Robbins & Myers F2Q08 (Qtr End 2/29/08) Earnings Call Transcript

Robbins & Myers (RBN)

F2Q08 Earnings Call

March 27, 2008 2:00 pm ET

Executives

Peter C. Wallace – President and Chief Executive Officer

Christopher M. Hix – Chief Financial Officer

Analysts

Jeff Hammond – KeyBanc

Michael Schneider - Robert W. Baird

Chris Van Horn - FBR Capital

Matthew Stein

Alan Mitrani - Sylvan Lake Asset Management

Presentation

Operator

Good day ladies and gentlemen, and welcome to the second quarter Robbins & Myers earnings conference call. (Operator Instructions) It’s my pleasure to introduce your host for today’s conference, President and Chief Executive Officer of Robbins & Myers, Mr. Peter Wallace. Sir, you may proceed.

Peter C. Wallace

Thank you and good afternoon. Joining me on the call this afternoon is Chris Hix, our Chief Financial Officer. I’m pleased to take this opportunity to provide an update on our most recent quarterly performance, discuss the business environment in our key markets and address your questions.

Just move over to the precautionary slide, bring your attention to the precautionary slide now from many or to most of you, we are providing this update under Safe Harbor, some comments maybe forward-looking, actual events or results may differ from those described in this presentation due to significant changes in capital expenditures in our primary markets. We also referred a various non-GAAP measures such as EBIT excluding special items as we feel they are helpful to investors in assessing our ongoing performance.

Moving on now to slide 2, as you have all picked up from our earnings release we had another very strong quarter. We set records for quarter 2 performance in sales, orders, backlog, earnings per share, and cash flow. We are very pleased that momentum continues and that our operating performance is improving so that order strength translates into better profitability and cash flow performance.

As in the more recent years, we expect sequential growth in the second half of our fiscal year driven by record orders and backlog along with generally healthy primary end markets. We are raising our diluted earnings per share guidance for the fiscal year based on our year-to-date performance and favorable outlook for the reminder of the year. We continue to make progress with our operations, with continuous improvement becoming a common theme across the business units.

During the quarter we continue to invest in the food management business units just to afford organic growth that has and continuous to take place. The investment is generally and special equipment to make proprietary products and components along with personal to drive growth and target markets.

Process Solutions continues to receive a fair amount of attention, we are making steady progress in transitioning the business to our future state model using focused Kaizen events to eliminate waste and non-value added activity as we move to a demand flow model.

A very high order rates across the business units has made implementations a bit more difficult, but we are implementing a number of changes that will drive further improvements so that we capitalize on the strong order bookings, and Romaco continuous to improve with a stronger end markets supporting our growth agenda. We have divested a few non-core business units over the last year and this quarter we’re able to divest one of the facilities associated with one of the businesses divested last year. This brought in some cash along with a $1 million gain on the facility sale.

The focus on eliminating non-core assets continuous to reap rewards, and now that we have profit improving across the business segments, we are focusing more and more on the growth agenda. During the quarter, we included a new position Vice President Business Development. This position will allow us to more proactively review possible acquisition candidates, looking along side of the business leaders to drive the business development agenda.

We have been working with the recognized leader in training around key account management, and all of our business segments have had at least some training for their key sales professionals. We have had positive feedback from several of our targeted accounts indicating that we are using leading edge techniques to become strategic partners and it looks as though this is now translating into new order growth.

And, we concluded a small acquisition during the quarter Mavag, a smallest Swiss company, which focused in the Process Solution base which was acquired through our Indian joint venture for approximately $5 million. The management team is clearly focused on continuous improvement in everything we do and the benefits continue to accumulate.

Moving on now Slide 3, orders in the quarter were up 18% or 8% excluding disposals, acquisitions and foreign currency movement. Our end markets remain strong. Sales were up 14% in the quarter or 7% excluding disposals, acquisitions and foreign currency.

The year on year sales improving -- we need to ramp up sales further to meet our customer expectations. With orders outpacing sales, we continue to build backlog. At the end of the quarter, backlog was up over $60 million or 30%. This provides confidence in meeting our sales goals for the second half of the year.

