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Pool (NASDAQ:POOL)

Q4 2011 Earnings Call

February 16, 2012 11:00 am ET

Executives

Mark W. Joslin - Chief Financial Officer, Vice President and Treasurer

Manuel Perez De La Mesa - Chief Executive Officer, President and Director

Analysts

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

David Mandell

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Leah Villalobos - Longbow Research LLC

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Judy Merrick

Brent D. Rakers - Morgan Keegan & Company, Inc., Research Division

Operator

Good day, and welcome to the Pool Corporation 2011 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Joslin, Pool Corporation's Chief Financial Officer. Please go ahead.

Mark W. Joslin

Thank you, Valerie. Good morning, everyone, and welcome to our year-end 2011 conference call. I would like to once again remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2012 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ materially from projected results is discussed in our 10-K.

Now I'll turn the call over to our President and CEO, Manny Perez De La Mesa. Manny?

Manuel Perez De La Mesa

Thank you, Mark, and good morning to everyone on the call.

2011 was a year of very strong performance in what was still a very challenging market environment. We estimate that industry sales grew by 3% to 4%, while our base business sales increased by 10%. That's exceptional. The credit here rests with our 3,200-plus employees, whose talent and commitment is outstanding. I am continuously humbled by their initiative, attitude, perseverance and dedication. Repeatedly, during the course of the year, customers and vendors provide me with unsolicited glowing comments of what our people do to enable their success. Our employees live our mission of providing exceptional value to our customers and suppliers by executing on our strategies of promoting the growth of the industry, promoting the growth of our customers' businesses and continuously striving to operate more effectively. I am privileged to be their leader and very grateful as a shareholder.

In terms of base business sales, our Blue business was up 10%, while our Green business was up 7.8%, a nice recovery in the Green business after very strong headwinds for several years. The best 2 performing major Blue markets for us in 2011 were Texas and Arizona, with 15.7% and 14.3% growth, respectively. These 2 markets benefited in part from an extended season. On the other hand, California did not have favorable weather, as we only increased sales by 6.4% in that market. Florida and all other markets were both up 9.6% in 2011.

For 2012, we anticipate that industry sales will be up similarly to 2011, but we are more modest in our expectations of the factor by which we exceed industry performance. Although we do expect to increase share, as we do every year, by continuously investing in our people, tools and resources to further differentiate our value proposition in the marketplace.

With respect to market share growth, we have always focused on earning our customers' business instead of renting it month-to-month or year-to-year with lower prices. We are a value-added distributor and we, for many years, have invested to further our value proposition. A great majority of our customers understand and appreciate our value and reward us with their business.

2011 was further testament of our success in this regard as our gross margin increased by 40 basis points, coupled with strong market share growth. Base business expenses were well controlled, with the main increase being incentive expense, and these are primarily the result of our operating performance. Throughout the company, there are objective performance measurements captured every day, which serve to reinforce performance expectations for all of management, sales, operations, credit and inventory management individuals. There are also extensive training and support resources available to enable everyone's success. The bottom line is when operating performance exceeds expectations, there is a strong sharing of the results with the individual responsible. It is truly a very transparent pay-for-performance structure for every professional and management individual in the company.

Overall, base business operating income increased by $25 million and we had the second best earnings per share in our history. This, despite industry construction [ph] being down 70% from peak levels and replacement remodeling activity 30% below normal levels. Our cash flow from operations was 104% of net income with solid working capital management.

In 2011, we extended our networks with 3 acquisitions and 4 new sales centers. Two of the acquisitions were in the Green business, in Florida and the Mid-Atlantic; and one was internationally, as we now have a presence in Germany, the third largest market in Europe. Last month, we also closed an acquisition in Western Canada, plus we have several wholesales [ph] centers scheduled for opening in 2012.

Turning to 2012 expectations. We don't expect the macro environment to be very different. As such, our expectations are for modest industry growth, plus market share gains, to result in 5% to 8% base business sales growth. Our operating leverage should enable us to realize 15% to 21% EPS growth with this type of top line growth.

Beyond 2012, we are optimistic that market conditions will gradually improve, enabling the recovery of replacement remodeling and new construction activity to normalized levels over the next 8 to 10 years. Regardless, we are poised to succeed as our people give greatest confidence in our future success.

