Question-and-Answer Session
Operator
Your first question comes from Christopher Agnew - Goldman, Sachs
Christopher Agnew – Goldman, Sachs
First question is a couple of things, I guess for clarification but I want to wrap them up together, firstly I think that you said inflationary pressures in the first quarter you expect to be about $5 to $7 million and I’d just like to clarify. If costs stay where they are today for example steel costs, would that imply that for the full year the impact of inflation should be $20 to $28 million? And I guess linked to that, just clarification on your cost actions, the $25 million you’re planning for the full year that’s on an annualized basis or is that what you expect to achieve in 2009 and therefore on an annualized basis would it be a little bit higher and I guess linking those two things together, do you believe that the actions you’re taking will be enough to mitigate inflationary pressures or what other levers do you have to pull to offset inflationary pressures? Thanks.
Jim Hackett
Well Chris one of the things that I want to establish for the call today is that the company has the lever of being able to change prices regarding these kinds of things in our industry you can raise list prices and you can change transactional prices relative to staying competitive. I’m going to leave the discussion about price increases to that extent today. We just aren’t going to get into any kind of forward view of changes in pricing as Dave begins to answer this question about what are the projections about commodities.
Dave Sylverster
The second point I would make around inflation is that the $5 million to $7 million is kind of—it’s our estimate of commodity based inflation and it’s really before the continued efforts that our supply chain organization is implementing to offset some of those costs. So whether its, whether we manage the inflation through pricing or whether we manage it through cost reduction remains to be seen. But the number that we did give you was $5 million to $7 million and that’s what we expect on the first quarter. And in rough strokes I’ll tell you Chris that’s both inflations in sequential quarter and sequential—and inflation quarter over quarter versus the prior year.
Regarding the full year we’re going to stop short of giving you what you’re looking for there because we don’t give full year guidance. Its not perfect math I’ll tell you though because the price of steel has gone up and down over the last 12 months which you’d be in a range of a reasonable ballpark I guess. On the cost reduction actions it’s a little complicated because certain of them will be done sooner than others right and when they’re all done we believe that we will generate $25 million after-tax of annualized savings. As I mentioned the more significant ones which involve the further modernization of our industrial system, those we expect to actually complete over the next six to nine months so those benefits will begin to kick in as early as part of the third quarter and for most of the fourth quarter.
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