Lufkin Industries Q3 2007 Earnings Call Transcript

Lufkin Industries Inc.(LUFK)

Q3 2007 Earnings Call

October 17, 2007 10:00 am ET

Executives

Doug Smith - Chairman, President and CEO

Jay Glick - President

Bob Leslie - Chief Financial Officer

Chris Boone - Corporate Controller

Analysts

Marshall Adkins - Raymond James

Byron Pope - Tudor Pickering

Amit Shah - Thomas Weisel

Eric Mentz - Eagle Assets

Presentation

Operator

Good day and welcome to this Lufkin's Industries Third Quarter 2007 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Chief Executive Officer, Mr. Doug Smith. Please go ahead sir.

Doug Smith

Thank you operator and good morning everyone. Welcome to the Lufkin Industries third quarter conference call for the period ending September 30th, 2007. With me this morning is Jay Glick, President of the Company, Bob Leslie, Chief Financial Officer and Chris Boone, Corporate Controller. After my brief remarks, Bob will provide you with more detail on our financial results. After our remarks we will respond to any specific questions you may have.

I would first like to read our Safe Harbor language. The conference call today may contain certain forward-looking statements, including, by way of illustration and not of limitation, statements relating to liquidity, revenues, expenses and margins. The Company strongly encourages listeners to note that some or all the assumptions, upon which such forward-looking statements are based, are beyond the Company's ability to control or estimate precisely, and may in some cases be subject to rapid and material changes.

As stated in today's press release, Lufkin Industries had net income of $19.1 million or $1.26 per diluted share for the third quarter 2007, this compares to $17.4 million or $1.15 per diluted share for the third quarter 2006.

On a sequential basis revenues were up 1.6% and earnings were up approximately 9%. Overall backlog grew 6.6 % to $192.5 million, on the strength of improved bookings in the Oil Field and Power Transmission division.

Cash generation in the company was on plan, including our capital expenditure program and our stock buy back program, Bob Leslie will elaborate on these later. Overall, our markets remained strong with the exception of Trailers, where I will begin.

The Trailer market is a troubled one at this time. The U.S. economic challenges are directly impacting the freight activity, and the subsequent demand for transportation equipment. Freight levels have dropped twelve out of the last thirteen months when compared year-over-year.

The principal issues are well known, slowdown in housing and the contraction in automotive manufacturing. Trucker profitability has accordingly suffered, and that combined with tighter credit has led to a very difficult equipment market.

According to data from the ACT, a commercial transportation research company, new trailer order levels in August were the lowest since the months immediately after 9/11 in the year 2001. Trailer orders at the national level were down 41% in July and down 56% in August on a year-over-year comparison. There is little expectation of near-term relief. Lufkin in trailers has experienced much of the same with some relief from our position with Oilfield trailers.

Demand for Lufkin flatbed trailers has fallen in excess of 25%. At least one of our competitors has announced the closing of a flatbed plant. Dump trailers have had less of a reduction, but are considerably down from last year.

Our Trailer division has taken several steps to resize and rebalance production operations. Such action has mitigated the financial impact on the company's results. We are continuing to redesign and pursue niches that offer better opportunities. The Trailer division accounted for 6.4% of the Company's sales in third quarter 2007.

Turning to our largest division, the Oil Field division, we saw some of expected improvement in worldwide market. New orders were up 14.9% on a sequential basis, resulting in a 14.1% sequential increase in backlog. Canadian orders bounced back from a very low level earlier in 2007, and U.S. oilfield bookings were up sequentially by 10%.

Pumping unit sales were up domestically, but continue to reflect some of the softness in U.S. oil patch projects. Pricing pressure in the U.S. has constrained our ability to pass on all our cost increases, but activity level is the bigger issue. Recent increases in U.S. rigs drilling for oil and projections for 2008 are encouraging.

While we see some recovery in the U.S. pumping unit margin, we believe this sector is still affected by one, the abundance of gas that has kept prices low and depressed production of coal-bed methane and other unconventional gas production that use rod pumps to dewater the wells. Two, is the uncertainties associating with both M&A activity and the sale of concessions that adversely affect production schedules. Three, the competitive pressure from lower cost pumping units that find acceptance in the market sector, historically served by used units.

