the past. When we get into those large-structures world, bringing in those people presents some challenge.

So I think that those 2 areas by themselves would have put the growth certainly well beyond what will -- kind of what numbers you had talked about. As you move into that back half of the year, the fact that I get the orders on hand, I've got the overdue in some -- I've got the overdue sitting on my back now on fasteners -- excuse me, in Airframe Products, both fasteners and Airframe Products. We talked about the interconnect. We've talked about the oil and gas and the structure. So getting the product out now is kind of be the -- what we're looking at as we move through Q3 and Q4. So I agree with you. The load was on us, and it is certainly sitting on us as we move into the back half of the year.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. And so, just so I'm clear. I mean, we're still constrained -- you'll be able to have better throughput as you move later in the year. So we still might make up those shipments in the fiscal. Is that what you said?

Mark Donegan

I got -- I have to make the shipments. But let there be no mistake. I cannot have the customers in a situation where they have demand. So it's not a "if it is, I have to." This is true demand on our back right now and it needs to move through the assets. It's going to go out. So to answer your question, yes, I have to get it out.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. And just, I wanted you to expand on any sort of inventory realignments you're seeing outside of the ones you called out at Airframe. It sounds like Rolls is still destocking. Is that right? And what's your line of sight on the recovery there at TIMET? Could you -- are you already getting the orders that suggest you're going to be back to rate there? If you could just talk about the military spares where you're hoping to ship some of that material in the fourth quarter, and are you able to pull any of that forward?

Mark Donegan

That was a good job of asking a slew of questions in one snapshot. You get an A for effort for that one, I'll tell you that much. I've got to go back to think from the standpoint. The destocking coming out of Rolls, yes, I'd say we do definitely see that coming to an end. To be fair to Rolls, they've been very consistent when they said where we're going to see it come to an end. And as we move into our Q4, that's when it comes to an end.

In terms of the spares business of the military, I think we do start to see some of it coming back into Q4. We're still working to see if we can potentially get more of that pulled in, to not face kind of the dynamics we think we could potentially face as we move into next year. We're probably -- we've got -- still got some more work to do to see if we can work to get that pulled in. And then the TIMET orders, again, that's kind of that Rolls-Royce piece of the equation that we do have the orders at this point in time on hand. It shows that going away. I think I answered all your questions.

Operator

And we'll take our next question from Robert Spingarn with Crédit Suisse.

Robert Spingarn - Crédit Suisse AG, Research Division

Mark, great margins today. And the amazing thing is I think you're doing some of this with a pricing headwind from the customers. I wanted to ask you about that. How is that trending, and how should it continue to trend in the future with efforts from guys like Boeing, Partnering for Success, et cetera, and how should we think about that in terms of incrementals over the long term?

Mark Donegan

Well, I think you've -- number one, let me answer the back side of the equation. I think you pay me and this team to not stand in front of you and cry, "Oh, woe is me" when it comes to what challenges we face. I think what we have done a very good job of is matching cost downs to volumes up. So as I -- you're right. For the last 10 years, we have faced similar deflationary agreements with our customers but have been able to overcome that with cost takeout or volume gains. As you start moving into next year, in some of the dynamics we got in ordering, yes, we've been taking, to some degree, more of the cost pressures now with the volume not quite catching up to it. When you start looking at the ordering pattern we saw in this last quarter and if I look at what we see coming in the back half of this year and next year, you'll probably see a much better representation of the volume matching the cost down. So I think that right now, we have faced the bulk of the pressure that you would expect to be the disconnect and then we start moving into the volume coming over and you can start looking at what we can do with volume, we do very well with volume. So you face the hard part. We've already -- we've been facing the hard part right now.

Robert Spingarn - Crédit Suisse AG, Research Division

So incrementals will just continue to go up?

