Gardner Denver, Inc. Q2 2008 Earnings Call Transcript

Jul.24.08 | About: Gardner Denver (GDI)

Gardner Denver, Inc. (NYSE:GDI)

Q2 FY08 Earnings Call

July 24, 2008, 9:30 AM ET

Executives

Barry L. Pennypacker - President and CEO

Helen W. Cornell - EVP, Finance and CFO

Analysts

Jeffrey D. Hammond - Keybanc Capital Markets/McDonald Investments, Inc.

Ned Borland - Next Generation Equity Research, LLC

Kevin Maczka - BB&T Capital Markets

Amit Daryanani - RBC Capital Markets

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Michael A. Schneider - Robert W. Baird & Co.

Joseph Mondillo - Sidoti & Company, LLC

Alan Mitrani - Sylvan Lake Asset Management

Operator

Good day, everyone, and welcome to the Gardener Denver Quarterly Results Conference Call. Today's call is being recorded. At this time I would like to turn the call over to Barry L. Pennypacker - President and CEO. Please go ahead, sir.

Barry L. Pennypacker - President and Chief Executive Officer

Good morning everyone, and welcome to Gardner Denver's second quarter 2008 conference call. I am joined this morning by Helen Cornell, Executive Vice President, Finance and CFO of the company. We will have some comments about the quarterly results in a moment along with some more detail about the CompAir acquisition. But, first, I would like to turn it over to Helen to make free statement.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Thanks, Barry. First of all, I would like to direct everyone's attention to the Investor Relations page on Gardner Denver's website, www.gardnerdenver.com, where you will find a presentation that we will be following to this morning's call. I also believe that those of you who are listening to this call via the webcast on our homepage can also view the slide as part of the webcast. We'll refer to the slide numbers as we progress this morning.

Speaking of which, let me begin with Safe Harbor disclosure. All of the statements made by Gardner Denver during this call other than historical facts are forward-looking statements. As a general matter, forward-looking statements are those focused upon anticipated events or trends and assumptions, expectations and beliefs relating to matters that are not historical in nature. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors relating to Garden Denver's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company. These known and unknown risks, uncertainties, and other factors could cause actual results to differ materially from those expressed in, anticipated by or implied by such forward-looking statements.

Please refer to Gardner Denver's press release issued on July 21, 2008 regarding proposed acquisition of CompAir, as well as the second quarter 2008 earnings press release issued on July 23, 2008 for further information regarding potential risks, uncertainties and other factors that could cause actual results to differ from anticipated results.

These statements reflect the current views and assumptions of management with respect to future events. Gardner Denver does not undertake or plan to update these forward-looking statements, even though the company's situation may change. Therefore, you should not rely on these forward-looking statements as representing the company or its management's views as of any other date subsequent to today.

As a reminder, this call is being broadcast in listen-only mode through a live webcast. This free webcast is available for replay up to 90 days following the call through the Investor Relations page on Gardner Denver website or on Thomson StreetEvents site, www.earnings.com. Barry?

Barry L. Pennypacker - President and Chief Executive Officer

Thanks, Helen. From an agenda perspective, we have two general topics this morning second quarter earnings and the acquisition of CompAir. Both are very important items and we will allow plenty of time for your questions on both subjects.

However, before we get started, I want to take a moment to welcome any employees of CompAir that may be listening to our webcast. Although you aren't part of the organization yet, I want you to know that the employees of Gardner Denver and I are very much looking forward to working with you. We see a great fit between our businesses and are excited that begin the process of bringing our companies together as soon as we complete the regulatory approval process.

We are in the process of transforming our culture to one of continuous improvement driven by lean manufacturing techniques. I observed in my visits to CompAir's operations during the due diligence process these types of activities taking place, and I look forward to the future success as one company.

You will soon learn that we work hard, but enjoy seeing the benefits of our results. A good example of that occurred last month at Quincy, Illinois, the location of our corporate headquarters, the headquarters of our Compressor division, and also our drilling pump and locomotive compressor manufacturing facility. Those of you who have been here know that our site is located on the banks of the Mississippi.

Well, on 9th June, the Mississippi reached 500 year of flood levels, and we are starting [ph] our facility on three sites. Every day for more than one week the call went out our employees to help fill sandbags, and [indiscernible] the call. Our employees batted together to protect the facility. They volunteered on their own time, plus recruited family and friends, and with the great support of the community we were able to keep the mighty Mississippi abate, not only did they achieve the goal, but we were able to keep our manufacturing running at full steam. We did not miss a single shipment due to the flood.

I can't thank our employees or the local community, not for their efforts to battle the flood of 2008, but no one should be surprised by this, as I have said during many occasions that we have a very experienced and dedicated work force, willing to except any challenge that presents itself.

Getting back to the employees of CompAir, we are looking forward to walking you to the Gardner Denver family. What we expect is that you do what's right for our customers, do us what's right for our shareholders and do what's right for our fellow employees, and our combined company will endure any challenges that the market can present. There will be changes in your organization, but I think you will be pleased with what you see.

So now let's talk about CompAir business. Moving on to slide four, as many of you saw on Monday, we announced the pending acquisition of compare, a business that is headquartered in the UK with a significant base of their operations in Europe. To say that I'm excited about this acquisition is a serious understatement. When I arrived at Gardner Denver in January, I met with each of my direct reports. For the operations managers, we discussed their primary acquisition targets, among other things, and CompAir was clearly the number one on the list for all of our compressor operations. The geographic footprint is complementary with ours and the product lines are a very good fit.

As you will see later, the profitability of the business is not what it should, not by a long shot. But improvement had been made and with the experienced dedication of our team, we can get it to where it needs to be and generate significant return for our shareholders. It is important to note that this business currently owned by a combination of private equity firm, management, and a UK publicly traded company, Invensys.

This group is on the business for about six years. In that time they have undertaken a pretty good turnaround. In fact, in 2006, CompAir was awarded the private company turnaround of year 2006 by the Society of Turnaround Professionals, a group representing UK's top corporate troubleshooters. We have been interested in acquiring the business since 2000, but decided back then there were too many integration challenges for us relative to the size of the two companies at that time. Just as a reminder, in 2001, our compressor products revenues were just $300 million.

