Q2 2019 Earnings Call
[music] good day, ladies and gentlemen, and welcome to the Franklin Electric reports second quarter 29 seen sales and earnings conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
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Also as a reminder, this conference call is being recorded.
At this time I'd like to turn the call over to your host so John Haines, Our Chief Financial Officer. Please go ahead.
Thank you Bill.
And welcome everyone to Franklin Electric's second quarter 2019 earnings Conference call with me today, It's Gregg Sengstack, our chairman and Chief Executive Officer.
On today's call Gregg will review, our second quarter business results and I'll review, our second quarter financial results went on through we will have some time for questions and answers.
Before we begin let me remind you that as we conduct this call we will be making forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These statements are subject to various risks and uncertainties many of which could cause actual results to differ materially from such forward looking statements.
A discussion of these factors may be found in the company's annual report on Form 10-K and in today's earnings release. All forward looking statements made during this call are based on information currently available and except as required by law. The company assumes no obligation to update any forward looking statements.
With that I'll turn the call over to our chairman and CEO Gregg Sengstack.
Thank you John .
Second quarter 2019 results were below our plan and expectations continued record precipitation in the U.S. political uncertainty and social unrest and Amena economic weakness and other developing regions may slow down in China all contributed.
That said second quarter revenue operating income net income and earnings per share were records for any quarter in our company's history.
In the us and Canada water systems business large dewatering pump sales were up over last year, but below expectations again due to customers pushing out a couple of million dollars of orders into the second half of 2019.
Backlog remained steady.
Sales of other categories of surface pumps were up as well in the quarter.
US Canada, the groundwater pumping system sales declined 12% on the back of lower sales to our distribution segment.
With much of the back office integration complete we are focusing on reducing interest segment inventory.
Sales of groundwater pumps to third party distributors were up 5% over last year.
Moving outside the U.S., our water systems business and Amena decline organically mid single digits.
As we supply components to other European pump companies, we view this slowdown is industry wide.
The Middle East is an important export market for European companies, and a political uncertainty and social unrest or impacting the pump business in this region.
In addition business in Turkey is slow, particularly in the AG market.
Farmers have not recovered from the dramatic devaluation of the lira that began last summer.
Our water systems business in Latin America outside Brazil declined organically as well.
Throughout Latin America political instability in fragile economy still trade the headlines.
One bright spot in Asia Pacific were like quarter, one our water systems business was up meaningfully.
John will get into more details, but weakening currencies reduced our international water reported revenue by 8% as compared to the second quarter last year.
Our fueling systems business delivered another record quarter with operating income up double digits.
Sales were again up double digits in the U.S. and Canada.
Business in China is back on track.
So we see growing evidence the economic environment in China is impacting your business in two ways.
First state owned oil companies are scaling back their capital plans and second a quote buy local initiative is growing.
At this point, we believe we will achieve our 2019 plan revenue of approximately $50 million in the country.
However, we now believe that 2020 revenue will be between 40 and $50 million.
Sales in EMEA continued to be below expectations, principally due to uncertainty around Brexit impacting underground tanks sales and credit issues in Africa delaying build programs to the back half 2019.
Sales in Asia were down after a strong Q1 sales in India recovered nicely in our back on plan, our fueling business in Latin America continues to grow.
Turning to distribution.
Q1, this end customer facing business was the one most dramatically impacted by the extreme weather and high levels of precipitation experienced in many regions of the U.S.
We had expected hopes maybe that precipitation would have normalized in Q2 that didnt happen. However, the team did a great job of selling more non water well products and delivered 1% organic growth in the second quarter.
As expected the overall weak demand in the water well market compressed margins, although the improved sequentially through the quarter.
With many headwater branches located in the Midwest and West the record precipitation result in sales at the brand products through headwater being 5% lower in Q2 of last year.
That brings me to our outlook for the balance of the year I will start with distribution.
End demand is there we believe that more normal weather conditions. We are now seeing will lead to recovery in our distribution business July has started well.