Mark Donegan

Yes, again, assuming you've got metals. It's taking out the dynamics of the metals. Metals starts running, obviously, the optics change, but assuming a static metals number, if you look at -- I'll take TIMET. If you look at the cost model that, that team has busted tail to put in place and you start saying, "We're going to start putting hundreds of thousands of pounds more over it," yes. I mean, it -- without adding capital, without adding a lot of people, you're going to get it out of yield improvements and scrap reduction, all that, yes. I mean, I don't certainly -- if I -- and again, the way we look at the business, you look -- you may look at these margins and say, "Boy, the margins are good." I've told you a hundred times and it's not just not -- it's not just sitting, telling you. It's the way we look at this business. Every business to me looks like I'm leaving opportunity on the table. So yes, I don't see anything that just starts saying, argh, we've run out of ideas or we've got undue pressure, or we got huge step-downs coming, it's all the same type of linear fashion we've been seeing all along in terms of cost takeout.

Robert Spingarn - Crédit Suisse AG, Research Division

Okay. I just had 2 other quick ones. One, you talked about the second half inflection, big orders in the first quarter. How should we think about the second quarter? Or is it just because of the outages that's kind of messy and you really don't see the benefit till the second half? And then my other question was just your -- what your content looks like on 330 Neo.

Mark Donegan

That's a wide array of questions. I've got to contemplate. The Q2 is always going to be a difficult quarter because we just have the dynamics. I mean, when you look at the Forged Products and you take the significance of the outages we're going to take, it becomes tough. We -- you're going to take significant assets out for 2 weeks on average. So that's a tough thing to overcome. And we need the upgrades to handle the volume. So I'd say you should expect to see reasonable growth out of the Airframe Products. You should expect to see some growth out of the Investment Cast side of the equation even overcoming some of the European holidays. Forge will be somewhat challenged. But when you come out, and again, we have capital going in on the aerostructure side of the equation that we actually put on order a year ago. So we anticipated the load. I could have used that equipment right now. So again, another area where I have become delinquent to my customer is in aerostructures. That capacity starts coming in, in Q3 and Q4. So I think that Q2 becomes a little difficult just with the outages and the European holidays. But with the upgrades, the capacity coming in play, the people being put in place to handle the volume growth, I would expect to see that, that -- those growth rates pick up steam as you move through the back half of this year. And then the other one was...

Robert Spingarn - Crédit Suisse AG, Research Division

330 Neo.

Mark Donegan

Yes, 330 Neo. Right now, the opportunity for 330 Neo, I think we're starting to see the value coming into that, the 737 Max type of range. So I think with what we're seeing in terms of a lot of the aerostructures, some of the package we won that I brought over in that is that type of work. So I think the 330 Neo goes into that, same as the 737 Max, which is going to be in that $1.5 million to $2 million range per our platform is where I expect to, obviously, know.

Unknown Executive

330 Neo. I think we're starting [indiscernible]

Mark Donegan

Oh, Jesus. I'm sorry. I'm sorry. I'm sorry, Rob.

Robert Spingarn - Crédit Suisse AG, Research Division

Yes, I'm thinking -- yes, Mark, you're getting that Trent 7000, right, which is a 1000 derivative?

Mark Donegan

The A330 -- I was on the A320 Neo, sorry.

Robert Spingarn - Crédit Suisse AG, Research Division

I thought, yes. It sounded like that.

Mark Donegan

The A330 Neo, I think there's a tremendous amount of opportunity for us as that rolls out. Again, the amount of work we are now starting to look at overall with Airbus trying to help them solve a lot of their cost problems, I think the A330 Neo, it's not going to be a 787 type of number, but it's going to be -- the 330 Neo will give us opportunity beyond the 330 base that we have today. It would -- I would expect it to be in a range or in a multiple comparable to what the value is today on the 7 -- on the 32737. What the shift was going to the Neo, I would expect to see the same type of multiples. So 1.25, 1.5x the base is what I would probably expect it to roll out to over a long period of time.

Operator

And we'll go next to Sam Perlstein with Wells Fargo Securities.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Can you talk a little bit about the $161 million increase in inventory? How much of that was ADI and how much of that is the excess you need to hold for the shutdowns? And how should we think about inventory kind of post the Q2 shutdowns?

