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Flowserve (NYSE:FLS)

Q1 2012 Earnings Call

May 01, 2012 11:00 am ET

Executives

Mike Mullin - Director of Investor Relations

Mark A. Blinn - Chief Executive Officer, President and Director

Thomas L. Pajonas - Chief Operating Officer and Senior Vice President

Michael S. Taff - Chief Financial Officer and Senior Vice President

Analysts

Jamie Sullivan - RBC Capital Markets, LLC, Research Division

Robert Barry - UBS Investment Bank, Research Division

Charles D. Brady - BMO Capital Markets U.S.

Brian Konigsberg - Vertical Research Partners Inc.

Kevin R. Maczka - BB&T Capital Markets, Research Division

R. Scott Graham - Jefferies & Company, Inc., Research Division

Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division

William D. Bremer - Maxim Group LLC, Research Division

David L. Rose - Wedbush Securities Inc., Research Division

Stewart Scharf - S&P Equity Research

John R. Moore - CL King & Associates, Inc.

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Welcome to the Flowserve Q1 2012 earnings conference call. My name is Kim, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Mike Mullin. Mr. Mullin, you may begin.

Mike Mullin

Thank you, operator. Good morning, and welcome to Flowserve's First Quarter 2012 Earnings Conference Call. Today's call is being webcast with our earnings presentation via our website at flowserve.com. Simply click on the Investor Relations tab to access the webcast and the accompanying presentation. The webcast will be posted at flowserve.com for replay approximately 2 hours following the end of this call. The replay will stay on the site for on-demand review over the next several months.

Joining us today are Mark Blinn, President and CEO; Tom Pajonas, Chief Operating Officer; and Mike Taff, our Chief Financial Officer. Following our commentary today, we will begin the Q&A session.

Regarding any forward-looking statements, I refer you to yesterday's earnings release and 10-Q filing and today's presentation slide deck for Flowserve's Safe Harbor statement on this topic. All of this information can be found at Flowserve's website under the Investor Relations section.

We encourage you to read these statements carefully with respect to our conference call this morning.

Now I would like to turn it over to Mark to begin the formal presentation. Mark?

Mark A. Blinn

Thank you, Mike, and good morning, everyone. I am pleased with our solid first quarter results and proud of the work our employees have done to create shareholder value by taking advantage of our improving end markets, including our long cycle business, for the first time in several years.

The first quarter played out largely as we anticipated. Back in February, we talked about how the first half of the year would be challenged by a tough 2011 compare due to the now stronger dollar and some large low-margin, delayed shipments going through backlog. We expect those challenging factors to also impact the second quarter, but we see improvement in the future quarters as our business cycle improves.

Our first quarter bookings represent our strongest quarter since the third quarter of 2008, in spite of the stronger dollar. The booking strength was broad based across our end markets, most notably in chemical and oil and gas, while our water markets remain challenged.

Our commitment to aftermarket end-user strategies and localization continued to pay off, with increased aftermarket bookings of 7% or 9% on a constant currency basis, resulting in an aftermarket annual run rate approaching $2 billion.

If you recall, we remained committed to growth investments during the downturn, as well as realigning our business to growth opportunities, and as a result, are now well-positioned to capitalize on what we believe is a key differentiator.

We are pleased to see our longer and later cycle project business activity begin to pick up, as demonstrated by the impressive EPD original equipment bookings.

I am proud of our employees' commitment and focus as we capitalize on the strengthening cycle. Our strong first quarter book-to-bill of 1.16 resulted in our highest first quarter backlog in 4 years. I will also emphasize that the expected margin going into backlog is improving as a result of firming markets and Tom's effort to intensify our discipline and enhance our processes.

We have also made progress on challenges around working capital and delivering our past-due backlog. Work remains, but I'm confident that Tom, Mike, and our operations leadership are driving the necessary operational improvement to improve margins and bring our working capital to more efficient levels.

Looking forward to the balance of 2012, I am encouraged about how the cycle is progressing. We see increased quoting levels and progress on long planned mega infrastructure projects, in spite of lingering macro uncertainty and market softness in Europe.

We are optimistic that this increased activity will result in increased booking opportunities towards the end of the year and into 2013.

Energy development opportunities in emerging regions continue as anticipated while the unexpected chemical renaissance in the U.S., driven by shale gas development, provides additional support to our optimistic end market views. When we look at the impact shale gas is having on the energy markets globally, we have seen significant increase in the number of projects announced to take advantage of this low-cost feedstock, with increased project announcements for combined cycle power plants and chemical processing plants in the U.S., Europe, Middle East and Asia.

As it relates to power, regulatory clarity in the U.S. may provide the necessary stability to enable significant investments in domestic power to move forward. And while desalination projects have been slow to move forward over the last several years, improving macro and political environments in key regions should support long-anticipated investments.

While we are optimistic about the present state of our end markets, a meaningful impact on our reported financial results will likely lag, given the long cycle nature of many of these projects.

In addition, although these jobs provide attractive, long-term aftermarket opportunities, we must still work through some lower margin, large projects in our backlog in the second quarter of 2012. But our first quarter bookings and bid levels give us increased confidence in our ability to meet our financial goals this year and to obtain profitable growth in following years.

Finally, I'd like to update you on the progress I have seen from our new One Flowserve leadership structure. Tom will highlight some of the initiatives, but I can tell you, I am encouraged about what has been accomplished in a short time.

I'm already seeing enhancements in leverage across many of our processes, including supply chain, R&D, complex project management, project bidding and contract execution, cost leverage and increased coverage of our customers.

While we are early in this current phase in our progression towards One Flowserve, I am confident in Tom and the ability of his leadership team to make the necessary improvements across all of our operations to deliver on commitments to our shareholders, customers and employees. So with that, I'll turn it over to Tom.

Thomas L. Pajonas

Thanks, Mark, and good morning, everyone. Before I review the numbers, I'd like to update you on the progress we made on our new operating structure we discussed in February.

The operating leaders are in place, and we have intensified our efforts towards operational efficiencies, reducing our past-due backlog, on-time delivery, as well as low-cost sourcing opportunities, pricing discipline, win rates and other costs, including selling, general and administration costs, that have an impact on our overall cost position in the business.

