David Calusdian - Investor Relations, Sharon Merrill Brian J. Lipke - Chairman of the Board, Chief Executive Officer Frank Heard - President, Chief Operating Officer Kenneth W. Smith - Chief Financial Officer, Senior Vice President.

Ken Zener - KeyBanc Seth Yeager - Jefferies.

Good day, ladies and gentlemen, and welcome to the Gibraltar Industries Third Quarter 2014 Earnings Conference Call. At this time, all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference call. I would like to now turn the call over to your host for today, Mr.

David Calusdian from the Investor Relations firm, Sharon Merrill. Please proceed..

Good morning everyone, and thank you for joining us. If you have not received a copy of the earnings press release that was issued this morning, you can find it in the Investor Info section of the Gibraltar website, www.gibraltar1.com.

During the prepared remarks today, management will be referring to presentation slides that summarize the Company’s third quarter performance. These slides also are posted to the Company’s Web site. Please turn to Slide 2 in the presentation.

The Company’s earnings release and slide presentation contain forward-looking statements about future financial results. The Company’s actual results may differ materially from the anticipated events, performance or results expressed or implied by these forward-looking statements.

Gibraltar advises you to read the risk factors detailed in its SEC filings, which can be also accessed through the Company’s Web site. Additionally, Gibraltar’s earnings release and remarks this morning contain non-GAAP financial measures. Reconciliations of GAAP to adjusted measures have been appended to the earnings release.

On our call this morning is Gibraltar’s Chairman and CEO, Brian Lipke; President and Chief Operating Officer, Frank Heard; and Chief Financial Officer, Ken Smith. At this point, I will turn the call over to Brian..

Thank you, David. Good morning everyone, and thanks for joining us on our call today. As usual I’m going to start with some introductory comments on the quarter, and then Frank will discussed each segments performance and related market conditions and Ken will provide more financial details.

I’ll close our prepared remarks with some thoughts on the outlook, and at that point, we’ll open the call to any questions that any of you may have. This morning in addition to our normal quarterly earnings release we also issued an addition press release announcing two leadership changes each of which bodes well for Gibraltar’s future.

Our first announcement related to our succession planning process and stated that Frank Heard will be taking over as CEO on January 1st and I will remain in the position of Chairman. Frank’s hiring earlier this year was part of strategic succession plan developed by the board and myself almost two years ago.

Frank was hired back on May 1st of the year because he had the right experience and skills necessary to drive improvements in operating performance and accelerate our strategy for proving shareholder value. Frank’s years of experience in the building products market with ITW allowed him to hit the ground running upon joining Gibraltar.

In the six months Frank is been on board he is visited each of our 45 facilities, interacted with the business unit leaders and their management teams, gained an understanding of this strategic positioning of the company and has meet with many of Gibraltar’s shareholders.

More specifically he’s began -- to help each business unit become more focused on driving product and business unit profitability. And he has initiated processes that will help the business units sharpen their focus on capturing strategic growth opportunities.

In addition his past acquisition experience has been put to good use in evaluating strategic acquisition candidates. All of these activities and the responses from various constituent groups that he has interacted with provide clear evidence of his capabilities and readiness to assume the role of President and CEO on January 1st, 2015.

Frank is the right choice to become the next CEO of Gibraltar and I look forward to working with him to deliver improving shareholder value. We also announced changes to the Board of Directors this morning.

This changes and Board composition are intended to blend the existing intuitional knowledge of the board with the knowledge and the experience of the new Directors to provide new and different insights to the Board. Vinod Khilnani will replace as Arthur Russ, Jr.

who has decided not to stand for re-election and will retire immediately prior to the 2015 Annual Meeting in May. Craig Hindman will replace Gerald Lippes who as we previous announced will retire at year end.

On a personal note I’d like to thank Arthur and Gerald, plus the retiring David Campbell for their invaluable service to the company, its shareholders and me over these years. With that I’ll ask you to turn to Slide 3 in our presentation titled overview. Gibraltar’s third quarter topline growth was better than our previously provided guidance.

Net sales were up 8% year-over-year and about equal to the second quarter. This growth driven by accelerating demand for our new postal products and to a lesser extent higher sales volume in our residential roof ventilation businesses.

