AZZ Incorporated F3Q08 (Qtr End 11/30/07) Earnings Call Transcript

Jan. 4.08 | About: AZZ incorporated (AZZ)

AZZIncorporated (NYSE:AZZ)

F3Q08 Earnings Call

January 4, 200811:00 am ET

Executives

JoeDorame – Investor Relations (Lytham Partners)

David H. Dingus – President, CEO

Dana Perry – Senior VP, Finance and CFO

Analysts

John Franzreb - Sidoti & Company

Ned Borland - Next Generation Equity Research

[Shamo Sadukan]

Daniel [Yeary] – Lehman Brothers

Nathan Jacobs – Coe Capital

Operator

Atthis time I would liketo welcome everyone tothe AZZIncorporated third quarter 2008 financial results conference call. (Operator Instructions) Mr. Dorame, you maybegin your conference.

Joe Dorame

Good morning, thanks for joining us today to review thefinancial results for AZZIncorporated for the thirdquarter of fiscal year 2008, ended November 30, 2007. My name is JoeDorame, I’m with Lytham Partners, and we arethe financialrelations consulting firm for AZZIncorporated.

With us today on thecall representing thecompany are Mr. DavidDingus, President and CEO and Mr. Dana Perry, CFO. Atthe conclusion oftoday’s prepared remarks we will open thecall for a Q&Asession. If anyone participating inthis call does not have afull text copy of theearnings release, please call Lytham Partners at(602) 889-9700 and we will immediately fulfill your request or you can retrievethe release off theInternet from any number of financial sites.

Before we begin, I would like to remind everyone that thisconference call includes statements that constitute forward-looking statementswithin the meaning of thePrivate Securities Litigation Reform Act of 1995. Except for thestatements of historical fact, this conference call may contain forward lookingstatements that involve risks and uncertainties. Some of which aredetailed from time to time indocuments filed by thecompany with theSEC.

Those risks and uncertainties include, but arenot limited to: changesin customer demand andresponse to products and services offered by thecompany, including demand by electrical power generation markets, electricaltransmission and distribution markets, theindustrial markets and thehot dip galvanizingmarkets; prices and raw material costs, including zinc and natural gaswhich are used inthe hotdip galvanizing process; changesin theeconomic conditions of thevarious markets thecompany serves, foreign and domestic; customer requested delays of shipment; acquisition opportunities; adequatefinancing and availability of experienced management employees to implement thecompany’s growth strategies.

Thecompany can give no assurance that such forward looking statements will proveto be correct. We undertake no obligation to affirmpublicly, update or revise any forward looking statements, whether as aresult of information, future events or otherwise.

With that having been said, I’d like to turn thecall over to Mr. David Dingus, President and CEO of AZZ.

David Dingus

Thank you, Joeand thanks to each of you for taking thetime to join us for theconference call for thethird quarter and thefirst nine months ofour fiscal 2008. As Joeindicated the quarterended on November 30, 2007.

Now for thenine-month period that ended November 30, when compared to theprior year, revenues have increased 35%, net income is up 39%, earnings pershare is up 35%, and our backlog is up 46%. We continue to benefit from strong market conditions, favorable productmix and expanded served markets. International opportunities continue to play animportant role in ourgrowth potential.

Total incoming orders for thequarter were $84.5 million, while shipments for thequarter totaled $86.6 million, resulting ina book-to-ship ratioof 98% for the thirdquarter. For thefirst nine monthsorders totaled $270.1 million while shipments total $243.6 million, resulting ina year-to-date book ratioof 111%.

Incoming orders for thefirst nine monthsincreased 30% when compared to thesame period of a yearago, and based upon customer current delivery dates and our planned productionschedules, 30% of our backlog is expected to ship inthe current fiscalyear; and of the$147.1 million backlog, 23% is expected to beexported from theUS. Thethird quarter backlog while remaining strong was essentially flat as comparedto the second quarterand is anticipated to beat this level for thebalance of the fiscalyear.

Now for thepast two quarters, international shipments have exceeded new internationalorders, as we had anticipated. Basedupon our quotation activity, and thesignificance of some of our international quotes, we would anticipate that thistrend would reverse itself inthe first half offiscal 2009. Domestic backlog hasincreased over theprior period. Again our projections arebased upon our quotation activity and customer announced release dates which arealways subject to changeand adjustments.