These owners have taken the right steps to get the business on its way to long-term success, but did not take any strategic steps that will prevent us from further integration of the operations. I will note that their aftermarket market revenues on this page at 31% is a nice recurring revenue stream, but we can improve that too.

Moving on to slide five, give a little bit of the CompaAir business overview. 73% of the revenues comes from the Industrial division, which is the manufacturer of oil flooded rotary screws, oil-free rotary screw compressors, piston compressors, and portable compressors. The CompAir product offering will extend the Gardner Denver offering in all of these technologies, except oil flooded rotary screws where we currently offer full range products.

From an end market segment perspective, the Industrial division has exposure to a broad range of industrial segments, including the construction market through the portable offering that they currently have. In general, this segment of the company will grow at the approximate rate of the European and Asian GDP with a little drag on it due to the construction market of late. The Industrial group adds to the Gardner Denver's geographic footprint in Europe and Asia where their distribution channels are better developed than those of Gardner Denver.

The Hydrovane division manufactures rotary vane compressors under the Hydrovane brand. These are used in certain OEM applications as well as some of more specialized engineering applications. [indiscernible] existing rotary vane business is limited and now we serve a lower pressure applications. So we believe that Hydrovane product line is a great addition.

The third part of the business is Reavell, manufacturer high pressure reciprocating compressors, which are used in the applications ranging from CNG to breathing air. The division operates under both the Reavell brand name as well as the Mako brand name, which is for breathing air applications.

The Reavell product line is very complementing with our own line of high pressure reciprocating compressors such as those used for PET bottle blows.

Moving on to slide six, to look at the geographic footprint, basically three large manufacturing facilities that the business has are all located in Europe, Simmern, Germany, for rotary screw compressors and portables. Hydrovane's primary manufacturing is in Ipswich, in the UK. Reavell's primary facility is in Redditch in the UK.

The Industrial division has a second location in Shanghai, China, which is a business that is 51% owned by CompAir. The other manufacturing facilities is in Shanghai is a relatively new plant of the Reavell division. That business is 60% owned by CompAir. Reavell has a third site at Ocala, Florida, which is for breathing air packaging. Outside of the manufacturing facilities, there are 21 sales offices and 50 branch offices for this business.

Moving on to slide number seven, slide seven shows pro forma combination of CompAir and Gardner Denver's revenues. As a result of CompAir's strong presence in Europe and Asia, the combined footprint further diversifies our revenue base. Compared to Gardner Denver's 2007 revenues by geography, we expect revenues in North and South America to decline from 49% of total revenues to 42%, revenues in Europe to increase from 35% to 38%, and those in Asia to increase from 13% to 16%. Overall, this transaction will double the size of our compressor operations in both Europe and Asia. That's pretty exciting for us.

Move on to slide number eight, let's talk about the strategic implications of the deal. And now I would like to ask that you go to slide nine, and I will turn the presentation over to Helen.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Thanks, Barry. CompAir's financials are prepared in accordance with UK GAAP and are recorded on a fiscal year that ends March 31st. So, we have a pretty recent picture and audit of the account. You'll see that the business generated growth of about 7% from fiscal year '07 to fiscal year '08 and the growth was actually a little better than that because they had a business that was sold in late fiscal year '07 that generated about ₤6.3 million. So, adjusting for the disposed... that disposal, revenues grew about 10% year-over-year, which includes a little bit of headwind given the deteriorating demand in the construction market served by portables. From a profitability perspective, you can see that they certainly made improvements. As Barry said though, they have a long way to go. Barry?

CompAir has worked very hard to improve the profitability through strategy similar to Gardner Denver. They have used value engineering, low-cost country sourcing to reduce the overall product cost, introduced new products, and rationalized and strengthened their distribution channels to grow sales. In short, although focused on improving their profitability, they have invested in the future operations of the business. Therefore, I feel its their strategies are similar to Gardner Denver's and we will make it easier to align the goals of the CompAir team with those of Gardner Denver. The more important than what they have done in the past, let me address what I see as the combined company's strengths going forward focusing on the future.

Please go to slide 10. As we have discussed already, there are a number of reasons why we are so excited about this transaction, but the keys are the complementary product line, the additions to our geographic profile, and the opportunity to grow margins of the business.

Regarding the geographic profile, it is important to note that the relative positions of the two companies in Europe and Asia are very complementary. In Europe, CompAir is a tier one competitor, a strong distribution and a good revenue base, and will provide us channels to broaden the distribution of all Gardner Denver's more extensive product offerings.

On the other hand, in the U.S., Gardner Denver is a tier one competitor and provides challenge from product distribution that are currently not available to compare. In Asia, as we have relative strengths and weaknesses, and I think the combination of the business will bring out the best of both companies. For example, I am impressed with CompAir's depth of knowledge and experience in low-cost sourcing. I think we can benefit from the existing Gardner Denver operations.

On the other hands, we have a manufacturing base in Asia that could be used to assist their penetration in the region. So, through the products and the geography, this is a very strategic transaction, and about the best fit that we could have. I can only say that it's a 350 yard drive right down to middle of the fairway. I stated earlier that this business wasn't a turnaround situation, the current owners have taken it pretty far, there is a lot of margin growth opportunity left.

In addition, we have many synergies that will help grow the profitability. Our Gardner Denver teams have begun to learn a lot about lean and I intend to further update you on that in a bit. But this same knowledge and benefit of implementing these principles will be available to CompAir's operations.

On slide 11, you can see the acquisition synergies. Our primary synergies in the deal come from the manufacturing synergies, purchasing and rationalization of administrative costs. From our growth perspective, we believe that our combined presence post-transaction in China will be a great driver for the future of the business.

I know that we will get questions from this group looking for us to quantify the synergies that we are expecting. Of all we know the sources and have estimated their impact, we are not going to go through that sort of detail today. However, we believe that we can get the operating profit as a percentage of revenues to or at Gardner Denver's existing margins in the next three to five years. We wouldn't do the deal if we didn't believe we could see our way there.