Net sales were also up year-over-year in our industrial businesses due to favorable volume and pricing in a number of product applications. We were able to deliver these results without and significant lift from our end markets as demand continues to be generally soft and in spite of having to overcome some operational issues.

The strategic moves that we’ve made and continue to our make are putting us in a stronger position to control our own destiny, largely independent of underlying market trends such has housing starts. The company has also performed better on the bottom-line.

Our third quarter adjusted EPS exceeded to high end of our guidance and was equivalent to prior year results. And as we expected the Company's profitability improved substantially on a sequential basis which Frank will detail during his comments.

Looking ahead near term, we continue to expect end market demand levels and the remainder of 2014 to be seasonally slower. As a result, we anticipate reporting fourth quarter adjusted earnings per share around the breakeven points as higher cost and a less favorable mix in our industrial and infrastructure segment will weigh on our results.

So despite our over performance in the third quarter, our fourth quarter full year results will be slightly below previous guidance. Although, there are number of factors that bode well for 2015. A number of economic indicators suggest the strengthening in demand for building products compared with conditions in 2014.

With the operational enhancements that we have implemented this past year plus reaching the expected efficiencies from the build-out of production, we are better positioned to capitalize on end market growth and deliver improved financial results in the year ahead.

Most importantly, we've established Gibraltar as a market leader in key applications in the residential and transportation infrastructure markets. Our growth drivers have the potential to outweigh cyclical factors in the economy over the next three years to five years.

On the profitability side the business simplification and product cost reduction initiatives that Frank is leading should enable us to significantly, although gradually improve the margin leverage in our business.

There are several factors that will improve as we move into 2015, and in addition we’re going to be making a series of changes inside the company designed to generate improved performance in 2015 and beyond which you will hear about during Frank's remarks.

I’ll have more to say about the outlook after you hear from Frank and Ken, so with that Frank I'll turn the call over to you..

Thank you Brian and good morning everyone. I'm certainly looking forward to taking over a CEO at the beginning of the year. My focus will be on accelerating our growth strategy and driving higher returns on capital. As we discussed on our last call, this will be accomplished in two phases.

First we'll focus more deeply on operational excellence by seeking ways to drive complexity out of our existing businesses while adding to our capacity for innovation. And second, we'll think differently about how we allocate people and capital both inside and beyond our existing business portfolio.

I look forward to working with Brian, the Board and the entire Gibraltar team to drive long term profitable growth and enhance shareholder value. Let's now turn into a discussion of our operations during the third quarter. Please turn to Slide 4. I'll start with the residential products segment, where third quarter revenues grew 13% year over year.

This growth was driven by an uptick in sales of roofing related products and most importantly continued acceleration in shipment volumes for our new line of postal storage products. On our call last quarter we predicted a slight improvement in reroofing demand during the second half of 2014.

We did in fact see modestly higher sales in the third quarter for our roof related products of ventilation and rain dispersion. Overall residential remodeling and repair activity as well as new construction remain generally steady. Majority of our growth this quarter came from market size expansion which bodes well for the quarters ahead.

The majority of this quarter’s residential growth came from sales of postal and parcel storage products which were up 20% from third quarter last year and now comprise about one-third of our residential product segment revenues.

Gibraltar is a long standing leader in single family mail boxes where we have a major presence with all the big box home improvement retailers in North America.

In addition to consolidate business, the secular growth opportunity Brian described relates to the underlying shift in this market from door-to-door mail delivery to more centralized mail delivery. This shift has been driven by postal authority cost saving initiatives in North America.

We've worked hard to develop innovative product lines that capitalize on the strategic shift.

We hold the number one share position in centralized mail storage market in North America and have a long history of providing the U.S postal service as well as private property owners the secure multi-compartment mail storage solutions and enable the conversion of single-point deliveries to centralized delivery.

Next phase in this secular shift is centralization in storage and delivery of packages and parcels. Our innovation capabilities in design and manufacturing put us at the leading edge of this transition.

Our newest products takes centralize storage to the next level for packages and parcels further reducing delivery cost, enhancing storage security and providing greater convenience for both the end user and property owner. They’re also larger and more complex, and as a result much higher in value in the traditional postal storage products.

