Federal Signal's (FSS) CEO Jennifer Sherman on Q4 2016 Results - Earnings Call Transcript

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Federal Signal Corporation (NYSE:FSS) Q4 2016 Earnings Conference Call February 28, 2017 10:00 AM ET

Executives

Brian S. Cooper – President and Chief Financial Officer

Jennifer L. Sherman – Senior Vice President and Chief Executive Officer

Analysts

Ken Newman – KeyBanc Capital Markets

Chris Moore – CJS Securities

Marco Rodriguez – Stonegate Capital Markets

Operator

Good day and welcome to the Federal Signal Fourth Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Cooper, Senior Vice President and Chief Financial Officer. You may begin.

Brian S. Cooper

Good morning and welcome to Federal Signal's fourth quarter 2016 conference call. I am Brian Cooper, the Company's Chief Financial Officer. Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer.

We will refer to some presentation slides today as well as to the news release that we issued this morning. The slides can be followed online by going to our website, federalsignal.com, clicking on the Investor Call icon and signing in to the webcast. We have also posted the slide presentation and today's news release under the Investors tab on our website.

Before we begin, I'd like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website.

Our presentation also contains some measures that are not in accordance with U.S. Generally Accepted Accounting Principles. In our earnings news release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-K later today.

I'm going to begin by providing some detail on our fourth quarter and full year results, before turning the call over to Jennifer to provide her commentary on our performance in 2016 and update on our strategic initiatives and her thoughts on our outlook for 2017. After our prepared comments, Jennifer and I will address your questions.

Our consolidated fourth quarter and full year financial results for 2016 are provided in today's in earnings news release. As a reminder, the latest fourth quarter includes the operating results of Joe Johnson Equipment or JJE, which we acquired in early June 2016. Please also note that the historical and current year information presented in the release exclude the results of the Fire Rescue Group which was discontinued in connection with the sale of the Bronto Skylift business that was completed in January 2016.

I would like to briefly highlight some of our full year 2016 consolidated results. Net sales totaled $708 million, down 8% versus 2015. On lower sales volumes, operating income for the year was $57.7 million compared to $103.2 million in 2015. Operating income for 2016 includes the recognition of $3.9 million of expense associated with purchase accounting effects of our acquisition. It also includes $1.4 million of other acquisition related expenses and $1.7 million of restructuring cost.

Excluding these items, consolidated operating margin for the year was 9.1% compared to 13.5% for the prior year. On an adjusted basis, we reported full year earnings per share of $0.69 compared to $1.02 per share in 2015. We reported consolidated orders of $674 million, which were down 2% from the prior year. Overall, our full year results reflected challenging conditions in some of our key end markets, most notably, oil and gas, which significantly reduced orders, sales and operating income

For the rest of my comments, I will focus mostly on comparisons of the fourth quarter of 2016 to the fourth quarter of 2015.

Consolidated net sales for the fourth quarter were $176 million, down 6% compared to the prior year period. Operating income of $13.8 million was down versus $24.3 million in Q4 of 2015. Consolidated operating margin for the quarter was 7.8% compared to 13.0% a year ago.

Q4's reported operating income includes $0.9 million of expense tied to purchase accounting, $0.2 million of other acquisition-related expenses and nominal restructuring costs.

Consolidated operating margin for the quarter excluding these items was 8.5% compared to 13.0% the year before. Income from continuing operations was $12.1 million for the fourth quarter compared to $17.4 million, the prior year. That translates to GAAP earnings of $0.20 per share, which compares to $0.27 per share in 2015.

We also look at earnings on an adjusted basis which I will explain later. On that adjusted basis, EPS for the fourth quarter was $0.16, which compares to $0.25 per share to prior year. Orders reported in the fourth quarter were $165 million, down 8% compared to the prior year period. We ended the quarter with a consolidated backlog of $137 million which was down from $149 million at the end of the third quarter.

As you can see in our group results, lower sales volumes and changes in sales mix within the Environmental Solutions Group have contributed to a decrease in consolidated operating income. With lower manufacturing volumes, we also experienced negative operating leverage on our fixed cost, including lower absorption of our fixed manufacturing cost.