Just like we have with other transactions, we will provide periodic updates about the progress and the integration, specific target dates, and savings for certain projects and of course, if there is any other material items that develop, we will certainly have a discussion about those.

Now I would like to turn the call over Helen to give an overall view of the transaction itself. Helen?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Thanks, Barry. Many of you know Gardner Denver and our philosophy on transaction. We value the cash of a potential acquisition on a standalone basis and the synergies that we expect to realize for the business. The greater the synergies the greater value we can realize and the more we can afford to pay. We are conservative in the realization of these strategies... the synergies and in terms of time to achieve to them and the full benefits. In general, historically, we have underestimated the value of the synergies of the combined businesses and after we own the operations for a while, we often find other synergistic opportunities that weren't apparent when we initially valued the acquisition.

I'm now on slide 13, and just to summarize the total enterprise value of the transaction is 197.5 million pound sterling. The actual price purchase is about a ₤183 million that will be received in cash and assuming debt with the shares of the business, plus there are certain other adjustment that were made to get up to the ₤197.5 million. The closing date depends on the length of time necessary to receive the regulatory approvals. Our best guess is that it will probably be October before the process is completed. Unfortunately, some of these approvals could take longer given the holiday period in Europe.

And as we stated in our press release, the deal is not contingent upon financing. We are arranging a new syndicated credit facility to replace our existing facility, which would have come due in 2010 anyway, to finance the transaction.

As you would have noticed in the press release, we also suspended our stock buyback during the second quarter giving the material inside information that we had, and began pulling cash in anticipation of the transaction. We currently believe there is about $40 million of excess cash available at the end of Q2, and given the benefits that we are seeing from lean, I would expect that to continue to increase this week at near the acquisition.

Suspending the buyback do give us a little bit of a headwind in our diluted earnings per share numbers in the second quarter, and we will also do so in the reminder of 2008, unfortunately. We work second share repurchases to add about $0.05 to diluted earnings per share in the final three quarters of the year, which was baked in our previous guidance. Our new guidance for the year assumes that no further buybacks occur and is therefore lower buyback, $0.05 per share.

We will give more guidance on our expectations for the 2009 diluted earnings per share impact of CompAir after we close the transaction and have a little more confidence in the timing of the accounting adjustments that are necessary when we make an acquisition.

On slide 14 now, just a few comments on the second quarter before I turn it over to Barry. I think we had a great quarter. We reported $0.93 diluted earnings per share, which included a $0.05 per share one-time retirement expense. This compares to our guidance of $0.88 to $0.92 diluted earnings per share, which did not include that retirement expense.

On a pre-tax basis, the nonrecurring retirement expense amounted to about $3.9 million. Those who know we don't break out corporate expenses separately and out P&L, so those costs are borne by the reportable segment. Therefore, the Fluid Transfer operating income was reduced by about $800,000 as a result of the charge. The Compressor and Vacuum Products segment operating margin was reduced by about $3.1 million. Therefore the unplanned expense reduced Fluid Transfer Products operating margin about 0.8 percentage points and the Compressor and Vacuum Products operating margin by about 0.7 percentage points. And I would expect as many of you would want to spike that out when you are looking at segment operating income as a percentage of revenues for the second quarter.

I received a few comments that the Fluid Transfer operating margins seem low in the quarter. I think that the results were very consistent with the guidance we provided during our first quarter conference call. At that time I was asked if we were expecting Fluid Transfer operating margin to decline from the high 20s in the first quarter, which included a lot of closer profitability on the significant loading ramp shipment we made then to the lower 20s. I said at that time I felt that that was pretty consistent with our expectation. Our results of operating margin for Fluid Transfer of 21.8%, net of the unplanned retirement expense, which reduced the result by 0.8 percentage points, I think, are pretty indicative of margin coming in in the low 20s. So I think our performance is right on track despite the time that we spent finding the flood in the facility that produces our drilling pumps.

Regarding the remainder of the second quarter financial results and the guidance for the remainder of year, I think things are pretty self-explanatory, but I want to turn it first over to Barry to give you some comments on the progress that we are making.

Barry L. Pennypacker - President and Chief Executive Officer

Thanks, Helen. We've already taken a fair bit of time talking about the CompAir transaction, which is important, but I want to say a few words about the second quarter before we turn it over to question. Talk a little bit about lean. We continue to push the organization's learning and the use of lean enterprise techniques. The implementation speed is exceeding my expectations. During the second quarter, we continued progress at the original five sites, in which we started our journey, paving the way to a culture where continuous improvement in inventory, lead time, velocity and yes, operating margins are the norm.

During the last 10 days, we've been performing divisional operation reviews in our European operations. Without fail, every facility has started their journey to lean. I would be remiss if I did not recognize just a few of them. In our Margate facility in the UK, I observed the work of a dedicated group that implements lean principles during their work day. They have made great progress in the plant layout, as well as five S implementation in the plant, including a significant reduction in single [indiscernible] exchanges dies technique. This group is currently working on seeking certification in lean principles that will aid our organization by being able to trade other operations as we continue to grow.

In our Bradford UK plant, I observed a cell that was recently put in place by a dedicated group that yielded a 73% improvement in productivity, as well as 50% inventory reduction, coupled with a 65% reduction in lead time. These results I observed, these are not theoretical. It is important that you note that during the early implementation of lean, there is pressure on operating margin because production declines and costs haven't been reduced proportionally. The first areas, as we have said all along, you will see benefit is in inventory and I am pleased to say that we already saw a bit of improvement in Q2. In the second quarter inventory generated approximately $5 million in cash for the business during the period where revenues are increasing.

I am seeing progress and I am excited that there is more to come in that area yet this year. The margin benefit, as we have been consistently saying, should start to materialize in 2009.

Another area of emphasis within the company is market penetration. Gardner Denver is interested in expanding our presence in the aftermarket, which may require positioning ourselves slightly different in some markets.