Four, efforts by both independents and majors to control cost or defer projects to stay within capital budgets. Pumping units demand continued to expand internationally during the third quarter. South American, Middle Eastern and Russian opportunities, with the bigger players Lufkin is well positioned to serve all three of these markets, with our expanded operations in Argentina and service facilities in the Middle East.

The service and automation products in services continue to grow, both domestically and internationally. The automation products continue to expand our market particularly in international markets, as customers gain experience with the economic benefits of this technology. Inroads in Russia and the Middle East and South America, all point to continued growth in our automation business.

Summing up, our view of the outlook for the Oil Filed, the increase in the booking activity in quarter three, coupled with the current energy prices reinforces our view that this sector will continue to see high levels of demands, but demand slightly below that of 2006. We expect strong growth internationally, but some level of continued softness in the United States.

In the Power Transmission division, we had another strong quarter. New orders slowed slightly, down about 3% from the preceding quarter, but orders were ahead on a year-over-year basis for the seventh consecutive quarter. Backlog grew sequentially by 6.5% to a level of $120 million. New orders came from the marine sector again, but oil and gas projects were up significantly from earlier this year. Projects for power generation also figured prominently in the active markets.

Quotation activity remains high with numerous projects identified. Based on this and other market inputs, overall bookings are expected to set another new record level for full year 2007. A number of new marketing initiatives have strengthened our international presence and combined with the weaker dollar provided us several opportunities.

An office is scheduled for opening in the Middle East in quarter four 2007. Scheduling and production in our factories will remain challenges. The large numbers of projects test the capacity not only of our engineering and project management groups but also those of our customers.

In some instances, reschedules and changing specifications complicate our ability to maintain production schedules. Numerous initiatives are underway to help; our backlog in France reached a new record level in quarter three.

Several significant investments and facility on equipment are in place now and should favorably impact 2008 performance. The vision outlook is quite positive.

Overall the company had a good quarter up from the second quarter. We expect the similar fourth quarter 2007 performance with some challenges in product mix and holiday related utilization issues.

We provided guidance for earnings for the fourth quarter 2007 in the range of $1.12 to $1.32 per share. As you have seen we have provided guidance for the 2007 full year earnings in the range of $4.70 to $4.90 per share.

Bob Leslie, our CFO will continue with the presentation and review the detail results of our three business units.

Bob Leslie

Thank you, Doug. Good morning to our conference call participants. Thank you for your interest in Lufkin Industries. I will provide you with the financial overview of the results of the third quarter of 2007 and the year-to-date results through September 30 of 2007 along with the comparison to the same period of 2006.

As Doug indicated, the third quarter revenues were $146.9 million as compared to $144.5 million in the second quarter of 2007 and $158.8 million as compared to the third quarter of 2006, an increase over the second quarter 2007 revenues primarily reflected increased international revenues in the Middle East, compared to the third quarter of 2006 revenues were down $11.9 million or 7.5%. For the oil field and Trailer experienced revenue decreases of $13 million and $10 million, respectively, while Power Transmission provided revenue increases of $11.2 million or 37.7%.

The decline in oil field revenues reflected the continued sluggish North American markets partially offset by an increased international revenue, again from the Middle East and Argentina. Compared to the second quarter of '07, Canada's revenues reflected a slight increase. The decline in Trailer revenues reflected the company to exit from the van markets as announced in the third quarter of 2006 and sluggish Trailer markets in general. Compared to the third quarter of 2006, the 37.7% increase in Power Transmission revenues was driven from all three profits centers.

PT machining in Lufkin Texas, revenues were up $7.6 million or 48%. Lufkin France revenues were up $3.5 million or 56%. Third quarter 2007 net income was $19.1 million or $1.26 per diluted share as compared to $17.4 million and $1.15 in the third quarter of 2006 and $17.5 million or $1.15 per diluted share in the second quarter of 2007.

