Q1 2020 Earnings Call

Q1, that's why 20 <unk> earnings conference call at this time, all participants are in listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session. You want me to press Star one on your telephone.

If you require any further Stephens Please press star zero.

Now I'd like to hit the conference over to your Speaker today Mr., Brad Pogalz director of Investor Relations. Please go ahead Sir.

Thanks really good morning, everyone. Thank you for joining Donaldson's first quarter 2020 earnings conference call with me today are Tod Carpenter, Chairman CEO and President of Dolphin, and Scott Robinson, Chief Financial Officer.

This morning, Todd Scott will provide a summary of our first quarter performance and an overview of what we're planning for the balance of the year. During today's call. We may reference non-GAAP metrics. Please note that there is a reconciliation of GAAP to non-GAAP metrics within the schedule attached to this mornings press release.

I want to remind everyone that any forward looking statements made during this call are subject to risks and uncertainties, which are described in our press release and FCC filings with that I'll now turn the call over to Tod Carpenter Todd.

Thanks, Brad good morning, everyone I.

I want to highlight two important points our quarter.

First quarter market conditions were consistent with what we expected.

And we are pleased with our improvement in gross margin.

As we look ahead, our perspective on physical 20 failed.

Operating margin and bps is aligned with our prior guidance.

We are planning for an uneven demand environment this year.

And we saw that in first quarter.

During 2020, we expect softer sales of new equipment.

Naval base of recurring revenue.

And strong increases in our strategic growth area.

We also expect operating margin will be up from last year driven by gross margin.

Scott will provide more detail later, so I'll now turn to an overview of first quarter sales.

Total sales of 673 million were down 4% from last year.

Currency was a headwind of 140 basis points, which we offset with the benefits for both bofa and price realization.

Sales in the engine segment declined 4.5% driven primarily by our first fit business. So.

I wrote sales were down 11% in the quarter with China accounting for nearly half the decline.

We're not lapping some of our earliest fuel wins in the region and demand has got to stabilize.

As we expand our business with Chinese manufacturers, we expect on road sales will grow over time.

Until then we're focused on building and deepening these new relationship.

Winning program and launching power cord in China.

In the U.S., we are seeing early signs of the peaking truck market.

After growing more than 30% in each of the last two years I wrote sales in the U.S. were about flat with last year.

Slowing production up class eight trucks is widely expected and that's reflected in our full year forecast as well.

First quarter sales in off road were down 10%.

Exhaust emissions accounted for more than half the decline due in large part the timing.

We benefited throughout 2019 from pre buys in Europe related to an upcoming regulatory change. So we expect the business will be down this year before ramping up again in 2021.

Slowing market conditions are also affecting off road, we estimate the construction cycle is at or near its peak.

AG and mining the recoveries are muted as manufacturers.

Navigate geopolitical and trade related uncertainties.

As our first fit markets predictably cycle, we remain focused on winning new programs with innovative technology.

We have a robust pipeline with more than half a billion dollars a future opportunities and our razor to sell razorblade solutions are outperforming legacy technology quarter after quarter.

We see similar dynamics in our aftermarket business.

Total aftermarket sales were down 3.6% in first quarter, while technology based razorblade products were up in the mid single digits.

We saw most of that benefit in the OE channel of aftermarket, which was down in the low single digits as innovative products could not fully offset the impact from slowing market conditions.

Backlog in order levels have been fairly stable in recent months. So we believe the OE channel performance is more about demand pull through de stocking at this point.

The independent channel, which is about 60% of total aftermarket was also down in the low single digits.

We're seeing weakness in the U.S. due in part to oil and gas while sales into Europe are strong.

The independent channel tends to move with more demand so with a useful proxy for equipment utilization.

Our aerospace and defense business had another strong quarter.

Sales were up 11% with helicopter and ground defense programs driving the growth.

Turning to our industrial segment first quarter sales were down 3%.

Sales in gas turbine systems, or G.P.S. declined 19% due in large part two small turbans.

Our backlog supports increasing sales over the next couple of quarters. So we expect that first quarter will be the lowest level for GTS. This year.

In special applications sales were down 4% last quarter due to the secular pressure in the disk drive market.

Sales of industrial filtration solutions for <unk> App, yes were about flat with last year, but that includes a mix of results across several areas.

