Welcome to the Hexcel Corporation Third Quarter 2015 Earnings Call. Today's conference is being recorded. Hosting today's conference are Mr. Wayne Pensky, Chief Financial Officer; and Mr. Nick Stanage, Chairman, Chief Executive Officer and President. At this time, I would like to turn the conference over to Mr. Pensky. Please go ahead, sir.

All right, thank you. Good morning, everyone. Welcome to Hexcel Corporation's 2015 third quarter earnings conference call on October 20, 2015. Before beginning, let me cover the formalities. First, I want to remind everyone about the Safe Harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings, including our 2014 10-K, our third quarter 10-Q and last night's press release. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be re-recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO and President; and Michael Bacal, our Investor Relations Manager. The purpose of the call is to review our 2015 third quarter results detailed in our press release issued yesterday. First, Nick will cover the markets. Then I will cover some of the financial details and I will give it back to Nick for some final comments before we take your questions.

Thanks, Wayne. Good morning, everyone and thank you for joining us today. As you have seen in last night's release, we delivered another strong quarter, with third quarter sales of $449 million, up just over 2% in constant currency from last year. Our key growth programs remain on track and performed as expected. While the summer months are typically a little weaker than the rest of the year, our operations continued to perform well, delivering third quarter operating income of $78 million, with operating income margin of 17.4%, roughly the same as last year's period. Our adjusted diluted EPS of $0.55 was 3% lower than the third quarter of last year due to weaker Space & Defense sales and higher costs associated with our accelerated implementation of a new company-wide ERP system. For the first nine months, sales of $1.396 billion were up 4.6% in constant currency from last year. Adjusted operating income in the first nine months was $251 million, with a margin of 18%, up 100 basis points from last year's period. Our year-to-date adjusted diluted EPS of $1.76 was 9% higher than 2014's period and reflects strong performance in converting our sales growth. Now let me provide more detail on our markets. As usual, I will discuss year-over-year comparisons in constant currency. As you are aware, there was a significant strengthening of the dollar against the euro and the British pound this quarter, as compared to last year. For example, if you compare the third quarter of 2015 versus Q3 2014, the dollar on average was about 16% stronger than the euro and 7% stronger versus the British pound. This influences our results and some of the impact is not intuitive. But the bottom line is that our sales translate lower while our income increases and so…

Thanks, Nick. Gross margin for the quarter was 27.7% of sales as compared to 27% in the third quarter of 2014 -- strong results for both quarters. The strong dollar contributed about 50 basis points to the improvement in gross margin percentage. Year-to-date, gross margin was 29% of sales as compared to 27.5% of sales in 2014. For the nine-month period, the strong dollar contributed about 70 basis points to the 150 basis points improvement. We're pleased with these gross margin results, as our team remained relentlessly focused on continuous improvement. For the quarter, SG&A expense was $35.5 million, up 7.9% from 2014. And for the Year-to-date, we're up 8.4% as we continue to add infrastructure to support our continued growth. The step-up included implementing our new ERP and other systems. Year-to-date, IT expenses were about $8 million higher than what was incurred during the same period in 2014, including $3 million in this year's third quarter. We have been investing in infrastructure the last few years and are very pleased to report that we now have 23 of 24 manufacturing and administrative sites up and running on our new ERP system. For those of you who are familiar with ERP implementations, I am sure you can appreciate how disruptive they can be and the wide range of potential impacts on performance during the transition. In addition to ERP systems, there are a number of related continuous improvement processes and systems that we're also upgrading. We're quite proud that we have installed these new platforms without negatively impacting our customers and minimized the impact on our results during the implementation. While we will continue to optimize invest in systems, as they will be an integral part of our continuous efforts to improve our operational efficiencies and deliver the expected upcoming…

Thanks, Wayne. As we look at our 2015 sales, we're now expecting 3% constant currency sales growth instead of 5% or about $35 million lower sales than our initial guidance, the majority of the shortfall coming from Space & Defense. Our revised sales guidance is now expected to be between $1.84 million and $1.86 billion. If you combined the lower sales with additional costs related to investments in new systems, we're adjusting our EPS guidance range to $2.28 to $2.34 per share as compared to our prior guidance of $2.33 to $2.43. We now expect accrual basis capital expenditures in 2015 to be towards the upper end of our $260 million to $290 million range. This higher level of CapEx combined with the strategic buildup of inventory for selected programs and planned inventory safety stock, now has us targeting free cash flow to be neutral for the year. When I take a step back and look at Hexcel and our markets, I remain very optimistic about our future and confident in our operational focus. Our core growth drivers in Aerospace remain on track and continue to grow. We continue to efficiently execute on our investment plans in order to position the company for the forecasted growth ahead, as we support our customers by investing in technology, capacity expansion, manufacturing innovations and our people. While 2015 sales are a little less than expected, it does not change our long-term view and our path to achieving our 2020 targets remain clear. We now would be happy to take your questions.