Results for the quarter also included $0.9 million non-cash charge related to purchase accounting. This was the additional cost of sales during the quarter after acquired JJE equipment was stepped up to approximately it sale value as part of the initial purchase price allocation. The stepped up cost will affect our earnings and our cash flow and are expected to become smaller over the next couple of quarters. There is approximately $6 million of step-up remaining to be realized.

In the Environmental Solutions Group, orders were generally consistent with the prior year and net sales were down slightly. The JJE acquisition contributed $30.5 million of incremental net sales in the quarter, which was largely offset by lower domestic shipments of vacuum trucks, sewer cleaners and street sweepers.

Lower shipments of vacuum trucks were tied primarily to softness in oil and gas. The lower sewer cleaners were primarily represents the timing of deliveries as orders have been steady, whereas the reduction in street sweeper sales is associated with fewer large fleet shipments when compared to the prior year quarter.

ESG's operating income decreased by $12.1 compared to the prior year. This was mostly due to $9.3 million decrease in gross profit, reflecting negative effects from sales mix, operating leverage and purchase accounting expense. Adjusting to exclude these effects as well as acquisition expenses, ESG's operating margin for the quarter was 9.3% down when compared to 17.9% for the prior year.

At our Safety and Security Systems Group, sales were down 12% compared to Q4 of 2015, but operating income of $9 million was generally unchanged. This resulted in an improved operating margin of $16.5% compared to 14.7% in the prior year. Orders as SSG were down 24% compared to the fourth quarter year ago, reflecting continued softness as a result of oil and gas and slow receipt of municipal orders.

Finally corporate operating expenses of $5.4 million were down $1.7 million from the prior year, mainly due to lower employee incentive compensation expenses.

Turning now to the consolidated income statement, you can see that consolidated gross profit is down disproportionately to net sales as a result of the volume deleveraging and less favorable mix that I described in the group results. That translated to a lower consolidated gross margin of 25.8% in the latest quarter compared to 29.7% in 2015.

Selling, engineering, general and administrative expenses of $31.3 million were up 1% compared to the prior year quarter, primarily due to additional operating expense from our current year acquisitions, which offset other cost control and reduction efforts.

I have also noted $0.2 million of acquisition related expense equal to the change in the value of the liability that is tied to the JJE earn out. We reassess that every quarter in accordance with the accounting rule.

In total, this all adds up to $13.8 million of fourth quarter operating income. Other items affecting our quarterly earnings include $0.6 million reduction in non-operating income largely related to foreign currency transaction FX in the prior year and a $5.7 million in income tax expense. Taxes are lower because of our lower income and also reflect changes in income tax valuation allowances.

The effective tax rate for the quarter was much lower than usual at around 9% largely due to inclusion of a $2.2 million net benefit from special tax items. Specifically, we recognized the benefit of approximately $3.5 million and releasing a valuation allowance in Canada during the fourth quarter. Partially offsetting this benefit was $1.3 million of expense recognized in connection with establishing a valuation allowance in the U.K.

The effective tax rate for Q4 of 2015 was also low at 28.4%, largely due to the inclusion of a $1.4 million net benefit from special tax items. I would also note that our effective tax rate in 2016 for the full year, excluding special tax items was approximately 34.5%. We currently expect our financial book effective tax rate to be in a similar range for 2017.

Cash taxes paid will be lower than that at a percentage rate that we estimate at about 20% based on our anticipated use of deferred tax asset, consisting largely of net operating loss carry forwards and tax credit carry forwards.

On an overall GAAP basis, we therefore earned $0.20 per share from continuing operations in Q4 compared with $0.27 per share in Q4 of 2015. To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year quarter. In the fourth quarter, we made adjustments to GAAP earnings per share to exclude the purchasing accounting affects, acquisition-related expenses and special tax items I've already discussed.

On this basis, our adjusted earnings for the fourth quarter were $0.16 per share compared to $0.25 per share in the fourth quarter a year ago. I would note too, and on the same basis, our adjusted earnings for the full year was $0.59 per share compared to $1.02 in 2015.

Turning now to the balance sheet and cash flow, we generated $9.6 million of cash from continuing operations in the quarter compared to $30.7 million during Q4 of 2015. For the full year, we generated $26.7 million of cash from continuing operations in 2016 compared to $91.1 million in 2015.