As compared to the third quarter of 2006 and in spite of the $11.9 million 7.5% decline in revenues, the increase in net income and net income per diluted share was driven primarily by improved gross margins, which were 27.9% of revenue as compared to 24.4% of revenues in the third quarter of '06. Other income, also provided the net income improvement due primarily to the increased interest income, gains associated with the disposal of the fixed assets and foreign currency gains primarily from Canada.

As noted third quarter 2007 gross margins increased just 27.9% of revenues as compared 24.4% in the third quarter of '06. Second quarter 2007 gross-margins were also 27.9% of revenue.

Power Transmission’s gross-margins increased to 34.2% as compared to 27.4% in the third quarter highlighting the leverage on the 11.2 million, 38% increase in revenues.

SG&A expenses during the third quarter of '07 increased to 8% to $14 million, as compared to $13 million in the third quarter of '06. As a percent of revenue, third quarter 2007 SG&A expenses were 9.5% of revenue as compared to 8.2% in the third quarter of '06. This increase on a percent of revenue basis primarily reflected the decline in revenues, as I previously discussed the fixed nature of these expenses.

During the quarter, selling and engineering expenses increased, reflecting the increased Power Transmission volumes. Third quarter other income increased to $2.1 million as compared to $452 million in the third quarter of '06. Increased interest income associated with the increased cash balances was a primary component of this increase, also reflected in other income was a net gain associated with the sale of a long-term fixed asset.

Year-to-date, through the first nine months of 2007 revenues was $439.5 million as compared to $439.9 million for the same period of '06. This represented only a $416,000 decrease, which is less than 1%.

Power Transmissions revenues were up $115 million as compared to $90 million in '06, up $24.8 million or 27.4%. Trailer revenues were $33.4 million compared to $56.8 million, down $23 million or 41%, reflecting the exit from the van markets.

In spite of the soft North American markets, year-to-date oil fields were down only $1.8 million or six-tenth of 1%. Year-to-date oil field revenues were $291.1 million, as compared to $292.9 million during the same period of '06. As I previously noted, the increased Power Transmission revenues, primarily reflected increased unit sales from PT machining, up 28% and from Lufkin France up 52.8%.

Gear repair revenues were up approximately 6.3%, within oil field increase year-to-date revenues from Egypt, Oman and Argentina significantly offset the decline in North American revenues. Automation and North American oil field service also contributed significant year-to-date revenue growth. Year-on-year foundry revenues were basically flat.

Year-to-date earnings were $54.4 million or $3.58 per diluted share as compared to $50 million and $3.31 per diluted share for the first nine months of '06. This represented an 8.2% increase on basically flat revenues.

Year-to-date gross margin improvements were significant driver of this increase in net income. The Company's overall gross margin improved to 27.6% of revenues as compared to 25.8% revenues in the first nine months of '06. Power Transmission's gross margins were primary drivers for the improvement in the 2007 year-to-date gross margins of 33.8%, as compared to 31.9% in '06.

Oil Field year-to-date margins were basically flat at 23% and Trailer gross margins were also, were at 8.9%. Year-to-date SG&A expenses were $43.2 million or 9.8% of revenue, as compared to $38.2 million and 8.7% of revenue for the first nine months. This represented a $5 million, 1.1% revenue increase.

The major components of the change reflected the full period impact of the addition of international sales officers, routine annual salary increases, foreign sales commissions and the cost of outsourced Power Transmission engineering work associated with the increased backlog and the increased cost of expensing stock options of retirement age employees.

At the end of September, the Company had $82.9 million in cash and cash equivalents, as compared to $43.9 million at September the 30th of '06, $57 million at the end of the year '06 and $76 million at the end of June 30th of '07.

During this quarter the Company expended $22 million to purchase 400,000 shares of Lufkin stock under the Company's stock repurchase plan. There remains 10.1 million balance in the Board authorized stock-repurchase program.

Also, during the quarter the Company expended $3.7 million on capital spending and paid $3.4 million in dividend. Third quarter depreciation was $3.7 million and the Company projects 2007 depreciation to be approximately $15.9 million.