Mark Donegan

Yes, I -- obviously, about -- somewhere in the $80 million to $90 million range is going to be the ADI, the balances, positioning ourselves for the shutdown. I mean, we can't stop shipping to our customers. Obviously, if we created a 2-week hole across Grafton, Houston, Worcester, it would be a major, major, major problem. So I would expect to bleed that out. We've over -- we probably have put more in the ground because we have to, to some degree, I don't want to say guess, but you have to make some assumptions when you put it on the ground, because we started putting on the ground 3 to 4 months ahead of time. But I think you've kind of seen the high point, and we'd expect to bleed it down from here. And I would expect to see it come down as we move to the balance of this year even with -- I would expect to see the dollars come down even with the rates output going up. So you'd expect to see the ratio kind of pick up an accelerated rate, too. But I'm just -- I -- we do have too much inventory in the system. We had to put in place, like I said, some of the complexes we actually bring down -- and so I said it's on average. Some of the complex, we have to bring it down for almost 4 weeks.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Okay, that's great. And then you've talked a number of times about strong order intake, request for accelerated delivery, is there any way you can give us, I don't know, dollars of orders, a daily order rate, how much they're up year-over-year? Or it's not necessarily a backlog, but can you help us quantify how much goes up?

Mark Donegan

Let me tell you -- I probably couldn't give you that. Let me -- if I look at shifting overdue, let me kind of say that -- and what happens a lot of times are if I look at the drivers that orders come in -- orders come in, discrete orders, and a lot of times, in the case of an IGT, you may see all come in overdue. The other ways we get orders would be opening up min/max. Obviously, we would count that all going into overdue immediately. Product getting pulled from the right to the left on existing orders. If I look at kind of what it is, I think we probably increased our late to PO probably $50 million to $70 million in the quarter is what our late to PO shifted. So I'd say that's kind of the value of the acceleration we saw. And then that carries -- that stacks on top as we move out into the future.

Operator

And we will take our next question from Robert Stallard with the Royal Bank of Canada.

Robert Stallard - RBC Capital Markets, LLC, Research Division

I've got a couple of quick questions on these new targets of yours. First of all...

Mark Donegan

What I gave -- what I clearly gave you is the way we've talked about the business in the past, which is position, value against what the customer bill rates are. That's under contract. That's what I gave you.

Robert Stallard - RBC Capital Markets, LLC, Research Division

You have given us some numbers, which is new.

Mark Donegan

I have given you numbers. That is a correct statement.

Robert Stallard - RBC Capital Markets, LLC, Research Division

But what I wanted to check is, first of all, the low-to-mid teens EPS CAGR, is that a number that applies to this year? Or is that looking longer term?

Mark Donegan

No, that's the way I look at this business from now until the day I go out in a box.

Robert Stallard - RBC Capital Markets, LLC, Research Division

Okay. And you've given us these 2 buckets of revenues. Should we apply that to the EPS as well, thinking that roughly half is organic and half is acquired?

Mark Donegan

Well, again, Rob, this is kind of a debate, obviously, with the sell side I've had off and on. I wish I could lay a line that says, "Well, I'm getting out organic. I'm going to get out as..." What I -- let me back up. I try to make sure that we have locked in the right platforms, the right position, the right shares, the right content. So that's kind of the basic premise. Then, as you know, we go after cost, M&A, acceleration. The way I look at a business, again, we've had some bit of -- somewhat of a -- we had acceleration of organic, if you go back 2 or 3 years ago and we got a big benefit from that. Then we went into a period of time that we were caught up and we kind of held flat or grew at a rate that wasn't the same position. We had M&A that kicked in and we had cost takeout that kicked in. So as I think in the long haul -- but first of all, again, going back to the original question, yes, I think of that center point, mid -- low-to-mid teens now, every day, from here on out, and it's going to be a blend of organic, M&A, cost takeout, share gain, volume, acceleration on that, and that's the way we think about it. Now if you look at what's occurred over the course of the last 4 years, yes, we've averaged over 16%. But we have some quarters where some of them were self-induced when we lost the 29,000-ton press. That quarter, we were below that target. We had other quarters that were as high as 26%, when we got high demand from the customer, when we got good volume going across our assets. So I think it's an all-in blended rate. But the way this team manages is looking at all the levers we have to pull, and I think thinking about it in terms of kind of that EPS year-over-year growth drives you to say, what lever do I have? How am I going to handle it? It forces you to think much longer than 90 days, which, I think, we get paid to think longer than 90 days, and then make sure that we have a position in place that keeps that going. So that's the way we think about the business. And do I feel as though we have that in place? Absolutely, absolutely.