Moving on now to Slide 4, with sales improving and with cost reduction and restructuring initiatives in place, we have seen the operating margin improve significantly over the year. The year-over-year comparison shows that operating margins improved a full 270 basis points increasing from 10.9% last year to 15.6% this most recent quarter. Diluted earnings per share in the quarter more than doubled form the year earlier period.

The EPS moved up from $0.23 to $0.47 per share and you should note that this reflects 2:1 stock split that took place at the end of February and cash flow showed a significant improvement in the year-over-year comparison moving up from $6 million a year ago to $26 million this most recent period.

This is attributed to better profitability along with a great effort from our finance team led by Chris Hix to drive improvement in key areas of trade working capital. We move on now to slide 5, as you can see on this slide, we are making steady progress as we improve operating results. Trailing fourth quarter EBIDTA improved through our fiscal 2007, and the start of fiscal 2008 driven by successful restructuring programs along with healthier end markets. The trailing fourth quarter adjusted EBIDTA was $121 million and the Q2 adjusted EBIDTA of $28 million was 31% higher than the prior year period.

Moving on to slide 6, orders were down from the prior year second quarter by 7% for the fluid management group. This is explained in large part due to a single international order for annual requirements in the energy field that did not repeat in this most recent quarter. Having said this, we remain bullish on energy markets. The international markets can be more volatile than our domestic markets, and yet we’ve secured strong positions in major markets that provide confidence for the remainder of this year and beyond. Sales have been steadily increasing to a large part to very strong orders throughout 2007, and the early part of 2008.

We’ve a larger back log to normal and this should allow sales to continue to gain in the second half of the year. The fluid management team continues to deliver month after month. This quarter EBIDTA margins expanded 220 basis points to 27.4%. Another fantastic month with greater than 50% incremental drop-through profit on higher sales. The product mix supports the profit improvement but the team did an outstanding job delivering profit with some distractions. During the first half of the year, we implemented a new ERP system at our industrial pump business unit. This cost some disruption as we migrated the customer information and data from one system to the next. And how we have worked out most of the bugs, we did encounter some disruption at our delivery schedules. In addition, the contract with our union at industrial pumps expired in February. We successfully negotiated a new four year contract, but this process also caused some delays and slowdowns in our production process. The good news is that both of these critical areas, both ERP and union negotiations, are now behind us and we can resume production to work down a higher than normal backlog.

Move on now to slide 7. The end markets remain strong and while there has been a flattening out of the rig count in the U.S., we have seen very good response to the newer power section line that allows operators to drill faster. Canada had been weak in 2007, and we are now seeing additional activity from this market. Having said this, this is the normal period of time when equipment comes off the road due to the ice-breakup process and therefore demand will seasonally adjust for a short period of time in Canada.

We’ve had some customer rotation in the international markets. One of our major customers in Kazakhstan changed to new orders and it looks like we will lose some of the annual business from this change. However, offsetting this is continued expansion of Australia, where we are setting up a new service shop to support growth with another major customer.

Venezuela has gone through a lot of change with the major oil companies repositioning or exiting. And yet we are in very good position to service the area with our local service shop. And recent indicators are that this area will be good for us. And we have had good success in other international markets and setting up additional capabilities in others to take advantage of growth opportunities.

We have a high level of industrial pump backlog and this is due to incoming order rates and we -- in spite of disruption that we had with ERP implementation. We are now resuming our planned build and ship schedules and this will allow us to bring backlog and lead times down to more reasonable levels. In the process, we will see shipments increase on the second half of the year. We anticipate that industrial pumps will make up a larger portion of the segment sales growth in the second half versus the first part of the year which will have a slight impact on the overall product mix in our operating profit margin.

Move now to our slide 8, we’ll see the Process Solutions group had another outstanding quarter for new orders. During the period, orders shot up 85%, or 22% after adjusted for foreign currency movement and acquisitions. We received large order for one of the product lines that accounts for $9 million of the increase. This order was placed in the US and will ship to china throughout fiscal 2009. Sales ramped up 19% during the quarter as we tried to keep up with the incoming order rate excluding foreign currency and acquisitions; sales were up 7% in the period.

We continue to strength in a number of our product lines including industrial mixers, reactors and engineered equipment. During the quarter, we had a nice year-over-year improvement in our EBIT margins, climbing 260 basis points to 10% with greater than 50% reaching the bottom line on the incremental sales growth. While we are fortunate to have the high level of orders, this creates some scheduling problems.