Theincrease in margins onpreviously booked projects which is now being reflected inour operating results is apositive consequence of our strict adherence to order acceptance criteria withspecific margin contributions. We arenot at full capacityand we do have theopportunity to continue to supplement our backlog as well as add quick turnhigher margin jobs.

Galvanizing demand remains strong and tonnage of steelgalvanized shipments increased 21% for thefirst nine months of thefiscal year. 82% of this increase isattributable to theacquisition of Witt Galvanizing. Thebalance of the volumeincrease is spread across allof our served markets.

As acompany, our accomplishments have improved and we continue to double andredouble our efforts to secure more profitable business and efficiently andeffectively execute on that business. Thestrength of our balance sheet supports our efforts to find additional productsand served markets that will complement our growth and expansion planning.

Our continuous improvement programs, combined withaggressive marketing programs, have had avery positive impact on operating results for thefirst nine months offiscal 2008. We believe that theseefforts and theleverage gained from additional volumes hasvery positively impacted our results.

Now with that as anoverview, Dana will now gives u areview of theoperating results for thethird quarter and thefiscal year-to-date.

Dana Perry

Thank you, David. Iwould also like to welcome you to our third quarter conference call. Atthis time I will review our non-audited consolidated results for theperiod ending November 30, 2007.

For thethird quarter, revenues remained strong and were ata record-settinglevel. AZZrecorded revenues for thequarter ending of $86.6 million, a33% increase as compared to $65.4 million inthe prior year. Net income for thequarter was $8.1 million, which compared to $5.2 million inthe priorquarter. Diluted earnings pershare was $0.66 compared to thequarter last year of $0.44. SG&A forthe quarter returnedto more normalized levels as compared to thefirst quarter where there were increased expenses associated with stockappreciation rise programs.

Revenues for thenine month periodending November 30 were $243.5 million, a35% increase as compared to $180.7 million inthe prior year. Net income for thenine month period was$20.4 million, an increaseof 39% which compares to $14.7 million. Diluted earnings pershare was $1.67 as compared to last years $1.24. Our earnings pershare calculations arestated after theeffect of a 2:1 stocksplit in theform of a100% stock dividend paid on May 4, 2007.

Strong demand for our electrical and industrial products, aswell as our galvanizing services continued through thethird quarter. New orders were strongand balanced across our power generation, transmission and distribution as wellas our industrial markets. Asanticipated, backlogs remained essentially flat with thesecond quarter. Our galvanizing segment continuedstrong demand allowed us theopportunity to [mained] our galvanizing pricing.

Our electrical industrial segment generated 56% of ourrevenues, while our galvanizing services segment generated 44%. We anticipate that 57% of our revenues forfiscal ’08 will begenerated from our electrical/industrial and 43% will begenerated from our galvanizing segment.

Atthis time David will give us anoverview of theelectrical/industrial segment.

David Dingus

Theindustrial demand for our power distribution centers and our motor controlcenters remains strong due to new projects and major renovations and expansionsand the strength of theindustrial capacity utilization levels. Projects continue to bereported by the engineering,procurement and construction firms and we believe that theemphasis on the needfor spending related to refining, L&G, ethanol and clean fuel initiativescombined with mining systems upgrades should lead to acontinuing strength inthis market segment for us.

Our specialty lighting products have seen and shouldcontinue to see strongresults and demand due to new products and strength of theindustrial market.

Thedemand for our metal-clad outdoor switch care products is robust. Utility distribution substation orderscontinue to improve and thegrowth in this marketsegment is most encouraging. Quotations,which utilize our high voltage transmission product lines were again atexcellent levels and reflect strong domestic and international demand. We continue to operate atrecord-setting levels.

Thepower generation market is encouraging and themaintenance of announced build schedules of new power generation plants, theemphasis on renewables such as windenergy and theaddition of scrubbers to existing facilities should continue to positivelyimpact our market and orders infuture quarters.

Orders and shipment of our tubular products to thepetroleum markets were essentially flat with prior periods.

Dana will now cover theoperating results of this segment.

Dana Perry

Inour electrical/industrial products segment we recorded revenues for thequarter of $51.4 million, a44% increase as compared to theprior year results of $35.8 million. Operating income was $8.3 million, a57% increase as compared to $5.1 million. Operating margins were 15.6% for thequarter as compared to 14.3% inthe prior yearperiod.

Increased revenues were generated as aresult of acontinuation of strong market demand and improving pricing. Thelargest improvements have come from our high voltage transmission market, thepower generation market and theutility distribution market. Operatingmargins and profit improvement areattributable to theleverage gained from increased volumes, quick turn jobsand pricing actions.