I want a first point out that both <unk> added about 10 million to I've asked in the quarter with incremental sales of more than 8 million as we hit the one year anniversary of the acquisition.

The largest portion of I asked that is our dust collection business, which we call industrial air filtration or I am.

These products account for about 60% of the total I asked about and sales were down in the high single digits last quarter.

As expected the market for new equipment remains soft.

Quoting activity is stable, but customer still up you're cautious as they deal with macro economic uncertainty.

First quarter sales up I ended up replacement parts were about flat with last year as share gains helped offset slowing industrial production.

China is one example of where we are gaining share we're capitalizing on the momentum created by the Blue Sky initiative and sales of I up replacement parts in that region were up in the high teens last quarter.

I am Alf replacement parts represent a large portion of our advance and accelerate portfolio and we expect sales will continue to ramp up this year as we make incremental investments to support that team.

Process filtration is also all about share gains and we're targeting the food and beverage market, where the margins are above our company average.

First quarter sales were up in the low teens and that's on top of a 20% increase last year.

We are expanding the life Tech brand investing in new capacity and developing a strong sales team to build on the momentum we have in process filtration.

There are a lot of positive things happening across the company.

And they are not isolated to our advancing accelerate portfolio.

The critical core businesses are winning new programs for future revenue.

Mature businesses are generating profit and cash flows that can be reinvested.

And our fixed and reposition teams are pursuing margin enhancement opportunities.

We are confident.

Hello outlined the right mission for each piece of our portfolio and we expect that will drive value creation well beyond this fiscal year.

I'll now turn the call to Scott for his update Scott.

Thanks, Todd good morning, everyone.

We generated first quarter sales of 673 million and bps was 51 cents for sure.

First global quarter operating margin declined 90 basis points to 13.2% <unk> EBITDA margin of 16.7% was down 40 basis points. The delta between the two rates reflects incremental depreciation related to our significant capacity investments.

Well operating margins still are primary metric.

EBITDA offers a helpful reference point as we progress through two years of elevated capital expenditures.

As a rate of sales operating expenses were up 130 basis points from last year.

Yeah, Chris was driven by lost leverage on lower sales.

And investments in our strategic growth opportunities for example, R&D was up 5% in the quarter and we are adding more head count and tools to the industrial segment to build our connected solutions and that's collection businesses.

We offset a portion of these investments with gross margin, which grew 40 basis points in the first quarter.

Importantly, gross margin was up in both segments.

The increase is driven by benefits from pricing.

Along with lower raw material supply chain cost, which was partially offset by lack of volume leverage on lower sales.

While we're pleased with the gross margin increase we also recognize there's more work to do to create a sustainable level improvement.

Our top initiatives include leveraging new capacity lower the cost of manufacturing and optimize the supply chain.

Cost takeouts within our men mature manufacturing plants and strengthening our part level of profitability, including continued refinement of pricing strategies.

We expect to complete many of these projects over the coming quarters, and we will continue to pursue new opportunities that will further enhance our gross margin.

Turning to our other financial metrics, our leverage ratio at the end the quarter was slightly above one times net debt to EBITDA, which is a comfortable spot for us cash conversion was 75% in the quarter uproar about 50% last year, we're making progress on releasing days sales outstanding Adam.

Wrapped up our focus on inventory and payables.

I want to take a quick mom to thank all the people involved in driving these improvements which are enabled by our global ERP.

This call 20 marks the beginning of our fourth year of beat on the system and our team is focused on standardizing optimizing and globalizing our processes. So big thanks to all those people I sincerely appreciate their passion and I'm confident they will continue finding ways to make us more efficient organization.

I'll now talk your review of our fiscal 20 forecast as Todd mentioned earlier, there are no changes to the guidance ranges, we provided last quarter.

I also want to remind everyone that we intentionally kept the guidance range is why this year to talk with a greater level of uncertainty in the operating environment.

One quarter in we still feel the same way between currency and commodity price fluctuations the political environment and trade related concerns we feel it's prudent to maintain that approach.

Starting out the top full year sales our forecast between a 2% decline at a 4% increase from last year.

This range includes a headwind from currency of 1% to 2%.

Partially offset by pricing benefits of 1%.

And just sales are projected down 4% to up 2%, but on road and off road each declined in the mid teens.

Although sales will likely be pressured by a slowdown in class eight truck production.

