Question-and-Answer Session
Operator
Thank you. (Operator instructions). And our first question comes from Walt Liptak from Barrington Research.
Walt Liptak – Barrington Research
Hi, thanks. Good morning guys.
Bill Lambert
Hi, Walter.
Walt Liptak – Barrington Research
You know I guess the first question, in Dennis' comments, you know he was talking about the price competition and the business has got more competitive, it sounds like especially in Europe. And I'm a little bit confused because on the flipside, Dennis you talk about you now the some of the improvements with cost take outs. So I guess my question is, is the gross margin at 37.5%, is that sustainable you know with the military running off in the face of you know some of these increased pricing and throughput issues?
Dennis Zeitler
Hi, Walt. That is a tough question. Going forward, we saw a lot of price pressure in the second quarter. Whether we should anticipate it to be worse in the third or fourth quarter, I couldn't make that call. The military business will ship more in the second half, that will have some impact, but if you're looking for a forecast for the gross margin rate for the second half of the year?
Walt Liptak – Barrington Research
Okay, that helps. You had the pricing pressure already in the second quarter, you're not talking about this, this is something that is trending worse?
Dennis Zeitler
I'm looking at my two geographic presidents to see if they think it is going to trend worse in the second half than it was in the second quarter?
Joe Bigler
I think from North America's perspective, on the commercial side with our brand and our strategic pricing and some of the cost improvements we have seen, I would expect our margin to maintain what was seen in the second quarter. However, there'll be increased military shipments in the second half of the year that could have an effect negatively on the gross margin to some degree.
Rob Cañizares
On the international side, Walt, the significant effect is due to some big devaluations that occurred in certain countries. Since we ship products from Germany and from the US into countries like the UK and Eastern Europe which have separate currencies and they also have local suppliers, some of the pressure comes because of the dislocation that occurs related to those exchange rates. Luckily those rates have turned back in the right direction in the last quarter, but we really can't tell that it will happen in the next one. The same happened in Latin America, South Africa and Australia in the first quarter, and they improved a little bit during the second quarter, but again we can't really predict what exchange rates will do.
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