Year-to-date through September the Company generated EBITDA of $93.4 million and that equaled 21.2% of revenue as compared to $85.1 million and 19.3% of revenue for the first nine months of '06. This represented a 9.8% increase on basically flat year-to-date revenue growth.

The Company ended the third quarter with no long-term debt, and continues to have in place employees a credit facility with J.P. Morgan Chase, that is continued to retire in December 31 of '08.

At this time, this concludes the financial overview for the first nine months of 2007 and I would like to turn it back to Doug.

Doug Smith

Thanks very much Bob. At this time I would be happy to try to respond to some of your questions. So, I'll turn it to you operator.

Question-and-Answer Session

Operator

Again, thank you Mr. Smith. The question-and-answer session will be conducted electronically. (Operator Instructions) And we will go first to Marshal Adkins with Raymond James.

Marshall Adkins - Raymond James

Hey, Doug, obviously the Power Transmission business was really one of the strongest points of this quarter and seems to be growing pretty dramatically. Help me to understand, what the key drivers there are? What's changed there, other than, I guess the dollar is down dramatically over the last four years or so? Help me understand what's going on there, so as we look forward, is that going to continue to see that kind of growth?

Doug Smith

Well, Marshall of course. Energy is a big, big driver of that business. But I am going to ask Jay Glick to respond to that questions since he knows more about that business sector than probably anybody we have. So Jay would you like to comment on that.

Jay Glick

Yeah. Marshall, good morning. A lot of the business in Power Transmission is driven by the energy sector. As we've have talked before on previous calls, we are a major player in the gas compression, gas re-injection part of the business. So any, oil and gas development work that uses compressors or large centrifugal pumps, is certainly a major player in our market.

And this past quarter, we also saw a uptick in our marine business, and I think we've have discussed this in previous calls, but our marine markets are primarily the offshore supply boats and some of the inland waterway boats that move coal and other resources up and down the inland waterway system. And that market has been very strong, probably because of the Jones Act and the move towards double hulled vessels that are requiring a new generation of boats to serve that or to satisfy that new legislation.

So those are two sectors and then our industrial business in Power Transmission focuses on the tire and rubber business, fuel, other metal working industries and mining. And those businesses are typically driven more by just the general economic environments. Steel was certainly strong last year, but those businesses are not as strong as the energy sector.

Marshall Adkins - Raymond James

And then the backlog, in France that you mentioned, activity there, is that just industrial related?

Jay Glick

No, there is a pretty significant oil and gas play in France, and then we have a large metal working market that is served from the French plant. But the growth, I would think year-over-year, has come largely from our high-speed products, which are used, more in the energy business than the industrial markets.

Doug Smith

Marshall, another big tracker is the power generation sector. So if you were to ask General Electric, where they expect to be using turbines for the coming years to generate electricity or solar people like that. Those are all customers of ours. So, the electricity market is a player for us as well.

Jay Glick

Absolutely.

Marshall Adkins - Raymond James

So, translating this into, what we have to do, which is to look out a year or two, three years, with oil pushing up towards $90 dollars now, I mean it seems like the energy business is going to remain fairly healthy around the world. Should we look for consistent growth in the future from this sub-sector in the company?

Jay Glick

Our view is that the energy sectors should remain strong. The power generation business, if you look at the demand for electricity, particularly in developing countries, I think that's another indicator that you might track, and then probably 30% or 40% of the business is more based on the general economy and that would be our low-speed product lines that are in the steel and other sectors. So how those sectors move, might also have a role in projecting the future growth in PT.

Doug Smith

Marshall, we would have a pretty positive view on that, but you guys are around the business every day, might know better, but if you have a lot of confidence that there is going to be continued development of infrastructure in the whole area of energy, whether it’s pipelines, refineries, and for that matter petrochemical operations, all of those if that is going to be a sustained effort and certainly the input that we have right now is pretty positive on that, then we'll certainly be a player.

So between electricity infrastructure you still have the oil and gas placed sometimes are very specific to fields and offshore situations that sort of thing. The backlog of quotation activity is pretty impressive and whether that will get converted into three or four year, horizon is pretty difficult for us to call, but we made investments with that in mind.

