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Precision Castparts (NYSE:PCP)

Q2 2013 Earnings Call

October 25, 2012 10:00 am ET

Executives

Mark Donegan - Chairman, Chief Executive Officer and President

Shawn R. Hagel - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Assistant Secretary

Analysts

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

David E. Strauss - UBS Investment Bank, Research Division

Noah Poponak - Goldman Sachs Group Inc., Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Kenneth Herbert - Imperial Capital, LLC, Research Division

Ronald J. Epstein - BofA Merrill Lynch, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Carter Copeland - Barclays Capital, Research Division

Operator

Good morning, and welcome to Precision Castparts' webcast and conference call to discuss its second quarter for fiscal 2013. This event is being recorded and will be available on PCC's company website at www.precast.com shortly after the conclusion of the presentation and discussion. Following remarks by members of PCC management, the dial-in access lines will be open for questions. [Operator Instructions] Now I will turn the floor over to Mr. Mark Donegan, Chairman and Chief Executive Officer of Precision Castparts.

Mark Donegan

Thank you, operator. I'm sure you're all very familiar with our forward-looking statement, and you need to take consideration when you're analyzing the following information. If I look at Q2 in total, it is presented as many challenges as anything certainly we have encountered in quite a while, and that even includes a number of the downturns we've been through. When we have a downturn, we understand clearly the demand falls, we establish a very quick attack plan and we move out. Here, we have the demand on us. We're going in a growing market, and we do not have the key for to us that's available to respond. Certainly, one was planned, our 50. It's about 2.5-year plan, but the other 2 were unplanned and basically, we had to claw and fight our way through the process. We now have the assets up and with the solid performance of the other segments, I think we're certainly looking at some very solid dynamics moving forward. We'll get into a lot of the detail certainly and the board will spend probably more time than you'd like, but I think it's important that we do that.

But looking at the company in total, we saw sales growth of roughly 8.4% versus last year going from $1.78 billion last year to $1.93 billion this year. We saw operating income grow by 3.5% versus last year going from...

Shawn R. Hagel

13.5%

Mark Donegan

13.5%. Excuse me, 13.5%, I'm sorry. Going from $439 million last year to roughly $498.5 million this year, and we saw our margins expand from 24.6% last year to 25.8% this year. Even with all the headwinds, we saw EPS go from $2.04 last year to $2.28 this year.

If I look at the key drivers on sales, aerospace in total, we saw an increase of 14% versus last year. The organic growth in that was 3% but as you can imagine, was significantly impacted by the 3 press outages, of which a large portion of the output in those prices goes into the aerospace side of our business. Aftermarket sales for us remain very strong, growing by roughly 19% versus last year. And in the aftermarket side, there is very little impact from the presses. IGT sales remained basically flat versus last year. In that, we did have very strong spares growth of 30% versus last year, and we'll get into this in the Investment Cast segment of our market. And the OEM side was down by 11% and the majority of this decrease was driven by the 50 outage where our large IGT disc is run over that particular product.

We have modest growth rate of 5% in the oil and gas versus last year. And as you can imagine, we did have strong contribution from the acquisitions of roughly $200 million. There is in that $200 million 1% of organic growth. So as we have promised, we have grown with the market but in the way we calculate, and so we have that particular business aimed for a year. We do not count that as organic growth. So in that $200 million for some of the business we had a year ago, it would be in there but we do not count in that manner.

And we basically had lost sales of roughly $90 million to $100 million from the press outages. General industrial sales were down by 5% versus last year, and the primary driver for that is our continuing utilization of the -- really, the Huntington assets to feed ourselves in the oil and gas world. And then after that falls into a number of smaller items that fall off, Brazil truck and automotive market was down, [indiscernible] was down. Medical was down. So it's really a combination of a number of much smaller items spread across a wide array of end markets. And to bring it all around, we had lower pass-through and metal selling price of roughly $22 million versus last year.

Operationally, I think we saw a strong operational performance from both Investment Cast and Airframe Products, and the Airframe Products is the name of our new segment, which was Fasteners. I think it certainly better captures the product, the way we go to market. It is in that manner. So hopefully, I won't say it anymore, but Fasteners segment has now become Airframe Products. Investment Cast, we had solid drop-through of roughly 45% on incremental sales. And Airframe Products also saw a drop-through of roughly 45% on the base sales growth.

We had solid contributions from the acquisitions. And again, it comes in 2 forms. We certainly get the base contributions. So from what the business brought with it, we get additive from the increased standpoint. But we've also seen solid acceleration on the business we've had for a period of time.

Primus, we're in that 1-year time frame. It's becoming a very solid contributor to our earnings. And then certainly, we had a significant amount of headwinds that put pressure on that from the outages of roughly $35 million, and I do go over this in detail in the Forged segment. And then again, to round it all out versus last year, we had $8 million of additional pension expense.

If I look forward in total, we have solid market drivers going forward. And again, one of our biggest challenges we have is with the outages recovering that demand. We did not lose the demand. It was on top of us. We have it going forward. We now have to get that demand out along with the growth that was in our current forecast.

IGT is continuing to remain strong, so from the spare then aftermarket side, and we have roughly $200 million of oil and gas orders need to go over the next 3 to 4 quarters, so a lot of very dynamic growth drivers moving forward. And again, we have the delinquencies that we need to get out. The press repairs are behind us, now we need to get the volume out.

I think we still have a long way to go on the integrations. We've gotten good traction from Primus. But if you look at Centra and RathGibson and Klune and the assets we got from Aero, there's a long road of opportunity available for us that we need to take advantage of.

If I look at the sales by segment, aerospace increased from 61% last year to 65% this year of the total. Power went from 21% last year to 19% this year, and general industrial went from 18% to 16%. Organically, we've tried. We've done 2 ways. We tried to show what it was on the pure numbers, and we've also tried to give some directional indication of what the organic growth would have been without the press outages. If I look at the organic growth on its own, aerospace saw roughly a 3% organic growth rate, power with a negative 2% and general industrial has a negative 24%. If I exclude Houston and Grafton, the businesses that aerospace have done at roughly 5% range, IGT would have been positive 9%. And basically, general industrial would have been the same. And If I look at Carlton and [indiscernible], the aerospace would have been roughly to 6% range. So those are directionally where they would have gotten.

Moving into the segments, beginning with Investment Cast Products. Sales increased by roughly 6.8% versus last year, going from roughly $573 million last year to $612 million this year. Operating income increased 10% versus last year, going from just under $190 million last year to roughly $209 million this year. And margins expanded from 33.1% last year to 34.1% this year.

