Altra Holdings' (AIMC) CEO Carl Christenson on Q2 2016 Results - Earnings Call Transcript

| About: Altra Industrial (AIMC)

Altra Holdings, Inc. (NASDAQ:AIMC)

Q2 2016 Earnings Conference Call

July 21, 2016 10:00 am ET

Executives

David Calusdian - EVP & Partner, Sharon Merrill Associates

Carl Christenson - CEO

Christian Storch - CFO

Analysts

Matt Duncan - Stephens

Scott Graham - BMO Capital Markets

Jeff Hammond - KeyBanc Capital Markets

John Franzreb - Sidoti

Mike Halloran - Robert W. Baird

Bhupender Bohra - Jefferies

Presentation

Operator

Greetings and welcome to the Altra Industrial Motion Second Quarter 2016 Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Calusdian of Sharon Merrill. Thank you, sir. You may begin.

David Calusdian

Thank you, Christine. Good morning, everyone and welcome to the call. With me today are Chief Executive Officer, Carl Christenson; and Chief Financial Officer, Christian Storch. To help you follow management discussion on this call, they will be referencing slides that are posted to the altramotion.com Web site, under Events and Presentations in the Investor Relations section. Please turn to Slide 1.

During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks, uncertainties and other factors described in the company's quarterly reports on Form 10-Q and annual report on Form 10-K and the Company's other filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Altra Industrial Motion Corp does not intent to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

On today's call, management will refer to non-GAAP diluted earnings per share, non-GAAP income from operations, non-GAAP net income, non-GAAP gross margin and non-GAAP free cash flow. These metrics exclude certain items discussed in our slide presentation and in our press release under the heading Discussion of non-GAAP Financial Measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of Altra's non-GAAP measures to the comparable GAAP measures are available on the financial tables of the Q2 2016 financial results press release on Altra's Web site.

I'll now turn the call over to Altra's CEO, Carl Christenson.

Carl Christenson

Thank you, David.

And please turn to Slide 2. Our second quarter results are inline with our expectations and we continue to have confidence in our guidance for the full year 2016. We are executing well on our actions to enhance Altra's long-term operating performance as a soft economic environment persist in many of our end markets. In fact, the results of our efforts are already having a positive effect on our P&L.

Our consolidation, supply chain and operational excellence initiatives drove a 140 basis point improvement in gross profit margin from the second quarter of last year to 31.9%. This came even as sales declined 7%. We continued to generate strong cash flow which enabled us to repurchase $2.2 million of Altra shares and repay over $23 million of debt.

While we are quite pleased with our operational execution, the downside of the quarter is that we are not seeing a beginning to the turnaround that we had hoped for in some of our most challenged end markets.

In the near-term, we don't see any catalyst that will change the industrial economy. Our team is doing a great job in controlling what we can control and making Altra a stronger company. In longer term, we expect to see the very strong operating leverage when these other favor end markets return.

With that as an overview, please turn to Slide 3 and I will get into more detail about the conditions in our end markets.

We will begin our market discussion with distribution, which is predominantly made up of sales of aftermarket parts and original equipment parts for small OEMs. Distribution was flat year-over-year and we do not expect to see any significant improvement in this channel in the second half of the year.

In turf and garden, after a strong start to the year, we began to see some softening as the selling season ended earlier than last year due to weather conditions. We expect the remainder of the year to mirror our performance in 2015.

In the agriculture market, low commodity prices and fewer incentives continue to result in soft ag equipment purchases. Sales were down year-over-year as well as sequentially.

Transportation which tends to be lumpy as a result of order timing was down year-over-year and sequentially. Rail and marine were weak with automotive up compared to a year ago.

Materials handling was down single-digit year-over-year with continued strength in forklifts offset by weak conveyer sales. The strength in the U.S. dollar and the weak mining market continue to impact conveyer sales. Elevator sales were flat and sales were up sequentially with strength in all three segments of the material handling market.

Turning to Energy; energy overall was down from a year ago reflecting a significantly weaker oil and gas market. Power generation was down as well although we expect this market to be relatively flat in the second half. Renewables continued to be very strong across the board geographically. With increased sales in Europe, North America and China, as we have said previously, we are capitalizing on the demand in this area with aggressive new product development efforts out of our Svendborg wind business.

Sequentially, energy was up driven by increased power generation and renewable sales with a single-digit decrease in oil and gas.

