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EnPro Industries Inc (NPO) Q4 2018 Earnings Conference Call Transcript


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EnPro Industries Inc (NYSE: NPO)
Q4 2018 Earnings Conference Call
Feb. 14, 2019 , 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to EnPro Industries 2018 Fourth Quarter and Year-End Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)

Please note this conference is being recorded. I will now turn the conference over to our host, Mr. Chris O'Neal, Senior Vice President, Strategy, Corporate Development and Investor Relations. Thank you. You may begin.

Chris O'Neal -- Senior Vice President, Strategy, Corporate Development and Investor Relations

Thank you, Diego. Good morning and welcome to EnPro Industries' quarterly earnings conference call . I remind you that our call is also being webcast at enproindustries.com, where you can find the slides that accompany the call. Steve Macadam, our CEO; Marvin Riley, our COO; and Milt Childress, our CFO, will begin their review our fourth quarter performance and our outlook in a moment.

But before we begin our discussion, I'll point out that you may hear statements during the course of this call that express a belief, expectation or intention, as well as those that are not historical facts. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements.

These risks and uncertainties are referenced in the Safe Harbor statement, included in our press release and are described in more detail along with other risks and uncertainties in our filings with the SEC, including our Form 10-K for the year ended December 31, 2017. We do not undertake to update any forward-looking statements made in this conference call to reflect any change in management's expectations, or any change in assumptions or circumstances in which such statements are based.

Our earnings release and conference call presentation materials contain additional disclosures regarding the following; first, non-GAAP financial information; second, collective references to EnPro and our subsidiaries; third, the deconsolidation of Garlock Sealing Technologies or GST and OldCo, LLC or OldCo, during relevant periods until the reconsolidation effective as of July 31, 2017, and finally, pro forma illustrative financial information for the year ended December 31, 2017, presented as if GST and OldCo were reconsolidated for financial reporting purposes throughout that period.

These disclosures are important to understanding comments we will make on today's call and we urge you to read them carefully. Consolidated results for the period after July 31, 2017, reflect the reconsolidation of GST, its subsidiaries and OldCo as a result of the completion of the Asbestos Claim Resolution Process. Pro forma results for the periods prior to July 31, 2017, have been prepared as the GST and OldCo had been reconsolidated on the basis described in our earnings release.

Most of the difference between consolidated and pro forma segment information is in Sealing Products with only small differences in Engineered Products and Power Systems stemming from foreign operations of those segments included in GST foreign subsidiaries. We believe that investors will find comparisons of consolidated results for 2018 to pro forma results for 2017 to be most illustrative of the year-over-year performance of all EnPro's businesses. For clarity, throughout this call, we will compare consolidated results for full year 2018 to pro forma results for the full year 2017.

Finally, I want to announce that we will be hosting an Investor Day on Wednesday, March 13th, at the Parker New York Hotel. During the meeting, we will provide a comprehensive review of EnPro and each of our operating divisions and we will share our strategy for enhancing the value of the Company. We believe that the day will be informative for anyone who wants to understand our business and our strategy better. The presentation will start at 9 o'clock in the morning and will also be webcast at enproindustries.com. I hope you will join us.

And now, I'll turn the call over to Steve.

Steve Macadam -- President and Chief Executive Officer

Thanks, Chris. Good morning, everyone, and thanks for joining us today. Before we jump into the quarter, I'd like to kick off our time today by stepping back and reflecting on our full-year results. I'll then turn the call over to Marvin and Milt for additional comments on our performance and a discussion of our fourth quarter results. All in all, as I reflect on 2018, EnPro had a great year with many accomplishments. With the exception of two very specific and isolated problem areas in Sealing Products, namely our exit of the gas turbine business and challenges in our brake products group, our business -- businesses posted strong sales and earnings growth.

Excluding those two business units, our total sales and adjusted EBITDA grew approximately 11% and 10% respectively over 2017, as a result of favorable market conditions, success launching new products, winning new customer programs and diligent cost control. The semiconductor, food and pharma, aerospace, heavy duty tractor and trailer build, metals and mining, refining and processing, oil and gas and marine engines in aftermarket parts and service, all performed strongly during the year.

In Engineered Products, full-year sales grew by 7.4% and EBITDA margins improved 120 basis points versus last year. We introduced several new products in CPI, including the new Emissions Guard suite of products. We also advanced our development of new coatings technologies to our joint venture in GGB and achieved operational and SG&A cost improvements in the segment.

In Power Systems, despite being capacity constrained due to the production of engines for the EDF program, our business delivered a record $37.2 million of EBITDA. This included $4.2 million of negative impact related to the EDF program and $7.3 million in R&D expense for the continued development of the Trident OP engine. Given a robust backlog at the end of the year, we believe Power Systems is positioned for another year of strong results in 2019.

In Sealing Products, the vast majority of business performed very, very well. As I mentioned, we had a couple of very specific issues that posed challenges for us and Marvin and Milt will describe those in a minute. The rest of the business, which represents nearly 90% of Sealing Products revenue, benefited from market tailwinds that drove strong sales growth and EBITDA margins held steady at a healthy rate of approximately 19%. Demand in semiconductor, aerospace, food and pharma, metals and mining, refining and processing and heavy-duty truck OE markets were favorable, and continued -- we continued to win program new programs in semiconductor, aerospace, and food and pharma.

While we are beginning to turn the corner and recover from the challenges in our brake products group, we anticipate that business unit will improve throughout the year.

Now, I'll turn the call over to Marvin to discuss some additional comments on our performance.

Marvin Riley -- Executive Vice President and Chief Operating Officer

Thanks, Steve, and good morning, everyone. As we've demonstrated by our turnaround of Engineered Products over the past several years, the EnPro team has built the capability to take action when necessary to expand the operating margins of our segments. As we began highlighting in Q2, we're taking swift action in the Sealing Products segment to reduce costs and expand our margins.

Last quarter, I discussed that our ability to identify, isolate and resolve operational issues is a direct result of the robust and flexible operating system we have developed over time. And we saw this in action during the year as we exited the industrial gas turbine market in the second quarter, which is now fully complete, and again, in the second half of the year, as we address the challenges in STEMCO'S Brake Products Group.

