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Executives

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

Mark Donegan - Chairman, Chief Executive Officer and President

Analysts

Kenneth Herbert - Wedbush Securities Inc., Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Richard Tobie Safran - Buckingham Research Group, Inc.

Noah Poponak - Goldman Sachs Group Inc., Research Division

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

Robert Stallard - RBC Capital Markets, LLC, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Carter Copeland - Barclays Capital, Research Division

Heidi R. Wood - Morgan Stanley, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

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

Cai Von Rumohr - Cowen and Company, LLC, Research Division

David E. Strauss - UBS Investment Bank, Research Division

Precision Castparts (PCP) Q3 2012 Earnings Call January 26, 2012 10:00 AM ET

Operator

Good morning, and welcome to Precision Castparts Webcast and Conference Call to discuss its third quarter earnings for fiscal 2012. 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. Following remarks by members of PCC management, the dial-in access lines will be open for questions. [Operator Instructions] I will now turn the floor over to Mr. Mark Donegan, Chairman and Chief Executive Officer of Precision Castparts.

Mark Donegan

Thank you, operator. I'm sure by now you're all very familiar with our forward-looking statement, and you need to take this into consideration when you're analyzing the following presentation.

I think Q3 on the one hand, it was a solid improvement versus last year. But if I really look at it in total, it's really one more step in a continuing upward trend. If I look at the company in total, on sales, we grew roughly 14% versus last year, going from $1.59 billion last year to roughly $1.82 billion this year. We saw operating income increased 18.6% versus last year, going from roughly $387 million last year to $459 million this year. And we saw operating margins expand from 24.3% last year to 25.3% this year. And all this generated an EPS continuing operations of $2.12 versus last year of $1.80.

If I look at the major drivers for the company, on the sales front, certainly, you'd expect we continue to see strong aerospace growth in our Castings and Forging businesses where we increased by roughly 14%. Now if I look at the key drivers in that -- those 2 segments, we saw a solid aftermarket growth of roughly 25% and we also saw external sales increase of 10%, and this is mainly from our Cannon operation.

Compared to last year, we did have an increase in both segments on the build rates, but this is kind of a carryover from the acceleration we saw in Q1 and Q2. But certainly, on a Q3 to Q3 comparison, that was in there. And we held steady on the 787 rates in each one of those segments.

We did see the beginning of our Fastener recovery, and our core businesses -- in our -- excuse me, our core Fasteners with about a 2% improvement versus last year. However, in those core Fasteners, we are still lagging on the current build rates. And on the 787, and I'll get in this a little more detail on the Fasteners, we are lagging drastically, the build rates and where the castings and forgings are.

On IGT, we saw good growth of 10% versus last year, on the flipside providing headwind. We had last year, as we were originally pulling through the Chengde product to get into markets that it hadn't been in, we were doing a buy and resell from Chengde through Houston into the marketplace and pulling that through Houston. We have been transitioning from that to going direct from Chengde, and that was a $20 million drop versus last year, Q3.

We talked about in the past, too, we also continued to redirect more of our resource towards supplying our internal operations, and we saw 35% increase in that. And basically, that's displacing some of the General Industrial. Again, we'll get into more detail on that as we go through the Forged Products. We had a benefit from our acquisitions of roughly $150 million versus last year. And then finally, on the metals versus last year, we had $51 million higher in both material and higher contractual pass-through in selling prices of our 3 primary mills.

If I look sequentially on 4 fewer manufacturing days, and I'll get into each segment what that 4 manufacturing days kind of was worth, but if I look at sequentially, we saw Aerospace up 1% versus Q2. And again, this is on the strong increases we have seen in Q1 and Q2 prior to that.

IGT sales remain flat. We did receive a benefit in the quarter of Primus, Tru-Form and PB compared to Q2. If I look at the major drivers and operating income, certainly, we continue to see solid leverage across our operations as volume came through. I think some of the key drivers for us is we have been able to hold or, in some cases, improve the revert levels, and I think that's Caledonia and the search in the ends of the world to find and revert force. In our labor-intensive operations we saw strong productivity gains. And we did see, again, a significant benefit from the increase in our own internal supply of our materials versus the outside.

All this helped to overcome headwinds from the dilution from higher metal, which put pressure on our margins by 0.7 percentage points and, certainly, the inclusion compared to last year of the lower margin acquisitions. I think, again, it was –- even though it was the third quarter of record earnings, I think it really just provides another firm foothold as we climb to higher performance levels moving forward.

If I look at the sales by segment, Aerospace went from 57% last year to 64% this year. Certainly, an element of that was our recent acquisitions. The bulk of them came in the Aerospace side. Power went from 23% last year to 19% of the total of this year. And General Industrial went from 20% to 17%.

If I look at the organic growth versus last year, Aerospace in total grew by roughly 10%. Power reduced by 5%. But again, if I exclude the buy and resell that now goes direct, Power organically grew roughly 2%. And General decreased by 5%, as we selectively choose kind of what markets we want to go after and we change out for supplying ourselves internally.

If I look at the segments, beginning with Investment Cast Products, we had 8.3% increase in sales versus last year, going from roughly $538 million last year to $582 million this year. We saw operating income grow by 13%, going from $171 million last year to $193 million this year. And we saw margins expand from 31.8% last year to 33.2% this year.

If I look at the major drivers inside Investment Cast, on sales, we saw good Aerospace growth of 10% versus last year. And again, a lot of this acceleration came in Q1 and 2Q, which carried over into our Q3 comparison. And on the 787 in Investment Cast Products were basically in line with the current build rates, where structures were in that 3 to 3.5 per month and airfoils were 2 per month. Aftermarket continued to be a strong contributor, growing by roughly 25% versus last year. And we saw, again, an increase of 10% in our external sales. And again, this is mainly coming out of Cannon.

On IGT, we had a 5% increase versus last year, mainly driven by the aftermarket. And on metals, we had $6 million of higher material pass-through. If I look sequentially, we had modest Aerospace growth versus Q2 of 2%, and IGT basically remained flat.

If I look at the 4 less manufacturing days and look at kind of the challenge at all of our operations face, in order to achieve the sales that Investment Cast achieved in the quarter, they had to come up with 7% per day increase in sales output over the 13 weeks. So again, it's a pretty steep challenge that our factories faced looking at a 7% increase basically from one quarter to the next.

If I look operationally, sort of the main focus in there continues to be the leveraging sales across our assets. Cast products delivered solid incremental margins greater than 50%. And given -- by no means are we at the end of any opportunity in that. This is a constant challenge that we face. There is numerous opportunities across all of our Cast Products that continue to drive cost savings out, so it’s not as though we are tapped out or at the end of the rope on that. We have a pipeline full of additional cost drivers, and that's kind of what we get paid to do.