Over the last few months, we have driven processes to better serve our customers. R&D is done centrally across the business, as we have established common processes. We have leveraged global proposal and contract execution capabilities. We enhanced our focus on customer satisfaction through our on-time delivery commitment focus and our pursuit of obtaining a high-quality product every time, the first time with our customers. And I have added a senior quality person, reporting to myself to align our customer base and provide a central focus here.

I am excited about this progress and the operational efficiency initiatives we have planned. As Mark discussed, we are pleased with our strong Q1 bookings of $1.25 billion, or an increase of 7.1% versus prior year, resulting at a strong book-to-bill of 1.16. We saw strength in the chemical and the oil and gas industries, partially offset by a decrease in water. The aftermarket business remains strong, as we continue to concentrate on this important aspect of our business.

While the OE market, in particular the longer cycle OE market, continues to remain competitive, we were pleased with our overall OE growth rate.

In the oil and gas markets, Canadian tar sand activity remained high, with several other tar sand projects continuing to progress the various levels of funding and permitting approvals. Also, quoting activity on Brazilian offshore projects remain strong. A decline in natural gas prices is driving the end user to focus on oil and liquids in their drilling programs. As reserves and natural gas continue to grow, there is the real possibility of increased U.S. activity as an LNG exporter.

Upstream and downstream, oil and gas projects remained strong in the Middle East, with gas projects seeing increased activity in Russia and shale gas projects in China.

In spite of uncertainty in the nuclear market, several countries continued to move ahead with their nuclear plants, including China, the U.S. and India, in particular. The U.S. has most recently received NRC approval for both the Vogtle plants in Georgia and the SCANA plants in South Carolina. The increase in natural gas reserves and continued low price of natural gas is driving more combined cycle natural gas plants in the U.S. This trend may also increase throughout other regions of the world as more natural gas is tapped.

China and India continued to balance their power needs across a wide range of technologies, including nuclear and fossil applications. The chemical market continued its overall growth pattern, with broad-based, year-over-year growth. As more natural gas is discovered around the world, it should create opportunities for low-cost gas feedstock for chemical plant applications.

The water business decreased, but we see potential activity in China and the Middle East. Mining and pulp and paper, although a smaller contributor to our general industries, continued to grow. Mining should continue to be a good growth sector, based on increased global demand.

Now I would like to turn to our segment results. The Engineered Product Division grew bookings 11.3% in Q1 versus prior year, to $671 million, resulting in a healthy book-to-bill ratio for Q1 of 1.25.

Book-to-bill for the OE business was 1.59, while the aftermarket business, it was 1.05. A strong OE book-to-bill works to increase our expected highly engineered installed base, and ultimately, increases our aftermarket opportunity.

The bookings growth is notable, considering Q1 of 2011 included nearly $90 million of bookings related to one major order. Aftermarket bookings increased 9% or 11% on a constant currency basis. Our continued focus on the aftermarket, particularly in customers focusing on energy efficiency, operating cost reductions and reliability, continued to build momentum.

Bookings growth in Q1 came from the chemical, oil and gas and general industries, including the mining business, and to a moderate amount, the power business.

Sales were up 2.1% on the quarter versus the prior year or 4.6% on a constant currency basis to $535 million, driven again primarily by sales originating in EMA and North America. We continue to invest in the emerging markets with 3 ongoing capital investments at our new Xuzhou greenfield facility, our greenfield Brazilian Rio facility and the addition of our third greenfield block in Coimbatore, India. Also in January, we completed the acquisition of EMCOMET, an Argentina-based business, specializing in bearings and seal lube oil systems and electrical control panels used in pumps and seal support systems.

Gross margin was 34.3% versus prior year at 35.9% was negatively impacted as we continued to work through lower margin past-due backlog and sales mix shifted towards lower margin OE.

Operating income was 17.2% versus prior year at 17.5%, including a gain on sales of replaced assets and appropriate overall expense control.

We continue to work on any internal business unit, which has performance areas that are not up to Flowserve's high standards. We have a group of quality black belts that are driving key initiatives across these plants in a methodically detailed program. We also have visibility in our backlog of our projects, and review each operational backlog regularly.

I would also like to update you on the performance of Lawrence Pumps, acquired in the fourth quarter of last year. Excluding noncash purchase price accounting effects, Lawrence got off to a strong start this year. This reflects our ability to leverage our aftermarket capabilities and global sales network to benefit from an acquisition, which fits us well with complementary Flow Control products.

The Industrial Product Division grew bookings 3.1% from the previous period Q1, or 4.9% on a currency neutral basis. The overall book-to-bill ratio was 1.09 in the present quarter.

OE book-to-bill was 1.12, while aftermarket book-to-bill was 1.03. The OE aftermarket bookings mix remained essentially the same, while the sales mix shifted 300 basis points towards original equipment in Q1 2012.

Growth came from the chemical, oil and gas and other businesses made up of mining, and to a lesser extent, food and beverage.

Regionally, the largest growth came from North America, Latin America and the Middle East, offset by a negative growth in Europe and Asia-Pacific.

Sales grew 20.9% in Q1 to $213 million as compared to prior Q1. Sales by definition grew substantially in North America, Latin America, the Middle East and Australia. Aftermarket sales were up 11% versus prior year Q1.

Original equipment sales were up 27% versus prior year Q1. Gross margin was 23.3% for Q1, as we continue to work off lower margin projects in the backlog and the mix shifted to more original equipment sales.

Operating margin increased 80 basis points to 8.2%. SG&A expense was essentially unchanged from prior year, which resulted in good SG&A leverage on the increased revenue.

Overall initiatives on driving operating margins and on-time delivery improved steadily. We continue to drive for core operational efficiencies in our business units in order to meet our goal of steadily improving performance in this segment to deliver on our targeted operating margin of 14% to 15%. We are driving low-cost sourcing opportunities here, along with process changes in some of our IPD plants to drive this performance goal.

Flow Control Division bookings of $380 million were up 0.7% versus prior year, or 2.6% on a constant currency basis. The overall book-to-bill ratio in Q1 2012 was 1.04, with the aftermarket book-to-bill being 1.04 in Q1 2012.

Bookings in the aftermarket business grew 2% versus prior year Q1. Bookings aftermarket mix of 15% was unchanged from prior year. Bookings increased primarily in chemical, with a more moderate increase versus prior year in power.

The pulp and paper business also saw a favorable increase versus last year. Regionally, North America, the Middle East, Latin America and Asia-Pacific overall saw increases in bookings from prior year Q1, offset by decreases in Europe as a result of the macroeconomic uncertainty in several countries.