Operating cash flow for 2016 was somewhat artificially lower by approximately $11 million as a result of the non-cash settlement of accounts receivable due from JJE that occurred upon closing of the acquisition. Other factors explaining lower cash flow for the year included lower earnings, a $23.5 million increase in primary working capital and additional $6.9 million of net cash outflow related to rental equipment transactions and a $3.7 million increase in income tax payments.

With total debt of $64 million and cash on hand of $51 million, we ended the quarter with only $13 million of net debt. Availability under our credit facility at the end of the quarter was $244 million and our leverage ratio remained low. We're obviously in a strong financial position and have significant flexibility to invest in organic growth, pursue acquisition opportunities and return value to shareholders.

On that note, we paid a dividend of $0.07 per share during the fourth quarter amounting to $4.1 million and we recently announced a similar dividend for the first quarter of 2017. Dividends paid during 2016 totaled $16.9 million, up from $15.6 million in 2015.

We also funded share repurchases of $4 million during the quarter, bringing total repurchases in 2016 to $37.8 million, which were at an average of $12.75 per share. That compares to share repurchases of $10.6 million in all of 2015. We had about $31 million remaining under our share repurchase authorization as of the end of 2016.

That concludes my comments, and I'd like to turn the call over to Jennifer.

Jennifer L. Sherman

Thank you Brian, and thanks to all of you for joining us on the call today. Our fourth quarter results helped us deliver solid full year earnings towards the higher end of our recent expectations. However, it is clear that 2016 was a challenging year. We started 2016 with relatively low backlog and weak incoming industrial orders throughout most of the year, reflected the major downturn in oil and gas along with general softness in our broader industrial markets.

Due to our longer lead times for equipment we sell into oil and gas end markets during 2015, we fought the effects of the downturn in oil and gas later than many industrial companies. As a result in 2016, sales were down significantly and the lower volume especially for some of our higher margin equipment, including hydro-excavators created negative operating leverage.

On the positive side, several of our businesses performed well in 2016. Our public safety systems business grew market share and improved its bottom line. Our Elgin sweeper business posted its second best year for earnings in spite of demand for its products fluctuating as a result of the timing and pattern of large fleet in international orders. Demand for our Vactor sewer cleaners remained steady. As I will discuss later, we finish this year and start the New Year with some improving trends in industrial orders.

Before I move on to our strategic objectives and outlook, I would like to recap some of the Company's specific achievements in 2016. As you know, in January of 2016, we completed the sale of our Bronto Skylift business, receiving proceeds of approximately $88 million. Bronto Skylift was a low-margin operation, required a disproportionate amount of invested capital and its divestment facilitates our focus on more profitable growth opportunity.

Also in January of 2016, we executed a new five-year $325 million revolving credit facility to replace our previous $225 million credit facility. The new facility recognized our vastly improved financial position and it gives us costs and flexibility advantages. We continue to apply a disciplined approach to potential acquisitions, and in June 2016, we completed the acquisition of JJE.

JJE facilitates sales of Federal Signal manufacturing products into new markets, expands our rental and used equipment offerings to serve customer needs and more broadly enhances our parts and service business, and increases the Company's footprint across North America. The acquisition of JJE also added product lines that are not manufactured by the Company, such as refuse and recycling collection vehicles, camera systems, ice resurfacing equipment and snow removal equipment.

In addition, we've completed the acquisition of Westech, a Canadian manufacturer of high-quality rugged vacuum trucks for a nominal price. Since the acquisition was completed in January of 2016, we've made a number of products and manufacturing enhancements and obtained a U.S. DOT certification for a new line of product offerings, which opens new market for us. We also continue to focus on new product development in 2016 and are encouraged by both the projects in our pipeline and our results so far.

The most promising of these on the Environmental Solutions Group side is our award winning purpose built ParaDIGm vacuum excavator that is targeted at the utility market, which is a relatively new market for us. We have realigned our sales force to better serve that markets and we are tracking ahead of our expectations. It has been our most successful product launch in over a decade.

Like Safety and Security Systems Group, we are working on a variety of new technologies such as video management, and Internet of Things connectivity, and exploring how they can improve and expand our product offering.

