Question-and-Answer Session
Operator
(Operator Instructions) Your first call comes from Gary Liebowitz – Wachovia Securities.
Gary Liebowitz – Wachovia Securities
Can you lay out for us how you expect the Gulf Stream reduction to play out on a quarter by quarter basis, because it sounds like for the first two months of the year things were running normally. Is there going to be a period maybe March/April where there is minimal shipment to Gulf Stream to catch up, or is this going to play out over the course of the year?
Ronald S. Saks
One issue and you raised an issue I failed to mention, as we've gone through the first quarter, for some reason we have not seen the pulls from Gulf Stream that we expected and we know that there were some dislocations resulting from work stoppage at a plant in Nashville supplying links on the 450.
And so we have already seen some reduction which we don't believe is related at all to the recent announcement, but it has impacted us in the first quarter.
What we see going forward and we have implemented a 30% reduction in Gulf Stream volume for the balance of the year. We do have good visibility in Gulf Stream because most of their product is on this so-called min-max replenishment system that we've talked with you all about before.
So we know where their inventories are. We expect consumption rates to decline. We expect them to continue to pull, but they likely will pull at rates of one each of the two major models at rates of roughly three per month each as opposed to four per month each. So we think we can anticipate the decline reasonably well.
The other impact on us, and the reason we've used 30% instead of the 20%, a little over 20% reflected in the decline for 94 ships to 73 ships, is that they're going to be closed for five weeks in July. And so we had some inventory reduction we'd like to do anyway, and so we're going to try to balance our inventory reduction with producing at the lower rates, 30% lower rather than 20% lower.
We'll continue to produce in July, except that our Savannah plant which delivers direct to them will see some downturn in activity during those five weeks. But we expect our production to be balanced. Our shipments may be reduced, likely will be in the third quarter because of the shut down in July.
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