We previously discussed that we exited our industrial gas turbine business after a thorough evaluation of trends in that market. It became clear that our prospects with the business had fundamentally changed due to disruption in the OEM competitive landscape and end-market demands. Typically, exiting a business in similar circumstances results in large asset impairments and expenses. However, through diligent project management and partnership with our largest customer, we were able to minimize the impact to our P&L and actually generated net cash gain from the restructuring . I would like to thank our project team that led the effort and congratulate them publicly on a positive outcome in a difficult situation.

At STEMCO, we launched a campaign to significantly improve our brake products group. Beginning in July, we asked one of our most seasoned leaders to take on the President's role in STEMCO. Since then, we have been working collaboratively to put into place a comprehensive improvement program that has included talent upgrades within the business unit leadership teams, pricing initiative, should cost analysis to support make versus buy decisions and a detailed review of the competitive position of our smaller business units. This detailed work has led to the recently announced exit of our brake drum friction manufacturing. Our should cost analysis and our competitive sourcing work demonstrated that it's cheaper to source this product than it is to manufacture in-house. Our exit from friction manufacturing was swift and while we have reliable sources of this product, we anticipate that it may take a few months for our newly established supply chain to reach maturity and cost efficiency. We are roughly 50% complete with our margin expansion campaign in the STEMCO Brake Products Group.

Now shifting to the Power Systems segment. As a result of our previously mentioned focus on expanding margins and the significant increase in demand for our military, marine engines and parts, we are prioritizing our marine engines and aftermarket parts business in addition to completion of the EDF production engines above accelerated investment in the Trident OP. This does not change our perception of the opportunity provided by the Trident OP engine; however, we are currently capacity constrained in most adjusted pace at which we bring the new product to market and in order to meet the robust demand for our marine engines and parts. We're currently in discussion with our Trident OP launch customer about adjusting the timeline for production and installation of the field test engine.

Overall, we believe that the actions we have taken across the Company will lead to cost improvements as the year progresses. These actions are evidence of how we leverage our unique operating system to address challenges and drive value in our businesses. We look forward to further discussing our operating system and improvement capabilities during our upcoming Investor Day in March, and now I'll turn the call over to Milt.

Milt Childress -- Executive Vice President and Chief Financial Officer

Thanks, Marvin. We continue to experience favorable conditions throughout the fourth quarter in many of our core markets. Demand in aerospace, food and pharma, heavy-duty tractor and trailer builds, marine engines, parts and services, and metals and mining were strong during the quarter, although year-over-year growth in Sealing Products and Engineered Products was muted by strong prior-year results, also about the Company's exit from the industrial gas turbine market earlier in the year and softness in the automotive, nuclear and US oil and gas pipeline construction markets.

As we mentioned throughout the year, we expected Power Systems military and marine engine and aftermarket parts and service revenue to be heavily weighted to the second half of the year. And during the fourth quarter, Power Systems achieved record levels of aftermarket parts and service sales, as well as increased engine revenue.

In total, for EnPro, organic sales, which we define as excluding the impact of acquisitions, divestitures and currency translation, were up approximately 6% over the prior-year period, driven primarily by strong 32% growth in Power Systems. For the full year, organic sales were up about 8%. Consolidated adjusted EBITDA was $54.5 million in the fourth quarter, up 11.9% compared to results for the same period in the prior year, primarily due to year-over-year strength in Power Systems, offset by the previously noted challenges in our heavy-duty trucks and brake products group. For the full year, pro forma adjusted EBITDA was $217.4 million, up 0.9% versus 2017. Excluding the impact of foreign exchange on the EDF contract, however, adjusted EBITDA was up 16.5% and 6.6% respectively in the fourth quarter and full year compared to prior-year periods.

We finished the year within the guidance range provided on our Q3 earnings call despite an approximate $1.2 million negative currency impact in the fourth quarter. Gross profit margin for the fourth quarter was 30% down about 4 percentage points compared to the gross margin in the fourth quarter of last year. There were two primary drivers of the year-over-year decline; first and foremost, our margins were affected by the challenges in Sealing Products related to our brake products business, Steve and Marvin had discussed; second, and to a lesser degree, margins were affected by an improved allocation in 2018 of IT costs, which resulted in moving certain costs from SG&A to cost of goods sold. We estimate that these two items explain 3.7 percentage points of the total 4 percentage points year-over-year margin decline.

In the Sealing Products segment, despite overall sales being down in the quarter, we were encouraged by strong sales performance in many of our core markets . Sales were down 1.3% compared to the prior-year period driven primarily by the wind down of industrial gas turbine production and to a lesser degree by reduced nuclear shipments due to the timing of customers maintenance cycles. This softness was mostly offset by continued strength in the aerospace, food and pharma, heavy-duty tractor and trailer builds and metals and mining markets.

Segment adjusted EBITDA, which excludes the impact of restructuring and acquisition expenses, was $33.8 million, down 14.4% compared to last year. The decrease year-over-year was driven primarily by the aforementioned cost challenges in the brake products business of STEMCO. A large portion of which pertain to an increase in friction material warranty costs. At the end of the third quarter, we communicated that we believe we had adequately reserved for friction quality issues related to product source from a past supplier. The friction quality problems affected one specific style of friction material that is used in only a single niche market. In the fourth quarter, we revised our estimates to cover all potentially affected products for this friction application, which led to an increase in our warranty reserve.

Sales in the Engineered Products segment were up 1.9% over the prior-year period excluding the impact of foreign exchange translation. Strength in the oil and gas and North America in general industrial markets was partially offset by weakness in automotive and European general industrial markets. Excluding the impact of foreign exchange translations, segment adjusted EBITDA decreased 0.5% in the fourth quarter over the prior year, primarily due to increased raw material and manufacturing costs, partially offset by increased sales volumes. Segment adjusted EBITDA margins in the fourth quarter were 12.1% compared to 12.6% in the prior-year period. For the full-year, adjusted EBITDA margins were 17.4% up from 16.2% in 2017.

In the fourth quarter, sales in Power Systems were $90.7 million, up 31% over the prior-year period. The increase was due to record levels of aftermarket parts and service sales, as well as increased engine revenue. Results for the quarter included $1.2 million of sales related to the EDF program. Through the end of the quarter, we had shipped 10 production engines and expect to ship the remaining 10 production engines by the end of 2019. Additionally, we expect to ship two spare engines in 2020.

Production of the 22 EDF engines was approximately 81% complete at the end of the quarter and we had billed approximately 52% of the total contract value. Due to the timing of billings, which is mostly after individual engine are delivered, we had a net working capital investment in the EDF program at the end of the year of approximately $36 million. We expect to convert much of this net working capital to cash in 2019, as we complete and deliver the remaining production engines.