Robert Stallard - RBC Capital Markets, LLC, Research Division

Okay. I have a quick follow-up that's a bit closer to the current situation. You mentioned that there's order-patching picking up. You've got some challenges to get it all done in the second half. Does this mean that you're maybe tracking ahead of your normal sort of sequential growth rate in the third and fourth quarter? You talked about, say, 3.5% EBIT, of course, being [indiscernible]

Mark Donegan

Well, yes, I think demand is there -- I think the demand is there to do it. Now, I got to get it out. So again, we've talked about this. When you get a load that comes in, in you that the customer says, "I would like it all right now," we don't have the ability to do that. So there has to be some semblance of a ramp to it. Again, the IGT kind of this load came in on us and we've got to now figure out how to digest it. We have other areas in the Investment Cast products side now that we've got a huge load we got to get out. I would say that the schedules would be there to do what you said. It's probably going to be a balance between what we can actually get out and what the schedules demand is probably what I would expect to see.

Robert Stallard - RBC Capital Markets, LLC, Research Division

So there might be some risk to incremental there?

Mark Donegan

I -- no, no, no. I don't think it's more of a risk. I think that we'll figure out a way to at least get that out. I think it's going to balance somewhere between they need more, so I think the baseline is, yes, I get the demand sitting on top if me for sure to get that out, and the customer wants more. Can I get more over that? That's going to be the question.

Operator

And we'll take our next question from Myles Walton with Deutsche Bank.

Myles A. Walton - Deutsche Bank AG, Research Division

Mark, I want to ask you a context question as it pertains to the competitive landscape. So you've got Firth Rixson going into Alcoa and they've got grand plans for growth. And I'm trying to square the box of their expected growth in a market that's probably mid-single-digit, but they're seemingly overconfident, confident on their 12% growth over the next several years. So do you see that as the market growth? Do you see that as market share growth, which presumably, how is that happening versus you, you being the other player? Or do you -- you don't have to comment on the reality of it, but just make a comment around their 12%.

Mark Donegan

Sure, yes. Obviously to your point, I can't answer theirs. Let me start, first of all, by -- Firth Rixson has been out there as a competitor for years. So from that standpoint, the dynamic of them doesn't really change. If I look at kind of the way I think of the market being able to have nickel capabilities across all alloys, all types, all capabilities, revert utilization back into the stream, rename [ph] or remelt it, we've talked about the vertical integration, that's a big piece of the puzzle in terms of where do you go, where do you guys solve your customers' problems, where do you go from a cost standpoint? Obviously, us as a nickel core competency, we feel pretty confident about where we are. I can tell you that the numbers I have with the share we got, that is a number. And if I look at kind of what we told you and what's out there, that's by platform, by position, by share, by what we have, by what we're working on, so I can't answer their number. I can tell you that the numbers we have in there attach to a part, a contract. That's where our numbers roll up to.

Myles A. Walton - Deutsche Bank AG, Research Division

And you don't see any share shift going on, though, is the bottom line in a negative way away from you?

Mark Donegan

That's correct, yes. That -- no, we do not.

Myles A. Walton - Deutsche Bank AG, Research Division

You can say positive, but yes. And then one clarification for Shawn. So just the cash flow, maybe the free cash flow for the quarter, $4.20, is that round about? Or operating cash flow $5.10, is that round about the number?

Shawn R. Hagel

Yes, we're just finishing it up. So I don't want to give an actual number, but that's about right.