Offer will have the exhaust emissions headwind and we also expect markets will remain soft.

Aftermarket sales are projected to increase in the low to mid single digits, reflecting share gains and continued to strengthen sales of innovative products.

Powercore has a great example of how we plan to keep growing.

Aftermarket Powercore sales are up in the mid single digits last quarter, achieving a new quarterly sales record.

Let me talk about going after market share gains greater retention rates from proprietary products are a key part of that strategy.

Rounding out engine sales of aerospace and defense our plant up in the mid single digits.

I think growth in commercial aerospace and ground defense.

Sales in the industrial segment, our planned up between two and 8%.

We expect a low single digit decline and special applications. The secular headlines from described being partially offset by growth inventing.

GTF sales are forecast up in a low single digits, reflecting higher sales replacement parts.

And I asked sales our plant up in the mid to high single digits, including the incremental benefit from Bofa.

We received some questions about <unk> that's after the last call. So let me add a little more color first.

Our banking on very favorable market conditions, let me break down high if that's about half a total business unit is related to new equipment.

That's made up of things like new dust collectors and OE systems for compressors plenty on these businesses to be down a bit this year reflective of the environment.

The other half a day if that is dominated by our advanced and accelerate portfolio, including that's quite sure replacement parts and process filtration.

We expect healthy growth rate the needs businesses will more than offset a softer demand environment for new equipment.

Also attempt to get another influx of another question you might have we do expect sequential momentum and I have passed over the course of the or.

We expect benefits from the investments we've been making will layer in over the next several quarters.

Consequently, our second half growth and I hope that should be much better than we expect in the first up 2020.

I'll talk more about Calendarization, a few moments, but first I'll go through the rest of our fiscal 20 guidance metrics.

Operating margin its forecast between 13.9 and 14.5%.

That represents an increase from last year up 30 to 90 basis points, which we expect to be driven entirely by gross margin.

There are lot of moving pieces affecting our gross margin as we stand up new capacity, while working to transfer production from one facility to another.

We expect to complete many of these projects as we move through the year setting us up to deliver our full year gross margin target.

We are projecting expense rate will be flat to slightly up from last year with higher incentive compensation of about 10 million being the largest notable item.

For our other operating metrics, we plan interest expense of 18 to 20 million.

Other income of 48 million at a tax rate between 25 and 27%.

We expect capital expenditures to remain elevated at 110 to 130 million. However, the pace and spend will likely drift down over the course of the year as projects are completed.

We also expect repurchased 2% of shares again, this year, which is consistent with our recent trends.

Altogether were plenty cash conversion of 80% to 95% and GAAP EPS between 21 and 237.

Before turning the call back to Todd Let me further elaborate on the Calendarization of 2020 sales and margin.

Consistent with what we outlined last quarter, we expect better year over year performance in the second half than the first.

Well one lease one reason for the cadence is that second half as an easier comparison.

When we reflect on the second half of 2019 FX headwinds are more severe and engine was under pressure from all E de stocking.

We don't expect to repeat that this year, which results in better performance you. Only notable exception is on road, where they widely anticipated class eight production, Florida will be more other had one later in our fiscal year.

<unk> operating margin the full year growth of 30 to 90 basis points will be driven by performance in the second half. The first half has a tough pop to deal with and we plan to realize benefits from our margin improvement initiatives later this fiscal year.

While we would happily itself a little less uncertainty I am proud of the way our global team is responding to the uneven environment.

I should point out that part of wire business is uneven as because of the choices, we are making as markets become less favorable you're building efficiencies in certain businesses, while continuing to press for growth and others.

Our teams are doing a solid job balancing these opportunities and I'm confident that we're making the right decisions to position us for long term success.

I'll now turn the call back to Todd Todd.

Thanks, Scott I'm proud of the work our team is doing to navigate the environment and deliver on our commitments.

I'm also proud of the spirit of innovation I see everywhere at Donaldson. So let me take a moment to share a few examples.

We've been out some new developments with connected solutions in the past couple of months, So I'll start there.

Within the engine segment, we continue to leverage the filter minor brand.

We bought this Iowa based company, a few years ago because of their capabilities related to sensors and indicators.

Today, It's our center of excellence for our engine segment connected solutions business.

Our newest product is a wireless monitoring system for truck Air filters, which we believe has great potential for fleet.