We are changing our facility layout to have a more demand driven flow of production, having a number and holding a number of Kaizen workshops to implement our future division of the factory in a very focused manner. And this becomes more difficult with the order activities we have seen.

The team is making steady progress, and we have set up some new manufacturing cells to improve the flow of production at our primary facilities. During the quarter, we had a successful installation of a new ERP system at our UK process solutions group facility. This has gone well, evidence that we are learning from each installation of the ERP system.

We will now move forward with a similar installation at our German facility in the second half of the fiscal year. Now moving onto slide 9, as you’ve seen for the last few quarters, the process solutions group is experiencing some fantastic sales and order growth. This is driven primarily by global chemical and pharma markets continuing to invest in production and maintenance programs.

Asian markets remain extremely strong. We are active in China with both experts from the west as well as local production from our joint venture. The primary market has been chemical processing, but we’re seeing additional work with pharma customers of late. Our Indian joint venture continues to perform very well, and it is taking advantage of continuing investment in pharmaceutical production. And we are taking advantage of the investment in infrastructure development in these developing areas.

While the US and Europe remains major chemical producers, a large part of our success in glass line reactors is driven by the investments in Asia. The US has been able to grow the mixture business and is taking advantage of newer opportunities in engineered equipment used to separate and distill various liquids. These applications will include separation systems to recycle oil and can be used in bio-diesel and bio-mass production systems.

We have made some additional investments in China, relieving some production bottle necks to allow for greater capacity. This new production capability is starting to be realized from our joint venture operation in Suzhou. Our second half from this fiscal year will show sequential sales growth as we start to work down the back log.

Now, moving on to slide 10, as with the Process Solutions group Romaco orders shot up in the quarter, up an impressive 43% in year-over-year comparison or 26% after considering foreign currency and disposals. The order strength was broad based in this period and that appears that Romaco was beginning to be recognized as one of the leaders in the industry. We had some recent success with newer applications that were initiated based on a reputation for being innovative. Some of these newer applications include packaging for diagnostic strips, packaging for disposable syringes, packaging of oral strips and so on.

Our success with new carton packaging systems has helped pull along other product sales, and we are now being recognized for our capabilities with blister packaging with many customers wanting a mini system with blister and carton packaging together with a seamless transfer.

Sales were up 7% on the quarter or 5% excluding foreign currency and disposals. Sales should increase throughout the year much as we’ve seen in the prior years. The business simplification program has worked very well. The business is now focused on core strengths and transitioning to a more knowledge based organization with engineering and innovation as key attributes and we are midstream in consolidating our (indiscernible) facilities from two primary manufacture sites into one with most of the transfer already complete. Romaco has not only been profitable for the last four quarters real turnaround event in itself, but they are also positioned to become an even bigger contributor to our success in the coming months.

Now, moving on to slide 11, our objectives remain unchanged. This year we’ve begun to transition to become a more focused and customer led organization. We are using key account management training programs as tool to work closer with those customers they can make a significant difference in our future. As we do this, we will also build capabilities around the sales in marketing functions including basics around selling benefits to customers, pricing management, and negotiating skills.

Asia remains a very attractive market, so we will continue to invest in ways to maximize profitable sales growth from the primary regions. We are upgrading our talent with some additions along with training programs, and we will continue to be built on our operational expertise implementing lean throughout the organization. We feel there is still benefit to begin by reducing complex city, we will install the new ERP system at three facilities this fiscal year and we’ll have at least one other system up by year end. The introduction of common ERP systems will be a key enabler. But, there remain opportunities with product rationalization, supply chain management and other activities as well.

This summer we will launch a new training program in conjunction with major university to offer development programs for the high potential Robbins & Myers employees. And we have a lot of positive momentum and we intend to take advantage of these and this in the months ahead.

Moving on to slide 12; the end markets continue to work in our favor, you know, raising guidance for the year to reflect year-to-date success and continued optimism for the reminder of the year. The full year guidance is now increased from $1.78 to $1.88 to a new range of $1.82 to $1.92.

The third quarter guidance is $0.42 to $0.47, an increase of between 8% and 21% from the prior year period. The guidance numbers are based on the two for one stock split that took place in February.