Now I'll turn the call back over to Mark for his financial commentary.

Mark W. Joslin

Thank you, Manny. I'll start my financial commentary with SG&A cost which, for the year, were up 10% in total, while base business expenses were up 7.9%.

As we have discussed, the most significant factor impacting the higher expense growth in 2011 was management incentives, both to build back incentives to more normalized levels following the business downturn in 2007 to 2009, and even more significantly, to reward employees for the exceptional company performance in 2011. Given our outlook for 2012, we expect incentive expenses will be down year-over-year, with the majority of this decline coming in the second and third quarters when we accrue the majority of our incentive compensation, given the profitability in these months.

The other main factors that added to our 2011 expense growth, including higher delivery costs, higher bad debt expense and unfavorable currency translations, are not expected to reoccur. Therefore, our overall expectation for expense growth in 2012 is a very modest increase for the year with higher growth in the first and fourth quarters and less in the second and third, due to the timing of incentives comp accruals.

I should also point out that our 2011 fourth quarter SG&A included a $1.6 million goodwill impairment charge. Although less significant than the other items I mentioned, this was a non-cash charge that was non-recurring in nature and was included in our reported results.

Moving on to the balance sheets. Our receivables balance at year end of $110.6 million was up $9 million or 8.9% compared to year-end 2010, which was less than our Q4 sales growth rate of 12%. Throughout 2011, we made steady progress on dealing with problem accounts and as of December, had cut nearly in half the percentage of past due receivables from a year ago. We ended the year with our DSO or days sales outstanding down from 31.6 at year-end 2010 to a record low of 29.9 days at the end of 2011. If you looked, I believe you would find us to be best in class among distribution companies. So kudos to the many folks in our organization responsible for that results.

Inventory balances at year-end were $387 million, which included $5.5 million in acquisition-related inventories. The growth in inventories from year-end 2010, associated with our base business, was in line with our sales growth for the year. Virtually all of this growth was in our top-selling inventory classes.

From a cash flow perspective, while down from prior year, we met our stated objective of cash flow from operations exceeding net income for the year. We have similar expectations for 2012.

Now let me recap our share repurchase activity for 2011. In Q4, we repurchased 427,000 shares at an average price of $28.07 for a total cost of $12 million. For the year, we repurchased 2.8 million shares of stock at an average price of $25.15 a share for a total cost of $71 million. We have not repurchased any shares so far in 2012. This leaves us with $68.2 million under our current board authorization.

That concludes my prepared remarks, so I'll turn the call back over to our operator to begin our question-and-answer period. Valerie?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from David Manthey of Robert W. Baird.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

First off, you mentioned the weather impact and I'm wondering the growth rates you gave us by state, was that for the full year? And if so, could you give us what those growth rates were in the quarter?

Manuel Perez De La Mesa

David, yes, those were the full-year growth rates. And I tend to stay away from the fourth quarter number because they are obviously not that significant in the overall scheme of things. But it pretty much followed the same pattern. When I look at both Texas and Arizona, they still performed not quite as strong for the fourth quarter they did for the year but still, collectively, the 2 of them were over double digits.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Okay, that's fair. And assuming this is a -- given the fact that it's a seasonally less significant quarter, there were no rebate adjustments or anything that positively impacted gross margin? It didn't look out of line?

Manuel Perez De La Mesa

No, it did not.

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Okay, all right. And as it relates to your outlook for the coming year, it looks like you're saying 5% to 8% in the base business leading to 15% to 21% earnings per share growth which, relative to the 8% to 10% growth in revenues and 18% to 22% sort of long run EPS growth outlook, it seems like you're expecting better leverage in 2012 than your long-term expectation. I was just wondering what gives you confidence that, that's the case? You've seen it lately but it looks a little bit stronger in 2012. And could you talk about what the moving parts are there?