Segment adjusted EBITDA on Power Systems was $20.1 million, up 97% over the fourth quarter of 2017. Results for the quarter include a program loss of $3.1 million for the EDF program. Foreign exchange on the EDF contract had a negative impact of $600,000 in the fourth quarter compared to a positive impact of $1.4 million in the fourth quarter of 2017.

Adjusted diluted earnings per share for the quarter of $0.98 was up 46.3% compared to the fourth quarter of 2017. Fourth quarter increase was driven by a $3.4 million increase in adjusted segment profit, a $2.2 million decrease in corporate and other costs, a $1.7 million decrease in net interest expense and a decrease in diluted shares outstanding, partially offset by $1.2 million increase in adjusted income tax expense.

Average diluted shares outstanding were 21 million for the fourth quarter of 2018, compared to 21.8 million shares for the same period a year ago. The reduction was primarily driven by share repurchases. For the full year, adjusted diluted earnings per share were $3.91, up 12.4% compared to the prior year. As a reminder, when we refer to adjusted diluted earnings per share, we are adjusting for items such as environmental reserve changes or charges and select legacy litigation, restructuring costs, impairment charges, acquisition expenses and normalized tax rates, all were shown in the tables attached to our earnings release.

Slide 17, summarizes our major uses of capital in the quarter. In the fourth quarter, we invested $25.6 million in facilities, equipment and software, driven primarily by spending in Power Systems to support military and marine programs. We also paid a $0.24 per share dividend, totaling $5 million, and yesterday, we announced a $0.01 per share or 4.2% increase to our quarterly dividend starting in March of this year.

In connection with the legacy ACRP related loss in 2017 and our subsequent filing in the 10-year loss carryback return, we received federal tax refunds of $97 million in 2018. We had previously communicated expectations for receipt of an additional $32 million in the fourth quarter. The processing by the IRS was delayed by the federal government shutdown.

We've updated our estimate of the remaining refund to be $36 million and we now expect to receive the refund in two separate payments sometime in 2019, although we do not have an estimate of timing of receipt.

At December 31, our cash balance was $130 million and our borrowings totaled $463 million, down from $189 million and $618 million respectively at December 31, 2017. The reduction in cash resulted from the repatriation of overseas cash facilitated by tax reform. In total, we repatriated $11 million and $125 million o f earnings from foreign subsidiaries during the fourth quarter and full year, respectively, without any incremental taxes. The reduction in borrowings is primarily a function of repatriation and the federal tax refund received in the second quarter of last year.

We outlined on Slide 19, our net debt and leverage ratio at the end of the fourth quarter. As you can see, our trailing 12-month leverage ratio at the end of the fourth quarter was approximately 1.5 times full year 2018, adjusted EBITDA. Including the approximate $36 million tax refund that we expect to receive, the adjusted net debt to full-year adjusted EBITDA multiple would have been approximately 1.4 times, which is in line with the year-end leverage estimate provided during our las t earnings call.

Now, I'll turn the call back to Steve.

Steve Macadam -- President and Chief Executive Officer

Thanks, Milt. We'll close with a discussion of current market conditions and our outlook for 2019 and then take questions. As we've always explained, we have limited visibility of future demand. With the exception of Power Systems, most of our businesses have relatively short order to shipment cycles and typical backlogs range from a handful of days to a couple of months. Additionally, the component nature of many of our products often obscures correlations with macro end market indicators.

Our guidance excludes changes in the number of shares outstanding, impacts from future acquisitions and acquisition-related costs, restructuring costs, incremental impacts of tariffs or trade tensions on market demand, and costs subsequent to year-end -- the cost of the trades in tariff, the impact of foreign exchange rates as well from the year-end numbers, and environmental and select legacy litigation charges.

Given the current macroeconomic forecasts, planned improvements in STEMCO's Brake Products Group and anticipated weakness in semiconductor, automotive, heavy-duty truck OE demand, we expect our 2019 full-year adjusted EBITDA to be between $225 million and $233 million. This translate to an adjusted diluted earnings per share outlook of $4.28 to $4.55 for the year.

Now, we'll open your line for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Joe Mondillo with Sidoti & Company. Please state your question.

Joe Mondillo -- Sidoti & Company -- Analyst

Hi guys, good morning.

Steve Macadam -- President and Chief Executive Officer

Good morning, Joe.

Milt Childress -- Executive Vice President and Chief Financial Officer

Good morning, Joe.

Joe Mondillo -- Sidoti & Company -- Analyst

Couple of questions on the Sealing segment and the brake sort of restructuring. First off, how much was -- how much of the $15 million -- sort of one-time expenses was cash as opposed to non-cash?

Milt Childress -- Executive Vice President and Chief Financial Officer

It was all all non-cash in the quarter, Joe.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. And so -- just could provide a little more color on where we are today. I think, I heard you say that you're sort of 50% sort of complete in terms of the integration of the new supplier. Just walk us through how you're thinking about sort of the inefficiencies. Are most of the inefficiencies behind us, or do we still see some inefficiencies in the first quarter as you sort of ramp up that volume with the supplier?

Steve Macadam -- President and Chief Executive Officer

Yes. So Joe, this is Steve. So here we go and I'll -- I might ask Marvin to build on this as well when I'm done. But if you reflect on the brake products group, right, so this is one business unit within heavy-duty trucking. There were primarily three issues that we had to deal with last year -- three cost issues, right. The first was that Duroline warranty issue. So let me explain this. So, Duroline was the supplier from Brazil that we picked years ago to be our supplier and supplied product over the course of time. Well, early last year, we discovered that there was one particular type of friction; it happened to be a thinner type. So it's used in the shipping container chassis only. And we only have four customers in that business and unfortunately one of them is pretty sizable and so we started to incur warranty cost at an accelerated rate basically, the friction was cracking in this application. Again, this is only one type; we didn't see any change in performance of anything outside of this particular type.