Operator

And we'll take our next question from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Just going back to the target a little more, maybe. You've said that the 16 -- the fiscal '16 target is intact for $15.50 to $16.50, and that the framework whereby any acquisitions or buyback after giving that is incremental to it is also intact. And of course, you've done both since and it sounds like you're planning to do more. Is it then fair to say, Mark, that you think the current consensus number for that period, which is, I think, $16.05 is something you think you'll beat?

Mark Donegan

Obviously, Noah, I want to certainly be respectful of your question. I don't want to get to the situation of going back to an exact -- giving a range or a number. I -- again, I feel very, very comfortable and confident where the original model we gave, which you stated very correctly, is well intact. I -- also, you are correct that what we've done in terms of M&A, what we'll deliver out of the primary ones, Permaswage and ADI, the improvement we'll get, and anything we do in buyback would be additive to that model. So I think that should give you enough clarity to kind of move forward and it should give you the confidence of what we feel about that position.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Okay. I mean, maybe a different way to ask it without being as precise. I mean, I understand the point that you have a lot of ways to get to the bottom line number. That makes a lot of sense. But I guess given that framework is excluding acquisitions and excluding share repurchase, that does sort of leave -- I mean, there's a ton of moving pieces in each segment, but it sort of leaves total company, organic and total company incremental margin and there's...

Mark Donegan

Not really. I mean, you've got to realize -- just take one data point, TIMET. That model was TIMET included and look at the performance and the value that TIMET has put in there, and that's just one of the assets that we had acquired prior to that positioning. There's a number of other ones. We talked about some of the ones that were in prior to that. So you're -- I think you're doing -- personally, I think you're doing a disservice to the TIMET team by saying, "I'm going to kind of discount that." That is a significant, significant, significant driver in its continued upside. You haven't put the volumes across the assets yet. So I'd say that I think you're missing that piece of the puzzle. I think we are looking at organic moving in a more aggressive manner. We've been waiting for the fasteners to come through. We've been waiting for the Airframe to come through. We've kind of get those orders sitting on top of us now. We've kind of talked about the huge load we have sitting on top of us on the interconnect pipe that we've got to move through. So I do think that we've been able to stay on that continuum. I think it's important to note, too, we've been able to stay on that continuum without strong organic growth, and now we're starting to see the organic orders being placed on top of us, but I think it's still a blended-in rate. Like, again, I -- TIMET has not seen the volume go across those assets yet. They've seen our volume. So they've seen the $44 million of incremental internal sourcing we did. But they have not seen the volume that they already have contracted for, which will come through [indiscernible] against that cost structure. So I don't think you're looking at just an organic play.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Yes, no, that makes a lot of sense. I mean, I personally think the work we've -- at least the work we've done suggests TIMET can do even better than you've -- than the plan you've laid out there. So that makes a lot of sense. So it sounds like a decent but not crazy acceleration in organic, starting in the back half of this year, the normal 40% to 50% incrementals that you've got in the base business, and then a lot of value out of what you bought even pre that target, gets you there.

Mark Donegan

Correct. And you know, again, TIMET is a big player. There's no doubt about it. It's been a great acquisition for us. It's going to have a lot of long-term value creation. But I'd be doing disservice to Klune and Synchronous and the other businesses that we bought kind of prior to that, that are in there that are also performing at an accelerated rate. It's just that we don't -- the numbers that we gave you for TIMET are very representative of what we are seeing out of almost all of our other M&A. It's kind of -- you've got to realize, we force fit that dynamic. So if you look at it, we talked frequently about saying what do we expect in the first year, 3 years, 5 years? It force fits that you're going to get where is your opportunities coming from. So that is just a representative sample. SPS delivered the same type of performance out of it. So it's just a representative sample that we talked about, but there's still a lot of underlying businesses that are performing that obviously have given great value when the organic -- when we had the destocking going on with the -- with Rolls Royce and the stocking going on at TMX, and then the fasteners. It still delivered, again, that 15% year-over-year type of number. And now we're going to start seeing strong demand coming in from the customers that, okay, that will fuel it from that standpoint.

