Date: Friday, November 4, 2011
Time: 12:00 pm ET/ 9:00 am PT
Purpose: American Vanguard will report financial results for the 2011 third quarter ended September 30, 2011.
Speakers: Eric Wintemute, Chairman and CEO and David T. Johnson, CFO
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MANAGEMENT DISCUSSION SECTION
Operator: Greetings and welcome to the American Vanguard Corporation Third Quarter 2011 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, the conference is being recorded.
It is now my pleasure to introduce your host, Bill Kuser, Director of Investor Relations for American Vanguard Corporation. Thank you, sir. You may begin.
William A. Kuser, Director-Investor Relations
Well, thank you very much and welcome, everyone, to American Vanguard’s third quarter and nine months earnings review. Our speakers today will be Mr. Eric Wintemute, the Chairman and CEO of American Vanguard and Mr. David Johnson, the company’s Chief Financial Officer.
Before beginning, let’s take a moment for the usual cautionary reminder. In today’s call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company’s management and are subject to various risks and uncertainties that may cause actual results to differ from management’s current expectations.
Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks as detailed in the company’s SEC reports and filings. All forward-looking statements represent the company’s best judgment as of the date of this call and such information will not necessarily be updated by the company.
With that said, let me turn the call over to Eric.
Eric G. Wintemute, President, Chief Executive Officer & Director
Thank you, Bill. Good morning, everyone, and welcome. Thank you for joining us as we report on a very successful third quarter of 2011. David and I welcome this opportunity to tell you more about current trends in our business and the prospects that we see on our horizon. I’m going to let David to give you all the details of the quarter and I will focus on the outstanding year that American Vanguard is having in 2011. As you saw in our press release, our nine month year-to-date performance is tremendous. Revenues are up 33%, net income has more than doubled over last year.
We had a game plan for 2011; it included a number of key factors which we articulated in our earlier conference calls with you. Those factors included successful integrating our new 2010 product acquisitions; improving our manufacturing utilization rates; focusing our sales and marketing efforts on profitability; capitalizing on market opportunities and maintaining financial discipline while expanding our business. I’m proud to tell you that through three quarters of 2011, we’ve accomplished all of these objectives.
We have integrated the domestic and international businesses that we acquired in the second half of 2010, despite a shortage of supply that curtailed nearly half of the Mocap business that we expected to retain in our first year of ownership. That supply issue is being addressed and we expect to raise revenues back up to the original forecasted rate. We have seen such high demand for our products that AMVACs four domestic manufacturing plants have been able to run at considerably higher rates, and thereby cover significantly more of their fixed cost.
We have focused our selling efforts on the most profitable products in our portfolio and priced any of our products that face generic competition on the basis of profitability rather than sales volume. We have capitalized on market opportunities, particularly substituting our Thimet insecticide as a replacement for Aldicarb that has been withdrawn from the market. And we have managed our expanding business with financial discipline as we generate cash and minimize our bank revolver credit line. In fact, we presently have no outstanding bank revolver debt and therefore have the full availability of that credit facility.
We’ve managed this great performance despite not being able to sell our primary fungicide product PCNB in the US and Canadian markets. Our technical, legal, and customer service teams have worked tirelessly for over a year to bring PCMB back into the market. As you know, the stop sale order was overturned by the federal courts in August of this year and we’ve been working with the USEPA to secure the new registrations and product labels that are required to resume selling. We remain optimistic that these product labels will be issued shortly and we’re poised to be able to provide this valuable product to our customers immediately.
With that overview of 2011, I would now turn the call over to David who will cover the financial and operating details of the quarter. I’ll then return for additional comments about the factors that we see shaping a bright future in 2012 and beyond. David?
David T. Johnson, Chief Financial Officer & Vice President
Thank you, Eric. As Eric has already mentioned and as you will have read in our earnings announcement, sales for the third quarter of 2011 increased by 8% to $74 million, as compared to $68 million in the same quarter of 2010. Within this number, our crop sales were up marginally to end at $64 million and our non-crop sales were up 75% to $10 million. In our 10-Q filing scheduled for later today, you will see a detailed description of sales by product groups.