So when we took the, we were -- so our team -- our engineering team was trying to estimate, OK, how much of this friction in this particular application is failing, because when it fails, it's expensive. We have to not only replace it, we have to pay the cost of the labor that it takes to replace it. And so it's costing us -- it cost us a lot of money. And so, over the course of the year, leading up -- as you know, we had a lot of cost in a bigger reserve in Q2 and then we had another -- we added to that reserve in Q3. We were always estimating the ultimate percentage of that application and that type of friction that could potentially fail over the life of the warranty, right. And so in Q4, we just concluded -- I concluded I'm just tired of chasing this problem. We're going to just reserve 100% -- we're just going to assume a 100% of it fail ultimately during the life of the warranty. So we took another warranty reserve in Q4, which kind of maxed this out, if you will, to a 100%. That warranty cost alone in Q4 was how much, Milt?

Milt Childress -- Executive Vice President and Chief Financial Officer

It was over $3 million.

Steve Macadam -- President and Chief Executive Officer

Another $3 million and so for the full year that was essentially $8 million of total warranty cost of which obviously some is still on the books as it reserve, right?

Milt Childress -- Executive Vice President and Chief Financial Officer

Yes. It was about little -- of roughly $6.5 million on the friction issue, if you want to half --

Steve Macadam -- President and Chief Executive Officer

Okay, $6.5 million total just on that friction problem. So that was one issue and that is done now. That does not mean that -- I mean, obviously EnPro Industries in total has a lot of product out there. So I'm not guaranteeing to the investor community that we'll never see another warranty outside of that, but we haven't seen any tick-up in issues. We're just, -- we're following our normal process and this was all isolated as I said to this particular type of friction in this one application, which is now literally 100% reserve. Okay, so that's one of the one. I'm sorry, this is going to be a long answer to your question, probably too long, but that's one.

The second one is in another brake products-related product, early in the year, we started to have issues with one customer on a particular product. It was our brake adjuster product -- automatic brake adjuster product. We jumped into that and we figured out how to resolve that and so forth and so on, and we took a couple of million dollar reserve, I believe that was in Q2. And we did that, kind of -- we did -- obviously, we tried to get our best number, but we also wanted to lean toward the conservative side because we didn't want the same thing to happen with the brake products -- sorry, with friction where we were continuing to chase and increase in warranty reserve. So we got that reserve. We have not changed that reserve and in the second half of the year, for all other customers other than one, which were out of the woods there, but we haven't seen a change in the failure rate of this product in any other customer in the second half of the year so far. Whether we see one or not, we still feel like we're easily adequately reserved because we haven't seen any more -- we haven't seen any other issues with that. So we actually believe at this point that issue was contained with one particular customer, having a fair bit to do with how they install the product in the factory to be honest with you, but that's, that still disputed -- we still pay the warranty. So that's what led to that $2 (ph) million charge at STEMCO through the year.

The third issue was productivity ramp up and productivity on our own friction manufacturing capability. We spent over a lot -- too many years and put in a what we thought was a very automated world-class line to produce this friction product ourselves in our Rome -- in our existing Rome, Georgia facility. And we have struggled -- all year, we struggled with the ramp up of that line, where the productivity was well below where it needed to be, the waste was too high, just on and on and on with technical engineering issues associated with that.

So with -- with the work Marvin (ph) described, we really got very deep on should cost. We looked at a number of different suppliers that could produce our formulation of this, and in Q4, we decided, you know what, even though we got a lot of capital invested in this damn thing, let's shut it down, because we can buy it -- we can basically buy it cheaper even if we get the line to where we were now think or where at least in Q4, we thought we could get the productivity.

So we shut the line down in Q4 and took the restructuring cost that Milt just indicated was a non-cash charge, right. And we ended up obviously reducing the workforce there associated with that and whatnot. So that's done. So, what we have left to do in brake products is to ramp up the supply chain. We've got actually a couple of suppliers that are supplying this product now, and the one that is going to supply us most of the friction product is actually in India. We've got a contract that we've just recently signed with them. We've got them started, but obviously it takes a while for this product to get produced on the water over to us and so forth, which is why we won't be at a full run rate with our new supplier and new supply base.

In total, we do have other suppliers that we're meeting customer needs. It's just not the way we would like to be able to meet the customer needs and that will take another couple of months to get that ramped up. So that's what we mean by that. So that's the detail on brake products, which is why it leads us to have a fairly high degree of confidence that these issues in brake products are substantially behind us. Marvin, you want to add anything to that?

Marvin Riley -- Executive Vice President and Chief Operating Officer

The only thing I would add to that is, as Steve mentioned, we are working pretty hard to focus on the productivity and quality improvements within the brake products group, and we do have a small team deployed there providing them additional resources to accelerate the improvement. So we do expect to see that -- start to show up in their P&L starting actually in Q1 and it will improve throughout the year.

Steve Macadam -- President and Chief Executive Officer

And that's basically the other products that we continue to produce like drums and shoes and ABAs and so forth.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. That was really helpful. I appreciate the color there. Just a follow-up, as you still need to ramp up the supply chain, like you said, does that weigh on productivity or margins a little bit and ...

Steve Macadam -- President and Chief Executive Officer

It weighs on -- it weighs on margins because we're basically trying to keep customers -- we're trying to meet and fulfill our customer commitments through contracts with high-cost supply, Joe; that's the implication.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. Okay. And by the end of the first quarter, is that's something that we can expect in terms of ramping up or is that going to be ...

Steve Macadam -- President and Chief Executive Officer

I think it's into 2Q because the team is just literally in the last few weeks gotten this whole arrangement lock down, the product qualified et cetera, et cetera. My understanding is it takes a couple of months to get our -- probably three months to get our -- to get the first shipments here and get the supply chain flowing. It's big heavy friction, so you got to bring it over the water. We can't fly and enter its high cost, so you know.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay, thank you for that. Just last question and I'll jump back in queue to let other people have a chance, but just in terms of the Sealing segment overall, looking at your guidance for 2019, is there any way you can quantify how much the inefficiencies related to everything you just talked about with the brake products as well as the losses that you saw early in the year before the divesting the gas turbine business and then any other inefficiencies or costs, is there any way you can quantify, what's not going to reoccur ...

Steve Macadam -- President and Chief Executive Officer

Yes. Sure. Let me help you with that. You can give figure this out. In my prepared remarks, right, so the brake products group in total and and the IGT business in the year 2018 was a little bit around 10% of the revenue of the Sealing Products segment, OK. If you look at the 90% of Sealing Products, the margin was basically 19%, what we've -- what we've seen historically. So, other than kind of mix moving around, hey, we saw more semi last year than -- I am talking about the rest of business, et cetera, et cetera. There is no reasonable to -- and we still continue to see reasonable growth, although that gets down to the very specific end markets that we serve. There is no issues in the rest of it, so there is no reason to believe that that wouldn't continue to crank along at a reasonable level of improvement throughout the year. Obviously, a lot of it depends on the macros. And IGT is done and what we just described where we are with brake products. So, that's pretty easy math to do. Milt, do you want to add something to that?

