CIRCOR International, Inc. (NYSE:CIR) Q1 2018 Earnings Conference Call Transcript
May 02, 2018 • 09:00 am ET
Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Jeff Hammond from KeyBanc. Your line is now live.
Hey, this is Trish Gorman on for Jeff Hammond. Can you guys talk a little bit more about the key issues impacting Energy margins, and help us understand the gating factors for improvement as well as timing around when we can expect to see that come through in results?
Scott A. Buckhout
Sure. This is Scott. Good morning, Trish, how are you? Let's start with the Energy margins in Q1 and then I'll talk a little bit about the outlook, and how we see this playing out in Q2. There were really three primary situations that pushed Energy margins down in the quarter. The first was in our Distributed Valves business. As we've been ramping up that business to meet higher and higher levels of demand, we've run into some situations that have cost us on the margin side.
The first in Q1, as we had three days of shutdown, where we had no production in Oklahoma due to weather in the first quarter, which of course affects our volume and margins. And we also have been struggling with ramping up labor; bringing in labor and efficiently ramping up in a productive way in this business. It's a tight labor market in Oklahoma City, as you can imagine with the whole industry booming right now, we've been having trouble getting qualified labor and getting them trained and getting them up and running.
We've -- the second -- I guess, looking forward in this business, we've changed the shift structure, we've changed the way we hire and the type of people we're bringing into the business in Oklahoma City, and we're seeing a lot more stability in April versus what we start -- saw in Q1. The second part of this is Mexico. We are ramping up Mexico and that's working very well. You should expect to see Mexico's output double between Q1 and Q2. So we expect that the margin hit that we took in Distributed Valves and Energy in the first quarter will largely -- the majority of that will be resolved as we go into the second quarter. To quantify it, we took about a 200 basis point hit at the Energy level for the inefficiencies I just talked about in Distributed Valves.
The second issue we had in energy was in Engineered Valves. We had a loss in the Engineered Valve business in the quarter. As you might know from previous calls, we restructured that business in the first quarter. We completed the restructuring in the first quarter that hit us -- that for about a 100 basis points in Q1. We expect that to improve going into Q2. We still anticipate a much smaller loss, but we still anticipate a loss, but a much smaller loss in Q2.
And then the third piece would be Reliability Services, the new business that we acquired