We continue our emphasis on booking business atspecific targeted margin levels and pursuing price increases to recoverincreased costs of materials.

Atthis time David will give us anoverview of thegalvanizing segment.

David Dingus

Zinc costreductions have occurred inthe last few weeks to the$1.05-$1.15 price range. With overalldemand remaining strong, we’ve been able to maintain asignificant portion of our previous pricing action and continue to reduce ourinventory of more expensive zinc.

Our strategy for thefourth quarter will beto continue to resist downward pricing pressures and we will risk some modestmarket share losses to try and sustain pricing levels inthe fourthquarter. We would anticipate thatmargins in fourthquarter will approximate 22%, avery strong performance level for this segment.

Revenue dollars will potentially beimpacted in futureperiods, as market pricing hassuggested, to thereduced zinc costlevel. We continue to operate ina very favorablemarket condition and continue to maximize themarket share growth that can beachieved by providing asuperior level of service and support to our customers.

Operating efficiencies continue to improve and theleverage obtained from increased volumes areboth reflected in ourexcellent results for theyear-to-date. Our results doreflect theimprovement ininfrastructure spending inthe U.S.market. Demand inour traditional geographic market continues to bestrong. We areextremely pleased with our operating results and themarket conditions inour new upper-Midwest territory.

Dana will now give us areview of the keyoperating results for thegalvanizing segment and cover keybalance sheet items.

Dana Perry

Revenues inour galvanizing segment for thequarter were $35.1 million, anincrease of 18.9% as compared to $29.6 million recorded inour third quarter infiscal 2007. Our volumes insteel shipped as well as our selling prices were up when compared with thesame quarter last year.

Operating income was $8.3 million, compared to $8.6 million inthe prior year. Operating margins were 23.7% compared to 29.2%. Operating margins were lower for thecompared periods due to thehigher zinc costs flowing through our P&L.

In thefirst nine months offiscal 2008 we have seen thehigher price of zinc starting to flowour balance sheet into our P&L, which hashad the effect ofbringing our margins inline with historical results. Ouraverage zinc costs that is reflected inour third quarter P&L was $1.72 perpound as compared to $1.46 perpound during the samequarter last year.

Our third quarter includes revenues and income generatedfrom the acquisitionof Witt Galvanizing, as we have previously stated. This acquisition added three plants to ourgalvanizing operations to bring our total galvanizing facilities to 14.

Revenues for theyear have been significantly impacted by pricing actions required to offset theescalating cost ofzinc. As David stated, zinc prices havedeclined to the$1.05-$1.15 range and as aresult, price pressure could begin to occur. As we have stated inprior periods, increased volatility infuture zinc prices could have anadverse effect on future revenues and earnings.

Atthis time I will cover some of our keycash flow and balancesheet items on acomparative basis.

For thenine month period,cash provided by operations was $20.1 million compared to $7.5 million inthe prior year. Our receivable days remained strong andinventory turns remained good. Accountsreceivable days outstanding were 49 days atthe end of thethird quarter as compared to 51 atthe end of last fiscalyear.

Year-to-date capital improvements have been made inthe amount of $8.1million. Depreciation and amortizationamounts to $6.1 million. Our totaloutstanding bank debt atthe end of thequarter was $17 million, which reflects areduction in bank debtof $18.2 million for thefiscal year.

Atthis time I will turn theconference call over to David for closing comments and then we will open to ourquestion-and-answer session.

David Dingus

We arevery pleased with theresults of our third quarter and thefirst nine months ofour fiscal year. Theaggressive steps that we’ve taken inseeking out new domestic and international marketing opportunities, improvingour distribution channels, lowering of our coststructure, increasing our pricing levels, improved operating efficiencies, areall reflected inour improved operating results and we aresetting another record year insales and earnings.

Theimprovement in volume hasadvanced the gainsthat we have made due to leverage. We docontinue to seek out additional products which complement our existing productofferings to theelectrical industrial products customers and expansion of our geographiccoverage for our galvanizing services segment. The strength ofour balance sheet fully supports our efforts.

Our products and services arewell positioned to continue to benefit from astrong industrial economy. Opportunitiesas a result of thereplacement equipment for theaging distribution substation and transmission grid market, expansionaryspending in thepetro-chemical market and therecovery of the powergeneration market have allenhanced these gains.