The metals market continues to be weak with a significant drop from the year ago quarter as over capacity in China and global pricing continued to affect this market. U.S. terrace and Chinese steel were approved in May, but we do not expect this to affect our sales positively until next year. We continue to expect demand for aftermarket parts to remain relatively stable.

Mining sales continue to be challenged with double-digit declines both year-over-year and sequentially. We do not expect a near-term improvement in this market due to the economic slowdown in China and the emphasis on reducing coal consumption.

Finally, aerospace and defense was up for the quarter primarily as a result of order timing, overall commercial sales are strong with weakness continuing on the defense side of the business.

And now, I will turn the call over to Christian, and then, close with a discussion of our strategic initiatives. Christian?

Christian Storch

Thank you, Carl, and good morning everyone.

Please turn to Slide 4. As Carl mentioned at the outset we are performing well operationally in a very difficult economic environment as evidenced by our 140 basis points improvement in gross margin against a 7% sales decline.

Our operational excellence and consolidation initiatives are proving to be very effective and we are looking forward to further operating improvements as a result.

For the second quarter of 2016, GAAP diluted EPS was $0.36 a share versus $0.37 a year ago and non-GAAP diluted EPS was $0.42 a share versus $0.43 a year ago.

Looking at the top-line, foreign exchange rates had a negative impact of approximately 100 basis points driven by continued strength in the U.S. dollar. Volume declined to 6.8%, while our strategic pricing initiative added 70 basis points.

Net off foreign exchange, sales declined 6% year-over-year. Geographically, excluding the effect of foreign exchange, North American revenues declined 12% year-over-year driven mainly by very weak oil and gas, metals and mining markets.

European revenues were up 5% mainly driven by the wind energy markets. Sales to Asia Pacific and other geographies were down 5%.

During the quarter, the average price of the company's common stock did exceed the current per share conversion price of our convertible notes. As a result, the notes were dilutive to earnings by approximately $0.05. We recorded a tax rate of 30.6% during the quarter which was down from 31.2% a year ago.

Please turn to Slide 5, for a discussion of segment performance. Please note that segment results are not adjusted for one-time items. For the second quarter 2016, net sales in company's clutches and brakes were $78.2 million down 13% when compared with $90.4 million in the year ago quarter. This segment has Altra's highest exposure to oil and gas, metals and mining. Segment operating income was $7.6 million down from $10.8 million a year ago.

Net sales in our electromagnetic clutches and brake segment were $57.1 million down slightly from the prior year. This segment is benefiting from Altra's facility consolidation and procurement efforts. As a result, segment operating income increased 14% to $7.1 million or 12.4% of segment sales.

Finally, net sales in the gearing segment were $49.1 million compared with $49.6 million in the year-ago quarter. Segment operating income was down slightly to $5.9 million from $6.1 million a year ago. Despite continued operating income improvements at our Bauer business.

Please turn to Slide 6. Our balance sheet remains strong, book equity was $250 million and our cash balance was $34.3 million. Cash flow has been good this year as a result of our strong cash flow; we have been able to pay down $29 million in debt since the beginning of the year.

During the quarter, we repurchased more than 80,000 shares of Altra stock for a total of $2.2 million under our $50 million stock buyback program that expires at the end of 2016. Since the program's inception we have repurchased approximately $39.3 million or about 1.4 million shares. Capital investments totaled $5.2 million for the quarter well below our depreciation and amortization for the quarter of $7.5 million.

Before I turn to guidance, I would like to make a quick note about Brexit, since that is on everybody's mind. Last year, our sales for U.K. based entities were approximately $60 million based on the significant uncertainty around the timing in terms of the Brexit, it is much too early to speculate how those sales and all profit will be affected.

Please turn to Slide 7, and our guidance for 2016. We continue to expect sales in the range of $700 million to $720 million and we expect GAAP diluted EPS in the range of $1.20 to $1.30. And non-GAAP diluted EPS in the range of $1.40 to $1.50. We expect the tax rate for the full year to be approximately 29% to 31% and we also expect capital expenditures to be in the range of $20 million to $24 million and depreciation and amortization in the range of $30 million to $32 million.

With that, I will turn the discussion back to Carl.

Carl Christenson

Thank you, Christian.

Now, please turn to Slide 8. I’d like to provide you with an update on our business simplification plan. The first component of our plan is a facility consolidation initiative. And on our last call we discussed five consolidations that have already been completed. We are working on completing one closure in Q3 and one in Q4. With those completed, we will have consolidated seven facilities and taken out 265,000 square feet of manufacturing space without losing any capacity.