In summary, insecticides recorded sales up 4.5 million or 26%. This group included the newly acquired products, Mocap, Nemacur and Aztec 2.1. Our herbicides were down $1 million, or 3%, with strong performances from our herbicides and fumigants, offsetting reduced sales of PCNB. Within crop, our Other sales were down $2.4 million, primarily as a result of Folex sales, which were strongly in the second quarter as compared to the prior year. In 2010, the situation for this product line was different. Key inventory was supplied to us late and sales therefore occurred in the third quarter, which is late relative to the crop season. Our non-crop sales were up mainly as a result of strong demand for our mosquito products, following warm wet weather in the eastern section of the Gulf Coast states.
I am pleased to be able to report that our newly acquired brands have continued to perform reasonably well, despite some supply challenges. Sales of these products accounted for 7% of the 8% quarter-on-quarter sales increase I mentioned a moment ago. Of course, most of these product lines were acquired in the fourth quarter of 2010. Our international sales are also increasing in line with expectations and were 31% quarter-over-quarter. Our organic sales accounted for 1% of the quarter-on-quarter increase. This performance was impacted by the continued hold on PMCB sales, the drought effect in cotton, and sales of product line Force® that happened in Q3 last year and is forecast to sell in Q4 this year.
Our gross margin in Q3 was 42% of net sales as compared to 37% of net sales for 2010. This was driven by both an improved mix of sales and better factory manufacturing performance. In particular, 18% of our sales were newly acquired products that generated better than average gross margin performance. We continue to record very strong sales of Thimet® product line following the withdrawal of its competitive products. Our Counter® product also continued to perform extremely well as the market recognizes its value as a leading nematicide.
This is the season in which we typically record high sales of our fumigant products and this year we achieved a 7% sales increase as compared to last year. We continue to manage our three product lines identified as having generic pressure in a manner aimed at taking business only when customers understand the better value proposition and customer service offered by the company and its brands. This resulted in reduced sales, but slightly higher absolute gross margin. The third quarter manufacturing performance continued the strong performance this year as compared to last with improved recovery of our overhead manufacturing costs.
Operating expenses increased by 20% as compared to last year. This supported an overall increase of 8% in sales with substantial increases in new products and export business. Included in this cost we have amortization expenses associated with newly acquired products; higher product defense/registration costs; further expansion of our field-based product stewardship activities; the addition of new people primarily to sales, technical and regulatory teams to improve resources focused on building both organic sales and sales of new products; increased freight costs in absolute terms and as a percentage of sales because this quarter featured high sales of our biggest volume product we generally see increase freights costs at this time of year. This year we also have the higher cost associated with growing international volumes. Our cost overall ended at 9% of sales as compared to 8% this time last year with increased incentive compensation accruals, reflecting the substantially improved financial performance.
The one key metric we track is operating expenses as a percentage of sales. This quarter we moved up a little ending at 31% as compared to 28% this time last year. As I will mention in a moment, this metric is on track on a year-to-date basis, but is obviously something that we are looking at closely. The net result of these dynamics is an operating income up 26% or $1.7 million at $8.2 million. Our interest expense, as a percentage of average debt, improved to 5% as compared to 5.8% this time last year.
The executive team continues to focus on our cash performance. We ended the quarter with a reported cash position of $3.8 million and a zero balance in our revolving credit line. This was significantly better than the possession this time last year when we had $1.2 million in cash and revolver debt of $9.8 million.
Notwithstanding that favorable comparison our cash was down as compared to the level reported at the end of Q2 of 2011. This was caused by one receivable of $6.5 million that was expected on the last day of the reporting period and in fact was received the next working day. When reviewing the balance sheet, you will notice that our inventories are almost unchanged from the end of Q2 and only slightly higher than last year. Our payables are slightly down as compared to this time last year. Our receivables are 52% up. There are several factors; the $6.5 million payment that arrived one day late and stronger sales in the last four months driving high forecast collections for Q4.
Income before tax improved from $5.7 million to $7.3 million, an increase of 28%. Our effective income tax rate is flat as compared to the same quarter of last year at 36.6%. This resulted in improved net income performance, which ended up 28% at $4.6 million or $0.16 per share as compared to $3.6 million or $0.13 per share during the comparable quarter last year.
Now, I would like to turn my attention to a brief review of the financial performance for the first nine months. Year-to-date our sales were up 33% at $222 million versus $167 million this time last year. Of the 33% increase, 20% relates to sales from new acquisitions concluded in 2010 and 13% relates to organic growth of our established brands.