Milt Childress -- Executive Vice President and Chief Financial Officer

No, it's all puts and takes. There's no question, Joe. You're correct and I think what you're thinking is that if you look at a restated 2018 performance assuming some of these problems are behind us, then obviously we would finish the year at a higher level. But it's all puts and takes. So the adjustments that will be favorable going into the year would be -- we would not expect to have the year-over-year decline in earnings from the industrial gas turbine business. We would not expect to have these warranty charges is being talked about, and then hopefully, as the year progresses, we'll get some productivity improvements in our manufacturing. So those were all positive.

And then, it's all against the macros of the year, as Steve talked about, which is what's happening in semiconductor, what's happening in auto, what's happening in Europe, and so forth.

Steve Macadam -- President and Chief Executive Officer

In China.

Milt Childress -- Executive Vice President and Chief Financial Officer

China. So -- it's -- our guidance takes all those things into account and you also need to keep in mind as you're thinking about your adjusted '18 number that we talked about in our last quarter a $4 million benefit that we received in Sealing Products in connection with a litigation settlement; that was a positive impact on our results and 2018 will not be recurring in 2019. So, there are lot of factors as you think about -- think about guidance. I hope that gives you a little bit of color to think through it.

Joe Mondillo -- Sidoti & Company -- Analyst

No. Yes, it does. And just lastly, the 19% margin that you sort of cited, that's the EBITDA margin, correct?

Steve Macadam -- President and Chief Executive Officer

Correct.

Milt Childress -- Executive Vice President and Chief Financial Officer

Yes.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. Okay, great. Thanks a lot. Appreciate it.

Steve Macadam -- President and Chief Executive Officer

Yes.

Operator

Thank you. Your next question comes from Charley Brady with SunTrust Robinson Humphrey. Please state your question.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Hi. Thanks. Good morning, guys. I just wanted to go back to your comment on the Trident engine and talk with the customer about changing I guess some of the delivery schedule on that. Can you just flush a little bit more about what's going on there and is there any potential penalty involved with changing that timing at all or what's happening there?

Marvin Riley -- Executive Vice President and Chief Operating Officer

No. Just the high level is, the Power Systems segment, effectively, the Fairbanks-Morse business is in really, really good shape and has seen significant increase in engine orders, as well as aftermarket parts and services orders. So, the demand is extremely strong in that business, which puts us in a pretty precarious situation in that we are effectively capacity constrained in totality. So, we had to make some really difficult decisions in terms of what to do and what we've decided is, we obviously have to service the customers we have today and that has to take sort of the resource considerations as a primary course of action.

And as it relates to Trident OP, we'll continue our development work. We will work with the customer to resolve the customer delivery schedules. I don't anticipate there will be any penalties at all. We run the risk of cancellation, but we don't run the risk of any cost.

Steve Macadam -- President and Chief Executive Officer

The fact and the matter is, Charley, to get the first Trident in the field, we're not going to make any money on it, right? In fact, we're going to -- I mean, we're going to build the engine to get it out in the field test. That was our plan. We really still want to do that, but it's pretty hard for us to stomach the idea of using factory capacity to build something we're not making any money on, in fact, losing money on when we can be building and need to have to really build engines for the US Navy. So that's our dilemma. So we're working with the customer to try to see if we can maintain -- try to figure out how that's kind of thread this needle. But again, it's nothing that's going to lead to any penalties.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Okay, thank you. Yes, I just wanted to clarify that. Can you have some little bit more about price-cost dynamic as you go into '19 and kind of where you are on covering raw material increases and kind of tariff impacts at all is? Are you there now or does that ramp as you go to '19?

Steve Macadam -- President and Chief Executive Officer

No, no. I think we're there and we're starting to see it go the other way, where we get a little bit of relief on the raw material side frankly going into '19 now. Your guess is as good as ours on what happens with the next wave of tariffs and so. So, we're not making any -- I'm not making any comment on that. I have no -- who knows what's going to happen. But, in terms of the status quo right now, we are adequately covered and we started to see some moderation particularly in steel prices, but in commodity prices overall.

Last year was a tough environment for industrials like ours, right. I mean, we were working throughout the year. The catch-up not only -- I mean, this is very, very hard for us to separate how much of it, quote-unquote, tariff impact versus other, because, obviously, there was a huge ripple effect through other commodity prices that didn't have tariff directly on them, like steel and aluminum. But it was a tough raw material environment last year, kind of, just broadly, right, economy was doing so well. And that is definitely leveled off at least in the case of steel, has begun to moderate.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Are you able to assess in any way that if the tariff was to go to 25%, what sort of impact that would have on your business, on your margin?

Steve Macadam -- President and Chief Executive Officer

I think we're -- I think the short answer is, we're more ready now. So last year, everything happened so quickly that I think we got caught a little bit behind eight ball in terms of anticipating. But we know that if it happened, it would have $1.2 million immediate impact and then the question would be, would we -- how quickly could we get that covered as well, but the mechanics and many of the customer conversations and this has become such a visible issue in the industry that I think that would -- I think we'd be able to get that covered much quicker than we did last year which we really, really struggled to do primarily in the STEMCO business, which is where we consume a lot of steel.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks for the color. I appreciate it.

Steve Macadam -- President and Chief Executive Officer

Yes.

Operator

Our next question comes from Justin Bergner with Gabelli & Company. Please state your question.

Justin Bergner -- Gabelli & Company -- Analyst

Hi, good morning Steve, Milt and Marvin. How are you guys?

Steve Macadam -- President and Chief Executive Officer

Good, Justin.

Marvin Riley -- Executive Vice President and Chief Operating Officer

Hi, Justin. Hope you are.

Justin Bergner -- Gabelli & Company -- Analyst

I want to start off by revisiting Trident OP. I just want to make sure that the customer in question is from a launch customer and why would you take any risk, if they are from -- sorry, firm launch customer in pushing back the timeline such that they could see reason to not continue as the launch customer potentially?