We believe our groundwater manufacturing business will also recover our sense is that inventory in the channel is about average for this time of the year.
The outlook for you a surface pump business as good as the demand for our large the watering pumps, we continue to focus considerable attention on expanding and diversifying our customer base, both by end market and geography.
Overall, the business climate in the West is robust we are encouraged by the positive feedback we have gotten from the field.
Even with the turmoil and Amena, we're somewhat optimistic about the second half of 2019, we are getting more traction with our expanding line pressure boosting systems. We are seeing an increase in tender activity for North Africa, and believe we will see some improvement in the middle east, albeit from a low base.
We believe our European water business is doing as well or better than most.
Given our second quarter results, we expect Turkey to continue to be weak.
We see Argentina, stabilizing in Brazil, getting a little bit better as well.
We are encouraged by our results in Australia, Southeast Asia, and in China, where we have introduced new booster system is gaining some traction.
And our fueling business the outlook remains positive the team has positioned to carry that forward. The strong start in the us and our China revenues are recovering back to planned levels.
Despite these positives looking forward our first half results did not meet our expectations and we do not believe we will be able to achieve our original earnings per share guidance.
We now believe our full year 2019 earnings per share before restructuring charges.
It will be between $2.15 and 2025 cents, which has midpoint would result in the second half 2019 earnings per share before restructuring charges of $1.29.
So an increase over the second half of 2018.
I will now turn the call over to John to discuss the numbers in more detail John .
Thank you Greg.
Our fully diluted earnings per share were 70 cents for the second quarter of 2019 versus 64 cents for the second quarter 2018.
Second quarter EPS before the impact of restructuring expenses.
With also 70 cents compared to 2018 second quarter EPS before restructuring of 65 cents.
Restructuring expenses in the second quarter 2019 were point $2 million and were related to branch consolidations and other asset rationalizations in the headwater distribution segment restructuring expenses in the second quarter of 2018, we're point 6 million related to various manufacturing realignment activities and resulted in a one cents impact on earnings per share in the second quarter of 2018 second quarter 2019 sales were $355.3 million compared to 2018 second quarter sales of $344 million, an increase of 3% sales revenue decreased by $10.3 million or about 3% in the second quarter of 2019 due to foreign currency translation and we estimate this revenue decline lowered our earnings per share in the second quarter by about three cents versus.
The second quarter of 2018.
Water systems sales were $205 million in the second quarter to 2019 versus the second quarter 2018 sales of 211.4 million.
In the second quarter of 2019 sales from businesses acquired since the second quarter of 2018 were $3.3 million water system sales decreased about 4% in the quarter due to foreign currency translation water systems organic sales were flat compared to the second quarter of 2018.
Water systems operating income was $30.9 million in the second quarter 2019, compared to $32.2 million in the second quarter of 2018.
Water systems operating income was lower in the second quarter, primarily due to lower sales volume. The result in lost leverage on fixed costs and adverse product sales mix.
Fueling systems sales were $78 million in the second quarter 2019, compared to second quarter 2018 sales of $73.1 million and were a record for any second quarter in the second quarter 2019 sales from businesses acquired since the second quarter of 2018 were $1.7 million.
Doing system sales decreased about 2% in the quarter due to foreign currency translation.
Fueling systems organic sales increased about 7% compared to the second quarter of 2018.
Fueling systems operating income was $21.7 million in the second quarter of 2019 compared to $19 million in the second quarter 2018, fueling systems operating income was higher in the second quarter due to favorable mix and operating leverage.
Distribution sales were $87.1 million in the second quarter of 2019.
Versus second quarter 2018 sales of $79.5 million.
In the second quarter 2019 sales from businesses acquired since the second quarter 2018 were $7 million.
The distribution segment sales grew about 1% or be organically compared to the second quarter of 2018.
The distribution segment operating income was $4.5 million in the second quarter 2019, compared to $4 million in the second quarter of 2018 operating income before the impact of restructuring expenses was $4.7 million distributions operating income was higher due to acquisitions.