As I look forward, the loads are stable from the base standpoint. We do see another modest step-up to support the rates on the 787 in our Q1 of fiscal year '13. If I look at the next step-up in the base rates, mainly the narrow-body, that should hit us somewhere in Q2 and Q3 of fiscal year '13. And the aftermarket looks like it's going to continue to remain strong. We do have a positive product mix shift in IGT during '13.

Moving off of Investment Cast Products and into Forged Products. On sales, we saw growth of roughly 8.9% increase versus last year, going from $708 million last year to $771.5 million this year. We saw operating income increased 21.7%, going from just under $142 million last year to $172.5 million this year. And we saw margins expand from 20% last year to 22.4% this year.

If I look at the major drivers, on sales, again, putting in an apples-to-apples comparison, we have $45 million of higher increased contractual material pass-through and selling price of 3 primary mills. And then also another piece of the puzzle to there, we continue to redirect a larger portion of our resources towards intercompany. And versus last year, that number grew by $60 million. So again, a large diversion of our assets to supplying ourselves.

We also a saw robust Aerospace growth of 15% in our base business. And on the 787, as with Cast, we're kind of at those current build rates at roughly 3 planes per month. On power generation, we had good IGT growth of roughly 15% versus last year. And we did have strong oil and gas growth, but this is off a lower base, but it was roughly 50% growth versus last year.

And as we talked earlier, in that comparison of Q3, we had $20 million less of Chengde buy and resell that's been moving more towards direct. We also left roughly $20 million of what I'd say finished new product, so has it gone in that oil and gas, there is a number of products that have been coming through. There is final testing we had to do to introduce the new products. It got to the lab and, basically, was going through its process, and we ran out of days and it put an overload on testing. That product is, in fact, now moving through. It's passing its inspection and is going up, but we did leave that on the dock.

And General Industrial was down roughly 10%. And again, a lot of this is us doing to being more selective in using our assets more towards our own internal needs. And in Forged Products, we also had a full quarter of Tru-Form, Rollmet and KLAD.

If I look sequentially, base Aerospace sales remain flat. Inter-company activity increased an additional $24 million versus Q2, again, supplying ourselves. And power generation, we had an additional $8 million drop in the remaining Chengde. So from Q2 to Q3, there was an additional $8 million as we finish that product off. We were up 5% versus Q2 in oil and gas. And again, we did leave that $20 million on the dock waiting test results. And we also had 10% increase in sales versus from Q2 from our acquisitions.

And as with Cast, kind of looking at that sales number with the less manufacturing days, Forged Products in total had to have a 5% increase per day in output over that 13 weeks to achieve their sales number.

Operationally, the major drivers in terms of performance, we're continuing to get good utilization of our assets. And again, I think we are seeing that benefit coming through in the operation in terms of supplying ourselves. That kind of put some size to what it is. And the IGT last year, we're providing 0 to ourselves. We're now providing roughly 26% to ourselves.

Carlton, we had a 20% increase versus last year in supplying internally versus buying outside. And in our Houston facility, we now -- we had an increase of 66% versus last year of supplying internally versus buying outside.

I think we've been able, even at these rates, to hold -- the revert levels are improving in some cases. Again, I think having Caledonia and having the tentacles out to various spots of the world to get that revert continue to be a significant contributor for us. And all of these, certainly, were a key part of going from that 20% operating margins to that 22.4%. And again, the math side of the equation with the higher metal prices put roughly 1.4 percentage points of pressure. So it was a lot of pressure on those margins, and I think Forged Products responded very well to them.

If I look forward, certainly see a lot of the same catalysts that we had in the Casting side. In Aerospace, the base remains stable until the rate increases come through as with Castings, and we do see the same modest uptick in Q1 on the 787. We do have additional Forged share gain on new parts that we won last year that had been under development and are just getting ready to come through to production. We'll begin delivering in fiscal year '13 Q2, and the value of these is roughly $15 million per year.

In power generation, we begin to ship the Saudi Aramco order at the end of Q4. It goes through Q3 fiscal year '13. And we just won another substantial order greater than Aramco, which begins in Q2 of fiscal year '13 and ships through Q4 of fiscal year '13. And we do now have an order book in our traditional interconnect. This would be that collar [ph] connect pipe that should show steady growth over the next 3 quarters. And then General Industrial, we're basically looking at remaining flat.

Moving on to Fasteners. We saw sales growth of 34% going from roughly $341 million last year to $463 million this year. We saw operating income increase 18.4%, going from $105 million last year to $124 million this year, and we saw operating margins go from 30.5% last year to 26.8% this year.

If I look at the major drivers in Fasteners, we continue to see a positive trend on our base Aerospace, with sales growing by 5% versus last year. Our order book continues to grow gradually in the base programs. Having said that, we are still lagging the base programs. And on the 787 program, it continues to still be probably the biggest disconnect we have at this point in time as they work out the excess inventory. We feel as though we're at a current rate of roughly 1/2 a plane per month in Fasteners. We also had a full quarter of Primus and nearly a full quarter of PB that closed at the beginning of Q3. And that generated roughly $100 million worth of sales.

If I look sequentially, we saw a modest base Aerospace increase in sales of roughly 3%. We saw a decline in General Industrial sales. And again, it's on a much lower base. The primary driver there is our operation in Brazil, metal act [ph], have been seeing strong growth demand from an EPA incentive that was going on down there that had driven sales in Q1 and Q2. That credit just expired. So there was a falloff in that sales that have been going on. That was the primary driver. And again, we did see additional sales versus Q2 from a full quarter of Primus and almost a full quarter of PB.

Looking at the same struggle with the 4 days less manufacturing to achieve the build rates, Fasteners had to overcome roughly 7% per day increase to achieve a quarter in the sales. Operationally, I think on that base business, we saw a solid leverage on the Aerospace growth. And EBIT dollar-wise, both Primus and PB were contributors to the dollar. But again, they're both at lower margins today than the base. And Primus, we're starting to get good traction on the integration of the synergies. We'll kind of go through in just a minute what we're looking at.

But in the Fasteners, if I look forward, we're continuing to see certainly gradual strengthening in our core Fastener, and I say gradual in our core Fastener Products base. Today, we have no immediate signs of a 787 ramp, as it continues to deplete the inventory. Our current estimates are still roughly $0.20 [ph] out there in inventory. And again, it's an estimate. It is by no means an exact number.