It can be easily retrofitted onto existing systems, giving our customers better visibility into filtration performance and allowing them to optimize service interval.

This technology has clear value the fleets and we also see great opportunities with the OE customers.

One of our R&D priorities.

Relates to the move from what we call best effort filtration to intelligent filtration.

In short we believe we can create more value by designing filters that are rightsized to the customers application.

Given our deep expertise will filter media development and design. We believe we are uniquely positioned to meet that need.

With our breadth of offerings and the depth of knowledge. We also feel uniquely positioned to meet the needs of our industrial customers.

One year ago, we announced an early adopter program for dust collection monitoring and we followed that with a commercial launch this past September .

Our new offering, which we call I Q is a subscription based service that allows customers to receive real time information about the performance of their dust collectors.

Once again, we made it easy to install and it can be used on any type of dust collector.

By connecting these collectors, we help our customers save energy costs, and reduce unplanned downtime and we create greater ability to retain our replacement parts sales.

While it's still very early we believe our connected solutions will deepen our customer relationships and create access to new growth opportunities.

Another way, we are deepening relationships is with e-commerce .

We processed nearly $110 million worth of order for more than 2000 customers in the first quarter and we have been constantly enhancing the site.

We recently opened the platform to guest orders for many of our industrial segment products, which will make it easier for us to sell the hundreds of thousands of potential dust collector customers.

We also improved the experience for our customers with the new personalization capabilities.

We view shop Dot Donaldson dotcom as a valuable new channel to reach a wide range of existing and potential customers.

Donaldson as a technology led filtration company and it's exciting for me to watch us leverage our expertise and press into these new in dynamic opportunities.

I'm confident that we're making the right strategic choices today that will position us to deliver long term profitable growth.

Now I'll turn the call back to Juliane to open the line for questions Julia.

Thank you as a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q and a roster.

Your first question comes from Brian Drab from William Blair. Your line is open.

Good morning, Thanks for taking my questions.

Right.

So Scott kind of proactively was addressing this but it's one that we can just have a little more detail around the industrial.

Segment.

I'm just looking at the numbers and seeing into the guidance for the industrial segment overall to grow 5% for the year.

After being down what looks like 6% organically in the first quarter. Then you have the benefit of the both acquisition that that contribution of acquisition revenue lumpy there for that.

Balance of the year. So can you just talk a little bit more about how I mean, it looks like you need a girl, 60% plus high single digits sort of for the rest of the year in industrial and how do you do that.

Yeah, So I'll start maybe talking jump in so yeah. The guidance is today as you noted.

With with the current for I Fs being mid single to high single a GTS is low single and then special.

This is down low singles and if you look at the implied as you noted you know that comes up a little the comps get a little bit easier in the second half and GTS you know is down.

A little bit in the first quarter, and we expect that to be the weakest quarter of the year. You know so when you roll those out we still see you know that 2% to 8% guidance range.

Yeah, Brian as Todd, maybe a little bit more color as well, it's clear that what's happening also we ended the year talking about the risk relative industrial based equipment sales work in our industrial Air filtration business I commented that in the script and consequently, we do recognize that as a risk looking forward. However, we were.

To emphasize that we do not see taper off of quoting activity at this point, we do see a cautiousness and an elongation of quota order cycles within this first quarter.

But we don't expect it to step down at this point and that's important to note as we as we look.

To the balance of the guide.

Okay. Thanks so.

So you don't view this guidance is particularly aggressive.

And then you wouldn't would you say, which way you lean toward low end or high end of that guidance or just kind of here's the range in it and its wide given the uncertainty.

Right. That's you know we went into the year and we talked about leaving the ranges wide due to the uncertainties that we see they still remain wide. We also went into you're talking about.

If we.

If we went to the low end the risk would be equipment base revenue.

Those all still hold true for what we said.

90 days ago.

Okay. Thanks, and then.

You do some numbers around China, but can you can you just give us.

But the percentage of total revenue was in China, and the first quarter and and then I think you may have given some of this but the decline or growth in both industrial and the engine segments in China in the quarter.

Hi, Brian This is Brad I'll take that out.

China in total is right about 6% of total Donaldson revenue.

Engine in the quarter was down in the high singles Industrial was down in the 20% range. There are people caveats with industrial that I want to call out the first is GTR Boston.