Our manufacturing performance in the first nine months has improved, with a 40% improvement in overhead recovery in our factories, which drives slightly more than 1% improvement in gross profit performance.
While our operating costs have increased in absolute expense as a percentage of sales, they have actually decreased from 30% to 28%. Interest expenses in line with the first nine months of last year with a slightly higher average borrowing level offset by a lower interest rate, and income before tax has improved from $11.4 million to$ 25 million. The income tax rate has also improved from 37.7% to 37.2% which reflects the effects of domestic manufacturing, R&D credits, and state apportionment elections. Net income is 121% higher at $16 million or $0.56 per share, as compared to $7 million of $0.26 cents per share over the comparable period last year.
I am also pleased to be able report that given all the factors I have detailed, I can continue to report that our liquidity is looking very strong. Under the most restrictive bank covenants, we could currently borrow up to the limit of our revolving line, in other words, $75 million.
Looking forward to the final quarter, our latest sales forecast is encouraging and indicate strong sales through the end of the year and into 2012.
Now back to Eric.
Eric G. Wintemute, President, Chief Executive Officer & Director
Thank you, David. I must tell you I’ve never been more enthusiastic about American Vanguard’s future than I am today. The opportunities that we have to grow our business over the next few years are extraordinary. Let me touch on them now.
As you recall on June 21st we announced an agreement with Monsanto Company to co-market our post emergent herbicide IMPACT as part of the Roundup Ready PLUS weed management platform. Under this multi-year agreement, IMPACT will be listed as an endorsed product in the Monsanto program and promoted by the sales and marketing forces of both organizations. As a result of this partnership, demand for IMPACT should expand over the next few years. This collaboration has been very well received in the marketplace.
In one of our most important product categories granular soil insecticides, it now appears that AMVAC is particularly well-positioned to take advantage of some very promising industry trends. In corn, we have a range of granular soil insecticide products for customers to choose from including Aztec®, SmartChoice®, Force® and Counter®, available in both bags and returnable closed delivery systems. With this broad offering, AMVAC is without questions in most capable corn soil insecticide supplier in the United States.
For several years, we have maintained and demonstrated through field testing that by using both trait seed and our chemical insecticide products, it is possible to achieve yield enhancement beyond what can be achieved by using genetically modified seed alone. We saw extraordinary growth in 2011 and the publication of potential trait vulnerability by several universities, coupled with increasing corn-on-corn practice, has driven awareness of this use. AMVAC’s “Best of Both Worlds” message is being embraced in the corn fields of America.
With the corn commodity prices at high level, there is a very attractive benefit/cost rationale for using both technologies to maximize harvest output. So standby, the return of corn soil insecticides is at hand. A market that shrank from $275 million in 2005 to barely $75 million in 2009 is coming back, as we have seen it in our 2010 and 2011 sales.
And the ground swell of demand for 2012 and beyond is causing us to ramp-up our production capacity of these products. At our Axis, Alabama plant, we are now running 24x7 to accommodate this demand, and our Hannibal, Missouri plant will become a hub of Midwest corn initiatives. This facility is positioned ideally with 500 miles of 80% of the U.S. corn market. We expect to have a new granular plant running in Hannibal in the third quarter of 2012 to facilitate this growing market. This is AMVAC’s sweet spot and we have the range of products necessary and the safest most efficient cost delivery systems to take full advantage of this opportunity.
In other crops, our granular soil insecticides are growing as well. Our proprietary Thimet® has substantially increased its market presence as a preferred replacement for our competing product which has been withdrawn from the market. Thimet is used in peanuts, sugarcane, potatoes among other crops.
Our Counter® is also used extensively in corn, sugar beets and bananas as a nematicide. Our Mocap and Nemacur will continue their domestic and international growth on potatoes, bananas, coffee, and a number of other crops. And other insecticides such as Bidrin for cotton and Dibrom for mosquito control, our market position is excellent and our prospects are very good. Of note, we have positioned Dibrom for the citrus market in Florida to help in combating the deadly citrus silid. We expect to see strong sales in the 2012 season for this product.
We are very excited about the imminent registration and commercialization of our potato sprout inhibitor SmartBlock®. We expect registration in U.S. and Canada by the end of this year and we will be introducing this product during the early months of 2012. We’re also expecting to submit our dossier to the EU later this month. The excitement over this compound continues to mount and we believe that will be a significant contributor to AMVAC’S growth in the coming years.