Finally, we demonstrate our commitment to returning value to shareholders by more than doubling cash returns in 2016, paying an aggregate $54.7 million in the year in the form of cash dividends and share repurchases compared to $26.2 million in 2015. We have taken a number of deliberate steps over the last several years to position Federal Signal for profitable growth.

The sale of Bronto largely completes the realignment of our portfolio of businesses, which started a number of years ago with the sale of FSTech. We believe there are two remaining operating groups, the Environmental Solutions Group and the Safety and Security Systems Group serve attractive municipal industrial end markets and provides good platforms for our future growth.

We aim to optimize our existing end markets, which is where our 80-20 effort, customer focused and hard work help us gain market share, serve our customers better, drive efficiencies and leverage our capital. Although, our consolidated operating margins has declined during this significant headwinds over last year, so our long-term consolidated operating margin target of 12% remains unchanged. We are also working to selectively enter adjacent markets with products tailored to provide competitive advantages and to grow aftermarket services and opportunities.

One of the key steps here has been to refocus and revitalization of our new products development efforts across the companies as I just mentioned. Acquisitions are also a key part of our future growth. In addition to our two acquisitions completed in 2016, we have a robust M&A pipeline and we expect M&A to contribute further into 2017.

Where do these strategic efforts take us? We would like to share our long-term revenue perspective. Looking ahead, we have set a goal to exceed $1 billion in revenues by 2020, which would equate to a compound annual growth rate of at least 9%. We believe this is achievable with contributions from a number of areas. Starting from our 2016 revenues, we expect additional revenue and having JJE for a full year in 2017 instead of seven months.

In addition to GDP growth across our core businesses, we also anticipate recovery during this multi-year time period in some of our end market that had been soft recently including oil and gas. We are also driving toward targets for our strategic initiatives that will contribute to growth above GDP.

The remainder of our revenue objective to rise from additional M&A, we're about halfway to our previously stated goal for incremental revenues of $250 million from acquisitions by 2018. We are excited about our strategic initiatives which position us well to benefit as our market strengthen and we are cautiously optimistic of the near-term economic outlook.

For the full year 2017, we anticipate solid top line growth in year-over-year earnings improvement. However, we expect that our first quarter will be soft with earnings likely to be between 14% and 16% of our annual earnings. This earnings pattern reverts to our historical seasonality with the first quarter typically as the softest of the year. It reflects a smaller year in backlog securities that reduce margins and in prior year, due to lower industrial demand that persisted throughout most of 2016 and a higher concentration of orders for products manufactured by other OEM.

As we look at the year, there are a number of factors reflected in our outlook. Our municipal markets, which represent about 60% of our revenues, remain stable overall. Last week, I was at our largest trade show for our Environmental Solutions Group and spent time with many of our municipal dealer. Overall, they felt positive about the pipeline of municipal opportunities for 2017.

On the industrial side, we have seen strong improvement in U.S. order since early December. In aggregate, domestic industrial orders for December and January were up more than 50% versus the prior year. This was driven mostly by increased order intake in our Environmental Solutions Group. It should start to benefit us beginning in Q2. Also benefiting the year is the ramp up of our ParaDIGm product and a full year's contribution from JJE.

JJE's business includes rental and used equipment income and the associated rental fleet assets will drive an increase in our annual depreciation expense of about $8 million to $10 million.

On the other hand, we have not counted on any meaningful improvements in oil and gas and markets, which would benefit our hydro-excavation products on the ESG side and our industrial systems business on the SSG side. We expect such market recovery would most likely benefit us in 2018 and beyond.

In 2017, we are also continuing to add sales resources and fund R&D expenses in support of our long-term strategic initiative. Our 2017 outlook includes a net reduction of about $0.02 to $0.03 to adjusted EPS for this spending. With that, we expect adjusted earnings per share for the year to be between $0.70 and $0.78.

At this point, we'd like to open the lines for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instruction] We'll take our first question from Steve Barger with KeyBanc Capital Markets.

Jennifer L. Sherman

Good morning, Steve.

Ken Newman

This is actually Ken Newman on for Steve. So, first question, just wanted to ask what drove the mix in SSG to give you that EBIT margin in the quarter, and do you expect that is a sustainable margin going forward in first half of 2017?