When it is depleted, certainly, we will see a step-up at that time to current rates, and then we'll continue to get a benefit as the rates accelerate. In Primus, again, it's moving along well. It's got a long runway for value creation, and we're looking for a roughly $20 million of synergies in the first 12 to 16 months. And I think they're well on track to that. And Primus also has a significant benefit as the 787 ramps up with roughly $1 million per plane as that goes from their current rate of 2. It's a big contributor.

So moving on to segments. And on the cash for the quarter, we ended with cash on hand of -- we had an increase of cash on hand of $142 million. We had a debt decrease of almost $36 million. And we paid roughly $140 million for the acquisitions in the quarter, giving us about $318 million of change in cash excluding acquisitions. So solid cash quarter. Again, we still have opportunity to deliver stronger cash.

So with that, Shawn will now go through the inventory pages.

Shawn R. Hagel

Thanks, Mark. Inventory as of the end of Q3 was $1.834 billion. That represented about a $50 million increase over the ending Q2 number, of which 20% of the growth related to the inventory we acquired with the acquisition of PB Fasteners. The remaining increase of inventory came in 3 primary areas. The first relates to inventory builds both in our internally supplied alloys and the manufactured products associated with the Saudi Aramco order. That build amounted to approximately $20 million in the quarter and now represents about $37 million of total value in inventory.

The second item relates to approximately $15 million of inventory that got backed up behind the new product testing that Mark talked about previously in our Houston facility. And finally, we had $10 million of additional inventory built at our Grafton facility in anticipation of a major maintenance project that we plan on doing this summer when we take down our 50,000-ton press. That $10 million is added to additional inventory that's already been built in preparation of that, bringing the total value to $35 million that's sitting in inventory at the end of Q3.

Mark Donegan

I want to talk about that press just for a minute. If I look at this press, this -- a lot of this goes back to even when I was running Wyman-Gordon of what we needed to. So we are looking at the -- a press repair on our 50,000-ton press that will be down for approximately 72 days. This will occur in Q2. There are significant repairs we're going to do. Just a couple of the items: We're going to replace 2 main cylinders; we have 7 main rams we're going to redo; we have to rework the lower plant [ph]; and it goes on and on and on.

We've been ordering these long lead times parts since 2008. To date, we've spent roughly $6.5 million in capital. We've already got the balance in. We have another $6 million coming in. It's a press repair that we've been preparing for. We have to have the inventory on the ground to be able to support our customers during that period of time. And again, this is just -- this the cost of doing business with these large presses. Sorry, Shawn.

Shawn R. Hagel

That's okay. Really, the only thing we have left is just the net difference on that $15 million, had some reductions that we are experiencing throughout our operations as we try to drive additional volume without increasing our base inventory levels. So that summarizes the major changes in inventories. So I'll turn it back to you, Mark.

Mark Donegan

Okay. So if I look in summary, for Q3 fiscal year '12, in Investment Cast Products, I think we have healthy Aerospace environment. Certainly, production schedules are at current rates. 787 are at current rates in that 2.5 to 3 per month. And we saw robust aftermarket growth. IGT also saw good growth driven by that strong aftermarket.

In Forged, as with castings, were supported by a solid Aerospace base. And then, again, the 787 and Forged is at that rate of roughly 3 per month. On power, we're beginning -- we're at the beginning of the growth of oil and gas. I think Q3 was kind of an inflection point in terms of that oil and gas and the runway we had to go, and we also did see good IGT growth.

We talked about, we said the decrease in the buy and resell of Chengde product as they transition to direct. And we had a significant step-up in our internal supply. And I think we have been and will continue to be selective on what we do in General Industrial.

In Fasteners, the base continues to see a gradual recovery off the low point. We still have a significant lag in the 787 at both -- at the current build rates from Cast and Forgings. And versus last year, we had a stable Industrial sales. We had good contribution from Primus and PB, but we got a long way to go.

Looking forward, on Aerospace and Investment Cast and Forged Products, we see the next modest step-up coming in the 787, again, in Q1 of '13, and the next base rate increase will come through in Q2 and Q3 of fiscal '13. I think we do continue to have aftermarket upside.

Fasteners continue to see recovery over the next 3 quarters. Again, it's a slope, not a step function. In the 787, at this point in time, we have no current line of sight to the increase in order, but it feels like it's going to be at Q2 '13. Again, this is dependent on the burn rate of the remaining inventory out there.

Primus, I think there's opportunities in all front. We're currently cutting tools to begin supplying, internal supply, of Castings and Forgings, and we're well in place to achieve and identify 20 million target in the first 12 to 18 months.

And in PB, again, they're -- they've been facing that same fastener de-stocking, but PB has a very solid position on that 787. So as that goes away, then PB certainly has a good upside to it as we move forward.

In Power and Investment Cast and Forged, IGT coming into a favorable mix coming into calendar year '12. I think we still have potential upside in the aftermarket, but it's less predictable than certainly the Aerospace side, but it seems like and it feels like we should have some upside to that.

Forged. I think we have solid Aerospace upside in oil and gas. As we said, besides the other volume, we have 2 major programs now getting ready to come through. Saudi Aramco starts at the end of Q4 and goes through Q3 of fiscal year '13. And again, a much larger order we just won we'll begin delivery in Q2 fiscal year '13 and carries through Q4 of fiscal year '13. And we have received the first co-extrusion order utilizing KLADs. So it's a big position for KLAD in terms of getting that particular process out in the marketplace. That begins in Q2 of fiscal year '13.

And again, on our traditional interconnect, I think we have an order book in the near –- I don’t know, kind of give us low-double-digit growth moving forward.

And in General Industrial, I think we'll continue to be selective and make sure that we're looking at the trade-off of the General Industrial and utilization of the assets for our own internal need.

So I think at this point, it comes down to timing. We have the contracts in place. We have the bulk of the capacity in place. And we are keenly focused as an operation, plant-by-plant, person-by-person, on delivering that strong drop to an incremental as the sales come through.

If you look at some of the drivers that are there, certainly, we have the 787 alignment in Fasteners. Again, Fasteners is about 40% of that overall 787 demand, so the realignment of that is substantial. Then to that across the entire segments, we have the overall rate increase in 787. We have strong oil and gas projects that are out there in the future. And certainly, from Primus and PB and the other acquisitions, we're just in the beginning of that integration.

So I think from the standpoint we're looking at a slope, not a step function. I'd love to create a step function, but I can take the orders that my customer give me and drive them to the shop and put them out. When the demand comes in, we'll get it out.