The Companys consolidated gross profit was $119.7 million for the second quarter of 2019, an increase from the second quarter of 2018 gross profit of $116.1 million.
The gross profit increase was primarily due to higher fueling system sales. The gross profit as a percent of net sales was 33.7% in the second quarter of 2019 and 2018.
Selling general and administrative expenses were $75.8 million in the second quarter 2019, compared to $75 million in the second quarter of 2018, SGN expenses from acquired businesses was $2.8 million and excluding the acquired entities. The company's SGN expenses in the second quarter of 2019 were $73 million a decrease of about 3% from the second quarter 2018, partially due to the effect of foreign currency translation in the second quarter 2019 versus the prior year.
During the first quarter of 2019, the company changed the management reporting for certain transfers of manufactured products between the water and fueling segments. This change was made to better align the production of certain products by reportable segment and sales to third party customers to consistently compared 2019 results to the prior year certain 2018 net sales and operating income Reclassifications were made these RASK reclassifications resulted in lowering second quarter 20, Eightnm results of fueling systems and increasing second quarter 2018 results of water systems net sales by about 1 million and operating income by $2.1 million versus what was reported in this period last year. There is no impact on the company's previously reported consolidated financial statements.
In 2019, we believe our effective tax rate net of discrete events will be about 20% significantly higher than 2018 effective tax rate of about 12%. This higher tax rate is primarily due to the inclusion of 2018 of discrete tax events that effectively lowered our tax expense for the full year. We do not believe these events will recur will recur at the same level in 2019.
The company ended the second quarter of 2019, with a cash balance of $41 million, which was $18.2 million lower than at the end of 2018 cash decreased primarily due to acquisitions and debt repayments. The company had $123.3 million in borrowings on its revolving debt facilities.
At the end of the second quarter of 2019 and 133.
Point $8 million in borrowing at the end of the second quarter of 2018.
As of January Onest 2019, the company adopted the new lease standard and has recognized additional operating liabilities of about $26 million for its outstanding operating leases with core spending corresponding right of use assets of the same amount the impact of this new accounting standard is noncash in nature and does not affect the company's cash position.
The company does not consider the impact of the standard to be material to the consolidated results of operations or to the cash flows the company purchased about 93.
Thousand shares of its common stock for approximately $4.1 million in the open market during the second quarter as in the end of the second quarter 2019. The total remaining authorized shares that may read.
May be repurchased is about $1.3 million.
On July 22nd the company announced a quarterly cash dividend of 14.5 cent dividend will be paid August 15th to shareholders of record on August 1st.
This concludes our prepared remarks, and we would now like to turn the call over for questions.
Thank you, Sir ladies and gentlemen, if you have a question at this time, Please press star and one.
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Our first question comes from Edward Marshall from Sidoti and company. Please go ahead.
Hi, Greg Hi, John how are you doing good morning.
Good morning, good morning.
So I understand your comments regarding the distribution and the inventory being in what you thought was or what you think is average.
For this time of the year.
I guess I have.
A question on that if I look at your own inventory it seems a little bit higher than normal.
For this period.
In the second quarter.
Can you talk about maybe what your own inventory looks like maybe outside of the distribution and what that might mean for pricing as we move forward.
Yes, our inventory levels.
Yes for sure ended the quarter higher than we had expected.
That's in most part because of inventory buildup in anticipation of sales that did not take place in the core on the.
Manufacturing side, when you look maybe just one level below that.
We had some inventory and in pioneer anticipating the backlog in the sales in the back half of the year. The build up we had some build up in our us manufacturing plants and.
The six and eight inch product that.
Is often used for agricultural purposes, which as you know because of the weather were depressed in the in the second quarter.
So those.
Those were.
Two of the primary reasons why we had the inventory build up in the in the manufacturing entities are are.
Our inventory in total was up about $17 million from the same period last year at about 7% when you're excluding distribution.
And they're getting major question about pricing, we don't see it as having any impact on pricing.