If I look at the key drivers, on sales, we saw overall aerospace growth of roughly 5%. And castings in total has been supporting the current bill rates, so we've kind of end that at stable rate. Now go back and look where we were 3, 4 quarters ago in that 787 we've been at roughly at 4% per month during that period of time. Certainly on that, we do have a huge challenge coming ahead of us. Over the next calendar year, we have pretty much doubled that rate on 787 as we move forward on the 787.

On spares, we continue to see solid spare strength where we grew by greater than 20% versus last year. In IGT, continually see strong driver for us where IGT in total was up by roughly 17% versus last year, and this is almost all spares driven. We saw lower general industrial sales in this segment of 12%, and this is mainly coming from Canada supplying into the general industrial world. And rounded out, we saw a flat contractual pass-through.

Operationally, in Investment Cast, we continue to see solid leverage on increasing sales. We talked about that on a front page. We're seeing roughly 45% drop on incremental margins. I think the key for us has been continuing to attack those cost drivers while we grow. And again, it's a very -- every one of our businesses, we are still looking at the opportunities that are in front of us. And I'll say it over again, as long as I sit in this job, we do not have a single plant that I think is running at the way we should, and there's significant opportunity available for us.

In airfoils, we've also talked about the new furnaces. The new furnaces are now in. The majority of them are qualified. And again, this will be key as we move through next year supporting the demand. So in the last couple quarters, we've been able to get all that qualification done in there.

If I look forward, in Investment Cast, certainly, I think we are well positioned on the base platforms as they go forward. I talked about the 787. We need to pretty much double from where we are today within the next year. We would expect to see aerospace and spares as they move into next year for us to continue to take probably some additional growth. And we continue to see strong IGT demand at this point in time.

Moving on to Forged Products. Certainly, as I went over at the start, certainly had some very tough dynamics, and we will go over those. But if I look in total for Forged, we saw a sales decrease of 4.6% versus last year, going from roughly $798 million to roughly $761 million this year. We saw operating income decrease by 5.3% going from $164 million last year to roughly $155 million this year. And we saw our margins remain basically flat going from 20.5% last year to 20.4% this year.

If I look at the key drivers, and obviously we've covered some of these already, but on sales, the major challenge we face, again, was we have that growing the demand, we have need from the customers and we have the unavailability of the assets. If I look at the particular outages and where we were sitting here basically 13 weeks ago, we talked about the 29 going down. It was unplanned. We expected to be out 5 weeks, it took us an additional 2.5 weeks. During that 2.5 weeks, a couple of things occurred. The same dynamics that require that, which is basically getting the press apart, caused us to go back and look at what was causing the difficulties we are having. These particular failure that we got, this one, the one we had 5 years ago, were all components that should have been a life somewhere in the 20-year expectancy. We went all the way back to the design, and what we found is that the press was upgraded in the '80s from a 25,000-ton press to a 29,000-ton press. There were some components that were upgraded, but the particular components that have continued to fail had not been upgraded to support the 29,000, so all of the residual demand was getting thrown into these particular components.

What we've done is, we've de-rated the press back 25,000, we've offloaded the product that required above 25,000 to the 35,000-ton in Grafton, and we've placed the components that are redesigned to 29,000 on order, and we'll bring them in. And at that time, we can up-rate the press back to 29,000, running at that. So we feel that we've gotten to the root cause that occurred long before Precision had it. And looking at kind of why the failure, as part of what we went after which was the bytefly [ph] taking cycles out, we certainly ran the press well above 25,000, much more than it has ever been run before. So that, with the press not being properly designed, brought us to where we are today.

If I look at the second piece of the 29, the fact that it did take an extra 2.5 weeks, certainly, we got ourselves in a situation where the need by our customers was very challenging, as you can imagine, especially coming up against their year ends. What we had to do in order to support our customers, we basically changed the way we run the press. Typically, we will run a 2-week -- on a particular part number, we'd look out 2 weeks. We'd run that and set up to run on another one. What we did and or as part of it we're literally running parts in a 2-, 3-day bucket, and we continue to run it over and over again by week. That was needed. We were going to do it, it's what our customers have a right to expect, but it caused horrible inefficiencies on the back end. We pretty much ran that way through the first 2 or 3 weeks of October. We're now getting back to the point that we can start to run the press in a manner at which we would want, but we had to get the customers' material in. So that was the bulk of the change from where we thought we're going to be on the 29.

If I look at the 50, certainly, look at a major overhaul and repair to the magnitude that it was that we planned for 2.5 years. I think in general, the repair went fairly well. Coming out of it, we also wanted to make sure that we had the metallurgical capability so that the press repair brought us where we wanted. So we ran numerous trials across the asset to make sure we got what we needed to get. And again, I think that was something that was incremental to where we expected to be. Everything came out properly. We're now running back to where we were, but that was different. And then as Murphy's Law has to add to that, in Carlton, we lost the primary rolling wing for the last 2 weeks to an electrical short in the hydraulics room that essentially caused a fire. That repair carried 1 week into Q3, and that is now behind us and everything is up and operational. If I look -- talk about these, all these added roughly $90 million to $100 million of demand. And that demand is still on us, that we have to now to figure our way to get out of our operations.

As you would expect, looking at all these going to the end -- kind of the impact, aero was down year-over-year by 4%, and power in the Forged segment was down 10%. In power, we also -- one additional item, we had the pipe, as I said, it's beginning to move through going to production. We had order that was ready to go, went to inspection. Inspection is a customer-directed inspection. The customer witnesses it. During that time, they were witnessing it. They were not satisfied with the way the supplier is performing the inspection. That particular process was shut down. Our product was held up while the supplier fixed the problem. Post-quarter, supplier came up, ran our product, went through, passed and subsequently has shipped. But again, that put additional opportunity off the table.

And then on the plus side, certainly we got upside from Rath and Dickson. If I look operationally, again, where we were sitting last quarter, we felt as though from Q1, we're looking at roughly a $17 million range. We've talked about the extra 2.5 weeks, the inefficiency coming off the back end, the small export customer, with the downtime of the 3 weeks and the repairs in the Carlton mill and the inefficiencies of the 50 coming back online, nowhere near the 29 but still was above what we expected. All these in brought that number to roughly $35 million. And on the other side, we did get some contributions obviously from the acquisitions.