At the end of last year, we indicated that the addition of newly acquired products would allow us to increase American Vanguard’s revenues by approximately 25%. I’m confident that we will exceed that goal when we report our final year-end results to you early next year.
We look forward to 2012 where our success will be driven by these key factors; very, very strong demand for granular soil insecticides in corn and other corps; the reintroduction of our PCNB® fungicide business in the United States and in Canada; an increased supply of Mocap® that will allow us to fill the strong demand for that product; greatly improved factory product utilization that will absorb fixed overhead costs; the introduction of SmartBlock® and the expansion of the Nuvan® pest strip business.
We have great confidence in our ability to identify and position ourselves to capitalize on many growth-oriented strategic possibilities. We hope that you share that confidence and benefit from our continued success.
And now we’ll be happy to entertain any questions you may have. Operator?
QUESTION AND ANSWER SECTION
Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Daniel Rizzo with Sidoti & Co., Please proceed with your question.
<Q – Daniel Rizzo>: Hi, guys. I sort of missed some of the details on it, but could you just go over what would happen – what’s the issue with Mocap again for the quarter?
<A – Eric Wintemute>: Yes, Mocap is a product that is supplied to us under a supply agreement from Bayer and the production rates that we had hoped to achieve…and we had hoped to have in supply…have not met the levels that we were expecting.
So, as such our level of sales of Mocap, the material we had available is down considerably from what our original expectations were. The positive piece is that it’s caused us to focus on the most profitable Mocap markets, and so from a gross margin standpoint it wasn’t nearly as bad an impact.
<Q – Daniel Rizzo>: Okay. Thank you for the clarification. And then, I’m wondering if you have any update on PCNB, how are you...
<A>: So we – as I mentioned, the stop-sale order was over-turned in August. We had labels that under the re-registration required changes to them, and those were submitted back in 2008. Because the stop-sale EPA did not process those changes and it actually those labels which are included many of the uses that are commercially viable ones for us, expired actually in January of 2011. When the stop-sale order was lifted, EPA began working to prove these labels and that process is though it’s been frustrating taken much longer than I think any of us anticipated, we believe is it the end that we should be back in market very soon.
<Q – Daniel Rizzo>: Okay. I don’t know if you can quantify, was that mean by the end of the year or...
<A>: We would be disappointed if we’re not in the market this month.
<Q – Daniel Rizzo>: Okay. Well, that’s great. And then finally, you indicated that some of the higher frequency you had was just due to international sales and – you have that – well, I would imagine that those high free costs are going to continue there.
<A>: Yes. Although it is aggravated in this quarter by selling our highest volume product, which is much more expensive to freight than the average product. That’s taking – and which again is kind of a third quarter and fourth quarter products that we’re – we’re shipping it in third quarter as well. So it’s just high-volume products.
<Q – Daniel Rizzo>: Okay. Thanks, guys. Nice quarter.
Operator: Our next question comes from the line of Jonathan Richton with Imperial Capital. Please proceed with your question. Mr. Richton, your line is live.
Our next question comes from the line of Jay Harris with Goldsmith and Harris. Please proceed with your question.
<Q – Jay Harris>: Eric, just to make things a little clear, the labels you acquired last December were in my mind supposed to contribute let’s say $50 million plus in revenues this year. Did you – and they haven’t largely because I guess the Mocap active ingredient shortfall, did you indicate or mean to indicate that you will still ship that amount whatever it should be by December 31st and therefore shipments that should have taken place in earlier quarters will still be made in the last couple of months this year?
<A>: Well, the $50 million plus is actually occurred in – now we are down in Mocap revenue, our Nemacur was pretty close to target, up from what we had anticipated, the Folex and Aztec and also – the bag businesses also up from what we anticipated, so overall we will exceed that level. The Mocap, I think we’ll have a stronger fourth quarter, and as we move forward we think we’ll have more supply and a position – part of it is timing. Once you miss the season, it’s kind of hard to catch-up. So, that said, this fourth quarter and first quarter shipment of Mocap I think will be stronger than what we saw in last year.
<Q – Jay Harris>: Just to clarify a little more, if these labels were supposed to have generated $52 million bigger number out of the year spread evenly over the four quarters you basically only had – I don’t know $5 million plus from those labels in the September quarter. So how do you get up to whatever that number should be, $50 million or so for the full year, are you shipping more of the other two products than you originally intended?