Manuel Perez De La Mesa

Sure. There are 2 elements. First, the longer-term 8% to 10% is based on a more robust recovery in the macro environment, which we're not anticipating to speak of for 2012. And that's why our expectation is more in line with 5% to 8%. In terms of the leverage factor, as Mark mentioned in his prepared remarks, in a normalized environment, our incentive comp would be lower and -- annual incentive comp would be lower and therefore, there are some expense elements that kind of fall out on a year-to-year basis, again, as Mark mentioned in his prepared remarks from 2011 and 2012, which gives us that a little kick of leverage on the 2012 EPS to sale relationship.

Operator

And the next question comes from David Mandell of William Blair.

David Mandell

What's your guys' outlook for pricing and new construction activity in 2012?

Mark W. Joslin

Okay, 2 different questions. With respect to pricing, it depends on the product line. For example, in 2011, overall, we estimate that prices went up 1% to 2%, with there being modest deflation, again, deflation in the part of chemicals and modest increases in the equipment and some of the other items. So overall, there's like a weighted 1% to 2%. We expect a similar end result for 2012, weighted 1% to 2%, with chemicals still being a bit stressed. Although we do expect that not to have, on average, lower prices in '12, as -- but more of the same and with a little modest increases in a few other areas to average out to 1% to 2%. With respect to new construction, pool new construction last year was about 55 -- 57,000 units in the U.S, which is up from 2009, which was the trough at about 45,000 compared to the peak of 2005 of 215,000, compared to 1999, 2000 of about 175,000. That gives you how deep this trough is. So there was a little bit of increase in 2011 to about 55,000 to 57,000, and we expect that this year to be somewhere in the low 60,000 to 64,000 type pools. So a little bit of an increase but work out the math, it's pretty de minimis in terms of the impact in our bottom line results.

David Mandell

All right. And then one more question. Would you guys be willing to share the growth in the Blue and the Green business for fourth quarter?

Manuel Perez De La Mesa

Sure. If you look at overall, Blue business in the quarter-based business was up 10.2%, and the Green was up 7.5%. So you can see it's very similar to the year-to-date numbers. For the year, the Blue was 10.0% and the Green was 7.8%.

Operator

And the next question comes from David Mann of Johnson Rice.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

First question, sort of a follow-on on the leverage question earlier. Should we assume that you're -- given the way that you're talking about bonus for '12, that, that 20% flow-through rate on base business is, that equation should hold in '12?

Manuel Perez De La Mesa

Yes.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Okay, great. In terms of the market share gains that you had in '11, I understand that perhaps the need to be conservative about that in '12. But maybe you could delve a little bit deeper into why you think you're able to perhaps drive greater gains than you have in the past in market shares. Is there something perhaps going on competitively, that you've weakened the competition over the years now, that maybe the market share gains would continue at that kind of rate?

Manuel Perez De La Mesa

Well, that's a great question, David. And by the way, you're the third David in a row asking a question. If you go back from the period of 1993 to 2006, when our organic top line growth rate was 11% per year for that 13-year period, where the industry was in fact growing at about half of that rate, you can look at that as that 5% to 6% differential being our market share growth. It also included our broadening our product offering, what we referred to as complementary products at the time. So those 2 factors are, again, broadening of our offering and market share gains enabled us to grow effectively twice the industry growth rate organically for a 13-year period. From 2006 -- after 2006, when everything peaked and the decline years that began in 2007 accelerated with the bottom being 2009. During that time, it was tough to gauge market share growth because the market was shrinking. Also at that time, we're very focused on what we internally referred to as profitable business. And there was some, whether it be credit or pricing situations, that we did not chase. So we did not chase some business that was unprofitable because of low margins, and we did not chase some business that was too risky from a credit standpoint, particularly given our credit evaluation assessments that are, I think, the best in class as -- from an industry standpoint. And therefore, we are able to make, by and large, better decisions credit-wise than anybody else in the industry. So given those factors, we probably we did not gain as much share in the industry as we had in the 13 years prior. And I would say this started really in 2007, but I would suspect that -- my own intuition tells me that we gained -- continue to gain profitable share during that '07, '08, '09 and 2010 periods, but not necessarily as much overall share. In the case of '11, as the industry found bottom in '09 and there was a modest level of recovery in terms of 2010 transition year and more so in 2011, there's been 15%, 20% of our customers or the dealers in the industry that are no longer there. So some of the credit issues have essentially gone away. Those not-as-good business practices, those guys are no longer around. The case of some of that lower-margin business, some of our competitors have realized that, that's not profitable business and have begun to adjust their pricing and their equations to make themselves better. So I think when you look at that 2011 was more of a, say, not typical. But I think it's in part a real reflection of our execution. Now we do have the wind in our back in a couple of areas. One is, from a broad product standpoint, we have done an extensive job on both the sourcing and product management side to bring together an offering that is very geared to enhancing our customers' opportunities to sell that to consumers. And with that, that's enabled us to position ourselves better to gain share with our customers, again helping our customers also succeed. The second element is that given our financial strength, we have to have no compromise. In fact, we have continued to improve our service levels in every one of our locations. And therefore, by improving our service levels, we have been able to further differentiate our service offering independent of our complete value-add opportunity that we provide our customers but specifically, the service -- continue to differentiate that service offering vis-a-vis our competitors. So I think '11 reflected a combination of further differentiation of service offering and a further differentiation from a product line standpoint. When I look at 2012, every time you gain share, that bar gets raised that much more. So I'm apologizing now for a long-winded answer. But I think it's important to appreciate that, that bar is set higher every year, and what I think our team did an outstanding job in '11 and I have every confident that they'll do an even better job in 2012, that bar is just set that much higher.