While we anticipate thecurrent market demand will continue, thetiming of projects and therelease of orders will always have animpact on thequarterly recognition of bookings, our backlog, revenue and earnings and willresult in quarter-to-quarterfluctuations which may begreater than true changesin market demand and conditionsand our competitive position and successes.

We’ll continue our efforts to aggressively manage our waythrough these conditions and orders will build upon our prior accomplishmentsand minimize future fluctuations. Basedupon a valuation ofinformation currently available to management, we areincreasing our previously issued earnings guidance for fiscal 2008.

We arepleased to project what we believe will beanother excellent and record setting year for AZZin fiscal 2008. With revenues of $315 million to $325million, net income is projected to growand is estimated to bethe best income year inthe 51-year history ofthe company. Our diluted earnings pershare is estimated to bein therange of $2.12 to $2.22. Theseprojections reflect theimpact of the 2:1split effected by a100% stock dividend on May 4, 2007.

As always, we appreciate your support and thank you inadvance for your continuation of that support. We appreciate your participation today. At this timewe’d like to open itup for any questions that you might have.

Question-and-AnswerSession

Operator

(Operator Instructions) Your first question is from theline of John Franzreb with Sidoti & Company.

John Franzreb -Sidoti & Company

My first question is, David can you talk about how difficultis it for you tomaintain your target margins inthe electricalindustrial business?

David Dingus

John we feel that we’ve had pretty decent success. Thegrowth in themarket has been thereand the competitiveactivity has certainlynot lessened, but ithasn’t increased or inhibited our ability to sustain those. We’re really comfortable that we’re ata very nice level,that we’ve got a highdegree of probability of continuing that for some period of time.

John Franzreb -Sidoti & Company

Great. And if I heardcorrectly Dana, did you saythat the marginexpectation in thegalvanizing business was going to be22% in thefinal quarter?

Dana Perry

We should average for theyear around 24%.

David Dingus

But I didsay 22% inthe fourth quarter.

John Franzreb -Sidoti & Company

Okay, great. Now theSG&A number dropped relatively significantly from Q2 to Q3 and I thought Q2was somewhat low. Can you talk aboutwhat’s going on in theSG&A line? Because I know you called itmore normalized inyour prepared comments.

Dana Perry

We still had our costs associated with our SARs program inthe second quarterthan we did in ourthird quarter. Our stock price was down inthe third quarter alittle bit compared to thesecond, so itwas less of a chargegoing through in thethird quarter.

John Franzreb -Sidoti & Company

Sowhat’s the sensitivityright now in theSG&A lines as far as thestock price that we should start building insome more SARs expense? Is it$35? When does that kind of kick backin?

Dana Perry

We have estimated our guidance on $35 ashare which is roughly $6 million to $6.2 million inexpense for the entireyear.

John Franzreb -Sidoti & Company

Sogiven that it may beoverestimated a littlebit on theSG&A line given where thestock is today and that you areable to maintain themargins in theindustrial side and thegalvanizing margins seem to beholding up, why such asharp drop off in yourEPS forecast inthe fourth quarter?

David Dingus

Again as we look atit, it’s just areflection of what we think is actually going to ship inthat period John, and theimpact; as you know, we’ve always have some impact on galvanizing but shorterproduction days so aswe look at ittraditionally, I think that flows pretty nicely with what we’re expecting.

John Franzreb -Sidoti & Company

Soyou expect an averagenumber of about $0.51 inthe fourthquarter?

David Dingus

Again within that range of $2.12 to $2.22 itcould be higher if weend up on the top endof that range, of course.

John Franzreb -Sidoti & Company

Okay, itjust seems very lowconsidering all thepieces seem to begoing directly in yourfavor. This is asharp drop in revenuesthat I don’t understand.

David Dingus

We still believe that even though our strategy will beto hang onto as much price inthe galvanizing aspossible, we still run therisk John of some deterioration. Again, we’recoming out of the25-26 range down to the22, that’s a prettysignificant piece of our business, sothere’s always thepossibility that that won’t occur and we’ll beable to overachieve.

John Franzreb -Sidoti & Company

David doI understand properly that you said that price erosion could begin – does thatmean it hasn’t begunyet?

David Dingus

Further price erosion, I should have said.

John Franzreb -Sidoti & Company

Okay, that’s itfor now. Thanks alot guys.

David Dingus

Thank you.

Operator

Your next question is from theline of Ned Borland with Next Generation.

Ned Borland – NextGeneration Equity Research

First, just ahousekeeping question. I heard asegment margin for galvanizing for thefourth quarter but I did not hear one for electrical. Did you give one out?