<A>: No, I don’t know that you got spread equally over the years probably not the best way to do the math on it. So maybe a best way to say it is we anticipate being over that volume third quarter of those products Mocap wasn’t particularly strong but I think Nemacur hits the number of levels and Aztec we didn’t position any Aztec in third quarter and there was strong sales attributable.
<Q – Jay Harris>: All right. Let’s go on corn insecticide. Do you have any metrics that you can share with us on the utilization of the installed base of smart box in 2011 and what do you expect to happen to the installed base in 2011 and beyond and what should happen to utilization rates as well?
<A>: You’re talking about the new systems we put into the market?
<Q – Jay Harris>: Yeah, well there is installed base in this year, what roughly were the utilization rates and what do you think will – how many new systems will you put into the market for next year and what you think it will happen to the utilization rates?
<A>: Okay. And so we’re in excess of 400 new systems in 2011. We expect to be close to 800 systems in 2012 for that reason. We saw our sales as strong as they were did not reflect the actual usage and when we’ve done our EDI report which is the electronic data input from retailers to growers. That was a 70% from 2010. So inventories got pulled down and through this – this was prior to the any universities coming out and questioning the traits and then I want to say that I’ve no reason to believe that that is a real issue, but it certainly has reinforced our message of getting people aware of the best of both the world’s concept. So we see huge increases for 2012 season.
<Q – Jay Harris>: Right. And you added to the 400 to the installed base in ‘11 and are proposing 800 in ‘12 is that the way I should use those numbers?
<A>: That’s correct.
<Q – Jay Harris>: Okay. All right thank you.
Operator: Our next question is from the line of Brad Evans with Heartland Funds. Please proceed with your question.
<Q – Brad Evans>: Good morning everybody.
<A>: Hi, good morning Brad.
<Q – Brad Evans>: Congrats on another nice quarter.
<A>: Thank you very much.
<Q – Brad Evans>: Very pleasing to see. I was hoping get a little more information on your thoughts on the impact as we look out to next year and if I have the numbers correct I think Roundup is applied on roughly 40 million of roughly 93 million acres of corn acreage is that correct?
<Q – Brad Evans>: Do you have with some of your actions in terms of trying to increase supply of impact, how many acres do you feel as a reasonable estimates that you’ll be attached to on Roundup next year?
<A>: Well we have some limitation on supply for 2012 with the material and the channel, and what we have we’re probably able to go on an additional 33% acreage from what we did in 2011. We had our position for considerably more for 2013 and that – those sales will begin as we position product in the fourth quarter of 2012.
<Q – Brad Evans>: Just to refresh memory, you – IMPACT was exposed to how may acres a quarter with Roundup last year for ‘11?
<A>: It was around little under 3 million acres, just about 3 million.
<Q – Brad Evans>: Okay. So it sounds like you’ve been able to maybe even improve on our outlook for IMPACT on the Roundup side for 2012 with something – a little better than you previously thought?
<A>: Well, we’ve kind of gone through and seen what’s been in channels and what our current position is with product, and I think that gives us some – the ability to people manage their inventories correctly to increase the acreage that would go down in 2012, yeah.
<Q – Brad Evans>: Do you have a thought longer term what the upside is for IMPACT as it is – as it pertains to its attachment to Roundup. It sounds like your commentary would imply that the there is a ground swell of awareness, that’s a very positive I guess.
<A>: That’s definitely true. We’ve – this would be fairly confident that material that we have all we used and that we certainly could have used more material. All the metrics for Monsanto look strong. Giving a number, I don’t think we’re prepared to give that at this time, but we – we think it will be up considerably as we prepare for the 2013 year.
<Q – Brad Evans>: Okay. Just two other questions and it’s all that you’re seeing fairly broad based strength across all of your products and I guess the one area where you might see a little bit of headwinds in 2012 would be on the Bidrin side as it pertains to cotton, is that correct?
<A – Eric Wintemute>: Well we had a – we’ve had a strong year in 2011. It did taper off as with the droughts positions, but I think we’ll have a strong sales position in 2012. I think those acres assuming they don’t go drought again, they’re going to need insecticide to cover them and so we think we’re forecasting a good year for 2012.