Brian S. Cooper

Yeah Ken. We have a mix of business there, our lease business and public safety side in general has been doing well, and so their margins have performed well. We will see that margin going up and down from time to time, so it was a good quarter, but it is not out of the range of what we think is just going to…

Jennifer L. Sherman

Yeah, I think, I would add too, is in terms of our outdoor warning business, they had a very solid quarter and that was the significant contributor to the operating margin.

Ken Newman

Going back to the guidance, could you quantify the solid year-over-year growth commentary that you gave, is that, should we think about that as low-single digit, mid-single digit?

Jennifer L. Sherman

Yeah, I think the way we look at it, we look at for 2017, we expect our growth to be 1% to 2% above GDP and then we'll also benefit from the full year impact of JJE.

Ken Newman

So just to clarify that, 1% and 2% is that organic, or is that also including acquisitions?

Jennifer L. Sherman

No, that does not include any additional acquisition. It only includes the full year impact from JJE.

Ken Newman

What are you seeing in 2017 in terms of demand for hydro-vac. First in the U.S. and then in Canada, and then how much of a step-up in that product line is embedded in your guidance whether it's for oil and gas or the utility market that you are stepping into, or just your traditional applications?

Jennifer L. Sherman

Yeah, as I mentioned, we've been encouraged by the order pattern that we've seen since early December for industrial orders, for December and January, they were up 50%, some of that's been driven by hydro-excavation orders. We're not baking kind of meaningful improvement in that area with respect to oil and gas since 2017. We expect that to occur, we would start to benefit if there are meaningful impact in 2018. As we've talk about before, we think any recovery would – we would – be delayed for us because there is an excess inventory out there. Although we are encouraged that because we haven't seen a lot of our equipment in the auctions that we monitor on a regular basis. We're also encouraged by the sales of the ParaDIGm into the utility market. We were ahead of our expectations. We introduced product in July last year, we're ahead of our expectations for 2016 and we're off to a strong start in 2017.

Ken Newman

Could you just talk about other areas of industrial order that are seeing strength? I mean is that really broad based, or did you get a couple of big orders that really gave you some confidence there?

Jennifer L. Sherman

It wasn't really a large – any large fleet order. It was really, it was driven by our ESG business and we're seeing it at Jetstream, we're seeing at Guzzler, we're seeing hydro-excavators. I mean we're in early month, two months of data and has continued early in February, but it's more broad based. It was really driven by the ESG side of the business.

Ken Newman

Then just one more from me and then I will get back in line. Can you talk about how the pricing power is in both municipal and industrial? Are you seeing competitors being rational, or they are being pretty aggressive in pricing?

Jennifer L. Sherman

You know we operate in competitive markets, but you know generally we produced a premium product and we're typically able to get paid for.

Ken Newman

Got it. That's helpful. Thank you.

Operator

Our next question comes from Chris Moore with CJS Securities.

Chris Moore

Great. Good morning guys. Thanks for taking my questions.

Brian S. Cooper

Good morning Chris.

Jennifer L. Sherman

Good morning Chris.

Chris Moore

Yeah. Just on ESG maybe we can talk a little bit about the operating margin. I know that, obviously they are low. This quarter part of that is absorption, is – can you just talk a little bit about that in terms of Q4 and then you know moving forward in terms of expectations for those to rebound a little bit?

Jennifer L. Sherman

Yeah, I mean clearly the two major drivers were volume and mix. You know our volumes were down significantly. And then, if you look at the mix of the equipment, we've talked a lot in the past about the kind of higher margin, hydro-excavators. But with respect to the other – with respect to JJE, the results will impact there, because there was more non-Federal Signal equipment that was sold, the other equipment they distribute, so that had an impact on it. As we move forward, we are encouraged, as we talked about by the recent order trends of the industrial products, because that tends to carry higher margin.

Chris Moore

On the municipal side, it sounds – what are your, what I heard was overall the trends remain positive. Are there areas within the municipal that's not necessary the case, or is there any more kind of specifics behind that?

Jennifer L. Sherman

You know I think, you know in our Vactor sewer cleaner line, they, as I mentioned, they were very stable throughout the year. Our public safety system business, they had a very good year with a gain on the top-end and bottom-line. That business can be impacting in terms of timing, because on the larger municipalities will tend to have larger fleet type orders. On the street sweeper side, that business can be impacted again by the larger fleet orders and the international orders. So, it really can vary quarter-to-quarter. Overall, we feel, we believe that 2017, our municipal business will remain stable.

