Precision Castparts Earnings Call Insights: Cash Flow Conversion and Stocking Details
Cash Flow Conversion
Gautam Khanna – Cowen and Company: Hey, Mark. Just wanted to get your sense as you are getting more vertically integrated. How should we think about free cash flow conversion? Should we think about 100% of net income as being the right target and how do you sort of balance the desire to insource more and therefore kind of improve profitability with the need to generate cash?
Mark Donegan – Chairman and CEO: Yeah and again I think that certainly there is an impact and obviously we’ve tried this conversation over the last two to three years as continuing to go from, going all the way back to SNC and then through the revert, but there is moments when we acquire an asset obviously we start to drive after that internal sourcing. So, I think that we do see those points where it does have an impact on cash. Now, I need to add to that, that is not considering to say that all of our cash opportunity is going to be tied up in that. I think that we still have inventory that we have to get out of this system and that there is a better balance. But if I look at deploying that cash to the degree that we’re and look at the operational performance I feel strongly that the operational improvements we get out of that. So, if you look at kind of the margin expansion and margin growth that we achieved from that. I think all in it’s the right way to go, but I do want to make sure I clearly state there is even in that, there is still cash to come up. So, is 100% the right number, probably that’s a little high but is it drastic off of that, no it’s not drastically off of that.
Gautam Khanna – Cowen and Company: And if I maybe just ask you to amplify your comment on the 29K-press being out 8 weeks, what do you expect the delinquency balance to be kind of exiting September and how long do you think it will take to burn off that balance, so that we get back to a more normal drop through on Forged Products?
Mark Donegan – Chairman and CEO: Yeah, I don’t think we necessarily will see ourselves get worse, I mean we obviously had to put a lot of material in position of our customers won’t go eight weeks without getting hardware. So, we have to position the material post 29 and overload those post operations. So, what I’d say is we come out probably at the same point we entered and then it will take us Q3 we would expect to burn that delinquency back down because the 29 will be at full efficiency and we’ll certainly have a lot more opportunity with that.
Joe Nadol – JPMorgan: Mark, the stocking you’re talking about, that you’re seeing, is it multiple customers or is it one major engine customer and what do you think is behind this? Is it aftermarket related on their end or what’s driving it? Then you say, my last couple of quarters, two or three quarters, typically these things tend to last a little longer than that, I would say 12 to 18 months is a real destocking cycle. What gives you the sense that it’s really only a couple of quarters?
Mark Donegan – Chairman and CEO: Yeah, maybe destocking is not the proper terminology. I mean, it is at a couple engine prime and it appears to be an inventory reduction in this calendar year, and why I say that is we do see the demand sitting in our Q4. So, if I kind of look at what it wants to do, it wants to remain stable, and it wants to jump up in Q4. Now, our challenge will be to go back and say, we can’t jump up in that manner. It has to be spread out. So, do I think it’s anything longer than that? No, I do not. It appears to be just an inventory for whatever reasons in very specific time frame that does want to reaccelerate going into next calendar year. So it does appear to be a yearly number, not some general spares or thought. But it does appear to be an inventory objective.
Joe Nadol – JPMorgan: When you look at the part numbers and the types of parts, seems like you have visibilities at the other end of it that would be scheduled filling up in the fourth quarter, your fourth quarter. But do you get the sense that it’s one or two types of engines or is this really just kind of broad based?
Mark Donegan – Chairman and CEO: Well, I’d say that it’s falling in couple of different categories, on the material side obviously we don’t, so if I look at the Cannon that’s going into some of the engine prime. I don’t know exactly what engines it’s going into. But it’s not a broad swept across everything, it is more of a specific realignment in two or three engine type. So it’s not like an overall reduction of x percent it does appear to be very specific. The other thing I would add to that too is, it’s not dragging out of us. The metal side (did recover), but that recovers kind of back almost this quarter. It really is just that growth that we are seeing wants to reside in Q4 and Q1 take step back, and we are just trying to pull back into this particular period. So like I said it appears to be and inventory related on a very specific target on a couple of programs.
A Closer Look: Precision Castparts Earnings Cheat Sheet>>