Also, note that we established in escrow accounting in conjunction with the sale of several remarkable business units in March of 2006. The conditions on this escrow account will lapse on March 31^st, and if there are no liabilities brought to our attention we will release the escrow amount. This could have a positive impact on our results for the year. Contributing as much as $5 million of EBIT, this potential increase is not included in the guidance mentioned earlier. We are really to set to have another record year at Robbins & Myers.

Now, moving on to slide 13, the summery slide, first off, I have to say a big thank you to the Robbins & Myers employees that are making this another successful year. The team is making it happen and while the order rates bring around challenges we continue to find ways to make things better a spirit continuous improvement is really taking hold.

Our end markets remains strong; backlog is at record levels; and these bode well for our strong second half to the fiscal year. We are making the necessary investments to continue the growth including the personal development, capital expenditure and innovation. We are better positioned than ever, we have a good balance sheet and capital structure that will allow us to profitably grow our business and our employees are up to the challenge. We will continue to focus on continuous improvement, and we will spend a greater amount of our time with our key customers in order to better understand their changing requirements. The management team has done a great job and they are capable of doing even more.

At this time, I would like to turn the presentation over to Chris Hix and ask that he take you through some of the financial highlights. Following these comments, we will open the lines for your questions. Chris?

Christopher M Hix

Thank you, Pete. And turning to Slide 15, you can see a more complete look at our second quarter income statement. As discussed earlier, we posted strong single digit year-over-year organic growth in orders and sales in this year’s second quarter, and backlog increased to a new record of $263 million supporting our earnings guidance in the back half of the fiscal year.

Sales growth in the quarter drove a healthy improvement in gross margins which increased 200 basis points to nearly 36%. These higher gross margins in conjunction with prudent controls over spending, contributed to the 270 basis point increase in adjusted EBIT margins which rose to 13.6%. As a reminder, our adjusted EBIT excludes special items, which in this year’s second quarter includes the $1.1 million gain on the sale of a facility and last year included $2.8 million of restructuring costs within our Romaco segment. Diluted EPS in the quarter more than doubled to $0.47 including $0.02 of benefit from the facility sale and $0.01 from the favorable resolution of an income tax matter.

Moving on to Slide 16, we provide an overview on working capital. You will note that as compared with last year’s second quarter, total current assets excluding cash rose over $12 million to nearly $285 million. Current liabilities excluding debt increased by a similar amount so that the difference between these two items, what we refer to as net working capital, stayed nearly the same at around $106 million.

When you look at our net working capital as a function of sales which largely eliminates the business growth and currency effects, you can see we made substantial progress in the quarter ending at 14.4%, as compared with 16.3% in last year’s second quarter. This improvement is reflected in our cash flow from operations, which was a second quarter record of $26 million. When you look at our 10-Q, which we are filing today, you will see that we made substantial progress in accounts receivable, and I commend our field operating and finance teams for making this happen. We are now working on process improvements around the company to ensure our progress in this key area become sustainable.

Turning to our last slide, slide 17, you will note that we ended the quarter with $103.8 million of cash - $130.8 million, excuse me substantially higher than our debt levels. $70 million of this cash will be used to redeem those senior notes that mature on May 1st of this year. After that payment, we expect to continue to have ample resources to support our operating and strategic needs through cash balances, future cash flows and our undrawn revolving credit agreement. In short, the company is in solid financial shape. At this point, I will turn the call back over to Pete.

Peter C. Wallace

Operator, we are ready to take some questions.

Question-and-Answer-Session

Operator

Thank you, sir. (Operator Instructions) Our first question will come from the line of Jeff Hammond of KeyBanc. Please proceed.

Jeff Hammond – KeyBanc

Hi, good afternoon, guys.

Peter C. Wallace

Hey, Jeff good afternoon.

Jeff Hammond – KeyBanc

I wanted to dig in a little more on Fluid Management. It sounds like you did a good job explaining the volatility around the international markets and I guess I just wanted to understand better if that’s kind of, other than this one-time order comparison, what’s kind of the key driver of the sequential drop in the order rates?

Peter C. Wallace

We had a couple things happened here. One, the one customer that we mentioned in Kazakhstan that was a bit of a hit to us. We lost some of the business. The company changed hands and we will lose some business from that account. Offsetting that, though, we picked up quite a bit of new business coming through other international markets. We’re doing quite well in Australia. We’ve got some other activities coming through in the Middle East. Lot of these things are just being finalized with terms and conditions as we speak now.