Chris Moore

Just one last, on the Canadian side, I mean are you – I'm reading some different things, are you seeing any impact from new weight regulations in Ontario and enforcements in all the parts of Canada on how do you hydro-vac operators. Is there anything that's on your radar?

Jennifer L. Sherman

It's something that our business is, our teams at Vactor are working very closely with the JJE team. We're aware that regulations, we believe that we will have products that meet those requirements and ultimately, we think it will give us the competitive advantage.

Chris Moore

And one last one, just trying to get a feel for the demand from different perspectives. On the smaller truck side, is there – you know, can you give us a sense, is there any difference there from a demand perspective than some of the larger you know ASP type like offerings or is there much of a distinction there?

Jennifer L. Sherman

You know on the smaller truck side, the ParaDIGm and some of our trailer jetter equipment, we see strong demand in 2016 and we're off to a solid start in 2017. With respect to the larger trucks, the larger hydro-excavators, a lot of that business is tied to oil and gas. I talked about earlier, we're not expecting meaningful improvement in 2017 to the extent there is a rebound, it will be delayed for us and we expect to benefit fourth quarter and into 2018.

Chris Moore

Alright, appreciate guys.

Brian S. Cooper

Thanks Chris.

Operator

[Operator Instructions]. We'll take our next question from Marco Rodriguez with Stonegate Capital Markets.

Marco Rodriguez

Good morning guys. Thank you for taking my questions. Wondering if you might be able to talk a little bit more about the order rates that we're discussing a little bit earlier, you saw some nice movement December and January, and I believe in your prepared remarks you talked about some increasing confidence from the distributors that you were talking to very recently. Did you see like any sort of a budget flush that maybe had increased those orders and can you maybe talk a little bit more just anecdotally what's driving the confidence for these distributors on the order rate?

Brian S. Cooper

Marco, just to start, we – if you look at the quarter, it was little on the softer side and we – what we really though happened was, there was some slowdown in demand in the November timeframe and then after the elections things seemed to have open up again a little bit. I wouldn't characterize what we heard about at least as being budget flush, but people were feeling more positive, and that seemed to carry into the order patterns we were seeing.

Jennifer L. Sherman

Last week I had the opportunity to meet with several of our dealers and I visited with several of them over the last couple of months. And as they look into 2017, many of them are expecting year-over-year improvement. They are very enthusiastic about the ParaDIGm product line that we talked about and the ex-factor date, the re-rent program that we have in place now with JJE gives them opportunity to rent our equipment, also gives them access to use equipment, so their portfolio of offerings has been broadened by the JJE acquisition, and overall you know last week and in my one-on-one meetings, it's been very encouraging about 2017.

Marco Rodriguez

Got you. And in terms of the operating leverage that you guys might be basing into your guidance here in the fiscal 2017, can you guys give us a little bit of a sense as far as how much you might see based on volume or mix, or anything of that nature.

Brian S. Cooper

I think operating leverage goes with volume, so as we see some of the improved, some of the return volume and also goes with mix, so it depends on where we get our orders. But as we see the industrial orders coming, that's positive for us, and the more we get – and obviously municipal orders that flow through Elgin and Vactor are positive as well.

Marco Rodriguez

And any update on the oil and gas on how you talk about is looking relatively weak. Any updated expectations in terms of where you think that might kind of work its way through this fiscal year for you guys?

Jennifer L. Sherman

We've expected to be late this year, perhaps fourth quarter into 2018 based on what we're seeing right now. We've talked in the past about kind of the excess inventory of our equipment that's out. We're starting to see some of that equipment come out of mothballs and it's being serviced at our service centers, so we think that's encouraging. But again, we would expect to see kind of any meaningful improvement that occurs late this year and really bleeding into 2018.

Marco Rodriguez

Got it. And two real quick kind of housekeeping items here. Do you by chance have the gross margin by segment whether it's for the quarter, for the annual?

Jennifer L. Sherman

We'll be filing the 10-K later this afternoon. All that information will be in there.