Sales grew 7.8% to $364 million from prior year Q1. Also, the growth regionally came from North America, Asia-Pacific, most notably China and India and Latin America. Sale splits between the OE and aftermarket remained the same at 85% and 15%. Gross margins grew 80 basis points to 35% on the quarter. SG&A, as a function of sales, reduced 60 basis points from prior year to 19.9%.

Gross margin continued to improve, as pricing actions taken in 2011 materialized, including low-cost sourcing, improved absorption and cost control initiatives. Operating margin increased 120 basis points from prior year of 15.3%.

Overall, the Flow Control Division will continue to focus on high-quality growth strategies, like automation, plus emerging market growth in Russia, India, China and Latin America.

In addition, the Valbart acquisition continued to provide FCD additional penetration in the oil and gas market, with accompanying pull-through opportunities for some of our other products. Additionally, FCD focused on continued execution excellence, as demonstrated by its on-time delivery of over 91%, as well as its efforts to drive customer quality initiatives in all of its products and services.

And now I'd like to turn it over to Mike Taff.

Michael S. Taff

Thank you, Tom, and good morning, everyone. First, taking a look at bookings, the first quarter bookings of $1.25 billion was our strongest quarter since the third quarter of 2008.

Year-over-year bookings increased $82 million, up 7% or 9.4%, excluding negative currency impact of approximately $27 million. The increase was driven primarily by EPD original equipment orders in Asia-Pacific, with notable strength in the chemical and oil and gas industries, partially offset by a decrease in the water industry.

The strong bookings, notably in our highly engineered long cycle products and improving end markets, supports our confidence in our 2012 forecasted revenue increase of 5% to 7%, as well as our longer-term expectation of 8% to 10% revenue growth through 2016.

When we look at sales for Q1 of $1.07 billion, we saw an increase of $78 million from the prior year, up 7.8% or 10.1%, excluding negative currency impact of approximately $23 million.

We also had a mix shift on sales, where original equipment revenues increased from 57% to 59%, which had a dilutive impact on margins.

Turning to the financial results slide. Gross margins were down 150 basis points, in part due to a mix shift in sales in EPD and IPD towards original equipment.

Additionally, as we discussed at the end of 2011, we also continue to feel the impact from a few lower-margin projects booked during the downturn, which are cycling through. Q2 will be similarly challenged, and as we previously guided, we expect to see margin improvement in the second half of the year.

SG&A expenses decreased by 170 basis points to 20.6% for the quarter, with strong fixed cost leverage on the higher sales and the continued tight cost controls. SG&A was also impacted positively by a gain on the sale of an old manufacturing facility in Brazil, as we began the transition to a new, more efficient facility later in the year.

Operating margins for the first quarter of 2012 were up 20 basis points to 13.3%.

Let's take a few minutes to look at the other expense income line. In Q1 of last year, we posted an $0.11 gain from a transaction standpoint below the line, whereas this quarter, we saw a $0.06 loss resulting in a $0.17 swing.

As we have discussed previously, this line item is driven by sequential changes in exchange rates, as we mark our foreign currency hedges and balance sheet items to market. The slight strengthening of the euro was more than offset by the impact of higher volatility in the yen and Mexican peso.

Briefly, on our tax rate, it came in at 27.5%, which is slightly below our stated structural rate of 28% to 30%. We expect the full-year [ph] rate to be in the 28% to 30% range, excluding discreet items.

Turning to cash flows. Q1 has typically been a significant user of cash due to seasonality. On a comparative basis, we saw a significant improvement versus the first quarter of 2011, despite increased inventory levels associated with a strong book-to-bill ratio for the quarter.

CapEx was $29 million, about $5 million higher than last year, as we continued investing in growth markets, including increased aftermarket capabilities.

Also, in accordance with our announced policy to return cash to shareholders, we distributed $17 million in dividends and repurchased $22 million of stock during the quarter, which is roughly $10 million more than Q1 of last year.

We continue to focus on improving our levels of working capital, but work remains. Inventory increased in-line with a strong first quarter book-to-bill and resulting backlog growth anticipated for our 2012 forecasted revenue growth of 5% to 7%.

We made progress towards reducing our legacy past-due backlog, which we discussed at year end, and expect to work through most of the remaining balance in the second quarter of 2012, with some residual in the third quarter, which we expect to have a diluted impact on margins, but clears the way for margin improvement in the second half of the year and beyond.

I am confident that through the improvements we are implementing in our front-end bidding process, as well as our disciplined focus on cash collection, we can drive DSO into the mid-60s.

Taking a look at our outlook for the remainder of 2012. Following a solid first quarter start, we are reaffirming our 2012 full year guidance of $8 to $8.80 per share, including $0.50 of a negative foreign currency impact above and below the line.

As we have discussed previously, we continue to expect 2012 earnings to be second-half weighted due to the increased backlog, currency impact and delayed project margin pressures, as we continue to work through the remainder of the low-margin legacy backlog in the second quarter.

As I mentioned earlier, we continue to expect revenue growth of 5% to 7%, in spite of the currency headwinds we have outlined. I am also confident with the growth in our markets and Tom's operational improvements, we will deliver margin improvement and progress towards our 1.5% to 2.5% operating margin improvement target over the next 2 to 3 years.

We expect CapEx to be between $125 million and $135 million in 2012, as we position ourselves for growth and continue to execute on our end-user strategy. Working capital issues will receive a significant amount of my attention as we focus on bringing these metrics to more appropriate levels. And now let me turn it back over to Mike.

Mike Mullin

Thanks, Mike. Operator, we are ready to open the line for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And at this time, we have a question from Jamie Sullivan.

Jamie Sullivan - RBC Capital Markets, LLC, Research Division

Question. Overall, it sounds -- you sound incrementally positive on your end market, particularly long cycle and chemical. Is there anything that you're a bit more cautious on based on what you see?

Mark A. Blinn

Well, as we commented earlier, I mean, we're waiting for the water markets to start to recover as well and see what occurs there. I think, also, we're keeping an overall eye on the power markets. They've been relatively flat. What we talked about in the U.S. is if we can free up the regulatory environment. Also, as they start working through the -- each country is going through their nuclear evaluation. Some of them are starting to clear the way, some of them are still working through it. And then, again, there's always the wildcard of what goes on in EMA. It still seems to change from day-to-day. It seemed there was more confidence a couple of weeks ago, and now there's concern with what's going on in Spain, and that does impact our business.