Regarding the residential product segment's third quarter operating income, it was up year over year reflecting the net effect of volume leverage largely from postal products and operational cost reduction initiatives.

In our previous call we outlined some higher than planned cost that we incurred during the second quarter 2014 for three profitability improvement initiatives.

These initiatives included eliminating the distribution channel step for a certain product category, closing the manufacturing plant in the Mid-West and ramping up production capacity so that we can meet future demand for postal products.

The incremental cost in the second quarter 2014 largely stem from challenges related to recruiting reliable skilled employees and we subscribed these cost as we largely temporary in nature. We did in fact put the cost related to distribution stream lining and crank closure behind us in the third quarter.

And the third quarter action to reduce staffing in the company all contributed to margin improvement in residential product segment for the quarter.

Historically posted product margins were above the residential product segments average and we have confidence that once we get past to production ramp up phase which is expected to be in the first quarter 2015, we will again begin the deliver margins equivalent for better than historical results.

We believe the current lower return levels are for a short period of time with the increase production capabilities positioning us to better serve the sector of growth potential for postal product and higher return. At the same time, in this segment we are working to capitalize on new strategic opportunities and roof related products category.

Recognizing the importance of Green Building innovation and energy efficiency in the home were shifting our development efforts beyond ventilating the attic spaces to air management through the whole house.

Our new product line in this area will leverage our existing and proven technologies in roof ventilation into new applications elsewhere in the home. I’ll now turn the Slide 5.

Our industrial infrastructure product segment revenue increased 3% which was the net result of 5% growth in the industrial product category, partially offset by decline in sales to transportation infrastructure market.

The majority of our industrial growth in the third quarter was driven by stronger demand for our bar grating and expanded metal products from North American customer manufacturing including petro chemical refining and processing.

A modest rebound in demand for manufacturing customers in Europe also contributed growth in this segment during the quarter. Another end -- important end market we’ve served in this segment is transportation in infrastructure. For Gibraltar’s product our critical design components in bridges and elevated highways.

Demand in this market is depended on governmental funding and Federal and States transportation agencies continue to grapple with the highly uncertain funding environment. The most recent federal transportation appropriation extended funding by only eight months to May 2015.

As a result federally funded projects that do not move -- do move forward tend to be relatively short in duration and smaller in terms of dollar. We are working hard to win our share of the available projects, but at least for the near term our infrastructure order rates backlog and revenues continue to reflect this challenging reality.

Looking further ahead we’re fundamentally optimistic about the long term growth of the transportation infrastructure market.

There’s nearly universal awareness that the condition of our bridges and highways in this country has fallen below design capabilities as current estimate cite 25% of U.S bridges are functionally deficient or structurally obsolete. At some point this efficiencies will be remedied and Gibraltar is very well positioned as this occurs.

Third quarter was a challenging quarter for this segments profitability. The industrial and infrastructure product segment adjusted operating come-in margin improved sequentially by 70 basis points but were down from third quarter last year.

Reflecting a net effect of less favorable product mix on lower volume sold to the transportation infrastructure market. We are also feeling the effects of raw material cost inflation generally, today’s environment of global excess capacity makes it exceedingly difficult to recover higher material cost.

These factors more than offset the positive leverage from our industrial products volume growth in the quarter. I’ll now talk about Slide 6, sequential earnings per share growth. As Brian stated we remain committed to re-establishing a higher level of profitability.

In our last earnings call, we projected higher adjusted operating income and earnings per share in the second half of 2014. Compared with the first half in fact more than double. The third quarter marked its step in this direction. Slide 6 identifies the actions taken that resulted in the sequential profit improvement.

Moving from left to right in residential product segment completed three improved profit improvement actions, including one manufacturing plant closure and the elimination of the channel of distributing for select product category plus staffing reductions in various support functions.

In the industrial infrastructure product segment cost reduction included lower cost inventory plus lower employee cost. Next in the residential product segment, we delivered higher quantities to postal product and roof related product and the leverage for most incremental shipments added $0.03 per share.

And lastly, within the industrial and infrastructure product segment we expected and had lower volume sold to the infrastructure market and therefore the lower profit contribution a $0.02 per share.