If I look forward, our challenge, just very quickly, to accelerating output. We need to recover the delinquencies. Our customers want them. We did not lose the demand. We did not lose the orders. So certainly, that is our challenge is just -- is to get product through our facility and out to our customer. With that, we're certainly looking in the next era to continue to handle the same rate increases that we talked about for the casting. We get the base rates going up and we get the doubling of the 787. And in power, we have extremely heavy schedules for the next 4 quarters in the oil and gas.

And in the oil and gas, it's certainly been one gut check time. But if I look at where we are now in the process that we have in hand and the product through our facility, I certainly think the large portions of all the costs are behind us. And from that standpoint, we have the ability to start moving out large volumes of product to our shop. So I know we covered quite a bit the Forged Products. I think it was more than we go through some of the items, probably have more data on press outages than you'd like, but the way it goes.

Moving off from Forged on the Airframe Products. The Airframe Products saw a number of positive drivers on all fronts. But in the quarter in total, we saw our sales grow by 35.8% versus last year, going from $410 million last year to just under $557 million this year. We saw operating income increase 43.5% versus last year, going from roughly $116 million last year to $166.6 million this year, and we saw margins expand from 28.3% last year to 29.9% this year.

If I look at the key drivers, we saw sales growth continue in aerospace of roughly 51% versus last year. We saw a solid organic growth. In our Fasteners business, we saw roughly 15% versus last year. And we are continuing to see that steady recovery. So steady recovery I talk about 2 or 3 quarters ago, it is coming in, in that manner in terms of our fasteners. And on the 787, we are continuing to close that gap. We’re now at roughly 4 per month. So there has been a closure that's continuing to occur on both the base and the 787. We saw a very solid contribution from Primus that's also benefiting from the growing 787 rates. And we begin to receive a benefit from Klune and the assets we acquired from Héroux-Devtek. We did see a drop in general industrial in this particular segment, with that being our metal-like operation, and that is driven by the slowing of the Brazilian truck and auto industry.

As I look operationally, as you would expect and as we've been saying, we would expect to see solid drop-through. And we saw a roughly 45% on that base growth. And we are seeing strong contribution from Primus having talked about the front, we're seeing on 2 fronts, and so we have the benefit of Primus being in our number. And to that, we're seeing acceleration of performance on both the EBIT and on the margin performance.

If I look at where we are, certainly, we're on a path with Centra but much earlier in the integration. And we're just at the starting point for Klune and Héroux. And all of this improvement has been able to let us offset what would have been a drag on our margins as these businesses came in. So kind of everything we're encompassing on above is offsetting and open to keep the margins holding steady or improving in the business.

If I look forward, we continue to see steady growth in our Fastener volumes. We have the remaining 787 catch-up to do kind of the current rates. But then on both Fasteners and on the structure side of the business, we're also looking to support that doubling of the 787 over the next 12 to 16 months. I think we have a long road of improvement on all our structures businesses and how we utilize them. And I still think this is an area for additional acquisitions in this space. It's a space that we understand, and we're getting solid leverage and we're getting good traction in that. So it's certainly an area we want to continue to capitalize on.

If I move off of the segments and onto cash, we ended the quarter with cash on hand basically flat at $193 million. Our debt increased by $430 million in the quarter. We deployed $597 million in the quarter to acquisitions. And we sold 2 small businesses from discontinued ops. That gave us about $31 million, giving us a cash generation, excluding transactions, of roughly $136 million in the quarter. And we did have a second tax payment in the quarter of roughly $140 million.

With that, Shawn will go over the inventory comments.

Shawn R. Hagel

Thanks, Mark. For the quarter, the company saw inventory grow by $130 million compared to the first quarter of this year, and that was really driven by a couple of major items. The first, obviously, including the inventory that was acquired with the Klune and Héroux-Devtek assets. That was $75 million of the increase. The second item that caused inventory to grow was the impact that we've discussed with regard to Houston and Carlton. We -- we ran inventory in those facilities right up to the press. So that when they came up, we were ready to go and drive inventories through to help offset the delinquencies that we're growing. So we saw about a $32 million impact from those, coupled with $9 million of additional impact from the other maintenance projects that were done during the quarter. Those should all -- we should see those all drive through -- purged through the system as we work those delinquencies down and we see that sales come up the back end.

Another item that drove inventories up slightly with again, something that we discussed previously with regard to Saudi Aramco order, where we had outside testing issues that held up some of the inventory, held back the sales and caused inventory to grow by about $7 million quarter -- from first quarter to second quarter.

And then finally, as we've previously discussed, we did see the Grafton inventory start to purge up and have been built over the last year. We saw a net reduction at Grafton of $12 million as we start to ship that inventory out. That inventory will continue to drive down as that -- as we meet customer requirements and customer schedules over the next several quarters.

And that's really all the major components of the change in inventory over the quarter. So I'll pass it back to you.

Mark Donegan

Okay. Thanks, Shawn. So if I look in summary, for Q2, Investment Cast continues to see steady aerospace strength as it support current rates. We continue to see positive trends in the aftermarket. We saw a very robust IGT sales, mainly from spares. We did see a slight increase in OEM, but there's no doubt about that what we're seeing the growth from was coming from spares.

Forged Products, again, we probably covered in excruciating detail the challenges. But now all the work is complete, and we have to accelerate. And again, I'd say the key point here is we did not lose the order. We did not lose the business. Now we need to figure to get it out. And we did have the delay that we talked about in the inspection oil and gas product but back online and did ship, did ship.

In Airframe Products we had a number of positive drivers on all fronts. Fastener volume continue to recover nicely. We saw solid contributions from our structures operations. And again, this is both on the base and the accelerating improvement. We started the integration process of Klune and Héroux assets we bought. I think we're going to refer to this in the future as Progressive. It's just talking about the former name isn't working out. So from this point forward, the Héroux assets we bought, we'll refer to as Progressive.

Looking forward, in aerospace, we'll have to continue to support the current announced base rate increase as we move through next year, across all of our assets, we're going to have to figure out a way to support the doubling of the 787 between now and the end of next year at the current plans. In the near term, over the next 2 or 3 quarters, we certainly have to accelerate our forged output and recover delinquencies. So we have to take the demand we have out there and we have to add to it a recovery of these delinquencies we have. And certainly, I think we have a strong upside to continue the integration of Aircraft, vixen, Progressive capabilities and really kind of attack the current model as we move through next year.

