Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Curtis Woodworth – JP Morgan.
Curtis Woodworth – JP Morgan
Bill, when you look at the gross margins this quarter, excluding some of the one-time issues in China, they were essentially up year-on-year and I know it was maybe a little bit of an easier comp. But given some of the negative operating leverage that you saw, is it really just price gains that were able to offset that? Was there anything else in there?
William C. McCartney
Well, the issue really on the quarter, Curt, relative to the margin, is two main things happening there. One is the increased level of costs that we saw coming through because of our Chinese operations, the VAT and the foreign exchange rates and whatnot and then just the operating issues themselves in China that we just took as an expense in the quarter. Those are the two issues impacting us relative to the gross margin percentage. And we obviously had negative organic growth. So you don’t have any revenue growth to offset those issues.
Curtis Woodworth – JP Morgan
Yes, that’s my idea, is that if you strip out some of those other cost items that your North American and European businesses would have been up year-on-year despite negative operating leverage for North America,
William C. McCartney
If you at look at year-over-year, you’re right. But we’re really focused on comparing ourselves to fourth quarter because if you look at that, we have a decline in the margin in North America, which is our major concern.
And remember last year, we had the first quarter, the margin was less than it had been in the prior quarters and we told everyone that we were going to have sequential improvement throughout the year, which we did and that’s through cost reduction and managing our pricing. And so we’re not so much concerned relative to the comparison to last year as we are concerned about the comparison to fourth quarter.
The fourth quarter was an all-time high gross margin during the year. It was probably little bit too high. It’s maybe not sustainable but we do have to and we are working on improving the margin going forward relative to the fourth quarter with all these Lean initiatives and whatnot.
Curtis Woodworth – JP Morgan
So given some of the one-time cost issues this quarter, is it fair to say you think that this would be more of the trough margin rate for the year for the company?
- To read the full transcript on Seeking Alpha, click here »