So to summarize Slide 6 on equivalent consolidated third quarter earnings grows by nearly 16% and a bit more than we guided, as a result of these actions that we control.

Overall we are finishing the year with a strong sense of optimism for 2015 we are making solid progress in all three dimensions of our strategic plan, with an eye towards driving higher returns on capital than what we’ve done historically.

We’ve targeted high growth sectors of the market with outstanding new products, we’ll be driving complex out of our existing businesses while add to their capacity for innovation. And we’ve taken a fundamentally different approach to allocating people and capital, both inside and beyond our existing business portfolio.

With that I'll turn the call over to Ken for additional financial details.

Ken?.

Before describing more of our third quarter results, I want to comment on our results for the quarter compared to our third quarter guidance. Adjusted EPS for the third quarter 2014 came in at $0.30 or $0.05 above the midpoint of our guidance of $0.23 per share to $0.27 per share.

The $0.05 improvement came from stronger than expected sales volume for roofing related products, plus lower employee cost, plus favorable positions on hedging programs.

And given the variability in the underlying transaction and values for the employee claims and the hedging derivatives, our fourth quarter guidance does not include continuance of the third quarter improvement. Now, let's turn to Slide 7 titled Consolidated Results.

As previously cited, third quarter revenues were up 8% year-over-year, essentially all the increase stemmed from higher unit volume.

Unit volume increased sales by 700 basis points, improved pricing contributed another 50 basis points and 50 basis points of improvement came from our September 2013 acquisition of a solar powered attic ventilation product line.

As Frank discussed, our most significant volume growth this quarter was led by double-digit increase in sales of postal products and we also had the single-digit growth in industrial markets and sales of roofing related products. This combined unit growth more than offset the lower volumes shipped to transportation infrastructure projects.

The third quarter's adjusted operating income was equivalent to last years, the net result of factors described in Slide 7’s comment box and as previously mentioned. As a result of all these factors adjusted earnings per share for the third quarter 2014, we are at quarter for the same quarter last year.

While not shown on Slide 7 but equally important was the sequential earnings improvement. Adjusted operating margin increased a 180 basis points in the third quarter versus the second quarter and little change in revenue and adjusted EPS increased sequentially nearly 60%.

Next, I'll talk about each of our two reporting segments starting with Slide 8, the Residential Products Segment. This segment's third quarter sales increased by double digits, virtually all organic unit volume growth. The residential segment's third quarter operating income was up 14% from the prior year period.

The net effect of the positive leverage from the added volume, partially offset by the combined effects of raw material cost pricing on some certain products and temporary higher build-out cost for the production of postal products.

Again while not shown on Slide 8, the sequential margin improvement increased 220 basis points over the second quarter on a 4% increase in revenue with nearly 30% sequential increase in adjusted operating income was led by cost reduction actions as described by Frank. Now turning to Slide 9, our industrial and infrastructure product segment.

This segment's third quarter sales increased in line with our expectation. The 3% points increase was the net result of equal improvements in unit volume and pricing. And within the volume increase, shipments to industrial end markets more than offset the volume decline in sales to the transportation infrastructure market.

Regarding its operating income, the Industrial Infrastructure products segment's third quarter adjusted operating income was down 19%. The net effect of a less favorable product mix and raw material cost inflation exceeding the positive leverage from the added volume and modestly higher pricing in industrial products.

Not shown on Slide 9, the sequential improvement adjusted operating margin increased 70 basis points over the second quarter on a 5% decrease in revenue as cost reduction actions contribute significantly. Now Slide 10 titled, the fourth quarter 2014 preview.

Historically the fourth quarter has the seasonally lowest demand levels in the calendar year, and we expect 4Q of 2014 to be no different. With a lone exception of our residential product segment sales of postal products.

In this residential products segment, we anticipate another successive quarter with year-over-year volume increases driven by existing orders for postal products.

Yet this segment's 4Q margins is not expected to expand due to the combined effects of higher raw material cost, lower pricing on certain products, and the continued but temporary higher build-out cost for production of postal products.

And as Frank cited, we anticipate these temporarily higher build-out cost to subside and reach historically higher levels of production efficiency by the time we finished the first quarter 2015.