Dana Perry

Yeah. Bear with mea second, maybe itwas for the quarter,15.6% versus 14.3% in thesame quarter last year.

Ned Borland – NextGeneration Equity Research

Okay, great. And thenon the galvanizing,I’m wondering what you’re seeing out there? You’re seeing strong demandobviously, but is that mostly coming from thepetro-chemical side of thebusiness?

David Dingus

You know that we’ve seen some plateauing inthe general industrialmarket and there is concern about whether there will besome deterioration inthat market, Ned, you know insix to eight monthsbefore we see that,just based on theproject, but there is no doubt that what is going on inpetro-chem as well as what’s going on inpower generation is significantly helping our galvanizing business.

Ned Borland – NextGeneration Equity Research

Could you talk alittle about some of your smaller galvanizing competitors? Generally I think smaller guys generally leadthe price behavior inthe market. What arethose guys doing?

David Dingus

Behavior is still pretty good. I think overall demand is allowing itand particularly in thegeographic areas that we arein arevery positively impacted by thepetro-chemical market. We haven’t seenany real deterioration of pricing some of thecompetitive positions. Now they arefirst ones, you’re exactly right Ned, they’re thefirst ones to give when market demand changes. But as longas its there and we think it’s there for anumber of months, we don’t think we’re going to seeit.

Dana Perry

Naturally you seeit on theisolated situations but not broad-based.

Ned Borland – NextGeneration Equity Research

Okay, and then, with respect to theguidance it seems to bea little bitconservative, is there any seasonal factors that areeffecting that you expect aregoing to effect thefourth quarter?

Dana Perry

You always have thepotential of bad weather impacting deliveries on electrical equipment and wehave to build that in there,because that seems to hit us every year, so, as far as demand it’s not seasonalbut the practicalityof delivery is seasonal. Inthe galvanizingbusiness that’s adaily service business, soany time you lose four to five daysdue to a holiday it’s goingto impact you to some degree, but you always have to build inthat bad weather factor that impacts our shipments inthe fourth quarter.

Ned Borland – NextGeneration Equity Research

With your assumption on therevenue for the fullyear ’08, does that make any assumption for thehigher margin quick turn business or no?

David Dingus

Itdoes not, that would beadditive to that number.

Ned Borland – NextGeneration Equity Research

Okay. Thanks alot.

David Dingus

Thank you Ned.

Operator

Your next question is from theline of [Shamo Sadukan].

[Shamo Sadukan]

Can you talk about theeffect on both of your segments from apotentially weakening industrial economy, if that happens inthe next sixmonths and how sensitive demand inboth the segments shouldbe to that, if thatdoes happen?

David Dingus

There is absolutely nodoubt that eventually we areimpacted by change inindustrial demand. Now what we believe infor the electrical andindustrial project, much of that is driven by theinfrastructure that isrelated to improvements inthe distributionnetwork, improvement inthe petro-chemicalmarket, improvement inthe power generationmarket that it willhave some time before it’s impacted.

But our galvanizing business is aGDP business atthe end of theday. Soa changein theindustrial sector, we will feel sixto nine months after itoccurs. But just as inthe electrical side,we believe that thestrength and thelength in some of thepetro-chem and power generation projects that aregoing on will help slow that, but eventually itwill do acorrection to theindustrial output.

[Shamo Sadukan]

So ineach of the twosegments, how much of thebusiness is petro-chem and thepower generation related business that would bemore stable and how much of each segment is related to economically sensitivegeneral industrial demand?

David Dingus

Now we don’t break out thepetro-chem as such and I include that inthe industrial, butfor the total company,power generation this year will be13% of our volume, transmission and distribution will be28% of our volume and theindustrial will be 59%of our volume. Soyou can see abig piece of itis in there but westill believe there is some good fundamentals buried inthat overall sector of theindustrial that is going to slow some reaction to achange inGDP.

[Shamo Sadukan]

Right. And soif I’m hearing you correctly, if I make some assumptions about what thepetro-chem business might be, perhaps 40% of thebusiness is sensitive to economic factors and 60% of thebusiness is sort of isolated or a little bit isolated because it’s got exposureto sectors that just have tremendous cyclical tailwinds to them. Is that afair characterization of thesituation?

David Dingus

Would you repeat which category is 60% and which is 40%?

[Shamo Sadukan]

Sorry, I’m saying 60% is probably relatively isolated,meaning economically less sensitive and 40% is more economically sensitive.