So with that, I guess we'll turn it over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Robert Stallard with the Royal Bank of Canada.

Robert Stallard - RBC Capital Markets, LLC, Research Division

I wonder if we could start on the revenue front, Mark. There's some moving parts here, but it strikes me that in fourth quarter, although you have more working days, sequentially, the Aerospace OEM area is going to be relatively flat. You could see some growth in power and in the Aerospace aftermarket. I was wondering if there's anything else we should be aware of as we look at that sequential performance? And then...

Mark Donegan

Rob, we did -- if we have more days, we did have Aerospace product still under demand in Cast and Forged. It's not a massive number, but it is -- we didn't -- we did have overdue that kind of grew in that Q3. So I think that there is some additional demand that could be there. I think you're right on the balance of it, but I think that there is -- in the Aerospace side, there's more there. And then on the power side, I certainly think we left the $20 million on the dock without a doubt, and then we do have -- in the traditional interconnect pipe, we do have increasing demand as we move forward. So those would be the things that will be out of the more shipping days type of thing.

Robert Stallard - RBC Capital Markets, LLC, Research Division

The other thing that -- I don't know if it is a moving part -- is this internal supply of nickel, because you talked about it for a long time, but it seems to be quite a significant impact this quarter. Is this a one-off affair? Or can we expect this to be a consistent gross number going forward or...

Mark Donegan

If you kind of go back to what we've said early on, let me just take one acquisition. When we bought Carlton, certainly, one of the synergies we said would come into play was the ability at the time we are supplying, I don't want to say nothing, but it was a very small amount. It was SMC supplying into Carlton. So the desire has been and always will be to supply ourselves. I think it will be a good utilization. If you look at Forged Products, no doubt about it that an element of their performance operationally was supplying internally. It gives us, not only a cost play, but it also gives us speed. So if you look at what we can turn our own assets into doing to capturing shorter lead time, we'll do it. So if you look at that compared to a General Industrial, we're really talking melting capacity, is what we're talking about. If you look at melting a pound of internal 718, through the operation and getting it into our assets versus a pound of something's going to go into heating coil, we'll do it all day long. So I think it is a trend that will continue. We would like to see more going into Carlton. Obviously, a lot of this oil and gas product begins in SMC. So if you look at that new large order we just won, all that will start in SMC and work its way through Houston and then through Rollmet. So I just think that as the world is moving more towards nickel, you'll see us continue to do this. And again, I think the measuring stick is can we continue to get that operating income line up? If we can, it's the right decision. If not, I think the assets could be diverted better to the outside.

Robert Stallard - RBC Capital Markets, LLC, Research Division

Maybe just to finish this off. If you look at your internal source of nickel today, what do you see -- how -- where is it, and where could you take it to over the next couple of years maybe?

Mark Donegan

Well, a lot's going to depend on the growth. I think that we have to ensure. I'm not really interested in going and creating a whole new melt shop in terms of starting from scratch. But I think what the balance becomes is, if you look over the next couple of years, I think as a percentage, we'll probably decelerate to some degree because the volume is going to be going up so much we're going to need the outside assets. And I think if volume were to roll, we'll probably accelerate. So I think right now, I'll tell you that in terms of dollars, it will go up. In terms of percent, it probably won't be making the significant jumps it’s been making. Because, again, the volume over the next 24 months is going up that we'll need a lot of melting capacity, ours and whatever else is out there on the outside.

Operator

We'll go next to Sam Pearlstein with Wells Fargo.

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

I just wanted to go back over the, I guess, the whole inventory question and then that 50,000-ton maintenance. Is that outside the normal Q2 shutdown? And I'm trying to think about how that affects forgings for quarterly progression. And then related is, it sounds like we're not going to end this fiscal year with relatively flattish inventory because that's going to have the continue I guess into at least September when the plant –- when the press is back up.

Mark Donegan

Yes. Let me -- I'll try the best I can, and if still I haven't answered all your questions, fire back. But, no, the 50,000-ton press repair we're going to do is not normal. Normal, we'd be put -- bring that press down for 2 weeks. So you're looking at a significant overhaul. And again, it's something we've been planning for now -- it will be 4 years from the time we started. Some of the lead time items were 2 years long. So it is not normal. And you are right that we basically have to hold that inventory until that time that we start to do the repair because, again, we’ll have to ship landing gear and all the other product out of that particular thing. In terms of the overall flat, certainly, with the acquisitions it won’t be flat. But to taken those out, I still think that we have opportunity to improve as we come into Q4 on the non-shutdown and the non-acquisitions. I'm still not satisfied that we've extracted the inventory levels that we should. And I think we do have an opportunity in Q4 to pull some of that out. I hope that answered all your questions on that.

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

That does. And then I just want a clarification because you were talking about the redirection of supplies to intercompany. From an external standpoint, where we're looking at it, it would seem like it actually shouldn't be a negative but ultimately should be viewed positive -- should end up as a positive from a reported standpoint. If SMC sells to Houston to Rollmet, it may affect SMC's internal results, but don't you get a higher value dollar at the end of it?

Mark Donegan

Absolutely. And again, I think the measuring stick for that is if you look at Forged Products, if we're -- certainly it would beg to ask questions. If you kind of look at where Q3 last year was, on an adjusted base with metal, would have put those margins at roughly 18.7% or something like that. If you look and saw those not accelerating or going down, you could say, "Man, I really got to question the fact that you're getting a benefit." But you are right. That all purges itself out, and it says overall, are we getting good utilization of assets going from that adjusted 18.7% to 22.5% says at this point in time, we are making the right decision. So, yes, you are correct.

Operator

We'll take our next question from Heidi Wood with Morgan Stanley.

Heidi R. Wood - Morgan Stanley, Research Division

Can you give us some color on how you see the incremental margins trending in Fasteners? When we do you see that trending back in the 30s? And can you describe has the erosion has been all Primus or is it -- some of that the 787?

Mark Donegan

No. From last year Q3, the erosion is basically the inclusion of Primus and PB. Again, PB just came in the quarter. PB performs okay, but they do not yet perform at the level that, that base Fastener business performs at. So I think what you are looking at is that number is pretty much PB and Primus. I think the base business has positive momentum going forward from here because we're going to see some of that load gradually come back. I think Primus starts to move forward because we're kind of getting that integration. PB, let's say, they're probably going to go through one quarter of a stall at where they currently are. It usually takes 2 or 3 months for us to kind of get that in and start driving that through. So I think PB will probably start moving more in Q1. But again, if PB gets that 787 volume coming through, they'll see a pop from that too.