Marco Rodriguez

Okay got you. And then last quick question, I believe this was in your press release. You talked about increasing working capital. I guess there was a specific reason for. If you could maybe talk a little bit about that?

Brian S. Cooper

We had a couple of specific investments that we've made deliberately. Part of it was to build some stock units, so that we could capture immediate sale opportunities. Part of it was to better manage our chassis flow as we have a lower backlog and we wanted to maintain reasonable lead times on producing product. So we made some additions, some specific investments in inventory. I would tell you it's a temporary thing probably, but it's something that made sense for the business at that point in time.

Marco Rodriguez

I appreciate you're guys time.

Jennifer L. Sherman

Thank you.

Operator

[Operator Instructions] We'll take our next question from Steve Barger with KeyBanc Capital Markets.

Jennifer L. Sherman

Hello Ken.

Ken Newman

Hey, thanks for the follow-up. So, how much input cost inflation are you seeing in the manufactured items that you bought?

Brian S. Cooper

I'm sorry, how much input inflation?

Ken Newman

Correct.

Brian S. Cooper

It's fairly minimal. We're seeing a little bit in some of the commodities, but – steel is probably our biggest component and might be 10% or so in that category. So there is a little pressure there. We don't feel, it makes a huge difference in our margins though.

Ken Newman

Got it. And then the balance sheet does look pretty strong and can you talk a little bit about the M&A opportunities for 2017. Can you just provide an update on what you're seeing in the M&A pipeline, whether in terms of how many deals of size of potential revenue for these deals that you're seeing?

Jennifer L. Sherman

Sure. We're looking at a number of different opportunities. We're looking at the small product line acquisitions and we're looking at some larger opportunities, you know everything from typically the source of most of our deals comes from privately held, some type of family business where there is liquidity event. But then we're also invited to the dialogue with various investment bankers and who bring deals forward to us. So, we are very active right now in the market and as I mentioned earlier, you know M&A will be an important part of the growth of the Company.

Ken Newman

Right. Could you talk a little bit about what multiples have been like for these past few months post-election?

Jennifer L. Sherman

Sure. It really depends again on the transaction, but as we've seen some multiple creek, and it's something that as a company we remained – we've looked at 100 plus acquisition opportunities. We remained very disciplined. We will pay fair value, but again, we're looking at all the strategic. It doesn't advance our strategic initiatives where are the synergy opportunities and this again, as I said this will be an important part of our growth going forward.

Ken Newman

100 plus opportunities that you looked at?

Jennifer L. Sherman

Over the last few years, yeah.

Ken Newman

Wow. Last one for me. Could you just talk about how big the revenue range is for active project that you're looking at?

Brian S. Cooper

Yeah. I don't know that we want to get into active projects and get that specific, but as Jenifer said it's a pretty wide range, some fairly large ones and some very small ones. As we work on them, you never know what's going to come through and when. My experience has always been, you know what you think is going to happen doesn't and what you're not sure will happen seen to end up happening. So, it's a pretty wide range.

Jennifer L. Sherman

In several of the acquisition opportunities, we've been in dialogue for a couple of years.

Ken Newman

Right. Sorry. This is my last one, I promise. Just kind of going off of that, when you think about the M&A pipeline, are you more geared towards maybe building out the JJE type product set or something that would help or be I guess the side strategy to that platform? Are you looking more towards the core type legacy businesses to add on to or to transform?

Brian S. Cooper

It's kind of any of those, really. I mean, we have a number of different businesses and whether our logical fits that can help us grow those businesses and make them more profitable. We'll look at those things, so there can be a variety of different types of businesses. The JJE platform was not something we were planning to keep growing in that respect as a distributor, but we are – we do like their products. What we're looking forward in general is, on the product side would be things that are match our manufacturing capabilities and it's kind of aligned that way.

Ken Newman

Got it. Thanks for your time, guys.

Operator

It appears there are no further questions at this time. I'd like to turn the conference back to Jennifer Sherman for any additional or closing remarks.

Jennifer L. Sherman

In closing, I'd like to reiterate that we are confident in the long-term prospects for our businesses and our markets. Again, we'd like to express our thanks to our stockholders, employees, distributors, dealers and customers for their continued support. Thank you for joining us today.

Operator

This does conclude today's conference. We thank you for your participation. You may now disconnect.

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