Each of our division has our developing detail plans to expand their aftermarket sales and service organization. We are concentrating opportunities to bundle products to key customers, to consolidate previous multiple phases to the customer into one, concentrating on value to the customer and simplifying their ability to interact with us.

We are considering some small acquisitions that will increase our ability to service the aftermarket in both reportable segments and look forward to an opportunity to speak about those as these transactions are completed.

In general, we are more aggressively looking for opportunities to strengthen our sales channels through product innovation, improving our distribution and enhancing our aftermarket programs. I am excited about these opportunities, and anticipate that they will ultimately apply to CompAir as well.

From an economic outlook, our view really hasn't changed from last quarter. U.S. industrial market is stagnant to declining in certain horsepower ranges. Europe is still growing albeit at a slowing rate. Exports are still benefiting production levels in Western Europe. Niche markets such as locomotive and marine compressors remain robust. UK market is following the U.S., demand is softening, Asia remains striven for oil and gas products, as well as other engineered packages that we continue to see levels increase over last year.

Backlog is improving for joint pumps, which give us some upside opportunities in the second half that we do not previously expect. However, as is our practice, we cannot HowvHoHh do a forecast extreme revenue and profit growth in this product line until we have some level of confidence that the orders are forthcoming.

If demand continues to grow at the rate we saw late in the second quarter, the outlook for the fourth quarter could improve. I think some of you may have expected a more significant increase in drilling pump shipments, a question why we don't backlog in the product raise [ph] in increasing shipments. You must keep in mind that drilling pumps are a small component in the investment of a rig. There are two drilling pumps on a rig which equates to $750,000 or less. Component on a $10 million investment, our customer must schedule a lot of different purchase components and labor availability to build the rigs. They are not looking to hold our pumps and stop [ph]. So when they place an order it has specific shipment commitments.

Remember, drilling pumps are a critical part of the capital investment that has longer lead times in some production equipment, similar to the consumables that are used in the oil field. Additionally, we again caution that we think there will be increased rig production in 2008, but not at the level of 2006 and 2007. In 2006, there were more than 200 new rig builds, followed by nearly 350 in 2007. We are currently expecting about 100 new rig builds to be built in 2008. There could be some upside to that number, but I don't think it will double. There continue to be opportunities for pumps sold for rig refurbishments and international applications, and we continue to pursue those opportunities. We continue to position inventory to seize opportunities for quick turn sales, and if forces [ph] are available, we will get the incremental sales. It's just not our practice to build that type of bet in our guidance.

Lastly, I would like to remind that group that Gardner Denver is an inquisitive company. What I saw from our team in the valuation of CompAir was impressive. And the integration planning is just as impressive. I have every confidence that this team will execute our plans in this acquisition to realize the synergies planned. Transactions are a core competency of this organization. Just because we have the CompAir transaction in process does not mean that we are done. The transaction environment is still quite robust and we remain positive on the outlook for good strategic acquisitions. Even after the CompAir transaction, I expect our pro forma EBITDA to be less than two.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Debt to pro forma EBITDA.

Barry L. Pennypacker - President and Chief Executive Officer

Debt to pro forma, yes. As I said at the beginning of this call, my operations team has a list of primary candidates for acquisition. CompAir was in the top five. We will continue evaluate these opportunities, but we expect to maintain a conservative approach to financing, but there are still interesting opportunities in the market.

With that, I'll turn it back to the operator and we will yield your questions.

Question And Answer

Operator

[Operator Instructions]. We will take our first question from Jeff Hammond with KeyBanc Capital Markets.

Barry L. Pennypacker - President and Chief Executive Officer

Good morning. Jeff.

Jeffrey D. Hammond - Keybanc Capital Markets/McDonald Investments, Inc.

On Fluid Transfer, I want to be clear per to the guidance that you are thinking about kind of a flattish year for Fluid Transfer overall?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

At this point, I would say that's consistent with some upside. I think the... we've got a lower second half at this point that we expect compared to the second half of 2007 because the fourth quarter of 2007 included about $20 million of loading arm shipments. And the counterparty to that loading arm shipment occurred in the first quarter of this year. So, I think that it's a down comparison in the second half of the year.

Jeffrey D. Hammond - Keybanc Capital Markets/McDonald Investments, Inc.

Okay.

Barry L. Pennypacker - President and Chief Executive Officer

Which is pretty consistent with the guidance that we have been giving for the last period of time.

Jeffrey D. Hammond - Keybanc Capital Markets/McDonald Investments, Inc.

Okay.

Barry L. Pennypacker - President and Chief Executive Officer

But I might add, Jeff, that we are concentrating a lot on the second half of the year, and I think we've been remiss if we didn't comment on what we believe the 2009 outlook would be for rig build. We do believe based on what we are hearing from our customers currently that there will be an increase over 2008. How large that increase is going to be, we are not very sure yet, but we do believe that with the pricing and with the activity in these difficult shales, the amount of fracing that's requiring, the stressing of the resources that are currently out there doing that, that there could be a very good build rate in 2009. Our customers are gearing up for that, they are trying to get people in place; they are trying to get their capacity lined up. So, we do believe that 2009 there will be an increase in rig count over 2008 from a build perspective.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Well, I think the rate of additions in 2009 would be greater than the rate of additions in 2008. So, it's not just that it's going to go up next year compared to 2008, but the number of additions will be improve. I think that as we continue to progress through the balance of this year and probably we don't see a lot of the benefit until the fourth quarter, but as you get towards the tail end of the fourth quarter and into 2009, then I think our customers are going to be better positioned to start adding to those rigs.

Operator

Thank you. We will go next to Ned Borland with Next Generation Equity.

Ned Borland - Next Generation Equity Research, LLC

Good morning.

Barry L. Pennypacker - President and Chief Executive Officer

Good morning, Ned.

Ned Borland - Next Generation Equity Research, LLC

Can you give me a flavor for what's going on in international markets in Fluid Transfer? I mean, I assume to remember last call there was a talk of... that the international opportunities were pretty west, what's going on there?