Operator

And we'll take our next question from Joe Nadol with JPMorgan.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

So I want to come back to the targets, and not to kick a dead horse but because I do think you guys just put up record margins. EPS was up 15%, and you generated strong cash flow and your stock's down $13, so -- today. And so I think there is a mismatch here between expectations and your performance, which is extremely strong, as I've just mentioned. You've missed 9 of the last 14 quarters. So I think this is -- a lot of this is about expectations versus what you put up. So when I look at the 2 frameworks you've laid out, on the one hand, low-to-mid teens EPS growth, you did $12 last year. If I grow that by low-to-mid teens, I get into the $15 to $15.50 range, all in, including the M&A, your framework is $15.50 to $16.50, plus what you've done so far, which is over $1, plus what you're going to do, which is maybe another $1, and that gets me $17, $18. So which is it? It's -- I mean -- and I'm not trying to be fresh here. It's -- I'm just trying to make sure that expectations and reality are -- we're all on the same page.

Mark Donegan

Well, again, when you say 9 out of the 12, let's be clear. I don't -- we don't give guidance. So...

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

I'm just talking expectations.

Mark Donegan

I understand. I understand what you're saying. We have said numerous times, and it's clear as I can say it today, that, that original target we gave, we are committed to that and feel confident in it, and we'll move beyond it based on the things we talked about. So I don't know how to be any clearer from that. The -- we've -- I've also said that low-to-mid teens is a good number to use over a very long period of time. It's a center point. We have averaged, over the last 4 years, over 16%. We've averaged over the last 3 years, almost 20%. So that low-to-mid teens was a much longer range center point at which to work off of.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Okay. So we're effectively saying that, that is the long-range plan through cycles, as you said, tell you -- way out into the future, but we can agree that the framework that you just reiterated multiple times gets us to a CAGR the next few years that's considerably higher than low-to-mid teens?

Mark Donegan

And I think that we have delivered. Again, if you look at the last 4 years, which kind of picked up the backside of the financial meltdown, you look at the last 3 years, yes, we are averaging well above that. And again, that has been with a lot of destocking and disconnect that is now starting to go away with the demand on our back.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Okay. All right. I just think it's really important to have expectations set properly because expectations can do a disservice to your stock. And even when you put up such great results, like you did today, when you look at it on an absolute basis, to have your stock down with such great results is a shame. Let me ask you one more just to get away from that, completely different subject. Nickel is up 50% during the quarter from where it has been most of the last year. Can you help us understand how maybe you changed your behavior with regard to nickel coming up and how we see that in your P&L or don't see it in your P&L?

Mark Donegan

Well, yes, let me -- I don't see nickel is up 50%, so I'm not sure where that number is -- it certainly went from $8.75 to $9.35, $9.50 then it bounced back down. So I think as -- if on a spot buy, I don't know where the 50% number is coming from. But you've got to realize that a large portion of our nickel buys were put in place over preceding year. So on average, it will take us at least 9 months. Let's say the price went to $10 a pound, it would take us 9 months to blend out an average at that $10 a pound. So -- and again, it would match by sell price pass-through. That's how it matches out. So I'd say that -- or to kind of answer the underlying question, did our cost or pass-through move through or change in any great rate this quarter? No, not really.

Operator

And we'll take our next question from Jason Gursky with Citi.

Jason M. Gursky - Citigroup Inc, Research Division

I am going to beat a dead horse here. I'll just ask this last leg question one additional way. You're talking about low-to-mid teens earnings per share growth over the longer term. Can you describe to us the thought process that went into that target? And what exactly the timeframe is that you're talking about? And did you, in that thinking, believe that there would be some periods where you would be above that and below that? I just -- maybe having -- putting some context around the thought process that went into this target would be helpful for everybody.