Marshall Adkins - Raymond James

Alright. Well that’s very helpful. One other follow-up here switching gears back to the oil field side. I think the perception with a lot of us has been that this is a very oily type part of your business, but I think a little surprise of last year quarters at the gas component. What’s your best guess at the breakdown on the oil field side of oil versus gas? And again, I am just a little perplexed that North American being so weak with oil pushing at 90, so help us to understand that part of the oil field side.

Doug Smith

We only discuss that about twice a day, Marshall.

Marshall Adkins - Raymond James

Yeah, I am sure.

Bob Leslie

Yes, we’re equally perplexed and as we look at the results of other oil service companies are coming out, there is some level of comfort that everyone seems to be seeing a weakness in North America both in oil and gas. I think there are couple of reasons that we speculate on, one is clearly gas oversupply effect that sector of our business and a lot of the weaknesses we go from customer-by-customer or region-by-region, and looking at year-on-year bookings comparisons we see that the people who are in the gas play, particularly coal-bed methane are really missing in the bookings results for this year.

But in addition to that, I think there is the whole issue of the oil companies, our customers trying to get a hand on the cost and we hear stories that people are not able to flex their capital budgets up and as costs have risen, they have reduced activity levels to stay within those budgets. And that's I think the primary driver on the oil side and I think we will probably see that continue for a short period of time, you probably saw the article on the Wall Street Journal yesterday on oil companies earnings being adversely affected even in this environment of high oil prices. So there is clearly a squeeze on, and I think that's resulting in companies pulling in remarks on capital spending.

Marshall Adkins - Raymond James

If you had to guess, I know it’s we are not going to have an exact number, but just can you give me a ballpark number on kind of how much of your pumps are going for oil related projects in North America versus gas related projects?

Doug Smith

The gas related component would be very small at this stage of the game.

Marshall Adkins - Raymond James

10%?

Doug Smith

That number. We’ve had numbers in the past where on a unit account basis, upto 50% of the units would be going to a gas and tighter application. That’s not 50% of the revenues by any means, because what we put into situations to pump off water typically very smaller units. Those numbers are nowhere close to that now, I would be taking a guess if we had 10% of the units going into gas situation at least prior estimate.

Marshall Adkins - Raymond James

Okay, alright. So from here on, oil is probably going to be a little bit more downward trend, say the last year or two.

Doug Smith

I think so. You got other issues like transportation problems and pipelines into the Rockies at this time in a year, but that's we are kind of assuming that to be the situation.

Marshall Adkins - Raymond James

Okay. That's very helpful. I'll turn it to someone else and then come back, catch you later. Thanks.

Operator

We'll go next to Byron Pope with Tudor Pickering.

Byron Pope - Tudor Pickering

Good morning, guys. I would like to stick with the oil field segment here, and just ask kind of a philosophical question, in terms of how you think about the order of magnitude of growth that we might see on the international side because we take a look at the oil field segment past few years pretty strong top-line growth, but this year kind of flattish and you just spoke to some of the reasons why? But as we start to look at 2008 growth potential, is the robustness of the demand that you see in the international side enough to offset if we see continued sluggishness on the North America side? I guess the question I am asking is the top-line growth prospects for the oil field segment as you look out on the horizon.

Doug Smith

Well, I am not sure that we can speak to all of the macro issues. I think for the clear trend outside the United States, but at a different level, Jay just completed a sales meeting with all the people in the oil field, you might try to relate to that.

Jay Glick

Yeah, we are clearly trying, Byron, to grow the international business that was our strategy going back several years ago, and we had some success with that. I don't know that we know enough at this point to say whether it could withstand or offset terrific decline in the domestic U.S. part of our business, that we are our strategy is to be certain that we are the primary player in the growth in the international markets because we see that as being where the future is, certainly, short-term future. But it's difficult for me to say that because I don't know what the extent of the decline here might be. We are not projecting any major declines here, but if things got really dicey in the U.S., I don't know that the international can fully carry it.