David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Now, Manny, that's very helpful. Just one last question on the acquisitions that you just announced in the fourth quarter, can you give us a sense on what the trailing 12-month revenues of those acquisitions were? So we can see how much of the growth in '12 is coming from that. And also, do you expect them to be accretive in '12?

Manuel Perez De La Mesa

Sure. First of all, the growth in sales, those acquisitions will be excluded from our base business 5% to 8%. So that's one element. When I look at the total sales for those 3 acquisitions, it will be approximately, I'll say, close to $40 million in total -- between $35 million and $40 million in total for those acquisitions. Some of that was realized in 2011. For partial year, for example, Florida, we closed in May. So I'd say the incremental kick in sales...

Mark W. Joslin

That's close to $20 million, Manny.

Manuel Perez De La Mesa

Yes, we’ll be closer to $20 million, yes. In terms of accretion, I would say it'd be very negligible accretion in 2012.

Operator

The next question comes from Leah Villalobos of Longbow Research.

Leah Villalobos - Longbow Research LLC

On the 5% to 8% base business outlook, are you expecting similar results on both the Blue and the Green business?

Manuel Perez De La Mesa

Yes.

Leah Villalobos - Longbow Research LLC

Okay. And I know it's a relatively slow period, the first 6 weeks of the year. But I'm just kind of wondering what you're seeing in terms of the consumer's willingness to invest in their pool this year?

Manuel Perez De La Mesa

It is very early. I mean, the northern part of the country, where you are in Ohio, pools are closed. And that's the last thing they're thinking about at this juncture. Hopefully, that will change in the next several weeks and people will begin to open their pools, but it's really a little premature. But I would think that the 5% to 8% is a solid number and I can get carried away one way or the other with the first 6 weeks, given again the very low base of numbers that we talked about.

Operator

The next question comes from Anthony Lebiedzinski of Sidoti & Company.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

I was wondering if you could comment on your European business. What are you seeing there with some of the headlines lately?

Manuel Perez De La Mesa

Sure. Europe is certainly challenged and -- but the impact is very different from one country to the other. Obviously, Greece is in utter turmoil with no capital available to small business. So it is really a shame what's going on there. France, on the other hand, and Germany for that matter, they have been largely to date insulated from that. And in fact, we had very strong results in France and that's a combination of, again, the -- France as a country last year not being as -- nowhere near as affected as Greece and Italy and Spain. And also the fact that we have an excellent team in France that have evolved very much to fashion as most of our U.S. operations have, over the course of time, and are really, well I'll say humming, in every way of gaining share every year, providing progressively more value and better service. So that's in essence a picture – I’d have to go country by country, Anthony, but I will tell you that certainly -- fortunately, we don't have any operations in Greece at this time. Italy is feeling some of the effects [ph] as are Spain and Portugal and the U.K. But given again our financial strength, we are able to, in fact, pick up some share by virtue of our ability to out serve our competition and by virtue of the fact that some of the same training and tools that we deploy in the U.S., we have also deployed in Europe. France is doing very well, and we're very optimistic about our new acquisition in Germany and what that can bring to the table over the course of the next -- not so much in 2012, but over the course of the next 3 to 5 years as we build our presence there, much like we have in the other countries.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay. I noticed some new strength with pool regulations in Florida requiring pool owners to upgrade to more energy-efficient pumps. What kind of benefit are you expecting in that? And do you expect that in other states? Just if you could comment on that, please.