Barry L. Pennypacker - President and Chief Executive Officer

Well, we continue to see a significant amount of quoting activity. Unfortunately, Ned, they have not resulted in orders yet. There are a number of countries who are looking to have capital set aside to increase their rig count. Unfortunately for us that just has not materialized yet. However, I will say that we do... we are very well positioned. Our international sales group in Fluid Transfer for are very tied to these potentials, and we are in there aggressively quoting.

Within Fluid Transfer, as also, as you know, is our loading arm business. I think our loading arm business continues to show extreme promise in the international market, particularly on the LNG side, CNG side, as well as the petroleum business in Russia. So, as far as international is concerned, we still have the same outlook.

Ned Borland - Next Generation Equity Research, LLC

Okay. And then on the margins in Fluid Transfer, are you still outsourcing production of drilling pumps or have you brought that all in-house now?

Barry L. Pennypacker - President and Chief Executive Officer

Most of it has been brought back in-house. When you think about the aftermarket, we are still adding capacity. So we still have margin expansion opportunities in our aftermarket portion of Fluid Transfer. However, on the drilling pump side, it's all in-house.

Ned Borland - Next Generation Equity Research, LLC

Okay. And then switching quickly over to compressors, you mentioned that you would like to give more aftermarket business. Can you give me a flavor for what the aftermarket margins are versus non-aftermarket margins?

Barry L. Pennypacker - President and Chief Executive Officer

Well, Helen could you the exact numbers. But I don't have that off the top of my head. I just know it's much higher. And we are very focused on this. We are looking at technology to put in place to help us with this activity. As I mentioned earlier, we are looking at acquisition potential to help us. But the days of Gardner Denver not taking care of in the aftermarket our products and handing it over to other companies to take care of are over. We will capture our aftermarket and we will be extremely successful.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Just to add a little bit of color on that as well Ned, it also depends on what you are selling in an aftermarket. If we have a pass-through product like a lubricant or ancillary equipment, you have a below average margin that you have less investment in asset. On the other hand, if it's a proprietary product, you will have an above average margin because there is not a lot of alternatives out there for interchangeability to sell against that.

So, I would say all and all it is a better margin than the units themselves, but it's not a razor razorblade. So, it's not going to be two times the margins that we see on our compressor and units themselves. So, it's better, but not double.

Operator

We will go next to Kevin Maczka with BB&T Capital Markets.

Kevin Maczka - BB&T Capital Markets

Good morning, everyone.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Good morning, Kevin.

Kevin Maczka - BB&T Capital Markets

Sticking to Fluid Transfer, just a question there. You commented in the release on excess capacity in the industry. So I am wondering if you can give a little bit more color around that because I don't recall that being such a big issue of late. And also just comment, have you experienced any share loss there because I think one of the issues a lot of us are struggling with a bit is just how robust the energy market is, but yet we've seen revenues, margins, orders, all declining here.

Barry L. Pennypacker - President and Chief Executive Officer

Well, it's funny you should ask that, Kevin, because one of the things that I have increased the focus on at the operating level here is to really focus on share. And to be perfectly honest, in the aftermarket of the well servicing business, we have not grown our aftermarket, which is the same as saying you've lost share. So, therefore, we have a significant activity underway to... through technology as well as through distribution to gain back some of that aftermarket. On the OEM side, I'd say our share has not gone down and we have not lost share.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

And I would also add on the aftermarket that we have made some capital investments and we have some machine tools coming on this summer, and that should help position us better on the aftermarket because that's all about having the products available when the customer wants it. So I think that investment will help. I am sorry, the first part of your question again, Kevin?

Kevin Maczka - BB&T Capital Markets

Comment on the excess capacity in the industry and your own capacity situation?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

And what we are talking about is not on the drilling pump side. I don't think there is a lot of pumps sitting out in inventory waiting to be consumed. Our concern is more on the stimulation side. As we look at the reports of our customers say, they made some commentary about their first quarter/second quarter time period being a little bit soft. We didn't really decrease the amount of shipments that we made in well stimulation. So for the most part, what we have produced has been pretty consistent year-over-year. If their activity is softened out, that would tend to indicate that they may have some pumps in stock.

So, now that they are talking about increasing the level of activity, certainly the key customers, summer [ph] services had very optimistic conference calls with their analysts. That would indicate to me that business should be picking up, but they may have some pumps in stock that they have got to consume before we start seeing the benefit of that. And how we try to trap is the order flow and the timing of the orders. We can look back to 2006 and see customers placing six months of orders and asking us when we are going to be ready to take the next bunch of orders. Now we see a little more conservatism in their order forecast. It could be with the increased prediction of rig counts as we go into the fourth quarter, and into 2009, but that will change. And if their order rate start to change for us, then that would certainly give us a lot more confidence in the timing of increased orders on our part.

Kevin Maczka - BB&T Capital Markets

Okay. And Helen, you said the Fluid Transfer margins in the low 20s were consistent with your expectation. You don't have any more loading on the business in the back half. Is that level of margin consistent with your back half expectation too?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

I would say that it is. Between the quarters, typically the third quarter is a lower margin quarter for us because we have manufacturing shutdown and so you have repair maintenance expense, et cetera that are levered over a constant level of revenue volume. And then in the fourth quarter, I would think it would pick back up probably even better than... slightly better than what we would have incurred this quarter had it not been for the recurring... I am sorry, the nonrecurring retirement expense, if that makes sense. And you kind of see that trend in 2007 where the third quarter is a lower margin quarter due to the deleverage of the shutdown effect.

Barry L. Pennypacker - President and Chief Executive Officer

As well as we expect in the fourth quarter to have our aftermarket increased capacity on board and able to deliver. So, I think that will also help.

Operator

We will hear next from Amit Daryanani with RBC Capital Markets.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Good morning.

Amit Daryanani - RBC Capital Markets

Good morning.

Barry L. Pennypacker - President and Chief Executive Officer

Good morning, Amit.