[Operator Instructions]. And we will take our first question from [indiscernible] from Royal Bank of Canada

May be a first one on the CapEx so you took it up for the year towards the higher end of the range, maybe you can give us more color on this and do we think about this as incremental CapEx or is this a pull forward of something that was in the longer term plan and should we expect this to be the peak year from a dollar term in terms of CapEx?

Stephen, I guess the best way is to recap a little bit of what we said during our January Investor Day in Salt Lake City and that is basically over the next five years we will invest in CapEx around $1.1 billion. And that in general will be required to support capacity expansion to deliver $3 billion of sales in 2020. So over that five years $1.1 billion and it will be front end loaded i.e. 2015, 2016, 2017 will be a high investment period for us. With respect to is it incremental? It really has not changed. We continually balance our programs and capacity with productivity. And anytime we can push CapEx to the right or if required because of volume changes pulling it into the left which is where we're at today that’s what we basically will do.

And then just a follow-up as we think about the incremental margin maybe for next year is the best way to think about it that you will be close to that 25% target excluding the tail wind from ERP expense going down or is that kind of sort of all rolled together and you bake that in and we will still be around 25% all in?

Yes. We're still targeting to be 25% all in. As you have seen we have pulled in an accelerated our ERP implementation simply to take advantage of the vertical integration and supply chain efficiencies we can gap. So again it will drive additional productivity and especially working capital efficiency but as of today we're still comfortable with our 25% operating income leverage on incremental sales.

And we will go next to Howard Rubel of Jefferies.

Just to follow up on the working capital question, Nick. How do you think about the incremental cash flows that you should require for the incremental sales volumes going forward?

I need to think about that for a minute. I can tell you Howard we're pushing hard on increasing our terms and that is one of the reasons why we accelerated our ERP. As you know we got 18 manufacturing facilities and many of our products across multiple plants. So the supply chain is complex and increasing working capital terms is absolutely one of our focuses going forward. To be able to give you a number related to topline sales on an incremental basis I will take an action to think about that, but I can tell you we have line of sight to $15 million to $20 million that we put in place as safety stock as we implement our sites to protect our customers and that’s number one. We're going after that hard we won't get that all by the end of the year, but I am optimistic we’re going to get it all by the first half and then we will start working the terms.

And just to follow up on that, I would think that with some of the change in mix that does free some capacity and as you have runoff and some businesses wouldn't you be able to harvest that so that next year's free cash flow is going to be substantially better than this year.

Well we're still rolling out plan as we speak. We're going after cash hard. We recognize that we've got opportunities in working capital as well as capital optimization. So to answer part of your question as programs roll off and as capacity opens up in plans we do we allocate that and we do put that in our CapEx investment model so that we can push any free capacity expansion requirements to the right and we will continue to do that. But you need to give us a couple of months before we report on our free cash flow forecast for 2016.

And then just last, just staying with this, I know ERP is both necessary but as you think about this investment how do you think about the payback and how should we be able to observe it in the income statement.

First thing we didn’t really elaborate other than a couple of data points and our announcement but we have been implementing our sites for over three years now. So I would like or I would hope people would look at that and say we had a very disciplined and low-risk approach planned which is exactly what we did. We wanted to protect our customers number one and we wanted to learn as we go because while we implemented and are implementing a new ERP system we’ve also redesigned many of our business processes so that we can gain efficiency. And I am talking about efficiency throughout the business from marketing and sales, [indiscernible] order intake and obviously in the fulfillment of orders and supply chain efficiency. So we’re looking at working cap improvements as a primary objective of our ERP systems and solutions. But it will also drive productivity throughout our organization. Better visibility on volumes on quality, on tracking equipment barcoding so we know exactly where things are, how much we have. So I am really not ready other than our 25% operating income leverage on spelling anything out in more detail. But I am very excited number one on the job that our team has done in protecting our customers while implementing a fairly difficult ERP implementation and number two, I am really excited that we pulled it in and we're going to start we already starting to yield the benefits but next year I expect those to really come through.

