“Another market that experienced headwinds in our third quarter compared with expectations was sales of air filtration products to the swine industry which was negatively impacted by the severe summer drought in the U.S. Due to higher feed prices, we believe hog farmers delayed investment in new air filtration systems. As a result, our third quarter sales of these products were below our expectations heading into the quarter. We anticipate that many of these orders will be deferred until the summer of 2013. Despite lower than expected third quarter 2012 sales in this market, we believe we are the leader in this growth industry in the U.S., and we are excited about the many opportunities outside the U.S. including China—where we have recently launched the manufacture and sale of swine filtration products and systems.
“Operating performance at our Industrial/Environmental Filtration segment continues to be solid as our 11.4% operating margin in the third quarter was not only 1.1 percentage points higher than last year’s third quarter but was a record high for any third quarter in this reporting segment. Net sales increased 7% from the third quarter of 2011 when adjusted for changes in foreign currency exchange rates. Driven by these higher sales and improved operating margin, third quarter operating profit was 15% higher than the third quarter of 2011 and year-to-date operating profit was 19% higher than last year’s first nine months. Sales growth was driven by stronger sales in several markets but notably in the natural gas filtration industry both within the U.S. and in our foreign markets. Although natural gas vessel sales remain strong, we continue to focus on the development of the natural gas filtration aftermarket where global sales grew 14% in the third quarter compared with last year’s third quarter. Other markets in our Industrial/Environmental Filtration segment also demonstrated strong third quarter sales growth including our dust collector business and our Total Filtration Services (TFS) distribution business. With our continued focus on profitable growth in this reporting segment, we believe we are well-positioned to achieve our long-term operating margin goal of 15% in the next three to four years.”