Jamie Sullivan - RBC Capital Markets, LLC, Research Division

Okay, great. And then in the general industries area, I know that's a diverse end market for you. The bookings sounded stronger in EPD, maybe a little bit softer in some of the other segments. Just wondering if you can talk about what's driving the differences there?

Mark A. Blinn

Well, I mean, I guess, in the general industry, keep in mind, you've got mining, pulp and paper, some of the aspects of that, and we saw some improvement overall in the mining business. But also, you have some of our orders that goes through distributors that are in that segment. So what you might see -- what you do see is as distributors start to stock again -- stock again in their inventory levels, you'll see the benefit of that in the GI side.

Jamie Sullivan - RBC Capital Markets, LLC, Research Division

Okay. And that's what you're seeing?

Mark A. Blinn

We're seeing some -- yes, we're seeing some of the stocking activity overall. I think it's just generally as markets start to improve, if you -- where we were at this time last year is we were still talking about choppy and competitive, and what we do is we see some of these projects coming more and more online. Our distributors will see the same thing. Generally, industry will see that as well, and that'll tend to reflect itself through all aspects of our business.

Jamie Sullivan - RBC Capital Markets, LLC, Research Division

Great. Then one last quick one on oil and gas. So outside of the positive long-term fundamentals you're seeing, what -- maybe over the next year or so, what areas do you see the most activity occurring?

Thomas L. Pajonas

Yes, Jamie, this is Tom. One of the good areas and bright spots is the LNG market. And as we mentioned, because of the shale gas prices in U.S., you could see the LNG become an exporter out of the U.S., so that's a significant bright spot. Also, the Canadian tar sands' activities has remained high for us, given the overall price of oil. So that is also doing well. And the Brazilian offshore is another growth area for us.

Operator

Our next question comes from Robert Barry.

Robert Barry - UBS Investment Bank, Research Division

Can you quantify how much margin pressure was caused in the quarter in EPD and IPD due to these low-margin projects moving through?

Michael S. Taff

Yes, Robert, it's Mike. We'd estimate that to be somewhere between 150 to 200 basis points for the quarter. And I think you'll see similar effect in Q2, and then some -- a little run-on in the Q3 as well.

Robert Barry - UBS Investment Bank, Research Division

And that 150 to 200, that's both for EPD and IPD?

Michael S. Taff

Yes, majority of that was EPD, but that's a consolidated number.

Robert Barry - UBS Investment Bank, Research Division

And then, as we get into the back half of the year, should we expect things to kind of snap back once those few projects move out? Or is it going to be more of a gradual improvement?

Michael S. Taff

It's more of a gradual improvement as you kind of come through it. The same thing you saw -- I mean, Robert, just going back in time, our order book peaked really, particularly in EPD, in around the late summer of 2008. And you saw their margins hold well into the late summer of 2010 and then start -- you started to see the impact as that business rolled off. It occurs the same way when you start to build your margins back, but it starts with improved volume levels so you get better absorption overall in the business and also, the pricing as well. But that's how it tends to come back. This is typical of the cycle. And our long late cycle business, this is what you're seeing in EPD, as it -- as we kind of wrap up what we saw really in 2010 and some carried over to the early 2011, when we talked about the markets being choppy and competitive.

Robert Barry - UBS Investment Bank, Research Division

Okay. And then I just wanted to differentiate between the low margin backlog and the past dues? Because -- and I believe some of it is interrelated, but I think, Mike, you had alluded to something even slipping into 3Q. And just to be clear, is the low-margin -- the few low-margin projects, are they kind of moving through as planned and scheduled to be out after 2Q, and it's the past dues that you think might linger into 3Q? Or -- I just wanted to be clear on that.

Mark A. Blinn

Mike and I'll take this together. I mean, there's a couple of things. There were projects that are not past due that were taken for aftermarket reasons, particularly in the Middle East, where it's very competitive. That didn't have a necessarily good margin profile that will come through backlog over this period of time, that are important to us for the aftermarket side. And then, I think, there is definitely a correlation when things become past due, either because of manufacturing supply chain or the customers don't want it. It does tend to erode margins, so it's a little bit of those. But I think, Mike, you want to carry it from there on terms of when it's rolling through?

Michael S. Taff

Yes, I mean, I think, Robert, in a way, it's -- there's certainly some consistency there and one and the same. I mean, because you can have some legacy backlog. And when we refer to these legacy backlogs, these were really -- the projects were booked in the downturn at much lower gross margins. And they may or -- may be on schedule, they may be part of the past-due backlog. When we are referring to past-due backlog, it's really more of a working capital concern, as well as margin concern. Because, as you know, when a project reaches the past-due backlog phase, then you start getting into some additional costs, such as liquidated damages and things like that.

Robert Barry - UBS Investment Bank, Research Division

Okay, great. Just one housekeeping item. Is it possible to just break out the revenue and bookings impact from Lawrence in the quarter?

Mark A. Blinn

It was -- we really didn't report that separately, but it was relatively small. I mean, their revenue was in-line with what you saw on the business profile when we announced the acquisition. But I think Tom's comment was what we did see, excluding the impact of purchase accounting and typically these type of acquisitions, they'll tend to drag on your earnings -- literally on your earnings, and therefore, of course, on your margins as well until you clear through the acquired backlog. But absent that, aside from that, we saw very good leverage in the business, so we're pleased with it. Same thing we saw with Valbart as we worked through it, but what we're focusing on is growing the bookings and the top line of that business. But we saw a good margin pull-through, absent purchase accounting.

Operator

Our next question comes from Charlie Brady.

Charles D. Brady - BMO Capital Markets U.S.

I just want to focus on EPD for a minute. And so there was a pretty wide difference between the mix on OE bookings and OE sales in Q1. And I guess, I'm just trying to piece together the impact of what that means on margins later on this year, when you couple that with the fact that you have a kind of a natural margin lift from this lower market [ph] backlog kind of coming off-line or rolling through. Is there -- is the headwind -- or do you expect the headwind from the OE mix to be that much of a headwind on margins in the second half and offset the lift you're going to get from having the margin backlog move out, or not? And what do think the mix looks like OE aftermarket as we go through this year?