Mark Donegan

Well, let me start with a couple. Obviously, there are points that you go above and below. There are market dynamics. There are manufacturing problems that occur. There are any number of things that occur. So is it ever going to be a straight line? The answer to that question is no. If you look at the last 4 years and take '15 as a center point, 1, 2, 3, 4, 5, we've had 6 times, we've been under and we've had 10 times, we've been over that point in time. On average, it works out. So obviously, it is not every single quarter, it does not play out exactly the same way. Now if you look at how we kind of derive that number, we took what we know is out there, the market share, the bill rates, the positions, the content, the value, what we think is going to happen in M&A, our ability to take cost out, same way we basically said for 5, 6, 7 years ago, that we thought we could drop through 35% incremental margins. We've demonstrated over year over year over year that we are dropping through higher than that. But we felt confident at that point in time that was a good baseline to use and to let it go up there. So it is what we know is going to happen in the M&A market. It's what we know we're going to be able to do once we get something. It's looking at 11 years of what we get in the first 12 months, 3 years, 5 years, rate of acceleration. It's looking at the content we already have locked in. In terms of the airframe, it's looking at the share gains we already have and the content we have in the IGT. It's looking at the interconnect pipe. It's all that blended in, and the long haul lets us feel that, that is a reasonable way to look at this business. I personally believe at the end of the day that growing EPS is what I am paid and hired to do. It's not necessarily to lay a number out there and make it low and beat it. Or I believe our obligation to the shareholders is to grow that EPS in the face of any obstacle. That is what I view our obligation to the shareholders is now. That's kind of how we look at it. As we get deeper out into it, you'll find us probably beat. If the market moves more aggressively, we'll be the higher end of that. If something happens in the market that it stalls, we'll probably be to the lower end of that, and we will come after cost or M&A and whatever the case may be. It's a center point. It's what it is. It's not exact. We move around it. And again, over the last 4 years, we've moved around that and we've averaged almost 17%. So I don't know if that's answering or giving you any more clarity to the question you asked.

Jason M. Gursky - Citigroup Inc, Research Division

No, that is helpful. I appreciate it. Moving -- just one last question here. You suggested in the aerostructures business that there have been some new opportunities or new statements of work that are being put out there, perhaps by some of the OEMs and the Tier 1 suppliers. I was wondering if you could just comment a little bit more about the competitive environment there. And if you do win the business, are there some CapEx or tooling or additional costs that you'll have to incur as you bring that business in that might dampen the margin profile in the real near-term and then grow over time? What's the cadence of this new business outlook from a marketing standpoint?

Mark Donegan

Well, yes, I understand. Let me -- the best I can. The -- if I look -- to answer your question, let me start with the back side of the equation. We've already -- we already kicked off capital almost a year ago. That's going to start coming in this year, and it's about $20 million, $25 million worth of additional machine tools that we had expected the market to move in the direction it's moved. So I could use that equipment right now. So I think what you're going to find is as soon as the equipment comes in, I can load it up. I'm not going to be stuck with capital sitting around, under-utilized. So yes, we are spending capital. We have it on order. It's coming in starting in Q3, Q4 and Q1. And it will be -- as soon as we can get it plugged in and programmed, we'll be able to fully utilize the equipment. So we have already anticipated and we will probably stay ahead of that. But I think what you'll find is, is try to best match. We get the equipment when the customer needs us to have it.

I think from the competitive standpoint, now you get back to the ability of the vertical integration we have. And what I mean by that is we can make our own material so we can -- if you kind of look at some of the other solutions the customers have to deal with, they're going to go buy the raw material and then they bring it in, and then they send it out to converter, forging, casting, and then they bring it back in. Then they send the forging and casting or plate or borrow [ph] to the machining house, and the machining house machines it. Then they capture the revert and they ship the revert back. We can basically say I'll give you shape, I'll take care of all that supply chain for you. So I think that our solution gives us a competitive advantage that a lot of other people don't have.

Jason M. Gursky - Citigroup Inc, Research Division

Okay. And the margin profile, as you bring this business in, straightaway, what would be accretive, dilutive out of gate?

Mark Donegan

No, I think that what you're got to say, we would -- we don't -- we would not expect capital being utilized to be dilutive.

Operator

And this 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 today's call. As a reminder, this event has been recorded and will be available on Precision Castparts' website at www.precast.com for approximately 30 days. This concludes today's meeting.

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