And we will go next to Myles Walton of Deutsche Bank.

If we can look at the margin trends particularly and Composite Material sequentially. The volume explains a piece of it, but I think there was maybe only an extra million of ERP expense. So can you give us some moving elements, I mean there is a usual seasonal dip in CM margins but this is certainly 310 basis points is more than I would have otherwise expected.

Yes, Myles, we do have seasonality. In the third quarter -- in fact, if you look at the second half versus the first half, we tend generally to be down about a point, in terms of margin percent. When you take a short-time snapshot as a quarter gets a little bit more difficult, in terms of make too many generalizations, but the IT costs do go to the -- a lot of the IT costs did go to the Composite Material segment. I would not read too much into it. I think it is just a quarter view, as to any big major trend or anything like that. And I think it is particularly because of the summer and in Europe, it tends to be down.

Okay. So if I can piece together -- the 300 basis point drop you see sequentially, but normally, you see 100-basis point second half versus first half.

Second half versus the first half that is generally what it has been.

So there should be a pretty steep uptick here in the fourth quarter?

I'm not ready to predict that. But we need to improve to hit our targets.

It's implied in your guidance anyway. Okay. And then Nick, the $2.5 billion target for 2017, given all the FX move and the descents landscape, do you have a new thinking on that number? I think $2.5 billion is a high bar to be trying to set yourself up for. So I am curious, on a FX adjusted basis, as you sit here today, what is it that you see for 2017?

I would start by saying we feel very comfortable in today's rates on our 2020 vision of $3 billion. When you look at 2017 and you look at the drastic change in FX, we have not gone back and really done the math, but it would be very stretch to think we could get there at current rates. Now if you assume build rates hold, as our customers are predicting and at the rates when we made the 2017, we're still on track.

And we will go next to John McNulty of Credit Suisse.

This is actually Matt Freedman on for John. So Space & Defense is usually lumpy from quarter to quarter, but the numbers all year have been a bit disappointing. What is driving that and how should we take about things normalizing, potentially starting to show signs of growth into 2016?

When you look at Space & Defense, it clearly is not where we thought it would be. And as noted, we have taken our guidance from being stable to being down 7%. If you look at the top 10 programs that make up 60% of it, those have actually held and have generally been where we thought and actually has been a slight growth. It is all the other smaller programs which tend to order and campaign. Those they tend to be the most lumpy because there is not day-to-day volume-driven, where you see consistent ordering patterns. If you look out in the future Space & Defense -- not that we're going to give guidance for 2016 and beyond, but there are a number of new helicopter programs that are coming onboard. And as those ramp up over time, that will certainly help our growth. That includes a number of programs from Sikorsky, including the S-76D, the Chinook, the CH-53K, you've got some Airbus helicopters and you've got the [indiscernible]. Relentless, just to name a few. So there is reason to be optimistic going forward, but how long it will take before those ramp up is another story.

And the buyback looked a little more aggressive than we expected. Why the more aggressive approach in spend in the quarter?

It is really due to a couple of things. First, as you know, we increased our borrowing capacity with the issuance of $300 million in bonds. That's one. And second, we have communicated that we believe we were under-levered, being in the 1% to 1.1% range and we wanted to get our leverage up. So in essence, we did the bonds and we upped our leverage to about 1.4% which is much more comfortable and closer to the internal targets we set.

And we will go next to Steve Levenson of Stifel Nicolaus.

Is the pull-forward on the capital expenditures indicative of demands from your top programs or your fastest-growing programs, such as A350 and LEAP engine, that things are on schedule or maybe even ahead there?

Things are on schedule. Well, let me back up. First, it is absolutely driven by the new programs. It is driven by programs that we're on contract and for the most part sole-source to provide capacity to supply. Whether there is a pull-ahead, I don't know that there is a pull-ahead, but we're feeling very comfortable with respect to the major growth programs being on track. And as you saw in Q3, they performed very well and grew as we had predicted.

And can you talk about bid and proposal activity? What things are out there right now that are meaningful that you are still going after?

I can go down the list. We're still working hard on the 777X with Boeing, on airframe, nacelle and engine components, as well as GE. We're working the A330NEO which will afford us opportunities on engine, nacelle and other potential secondary components. The NEO is getting close. We're still on track to increase our content by 50%-plus over the legacy. It is doing well. And then the MAX is a little further behind, I think it plans to go into service in 2017. So we have a few more efforts that are still being worked on the MAX, other than that, new technology for the next new platforms, lots of development in R&T.