Amit Daryanani - RBC Capital Markets

Just had a question, can you just talk a little bit on the slowdown on the Compressor and Vacuum segment? And can you just talk about when did you start to see the trends, was it pretty consistent through the quarter, or did it kind of headed up towards the end of the quarter?

Barry L. Pennypacker - President and Chief Executive Officer

Well, I think slowdown is... maybe... it may appear that way, but we are not actually seeing that. What happened is, as you know, we have within our CVP segment, we have engineered products and in the first quarter we had huge bookings for Saudi Arabian expansion of their petrochemical plant. So, I think the incoming order rate is exactly what we expected. We continue to build backlog and we're just not concerned right now about that.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

I would say, in North America the orders for certain horsepower sizes tend to be rather spotty. So it's not that you can say in one month it's X amount, in the next month it's Y amount. And it hasn't... we are not a point in North America standard compressors packages where I can say that we see a trend, but the fact that with the low 80% capacity utilization, our outlook is that the thing should be slowing down a little bit. Although it is... frankly, it is encouraging that that number just pops back up to 79.9% recently. So, it is not clear signal yet what's happening in North America.

Barry L. Pennypacker - President and Chief Executive Officer

And we track our day rates on a very consistent basis and they are holding right where we thought they would be. So, we're pretty happy about that in North America.

Operator

We will hear next from Ned Armstrong with FBR Capital Market.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Thank you, good morning.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Hi, Ned.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

I also had a question on the compressor arena. You in your press release called out several different categories. And I was wondering if you could just help give us an approximate size of those categories that you called out, i.e. the industrial versus the engineered, et cetera?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

We don't provide that level of detail in terms of what our revenues are by operating divisions. Again... maybe I can help you think about it from a different perspective.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Okay.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

As you look at our global footprint, we have a larger percentage of our compressed air revenues coming from Europe than we do from North America. And in North America, not all the end markets are showing signs of weakness. So, I would say that Europe is the largest market for us and that's still growing. In North America you still have order growth coming in in the engineered package part. The part that's showing some weakness is some of our compressor packages, more standard compressor packages.

And then the other to keep in mind in the first quarter, we had a very large order that came in for marine compressors that is scheduled out over... shipments out over a period of time. So the business can be a little bit lumpy even within the compressor products business.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Okay. And then one those areas that you... or two those areas that you mentioned when you broke down the different areas of Compressor and Vacuum were environmental and than oil and gas. You mentioned that's in the U.S. Is there any international shipments within those two areas from your Compressor and Vacuum unit?

Barry L. Pennypacker - President and Chief Executive Officer

Oh, yes, absolutely.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Okay.

Barry L. Pennypacker - President and Chief Executive Officer

In fact, a good portion of what we are doing from an engineered package perspective is in the international arena for petrochemical, oil and gas applications. I was in our operations in Germany last week reviewing some of the wonderful opportunities that they have with regards to environmental applications, as well as medical. And I could tell you that we continue to find opportunities, niche opportunities, to take our compressor products, make them smaller, make them lighter, and have the performance increased for medical and environmental applications. And one of the applications that continues to show extreme promise and is growing substantially is within the arena of laboratories. And our Welsh product that we acquired a few years ago, coupled with the core technology that we have in our Puchheim and Memmingen operations are yielding some significant opportunities for growth for us.

Operator

We will hear next from Mike Schneider with Robert Baird.

Michael A. Schneider - Robert W. Baird & Co.

Thank you and good morning.

Barry L. Pennypacker - President and Chief Executive Officer

Good morning.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Hi, Mike.

Michael A. Schneider - Robert W. Baird & Co.

Maybe first we can address Fluid Transfer. You mentioned that things picked up, I believe, in June, if I heard your comments correctly. Can you talk about the change in the guidance, because it looks like you raised the out guidance for the second half? Did you begin to build some of that acceleration in drilling pump orders into the back end, just not the full amount?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

That's correct.

Barry L. Pennypacker - President and Chief Executive Officer

That's correct.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

We did plan some improvement in the fourth quarter.

Michael A. Schneider - Robert W. Baird & Co.

Okay. And then I am curious of and I was one of them who, I guess, expected some of the orders to show up this quarter for more drilling pumps. Can you talk about lead times and just where they were, say, 12 months ago where they are today, and maybe why we haven't seen the orders yet flow through the statements or did it occur in July even?

Barry L. Pennypacker - President and Chief Executive Officer

Well, I certainly can help provide some color around that. As I mentioned in our comments, our customers are gearing up production. Our pumps are very important part of their rig. They are trying to figure out ways to increase their production going into the '09 timeframe. And they are not going to put our pumps in to inventory. Our quoting activity for '09 has never been better. We remain extremely confident that the words that we have said about the outlook for 2009 will materialize. But as consistently with our past, until we see the orders on the book, we are going to be very conservative.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

And just to put a little more color on that, Mike, we did get significantly more drilling pump orders in the second quarter than we had gotten, for example, in the first quarter of 2008. However, a lot of those are scheduled shipments based on key customers production schedules and they don't want them all at once. We do have inventory position. So if a drilling pump went out and somebody needed a quick shipment or there was something based on a lead time, we have the product available to ship on a quick lead time. So, it's really not about our ability to ship the product, it's more, as Barry said, the timing of when the customer wants that product.

Barry L. Pennypacker - President and Chief Executive Officer

We have plenty of capacity.

Operator

And our last question comes from Joe Mondillo with Sidoti & Company.

Joseph Mondillo - Sidoti & Company, LLC

Good morning, guys.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Good morning, Joe.

Barry L. Pennypacker - President and Chief Executive Officer

Good morning. Joe.

Joseph Mondillo - Sidoti & Company, LLC

Just on CVP side, could you... I know you talked about this a little bit, but going forward, could you break down the different geographic regions in terms of what you are expecting, may be like North American you are expecting low single digits, or just give us some guidance on that front?

Barry L. Pennypacker - President and Chief Executive Officer

Okay. Are you talking from an incoming order rate or a shipment perspective?

Joseph Mondillo - Sidoti & Company, LLC

Shipment... both actually.