In Venezuela, with all the turmoil, I mentioned that briefly in my prepared comments, we’re well positioned there and the business is starting to flow in. We’re very optimistic about the activities taking place there. We had one other event take place, and that’s one of our major customers was going through a lot of there inventory management and found that they had overstocked at some point and they’re going through some adjustments. Some of these will have some impact on the orders that we receive and yet, from our perspective, we’re actually seeing this as an opportunity to go ahead and take advantage of some other customers that have been sort of shut out with some of our capabilities. So, we really remain very optimistic going forward. Biggest swing though was in that international area.

Jeff Hammond – KeyBanc

Is the major customer, do you have any indication that they’re kind of through their inventory adjustment or is that – is there more to come there?

Peter C. Wallace

My sense is that they’re through their adjustment. They’ve gone through all of that and it’s already reflected in our shipment schedules going through.

Jeff Hammond – KeyBanc

Okay, and then I guess just from a mix standpoint the higher industrial pump would expect margins to be down year on year in the second half of the year?

Peter C. Wallace

I’ll defer to Chris on that. As you’ve seen over the course of the last year or so, as we brought the businesses together and really created Fluid Management, it’s getting harder and harder to decipher the real difference between some of these product lines, meaning the product line profitability for industrial has come up quite nicely as we brought Fluid Management together. With that, let me turn it over to Chris for comment.

Christopher Hix

Just apply the hard numbers to it, there is a possibility that we could end up with sequentially lower operating margins in the segment, but that’s merely reflection of the mix of business and not any other changes in primary business or operating conditions.

Jeff Hammond – KeyBanc

These ERP implementations in the quarter, I mean, was there a material amount of profit headwind or cost headwind that once that kind of gets through, you get a lift or was that fairly immaterial?

Christopher Hix

I’d say that we did run into some issues, as much as we planned for the whole bit, you came across and we had data migration problems from the old system to the you new system. So a lot of the orders that were already in-house, we had had some difficulties and we found that we had things out of balance and things like that. At the same time, we were going through our union contract negotiations, so the two sort of compounded each other. What has happened is our backlog has continued to balloon up a little bit. We did not ship as much as we had had hoped and really had planned for in the quarter and that has a negative impact on lead times. So I’m most concerned about impact it has on order, sales and things like that. Good news is, it all seems like it’s behind us. We’re now back on track. We’re making progress with all of our scheduled shipments, so it was certainly an interruption or a bit of a distraction but I think we got that well-buttoned down at this point in time and look forward to taking advantage of the ERP capabilities now as we go forward.

Jeff Hammond – KeyBanc

And then just finally, moving over to Romaco, you guys seem much more -- as we move forward and you dig in more and make some improvements, you seem much more constructive on Romaco as a whole. In what kinds of been the biggest surprise on the upside from your perspective?

Christopher Hix

I’d say the biggest thing is really getting focused on the packaging area in particular has allowed us to really get some more successes coming through in cartooning, blister packaging, as well as some new products that we’ll be introducing at inter-pack at the end of April over in Europe So all of this stuff just gets to be a lot more exciting where rather than being consumed, working on a number of fix it kind of issues where we had problem areas within Romaco, we have jettisoned those, we’re very focused, the sales team is focused, the engineering team is focused, we’re trying to identify what it is that we really want to do. And there is really something behind this concept of moving from a full blown manufacturer of packaging equipment to really becoming more, more of a knowledge-based company. So, we’re purposely trying to find suppliers and some other companies that we can work with on the manufacturing side, so we don’t have to take the full load there and we can devote our resources to really working on the top line sales growth and profit that goes along with it.

Jeff Hammond – KeyBanc Capital Markets

Okay, great. Thanks, guys.

Operator

Our next question will come from the line of Michael Schneider of Robert W. Baird please proceed.

Michael Schneider - Robert W. Baird

Good Afternoon, guys.

Peter C. Wallace

Hey, Mike.