In relation to the NEO, as that will be a Rolls-Royce engine, is a possible that will be the first one to see composite blades and cases? Or do you think that is further out?

Well, as you are probably referencing, is, we have development blades with Rolls in cases that are in development today. Whether or not it makes it NEO would be pretty aggressive, so I'm not going to get ahead of Rolls or our customer on that. It is probably further out than that, Steve.

And we will go next to Gautam Khanna of Cowen and Company.

Perhaps for Wayne, if you could walk through some of the sling items in Q4 that are going to give you the incremental margin and free cash flow snapback that's implied in the annual guidance? And then I have a follow-up.

Okay. With respect to earnings, remember, operating from leverage is a relative thing and that is how you compare to the fourth quarter. So if you, for example, look at last year, SG&A and R&T between the third quarter last year, it went up about $8 million. So one, we have an easier comp, with respect to that. Mainly what we need to do is, we need to hit our sales and we need to continue to hit our operating numbers and we should be able to get back there. With respect to cash, that is a challenge. We're, as you know, $85 million down after nine months. Last fourth quarter of last year, we did $60 million of free cash flow. Our business is seasonal. We tend to ramp up in the first quarter on working capital and tend to ramp down in the second half of the year, particularly as you get into the month of December and everybody seems to tend to wind down. Our receivables in general are pretty clean and so that will just move the sales. Nick talked a little bit about inventories in terms of line-of-sight of where we can improve on. And we need to do all of those things just to hit our target.

Okay. And just to elaborate on the sequential change in SG&A, R&D and ERP, what do you expect that to be Q3 to Q4?

So if you look first, this last year -- last year's third quarter happened to be low and fourth quarter happened to be, I'll say, a little high. If you look at this year, I think expect it a little bit more normal, that the quarters will be similar. But we won't get too specific in the guidance. You're not going to see a big reduction in IT spending, if that is what you're asking.

Yes, that is what I am asking. It's going to be relatively flat sequentially between those--

Yes, correct.

Okay. And if you could just comment on two things, how do you feel about A350 inventory these days? Are you seeing any evidence of excess among the many supply chain customers that you sell to? And I know you called out in the release weaker legacy Boeing and Airbus demand. I don't think you mentioned the 777. Are you seeing any changes to 777 material buying by your customers? Thanks

Let me start with the A350. And again, you are probably familiar with Airbus's claims that at the end of 2014, they were at three per month, targeting five per month at the end of this year and then by 2018 being at ten per month. So we ship in advance. We ship to 46 or so different customers for the A350, all of which are at probably varying points in the supply chain, as well as where they are relative to the build sequence number. Having said that, we track very closely our inventory and what our customers are pulling and feel it is very well-aligned. So feel really good on the A350, really happy with the way the program has been run over last few years and have total confidence that it will continue on that track.

777?

The 777, Boeing took that to 8.3. Again, we look at our numbers and it looks like we're shipping to that rate and see no signs of it coming down at this point in time.

So remember, Gautam, we're shipping materials and it is not going to a specific plant; it is not a part number for plane number 23. So for us, it is always a little bit hard to tell. We can go back -- and then some of our materials go in multiple programs as well. But if you look at the legacy in total and predict about just based on average build rates. The sales are about where they should be, because remember, you've got A330 build rate reductions, you've got 747s little bit of build rate reductions, you've got some seasonality in A380 dropping down a little bit and then you've got some aero body increases. And when you look at all those in total, our sales are about where they should be.

And we will go next to Noah Poponak of Goldman Sachs.

Wayne, are you able to indicate when you annualize the start of the decline on both C17 and the commercial helicopter for yourselves inside of Space & Defense?

Yes, give me one second. I think we have one more quarter, but go to your next question.

I guess the next question is, sequentially, Space & Defense stepped down from the high $80s million to the high $70s million, in millions of dollars. The question is what is the visibility into -- it seems like the guidance implies it steps right back up. I am curious what the visibility is into that happening if you are not yet quite annualizing the things that are dragging it down?