Airframe Products, they took a step in Q2, but we still have significant upside as we move through fiscal year '14. Fasteners, again, we have upside. We need to continue the execution on the Boeing contract. And what I mean by that is we were awarded. We have a number of parts that we're doing today. We still have more parts that need to come into our production. So we are not yet through the total number of parts and the volume that we were awarded. And that should roll out over the course of the next 2 or 3 quarters too. And certainly at $2 million, $2.5 million in Fastener content, that 787 doubling is a significant content as we go through the next 12 to 16 months.

On structures, we have the same market dynamics as fasteners. We have solid position on the growth platforms. And I think that this is an area, the structures and kind of what our customers are looking for in terms of deflation. I think we have the ability to work with our customers in that front. We have a unique set of assets going from forgings and castings to fasteners to machining capabilities. And I think the opportunity is there to really take time and work with our customers on a long term, attacking their cost model that I really want to continue to drive at. And I think the assets we have allow us to do that. We hear our customers clearly. I think that there is a win-win proposition sitting in there for us and for them. And it's -- again, I think it's an area that we are still -- extremely attractive for us for further acquisitions.

In power, from Investment Cast and Forged Products, we still see strong IGT demand. Spares are holding up very strong. And as that 50-ton press is now back, we can start supplying those large land-based discs.

In oil and gas, we have a significant amount of casing shipments that go over the next 4 quarters. talked about I think we have a large portion of the development cost behind us. I think we also have the opportunity now for additional market share. It would have been difficult to go out to our customer base as we're developing the product to kind of attack that additional share. But now that we're moving through, we have to most degree of production process, I think now is the time to go engage our customers on follow-on conversations. And as we did with interconnect and a lot of our other product, once we get that development curve behind us, the follow-on orders come in. It's much -- it's certainly much easier for us to put through the process established, and we can move on from there.

And we now, we will begin moving to the integration process of Texas Holding. If I take a look -- a quick look at Texas Holding, it continues to expand our capabilities and tubular products. We can provide product directly to the end user, as well as open up an avenue to attack our cost model for some of our existing products. So it allows us 2 avenues, one to attack sales directly and one to attack the cost model, let's just go after sales in a more cost-competitive mode. And again, we would use that over the course of the next 12 months or so.

And on an interconnect pipe, we talked about this. We want to move back towards more of a balance between oil and gas and interconnect, now that we're moving some of this oil and gas through. As you go out through next year, we will -- I think you will see us rebalancing to both interconnect in oil and gas, and the backlog is growing to support this balance. And certainly an area of additional opportunity for us is to continue to extract value from our recent acquisitions. From an integration standpoint, I think we're making good progress on Primus, more to go. We're in the initial stages of Centra, Rath, Vixen, Aircraft, with just the beginning on Klune and Progressive. And I think we can really start looking at in an integration kind of that cross-utilization of assets. So how can we use to fix into more effectively, go after the cost of Wyman Gordon and our casting. We have Progressive and McSwain that we can start looking at attacking our cost model, both external machining and internal. So I think that there's a number of things we can do with the assets we have across our businesses, similar to what we've done with SMC and Wyman Gordon and back and forth in that particular world.

And certainly, I think there's a lot of opportunity to work with our customers to create value in our growing structures capabilities. I think it's an area that we have numerous opportunities for cash deployment again in this aerostructures world.

So I think in total, we saw a soft performance on our Investment Cast and Airframe Products. Forged, I thought like we're -- probably we're in the prizefight. We took one square in the chin, still standing, came out. Now we have to finish out the fight, and we have to get the volume out.

So with that, I'll open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Peter Arment with Sterne Agee.

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Mark, I guess since I'm the first out of the chute, I'll just ask on directionally regarding for the third quarter. You've kind of given us all the kind of pieces to put together, but the consensus always has a mind of its own. How do we think about sizing in terms of the current consensus out there looks for some pretty strong sequential growth, I think 12% on the top line and I think around a $2.59 EPS? How -- with the challenges that you still have to pull through in the Forged segment, how should we think about that?

Mark Donegan

No, I understand. I think it's a very fair, broad sweeping question. So here are the numbers. No, I'm just joking. If I think of what it is, we will, I think -- and let me kind of put it in this. October is going to see some of the same dynamics that I'd say September saw. So we get through October. We start to get the customer what they needed in terms of 1 of this, 2 of that, 5 of that. So I think that there certainly is some hangover in October like September. I think we move in November, there's just some Forged Products that we move in November, December, I think it starts becoming more of a -- kind of back to where we were. So we got probably a month hangover. Overall, we do face less manufacturing days in this quarter. We have roughly 3 less manufacturing days. I think that plays out more in Investment Cast and Airframe Products. But Forged, we're going to have to keep working through some of that. If I look at how the delinquency roll out, I would like to get it over 2 quarters. I think we're probably looking at 3 quarters by the time we purge it all out. There's no way we can get all that demand out in a quarter with 3 less days. So I would say that, that Q3 certainly has more to it, a lot more to it than certainly Q2 did. But we still are going to have some lag. And in the other businesses, we have 3 less days. And then I think Q4, we'll move more delinquency out. We pick up the full allotment of days. And then I'd say by Q1, we're through the delinquencies and kind of moving on. Then we start supporting all the incremental growth that's out there for the next bill rate increases. Now that...

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Yes, I guess -- I guess another way for me to ask it is the -- you did 25.8% in terms of an overall consolidated operating margin this quarter. You're going to have a little more volume and you're getting some relief a little bit from kind of the changes you've made in Forged Products. But is that margin rate with the additional volume too high? Or is that -- how should we think about it, I guess, from that standpoint?

Mark Donegan

Well, I think you should -- there is nothing abnormal in those casts and Airframe Products drops. And again, I think that we will probably not drop through as much as you'd like to see or that I'd like to see as we're working through the delinquencies. For instance, we have -- we get that product that typically runs in the 29 that requires above 25,000 tons. We're going to have to move that up. We did move up to 35. It's not as efficient. It comes out, but it's not as efficient. So I'd say that this quarter, we probably will not get as much of a drop as I would like to see on the Forged Products. And then as it starts to become more reasonable moving into Q4 and Q1, you just start to see more normal drop-throughs in that. And then the other thing I'd add is that we will have in Airframe Products a whole quarter of Klune and Progressive that we just -- we got to take on that challenge.