In our industrial and infrastructure product segment, the shortening time window remaining for federal highway funding will result in an unfavorable revenue comparison for 4Q 2014 while the segment also absorbs cost inflation in the current environment of lower capacity utilization amongst the competitors.

Both of which contribute to compression of this segment's 4Q margin. For consolidated result the combination of the two segments plus corporate expenses in 4Q are expected to result in earnings per share below that of 4Q 2013. I'll now highlight points on Slide 11, titled 2014 Financial Guidance.

For the full year 2014, we expect adjusted EPS of $0.42 to $0.47, which was lower than our previous guidance of $0.50 to $0.55 per share.

The decrease from previous guidance results from higher expected raw material cost including steel and aluminum, lower revenues from the transportation infrastructure market and delayed improvement in the temporary build out cost for production of our postal products.

The combination of this factors along with an inability, to past on raw material increases result in our lower guidance. Regarding the capacity build out cost for posted products, we have successive quarters of steep year-over-year unit volume increases.

And Frank cited the principal challenge that we faced being the recruitment and retention of skill reliable productive workers. While we believe production capabilities are becoming properly sized, we have more refinement and efficiencies to achieve by the end of the first quarter.

Regarding 2015 we are in the midst of our 2015 planning and specific numerical guidance will be forth coming when we report fourth quarter 2014 results. But we do anticipate 2015 guidance to reflect improved margins, returns, earnings and cash flow compared to 2014. And now, Brian will conclude our prepared remarks..

Thank you Ken. Before we open the call to your questions I’ll conclude our prepared remarks with some thoughts on Q4 and the quarters of head. Despite the generally flat demand environment in our end markets, we’re continuing to focus on driving organic growth and improving Gibraltar’s profitability.

In the residential product segment our goal is to outgrow the overall market and we’re making good progress there. We believe the U.S housing market will continue its long term recovery.

Near term, the latest industry in this seize such as a National Association of Home Builders, Housing Market Index, Harvard’s Leading Indicator of Remodeling Activity, as well as the latest Census Bureau reports on housing sales and starts, all pointed to a continued modest level of growth through the balance of the year ahead in 2015.

In terms of residential repair and remodeling our outlook remains our outlook remains unchanged, where it continues to be a great deal of uncertainty in the sector. As a result, we continue to expect re-roofing demand will be modestly unfavorable for full year 2014, but slightly improved in the second half compared with the first half.

The modest increase in roofing-related product demand that we experienced in the third quarter reinforces this forecast. Our sense of optimism about the residential outlook is stronger than it was a year ago.

We're seeing good success with our new postal storage products, while making progress in launching new residential ventilation products that expand our presence from the roof to the basement and the entire house.

These organic growth initiatives are beginning to create strategic distance between our residential product sales and the underlying trends in the housing starts and residential improvement spending.

In terms of our fourth quarter performance in the Industrial and Infrastructure segment, industry statistics such as the ABI and the PMI are signaling further steady improvement in commercial construction and manufacturing activity, and we expect continued modest demand for our products in manufacturing and petro-chemical product applications.

However, demands for transportation infrastructure products is likely to remain weak in the near term. Longer term however the underlying need to repair and upgrade the nations aging bridges and highways is more apparent than ever. So it’s not a matter of “if” for the transportation infrastructure business, but a matter “when”.

Taking this factors together on a consolidated basis as Ken said we are expecting Gibraltar’s fourth quarter revenues to be up approximately 4% up Q4 2013 leading to a higher second half compared to the first half of 2014 and single digit top line growth for 2014 as a whole.

On the bottom-line we expect that our recently completed on going margin improvement initiatives combined with lower variable compensation and benefits expense will help us manage the continued raw material cost inflation and products mix challenges that we anticipate for the fourth quarter.

At the same time, we expect to conclude 2014 and begin 2015 with a healthy balance sheet. This will position us to continue pursuing opportunities to grow our business through acquisitions.

We will continue to prioritize acquisitions that have the potential to serve us as strategic accelerators, ensuring that we’re buying businesses in adjacent spaces that not only enhance our short term return by improving our mix, but also open doors for Gibraltar in the higher growth more profitable markets.