Mark A. Blinn

I think I understand your question. Let's set aside what we call the legacy backlog and just talk about the business from here going forward. And you saw this in the past, '06 and '07, a couple of things occur. When you do see these book-to-bill levels in EPD, of course, what that means is, over a period of time, you'll see a mix shift to more original equipment business. But keep in mind, our aftermarket business is a lot bigger in EPD than it was back then. So all other things being equal, sure, mix does tend to put pressure on your margins. But I think another thing, if you look over the last couple of years at their sales levels in EPD, they've been running, on average, in bookings and sales, $225 million or less in sales on the OE side. So as that starts to grow, you're going to get better absorption and fixed cost leverage in the SG&A line. So how it works out, mix shift does tend to impact margins, but growth in the OE is good from a number of aspects. One, you get better absorption in your plants, fixed cost leverage on the SG&A line, and then, also, that's an indicator that your markets are starting to get traction and you can drive better pricing through overall in the business. So those are going to be your margin impacts going forward.

Charles D. Brady - BMO Capital Markets U.S.

Okay. And just so I'm clear, it sounds like what you're saying, then, that we should expect -- because the mix shift had gone, good mix [ph], heavily toward the OE that doesn't necessarily mean we get a significant downtick in margins in the second half because of the fact that [indiscernible]?

Mark A. Blinn

Well, overall, what -- the margins, at least in the first half and some in the Q3, will be more around the legacy backlog. And then, as you go forward, you -- as this kind of works out what we're [ph] go on aftermarket business as well, you'll see some impact from more OE going through mix alone, but also a benefit from absorption in SG&A as well.

Michael S. Taff

Charlie, it's Mike. Another thing to keep in mind on EPD obviously is on those OE orders. They have a runway of 12 months plus, so something we're booking today really starts flowing through revenues -- 3 or 4 quarters down the road.

Charles D. Brady - BMO Capital Markets U.S.

All right, okay. And then my next question would be on the SG&A line across the segments. That's obviously come down on a year-over-year basis nicely. Can you give us a sense of kind of what your SG&A targets are for the business segments? What are you thinking of that, too?

Mark A. Blinn

Yes, I mean, I think, overall, we're still trying to -- as a business, drive it to 20% or below. If you look at EPD, a lot of that as a percentage overall, is going to be what we just talked about. As we start to grow the OE business, we're going to get better fixed cost leverage. You're seeing the same thing in IPD, they had good cost control year-over-year, and they're starting to grow their top line. And FCD has always done a good job in managing that. And then corporate, corporate has been relatively stable now for a couple of years. So what we're looking is to continue to leverage SG&A as we grow our business. And do keep in mind, this SG&A run rate does reflect investment in QRCs that we'll still realize a benefit from, hiring of engineers, putting a lot of programs in place to drive growth overall in our business. So we'll get the leverage, not only from cost management, but to start to realize some additional returns from the SG&A we've invested in our business.

Thomas L. Pajonas

Charlie, I would also add, I mean, if you look at what we've done structurally since the beginning of the year, we've centralized the research and technology function so that should give some good positions going forward. We've also centralized global projects, both on the proposal stage and the contract stage. That should help along with the quality overall initiative for the company. So those process changes will also add to the position that Mark mentioned.

Michael S. Taff

Yes. Charlie, Mike. Also, I mean, just to note related to SG&A. We mentioned, our overall goal over a 2- to 3-year period is to get that net percentage to 18%. So that's -- we're driving towards that on a consolidated basis.

Operator

Our next question comes from Brian Konigsberg [ph].

Brian Konigsberg - Vertical Research Partners Inc.

Just coming back to North America. Obviously, it seems like there has been quite step change in the activity going on in the market. I'm just curious, as we look forward, do you anticipate you're going to require more investment to serve the opportunities that you're seeing? And separately, as far as timing goes, when do you start to see kind of a pickup in activity related to these projects that we're hearing about in chemical and oil sands and others?

Mark A. Blinn

Well, as -- I mean, as they start to let these out, we -- if you look at our business over many, many years, we have a well-established presence in the United States and in EMA. We've done a lot to drive efficiency in that over the last couple of years, as we reposition our business to emerging markets. But we have ample resources in North America to support the growth, not only from domestic capabilities, but also a lot of our strategies to do some low-cost manufacturing in our facilities around the world. So as you look at these projects, as they come on line, be it the -- on the nuclear side, some of the chemical plants with the natural gas feedstock and the impact to natural gas itself, right, you're seeing movement from gas to liquids and the impact that's going to have, pipelines, all of those things still represent opportunity out there. I think on the power side, as I mentioned in my comments, we're going to need to see some clarity around regulations. But as that starts to free up -- but there is demand for all of the things that I've talked about, so they'll need the infrastructure for it. But from our investment stock side, it doesn't require significant investment to support our current and our future markets in North America.

Brian Konigsberg - Vertical Research Partners Inc.

Right. And just as far as timing, when do you anticipate that opportunity starts materializing into a more significant run rate of revenue -- orders in revenue?

Thomas L. Pajonas

I mean, it's going to -- it's obviously going to vary, depending on the industry. I think the good thing is, is we see good growth across many of the infrastructure areas. So if you take nuclear, I mean, nuclear, I would say, is imminently here because of the SCANA project that they've just announced and the Vogtle previous project in Georgia. So that one's going along good. You're going to see opening up on the combined cycle power plants because of low price of gas. Because of the EPA requirements, a lot of fossil units are going to require some revamp in the environmental equipment on the back end in order to comply with the EPA requirements. You're seeing several customers announce several -- or chemical plants on the ethylene side of the business in various parts of the U.S. So I think that's probably got a little bit longer runway. And then, probably, the last thing which has some good growth prospects going forward, but a little bit longer term, would be the LNG as an export as a result of the low price of natural gas.

Brian Konigsberg - Vertical Research Partners Inc.

And if I may, just one last question. On guidance, you kept the range, which was still fairly large, $8.00 to $8.80. Curious, why is it still so wide? It sounds like you do have more confidence in what you're seeing in the market. Maybe if you could just discuss what are kind of the big swing factors here?

Mark A. Blinn

Well, a couple of things. I mean, normally, if you've followed our cadence, we've maintained our guidance typically into the fall. You also have big volatility in currency. Look at the impact it had year-over-year just in the first quarter alone of $0.17 overall. So that's part of the reason that we do it. And it may be $0.80, but it's a 10% range. It's not uncommon that companies have a 10% range overall in their earnings guidance. But we -- as we drill down towards the end of the year and get more information, we always try to put it out there to the street.