Operator

We will take our next question from Joe Nadol with JPMorgan.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Mark, on the aero aftermarket, it seems like things were good last quarter and good here again, up really strong in the ICP division. Your customers, though, on the wide-body side at least, both Pratt and certainly GE as well, are seeing a real fall-off there. In the past, you guys have said -- and I don't know if this has changed somehow. But you've said that you don't really have quarter-to-quarter or period-specific visibility into what's OE and what's aftermarket because you're just shipping to the OE and you don't really know how it gets allocated. So how do you know this aftermarket is really driving this?

Mark Donegan

Well, what we do is we are able to look at the bill plans. So we do get bill plans and we do, do -- we do cut it a couple different ways. We look at the airframe builds. We know -- obviously know the engines. It's a bill-of-material item. So we can certainly look at what is the airframe builds. We can look at what the engine is. We can look at our content, and we can kind of come up with that type of number. What I would say, Joe, is that if you go back to 2 or 3 quarters ago, we were carrying a very substantial delinquency in airfoils that we needed the new furnaces for that we couldn't get out. So I think to some degree, what we're seeing is the de-stocking that's kind of gone on at the end -- the [indiscernible]. So the airlines or overall repair centers, our delinquencies carried us through that, and I think what we'll see is that as we move into next year, that delinquencies carried us through and then we'll pick up as the de-stocking goes away. So I think it's that. And then some of the programs we're on, we obviously have very strong positions on some of the programs that are still seeing some solid overall repair business.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

So you're not worried you're going to see some lagging impact somewhere down the road on -- that you guys are down roughly 20% this quarter in terms of spares. You think that was -- you already kind of felt that and you're now sort of in catch-up mode. Is that fair?

Mark Donegan

Again, I think a lot -- also, I mean, you always worry. So I'm not going to tell you -- I spend every moment of my life worrying about something, so, but we certainly have positions on various programs that vary. So if I look at where probably the biggest decrease is coming from right now, it's probably a program that we don't have as much content share on as we would some of the other programs. So I think that it is program-specific, more program-specific to us is where it's coming from is important to us.

Operator

And we will take our next question from David Strauss with UBS.

David E. Strauss - UBS Investment Bank, Research Division

Mark, just following up on Peter's question, specifically looking at Forged Products as we move in the next segment or next quarter, you've highlighted that things won't be running perfectly smoothly optimally there. Would you expect that Forged margins would actually be flat, or will they be higher sequentially?

Mark Donegan

I think they've -- I think they probably are flattish with some upward slope to it is what I would like to see.

David E. Strauss - UBS Investment Bank, Research Division

Okay, but not a incremental step kind of change that would wait until the fourth quarter?

Mark Donegan

Well, yes, I think that's probably right. I mean, again, I think you and certainly myself, I look at these things and we obviously set the expectation out there of what we want to see. But there are, again, if I look at what the customers require to make their year end, we will run through October not in the manner, which I would want to run. So we're short cycling -- excuse me, short set-up and runs on the presses and very short set-up and runs on the machining. I think that will, one, hold it back, and then as we start to purge out and then certainly go into Q4, we will take on a more normal ability to run.

David E. Strauss - UBS Investment Bank, Research Division

Okay. And then you talked a little bit about this in your prepared remarks. But the margins at airframe, I mean, the best I can tell, you're adding $1 billion in sales there through all the acquisitions that what I think are much lower margins and what were -- what was the run rate in that business. What's -- yet the margins haven't dropped off at all. What has been the biggest driver of that in allowing you to keep the margins were they've been? And I think you've projected previously the margins will be at 30% or so by the end of the year. It looks like things could actually be better than that.

Mark Donegan

We're tapping at the door at 30%. We're not there yet. I wish I could tell you it was some high tech, highly intellectual, but it is getting down to really extracting where is the opportunity. The nice thing -- I think the surprise for us has been the capability and the talent of the management to absorb, to maintain, get in and run the plants the way we want to run and see the opportunities. I certainly went in expecting more of a challenge in that. The plant managers, the leadership that have stayed in the business have just grabbed on to the way we run our business and move -- that will be point number of the observation #1. But certainly, it's some opportunities in the Fastener side of the business. Those are kind of no-brainers. We're there buying fasteners, we have the opportunity to know what cost opportunities there are there. We've been able to move towards where we could, providing internal on some of our castings. We're working to provide that input product into them. We've been able to look at the man-to-machine ratio. We've made a lot on the man-to-machine ratio of working from that standpoint where they may have been 1:1, going to 1:3, 1:4. So it really covers the whole -- we've been able to use the scrap and reworks. That's the first thing we do when we got in. We stopped -- the day we were there to stop throwing away, so we were able to get back and then we can pull back cost back into them from a rework standpoint. So it really falls into just a number of opportunities.

Operator

We will take our next question from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Mark, I wanted to ask you about capital deployment. You've been pretty busy on the acquisition front. Interesting to see a little bit of leverage added to the balance sheet. But you'll move pretty quickly back into a net cash position. So number one, how do you think about that, the right utilization of the balance sheet from a capitalization perspective? Secondly, how robust is the M&A pipeline here? And then third, are you thinking about things you haven't done before, whether it's buying back stock or something like a special dividend, any more than you have in the past?

Mark Donegan

I feel like I'm watching Back to School with Rodney Dangerfield with questions with 5 parts to it. Let me kind of start with the M&A pipeline. Certainly, I feel as though the M&A pipeline is extremely full right now. I think there are some reasons, some dynamics that are out there. I certainly think that kind of the year-end desire from a tax planning standpoint is certainly playing in some of that. But also, as we've gotten in these aero structures, kind of seeing way fast as was -- once we got in and started kind of consolidating, doing that, a lot of opportunities opened up. So we're seeing that world open up to us. But I think we're also viewed as a reasonable buyer. I think we're no-nonsense. We're very decisive. We tend to be expedient in a manner in which we do these, and it tends to be a transaction without any game. So I think that there is that reputation out there in the marketplace that also plays well to us. So I think that, that from that standpoint, the M&A pipeline is full. We -- obviously with where rates are now, we certainly look frequently at other ideas. So I'm not going to tell you we are not looking and thinking of other ideas. I think it's important that anything we would do ever that would be out of the M&A would be to also clearly define that it is not because we're out of any ideas and that we don't see any further use of cash. It could just be that now is a great time to go put debt on the balance sheet. And I think from that standpoint, we are obviously looking at that. But we are at no point in time right now at any loss of ideas from any pipeline. But are we thinking about other things? Absolutely. I think we think about that all the time. I think I answered all the questions. I'm not sure if you're still on.