Barry L. Pennypacker - President and Chief Executive Officer

Well, we still are seeing double-digit increases in Asia.

Joseph Mondillo - Sidoti & Company, LLC

Okay. Any slowdown there in Asia?

Barry L. Pennypacker - President and Chief Executive Officer

Not at all.

Joseph Mondillo - Sidoti & Company, LLC

Okay.

Barry L. Pennypacker - President and Chief Executive Officer

Not at all. In Europe, we continue to see the growth rates that we've said in the mid single digits. Keep in mind that I know all of you are reading about the upcoming recession in Europe. Our Compressor and Vacuum Products segment in Europe shipped a significant portion of their product outside of Europe. So, it continues to go to the Middle East, to South Africa, as well as China. So, our growth out of Europe is continuing to be exactly what we thought, and North America within the Industrial segment, our compressors has in fact stabilized where we thought.

Joseph Mondillo - Sidoti & Company, LLC

Alright. And then... thank you for that. And then looking at Fluid Transfer, over the... we've talked about this a lot this morning, but looking at the rig count has increased year-to-date year-over-year looking at it, usually when this happens, do you usually see a lag in shipment orders? Is this consistent with what you usually see?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Well, I would say that back in 2004 compared to 2003, which was the first time the business started picking up, we saw, what, 160 rigs added and we didn't see much addition to our drilling pump demand. And the issue, Joe, is that there are rigs out there that are brought on line. So then from 2004 to 2005, there were, oh, gosh, almost 200 new rigs added. We probably saw quite a bit of that demand because there weren't a lot of idle rigs that could be made active. So we started seeing increase demand in 2005 and because the contractors had played... continue us add to rigs in to 2007, they put a bunch of orders on us in 2005 for shipment in 2006, and in 2006 for 2007.

In fact, we essentially put a restriction because the market was getting so active that we did not want to take orders for products that would shipped beyond 12 months.

Joseph Mondillo - Sidoti & Company, LLC

Okay.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

So, it really kind of constrained the amount of orders. Then as we got to the end of 2006, the order inflow was slowing down because they had plenty of pumps in the pipeline. So, we really just saw even though there were maybe 100 new rigs builds in 2007, most of our production came out of backlog at that point in time. So, typically I would say it is normal that you start to see rig builds come up before we start to see pump demand because there are rigs that can be refurbished and brought on line. But ultimately, if there is an outlook where there is going to be a lot of rigs added, they are ultimately going to be starting to position pumps so that they can meet those rig build plan. So, I would say, we are starting to see that increase in pump demand. I don't think it... and I think that we get some benefit of that into the fourth quarter and then I think the real benefit comes into 2009.

Joseph Mondillo - Sidoti & Company, LLC

Okay.

Barry L. Pennypacker - President and Chief Executive Officer

As you can imagine, as much time as you spend on rig count, we spend exponentially more. And we have not seen a single forecast yet that does not indicating growth over 2008.

Joseph Mondillo - Sidoti & Company, LLC

Okay, great. And then looking at loading arms, water jetting and everything else in that segment, could you talk about the year-over-year growth that you saw in the second quarter and what you are looking for that in the back half of '08?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

That's a much more... assuming that you don't have a large loading arm LNG/CNG loading arm drop in, that rate of growth is almost like and industrial type of product. So, mid to upper single-digit type of growth. On the loading arms, because they are so lumpy, you get a $15 million order in the first quarter gives you a huge year-over-year comparison and you won't get another one maybe until the third or fourth quarter. So those are very opportunistic. We do have a lot of quotations out there. We feel very good about the demand for LNG arms and we don't see anything that's really causing that to fall off near term. But it's the timing of when you get those orders.

Barry L. Pennypacker - President and Chief Executive Officer

Hello.

Operator

Yes, we do have three more questions. Did you want to --

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Yes, please continue.

Operator

Okay. We will hear next from Alan Mitrani with Sylvan Lake Asset Management.

Alan Mitrani - Sylvan Lake Asset Management

Hi, thank you. On the Corsair acquisition, was it a competitive bid... sorry, excuse me. On the CompAir acquisition, was it a competitive bid situation?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Yes, it was.

Alan Mitrani - Sylvan Lake Asset Management

It was. And how long had you been looking at the company?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

We actually first looked at the company in 2000.

Alan Mitrani - Sylvan Lake Asset Management

Okay. And what gives you the confidence that you can... especially since it's owned by private equity and they are working to get their margins up and clearly they were looking to sell the company, what gives you the confidence that you think you can double margins in the next few years, going into a down turn is what is appears?

Barry L. Pennypacker - President and Chief Executive Officer

Well, we are not going to talk in great detail about our synergy plan. But I will say that there are opportunities, significant opportunities for consolidation of product lines, low-cost sourcing, approaches to the sales channel, as well as administrative.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

And in essence, the products that we are acquiring are not significantly different than products that we make today and the channels are similar. So, there is not a reason why we shouldn't be able to improve that profitability to the level that we realize.

Barry L. Pennypacker - President and Chief Executive Officer

The one thing I could tell you, Alan, is that the integration process and planning has already begun and it is very detail, very time-driven and those activities will yield the results that we are talking about in the next three to five years.

Alan Mitrani - Sylvan Lake Asset Management

So once you actually close the deal, you will be willing to give us a little more hard data?

Barry L. Pennypacker - President and Chief Executive Officer

Yes.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Yes.

Alan Mitrani - Sylvan Lake Asset Management

Okay, thank you.

Operator

We do have a follow up from Mike Schneider.

Michael A. Schneider - Robert W. Baird & Co.

I was wondering if you could just address pricing in Fluid Transfer? In the quarter, revenue was down 9%. In the Qs you generally give us a pricing view on the quarter. I am wondering if you could just give us a sneak preview as to whether pricing is still positive in the segment.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

It is. It's still positive and it's in the normal range for both of our reportable segments of what we've historically said, the 3% to 5% range.

Michael A. Schneider - Robert W. Baird & Co.