Byron Pope - Tudor Pickering

Okay, and then a question for you Bob, I know you guys are probably still in the capital budgeting process for next year? But I mean, directionally speaking, given the opportunity you should see on the international side, are we actually looking at CapEx kind of flattish '08 versus '07 or do you have any early thoughts on kind of CapEx spend in terms of where you are with your various plans?

Bob Leslie

Of course, this is something we are looking at closely right now. But the direction, we are headed is that we will probably have a greater level of investment during 2008. Some of this has to deal with significant facility issues. We need to deal with not only here, but in finance as well and so we are in the process of evaluating that but quite frankly, I will be very surprised, if we don't have a significant increase in expenditures for CapEx next year.

Byron Pope - Tudor Pickering

And then last question, Bob I think you mentioned this in your prepared comments, but I missed kind of the gross margins fleet to the three segments, can you just give me that?

Bob Leslie

Alright, Okay Byron, I really didn't them by quarter when compared I didn't give him by segment. I gave in total and some let me come back to you. I will call you back on that.

Byron Pope - Tudor Pickering

Okay, great. Thanks guys.

Operator

(Operator Instructions). And we will go next to Amit Shah with Thomas Weisel.

Amit Shah - Thomas Weisel

Hey guys, just a kind of a follow-up on previous question. The CapEx of, are you planning, are you sticking with the CapEx guidance that you had given at the beginning of '07, say at the mid of '07 seeing that around $20 million to $22 million?

Doug Smith

Yes we are. We’re sticking with that number for us.

Amit Shah - Thomas Weisel

Okay, and going into the fourth quarter, can we expect to see a little bit increase in SG&A due to the Middle-East office that is coming up?

Doug Smith

I don't think that will be a significant player in those numbers.

Amit Shah - Thomas Weisel

Okay, and can you talk, I know you spoke a little bit, but if you can give us more detail on what constitutes in that other income number, because I thought that was pretty high, like around $2 million so, and how do we look at it going forward?

Bob Leslie

The permanent component of the other income is the daily investments on our cash balances. That was up, there we had other income of $2.1 million. There was only $541,000 of that $2.1 million that was associated with the sale of a fixed asset and then there is also a component of that exchange gain, about a half a million, and that was primarily Canada. So we had about $1.1 million of interest income and I think you can calculate that based upon our cash projections.

Amit Shah - Thomas Weisel

Okay.

Bob Leslie

That would be…

Amit Shah - Thomas Weisel

Well that helps. And if you can, can you give us a split between U.S., Canada vis-à-vis international for the Oil Field division?

Doug Smith

Yeah, we have to spend a little time on that from the standpoint of our service in automation-sales, typically don’t carry a big backlog. So if you talk about revenues versus backlog you get a significantly different split on that. But Jay let me -- see if you can try to respond to that. And you are talking about the entire division?

Amit Shah - Thomas Weisel

Like, I just want like numbers from segment-wise, say for Canada foundry, Argentina, the Lufkin Texas pumping unit sales and etcetera.

Jay Glick

Okay. I want to see if can get back to you on some of that information here. I have got that, but I'll call you back.

Amit Shah - Thomas Weisel

Okay, that's fine.

Doug Smith

Okay. Thank you.

Amit Shah - Thomas Weisel

Thank you.

Operator

We'll go next to Eric Mentz with Eagle Assets.

Eric Mentz - Eagle Assets

Hi, I was wondering if you could just further elaborate on the issues for the fourth quarter, given that your EPS guidance, I guess it seems flat roughly, especially with your backlog been up so strong sequentially.

Doug Smith

Let me offer my first opinion and Jay could certainly embellish them Eric. My biggest concern about the fourth quarter is, the good news and the bad news, is a lot of our businesses associated with Power Transmission. But what is that bad news associated with that, and that has to do with the interface with our customers to do final testing, to do final acceptance. There is just a lot of work to do be done with our customers in order to finalize shipments.

And we have absolutely no problem with having a backlog that will generate the situation that we’re talking about here. But when you get into the holiday periods and you can't get hold of the right people, and schedules get changed and instead of being able to come two days before Christmas, how about if I come on January 15th. Those kinds of things can be significant in terms of revenue and the subsequent earnings that we put down. So it really doesn't have too much do with our backlog and frankly long-term all of those revenues and profits will be realized, but the timing can be significant, as we go through this holiday period, quite frankly.