Operator

Our next question is from Sam Pearlstein with Wells Fargo.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Mark, can you help me understand the time line, I guess, in terms of your delivering components? What I'm trying to figure out is how far ahead of, say, to GE you might be? GE talked about their December quarter and their Gen X deliveries going from roughly 25 in the September quarter up to 60 in the December quarter. And I'm trying to think about at what point you would have been building components that would enable them to do that, and when you could [indiscernible].

Mark Donegan

We -- it's a little convoluted answer. And why I say that is if it's going directly into GE, for example, and not going through a partner, probably 3-ish, 3 to 4 months, if it's going to a partner or a revenue share partner, it's -- we're probably 6, 7 months. So all in, you're looking at December, we are probably building in June, July, December-type of product.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Okay. And then just -- if I can ask just us a quick follow-up. When you talk about these delinquencies, is there any impact in terms of your pricing to ship them out because they're now delinquent? Or is it just the inefficiencies so the contribution margin is much less?

Mark Donegan

No, it's not pricing. It is the inefficiencies. For example, so there's no pricing impact whatsoever, what we face is that if you look at what we typically would do on the -- I'll still refer to it as a 29 even though it's now 25. We would look out over a quarter, and we would typically group or batch a forward run. So and we would look at 2 weeks where we'd run 2 weeks. So we'll be running for let's say 24, 36 hours on a particular product line, shift over, break down, change the tooling over. We'll be down for a period of time and go back up and run. What we're now doing is we're probably spending almost 50-50 setup to run time. So that's where the inefficiency is coming from on that side. And then machining, we do the same thing where we would set up and run a setup of 2 weeks' worth of products. We're now actually machining. We're running 4 or 5 pieces, tearing down, setting up, running 4 or 5 buy pieces, another one tearing up and setting down. So that's where the costs are coming from. It's not a the sales price penalty or decrease.

Operator

Our next question comes from Jason Gursky with Citi.

Jason M. Gursky - Citigroup Inc, Research Division

Mark, I was wondering if you could maybe expound some lessons that you think the company has learned from the outages this quarter. If you could speak to kind of your maintenance schedule and whether there was maintenance that was being deferred, and are you now going back and auditing other plants to make sure that this doesn't happen?

Mark Donegan

Yes, no, I think that's an extremely fair question because it's one that obviously we look at. And I'll answer in a couple fronts. We have a preventive maintenance plan obviously across all of our major piece of equipment. And it is something that we look at, is what is our maintenance on time. So we do measure by plant, by equipment, what it is. What we've started to see is, and if you look at that before the '90s, we started to say, Okay, we're not -- there's something lacking in that. So it's just not a preventive maintenance. So obviously, what we've done is we've gone back and looked at, for example, any upgrades we've done. So a number of our presses have been upgraded. The 50 didn't start as a 50. I think it started as a 43 or 42. I can't remember exactly what it was, but we've gone back and looked at all other upgrades. In fact, that did show in a particular situation something that we needed to do. So that is one lesson learned. And of course the electrical, what we've said is typically our preventive maintenance doesn't necessarily look at the age of some electrical components. We've now gone across, Carlton, for instance, and we say, okay, we're going to look at the age. Even though everything's working, it's up today that shows good, some of those just needs to be changed out on an age type of related situation. We've looked at how we're doing the maintenance. In some cases, we've been outsourcing. We've asked the question, Does that really make sense? And we're actually looking at falling some of that back in-house. So obviously, you, we, all of us have to look at this and say, What can we do different? So yes, we've spent a lot of time self-evaluating. I mean, do I wish I could have gone back and look at the original designs? Yes, should have done that. And the upgrades? Yes, but we didn't. But when you start seeing the press with components that are supposed to last 20 years and lasted 5 years, that's when we start saying, We're missing something here. There's -- something has gone wrong. So in the case of the 29, we actually had to go back to all the drawings and blueprints back to when the press was designed. We brought people back from retirement to look at what the decision points were. And that's how we found the upgrade problem with the columns and the sleeves. So it's a constant evolution. We have to look at it every time as though we aren't doing something properly. And I think those are some examples of what we've done different. And again, we're going to keep -- it's a living document that we have to keep changing over and over and over again.

Operator

Our next question comes from Robert Stallard, Royal Bank of Canada.

Robert Stallard - RBC Capital Markets, LLC, Research Division

Mark, I thought I'd ask you a couple of questions on investment costs, you could clean this division at the moment.

Mark Donegan

Okay. I'll answer those for you, Rob.

Robert Stallard - RBC Capital Markets, LLC, Research Division

The sequential sales are actually down a touch. And you mentioned that aerospace production here is in line with the build rate. Can we expect a fairly steady revenue in investment costs or maybe a couple quarters before you step up to where the volumes have been going on 787 or other production models?

Mark Donegan

Yes, I think that there's couple of elements there. The first one is that sequentially in Investment Cast, we do have 2 European operations that we do shut down for a month. Now having said that, they aren't the major drivers in there. So the fact that we have been at rates, I think that to some degree, you are right that it follows that pattern, and then starts to pick up pace in Q4 then move Q1, Q2. And the other thing Investment Cast face, they all -- before they went phase 2, but since we're so far behind, we're not going face this quarter. We do typically face that year and desire to push out everything from December 31 to January 1 by our customers. So I think that, that kind of -- we'll move just more into a flattish. And then as we move into Q4, they do want to start taking delivery, and they may have to start supporting that growth. So I think that your comments are pretty right on.

Robert Stallard - RBC Capital Markets, LLC, Research Division

And as a follow-up, in the same division, you've been posting very strong incrementals here, another great operating margin this quarter. Do you think it's fair to rebase your for this division and saying 30% or 35% incremental is probably a bit too low, and maybe something in the high 30s into the low 40s is more appropriate?

Mark Donegan

There is nothing in those that is not operationally driven. I'm not satisfied with the performance of the plant. I don't think the plant manager is satisfied with the performance of the plant. So I'd say that, that group should drop through strong margins.

Operator

Our next question comes from Cai Von Rumohr with Cowen and Company.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

So Mark, a 2-part question. So castings were down a little over 1% sequentially. That's -- you have to go back only 2 times in the last decade that, that's happened. And we kind of got the impression that business was picking up. And secondly, Chengde had the worst performance since you bought them. Maybe comment on those 2 issues if you could.