These seven closures represent about $5 million of annualized savings out of the total $7 million, we expect from our consolidation plan. We will be evaluating three or four additional closures next near and as we have mentioned previously, these future closures will require that we expand a receiving facility.

A second key to the business simplification plan is our development of a world-class procurement organization. A foundation of this initiative is the use of our new SAP system to be able to analyze data throughout the supply chain.

We continue to make progress on this initiative during the quarter and have realized year-to-date savings of $3.5 million. As Christian mentioned earlier, our European restructuring and cost reduction efforts are coming along very well and the results are quite evident in our P&L. Bauer's operating margin improvement to 8% has been a tangible example of the success of this effort.

As I mentioned, we had been hopeful to see the beginning of a recovery in the back half of this year based on what we are hearing from customers and from other companies in the general industrial economy, we do not expect this to be the case. At the same time, given that we have passed the anniversary and several of our end markets began to weaken; our year-over-year comparison should be easier as we go forward.

When our most out of favor market do return, we have proved our significant potential for margin appreciation as a result of our aggressive performance improvement actions. Our team has been executing well and we expect further operational success in the back half of the year.

Thank you for your continued support of Altra and we will now open up the call to your questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Matt Duncan with Stephens. Please proceed with your questions.

Matt Duncan

Hey, good morning guys.

Carl Christenson

Good morning, Matt.

Matt Duncan

So Carl can you talk -- just talking about -- start by talking about just general business trends you're seeing sort of sequential sales and order trends in the business through the quarter and into July?

Carl Christenson

Yes. It's been -- continues to be very choppy and there is a lot of uncertainty out there, but it does seem to be relatively flat. So we didn't see any particular market have a significant improving trend through the quarter, or any particular market having a declining trend through the quarter. It's just a kind of flat and that's why we continue to be focused internally and get these activities done while we can.

Matt Duncan

So I guess to summarize it feels may be like or sort of stabilizing a little bit of bottom here, it's just hard to tell when we will finally see the improvement kick in?

Carl Christenson

Yes. I'm not going to call the bottom, but for the last couple of months it seems to be fairly stable.

Matt Duncan

Okay. All right. That's helpful. And then, on the gross margin side a 140 basis point improvement that is obviously very impressive in the face of a 7% sales decline. So can you break down some of the components about what drove that and maybe give us a little help on how we should be forecasting that line going forward? Can you keep getting that kind of year-over-year improvement? Can you maintain kind of this 32% gross margin level? Just help us sort of think through what's going on there?

Carl Christenson

I think for the balance of the year, it's not reasonable to expect that we can maintain this level. For a couple of reasons, I think this was probably a peak for this year. Couple of reasons, number one, volume in the second half is typically below the first half. Historically, the first half accounted for 50.5% to 51% of sales. We expect that trend to continue for this year. Second, there were some favorable items. We had some favorable scraps, some favorable freight cost reductions. And we have a lot of favorable things going on in the quarter; warranty expenses were lower than in prior quarters that helped to drive this margin probably to a peak level. So I would not expect that margin. Ultimately that's our goal to get through the 32% for full year but I would not expect that to continue in the second half of the year.

Matt Duncan

So Christian full year then around 31%, is that the way to think about it?

Christian Storch

Somewhere in that yes, 31 slightly above 31.

Matt Duncan

Okay.

Carl Christenson

And Matt we have the -- in Europe, there is a lot of vacations in the third quarter. There are holidays in the fourth quarter. Altra turf and garden business which drops off for us in the third quarter, so there is lots of typical seasonality things that happen.

Matt Duncan

Absolutely. Okay. Then last thing for me just on M&A. Your leverage is down back close to two turns again, you guys are doing a good job paying down some debt and generating good cash flow here. So, are you starting to think a little bit more about M&A, or is the facility consolidation kind of got the organization a little too busy to think about larger acquisitions at this point, just give us an update on what you're seeing and what you're thinking there?

Carl Christenson

No. I don't think we've ever lost our desire to continue to make acquisitions. I think the environment wasn't conducive over the last couple of years. And I think -- I expect that to improve and we've seen a little more activity. So I would hope that over the next year or so that we will be successful. We just keep looking.

Matt Duncan

Okay. All right. Very helpful. Thank you guys.

Carl Christenson

Thanks.

Operator

Our next question comes from the line of Scott Graham with BMO Capital Markets. Please proceed with your question.