Michael Schneider - Robert W. Baird

Wondering if first, we could just start on process? The margins in that segment were actually down sequentially, although up nicely year-over-year. It doesn’t seem as though that’s a seasonal phenomenon. Can you maybe give us some insight as to whether that was mix or some of these production challenges you’ve mentioned. And then going forward as you work down that backlog, presumably that means you’re getting better absorption. I would suspect you expect higher sequential operating margins in 3Q and 4Q?

Peter C. Wallace

You got the right read on all of that, Mike. I’d say seasonally the second quarter, we struggled a little bit with vacations and things like that and it’s just sort of a natural pattern that takes place year after year for us. So that doesn’t concern me so much. We have had some bottle necks with the higher volume coming in and as we’re implementing our lean programs, we’re just having some troubles getting everything pushed on through the shop. We’re making good progress there. The backlog is big and you’re absolutely right, as we get into the second half and all the shipments go out the door, we will have much better absorption and what you really should see is higher operating margins.

Michael Schneider - Robert W. Baird

Okay. And with the big order in coming year, can you give us just an update on how the mix is shifting within process now, especially as pharma improves?

Peter C. Wallace

I’d say that we still have seen chemical being the strongest part of our activity. We are seeing some additional activity and what we call our engineered systems portion of process solutions that would be the equipment that’s really used; our technology would be more in the area of white film evaporators used in the lot of the separation oils and fats, to be used in bio-diesel, biomass, be used in food applications and things like that. We’re seeing much more success in that area. And in our industrial mixers, I’d say it’s broad-based in a number of industries. So, the mix is certainly on the order side ramping up for industrial mixers and engineered equipment, more so than what you might be seeing on reactor. And yet you’ve seen the huge numbers, so obviously they’re all growing pretty nice.

Michael Schneider - Robert W. Baird

Right. Switching then to fluid, just to follow up on the question on margins, if you look at industrial pumps, that’s expected to grow in the mix in the second half. Could you explain just specifically what’s accelerating within your industrial customer mix, because this market’s been strong for several years now? I’m just curious, what’s new or different in that mix?

Peter C. Wallace

The biggest thing that will impact the sales is that we’ve got just record levels of backlog. I’d say the orders have been steady. Waste water, chemical and key markets there have been steady. They haven’t been wild or anything but we’ve just in the process have accumulated a big backlog and just as we go through the natural process of working that down, you’re going to see the sales ramping up.

Michael Schneider - Robert W. Baird

Okay. And so no particular waste water projects or specific industrial complexes being built that you’ve got big orders coming from, it’s fairly diverse?

Peter C. Wallace

No, it’s very diverse, yes.

Michael Schneider - Robert W. Baird

Okay. And then can you just walk us through with, I know this is a rifle shot question, but with the Chinese currency continuing to appreciate versus the dollar, can you give us some sense as to what that has, what impact that has had if any and does that change your outlook for the next several years in your Asia strategy?

Peter C. Wallace

Right now I’d say that our strategy is still intact. We’re still a smallish player over there. We continue to have a pretty good mix between products that we export from the west into China as well as the production, the local production ramping up. We think to properly service the market, we have to have some local capabilities and therefore the joint ventures that we have established around the pump product line as well as our reactor product line are right. We’re making additional investments in the coming months to go ahead and get better situated for our industrial mixers to be produced, at least the key parts of that, on a local basis as well and really transferring over a lot of the technical know-how, so if nothing else we can be much quicker to respond to the opportunities as they come up. So the currency, we’re forecasting the Chinese currency will become stronger but I don’t think that will have a material impact on our activities in the region.

Michael Schneider - Robert W. Baird

Okay. And, final question. Just on crude oil being near 110 now, gas at nearly $10, have you sensed any specific change in the market enthusiasm for new rigs or new well drilling? I’m curious if there is a month to month relationship or if the new thresholds that we’ve been reaching as part to new level of activity?

Peter C. Wallace

Can’t say that we have necessarily seen a new level of activity. Some of the things that I pick up is that a lot of the key accounts, the key customers, are also struggling, just trying to go ahead and add employment, add resource to go and take advantage of new opportunities so, we are seeing as your very strong markets and yet the growth might actually be limited, simply by the companies trying to attract talent to come on board.

Operator

(Operator Instructions). Our next question will come from the line of Ned Armstrong of FBR Capital. Please proceed.