So just to be clear, the C17 really -- fourth quarter of last year was a good quarter and it dropped the first quarter this year, so it is literally a calendar year for 2015 versus 2014, is almost all the drop. And then next year going forward, it would be an easy comp for all quarters. If you think we implied in our guidance a strong for fourth quarter for Space & Defense, we did not. So I'm not quite sure about that question.

Well, to get to the 7 in constant currency, you need to be down 12 in constant currency and I guess that would -- even off of the very difficult comparison -- would leave you in the mid-to upper-$80s million.

Right, correct.

So sequentially, that's a pretty nice step up. It sounds like the third quarter just had -- you're assuming, just had a confluence of unfavorable things across the board that don't normally happen. But I don't know, it's just a nice step up sequentially, it looks like. Just trying to figure out if that's--

Yes, I've got to check your math, but we're not expecting a huge step up in the fourth quarter.

Okay.

[Indiscernible] math will work because of currency or whatever.

Maybe I will recheck that.

But we aren't expecting a big step up.

Okay. And then in the regional end business being down 20, is there anything specific you can point to there, any more color on how that happened?

When you look at that business for the first nine months, it is actually about where we expected it to be. Obviously the first half was a little higher and the third quarter a little bit lower. Most of the drop off is in the business jet side and you see a number, so some of that might be just timing and lumpiness in the third quarter. But you do see some of the more mature programs of business jets that they have run out. The new ones have not quite kicked in yet.

Yes, it is mainly Gulfstream, Bombardier and Accel [ph].

Okay. So this is what is happening in large cabin more so than small cabin?

Yes, the only reason I would say that, small cabins or small planes look to have a lot of material on them.

And then just the last one, do you have any thoughts around the timing in which you would deploy the $250 million authority?

I guess I would go back and I would say the third quarter at $100 million was probably an anomaly, specifically because of the bond issuance and the fact that we wanted to get our leverage up. Having said that, we have our priorities in going after new programs and looking at M&A and then returning to shareholders through dividends and stock buybacks, I would expect us to be a little more consistent in the market going forward and it is hard to give other guidance than that, other than we will report at the end of the quarter on what we buy.

And we will go next to David Strauss of UBS.

On 777, 777X, can you talk about how much business there is still available for you all to potentially win on that program?

Well, I don't believe anything has really changed with the structural element. And I think Boeing and Torrey may have stated there is 25% left that is under evaluation. And then you have engines in the cells, where we have very strong positions and continue to work that, David. So I don't have any numbers any better than that. But it has not changed significantly from the past couple of quarters.

Okay. Wayne, in terms of cash flow, I think at the beginning of the year, you had talked about cash taxes being $40 million to $50 million higher in 2015. Is that where we're running? And any thoughts on cash taxes in 2016?

We have actually been pretty good at successfully pushing off some of that increase to next year. I am not ready to comment on next year yet, but we have done better on the cash tax side this year than what I would have originally thought not $40 million or $50 million better, but somewhere midway.

Okay, so most likely a headwind in 2016 relative to 2015?

Yes, I mean, every year we find ways to push that out. And I'm hoping we continue to do that.

Okay. And then on FX, can you give us an update on, I might have missed this, but where you are hedged for next year? And if rates hold where we're today, what that implies for a tailwind next year?

So for this year, for 2015, in total, it's about a $0.05 benefit versus 2014, in terms of EPS. And that has not changed in the quarter. For next year, we're now about 70% hedged. That will have another small tailwind next year. We will declare what that is when we give the 2016 guidance. But it will be a tailwind.

And we will go next to [indiscernible] of Bank of America Merrill Lynch.

So the question that I have actually is more on the future strategy that you look at when you think about Hexcel as a company. When you look at the current programs that are in development, it looks like maybe the peak in content for carbon fiber composites would be the A350. Because then you look at the 777X, it looks like it's got an aluminum fuselage. When you think about the future of your company, do you see yourself as just a composite company and therefore growth in the future will come from adjacent markets using composite technology? Or do you see yourself more as an advanced materials company that will have to invest in future advanced materials in order to grow?

Well, we certainly think composites are advanced materials. So I when we look at our growth plans, we think of technology to best meet our customer future needs and obviously, predominantly driven by aerospace for light-weighting for material strength, for corrosion resistance. But at the same time, looking at industrial opportunities and applications in wind, automotive, recreation sports and so on. From a portfolio, we're really focused on the advanced composites. We do have our eyes open and looking at opportunities to enhance our portfolio with adjacencies, either for the vertical supply chain or for technologies that may provide higher temp properties or allow us to expand our technologies further in the current core markets we participate in or potentially even open up new markets. So we're an advanced materials company. Composites are primary and that is really our focus for our investment for the next-generation engines, wings, fuselage, et cetera.