Mark Donegan

Sure. Again, Cai, I think that the sequential to the number you're talking about was primarily driven by the 2 operations, one in structures, one in airfoils, that did shut down in Q2. So it's a European shutdown. It should have been with that -- with those not there -- I think given that we are at current rates, it probably should have been more of a flat sequential quarter-to-quarter. So the fact that those were down did put kind of that step in there. The Chengde, we've kind of talked about the drive to get a new leadership in there. That just started. So from my vantage point, I think Chengde is now kind of at that low point. I think we move through the next year with the leadership that is now going in place, I think we can start to get some traction that we would have wanted to get for a period of time. So there's no -- it is not performing the way we'd want, the way you'd expect us and that we would expect it. But I'm certainly hopeful that as we move through with the new CEO, that we will begin to get the type of improving performance we'd want to see.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

But isn't -- you mentioned the European shutdown. But isn't that something you do every year, yes?

Mark Donegan

You are asking sequentially?

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Yes. But sequentially if I look back since you do it every year, 80% of the time, the second quarter has been equal to or greater than the first. This year it wasn't. So why was the European shutdown a bigger deal this time?

Mark Donegan

Well, again, think that going back last year, we were in a more -- what they were -- we were accelerating and catching the rates. So that fact that we are at rate now in Investment Casting and have been at rate for 3 quarters, therefore, the elimination of 2 facilities for a month will look different than when we have airfoils and structures in a growing rate, catching rate. That's not the situation we have this year. Does that -- you understand what I'm saying?

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Yes, exactly. That's great.

Operator

Our next question comes from Myles Walton with Deutsche Bank.

Myles A. Walton - Deutsche Bank AG, Research Division

The first question is on -- and just to make sure expectations are in the right place. Forged, you talked about the recovery in the catch-up and the challenge you'll have off of second quarter. But do you think kind of year-over-year basis, organic growth is possible for Forged in 3Q?

Mark Donegan

Oh, in Q3?

Myles A. Walton - Deutsche Bank AG, Research Division

Yes.

Mark Donegan

Yes.

Myles A. Walton - Deutsche Bank AG, Research Division

Okay, good. And the second is...

Mark Donegan

I don't mean that. That's not meant to be a short answer. I mean, we have a lot of...

Myles A. Walton - Deutsche Bank AG, Research Division

Short answer is fine.

Mark Donegan

Okay, we have a lot of product. We have to get out of these facilities. We've got the oil gas, we've got -- and I didn't mean that come to across as a quick, flippant answer.

Myles A. Walton - Deutsche Bank AG, Research Division

No, I meant that to be a quick question, so that's all good. And then the other question is on free cash flow. It looks like those, maybe, again, backing into this by $120 million or so in the quarter. Is that right, Shawn? And maybe for the full year cash conversion, I know the first quarter was strong. Second quarter here looks to be about 40%, if that number is right. Is the full year still going to be able to hit that kind of 80%, 85% range?

Mark Donegan

Yes, I think that what we have to do, Myles, is we have to make a couple decisions. When the presses went out, we continued to aggressively move product right up to it. So what I didn't want to do is I did not want to have the 29 coming up in that having a -- so we continue to cut. We continue to prep. We have to build it sitting. So we had 7 weeks' worth of materials sitting in front of that. And then on the 50,000, a lot of the product on the 50,000 goes through multiple operations. We do what's called a preform. So imagine we take a bar and then we preform it into a reasonable shape look alike to what the final shape is and then we run the 50. So there was a lot of product that we continue to run up to. So I think for the year, yes, that purges it out and the conversion rate should be achievable.

Myles A. Walton - Deutsche Bank AG, Research Division

And is that number about right in the quarter, Shawn?

Mark Donegan

Yes. Well, I think we fell to the 136, like that. But that is reasonable. It is -- second payment was about $140 million. We have 2 tax payments in the quarter.

Shawn R. Hagel

You have those right. Got it.

Operator

Our next question is from Ken Herbert with Imperial Capital.

Kenneth Herbert - Imperial Capital, LLC, Research Division

Mark, let me just ask, you've alluded to a couple times with the acquisitions, market share gain opportunity, and as you continue to attack the customer cost model here with the new companies. Can you just help me think about how the sort of the absolute is a relative opportunity there specifically within now, the airframe segment? But then maybe also when you look back at how you've done this over the last several years in other segments of the market, what's that -- how should I think about that upside and the timing of that ramp and the customers' sort of acceptance to the market share opportunities as you make push here on the Airframe side?

Mark Donegan

Sure. Let me start with what we've done. Typically, what we've done is as we've acquired a set of assets, we've sat and worked early on during that process with our customers as to what the benefit could be. And when we got special metals for example, we were out pretty quick with what the opportunity was and how could we provide deflation in there that would help our customers, but in return allow us to get market share. So those are the type of conversations that we had or we're able to use a set of assets to go after cost, that whole bytefly was something we had to work very closely with our customers on, changing the shapes. But that's things we typically share. As we move into the new airframe structures world, I think the opportunities there that we do have a set of unique assets. For example, we can pull a product almost from dirt right above it in lot of cases through to a final shape. And there's a lot of opportunity that we can work with our customers. Forged shapes going to machining, assemblies in Fasteners, the list kind of goes on and on and on of what we can and can't do. I think we clearly understand what our customers need. So we've had a couple of meetings that conversations have been, I get it. I understand the opportunities are there to assist and attack and kind of your needs, but what we need on the flip side is we need -- if we can achieve that for you, we need to be able to see opportunities for our shareholders too. And we've -- we are very successful on the engines side in that conversation. I think that we're at the early stages of those conversations with some of the framers. But certainly, there are conversations that seem to be opening up opportunities that we both have to work together. I'd say it probably rolls out over, to some degree, over 12 to 24 months. And we'll probably get varying degrees of traction as we move through. And that's kind of the way it work on the engine side too.

Kenneth Herbert - Imperial Capital, LLC, Research Division

Okay. But it sounds like contractual issues aside, it's something where we could be seeing fairly quickly some impacts as you potentially take share?

Mark Donegan

I think there's opportunity that's there. Certainly some of the other share that's also available, I mean, very rarely that any of our customers allocate 100% of every part number. So I think that there's always short-term opportunity to let you get traction. And a lot of times, I think it's up to us to demonstrate what we can do. Again, we have to take a step forward sometimes. But I think that it has the ability to get traction. But I think as the further we go, the more traction we can get. That's typically the way it feels.

Operator

Our next question comes from Ron Epstein, Bank of America Merrill Lynch.