This is just to John's point, we had a stronger forecast internally, we've built that forecasted didnt happen.
So we will have some will be.
Running inventory is down in the back half comparable basis.
Okay creates some some drag on the margins, but we think we've got some offsets.
Got it and as I think about kind of the way you might plan your manufacturing engineering participating a stronger second half.
And then maybe the first half.
Do you plan to kind of build it the same manufacturing rate I know last quarter, you talked about some restructuring was there another round of restructuring announced into Q as we kind of look to the back half of the year.
Yes, again will be.
Running our plants at lower than than planned levels of glass at planned levels plan at the beginning of the year to to bring down our inventories to be more in line.
So we do that has strong position here and now created some negative absorption in the back half.
Got it.
And then you mentioned.
That you saw some slowdown in China.
Do you is that more driven by.
The economics or is that.
Maybe trade war tensions are both or anything any comments that you can kind of.
Relates that im specifically talking on the where water segment I understand that.
Fueling is quite a different scenario. Thanks.
Water segment actually.
And maybe I didn't make it clear in my prepared remarks were actually horsepower segment again, we have a small business in China as sub $10 million, but we're yes, we're seeing.
We're seeing some pickup there because of the introduction of this new in line Delta product, which is a.
A substitute for vertical multistage, boosting products and the lower medium rise.
Residential buildings and China. So we're getting some traction on that but we have a very small base in the water and so I wouldn't say, there's any impact related to trader economy, if they come to the the comments I've ever more directed to your point about the fueling business.
And the the capital spend rates of the.
Public oil companies and then in general kind of this which may be related to trade tensions and put that in my comments, but.
This idea well, we'll buy locally as a way of immunizing when I say, we China will buy locally the way the immunizing from the trade touches with the us.
In general.
Got it have you seen the weakness have you seen the.
Capital investments from some of the other larger kind of global players outside of Chinese owned pumping station have you seen the same decline.
In the rate of capital spend as you've seen with the local agencies or the local pumping.
Well the yes in China, the bulk of the gas stations are owned by the.
The national oil companies.
Yes, the number of gas stations owned by.
Major oil as a smaller subset and I would expect that their their programs are pretty much there programs. They view this and they do their upgrade some of the other.
On their capital spend rates are there plans as much I think related to the Chinese those decisions.
Got it thanks very much guys.
Thank you.
Our next question comes from Ryan Connors from Boenning.
Scattergood. Please go ahead.
Thanks for taking my questions.
Actually want to stick with the China theme for a minute. This this issue of by local Greg is that something.
Is that anecdotally you've heard that from some of your people there or are there like specific.
Announced programs you are aware of in terms of procurement.
And moving toward this by local.
Good morning, Ryan, Yes, what I'm hearing is from our leadership team.
Our fueling leadership team on the ground in China.
As to the senior leaders of appealing is that.
We saw some reopening of specifications to allow more local Chinese five to be qualified.
And so we've seen evidenced by the government of making it easier for local companies to compete now because their products stay in the ground as it work as well as western product, we'll let the market decide that but that's the evidence we're seeing and that's what I'm hearing from our team.
Got it okay. That's good clarification.
And then just on this issue I apologize. It's a question somewhat elementary, but I mean can you just kind of refresh us on how the wet weather the puts and takes in your business because on the one hand.
I think it would be.
Good for de watering.
AG you mentioned bad.
Just just how do we think about Franklin electric as a as an entity as a whole and.
And wet weather and.
And why such a pronounced negative impact of that when you kind of got.
It would seem you've got product lines that they can play either side of that.
It's a great question Ryan It's a great reminder, about how our business operates yes.
We're again, we're more ground water centric waterfall centric than any other product line is the one where we have the highest margins because we're more vertically integrated it that said when you look at our surface pumping equipment clearly in the Midwest massive run on getting some pumps.
That's why our services business was up because of that but those are relatively good as smaller pumps.