Heidi R. Wood - Morgan Stanley, Research Division

So again, getting back to a final point on when you see that trending back in the 30s. I mean is that about a year from now? Or is it -- it could be sooner?

Mark Donegan

I think certainly heading towards that 30 within the next 4-ish quarters is probably a reasonable target.

Operator

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

Noah Poponak - Goldman Sachs Group Inc., Research Division

Mark, I wanted to ask you the capital deployment question since you moved back into a net cash position this quarter even though you've done some reasonably sizable things recently. So maybe if you could just talk about what you're seeing out there and what's likely to be next if it's adding to the platform you've established with Primus or if it's more somewhere else in the business.

Mark Donegan

Yes, I think that we are very active. If we are not -- if we're still sitting looking at cash levels over the next 6 months, I'll be disappointed. I think the areas that we continue to focus on are that Aerostructures, Primus-related product and the power would probably be the 2 areas that we want to continue to expand on. Both have additional tentacles we can go get in those world. Certainly, one of the goals we wanted in that old Primus was –- felt as though it was ripe for a kind of a Fastener consolidation. And then in power, the broader we can make ourselves in supplying that product in there, the more subs we have, the better supply we could be. Kind of what we've done to Aerospace, we started out as Castings and Forgings and Fasteners. I mean -- so those will be the areas that we are actively pursuing right now.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Okay. And just in terms of the Primus integration to Heidi's question. I thought you guys had said last quarter you thought fiscal 2Q would be the low point for the Fastener margin, and it's down 60 basis points sequentially. Is there any integration issue to point to?

Mark Donegan

No, there's not -- in fact, they actually got better quarter-over-quarter. That was me when I spoke last quarter. I was not taking into account that we did not have a full quarter of Primus. So we added a basically another 6 weeks to this quarter of Primus, and we also added PB in the quarter.

Noah Poponak - Goldman Sachs Group Inc., Research Division

So it's just a math of a full quarter versus a 2 because...

Mark Donegan

Yes, and I need to do a better job of articulating that there was another full -- I do feel at this point in time that without any more acquisitions in that world, I think we have a quarter-over-quarter-over-quarter improvement kind of facing us.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Got it. Would you quantify where Primus is right now?

Mark Donegan

I mean, Primus, I'd say that –- I want to answer this the best I can.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Just a number would probably be normally...

Mark Donegan

No, I'm not giving you the number, you know that. But I think that they are -- I think we can -- we have an opportunity to take Primus. They're not -- they're below the company average, and they're -- they're below the company average. They're below Forged. I think they should be able to move above Forged. And they should be able to move above the company. That's type of progression I would like to see them do over the course of the next 4 quarters. And again, a lot -- they have a lot of headroom with -- when that product mix comes through, and the 787 drops through. But I think that that's kind of a good guideline for you.

Operator

We'll go next to Steve Levenson with Stifel Nicolaus.

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

Could you talk a little bit about something you alluded to before, near-net-shapes, the availability of revert, and maybe you can add something about the role of powder metals going forward.

Mark Donegan

That's a wide array of questions. Revert availability, it's -- it kind of comes and goes. I think there are still additional opportunities we're not getting right now. And as we look at a lot of our interface with our customers and we look at some of the contracts we certainly try to put that in. But I'd say from a revert standpoint, if I can get all the revert that's out there that I know about today, I could probably increase the overall revert blend by 10%. So it's not a small number, it's a big number. The fact that -- typically, if I kind of go back to the previous cycles, if we're kind of in this accelerating mode, by now, our revert levels would be dropping. So the fact we've been able to continue to acquire new streams. But again, I think we're under by 10% or 15% of additional revert. If I get everything I know about today, that probably would be the value. If I look at powder moving forward, if I look at the current platforms that we're on, the 787 certainly there is a much richer blend of powder on that platform than there is the replacement, be the 767, the 757. Certainly, as you look at rolling out the next narrow-bodies, there would continue to be a large amount of powder. So we put in a press in 2008. So we doubled our capacity for this. And if I look out the next couple of years, that press will be fully, fully utilized in terms of capacity. There's one -- there's another -- there was 3...

Shawn R. Hagel

Near-net-shape.

Mark Donegan

Near-net-shape. I think we still have opportunities in near-net-shape, and a lot comes into the recent acquisitions. If you kind of go back to the base of the Houston turbine disk, I think we've done a good job of getting that. But if you go into Carlton, Tru-Form, I think we still have a lot of room in near-net-shape. Probably 10% more room in near-net-shape.

Operator

Our next question will come from Richard Safran with Buckingham Research Group.

Richard Tobie Safran - Buckingham Research Group, Inc.

Mark, I just want to talk briefly about SPS Aerostructures and some comment that you've been making. You have several derivative programs on development, new programs as well, all of which have meaningful ongoing weight improvement programs. Airbus has had a pretty aggressive weight improvement program on the 350. The manufacture ability of titanium has been improving and is becoming increasingly attractive to help solve weight issues. Is there an opportunity and a source of growth here by using more titanium parts in Aerostructures? And also, does Primus help you in any way get more in-roads for that with Airbus? In is that something that you see could be a near-term growth driver?

Mark Donegan

Yes, I mean if I look at the -- again, let me just take the current 787 platform versus the replacement 76, 75. There is, for our Fastener business, a substantial amount of titanium product versus the previous planes. So yes, as these new platforms are rolled out, titanium is becoming a bigger player. And a lot of it is that as the composite side comes into play the -- and you need a stress coefficient person, but the titanium has a much better match to carbon fiber in terms of holding the pieces together. So that by itself has been a big player. We also certainly see in some cases where there are structural components. This kind goes back towards your Primus. We do see additional titanium on some of the structural components that typically may have been aluminum where you're looking to take a load of carbon fiber, carbon fiber. You still need some sort of structural substance there. And there could be some additional titanium. So I think if you look over 787, your premise is definitely true. And I would expect as the next narrow-body redesign came out, yes, you'd expect to see more and more titanium.

Richard Tobie Safran - Buckingham Research Group, Inc.

And you think you'd see that in any of the derivatives as well that they'll be working on now?

Mark Donegan

I'm probably a little less familiar from that. If you kind of look at the derivatives, a lot more is coming in the engine, so maybe in the pylon. But there's not a tremendous amount of redesign coming where we'd see a whole new wing infrastructure. And I think the answer will be yes to some degree, but certainly a brand-new platform would have more than just a redesign.

Operator

We'll go next to Robert Spingarn with Credit Suisse.