Eric Mentz - Eagle Assets

Okay and then I think you also made a comment regarding oil field being below 2006 levels. Was that a look-out into '08, a preliminary look at '08 or was that just based on…? What were you getting at there?

Doug Smith

Well, we were just speaking in general in terms of 2008 numbers we really don’t have, finally put together, but our general feel on the market as we look at for the next quarter or so, we hear a lot of optimistic stories about things that are going to happen in U.S. in 2008 but to get that optimism to convert into real activity we'll just have to wait and see. So, we will take a little more conservative view on that for the time being.

Eric Mentz - Eagle Assets

Okay. Thank you.

Operator

We will take a follow-up question from Marshall Adkins with Raymond James.

Marshall Adkins - Raymond James

Well Doug, a couple more here on the oil field automation services side of the business, obviously that seems to have done fairly well. How big a part of your business is that, and should we expect to see further growth there?

Doug Smith

First of all, in general, those two businesses Marshall, would make-up on an annual basis almost at 110 -- maybe $110 million something like that. So, let’s call it 16%, 17% of the total volume of the company, but this is sizeable part of our oil field and is the most rapidly growing part of the business.

Marshall Adkins - Raymond James

And the growth rate, can you give us some sense on kind of how that’s growing versus the other core part of the business?

Doug Smith

I mean the number that we look at Marshall is we acquire these businesses about 10 years ago and I think in the automation part of business we have revenue I don’t know, $4 million or $5 million in the revenue now is in excess of $50 million. So, it’s been a pretty good run during that period of time.

Marshall Adkins - Raymond James

Alright, and you don’t see that slowing.

Doug Smith

No, as a matter of fact we see some opportunity in those numbers.

Marshall Adkins - Raymond James

Okay, the competitive landscape on your core business, update us on what’s going on there. We were seeing some smaller Chinese pumps come in, how does market share look in the overall competitive landscape?

Doug Smith

Last year we have good solid numbers on that, the competitive environment, I must say is unchanged from what we saw earlier in the year. We are very well aware that there are Chinese units are coming in to the U.S. and they certainly put pressure on us and some of our other competitors as well. I don't know if we can speak to the market share, frankly, we have to begin to kind of sub divide and think because when you get on, say the lower end of the pumping unit business, which historically has been served with used units; those are not typically new units, then certainly we have a declining market share in that area. But if you look at the larger units that go into the bigger oils that are being produced, I don't think we can point to any significant deterioration.

Marshall Adkins - Raymond James

Okay. And last one, obviously you're filling off a whole of cash and you bumped up the dividend, you are buying back stock, should we look for that to continue, or are you aggressively looking at acquisitions? Just in terms of your future cash spending, should we assume status quo or are you looking at other things?

Doug Smith

Well, it's just a different status quo when you have cash laid around like we have right now. We certainly look for acquisition opportunities. We don't have a track record of being aggressive in that area, as you well know this is a topic that’s on the agenda each and every Board meeting and it'll continue to be. I mean you can see from that action has been over the last, say five or six Board meetings. We have taken incremental steps on that.

We will deal with that issues, we look at the organic growth in CapEx, opportunities and things like that. We will certainly gain from appropriate acquisition opportunity.

Marshall Adkins - Raymond James

Okay, and in the mean time I guess we should still expect more stock buybacks etcetera.

Doug Smith

But we still have $10 million authorized on the last stock buyback program and I don't know our exact schedule we will be starting using those funds over a period of time.

Marshall Adkins - Raymond James

Okay, good. Thanks.

Doug Smith

Okay, thank you.

Operator

I have no further questions, at this time I would like to turn the call back over to Mr. Smith for any additional or closing remarks.

Doug Smith

Okay, I would like to thank everyone again for their time, we appreciate your support and your interest in Lufkin Industries. So we look forward to speaking with you at the end of our next quarter. Thanks very much.

Operator

Once again that does conclude today's conference call. We appreciate your participation, you may now disconnect.

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