And so can you discuss your M&A focus and if there are parts that you would want to fill into your portfolio or perhaps other advanced materials capabilities that you would want to have in-house?

So again, I am going to avoid getting into specific company names or technologies. But I can tell you, we have a very active pipeline, where we look at our R&T opportunities with our sales and marketing based on customer needs going forward. There are technologies out there that are very interesting to us that we continue to look at and evaluate. And I hope you recognize that it would be inappropriate for me to go into more detail on timing or what those companies might be. But yes, we're very actively looking at opportunities in the M&A world.

And we will go next to Ken Herbert of Canaccord.

Wayne or Nick, I just want to be sure. The ERP pull-forward -- does this imply that you are completely done with this investment in this calendar year? Or does some of this spill into 2016?

The pull-forward, again we had laid out a very manageable low-risk approach, where we did not do a big bang, we basically went site by site to make sure we did pilots and trials and worked out the bugs before we went into sites. And as we started getting close, it became very obvious to us that there was a big advantage if we could go faster. So going faster in getting the systems implemented so that we can talk, regardless of what plant in what country around the world our materials are flowing, is step one. That is the big push for this year, to get the systems completely implemented at all of our manufacturing and administrative sites. That will be done. Second part will be now to basically refine it and take advantage of the system capability to improve our supply chain efficiency and velocity. So as Wayne said, the costs are going to go down and we'll start recognizing benefits, but it does not happen overnight.

Okay. So the way to think about it is, barring any setbacks or anything unforeseen, you should recognize obviously incremental benefits into 2017, but you should see a lot of it into 2016, with how you just described it.

I always get a little nervous. I don't want people to think the $8 million is going away. Some of it will, but not all of it. We're investing in -- there is more than just ERP systems, right? There is quality, there is HR, there is maintenance, there is a whole variety of systems. So we're always spending money and all those come with ongoing maintenance costs. So we expect to spend less, but I just don't want you to think it's $8 million less.

Okay, that is reasonable. And then if I could, just on pricing for your third-party carbon fiber sales, are you seeing any incremental pressure there? Is that still holding up well with some of what is happening in some of your other end markets outside of the Aerospace? Are you seeing any pressure there or is that holding up? Or you may be seeing an opportunity to perhaps get a little better pricing on your third-party sales?

If you think about most of our third-party sales that matter to us, they are in the Aerospace under long-term agreements. There is not spot buys per se. In the industrial market where there is more, you will see the spot buys and more volatility on price. We're not a huge participant. In fact, we're, in many cases, the buyer of that. So I would not comment on anything with respect to that market.

And we will go next to Mike Sison of KeyBanc.

I think you mentioned that your sales outlook for the year for 2015 was $35 million less due to Space & Defense. You knew the C17 was coming this year. Is that $35 million representative of the weakness in the commercial copters programs?

It is, it is. The C17 -- we have given through the three quarters at $10 million and it's probably going to be about $13 million for the full year.

But that was [indiscernible] to your point.

Right, so does that look to come back potentially longer-term or do you think that's in a structural decline from the energy prices and stuff like that?

We certainly expect the lumpiness to come back with respect to the small programs. Our positions have not changed, market shares have not changed and we have very good positions. Similarly, Wayne talked about the new programs that we're on with respect to Space & Defense, on helicopter as well as other platforms. And we feel good about that. The question is how soon will oil and gas and some of the commercial rebound? And we're still seeing weakness and believe weakness will continue into 2016.

So fundamentally, longer-term, this mid single-digit growth that you talked about at the Analyst Day for the segment is something that you think is still possible longer term?

It is. We're not giving up on that.

Okay. And last question on wind. Any thoughts there as you head into fourth-quarter 2016?

If you remember, our wind business is primarily with Vestas and Vestas is continuing to do well. Their backlog is in good shape. If you are just talking about looking out at the next year and a half, their backlog is solid. And we won't give specific guidance on 2016, but it looks to be fine at the moment. So when we get later on to give specific 2016 guidance, we will talk about it.

The only thing I would add is, Vestas is doing well. Vestas's backlog at the end of June was over 9 gigawatts which is close to a high for them. So that makes us feel good about where they are going and our opportunities to grow with them.