Lower margin than our submersible the dewatering pumps from pioneer our more event driven and so it would be you would think that if there was hurricane or you think that there was some type of flooding in as specified area, where you see some of that dewatering, that's still a relatively small part of our overall business even within pioneer.
Pioneer has been a big.
A lot of our activity from pioneer has gone into our rental fleets and so.
There is a tail, where the tail of that dog and so the other buying these rental fleets and you might see upticks, if youre IYR or sunbelt or other rental companies.
Higher utilization because of flooding, but we wouldn't necessarily see that and their capital spend with us their capital spending have been laid out.
Months and they may be years in advance so what happens to us is that when we get.
The weather we saw in the Raleigh throughout the country in the first half of the year as people are running their submersible pumps or groundwater pumps.
As frequently or even as all at all.
And so they are just not replacing these we have a large replacement part of the business you anywhere we estimate around 80% and so if you're not turn in pumps on to run them, you're not replace them and so that's where we saw the the weakness. So yes, we did see some uplift in demand in the Midwest, particularly with flood events with the.
With the pumps for homes, but we certainly.
That did not offset the decline that we've seen in my tenure with Franklin. Yeah. This is Phil what is your history has been a tremendous a soft market out there.
Okay, that's really helpful.
I guess my follow on to that is just.
You mentioned that after the first quarter.
Things were a little soft but.
So you maintain the guidance and it's kind of see how second quarter played out.
So not now you've trimmed it but what's baked in there in terms of the second half I mean, what if what if what if we do continue to get wet.
Weather.
In the third quarter I mean is that are we conservative relative to that or.
Are we are as a built in that we're going to get a sequential recovery and then the pension essentially in that scenario like a shoe to drop again.
Yes, so I think the way we're looking at actually the way we looked at back in April as we said, okay things normalize and and we should then see more normal revenue and more normal profitability back half will again kind of 5% plus or minus organic growth rate in water odd to give you some kind of.
Guidelines around that.
So we're just expecting the second half just the now has seen dry out the people that do get crops around the irrigating home use of commercials will be increasing.
And so we should see a kind of a more normal run rate for that so think about a mid single digit organic growth terms.
Got it.
And then just one last one if I could I guess system or bring John in but.
Seems like Forex has really.
Exacerbated the volatility of.
Of the results.
The last couple few years here and can you just kind of refresh us on your thinking around.
Hedging and and just philosophically around weather, whether you could or would or should.
Ever do anything to kind of help helps move some of that out.
Yeah, right before we turn over to John for the numbers you had say over since 2014, the us dollar strengthen what sort of 25% and so that impacts obviously snap in the translation side and then we also get a little bit more volatility because if you look at the stock market. So the developing regions certainly has been a tale of two cities relative to the U.S. market, which I think is more reflective of just how the weak economy. So yes.
We have a.
Meaningful strategic exposure to developing regions and developing reasons have been weak economically which is also why the currency has been weak and so that's that's come back with.
Impacting our long our short term results long term, we think it's where we need to be from a performance point of view, because that's where all the people are John can take you through some of the philosophy around how to immunize US yeah, Ryan So good morning.
You'll recall that the bulk of the FX exposure that our company faces is translational FX exposure where.
We have operating units around the globe doing business in Reigh doing business in Turkish lira in Euro South African Rand other currencies and then we're translating those results back.
We think the best immunization for that is to match revenues with supply chains, which we do in most part around the globe. So for example, our business in Brazil, primarily sells and Ray hi, and their supply chain is primarily a rabbi.
Supply chain.
For the most part Thats true in Euro and that's true in South Africa, and and other places. So our real issue is the translation back of those entities earnings.
And our our view is that other than that kind of natural matching in country of those operations are in market of those operation there's not a ton we're going to do on the translation side, but it is significant so in the first half of 2019 FX has cost us about 3.5% on the top line.
About 5% of water and about 2.3% in fueling.
Where we have true trend actionable FX exposures in some cases, we do.
Deploy hedging strategies, we have.
We have those in several places around the world.