Marvin Riley -- Executive Vice President and Chief Operating Officer

That's a really good question. We do feel like if we ended up in a bad situation with this particular customer, we have other options, that would be the easy answer, that we could pursue, feel fairly confident that we could solve that problem if we ever ran into that problem. As you know, as we mentioned in the last call, we did sign an LOI with this customer and established an arrangement or sort of conditions satisfaction to conduct this launch testing. But, we have alternatives that we can pursue, feel fairly confident about that. And we also are fairly confident as it relates to the penalty situation.

Justin Bergner -- Gabelli & Company -- Analyst

Okay. But they are a firm launch customer or still at the LOI stage?

Steve Macadam -- President and Chief Executive Officer

Well, we did not want to sign a firm contract because we knew we were facing in terms of our ability to execute.

Justin Bergner -- Gabelli & Company -- Analyst

Okay.

Steve Macadam -- President and Chief Executive Officer

Conversation is ongoing. That's a conversation, Justin, that's ongoing is, they've got a project to do, I think, it was four or five total engines of which we had one, it was going to be side-by-side with the ...

Marvin Riley -- Executive Vice President and Chief Operating Officer

Competitor's engine.

Steve Macadam -- President and Chief Executive Officer

Competitor's engine and we're just trying to work out now, is that -- is that timing is still going to work with them, is it still makes sense for us and so forth. Now, remember, we were still -- and the development work for the engine is still ongoing. We were really trying to close the gap as tightly as we could kind of putting the complete bow around the development and getting the first one out in the field, right. And so, the fact of the matter is, the development team would love to have a little bit more time to make sure that everything is fully complete and done. So this is not -- this is -- that's why -- it's not a real a real problem. It really just indicates more how busy we are in the shop, quite frankly.

Justin Bergner -- Gabelli & Company -- Analyst

Okay, understood. As we look into 2019, I just sort of want to make sure I understood that puts and takes or versus '18 where the $8 million warranty expense, the small expense and IGT before you shut that part of Sealing Products business down and the $4 million litigation benefit. Those -- that it in terms of the sort of one-time non-recurring puts and takes?

Milt Childress -- Executive Vice President and Chief Financial Officer

That's in terms of the one-time. Obviously, we were -- we've been hurt by the price cost issues that we talked about, which related to tariffs we got and that was early in the year. We've got hurt obviously about these productivity issues that Steve and Marvin discussed around our friction manufacturing, but those are ...

Steve Macadam -- President and Chief Executive Officer

That's the big movers.

Milt Childress -- Executive Vice President and Chief Financial Officer

Yes. So -- but the ones you noted are really the ones that with shortfall (ph) and say, yes, we shouldn't have those items.

Justin Bergner -- Gabelli & Company -- Analyst

Okay. And then, are any mix impacts going to be beneficial or negative of note as we look into '19 either OE versus aftermarket or different end markets?

Steve Macadam -- President and Chief Executive Officer

I mean, that's it -- it's a very complex question, Justin. I mean, it's -- as we said with the short cycle of what we got, it's very, very difficult to predict how mix is going to move. Because we don't know what Q2 and Q3 have in store, much less to full year. So, semiconductor, we know has as shown signs of weakness, that's not one of our higher margin businesses. We do know that the nuclear demand for both '18 and '19 is kind of the bottom, if you will, of the long-term trend and scheduled refuelings and maintenance cycles of our customers. So we do have a visibility on that '19 will look about like '18, shouldn't get any worse, but it won't get any better. We do think it'll start getting better in '20 and '21.

Fairbanks is in -- as Marvin said, in very, very good shape. There's more ship avails (ph) planned in 2019. And we've seen recently and that drives aftermarket demand. We've also based on what we've communicated to you all over the years, the new programs that we won, two years ago, last year, et cetera have kicked in. It drove a big capital spend as Milt said in 2018, a lot of that was for test stand capacity and expansion and modification because these -- the Navy has high requirements for how much testing needs to be done on each engine, just because of the nature of the application and so, we had to spend a fair bit of capital in 2018 just on those test and modifications to get ready for these programs.

Again that capital spend is behind us in Power Systems. So, anyway, on balance, we feel pretty good about the year with the caveat that there's still feels like there's a lot of uncertainty, just in general, but in terms of the direct communications we've had with customers, the orders that are on the books right now, which again it's not huge visibility. Yes, it's pretty good feels better in Q4 '18, but so, who knows what's going to happen.

Justin Bergner -- Gabelli & Company -- Analyst

Okay, thanks. I'll hop back in the queue.

Steve Macadam -- President and Chief Executive Officer

Yes.

Operator

Our next question comes from Ian Zaffino with Oppenheimer & Company. Please state your question.

Mark -- Oppenheimer & Company -- Analyst

Hi, good morning guys. This is Mark on for Ian. Thanks for taking our questions. So I guess just looking a little bit more detail -- feeling. Aerospace demand has been a fairly consistent, strong driver for the segment, that seems our indications are for us, I guess, year-over-year slowdown beginning in 2019. Can you just speak to what's, I guess, like from those four drivers there and what's the expectation for the balance of 2019 and how can we expect this four to impact the segment? Thanks.

Milt Childress -- Executive Vice President and Chief Financial Officer

Yes. Once again, I'll like the same comment. Mark, this is Milt, that Steve made earlier on general market demand. We know the programs that we're on, and so we have some visibility on aerospace, but we're -- I think our view right now is that we're probably in the kind of the upper part of the cycle and we're not expecting a lot of growth. We think it's going to be -- continue to be a good market for us, but we're not expecting strong growth year-over-year. I would call it relatively flat small, low single-digit growth in that market. But that's -- that's based on somewhat limited visibility. Steve, I don't know if you or Marvin have anything else on aerospace here?

Steve Macadam -- President and Chief Executive Officer

No.

Mark -- Oppenheimer & Company -- Analyst

Okay, great. Thanks, guys. And then in terms of the outlook on 2019 and long-term, can you just speak a little bit on the M&A pipeline and areas of interest and any details on capital allocations with buybacks and capital investments will be great. Thanks.

Marvin Riley -- Executive Vice President and Chief Operating Officer

Sure. We're -- we have a very active look at strategic acquisitions. It's ongoing. It's not something we stop as you know, we've been very disciplined this year. You haven't seen us spend a lot of our capital on M&A this year in a pretty high-priced environment. We've communicated previously and this remains to be the case where we're focused on select opportunities in the semiconductor space, in the aerospace space, and food and pharma our Sealing Products business, if we can find opportunities to grow there. So that's taking priority as we look for inorganic growth opportunities.