Robert Spingarn - Crédit Suisse AG, Research Division

High-level question, Mark. You are always great at giving us a ton of detail, and you know every inch of the place. But can you simplify it down to when do you see -- this moment of clarity, when do we see the real organic sequential revenue growth, which quarter should we be looking for that in?

Mark Donegan

Well, this is certainly an informal debate between your side and me. I think it -- I keep going back to the slope. It's tough for us as a large manufacturing operation to make a step-up. And what I mean by that is if our customers came in and said in Q3, we want you to come in, we want you to go up 10% versus Q2. We’d go back and say, "We can't do that." We need to blend it out. We need to do some of it in Q1, some of it in Q2, and then we'll do more in Q3. So it is more of a slope as we move through. Now, I think there are specific events that can occur. I think if all of a sudden, somebody, we get a call one day that says, "Oh, crap, we need more 787 fasteners," yes, I think we can make a step-up in that because in some case, we probably have a lot of those fasteners already manufactured to some degree. So we can make a step-up there. Certainly, in some short interconnect pipe, we can make a step-up. But if you look at the large forgings, the large castings from the time we start melting metal until we pull them through, they go through the final -- we couldn't take a step up. So again, I think what you are seeing is a constant acceleration is what I would say more than a specific step-up. So to me, it feels like a long runway of constant acceleration.

Robert Spingarn - Crédit Suisse AG, Research Division

But at the same time, certain things have been slipping to the right. You've talked a lot about those.

Mark Donegan

Yes.

Robert Spingarn - Crédit Suisse AG, Research Division

So is it just that there's a disconnect to some extent between what prime manufacturers, whether they're Aerospace or power, are telling us and what's in the inventory channel? Or might there be a competitive pressure? Is somebody else taking some of this business somewhere?

Mark Donegan

No. We -- and again, most of our major projects are under contract. So we know what's out there. We monitor it. Some -- it's very easy for us. In some certainly structural castings, we can go one-to-one. So it's very for us to see and it's not uncommon that we may go back to somebody and say, "Hey wait a minute, where you’re either under ordering and why." And we can go back and true it up. But I think for the most part, it is that inventory that kind of moves back and forth. And if I just take the 787, I bet you over the course of the last 5 quarters, we have had multiple pull-in and push-outs on that program. So if, let's say, I go back to last fiscal year Q1, I would've told you, "Oh, yes, I get acceleration." It's in my schedules. As it came, it started to slip to the right, then it got pulled to the left. Now it's gone back out to the right. What that does is it kind of yields more of that slope. It never moves one way or the other to a point that either it falls off or goes up. It just perpetuates that slope to some degree.

Robert Spingarn - Crédit Suisse AG, Research Division

And just to finish up. You've talked in the past about your 3 primary Aerospace growth drivers at least on the OE side, being 73, 78 and Joint Strike Fighter, with the specter of a fairly sizable Joint F-35 deferral coming here probably later today, could be something like 170-odd aircraft moving out of the 5-year plan to the right. How does that impact you in terms of capacity and your game plan?

Mark Donegan

You know what, I don't think we ever -- our capacity plan never sat and expected that the F-35 to do what the original was. So we had always had a significant reduction in terms of our capital deployment. It's substantial. I mean if I sit down and I kind of look over the last couple of years, certainly, where the economy was and kind of where our debt was going, doesn't take someone with a Ph.D. in economics to know something is going to have to give and certainly the F-35 has been a constant point that's out there in the battle. So I will tell you that if it went to 0, I'd say, yes, we had capacity plan for it. I think the current announced changes are well within the range of what we capacitize for. And again, the commercial side of it, if I look out given even what you said in the JSF, I'm still going to have to make additional investments in airfoils and DS and single crystal furnaces. I just kicked off more furnaces last quarter to handle that growth at the minimal JSF rates.

Robert Spingarn - Crédit Suisse AG, Research Division

Meaning a flatline JSF for the next 5 years?

Mark Donegan

Yes.

Operator

We'll go next to David Strauss with UBS.

David E. Strauss - UBS Investment Bank, Research Division

Just a follow-up on that line of questioning you responded. You said you're not really set up to accommodate a step-up in things, rather it's kind of a smooth steady slope. But isn't the 787 schedule at this point with Boeing looking to move to 10 a month from 2 to 3 right now over the course of the next 12 to 18 months effectively step up as we go along here?

Mark Donegan

Yes, it's a step-up, but you'll see us blend in. So we will -- as those schedules -- what will happen is to your point, the customer will come in and say, "Okay, I want a 12% step-up Q2 to Q3." At that point in time when those schedules hit, we'll say, "We can't do it." And we'll start work with them to blend that out. And to most situations, our customers understand this and they work with us. And it’s not as though we have to keep the inventory on our shelf, on our dock and then ship it. They will work with us to blend that out. Because it's to their advantage too. They certainly want us to be efficient. They don't -- if they walk in and say, they need everything in one month, we'll say, "We'll be happy to do it, but now we are going to work overtime. There's a premium to be paid in that." So those conversations tend to lead, "okay, how can I blend it in?" Though most of the time, there is an agreement of what we can do. Now what that does do in some cases, it puts our delinquencies up and down. So it's not uncommon that our delinquencies will go up and then they’ll bleed off over the next couple of quarters. So the customers will say, "Yes, I want to keep those schedules, but here's the rate I need you to minimally do." But in most part, it will be a blended out rate.

David E. Strauss - UBS Investment Bank, Research Division

Okay. On Fasteners, trying at this again, it looks like the business x the Aerospace side, x PB, x Primus is running $900 million, 950 million a year. The peak, it was 20% higher. When you were at that peak, how many -- what was your rate on 787 when you were at that peak number?

Mark Donegan

We were probably at a rate of about 5 a month. Now they weren't building that much, but obviously, when they were going through the wing box redesign, we had to provide a number of solutions. So -- but I'd say kind of at that rate, we were probably about 5 a month. And to your point, right now, that's the big disconnect for us. And I think your number is probably pretty accurate in terms of what's the delta from peak to trough, and that's about the number sets we are running.

David E. Strauss - UBS Investment Bank, Research Division

Okay. That's helpful. Last one for me on the Boeing agreement on the Fastener side of things. I think you're now into that. You've talked about a 6-month transition period. How do you see that playing out? Do you dip before you go up in terms of your Fastener sales? Or where do you -- how do you think that goes?

Mark Donegan

No. And I'd say that we're just at the beginning of it, David. We're -- there's a lot of conversation really going through piece by piece by piece how we're going to transition, so we do not dip. And again, I think that's part of the driving force to that ongoing gradual is kind of transitioning into that. But we're at the very, very early stages of that transition right now.