Chris Van Horn - FBR Capital

Hey, this is Chris Van Horn filling in for Ned. I just wanted to follow up on the water waste water markets and just wanted to know if you could specifically address any trends that you’re seeing in municipal spending and how that’s sort of affecting the business?

Peter C. Wallace

Really haven’t seen anything significant as far as change on a year-over-year basis. It’s been steady. It’s one of those markets where I think every webcast I get to, we keep on commenting that we think it will balloon up one of these days, I mean, expenditures will ramp up and yet what we see is just continuous minor, continuous growth but very modest, if you will so, nothing significant that we’ve seen. So, nothing significant that we’ve seen.

Chris Van Horn - FBR Capital

Okay, thank you.

Operator

(Operator Instructions). Our next question will come from the line of Matthew Stein. Please proceed.

Matthew Stein

Hey, guys, good afternoon.

Peter C. Wallace

Good afternoon.

Matthew Stein

Just wanted to congratulate you on a nice quarter, first of all, and had a few quick questions for you. With that order loss in fluid orders, do you have any concerns about losing market share or do you think that was just a one time deal.

Peter C. Wallace

We think it was just a one time deal. Actually, we’re very bullish that the products we have coming out continue to be seen as leaders in the industry. So everything that we’re picking up looks very favorable for us.

Matthew Stein

We all love a big backlog of course, but any chance of increasing production capability to get some of that stuff flowing through a little quicker?

Peter C. Wallace

Yeah. Actually, we do have some additional capacity coming on line throughout the course of the fiscal year. Most of this capacity is targeted at the Fluid Management group. We’ve got some machinery coming in, generally we tend to hold a few things near and dear to us and that equipment is coming in throughout the balance of this fiscal year and into 2009 as well. So we’re really trying to match up our forecast, the optimistic view that we have on the marketplace and really try to match up the capacity requirements to make sure we stay ahead of the game there.

Matthew Stein

Got you. And bringing up your processes in China, what’s been the major constricting forces there? What’s sort of holding you back from growing any faster there?

Peter C. Wallace

Right now, it has been somewhat our capacity limitations on our Process Solutions group. We recently completed a plant expansion that allows us to get almost double the capacity coming out and we’re filling that up pretty quickly. But, it has been more capacity related than anything else. In the Moyno Pump business, we’ve been taking a fair amount of the production back into the Western markets in the way of componentry and things of that sort to get a low cost supplier base within our company, I’d say the activity there to be done is really ramping up our sales activities to penetrate more and more the local markets in China.

Matthew Stein

Got you, and then worldwide where would you say is your strongest geographic area going forward for growth opportunities?

Peter C. Wallace

Well, we continue to be very strong on the Asia markets. I think across the businesses, we’re going to have big opportunities. In Asia, we’re looking at all three segments and focusing in particular on China, our Indian businesses are doing quite well. They continue to have double-digit growth year in, year out. And this whole area of the Fluid Management space we continue to be working very closely with our significant customers to set up service shops and capabilities to support their needs as they continue to expand in their international markets. So, as you can expect, be it the Kazakhstan’s or Argentina or Venezuela, we’ve been very successful setting up capabilities and seeing incremental business come in that really helps us carry the day.

Matthew Stein

Great, thanks a lot, guys.

Peter C. Wallace

Stein, thank you.

Operator

Our next question will come from the line of Alan Mitrani of Sylvan Lake Asset Management. Please proceed.

Alan Mitrani - Sylvan Lake Asset Management

Hi, thank you. Your full year guidance your revised guidance of 1.82 to 1.92 does that include $0.47 for this fiscal quarter, not the $0.44 that you’re saying was more X one timers?

Chris Hix

No, that’s all in GAAP numbers so that’s going to be the including the $0.47.

Alan Mitrani - Sylvan Lake Asset Management

But, it does not include the potential dime (ph) that you referenced in terms of if you get $5 million from the Romaco release correct? For this upcoming quarter?

Peter C. Wallace

Yeah, that’s correct.

Alan Mitrani - Sylvan Lake Asset Management

Okay, thank you.

Operator

At this time, I have no further questions in the queue. I will turn it back to management for any closing remarks.

Peter C. Wallace

Very good. Thank you. And thank you for everybody on the line for your interest and participation here. We look-forward to providing an update on the Q3 performance in June of this year. And, again, thank you and good-bye.

Operator

Thank you for your participation. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!