Not significant positions, but where.
We can predict a balance sheet.
Position and then hedge that successfully trying to get predictions around cash flows and predictions around our balances and and other things like that is a little bit difficult in a volatile revenue environment as you might guess.
That we that we see as well so that.
That's the short on the FX and kind of how it impacts our company.
Got it.
Well thanks for your time this morning guys.
Thank you Ryan Thanks, Ron.
Thank you.
Our next question comes from Edward Marshall from Sidoti and company. Please go ahead.
I just wanted to jump back and follow up on.
On the margin if I could.
It doesn't go unnoticed I think two points one headwater had a pretty good quarter wondering if you might comment there I know the second quarter is generally strong but.
This seems to kind of hit your your targets for what you expect in headwater. So maybe you could just make a comment about.
What's going on there and the success you might be having.
Sure Ed It again the margin we talked about were a range of four to six four on our annual run rate basis, second or third quarter being a seasonally stronger.
So appreciate the.
The observation about headwaters performance in Q2.
And we would expect to see kind of similar market activity in Q3, but Q4, it will slow down and so we are we're still not where we think it should be but we are continuing to now work more on the on the supply chain the cost side as we have a more.
Integrated platform.
All the headwaters.
Frank branches that were acquired last year before all on one system. The acquisition. We did this year will go on estimate about six months. So thats begin to help us on the on the backside as well.
Got it and the second point I guess was on fueling I mean, it looks like it might be the one of the stronger margins I've seen in that business for a while maybe ever.
Based on the comments, specifically around around China, and how big of a department.
Business that is for you.
Is this and I understand it can be lumpy and volatile because this.
Hi, watermark for that business I mean, do you expect that kind of moderate as we move through the remainder of the year or do you expect to see that kind of repeat.
Into the ended the year and maybe even into 2020.
Yes.
The one of the key drivers.
Ed of the fueling margins is in fact, the U.S. business in the product mix that we have there.
This team has also done a really nice job of leveraging our fixed cost so adding fixed costs at a much lower rate than the revenue growth that's happening in the business. So as I warned you before and others.
I wouldn't I wouldn't give real comfortable with high twentys of fueling operating income margins.
I think something in the mid Twentys is is doable as you point out it can be influenced quite dramatically by product mix shifts and geography mix shifts.
And this quarter, we just said we had a very we had a favorable.
Mix.
In the United States were growth was up as Greg pointed out and that that favorably impacted our operating income margins.
Got it I appreciate your comments thank you.
Thank you, Matt, Yes, I'm asking.
Yes. So go ahead film sorry, our next question comes from Matt Summerville from da Davidson. Please go ahead.
Thanks couple of questions first.
Just to talk about the North America groundwater business can you parse out a bit how you think your business did in the second quarter on the AG side versus the resi side year over year.
Matt I guess, what I can say is that the AG was was hurt the most because of where the majority of the rain fell and when we look at sort of the pattern of some of the.
The headwaters stores.
And where we saw some some dramatic fall off of revenues.
By the stores that are at locations that typically are AG base. It had a really strong 2018.
Beyond that I don't have much detail, it's much more qualitative John you've got any more quantify yes, I mean, as we said Matt groundwater in the US was down 12% in the quarter.
As as Greg pointing out.
More severe in AG.
That in residential the surface pumps that are not the de watering pumps that that.
That Ryan was asking a little bit about those were up 8%. The watering was up about 12%. So when you look at that surface.
Non groundwater.
Other category.
We saw some lift there a big percentage of that is residential so if you're thinking residential.
Non groundwater doubt that was impacted by the surface.
Increase which is wastewater water transfer some pumps those kind of things that you might expect to be up in in a very wet environment.
And Matt again on the on the pro channel side, what we say is because our sales to third party distributors.
Not headwater up 5% and that sales basis kind of more mid west to east, which tend to be a little bit more ready.
You'd said the residential market was maybe it was less impacted than the again, the AG market, which is more Midwest west and more where we have headwater exposure and headwaters outdoor sales of Franklin pumps were down about 5% does that help.