Other uses of capital we -- Steve just mentioned that we've spent pretty heavily this year on test and support, the big wins that we've had in Power Systems. And we would expect our capital spending to be meaningfully lower in 2019. So, year-over-year that will be, I think, that you'll see a noticeable change there. I would guess we'll probably end up at least based on our plans, $15 million or $20 million below where we were in '18, always subject go though to other opportunities coming up that we say that have a good return on investment that we might decide to invest in, but that's how we see it now, and yes, we do expect to be repurchasing shares as the year goes on.

Mark -- Oppenheimer & Company -- Analyst

Okay, terrific. Thank you guys very much.

Operator

Thank you. Next question comes from Jeffrey Hammond with KeyBanc. Please state your question.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys.

Steve Macadam -- President and Chief Executive Officer

Hi, Jeff.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

So, just back on the drum friction, is there a revenue headwind that's associated with that in '19 that we should be thinking about?

Milt Childress -- Executive Vice President and Chief Financial Officer

No. There is no revenue headwind at this point, nothing, we know about. Still a healthy business. We just need to work on the cost side.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. And then just on the drum brake business, it seems like we've been hearing more shifts to air disc and just kind of speak to how you're seeing that play out in kind of reaction to that.

Steve Macadam -- President and Chief Executive Officer

Well, it's definitely a long-term trend. Jeff. We have that in front of us. It's on our our plate of strategic things to look at. We did buy a company, you may remember, just a small -- relatively small, but it's a factory in China -- a business in China that we make air disc friction, and we've introduced through a supplier, we're introducing a router as well. So we're going to be selling air disc brake systems as well. And our goal is to help customers do this migration. So I don't -- I think it'll be a long-term thing, just because I mean these tractors and trailers, as you know, have have a long life and there is a massive installed base.

So what we've seen so far is the conversion mainly happening with very trucks that really carry a lot of heavy in danger stuff like tanker trucks. Those are the -- those have been the first ones to shift over. So the fleets are obviously resisting it, because they like -- they have an installed base and they're going to have to continue to service that. So our hope, at least as we sit here today, this is obviously subject to ongoing review and change, but our hope is to be -- to have both types of technologies so that we can help our customers do that migration and transition over time.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay, and then just back on OP too, I just want to make sure we're clear. So, this is a kind of short-term capacity issue, I guess, are you thinking about the long-range opportunity any differently and kind of the R&D spend associated with it? Thanks.

Steve Macadam -- President and Chief Executive Officer

Yes. I mean, the capacity issue that we're experiencing in the Power Systems business, my guess is going to be at least 18 months to two years. What -- I'm trying to be mindful, and not super excited about how much demand we are seeing, but it is quite substantial in the Power Systems business. So, their backlog is quite strong for this year and next year. So, what that means for us as it relates to the Trident OP is, we have to really think through what the options are, whether we want to exercise other ways to get the product to market. Those are the kinds of things we're experimenting with now. We know we have to get the product to market, so we're looking at other alternatives on how to do that.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay, and then just -- Marvin, can you give us a sense of how you think the growth rates look in Power Systems in '19, '20, you know, kind of big picture?

Marvin Riley -- Executive Vice President and Chief Operating Officer

Well, let's say for '19, it will be north of 8% for sure, could be 12% based on shipments, but it's north of 8% for sure, could be 10% or so. And then '20 I don't, have that number in front of me right now for '20. We could probably get back to you.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

And how does that growth fallout in terms of margin mix?

Marvin Riley -- Executive Vice President and Chief Operating Officer

Well, we have a fair amount of EDF to get out of the system this year. So, once the EDF units come out of the system in its entirety, you'll see that margin start to walk up from where we ended the year last year, was at 14.5% EBITDA in Power Systems in 2018. I expect to see some improvement in that as you go forward into '19 and '20. High level, we'd like to start moving that business up to 18%, 19% EBITDA.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay, great. Thanks guys.

Steve Macadam -- President and Chief Executive Officer

Yes.

Operator

Thank you. Our next question comes from Joe Mondillo with Sidoti & Company. Please state your question.

Joe Mondillo -- Sidoti & Company. -- Analyst

Hi guys, just a couple quick -- hopefully, quick follow-up questions. Could you give us expectations on sort of working capital needs and CapEx for the year?

Marvin Riley -- Executive Vice President and Chief Operating Officer

Yes, CapEx, Joe, as mentioned just a little bit ago, we expect CapEx to be $15 million or $20 million less in '19 than what's the case in 2018. So -- and that's because we won't have to repeat some of the heavy capital spending we had in Power Systems in 2018. And, on the working capital front, we had about $30 million -- I think, I said $36 million at the end of the year tied up and the EDF program alone of the working capital. And, with us expecting to ship all of the production engines, so there will be shipping another 10 production engines in 2019, and the shipment of those, the primary trigger for being able to invoice, we expect to convert a big chunk of that $36 million to cash, not all of it, but a significant portion of the $36 million in cash -- in working capital to the cash during the course of 2019. That's the biggest movement. You also saw some pretty large increase year-over-year in accounts receivable on our balance sheet at year-end compared to year-end '17 and the largest part of that was just very strong quarter in the month of December that we had in Power Systems due to the aftermarket parts and service demand and parts and services we've provided at the end of the year that we're still on our books as receivables. So, we would expect some of that to come down as well.

Joe Mondillo -- Sidoti & Company. -- Analyst

Okay, great. And then, Steve, if you sort of commented on sort of the visibility that you have, I think you sort of mentioned, it seems like things currently or maybe you feel a little better than maybe going back to December. Specifically -- my question specifically has to do with Engineered Products, given sort of the exposure that you have to European auto and some of the GGB business that's exposed to, I think, some of the heavy capital equipment markets. Just wondering sort of what your sort of take is on that segment and sort of where we are, and how the outlook looks?

Steve Macadam -- President and Chief Executive Officer

Yes, I mean. Be very honest with you, Joe, we, -- the back -- the bookings that we have, the orders that we have looked very, very good. Now, that said, the way that business works in particular, I'm speaking of GGB, and this is across the board, automotive and industrial customers, right. That's the one that can turn very, very quickly. Because, it's mostly OE demand, almost all OE demand. And so the way that market behaves is there is an order on the books for delivery in March or April. And if the world changes, they'll push the order out or reduce the quantities or anything else.