David Dingus

I think that’s afair assessment.

[Shamo Sadukan]

Okay, thank you somuch I appreciate it.

David Dingus

Thank you.

Operator

Your next question isa follow upfrom John Franzreb with Sidoti & Company.

John Franzreb –Sidoti & Company

Can you talk alittle about theinternational business, you said that theorder book implies that you’re going to have some order flowin thefirst quarter of fiscal ’09. Whatgeography is that coming from and what kind of business is that?

David Dingus

John, insteel we’re reliant on theChina market, theMiddle East market and to alesser extent theSouth American market and that isbeing driven by power generation, power distribution and powertransmission. So, it’s thedemand for power and could indirectly bedriven by the spendingability as aresult of the strengthof the petro-chemmarket, but our served markets arerelated primarily to thepower generation, power transmission.

John Franzreb –Sidoti & Company

This is mostly far-East business where you have thebest opportunities in thenear term?

David Dingus

I would saythey do notsignificantly surpass theopportunities in theMiddle East.

John Franzreb –Sidoti & Company

What’s thepercent of revenues,how much is foreign sales versusdomestic?

David Dingus

I think that we’re going to still end up theyear between exporting about 25% to 30% of our electrical industrial productswhich is right where we thought itwould be.

John Franzreb –Sidoti & Company

How does that look next year? How is that shaping up?

David Dingus

I would expect itto be relatively thesame.

John Franzreb –Sidoti & Company

Okay. Thanks alot David.

David Dingus

Thank you.

Operator

Your next question is from theline of Daniel [Yeary]with [Lehman Brothers]

Daniel [Yeary] – LehmanBrothers

Was volumes ingalvanizing in thequarter, were those up, adjusted for acquisitions?

David Dingus

Yes thetotal of volume increase was 22%, of which 82% of that was acquisition related.

Daniel [Yeary] – LehmanBrothers

That was inthe quarter or thatwas nine months today?

David Dingus

That was inthe quarter.

Daniel [Yeary] – LehmanBrothers

Okay. Thanks abunch.

David Dingus

Thank you.

Operator

Your next question is from theline of Nathan Jacobs with Coe Capital.

Nathan Jacobs – CoeCapital

Hey guys, thanks for taking my question. My question is more as we look out towards’08 with these zinc prices where they arenow, what type of impact will that have on your revenues moving into ’08 and onthe gross profitdollars as a result?

David Dingus

Well you know, even with theprice deterioration to the$1.05 to $1.15 range than what was witnessed inthe fourth quarter,margins are stillgoing to hang in therein the22% which is theupward end of our historical numbers. There is no doubt that atsome point the revenuedollars will beimpacted because commodity based businesses doreturn to thecommodity base.

Wethink that as long aswe are to stay above the$1.00 range we think we’re going to getless pressure. Ithink there will bemore psychological pressure ifit were to drop into the$0.85 to $0.95 range. But we think that itwill, yes, have animpact on the top linebut as wework through our own zinc and thedemand of the market aswe look at theforecast we think theability to sustain our margins inthe 20% range is stillthere.

As I say, itwill impact the dollarsbecause eventually thedollars are going toreduce before that.

Nathan Jacobs – CoeCapital

Aswe look at theaverage price for allof fiscal year ’08 it’s probably going to besomething in the$1.40 range or so?

David Dingus

Yes.

Nathan Jacobs – CoeCapital

Okay, soas we move into ’08,and if you stay atthis level, it’s still something like a20% decline just from thezinc price alone? Is that theway to look at it?

David Dingus

I wouldn’t saythat the risk to thedollars is that great. There is arisk to the dollarsbut remember that in anormalized year zinc represents about 18% of our coststructure, so, itwould be, I believe, closer to the10% to 15% range.

Nathan Jacobs – CoeCapital

Okay, and you would seea commensurate type ofdrop on thegalvanizing side on thegross profit dollars as well?

David Dingus

Indollars, not inpercent.

Nathan Jacobs – CoeCapital

Yeah. Alright, thankyou.

Operator

There areno further questions atthis time, I would like to turn thecall back over to Mr. Dingus for any closing remarks.

David Dingus

Again, we appreciate your participation today, we lookforward to again discussing our outlook for our next fiscal year later inthis month, and then of course revisiting you for thefinal results for theyear. Again, I appreciate your supportand your participation and look forward to speaking with you again. Have agreat day.

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