Scott Graham

Hey, good morning guys. Nice quarter.

Carl Christenson

Thanks Scott.

Scott Graham

Just wanted to maybe get under the SG&A number a little bit, that was a pretty big jump on a percent of sales basis. I know that the sales obviously up just sort of a tad sequentially, but I guess I was not expecting that type of a jump on the SG&A, could you give us a little but more what's behind that?

Christian Storch

Yes. So a couple of things are behind that. Number one, so far we have protected a number of functional areas despite the sales decline. So for instance, our sales force remains -- the headcount remains the same, our engineering and some other functional always we have protected because we need these guys when things improve. And so therefore, we don't see the same headcount reduction that we've seen for instance in the shop floor. We can't manage it the same way as we can manage our shop floor.

The second piece of that is that, we continue to see increased healthcare cost. I think we are not unique at this point. We see that across the U.S. entities that healthcare costs are just sky rocketing. Year-to-date, our healthcare cost about $1.2 million above the prior year, so that's another factor that has negatively impacted us. The biggest part is that we have protected a number of these functional areas that are critical when things rebound, was to take advantage of a rebound.

Scott Graham

Understood. Hey, and I do want to maybe go back to Carl, your comment on gross margin. I think you said at the end that you're expecting like a 31 plus, but you also mentioned a 32%, was that sort of the original goal coming into it or what did I misunderstand there?

Carl Christenson

So the 32% is our long-term goal. I think with facility consolidations, the procurement efforts and our overall goal to get to 15% operating income margin would suggest that we need to operate at around 32% gross profit margin. And the 31% -- a little over 31% was for the full year.

Scott Graham

That's great. Thank you. Last question is this, one of the big initiatives that the company announced I guess about a year-and-a-half back was the entering of new markets broadening out your addressable markets. Is there anyway to quantify any of the benefits of that strategy in dollars? And also, hopefully maybe even subjectively some of the things that you're doing that you didn't do a year ago kind of thing?

Carl Christenson

I think Scott that -- right now we're working on that initiative. And I think we'll be prepared to talk more about it when we -- as we go into next year. And we really launched the initiative in a formal way. There are a couple of things that we are doing, one, would be expanding into the service businesses and we've started that already. And so there are some really good, I think organic growth initiatives that we'll be able to talk about next year.

Scott Graham

So as of this point there has been really no benefit from that strategy?

Carl Christenson

No. The service business we've gotten some nice benefit from it. And then, there is a new product that a customer has given us orders for, but I'm not prepared to talk about what the customer is, what the product is until we start to ship and deliver it, but we definitely have some successes.

Scott Graham

Very good. Thank you.

Carl Christenson

Okay. Thanks.

Operator

Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question.

Jeff Hammond

Hey, guys. Good morning

Christian Storch

Good morning.

Carl Christenson

Good morning Jeff.

Jeff Hammond

So just going back to the guidance, just seems like if you go to the low-end of the revenue range and you put in 30%, 40% decrementals, you're still at the high-end of your range. So I'm just trying to understand given kind of that the better start to the year what -- I understand you're not seeing may be the snapback you are looking for but why the conservatism given for the first six months?

Carl Christenson

Couple of things, I think in the guidance there is uncertainty around the mix to the extent that second half mining, oil and gas, more of profitable pieces, how do they behave relative to the rest of the portfolio. There is uncertainty around healthcare cost in the second half. Typically, your healthcare cost in the second have a higher than in the first half. Is this trend going to continue? Is it going to accelerate that has influenced that range? There is uncertainty relative to extended -- potentially extended shutdowns by our customers particularly in Europe, but also to some extent in North America. We hear some rumbling that that might be the case. And then, overall, in the industrial economy really remains weak and we don't see any fundamentals that they have changed. So that overall, uncertainty is driving the range in EPS.

Jeff Hammond

What markets are you specifically hearing about extended shutdowns?

Carl Christenson

I think Jeff. It's more in the -- just the general industrial, what people will do for routine maintenance shutdowns during the summer time.

Christian Storch

In Europe, we hear from some customers that have export activity into China, India and various end markets.

Jeff Hammond

Okay. And then distribution, it seems like most of the distributors are still seeing same-store sales declines. And you guys are kind of running flat, is that -- are you guys seeing some restock, are you out performing there, what's driving maybe the little bit better results?

Carl Christenson

Well, I think we've seen year-over-year decline, but sequentially it's kind of flattened out. But, I think it depends on the time period you're looking at on the comparison. So, and I think that we are at least in our opinion we're performing quite well for the distributors and earning some orders because of that.