Manuel Perez De La Mesa

Sure. No, Anthony, you're very observant, as usual. The -- back about 4 or 5 years ago, California led the way by passing new regulations to stimulate more efficient motors and pumps as a way to reduce energy consumption or the Green Movement. That has spilled over to other states, Florida being the biggest state where that will begin to take hold in 2012. Typically, what happens is there is a transition period. Given the lack of enforcement, it takes a little while for some of those regulations to stick. We have been an advocate for a number of years now of promoting 2-speed and more so variable-speed pumps as a more efficient form of, I call it energy management. And in fact, depending on rates in California, you usually get a payback within a year by stepping up and making that investment. In Florida, there are lower rates per kilowatt but still you get a reasonable payback inside of, almost all cases, 3 years, and in most cases, 2 years. So that's what we've been selling and that has been helpful to us. I think that, that -- the new regulations help accelerate the shift from single-speed motors to 2-speed and variable speed, and we're all for that. That is a helpful factor. It helps our mix because the typical pump would be about 2.5x the price of a single-speed pump. And everybody wins here. This is a true win-win-win. The consumer wins in terms of payback on their incremental investment. Our dealer wins because he's making a higher-value sale and therefore, he can make a higher margin. And then we also win by having a similar margin on a higher-sale item.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay, so that's very helpful now. And I was wondering if you can comment on the longer-term thoughts on your Green business, as far as building up that network. It's just -- if could you just give us some perspective as how you're thinking about the Green business.

Manuel Perez De La Mesa

Sure. Long-term, we think the Green business has the same organic -- from an industry standpoint, the same organic growth opportunities that exist within the swimming pool side. And that's the nature of why we looked at that -- began looking at that in '99 and made our first investment after looking at several alternatives in 2005. Long term, we have not wavered from that perspective. That segment of the business or that business is, in fact, a little bit more volatile because of the greater dependency on new construction. But the fundamental long term, if you look out beyond a 10-year time period as we do, are very much the same. In terms of what's happening now, as evidenced by our 2 transactions in 2011, plus our other additional transaction we made in late 2010, we are opportunistically adding to the network. Our focus isn’t the Sunbelt. And obviously, within the context of the Sunbelt, we look in a more heavily weighted priority standpoint towards the larger markets such as Florida, as an example, where we invested in last year. So long term, we're going to build up a network. We're going to do that on a very deliberate fashion. It has to make sense. We've got to be able to manage whatever we buy as well. That's another key criteria that we have in our equation. And when you look -- again, we're not so much -- when we're building out our business, we're not so much focused on '12 versus '13. Looking at it, what does it mean to shareholders 10 years out? And again, that business is one that certainly was very, very good in '05, '06 and '07, hit a wall and really upside down and -- when you got to '08, '09 and '10. But last year was basically [indiscernible] in '11 and still in a market that's heavily taxed in terms of headwinds. And we're building up a network and very optimistic about what that'll be when we look out 5 to 10 years from now.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Also could you give us an update on your private-label product penetration now? And where do you expect that to be the next couple of years?

Manuel Perez De La Mesa

Sure. In terms of our gross profits, our private label and exclusive products represented 25% of our sales in 2011 and that's been a gradual 1% to 2% a year. And we expect that 1% to 2% a year, in terms of our total sales, to continue to occur as we identify product opportunities in a world-wide basis from our sourcing team and working in hand with product management to position those products to enable our customers to succeed in the marketplace. And logically, those products come with higher margins and are more profitable to us, as well as being better for our customers in terms of differentiating them as well in the marketplace.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay. And lastly, are you factoring any share buybacks in your EPS guidance for 2012?