Operator

We'll go next to Peter Arment with Sterne Agee.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Switching over maybe just to talk about oil and gas, certainly positive to see the Saudi Aramco beginning to ship and you mentioned this new order. How -- I guess, can you give us kind of a little more color, like how Curtis and the team are doing qualifying the product and what those customer discussions are like?

Mark Donegan

Yes. I think that, that's -- any time you bring in a brand-new product to the shop, I wish I could tell you that everything went exactly and we didn't have one particular problem. I mean I'd say that the product moving through the shop is probably moving through as good as we'd expect a new product to move through. Again, I think that we probably would have liked to deliver the product 3 to 4 weeks before we did. And the fact that we had about a 3- to 4-week lag through the system put it all to the dock at the very end. Now again, on the flip side is, the good news is it's testing and it's moving out. So I'd say that on that initial stages, we probably had about 3- to 4-week problem in terms of various steps in moving it through in heat-treat cycles and those type of things. But as -- the good news is we build on kind of what we're learning on now. So as we move Aramco through, the next major project kind of moves through and we've already got it worked out. Customers to their credit have been very supportive and are working with us very well. So I'd say as we've needed their help and their clarity and, in some cases, their direction, they've been extremely good at giving us support.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

So on the, I guess -- but on the I guess the request for quotes or the outlook there in terms of -- what is the opportunity set that you're seeing, is things moving forward there?

Mark Donegan

Yes. I mean in this particular order, we're probably going to come out an announcement, but it is substantially over the Aramco order.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

And what's with kind of the ones you have been talking about previously in terms of who the cost [ph] of the integrated guys are who were qualified?

Mark Donegan

Yes. It's -- again, it's right in that kind of that spot in. And at this point in time, I'd say that what Curtis and team are doing is they are -- there are -- there's orders out there. I think he's doing a very good job of making sure that he's digesting the orders at the rate that he can digest them. Would we do not -- could we go out and win more? Yes, we could go out and win more. But at the same time, I think Curtis wants to make sure that the best we can we are taking a rate at which we can digest as we're going through this particular product. But there is a lot of business out there that he is aware of that he's doing a good job of controlling. But again, I think this next order -- and the good thing about these orders is that the volume, just put a perspective where the Aramco order is 50,000 feet and the new one is 200,000 feet -- 250,000 feet. So they really get a good strong utilization of your assets kind of what they'll do.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Yes. So I guess just to follow up to that, too. Going forward, as you get continued market acceptance, you'll start to build the backlog for this business. Is that what you expect?

Mark Donegan

Absolutely. Absolutely. If you look at the -- if I look at the backlog now, the fact you couldn't -- it would be thousands of tons with the backlog increase over the course of the year, especially with new orders coming in. And you know what, that's an interesting point. Why don't you let me get some thought to that, and maybe we want to talk about the backlog as a future data point. I think it's a good suggestion.

Operator

We'll go next to Kenneth Herbert with Wedbush.

Kenneth Herbert - Wedbush Securities Inc., Research Division

Just wanted to ask a question on Chengde. I know -- it seems like the business over there is coming -- facing some headwinds just with what's happened in the markets over there and the coal markets. And I know obviously it will certainly help with the ramp in oil and gas and other markets from a capacity standpoint. But can you give an update on that business in what you are seeing? And has your -- have your expectations changed at all recently relative to where they were maybe a few quarters ago on that business?

Mark Donegan

Well, let me start with the back half of the year. I mean if I go back to when we bought Chengde, my expectations –- have they met my expectations? No. I'll tell you that point blank. Because at the time, we were buying it for capacity in the market. So a lot of what I think Chengde has faced is just that tremendous headwinds in terms of China falling off. So right away, the answer is no. Having said that, there is a portion of the market, mainly India, that without Chengde we wouldn't have any product offering at all. I mean India is accepting a lot of Chinese product different from what the rest of the world will and won't accept. So to their credit, Chengde has been a big player in India. And without them, we, PCC, would have no presence in there. The long haul is as we begin to grow more and more, we would -- again, we'll face the situation of having to put a new press complex in, but Chengde fills that bill. So I think in the long haul, the reason why we wanted to be with Chengde is still valid, but did we expect to see that Chinese market implode the way it did at the time we bought it? No, we didn't.

Kenneth Herbert - Wedbush Securities Inc., Research Division

Okay. That's helpful. Do you see any issues with getting the facility there or the operations certified or in a position to be able to support other parts of the world as the capacity takes off or...

Mark Donegan

No. You know what, to their credit, again, there are certain product that they've done well. Again, a lot of that buy and resell was product that we were originally certifying that they've now been able to certify. There is some product offering that they are not yet prepared to do, and that's okay. That would be product that comes out of Houston, but they've made a lot of headway. I mean certainly from the India standpoint and that product we're buying, we're selling, there's some in the U.S., there's some in Korea. I mean they're certainly progressing down the road in terms of certification acceptance on the lower end of the product offering. And that's good.

Operator

We'll go next to Myles Walton with Deutsche Bank.

Myles A. Walton - Deutsche Bank AG, Research Division

Can I follow-up on the top line, and I apologize for not knowing the answer. But last year third quarter, what's the comparable number of working days on a year-on-year basis as opposed to sequential?

Mark Donegan

We had a full complement of working days because we had an extra week in Q3 of last year. So we still had -- we had 65 full days because of an extra week. So there was a 4-day disconnect between this Q3 and last Q3.

Myles A. Walton - Deutsche Bank AG, Research Division

Okay. And if you add back the $40 million or so in what was left on the dock in the Chengde sales last year, is that kind of a high-single-digit organic growth rates?

Mark Donegan

It was about 8% in power.

Myles A. Walton - Deutsche Bank AG, Research Division

Was that about in line with your expectations in the quarter?

Mark Donegan

Yes, it was actually. I think that there was certainly some belief that the Saudi Aramco would start shipping not from us earlier. The Saudi Aramco has been moving to the system. But, yes, I mean I think from that standpoint, that 8% was reasonable. Probably 10% is what I would like to have seen. I think we accelerated from there but...

Myles A. Walton - Deutsche Bank AG, Research Division

Okay. And then the -- if I can squeeze one more. The incremental margins at Forged just kind of if you correct for some of the dilution of material pass-through, you've got to imagine these aren't really sustainable. What do you think the clean incremental margins were and kind of what was the driver year-on-year? Because it didn't look like it was mix, and some of the material -- some of the insourcing I'm sure helped, but is there anything else?