Jeff Hammond

Yes. I was just looking at the comment on three, sales were flat year-on-year and up sequentially.

Carl Christenson

Yes. And I think it's just -- we're out performing a little bit.

Christian Storch

Yes. We don't see restocking activity in a meaningful way. So therefore, if you think distributors down 3% or 4% in that range and maybe now its space, maybe even a little bit more than that. We don't see restocking which means we must be outperforming.

Jeff Hammond

Okay. And then, finally, just on the renewable energy side, what's your visibility for that strength to persist through second half and into 2017?

Carl Christenson

So, the PTC has been approved, so we think that's -- that was a really good think and it's actually a little bit longer term than it normally has been. The wild card would probably be China and that's been a really good market for us in the renewable energy side until if that continues 2017 should be another good year. It's been the one market that's really outperformed for us.

Jeff Hammond

Okay. Great. Thanks guys.

Carl Christenson

Thanks Jeff.

Operator

Our next question comes from the line of John Franzreb with Sidoti. Please proceed with your question.

John Franzreb

Yes. I guess this is might dovetail into the last question. Couple of things, operating margin in the quarter, it was up sequentially rather nicely, is that the renewable, or is that power gen, what's driving that sequential margin improvement because that has your most exposure to oil and gas market?

Carl Christenson

So, what we see there is to some extent we see the benefits of facility consolidations, which the majority of which take place in that segment. The plant in China, the Changzhou is inside of that and that was really -- the benefit really started to hit the P&L in the second quarter as we still had some cost in the first quarter as we're closing that facility, was about $1.2 million on a full year basis. That's a big benefit for that segment. And I think some of the favorable items that we saw lower warranty expenses for instance that benefited that segment proportionally more than the other segments.

John Franzreb

Okay, great. And your current status you suggest that the pricing initiative is still favorable. I would imagine it would be kind of hard to realize the 50 bps a year that you're kind of looking for in this kind of environment. Can you just talk about how much did you realize in the quarter and why you're confident that you'd be able to hit those targets certainly in the near term?

Carl Christenson

We realized 70 basis points in the quarter. We think most of that maybe all of it is strategic pricing versus general price increases -- general price increases essentially don't exist with some exceptions. So these are still activities that are very surgical customer by customer SKU by SKU there are areas where we don't get any price increases, sectors like mining and oil and gas, it's impossible in general. But there are still areas where we can get price increases in a very surgical way and that continues and we continue to be very structured in the way we go about this very analytical and very structural.

We have a guy here at the corporate office that's fully dedicated to this effort. He works with the business units and he keeps on pushing all business units to do the analysis across the data and to go out and raise price surgically. So we think that 50 basis points is still good.

John Franzreb

Okay. Okay, great. One last question, could you just talk a little bit about raw material cost and your expectations how they impact the gross margin line in the coming quarters?

Christian Storch

The windfall in the first half of the year. As we went through the first half of the year we saw selective increases, copper for instance is very choppy is up and down. But, we saw year-over- year, we see for instance iron -- pig iron is at back at the prior year levels, it increased as we went through the first half. Scrap steel is up, it increased as we went through the year so far, but it's at prior year levels. So -- so the windfall might turn a little bit on us in the second half of the year.

Carl Christenson

And John a lot of what we buy is not raw material, as we buy components that have been machined or processed somehow. So there is usually a lag between when and then we always fight back and say we can't accept the price increase from our suppliers. So it's a little early to tell what impact that's going to have so far. But, there is a risk that might be a headwind in the second half.

John Franzreb

Okay. Fair enough. Thanks guys.

Carl Christenson

Okay. Thank you, John.

Operator

Our next question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.

Mike Halloran

Hey, good morning guys.

Carl Christenson

Good morning.

Mike Halloran

So, maybe just give us some thoughts on how inventory levels look like to your channels right now, are you seeing pretty good pull through relative to core demand or is there any back up in any of the core channels?

Christian Storch

No. We don't see anything where inventories are out of line significantly there is always going to be some adjustments. But, we don't see anything where there is a gross alignment between on inventories.

Carl Christenson

Yes, particularly distribution remains flattish, lean in our view. We ship much more direct to our distribution customers than we used to in prior and so there is -- they continue to maintain a lean inventory levels regarding our product range.