Any small business in that and that had a pretty notable decline due to turbans in our turbines in the first quarter and that on top of the remember half of our described business comes out of China. So just drive in total is something like mid teens as a percent of China and that business is just trying to the secular pressure. So the decline for industrial is a little bit.

Misleading.

20% range.

But while on the topic I guess I also want to point out the couple of things that were encouraging to us or that per engine aftermarket business and our industrial air filtration businesses.

Both had pretty strong growth in the quarter in China. So we are gaining share on the replacement parts side, it's just about market and as Tom is kind of alluded to that's more of a volatile market.

The rest of the world.

Okay. Thanks, Brett how does it take down in China between engine in industrial.

Engines, a little more than half and again keep that just drive right.

Right Okay, yes.

Okay. Thanks, very much I'll pass it along.

Thanks, Brian .

Your next question comes from Richard Eastman from Baird. Your line is open.

Yes, good good good morning.

I'm just a quick.

Just a quick question around.

First business when we talk about the strengths on the process side there.

Do our wins in process gives you visibility you know at this kind of growth rates through the balance of the year is that kind of phase in and ship and then also within process and particularly food and beverage.

You said this is our those wins skewed towards Europe .

Rick This is Todd so if you take a look at the way our backlog.

Flows through the food and beverage or process based filtration businesses, it's really very similar to all the other more repeatable or replacement parts businesses and Donaldson a bit about shorter type of the timeframe. So say 90 days or so it's not like some of our equipment based businesses that give you six and seven lock.

So.

That would be the answer to relative to our time fence, we do see good order momentum momentum within that within that.

Particular business, where we're really white, where we thought we would be I mean, our growth rates within the plan and yes. It is.

Slanted more toward Europe , with roughly about 60% of it being in Europe .

I see okay, and then just to.

Maybe just one last question around the engine aftermarket given how that.

Business performed here in this quarter.

I guess you referenced the facts that.

You know the the marketplace now from your perspective is really being driven by demand and utilization rates are you are you pretty comfortable here are the two big step downs.

Destocking step downs are pretty much washed out of the numbers and.

As we move forward here, we're really looking at.

Demand.

Proxy or.

Yeah, I recognize it's actually look at the first quarter performance for engine aftermarket and we look all across the world all areas of the world are continuing to move in a positive direction were up year over year, our aftermarket headwinds our USA story and when we further break that down.

Really goes out.

Of the U.S. at points directly more toward an oil and gas that though the story and so therefore, we're pretty comfortable that it's more utilization within that particular segment.

And so it's a U.S. based headwinds story.

Okay, and similarly in aftermarket again being us space, but it is is Latin America is that growth rates is that share gain like in a channel or.

Yes, I wouldn't think the markets are quite that strong the business probably isn't that big but are there some channel gains in Latin American aftermarket.

There are some channel gains are clear market gains within.

That particular segment, if you talk to Brazil for example, and and other other countries. We do have a slight phenomenon. There however to where we're shifting some of the manufacturing.

From the United States to our Latin America based facilities, and then ship in directly to customers. So there's there's a slight transfer.

Tailwind if you will.

But yesterday, we also have been clear share gains.

Gotcha, Okay, great. Thank you.

Thanks, Rick.

Your next question comes from Laurence Alexander from Jefferies. Your line is open.

Good morning. This is Dan this is one in Florence how are you.

Hey, These seems to me and his continues to do very well I was just wondering what the visibility on that and when you might think that could be reaching peak as well I mean is it just tell you how far out can you see.

So on the defense side of things, where it's largely a ground based vehicle.

We have we have a good.

Longtime fence, it's one of the longest in the company's I would however, caution that it gets lumpy within the ground based vehicles, when we get drop in retrofit orders from.

From allies.

If you will that also use our ground based vehicles are being the United States governments Sagraves vehicle. So we have won a long visibility there.

We are picking up share within the aerospace segment, primarily the replacement parts.

For our helicopter base business, that's a little bit shorter visibility more like the typical replacement parts business.

But just generally the larger share of our aerospace and defense business. When you when you put all that we and ground based vehicle business together, we do have quite a quite a significant time our time visibility on.

Thank you. Thanks for clarification, there and then you said R&D is up 5% in the quarter I mean, given what the dynamics with you guys are doing is there a point, where you see R&D is going to peak anytime soon or is it can you continue to be elevated I guess for foreseeable future.