Mark Donegan

Well, I think the insourcing was a big piece of the puzzle. We were able to increase our revert blends. The yields in the melt shop improved pretty substantially versus a year ago. All the melt shops got good improvement. And then, again, one of the big things you get is when you're moving the internal, more internal. So if we were out buying from an ATI or a Carpenter, the fact that we're putting that volume on our assets, you get great fixed utilization.

Myles A. Walton - Deutsche Bank AG, Research Division

Last year, the margin sequentially dropped in the 4Q, but the prior couple years they didn't. Any reason to think that you can't hold these?

Mark Donegan

No.

Operator

We'll go next to Howard Rubel with Jefferies.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Mark, just tongue-in-cheek, you got an extra day this year because of the leap year.

Mark Donegan

I'll take it, Howard. I'll take every day I could possibly get.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

That gives you 2%. You better make sure.

Mark Donegan

I'll take every day I can get. I have a good news for you. I could have used every hour when it got to the end of last quarter. Let there be no mistake.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

No, I understand that. The product that was left on the dock, is there any risk the customer doesn't take that?

Mark Donegan

No. It's already -- the bulk of it is already shipped out.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Okay. It's just -- was it just they wanted to run some extra.

Mark Donegan

What happened, Howard, is as we went through, it got to testing late, and then when it got to testing late, it fought for capacity with the normal turbine product that was going through, the normal pipe product that was going through. And it just required extra testing, and it just got backed up to testing. So we actually outsourced a lot of testing, trying to move it through. We just kind of clogged it up. So it's just a matter of getting the testing results. And the problem with a lot of the Forged Products is testing is time-related. So you have to put a load on it, and it doesn't pass tests until it fatigues and fails. So you just have to go through that testing and the lab just got backed up.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

I got it. And the last, you talked about interconnect improving. Can you put some metrics around that?

Mark Donegan

Yes. Again, I think that certainly if I look at the backlog we have right now going into queue, this is on the interconnect-coal only. I think that low-double digits is a good number.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

So we're talking like $20 million or $30 million incremental on a sequential basis?

Mark Donegan

Probably closer to $20 million.

Operator

We'll go next to Jason Gursky with Citi.

Jason M. Gursky - Citigroup Inc, Research Division

Just a quick question on the industrial. Mark, you suggested that the environment there is stable. Is that from your perspective on what you expect to do in industrial? Or is that your view on the market?

Mark Donegan

No. That would be strictly from mine. And again, we have been much more selective over the last 3 or 4 quarters. So I can't really answer for markets during the downturn that we were in because those markets that we -- that didn't necessarily want to be in for the long haul and they’re markets that we've chosen to move out of as we’ve moved more of our capacity to internal. So these will only be the markets that we identified 2 or 3 quarters ago that we wanted to grow in. And so, no, it would not be a statement of the overall General Industrial at all.

Jason M. Gursky - Citigroup Inc, Research Division

Okay. Great. And just really quickly on Fastener margin. You talked about some of the synergies that your acquisition as being a larger driver. Can you talk a little bit about the share gains. You suggested that you're going to pick some up over the next couple of quarters. Will those share gains be accretive to margins as well?

Mark Donegan

Yes, share -- any share gain we typically get would always be accretive. I mean it's when we look at share gains all in, whether it's a long-term contract or an individual pricing, we look at things that will be additive to the company. If you got some major, major long-running project, you may look and say, "Okay, it's all there [ph] or maybe not." But then if you start saying, if you look at the fixed absorption picks up overall, it's worth it. So we'd very rarely would we ever take anything that wouldn't be accretive to some degree.

Operator

We'll go next to Cai Von Rumohr with Cowen and Company.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

So I understand the number of working days. Last year, you had an extra week and, therefore, you had 4 fewer days both sequentially and year-over-year. Is that correct?

Mark Donegan

That's correct.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

And therefore, last year, you didn't have any real pickup in days in the fourth versus the third. But this year you should pick up the normal 5 days. Is that correct?

Mark Donegan

4 days. 61 versus 65.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Okay. So then we should get a basic 7% step-up, plus we have this testing, plus we have -- do we have any more drop-off from the Chengde resale or is that pretty much...

Mark Donegan

You know what, I think there's $2 million to $3 million more, Cai, to finish it up.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Okay. But -- so finally, this quarter, we should -- should we look at this as working days? Because sometimes you also say when you have maintenance downtime that you have...

Mark Donegan

No, I think this is working days. I think there is no planned outages in Q4. So there's nothing out of the ordinary. And again, I think that working days. And then, again, as you start moving into Q1, then you start picking up something other than a working –- and you start picking up to 7, the next step on the 787s. And then you go into Q2 and Q3, you start picking up some of the other. But, no, I think your thoughts are pretty valid.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

And then the last one, do we get any benefit from -- because the new breed supposedly started ordering on December 20, and presumably they want to build some inventory for their customers. Could we see any shipments beginning on the new Boeing contract?

Mark Donegan

Yes. Again, I think part of that movement in Fasteners is into that. We aren't seeing the acceleration yet that both us and Boeing would say we should be seeing. We've had a number of meetings to try to go part by part by part to look at what it is. But I do agree with you, Cai. As we move certainly in, we do see some small movement this quarter. But then as you move through, we expect to see more. And both us and Boeing agreed there should be more.

Operator

We'll take our final question from Carter Copeland with Barclays Capital.

Carter Copeland - Barclays Capital, Research Division

Just a quick question back to power and IGT both last quarter and this quarter. You talked about both sort of favorable mix and aftermarket, but it sounds like GE is talking about sort of double-digit increases in shipments in gas turbines this year in calendar '12, that is. So as you look forward, do you think there are going to be some upside to that outlook as you head into fiscal '13?

Mark Donegan

Yes. And again, the difference is where in Aerospace you have a lot of rates. So Boeing or Airbus will make an rate announcement, they'll announce it out, a year in advance, a 1.5 years in advance, and everybody gets in line with that. What happens a lot of times in IGT is, to some degree, there is some placeholders that are put in. But a lot of times if I go back to some of the real growth we saw where using General Electric, where they won that order in the Middle East. They win in. We get it and it drops in. So it's not uncommon for us to have a success on the end customer's part kind of fall in and be needed in a shorter period of time. So we probably do not have the entire line of sight to what the end customers be it Siemens or Alston or General Electric. We probably do not have all of their anticipated demand in yet. So could it be? Yes. I mean if they say they're going to go double digits, yes, we should get a benefit out of that.

Operator

Ladies and gentlemen, that concludes 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, 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.

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