We're looking forward to finishing 2014 as strongly as possible and improving Gibraltar's performance in 2015. At this point, we'll open the call to any questions that any of you may have.

Operator?.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Ken Zener from KeyBanc. Please proceed with your question..

Given the beat in 3Q, I just want to drill in.

I realized you guys operate different businesses, but can you discuss the visibility you have on that postal business which obviously continues to grow well but, where does that volatility come from and how does that kind of impact the cost side or how you’re buying in material? And I guess related to that is, how long do you think these challenges will exist in terms of staffing up or the costs for that growth? Thank you.

.

Visibility extends multiple quarters, including the fourth quarter and procurement of supplies are timed to coincide with the lead times necessary to produce and deliver the products on time.

And regarding our ramp-up and bringing out efficiencies from our expanded capability to deliver and produce such product, we cited in our prepared remarks that we expect that to subside and be behind us by the time we finish up the first quarter..

So I guess if the visibility -- where did the beat come with the visibility though just -- is it a timing of orders and it's just -- because you guys obviously did better than you initially expected in the third quarterly right, on [indiscernible]?.

[indiscernible], but that over performance on the third quarter compared to guidance anyway was related to the roof-related residential products. Where higher volume came in..

Correct. And then I guess that that was my fault. Thank you for clarifying that. Frank, you are outlined to longer term ideas in terms of the next phases of the company operational excellence, less capacity and then how you are going to allocate people and capital.

Is there any -- you had more time to travel throughout the company in country I assume, are there thoughts about how we might be able to broadly frame that philosophy in terms of the businesses you have today, the businesses you'll be interested in or some of their characteristics? Thank you..

Well certainly from an operational excellence perspective, I think that the time spent from our last call to today, I traveled through most of the 45 operations now looking at -- to validate the opportunity from a simplification perspective using sort of the 80-20 principles that I've utilized in the past.

And certainly, I've seen that I mean I think I said in the past call that, I saw the opportunity for some incremental improvements in terms of the existing portfolio, in terms of returns and certainly that's been validated and I'm quite optimistic that we're going to be able to apply those types of approaches and drive some incremental returns in a very material way throughout the portfolio, not isolated to certain types of businesses, but I think we have a tremendous amount of complexity in some of our existing businesses.

And I think our leadership team has embraced the approach and we're working our way through the process. So, on that basis I think you know, we can take what we have and we can deliver higher results in a measurable period of time as we work through that in 2015.

From a strategic -- from a portfolio perspective moving forward, certainly we have a strong interest in the dynamics going on in the postal centralized -- centralization of us in the postal area moving from single family delivery to centralized delivery, but more importantly on the parts of delivery side as well with some of the changing dynamics going on and how people buy and how products delivered to their homes and businesses.

So a big part of our focus there will be trying to expand that, while at the same time looking at the infrastructure segment as well with bridges, roads and dams where we see some real long term prospects moving forward.

Now both of those are supported by a strong residential platform where we today we primarily participate in the roof -- in my background, it has been in that residential building project segment and I think there is some very attractive businesses and product opportunities in that area as well.

All supported by you know a very strong industrial base of businesses that I think we can enhance from a return perspective. So a big part of allocating capital and people will be in those 3 areas, while at the same time trying to identify future growth things outside the existing portfolio.

And we'll resource the people appropriately that we have internally, but also seek out new and different talents outside the corporation to support those initiatives. .

Thank you..

Thank you. Our next question today is coming from Seth Yeager from Jefferies. Please proceed with your question..

Is steel, is that the product that's giving you the most trouble over the last couple of quarters in terms of raw material inflation and what are the mills doing right now, what's your visibility around price increases there and continued inflation going into the fourth quarter?.

So steel is approximately it's 80% to little over -- 80% to 85% of our raw material purchases. So yes it changes a bit, in that basic material is an influence on our cost of sales, but we've also experienced recent rises in aluminum costs. Probably going through several of our products, particularly in residential product set.

And we have multiplicity diversity of contracts with a wide variety of suppliers to manage the best supply, available supply, at the lowest cost that we can over time.