You know, it's you know we're continuing to.

Invest in our opportunities where we see.

Really opportunities to support our strategy of further diversification in a company and strengthening our technical sciences for filtration.

This is the third year real whereby we have increased our R&D by roughly 10%.

And so we'll continue to do so in support of our of our strategy. We are on a longer term path to increase our R&D spend from 2% to 3% the 3% to 4%. However.

You know I I do not feel encumbered to race it to 3% I do feel that it's important to make sure that its funded properly to support our strategic chosen initiative and I think we've done a very good job there.

Great. Thank you very much.

Your last question comes from Nathan Jones from Stifel. Your line is open.

Hi, Good morning, this is Adam far away on for Medicine.

Yeah.

Turning to our gross margins and capacity additions, maybe just a little more color on what has been brought online so far.

How should we expect those additions and gross margin expansion to seek whats going forward.

So this is Scott I'll start and then maybe Scott can get a little bit more color.

What has been brought online so far.

Some of the expansions within Europe somebody expansions also down in Latin America and in you less the major expansion that we have still lies ahead of us and so as we talk about our gear and as it unfolds when we when we refer to our gross margin expansion, while we have some.

Some good work that's already hitting.

The gross margin opportunity, we've always talked about the project based work being more of a second half story versus the first half story and so much of that capacity expansion, where we'll be.

Really realizing that that internal supply chain balancing really lies ahead of us. So we'll look for that gross margin expansion.

As it goes through the year to really ramp up.

Okay and then.

I am looking potentially weaker than expected.

Are there any additional cost levers that you could pull that symantec's another step down.

Sure. So this is Todd again, so when we look at our overall Corporation I think and you look at our history and how we react to the overall cycles that we experienced with our company. We haven't we have a strong history outperforming.

Overall.

Adjustments for the transactional based across the Corporation.

And we'll continue to do that we we have been doing that even in last year in the second quarter in a in.

From the second quarter third quarter fourth quarter, and we have done a bit of that also in the first quarter of this fiscal year and we'll just continue to do that for us at standard work in normalizing the overall.

Internal supply based in support of our customers and and so we'll we'll we'll continue to look to do that.

Okay, great. Thank you.

Our next question comes from Richard Eastman from Baird. Your line is open.

Yes, thanks, Thanks for the follow up.

Just to ask.

We just tees through maybe for a second the gross margin impact the 40 beeps.

And Scott maybe this is for you I guess, but if we could just tees through that for a second because I think the commentary.

Kind of blew by me a little quickly, but I think you said wrong. The raws were down year over year, So you'll get to maybe 20 basis points of the 40 ought to price and then raws were down maybe you could just duties to that a little bit.

If you if you add mind.

Yeah. There's you know there's a lot obviously in the soup.

When it comes to the margin improvement in.

Oh operating improvement for the year is based on our plan in our gross margin improvements.

You know as as you mentioned, we had benefits from pricing and lower you know supply chain costs those were offset because our volume was a bit down and we continue to work the projects as Bob mentioned, all the other capacity expansion and where I would say we're bringing on.

New projects pretty evenly.

Throughout the remainder of the of the year and we kind of it expects to a slow and steady improvement throughout the year. So I think you had it right. When you talked about benefits from pricing lower supply chain, Pos offset partially in the first quarter by lower volumes and then from there for the rest of the are you know, we're expecting 30 Tonight.

90 basis points of operating margin improvement and that's all driven by gross margin and so we feel comfortable that we're going to kind of have a slow and steady March up you know for the next three quarters.

And so that if we did 40 bips here in the first in the first quarter with down sales.

If we hold that maybe based on price and lower raws.

When you know the 40 basis points grows in the back half with these project contributions.

Yeah, I think thats, Matt and better volume for that matter, Okay Yep.

<unk> costs were planning.

Okay excellent. Thank you again.

Sorry.

I'll I'll just add one point on that the raws are going to be more of a favorability in the first half of the year than the last half of your recall one year ago prices were higher some of the key inputs like steel and media than they were towards the back half. So just keep in mind.

Not a bank than study amount of favorability.

Yes, okay excellent. Thank you.

Thanks, Thanks, Rick.

We have no further questions I would like to hand, the call back over to Mr. Tod Carpenter for closing remarks.

That concludes today's call I want to thank everyone listening for your time and interest in Donaldson company have a great day Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.