Mike Halloran

Make sense. And then, maybe just a little more thoughts on what you see in China specifically. And then, Carl you alluded to some worsening trends over there, what [indiscernible] the quarter, what are your thoughts as you work through the year?

Carl Christenson

So, we serve some very specific end markets there. And each end market is a little bit different. And I think for the rest of the year, I would expect it to be relatively flat. We've seen some strength in the renewable energy business. We don't see anything there that says that that's going to get worse and some of the other markets we see really no change there. So I think it's obviously some of it will depend on what happened overall when China and there is just rumblings that that things might get worse there, but we don't expect it at this point.

Mike Halloran

Thanks for the time guys.

Christian Storch

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Bhupender Bohra with Jefferies. Please proceed with your question.

Bhupender Bohra

Hey, good morning guys.

Carl Christenson

Good morning, Bhupender.

Bhupender Bohra

Hey just a question on the cost savings here from the consolidation. I believe in the previous call you mentioned about the expectations as you exit 2016 was $3.5 million to about like $4 million and now you are saying like about $5 million. So, I think that's progressing a little bit better than expected. And could you give us the number for the second quarter?

Christian Storch

So what we said is -- was the $4 million. By the end of the calendar year, $5 million of savings will have been realized with the exception that the productivity typically at the receiving end will not be in the early days of next year where it was at the sending end. So, we are going to -- that's where the delta comes between the $4 million and the $5 million.

The $4 million is I think what you are going to see next year. The $5 million is what you are going to see, once the receiving end is up to full productivity, which will probably happen as we go through the second quarter -- by the end of the second quarter of next year. The full $5 million should be in place.

Carl Christenson

And those are annualized numbers.

Christian Storch

Those are annualized numbers.

Bhupender Bohra

Right. Okay. And just on Bauer actually that was -- it seems like, with your comments on Brexit. Anything and on Bauer like the margin improvement has been pretty tremendous over the last few quarters here up to 8%. If any negative impact from Brexit, how does that impact your Bauer business over the long-term?

Christian Storch

Should not impact the Bauer business, Bauer has some sales into the U.K. but it's not a substantial number. Other markets are much more important; China, Russia, Germany and other European markets. It has potential impact on our U.K. businesses. So far, I can't see changes with the drop in the British pound against both the euro and the U.S. dollar. It's been a wash -- our U.K. businesses are a net euro exporter, which means they sell more in euros and they import in euros. At the same time, they are net importer in U.S. dollar. And if you do the math, it's a wash.

So, some of the input costs are going up. Some of their sales once we convert them into British pounds, they get more pounds for it and you compare those two, it's a wash. So, the only negative impact we have so far is from translating the U.K. earnings into U.S. dollars and that's about $0.02 a share impact at current exchange rate levels on a full year basis. So, about a $0.01 for the remainder of the year.

Bhupender Bohra

Okay. Got it. Thank you. And lastly, there was some questions on the distribution business and how we have seen the North America general industrial end market kind of soften. We heard like some of the large distributors kind of talking June was -- we saw some extended shutdowns here in June. And some of them even pointing towards that those extended shutdowns have moved on to like July and maybe some improvement in August actually. Is that your thinking, and that's what you are hearing or your customers are -- that's what you are feeling?

Carl Christenson

No. I don't. We think that it's -- that which we don't expect things to get any better. I think there is more optimism out there in some of the -- in some of the shared and some of the published information than what we are seeing. No, we don't have a tremendous amount of visibility in our order book but I'm not that optimistic. We are not going to plan for it.

Bhupender Bohra

Okay. No, my question was to get around like how July has started basically because some of these guys have been talking that July is along the lines of June which was -- we saw some extended shutdowns. So, just wanted to get --

Carl Christenson

Okay. I'm sorry. I misunderstood. Yes. I think if you look at our guidance, what we are expecting these things to be relatively flat. Our order book hasn't reflected that it's going to -- that we are going to see a downturn and hasn't reflected that we are going to see it get any better. So we are expecting it to be relatively flat and have -- in a similar seasonality to what we had in other years.

We are -- we do read that those same comments and if those extended shutdowns do occur and we -- when it does impact the order book then we will adjust accordingly.

Bhupender Bohra

Okay. Got it. Thanks a lot Carl.

Carl Christenson

Thank you.

Operator

Thank you. We have no further questions at this time. Mr. Christenson, I would now like to turn the floor back over to you for closing comments.

Carl Christenson

Okay. And thank you, operator and thanks to everyone for joining us this morning.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.