<Q – Brad Evans>: That’s very encouraging. Last question, I’ll get back in the queue. The underlying demand that you’re seeing, it sounds really solid does that – does that allow you to get when you’re thinking about raw material costs versus pricing as it – are we at a point now where we have – we’re able to – we’ve caught up to those pricing pressures out of raw material side. Is that a fair statement?
<A – Eric Wintemute>: Pretty much we are laying out our programs now. We’ve taken our soil insecticide business some healthy price increases and so we’re pleased with we’ve been able to position our products.
<Q – Brad Evans>: Okay. Well, congratulations. Very exciting. Thank you.
<A – Eric Wintemute>: Thanks.
Operator: [Operator Instructions]. Thank you. Our next question is from Jay Harris with Goldsmith & Harris. Please proceed with your question.
<Q – Jay Harris>: Eric, I wonder if you share with us the Bidrin revenues that were lost because of the drought in Texas.
<A – Eric Wintemute>: Well, I don’t know – I’ve lost. As for as sales, we positioned product that we thought would move that didn’t move, so there were sales that didn’t occur and there are some inventories there as well. So I’m not sure are looking for an amount of gallons or what could have been...
<Q – Jay Richard Harris>: Well, dollars actually.
<A – Eric Wintemute>: Either...
<Q – Jay Harris>: Dollars, in other words, how much more would have sold if you had normal moisture in Texas?
<A – Eric Wintemute>: It probably would have been another $10 million.
<Q – Jay Harris>: So that’s an indication of a potential upside for 2012?
<A – Eric Wintemute>: Yeah. I mean, it depends on where we see cotton planting for 2012. I’m frankly surprised that cotton prices haven’t climbed more, in fact off some, so – but I all indications are will be a strong cotton year next year, so.
<Q – Jay Harris>: And what kind of revenues will a turf label on PCNB create for you.
<A – Eric Wintemute>: It’s in that $10 million range as well.
<Q – Jay Harris>: Well there is a lot of respective upside assuming climate and EPA.
<A – Eric Wintemute>: Permitted growth. Yeah that’s correct.
<Q – Jay Harris>: All right thank you.
<A – Eric Wintemute>: Okay.
Operator: Our next question is from Brad Evans with Heartland Province. Please proceed with your question.
<Q – Brad Evans>: Its sounds like the fourth quarter should be of pretty strong cash flow quarter in lieu of the working capital adjustments that are forthcoming in the fourth quarter is that – is that fair?
<A – Eric Wintemute>: We’re working towards that.
<Q – Brad Evans>: Okay. Good work with that. The M&A pipeline, Eric would you just maybe just expand on that a little bit in terms of just the activity that’s in the pipeline in terms of orphan products that might be attractive to you without getting into specific of course, but what is the pipeline look like today?
<A – Eric Wintemute>: Well again we’re looking in the mean time we’ve got products that were assessing there are additional products that we’re aware of that are in the process of or going to be positioned for development over the next year, some of which I think are very attractive to us. So I think the marketplace for continued acquisitions looks sound.
<Q – Brad Evans>: Great. Good luck, thank you.
<A – Eric Wintemute>: Thanks.
Operator: Our next question is from the line of Jim Bartlett with Barlett Investors. Please proceed with your question.
<Q – Jim Barlett>: How do you characterize the outlook for the gross profit margin next year?
<A – Eric Wintemute>: Well yeah we’ve – yeah we’ve made a concerted effort and moved the margin back over the 40% level. I think the margins look healthy. We’re not going to back off of that position. So I think the margins look certainly healthy going forward in 2012. Caveats to that could be if there is more and more cap available, some of the markets that we did not service in the 2011 due to availability supply with the – would bring margins down a little bit in some of those markets but I think we got a target to keep margins well above 40% for 2012.
<Q – Jim Barlett>: And on the operating expense side?
<A – Eric Wintemute>: David.
<A – David Johnson>: Well, we’re currently tracking year-to-date at 28% and I think that was probably a realistic focus to next year.
<Q – Jim Barlett >: Thank you.
Operator: We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.
Eric G. Wintemute, President, Chief Executive Officer
Okay, well on behalf of American Vanguard, I certainly like to thank you all for joining us on our third quarter conference call and we look forward to updating you with additional news in the next coming months and of course our conference call with you on year-end results in the beginning part of 2012. Thank you very much.
Operator: Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.