And so, but the visibility is lined in varying degrees, varies over the types of contracts that we have in place, but we do have enough visibility to predict pretty accurately what our fourth quarter cost of sales will be, which will be a delivery of product, using raw materials that we bought, sensing then, second half of Q3 and the early part of the fourth quarter..

Seth, this is Brian Lipke. Suffered from what we're doing about this, what we see from a pricing perspective from the steel mills today is, during the fourth quarter pricing for hot-rolled may come down some, but we're expecting for next year that raw material cost will go back up.

We've got a number of different initiatives that we've had in place to help us deal with those situations, but as strange as this may sound a substantial portion of our business, increasing raw material costs are a good thing for us because we generally have the ability to pass those on as -- once the price increases have been put into effect.

So that's our outlook relative to what the steel mills, pricing is going to look like over the near term..

Got it. Okay, that's helpful. And then, just when you look at the landscape of competitors, are you seeing some guys out there.

I mean obviously you've had some nice improvement in volumes that are essentially trying to pick up some share and are being a bit more competitive on the pricing side, is that part of the issue towards passing that through?.

You hit the nail on the head, Seth.

Particularly in our industrial infrastructure products area, particularly in the industrial part of that there is more capacity than demand at the present time, which has made it difficult during this year to do what we’ve historically done, being able to pass raw material cost increases on as soon as -- or prior to them actually being inserted into our inventory.

A little bit stronger demand will certainly change all of that, but right now what you have are its too much demand takes chasing or too much supply chasing too little demand..

And Seth, this is Frank, just to flush this out a little bit more. We have passed along some prices-increases on various products throughout the portfolio to your earlier point. We're trying to do that in a strategic way where we can.

In some cases, we have not done that in order to defend share in certain types of businesses, maybe in more of the heavily steel processing businesses that we have, and in some cases we haven't strictly because we're in a better position to grow share against some competitors in certain market segments and this is the opportunity to do it.

So where we have passed on price and in some cases we've recovered the cost of the material rise, but also the margin, that's not flowing through from a result perspective because some of it is timing based and we'll begin to see that in future quarters..

Got it, okay. Now, thank you very much. It's helpful. It sounds like on the industrial side, you guys had some -- a little bit of a pickup.

Can you just remind us your exposure to energy related end markets and have you seen -- I guess just given the drop in energy prices over the last month or so, have you seen any slowdown activity there?.

There is a meaningful proportion of our grading and expanded metal products that do go into energy related projects, whether that be methane plants or fertilizer plants or new chemical distilling or processing plants in the Gulf Coast even lower in the border into Mexico.

And there has been -- that was an element of the uptick in volume that we had in the third quarter.

Having said that, there are some recent phone calls about delaying some timed deliveries that would have been in the fourth quarter and the early part of Q1 to a couple of months later and that could be a reflection of some recent drops in those commodity costs, but I can't directly attribute it -- buy into it, but it could well be..

Got it..

But is nonetheless, it is nonetheless. In 2014, we expect in 2015 that particular sector of the industrial base in the U.S., we continue to -- it’s been strong and I think it's going to get stronger..

Sure. Okay. And just a last one for me. You had mentioned the expectation of improved cash flows in 2015, just as you look towards the budget on CapEx, you've had somewhat of an elevated CapEx over the last year with some discrete projects.

Any initial thoughts on what the budget may look like going into next year?.

Yes, we have our initial thoughts on it. It's probably going to be in the mid to high teens in millions of dollars. So depreciation runs about $20 million a year for us.

Amortizations and another $6 million or $7 million, but on the depreciation element of those two pieces, we expect that 2015's CapEx will probably be below depreciation in the $16 million, $17 million, $18 million range..

Okay thanks a lot. Good luck guys..

Thank you. (Operator Instructions) At this time, we've reached the end of our question-and-answer session. I will now turn the conference back over to Mr. Lipke for any closing or additional remarks. .

Thanks operator and thanks to all of you for joining us on our call today. Our fourth quarter 2014 earnings results conference call will be on February 19th and we look forward to talking with you at that time. This concludes our call today, thank you..

Ladies and gentlemen, thank you very much for participation in today's conference call. You may now disconnect and have a wonderful day..