Yes, that's very helpful. I appreciate that thank you and then.
On the pricing environment, and what was realized price for Franklin in water and fueling in Q2 and with steel costs were rolling over copper prices coming down a bit I guess, what's your outlook in price versus cost in the back half of the year.
Yes, our achieved price in the first half.
Of the year.
Was excuse me in the second quarter.
Was about 3.1% in water in about 2% in fueling.
Matt we have seen some reduction in steel prices.
And other commodity prices as we have trended those but I would also say that on an input basis, both our raw materials are commodity materials and all other raw materials that we're buying are still higher than last year's average price paid so.
We right now for the most part are not anticipating new price actions.
In the back half of the year, but we are still seeing inflation flowing through our raw material inflation flowing through our cost of goods sold so.
Right now I would say that we're basically assuming a neutral for the back half of the year that our price will offset that inflation and that may get a little bit more favorable for us as we get towards the end of the year, but right now that's our that's our base assumption.
Got it and then I guess just sticking with pricing.
I think Greg.
Last quarter, you indicated some concern that you were.
Going to experience given the demand environment increased price pressure in Q2, given the realization John just cited in water.
I guess, it's hard for me to maybe think that that happened, but can you comment around what you're seeing kind of currently and what you saw in Q2 with respect to discounting specifically in North America.
Yes.
Hi, Matt.
To your point I think you got to figure it out we did not see as much.
Pricing pressure in Q2 at the manufacturing level that I had maybe been cautious about in my my prepared remarks for.
Last quarter.
I wouldn't say that I called out that in at the divisional level. It had water that we saw some margin compression, but margins improved pricing improved throughout the quarter.
So I think it got really tough in April and then we saw sequentially may and June seeing some lift so.
That's what we're seeing and I'd say right now we're kind of in April normal pricing environment.
We all run promotions, they all seem to be similar and in size in percentage terms as we've seen in prior years.
And then just one follow up on the sort of the comments you made on by locals in China and I just wanted to be clear on something this is in no way a government mandate that is saying that these oil companies have to buy local this is not if you're not seeing that.
At those central government level correct.
No we're not seeing a mandate you are in a command economy.
And we have seen some evidence I mentioned earlier on the call were tendered specifications had been reopened to help others get or two they been reopened and as a result of that being reopened we've seen more local suppliers being qualified not saying that they get bought and the sale or an outstanding they are there.
They are getting.
Picked up by the major oil, but they are now on the list.
You know, Matt I think that I think that we see frequently in these type of regulatory mandates.
That we and maybe a couple of other of our US multinational competitors take early leads from a market share perspective, and then it becomes more common that local competitors start to catch up on that.
I think thats whats happening here as as as well that there's just more local companies now that have caught up and are able to be certified in this product and therefore.
Serve the.
Sort of the market so.
I'm not I'm not sure that this is that dislike other regulatory.
And.
Opportunities we've had in the developing world before yes, Matt as a follow on to John's comment you may recall back in 2008, when the mandate for vapor recovery in China came out and Franklin with our Healy product line, we took a commanding initial lead.
And we had.
At.
I don't know 50, 60, 70% of market in Beijing, and then I see overall overall have maybe 30, 40% share of the market.
But we did see that there are more local competitors that came in later now the issue is that some of this product once it gets a stall you find out doesn't work or it doesn't work that way was designed and so the opportunity on a follow up as that product gets taken out and we eventually get the sales so.
As John pointed out we did see this happen with the vapor recovery initial initiative back in the late 2010 timeframe.
Got it I appreciate all that color. Thank you guys.
Thank you.
This concludes our Q and a session I would now like to turn the call over to Gregg Sengstack, Chairman and CEO for closing remarks.
We thank you for participating on our earnings call. We look forward to speaking to you after the third quarter have a good day.
Thank you ladies and gentlemen for attending today's conference. This concludes the program you may all disconnect good day.