Question-and-Answer Session
Operator
Thank you. The question and session will be conducted electronically. (Operator Instructions). And we'll take our first question this afternoon from Andrea Wirth with Robert W. Baird.
Andrea Wirth – Robert W. Baird & Co., Inc.
Good afternoon.
William Gale
Hi, Andrea.
Andrea Wirth – Robert W. Baird & Co., Inc.
One of you could first start by addressing the margins, the EBIT margins within the Rental division. I think your margins are up about 130 basis points year-over-year something about 80 basis points of that was due to lower fuel costs. So you are still above 50 basis point year-over-year despite the volumes being down 4%. Just wondered if you could put this in terms of your cost cutting because I’m wondering you feel at this point you maybe cutting a little bit too deeply. Just given that the fact that the margins are still up despite lower volumes or do you feel like you’ve actually cut in anticipation of what we are expecting to me even worse volumes next quarter and therefore maybe your headcount reductions are fairly well taken care of at this point?
William Gale
You are talking about our rental margins?
Andrea Wirth – Robert W. Baird & Co., Inc.
Yeah, rental margins.
William Gale
I would say that we do not and I'll think whether we’ve cut too much. Some of the benefits certainly was energy as I mentioned. We are aggressively looking at our cost structure. We’ve certainly reduced headcount. We’ve looked at more controllable costs such as supplies and thinks of that nature. But given depreciation levels and given material cost that typically amortize over 18 months, you can’t adjust completely, I think the biggest component was we saw some benefit from the energy costs.
Andrea Wirth – Robert W. Baird & Co., Inc.
And then I guess just trying to understand a little bit more though even despite the energy, your margins are still up with volumes down 4%. I’m just trying to understand that the disconnect between the two.
William Gale
Andrea, we are doing a lot of things. I guess your question is are we doing too much and your concern is are we going to hurt the company going forward. We don’t think so. We’re looking at efficiencies on consolidating some of the administrative functions. We’ve come up with some ways of doing that. I think you’ll have a business needs to look at every activity that is perform to see and determined that it’s value added. We are consolidating routes as volume declines we will consolidate customers and have fewer routes but that doesn’t mean that we won’t be able to have those routes back when business improves. So, we feel what we are doing is proved. I would not be concerned that we are cutting too deep and that we’re going to hurt ourselves and what we are probably doing is becoming a much more streamlined efficient company and as business conditions improve whenever they do we feel like we will be in great shape.
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