Manuel Perez De La Mesa

Nothing significant. We do expect to buy back shares during the course of the year, and some of that is baked in but nothing overly significant.

Operator

[Operator Instructions] The next question comes from Keith Hughes of SunTrust.

Judy Merrick

This is Judy Merrick in for Keith. And just a follow-up, when you talked about the base business growing last year from market share gains and also from demand growth, was that similar for both the Blue and the Green? Or did one stand out more? [indiscernible]

Manuel Perez De La Mesa

To be frank -- it applies to both, but it's also very market-specific. And our business, whether it be Blue or Green or purple or yellow -- in our case, it just have to be Blue and Green. It is -- our customers are unique to each market and in some cases, the products are unique to each market. So therefore, our market share gain that we speak about on a collective basis, really are an add-them-up of individual market performance. We did not grow share in every Blue market just like we did not grow share in every Green market. There are a few spot cases in both where we, in fact, lost share. But overwhelmingly -- in an overwhelming case of the markets, we gained share and in some markets, did very, very well. And that's really a key point distinction. So it's not so much a Blue versus Green or about specific market to specific market.

Operator

[Operator Instructions] Our next question comes from Brent Rakers of Morgan Keegan.

Brent D. Rakers - Morgan Keegan & Company, Inc., Research Division

Manny, maybe if you could talk a little bit about your 2012 gross margin outlook and maybe some of the gives and takes there.

Manuel Perez De La Mesa

Sure. Gross margins, we have a really good year in 2011 and I would say that the expectations [ph] would be a modest improvement in 2012, probably to the tune of 20 bps overall. It could be that one particular quarter we could be flat or down 10, 20 bps and maybe up 30, 40 bps the next quarter. But I think if you look at our history over the course of time, as I well -- as I know that you do very well, you can look at our pattern. Some of that is affected by mix as well -- product mix as well as market mix. So I would say that for the full [ph] year, 40 bps is reasonable. But again on a quarterly [ph] basis, it could be anything from, call it down 20 to plus 40, depending on market and product mix.

Brent D. Rakers - Morgan Keegan & Company, Inc., Research Division

And then, Manny -- and I apologize, I got on the call a tad late. But could you maybe remind us again the long-term incremental margin targets of the company and then what is implied in the 2012 EPS guidance numbers?

Manuel Perez De La Mesa

Sure. The basic longer term is -- and -- I say, over the next $400 million or so sales growth, it would be approximately 20% incremental operating margin base business sales growth. It does not include any acquisitions, base business sales growth. And then that would moderate down to about 15% once we get to like $2.3 billion.

Brent D. Rakers - Morgan Keegan & Company, Inc., Research Division

Okay. And then, Manny, what would be implied in the 2012 EPS guidance range?

Manuel Perez De La Mesa

20%.

Brent D. Rakers - Morgan Keegan & Company, Inc., Research Division

Manny, and I guess that's -- my follow-up to that is, in light of what seems to be fairly significant shifts from normal trend in your projections for the management incentives and bad debt expense and I guess there's this quasi-unusual item in the Q4, why wouldn't that incremental expand more significantly next year?

Manuel Perez De La Mesa

Well, it does on the first, call it 3% to 4%, of sales. But once you get to like 5% or 6%, then it begins to be diluted. In other words, if our sales were flat, there would be, in fact, almost an infinite movement given the factors that Mark mentioned, that you just touched on. But as you get to varying levels of sales growth, then -- and that continues to increase, then those factors are diluted out. And it could very well be 22% when you get to the 5% [indiscernible] when you get to 5%, and then when you get to 8%, those numbers get diluted down.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay. And I'm sorry, Manny, just one more point of clarification. So at 8% base business growth, if at the high end of your range occurs this year, would the management incentive comp component still be down year-over-year?

Manuel Perez De La Mesa

It will be down but very modestly.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Perez De La Mesa, the CEO, for any closing remarks.

Manuel Perez De La Mesa

Thank you, Valerie, and thank you all again for listening to our fourth quarter results conference call. Our next call will be on April 19, mark your calendars, and we'll discuss our first quarter 2012 results. Thank you again for listening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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