Ronald J. Epstein - BofA Merrill Lynch, Research Division

Mark, so a bigger-picture question. Can you step back and look at the entire business from a 3-year view, 4-year view. As investors, I mean, what kind of a growth business should we expect, with all the acquisitions that you've put in place that could really grip, take hold, 787s starts to really to pull through. And if you view from a longer-term perspective a 15%, 20%, 15% growth or 20%, I mean how should we think about that when investors are kind of maybe longer term view on the company?

Mark Donegan

First of all, Ron, it's good to hear you. But we -- I think that what we're going to do on that question, we've as a group spent a lot of time. And you kind of know I don't particularly like guidance. But what I think we do want to get to is providing some sort of answer to your question. Your question from my vantage point is the way we need to be talking. Overall, where do we see ourselves 3 to 4 years down the road? What I -- I'd guess what I'd like to do is we're trying to put together something now that we can bring out to the market with a probably more well-thought-out answer to that, giving that direction of where we would expect ourselves to be in that 3- to 4-year time frame. So I hate to say I'm going to kind of punt, but we are going to come out. We are going to give that type of vision, outlook. But I would say that directionally, what you're thinking is probably the way it's going to feel.

Ronald J. Epstein - BofA Merrill Lynch, Research Division

Okay. Yes, I think they -- I really appreciate it, given all the moving parts of [indiscernible]. It helps investors.

Mark Donegan

I think it's a very, very fair request. I think it's a good way to look at it. I think it provides a better structure when we have a quarter like Q2 that says that thing is still intact. That's why I like it. But we're going to try to get that out sometime in the next couple of months in some format. I haven't quite figured out how we're going to do that. But we want to do that, so we will. But I think directionally, it's going to feel similar to what you're kind of thinking.

Operator

Our next question comes from Robert Spingarn with Crédit Suisse.

Robert Spingarn - Crédit Suisse AG, Research Division

Mark, I was going to ask you something similar there, so I'll ask a couple other things. With the movement of some of the work up to Grafton and then the upgrading of Houston, or bringing Houston back to 29 as it were. One, do you have the capacity to do this seamlessly, or is this -- how should we think about this particular disruption both in Grafton and Houston and the timing of it and the magnitude? And does it push any work out into '14?

Mark Donegan

I think that overall the delinquency, a portion of it has -- our goal would be to try to get out in the next 2 quarters, which would be Q3 and Q4, there may be some that are going that carries into Q1. But -- excuse me, that's not necessarily related to a particular press. It's just related to the amount of delinquency there is plus the growing volume that was kind of on top of us.

Robert Spingarn - Crédit Suisse AG, Research Division

Okay. And with this -- all this delinquency, was there any business lost? I know you've been asked this before but from an updated perspective, has anything left the company?

Mark Donegan

No, let me go back on one thing. The 29 work -- so the 25-ton requirement above going to 35, there is capacity on 35. So it's not something has to give. It is just not nearly as an efficient for us as 29. It's not designed for the volume. So in other words, the hydraulics doesn't allow to go up and down at the rate of speed the 29 does. So that's why the some of the inefficiencies keep going. And then we're also going to have to create some headroom between now and next Q2 because that's when the components will come in to bring the 29 down -- excuse me, to bring the 29 down to do the work to bring it back to a 29,000-ton for us.

Robert Spingarn - Crédit Suisse AG, Research Division

So what is the margin impact from the Grafton inefficiency?

Mark Donegan

I think that -- I can't answer that directly, so I do not know the exact value per push. But that kind of goes back to the fact that we're, for this quarter, probably more than any, the typical drop you'd expect to see, we probably won't see that rate. And some of that is certainly the inefficiency of the 35. As we move into Q4, there still will be some drag of 35, but you'll begin with the 29 back to longer runs, and then you'll kind of purge you out from there. I think by the time you get to Q1, even the work we're doing on that, it won't be enough of a drag once we become efficient on the 29 again.

Robert Spingarn - Crédit Suisse AG, Research Division

Okay. And then just quickly, you said something earlier a couple times. I just wanted to revisit, and this was the challenge on doubling the 787 rate, and I just want to understand that a little bit better. I was under the impression that you are already there, or all along while Boeing was delayed, you were just waiting for a go.

Mark Donegan

We have the capacity. We have the equipment. It's just we have to do it. So the challenge is just doing it. Now I know tonight I've got to go run 5 miles, I don't like it, I just have to do it. So it's not that we don't have the capacity. It's not that we need equipment. It just is doing it. So the challenge is just getting in, getting it in, and moving it out. It's not the challenge is insurmountable. It's not challenges aren't doable, it just is the fact that we have to double in the course of the next 12 months. So it's a very doable task. It's just...

Robert Spingarn - Crédit Suisse AG, Research Division

So there's no margin issue here. You should still...

Mark Donegan

No, no, no. Not at all. I'm glad you asked the question for clarity. No, it's just we got to do it. It's more of we have the opportunity we have to execute on versus the challenge. Let me rephrase it from that vantage point.

Operator

Our next question comes from Carter Copeland from Barclays.

Carter Copeland - Barclays Capital, Research Division

Just a quick one for you, Mark, on the 787 and that doubling. Is there any particular spacing associated with that where you have any particular step-ups over the course of the 12 to 14 months that you called out, or is that a steady sort of slope between here and there?

Mark Donegan

No, I'd say that it -- again, since they're coming up against year end, I would like to see some of the product that's in Q1 come into Q -- excuse me, it's in our Q4 calendar year 1, calendar quarter 1, pulled into this quarter we're in right now. So I would like to see some of it now, I'm not, because it's their year end. So I think that probably takes a little bit of a bump up in Q4. And then it wants to, more linear than exponential, go through Q1, 2 and 3.

Carter Copeland - Barclays Capital, Research Division

Okay. So a little bit of back-end loading?

Mark Donegan

Yes. I will comment at this point we see that. And then because the customers have the ability beyond the current quarter, they can move it in and move it out to some degree. So they put it out there are so we get the material on order. And then they have that flexibility to kind of -- they can pull it in and out of the quarter, and the future quarter, and that's when we see the movement typically.

Operator

And that does conclude our question-and-answer session. On behalf of Precision Castparts, Mr. Donegan and PCC Management, I would like to thank you for joining today's call.

As a reminder, the webcast and call has been recorded and will be available on Precision Castparts website at www.precast.com for approximately 30 days. This concludes today's meeting.

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Source: Precision Castparts Management Discusses Q2 2013 Results - Earnings Call Transcript

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