So barring that from happening, the orders are there. They've been placed there on the books. But then, like I said since we have in most of -- many, many, many of the GGB applications, we essentially have 100% of the business on any given platform, whether it's in automotive platform or an equipment platform and if we're selling into a particular pump style or gearbox style or whatever, wherever it's going, we typically -- that part is typically engineered into the product and we have 100% of the demand.

So, if the customer starts selling less cranes or less whatever it's going in, less cars, less cranes, less snowmobiles, less whatever it is, that ripples through to our ripples demand and we don't have a lot of visibility into, that's why it's hard to predict. So -- but right now, if you look at the actual orders on the books, we're above where we were a year ago. So hopefully -- it will be hopefully (inaudible). It's not just phantom orders.

Joe Mondillo -- Sidoti & Company. -- Analyst

Right, sure. And so the revenue ex currency over the last several quarters has slowed significantly, was under 2% in the fourth quarter. When you say, very good, is that defined as improved from the 2% or sort of low single digits? Is that sort of the outlook? I am just trying to get ...

Steve Macadam -- President and Chief Executive Officer

No, no, no. I think, we're still looking at low-single digit outlook for sure, yes.

Marvin Riley -- Executive Vice President and Chief Operating Officer

The comps, as you know, are pretty tough because we've had a couple of strong years.

Steve Macadam -- President and Chief Executive Officer

Yes.

Joe Mondillo -- Sidoti & Company. -- Analyst

Yes. Okay. Just wanted to make sure there. And then lastly, Milt. I just wanted to clarify the -- all the sort of tax receivables, and Asbestos insurance receivables what you have going forward, I think, there was three different buckets that you mentioned last quarter, and I know you mentioned this in your prepared commentary, but just wondering if you could sort of just work that out for me?

Milt Childress -- Executive Vice President and Chief Financial Officer

Well, on taxes, let me just talk about the cash part of, OK? That's probably what you're most interested in. We expect to receive about $36 million in the tax refund in 2019. It's likely going to come in two different payments, that's probably not relevant. You probably -- that doesn't matter. But I think we should get roughly $17 million relatively soon whenever things go back to normal, the IRS with all their processing and so forth, and that's what we don't (ph) know for sure we, we would have expected that were -- not for the government shutdown. There is another $19 million piece that we also expect to get in 2019. That part is subject to just some additional auditing, final auditing, sign-off procedures by the IRS. So that's $36 million.

On the Asbestos-related insurance receivables, we expected to get about $10 million in cash in 2019. And that, I guess, beyond 2019, yes, we have a little bit of additional amount on our balance sheet. But the additional amount we expect would come in over quite a few years, as the Trust starts to make payments over a period of time.

Joe Mondillo -- Sidoti & Company. -- Analyst

Okay. All right. Great. Thanks a lot.

Operator

Thank you. Our next question comes from Justin Bergner with Gabelli & Company. Please state your question.

Justin Bergner -- Gabelli & Company -- Analyst

Thank you for the follow-up. Just had one clarification question. On EDF, I think you mentioned the $600,000 FX loss and then the $3.6 million, I guess, operating loss. Can you just clarify if I heard that correctly and what the $3.6 million refers to?

Milt Childress -- Executive Vice President and Chief Financial Officer

Yes. The true-up on the P&L -- the P&L impact every quarter is a function of two things primarily. It's one, what's our estimated cost to complete the contract at the end of the quarter, as well as what the euro-dollar exchange rate is. So in the fourth quarter, we had $600,000 of an earnings hit related to the change in currency and we had an additional, call it, $2.5 million, a little bit above that, but $2.5 million or so increase in our estimate of the cost to complete the program. So that's the reason for the -- that's the difference between the $3.2 million that resided (ph) and the $600,000 for currency.

Justin Bergner -- Gabelli & Company -- Analyst

Okay, but when you talked about meeting your guidance despite the FX hit, you're also absorbing a $2.5 million increase in the cost to complete. Could you anticipate that cost being incurred in the fourth quarter or was that additional headwind?

Milt Childress -- Executive Vice President and Chief Financial Officer

No, no. That's how we provided guidance in Q3, we did not anticipate that.

Marvin Riley -- Executive Vice President and Chief Operating Officer

And Justin, it's important to understand not all of the $3.2 million was cash costs in Q4. I don't even know if we have that split, but we certainly would have had some increased costs, but we didn't do a ton of EDF work in Q4. That is a P&L basically reserve -- I mean, I don't know if you -- can it as reserve, but how we can it, but it's basically a cost that we have to book at the end of the quarter because that's our -- because the core contract is essentially every quarter mark to market, if cost don't change and if currency don't change, we make zero margin, and so as soon as our cost -- as soon as our view of the cost to complete the rest of the engines goes up, we have to book that in the current quarter, even though we didn't incur those costs in the quarter, those costs will be actually incurred through the balance of fabricating the engines. You follow?

Justin Bergner -- Gabelli & Company -- Analyst

Yes, thank you. That's all I have. Thank you.

Marvin Riley -- Executive Vice President and Chief Operating Officer

Okay. Yes.

Steve Macadam -- President and Chief Executive Officer

We all be very, very thrilled when we get to the last damn EDF engine on the water, trust me. And we're getting very, very close. We're halfway done and -- we are halfway done with the shipments. We're 80% of the way done with the actual work associated with it in terms of hours. Number 11 goes out any day now, and yesterday -- yesterday went out 11 and 12 will the on the just stand and 13. So, hopefully, well before the end of the year, we'll be able to say sayonara to the last one. I'am going to celebrate.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll now turn the call back over to Chris O'Neal for closing comments. Thank you.

Chris O'Neal -- Senior Vice President, Strategy, Corporate Development and Investor Relations

Thank you, Diego. And thank you all for joining us this morning. If you have any additional questions, please feel free to give me a call at 704-731-1527. Have a great day.

Operator

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.

Duration: 70 minutes

Call participants:

Chris O'Neal -- Senior Vice President, Strategy, Corporate Development and Investor Relations

Steve Macadam -- President and Chief Executive Officer

Marvin Riley -- Executive Vice President and Chief Operating Officer

Milt Childress -- Executive Vice President and Chief Financial Officer

Joe Mondillo -- Sidoti & Company -- Analyst

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Justin Bergner -- Gabelli & Company -- Analyst

Mark -- Oppenheimer & Company -- Analyst

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Joe Mondillo -- Sidoti & Company. -- Analyst

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