Operator

Our next question comes from Kevin Maczka.

Kevin R. Maczka - BB&T Capital Markets, Research Division

On pricing, there's a comment about actions you took in 2011 on FCD. I'm just wondering if you can talk about pricing in general on the OE side? And is it fair to say that it's the past-due backlog and the bad [ph] margin backlog is pressuring margins by 200 basis points now, that current orders are coming in and closing that gap?

Thomas L. Pajonas

Yes, the comment that was in the script was on the FCD side of the business. And what it related to was a number of different initiatives that go into pricing, one of them being our lean initiative there, our -- and then issues in terms of low-cost sourcing, which we feel pretty good about on the FCD side because it's a pretty high percentage of the business between 30% to 40%. We've had a number of other initiatives going on in terms of just material costing. We've continued to maneuver things around our worldwide asset base to capture the overall margins. So those initiatives that we took at a very detailed level are now beginning to bear fruit as we execute those orders.

Mark A. Blinn

So I mean, part of that comment was just, for Tom to help you understand how he's running this business, and we think that's important for folks to understand. If you go back to where we were a year ago, a year ago plus, when we talked about choppy and competitive, you were looking as we've commented then, about absorption in your factories filling your factories. Sometimes you had to take projects that had no margin in them to make sure you could absorb your factories. As we started talking about our markets firming up, as we did towards the latter part of last year, what that said is that some of the capacity in the industry was starting to get picked up. And now as we roll into this year, we talked about firming, yet still competitive, markets but a lot of what Tom's doing relative to some of the initiatives on the front end to drive pricing. I think to take it even further, Mike's comments earlier is, you'll see the benefit of a lot of these initiatives over the next 3 to 4 quarters.

Kevin R. Maczka - BB&T Capital Markets, Research Division

Got it. And then shifting gears to the working capital with the inventory increase that we saw. And I understand that bookings were up and revenues were up. But at some point here, should investors be expecting that we start to see some of that actually liquidate and not grow less than revenues are growing, but actually declines in the inventory levels?

Michael S. Taff

Yes, Kevin, good point. And no, you're absolutely right. I think traditionally, more seasonal growth in inventory year-over-year. You saw the similar thing last year where we had inventory effect of about -- a use of about $107 million this year on the statement of cash flow was about $112, $113. So -- but no, that is one of the top priorities that I have, and Tom and I are actually working together to improve on-time delivery to get this past-due backlog off and to increase our inventory turns. Some of the things we talk about every day here and I'll continue to talk about those. So big focus on working capital. I still believe there is several hundred million dollars that we can monetize out of our working capital balance between accounts receivables inventory and accounts payable, just better management of that and that's our long-term goal. We'll get it done.

Operator

Our next question comes from Scott Graham.

R. Scott Graham - Jefferies & Company, Inc., Research Division

Just really one question, and this one's for Tom Pajonas. I'm just wondering, what are some of the things that you're working on right now? I know Mark rattled through a couple of things that you were doing that were starting to have an effect and maybe what are the 2 or 3 big buckets that you're focused on in improving the operations and when will we see their benefit in the margin?

Thomas L. Pajonas

Yes, I mean, that's a good question. I mean, if you look at -- since I took over, I mean, the first thing I would just say structurally, it may not seem like a lot, but we have the people in place. We got the structure in place. People know what their goals are. They know what their runway is here in terms of hitting those particulars goals. I would say very good clarity on getting the business set up. In terms of the specific initiatives, I mean, obviously, the customer focus one is the one that is extremely powerful in the organization here, especially the on-time delivery and cost per quality. Those are 2 areas that we'll drive religiously here in all the different units. And I think you're going to see some good effects as a result of the initiatives in those areas. Michael already mentioned the working capital, so I won't go through that. But other areas like centralizing, casting buys for the whole business -- across the business so that we get very good at specification development, expediting vendors, making sure that when we put something in the vendor shop they have the capacity. So we're looking at centralizing several of those items, including motors. And then, I would say, 2 or 3 other areas of research and technology, we brought that under one head. So I would expect to see a much more robust process than what we had in the past there. And then proposal and contract management, where we can now begin to centralize on terms and conditions differently. We can begin to centralize on how we cost the job and so on will, I think, reach some benefits going forward.

R. Scott Graham - Jefferies & Company, Inc., Research Division

That's very helpful. Just the only other question is, with respect to the implementation of these initiatives, have you found the need to move people from Flow Control where you run that business for so long and so well into the other operating units to kind of get the point across?

Thomas L. Pajonas

Yes, that's an excellent point. Yes, we -- I mean, we will -- we constantly look at moving people around. But I would say, first, is one individual that we did move around towards the back end of 2011 was the Vice President of supply chain moving from the Valve group into the Pump area. And that was, I think we mentioned at that time, to kind of get out some of the low-cost sourcing initiatives that we have. Plus he's a good commodity strategist relative to the motors and the castings here that we have. So that was certainly one area that we have. And then, we have -- we have moved people, I would say, at a much lower level in their organization on the project side of the business. But we'll continue to drive that across those platforms now that we have an easier mechanism to do that from a structure standpoint.

Operator

Our next question comes from Mike Halloran.

Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division

So could you guys talk a little bit about utilization levels, both for your facilities, as well as what you guys are seeing in the industry and with the little bit better order trends that you're seeing this quarter? Maybe also a commentary on how you expect that utilization level to track through the year?

Mark A. Blinn

I think where we're -- the focus really in what you're seeing is on the highly engineered rotating equipment side around capacity utilization, and there's a couple of things that have happened with capacity. If you saw last year, some of the capacity has changed hands into companies that have a lot of certainly a tremendous amount of discipline. A good example is the ClydeUnion assets going into SPX. SPX well run, good discipline. So there's -- the assets have become more disciplined and utilization is starting to go up. Overall generally in the industry, you saw a lot of capacity come online in 2010 and some in 2011, but that's starting to get claimed with projects that came through, primarily in the Middle East in '10 and '11, but also, with some of the things that we're seeing. So as we look over the horizon in the engineered rotating equipment side, you're seeing the industry do it as well and start to think about how they want to use capacity over the next 18 months. So it's starting to pick up.

Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division

That's encouraging. And then when you think about the margin improvement potential, on a qualitative basis, could you just talk about where you see the biggest opportunity in buckets in terms of pricing, leverage or kind of internal operational-oriented improvement?

Mark A. Blinn

I think the -- I mean, market-driven, there's going to be certainly -- the pricing opportunity as things firm up on the EPD and the engineered side. And leverage is going to be around the fixed cost leverage absorption in the SG&A side, and so I would say they're balanced really across all 3 of those, if you think about it. And that is we spent a couple of years realigning our business, driving a lot of the front end and investment to emerging parts of the world. And now what Tom is focused on is we've had a -- we've got a lot of talent capabilities in this business, is bringing that efficiency and driving execution across the business to leverage margins overall in our business. So we look at all 3 of those really as being able to leverage our margins going forward. And that's what we talked about 150 to 250 basis points, it comes really from all 3. Because if you looked at, historically, back in the '07, '08 time period, those were pretty much very high-priced environments, where people were paying for manufacturing slots. We don't need that environment again to get to the 150 to 250 that we're talking about. Really, it's just driving the 3 things you talked about.

Operator

Our next question comes from William Bremer.

William D. Bremer - Maxim Group LLC, Research Division

Last quarter, you gave us some idea in terms of how much you've monetized of the lower margin past-due backlog. I believe it was approximately $60 million. And you sort of indicated that you like to bring down the total below $200 million. Want to quantify what we did this quarter and are we on track?

Michael S. Taff

Yes, good question. We are on track. We made some improvement on our past-due backlog. And I'd say we're probably about halfway of where we need it to get to from that quantification of that $60 million or so. So we improved it, I think somewhere in that $10 million to $20 million range or so. Not quite half, but we made improvement and we certainly feel confident we'll get there by second quarter into the third quarter.

William D. Bremer - Maxim Group LLC, Research Division

Okay. So that's the reason why we're sort of approaching the third quarter here a little bit. Okay. And then my other question is on the EPD segment. The sale of the facility, so to back that out -- I want to confirm my numbers here. So my adjusted operating margin comes into the range of about a 15 plus there? I just wanted to confirm that with you.

Michael S. Taff

Yes, that's about right.

Mark A. Blinn

Right.

William D. Bremer - Maxim Group LLC, Research Division

Okay. Are there any other facilities that we should be thinking about, longer term, that this should be the objective of management in terms of completely selling them off and then ramping up a more efficient line?

Mark A. Blinn

Well, I mean, we talked about -- we've had a facility in Brazil for quite a number of years, but it was very constrained. One, because of where it was located. It was constrained in terms of manufacturing and transportation test size capabilities. And so to respond to the market there in Brazil, we decided to build a new facility. But this sale opportunity, if you think about it, we got a very good price for our old facility. It almost covered half the cost of our new facility, which is much larger, has more product offerings and more capabilities. So it -- we're always going to do what makes sense in terms of overall in our business. And we were able to sell this facility, monetize it, pay for almost half of the new one and start the migration process to our new facility. So if in terms of being able to drive good efficiency in our business and make the right long-term decisions for the company and our shareholders, you can expect the management will do that.

Operator

Our next question comes from David Rose.

David L. Rose - Wedbush Securities Inc., Research Division

A couple of quick ones. You had mentioned a couple of items that were driving improvements on the front end of the business, particularly the backlog. As we look at the backlog and we're trying to get a little bit more comfortable with the backlog going into a higher margin level in the back half of the year, what sort of KPI should we be thinking about? And maybe give us some examples of how that backlog improves? Because I get the pricing standpoint. You mentioned FCD, for example, and on-time delivery, I think you gave us a 91% number. Are there particular KPIs that we should be looking out for both EPD, as well as IPD?

Mark A. Blinn

I mean, I think, when we discuss operational metrics, there is a correlation between on-time delivery and margins in almost all instances. So I think, as you follow around on-time delivery. But I think, as you look at some of the things we discussed, a leading indicator of margins is certainly going to [Audio Gap] far, a long leading indicator is going to be our commentary around the markets, especially on the large projects and firming markets, which tend to give you some power in terms of absorbing your facilities and getting the fixed cost leverage. I think, also, the pricing that we talk about, it's still competitive out there, but as markets start to firm, pricing comes around. So that's probably one of the longest lead indicators in terms of margin. One of the shortest ones, in terms of bookings in the sales line, is going to be our aftermarket business. As that grows, that's high-margin business and very stable margins. So if you look at our order book, those are probably your indicators from longest to shortest from the -- and going back to Mike Halloran's comments earlier from the SG&A side, it's just margins on around how we're going to leverage SG&A. Cost controls, how we're going to leverage our SG&A overall in the business. And then, I think, finally, the operating metrics because we can drive efficiency in our business and efficiency correlates to margins. So I'm just trying to lay it out for you in terms of our commentary in this press release and following the business over the last couple of years, that's how you can follow the margin profile of our business.

David L. Rose - Wedbush Securities Inc., Research Division

Yes, that's helpful. I was just really trying to understand, is how do we get more comfortable that backlog won't have some of the same headwinds that the first half did, and that was really getting the backlog out the door, I mean, on-time delivery.

Mark A. Blinn

Yes, I mean, I think it is. But that's one of the most important things is to clear this, as you see at the end of the cycle and as we start clearing the backlog and driving some of the initiatives that we have. Some of the comments you've heard us talk about on our long lead time projects now we'll start to see over the next 3 to 4 quarters. But I think the ones that'll have the more immediate impact that you can watch are going to be our aftermarket growth in our business, our SG&A leverage and then our periodic commentary about operational leverage that we're getting in the business. I mean if you take a step back -- I mean, I know we just talked about EPD's margins, well, in the highly engineered pump business, those are the strongest margins that are out there. And so we continue to drive those higher and higher, but we'll refer to operational metrics and things that we're talking about. Those tend to have an immediate impact as well.

David L. Rose - Wedbush Securities Inc., Research Division

Okay. Then lastly, Mark, on that note on aftermarket bookings figures. When we look at the figures, how are you thinking about the comparisons in Q2 2012 versus Q2 2011? If I'm not mistaken, the EPD and IPD have easier comparisons than Q1. Do we still think about it in terms of year-over-year comparisons?

Mark A. Blinn

Let me make sure I understand your question. In terms of aftermarket, is your question in Q2 of 2012 versus Q2 of 2011. Was that your question?