Okay. And then the impact of the floods during the quarter on the Quincy plant, are you able to quantify it or just give us an indication as to how many days offline the plant was taken?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

It was never actually taken offline, but we had people that were... employees that were working around the clock sand bagging and keeping the Mississippi from coming into the plat. But we actually produced products every day.

Michael A. Schneider - Robert W. Baird & Co.

Give a rough estimate of what that might have hit the quarter in dollars, Helen?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

We didn't have a huge hit to the quarter, Mike, as a result of the flood because we believe that we are going to be able to recover insurance for the business interruption, so to speak, or the expenses that we incurred fighting the floods to avoid the business interruptions.

Michael A. Schneider - Robert W. Baird & Co.

Okay. And then just on the CompAir deal, so the private equity owners have spent the last six years presumably working on the margins and the ramp seen is fairly steep even though it's only at six today. Can you give us a sense of what was done during that timeframe and then what is different about your efforts going forward?

Barry L. Pennypacker - President and Chief Executive Officer

Yes, sure. One is I think CompAir through the private equity has changed management, brought in some management talent that we are excited to have become part of our team. Two, they have done a great job of investing in low cost sourcing, which I think is very... will be very helpful to us going forward. Three, they have invested where they needed to invest in capital. However, we do believe that going forward, through capital investment we will able to get a significant increase in throughput as well as margin.

So, those three things I think are primarily what they have concentrated on. Market expansion, they have setup done a fantastic job of setting up sales offices in niche markets with only a few people that have been extremely successful, a model that we are looking forward to learning more about and potentially replicating for Gardner Denver product.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

And I think they have also spent some time and effort on new product development. So relative to the business that we look at in 2000... I would say their products are a little more innovative and certainly more appealing to the end customer.

Michael A. Schneider - Robert W. Baird & Co.

Okay. And then the divestiture that occurred in 2007, you mentioned about £6 million, Helen. Was that unprofitable or profitable business just so --?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

It was unprofitable.

Michael A. Schneider - Robert W. Baird & Co.

It was unprofitable. So, mechanically that 6% would actually be higher as we look into '08?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

I think the other way around. I think because it happened in fiscal year '07, so I think the '07 number would have been higher.

Michael A. Schneider - Robert W. Baird & Co.

Okay, I am sorry. I got the year wrong, okay. Thank you.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

Yes.

Barry L. Pennypacker - President and Chief Executive Officer

You are welcome.

Operator

We will hear next from Amit Daryanani.

Amit Daryanani - RBC Capital Markets

Thanks. Just a couple of quick follow ups. I think in the press release you guys talked about the lean initiatives clearing from near-term pricing on our operating margins. Could you quantify what the headwind was and do we expect that going forward as we expand lean initiatives across Gardner Denver?

Barry L. Pennypacker - President and Chief Executive Officer

Well, you can expect it in the short-term, but obviously not in the long-term. You can certainly relate to the fact that most of our operations are on a standard cost basis. And standard costing system is driving by absorption and absorption causes you to manufacture more product whether it's needed or not. Lean is completely opposite. Lean tells you to manufacture what the customer wants, in the quantity that he wants, in the time that he wants. Therefore, in the short-term there will be pressure on absorption and therefore operating margins. But we are very, very emphatically seeking and understanding lean accounting. In fact, next week Helen and a few of her staff are attending a seminar on lean accounting and how you transform the accounting system within the organization to match up with the production system.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

And the other comment I would like to make is, had we not had the retirement expense, operating margins for compressor and vacuum products would have been above 13%. So, even though there is certainly some amount of loss of overhead absorption as you take that inventory down, I still think it was a pretty good margin that we generated in the second quarter for Compressor and Vacuum Products.

Amit Daryanani - RBC Capital Markets

No, I mean, that fair. I guess I was just trying to see whether the number we should think about that was a headwind because of these initiatives.

Barry L. Pennypacker - President and Chief Executive Officer

You think about it this way: we are in the plants that are getting the attention that are needed to transform. We are quantifying not internally and we are finding it elsewhere.

Amit Daryanani - RBC Capital Markets

All right. And then just on the aftermarket services side, sounds like you will make a bit more aggressive focus on that business, is there going to be incremental expenses in terms of increasing the manpower or CapEx to have a better presence on the aftermarket side?

Barry L. Pennypacker - President and Chief Executive Officer

I don't see a significant increase in CapEx. As we continue to look at opportunities to effectively service our products that are in the field, yes, you can expect an increase in manpower. But I think the overall margin increase will more than offset that according to our current business model.

Amit Daryanani - RBC Capital Markets

Okay, thanks a lot.

Barry L. Pennypacker - President and Chief Executive Officer

Okay. Are there any further questions?

Operator

Yes. We will hear again from Joe Mondillo.

Joseph Mondillo - Sidoti & Company, LLC

Just one follow-up question, just could you address... I think you mentioned revenue growth for fiscal '08 for CompAir was about 10%. Could you just address that in terms it seems like it's a little less than your compressor side of the business in that time period... is this... is the occupations for this business seeing a little less growth than your compressor side, could you just address that going forward?

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

I don't have the exposure to the engineered products that are sold into these higher growth oil and gas, refining, chemical processing, those are... and environmental applications at the level we do. So, they are more like our compressor products as opposed to our engineered products. So, I think that's probably... and they also aren't like the small OEM medical applications that we see, which has been giving us about average growth.

Joseph Mondillo - Sidoti & Company, LLC

Okay, thanks.

Helen W. Cornell - Executive Vice President, Finance and Chief Financial Officer

And also certainly the numbers that you are seeing, Joe, are expressed in pound sterling. Part of the growth that we had has come from favorable translation adjustments as well.

Joseph Mondillo - Sidoti & Company, LLC

Right, okay. Thank you.

Operator

And it appears we have no further questions at this time.

Barry L. Pennypacker - President and Chief Executive Officer

Okay. Well, thank you all. And we look forward to continuing talking to you.

Operator

Thank you. That does conclude today's presentation. Thank you for participating and have a great day.

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