David L. Rose - Wedbush Securities Inc., Research Division

Yes. I mean, if -- Q1 2011, you had a fairly significant increase, so your comparisons look tougher. So do you think about it that way? Do they get easier in Q2 versus last year?

Mark A. Blinn

We typically look at it -- this is a comment back from years ago, not being quarter-to-quarter. And a good example is, this year, you look at FCD's bookings and relatively flat, slightly up on constant currency. But if you look at last year, it was up 30% over the prior year. So we really look at long-term trends overall in our business. We'll look at rolling 4 quarter because there is seasonality to our business. I can tell you, if you look at order books and sales in the third quarter, particularly in EMA, a lot of folks are on vacation. So we tend to look things over a rolling period of time. What we like about the aftermarket business, is it's approaching $2 billion. It's been high-margin, stable business and we've been growing it at a 7% to 8% clip. And if you look at the global installed base around the world net, it does not increase by 7% to 8%. It's actually less than that. So what we're doing is we're not only taking care of the incremental installed base, but gaining share through our end-user strategies. That's how we look at it.

Operator

Our next question comes from Stewart Scharf.

Stewart Scharf - S&P Equity Research

I was wondering if there is any impact you're seeing or you expect to see from some of the consolidation in oil and gas business, Sonoco and other recent energy transfer partners acquisitions and some private equity? And whether you see that having any impact on the pipeline operation and refinery, so forth?

Mark A. Blinn

Yes, I mean, it's early to tell with ETP and Sonoco, what's going to happen. But if you take a step back and you look at what's happened in the oil and gas industry and particularly in our industry, some of the efforts over the last couple of years, it really supports the thesis that energy, oil and gas, power, and even water, has a strong secular growth cycle, and that's why these folks are making these investments, that's why industries are consolidating to get leverage, to be able to get access to the capital for the investment that's required. So it does support our long-term trend assumptions in our business over the next 10 to 20 years about the growth opportunities in the energy side of the business.

Operator

Our next question comes from John Moore.

John R. Moore - CL King & Associates, Inc.

Just one question on the orders, and this is probably a follow-up to the one asked previously. The order growth in EPD was obviously very impressive this quarter and bodes well for that division here later this year and into '13. And I realize the IPD and FCD divisions face some more difficult comps, but would you say the strength in EPD you saw this quarter is actually an indication that IPD and FCD orders should accelerate from here? Or are they facing some other kind of end-market trend that EPD isn't?

Mark A. Blinn

No, no, I mean, we talked about the short cycle business. And again, I'll just caution not to make a call on a quarter. There could be a compare issue to last year, one project. You certainly saw that in EPD. You take a step back and think about Tom's comments, we had a very large project that came through. It was very competitive, but will offer great aftermarket opportunity for 15 to 20 years. And that was in the order book last year in EPD. So what it does tell you on, if you see sustained growth in the long cycle business, that's indicative. And it's later cycle, it indicates that, that long cycle business is starting to come back. What that means for our industry is that capacity starts to get utilized to the question earlier, that also you're starting to get better absorption and pricing through. What it'll do is that'll tend to run on for a period of time. I mean, if you think about it, EPD's long cycle business stayed in our P&L 'til really, the latter part of 2010. So that's what that means overall for our industry. It also means -- but it brings long investment in the short cycle business and brings long aftermarket opportunity. So that's the way to think of it, and if you think about our commentary, we've seen firming markets and we see opportunities for some of these projects that you've seen engineering and contracting firms talk about to come our way towards the end of this year beginning in next year. So this is typically how it feels when things start to pick up overall in our industry. On the short cycle business, I would always say, you need to look over a couple of quarters and look at growth rates, because that can fluctuate certainly from quarter-to-quarter. But we like what we've seen in our short cycle business and we're looking to grow them.

Operator

Our final question comes from Jeff Beach.

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

Beginning of the presentation, you highlighted shale gas, tar sands, LNG opportunities. My question is, are all of these large enough in size to actually grow that slice of the pie in view of your growth opportunities in Asia, the Middle East, aftermarket, so many other drivers. Can you actually increase that percentage going into, let's say, North America energy?

Mark A. Blinn

I mean, we can on a relative basis. But one thing I always comment, Jeff, is not any one of these things is going to become a predominant part of our order book or our revenues. We're diversified across multiple applications. But I think what I -- the theme is consistent. You're seeing these more complex applications come to market, and that's where our technology and engineering capabilities are able to respond. What we didn't talk about was our increased presence in the thermal solar. We've seen increased orders in some of our molten salt pumps. That came from basically very little to nothing a couple of years ago. So these are all applications that we're able to take our capabilities in our global manufacturing and address these markets. Clearly, one notable thing you've seen in the United States. And I do think if you look at our North America growth, it will have a notable impact, is with gas being at this cost it's becoming a low-cost feedstock and it's bringing investment on in the chemical industry. Which we saw the chemical industry basically, I think it was about 4 years ago as it started to really cycle down hard. And when you saw it come back, which it typically does with GDP, but this is kind of an added boost in North America, being that it's a -- natural gas is a low-cost feedstock.

Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division

And then, specifically, within this midstream infrastructure in North America energy, is there one division that benefits more than the others? And what would be a couple of the major products?

Mark A. Blinn

Well, yes, I think they all 3 benefit on midstream application, and this is even a further enhancement from the One Flowserve. Clearly, the type of rotating equipment that goes on to some of these pipeline structures, particularly the liquid ones, are supported by EPD and IPD. But also, you have, for safety reasons, you have valves that are at certain locations. They're either modulating the flow, or for example, in our trunnion-mounted ball valve that are actually safety valves, that it can isolate a piece of the pipeline to make sure if there is any problem, it doesn't spill over into other parts of the pipeline. So we do -- a lot of our products are able to go into these pipelines, particularly on the liquid side. And now with -- what Tom was talking about, now we can even bring more of an opportunity to bear when we go to pursue these opportunities.

Thomas L. Pajonas

And I would also add one other thing to that. A lot of these pipelines are adding capacity so we have a lot of aftermarket growth opportunities in the pipeline area also.

Operator

Thank you. This concludes our question-and-answer session. I'll now turn it back to Mr. Mullin for closing remarks.

Mike Mullin

Thank you, Kim, and thank you all for joining today.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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