Q3 2019 Earnings Call
19 earnings release conference call.
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It's now my pleasure to introduce Mike Monahan, Senior Vice President Investor Relations Mr. Monaghan, you may begin.
Thank you Hello, everyone and welcome to Ecolabs third quarter Conference call with me today, as Doug Baker, Ecolabs, Chairman and CEO and Dan Schmechel our CFO .
A discussion of our results along with our earnings release in the slides referencing the quarter's results and our outlook are available Ecolabs web site at Ecolab Dot Com Slash investor. Please take a moment to read the cautionary statements in these materials, stating that this teleconference and the associated supplemental materials include estimates of future performance. These.
Forward looking statements and actual results could differ materially from those projected.
Factors that could cause actual results to differ described under the risk factor section in our most recent Form 10-K Andean are posted materials. We also refer you to the supplemental diluted earnings per share information in the release.
Starting with a brief overview of the results pricing new business gains and product innovation led the third quarter sales and along with productivity improvements and cost efficiency actions yielded the third quarter is 12% adjusted diluted earnings per share increase.
Moving on to some highlights from the quarter and as discussed in our press release acquisition adjusted fixed currency sales increased 2% as the institutional and other segments shows steady sales gains and more than offset a modest decline in energy and moderately softer industrial markets.
Adjusted fixed currency operating income margins increased 140 basis points continuing their steady improvement.
Income growth was led by double digit gains in the industrial and energy segments.
Adjusted earnings per share increased 12% to $1.71, representing another quarter of double digit adjusted EPS growth.
Currency translation was an unfavorable three cents per share in the quarter.
Progress continues on the spin off of our upstream energy business. We continue to expect to spin off to be completed by mid 2020.
Looking ahead, we will begin rebuilding our sales momentum in the fourth quarter as the moderated delivered product cost environment has enabled us to reprioritize new business development as our sales teams primary objective.
As always we will drive our new business wins by focusing on our innovative products.
Sales and service expertise and our value proposition of best results at the lowest total operating costs for customers.
We will also continue driving productivity and cost efficiencies.
Our digital investments are developing well and we look for them to add new actionable insights for customers to improve their operations increase our salesforce effectiveness and enhance our market differentiation.
We narrowed our forecast for the full year 2019, we now look for adjusted diluted earnings per share to rise, 10% to 12% to the $5, an 80 to $5 90 range as price and volume gains and cost efficiency cost efficiency benefits.
More than offset the impact of moderated delivered product cost increases and business investments.
Currency translation deteriorated to sense.
And is now expected to be an unfavorable 13 cents per share in 2019.
Fourth quarter adjusted earnings per share our expected being $1.60 forward to dollar 74 range up 6% to 13%.
In summary, we expect good fourth quarter earnings momentum in 2019, the more than offset moderated delivered product costs and unfavorable currency exchange and along with cost efficiency actions yield 10% to 12% adjusted earnings per share growth.
As we continue to make right investments in key areas of differentiation, including product innovation and digital investments, we expect to develop superior growth this year and for the future.
And now here's Doug Baker with some comments.
Thanks, Mike So August offer my take on the quarter.
There's a lot to like in this quarter and there are some areas that we're addressing the good news is as we leave the third quarter moving into the fourth quarter. We are in a very good position to end. This year successfully while I'd say importantly building momentum as we head into 2020.
So the positives in Q3 will certainly 12% adjusted EPS growth, we had very strong cash flow with a Q3 conversion rate of over 100% as we reduce inventories post our supply chain Sep rollout North America year to date cash flow is up 29%.
And our strong pricing, helping drive the 140 basis point or why margin improvement Mike referenced.
Our team has executed really well across the board. They continue to drive the business performance improvements. There also managing a north American Sep rollout, which has moved from supply chain into the commercial arena and they're also managing a spin of upstream all this they're doing while improving the business.
We also talked that we've shifted our sales team priority focus as raw materials stabilize in some markets have softened we've moved or field team focus from what I call pricing and growth to growth and pricing, meaning growth is primary not the only thing we ask them to do but you also have to have something is number one.
You're already and right now we believe it's mark to have growth as the number one priority. So this shift moves this team back to what I would call their natural state and we're seeing strong results and all of our leading indicators.
Net new business is accelerating it was virtually flat year on year in Q1 up 10% in Q2 was up over 40% in Q3, we really need roughly 15% year on year to continue the growth trajectory that we'd like to seat at the same time, all we're accelerating our net new.
Business. The team has continued to deliver on pricing, which excluding upstream in Q3 was up 3% and very importantly, our customer retention has improved throughout the year as well so our pricing efforts are not leading to declining retention trends.
Finally, I feel very good about our priorities our plan and the execution.
So we got on costs early we remain on costs, we've done a great job securing the needed pricing as we've discussed we've also shifted successfully to driving new business and as I mentioned are starting to see those results while continuing to secure pricing. We're also driving the critical investments for sustained advantage like digital lie.
Mike S&P like people development and like the upstream spent so now let me turn it back to micro open up the culinary session.
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Thank you and our first question comes from the line of John Mcnulty with BMO capital markets.
Yes, good morning, or good afternoon, and thanks for taking my question.
With regard to the Reprioritization around new business development versus versus price and kind of moving the volumes to the front of of the I guess of the Q I guess, how quickly can you get that shift to start really.
Working on the volumes and I guess I guess also how should we be thinking about what this means for price mix as we look to 2020 as well.
Yes, it's a little different by business I would say in industrial there's usually a couple of quarter lag between securing significant new business and when you start seeing it show up in the PML institutional that lag can be a bit shorter call it a quarter and a half.
So there's always that takes a little time for what I would call accelerating new business trends to show up in the growth trend and make a difference we would expect to have one I think historically good pricing next year, we're going to enter the year with very good carry in momentum well.
Due to price in this environment, it's just going to be we just.
Honestly, it's about as simple as that is it sounds we were late getting on pricing sales teams hate doing pricing. It's a contentious discussion with customers who are they who they are trying to make like us and so this is always a hard thing to get sales teams excited and motivate.
At around and you've got to make a call we rang the bell little over a year ago on pricing. They started making very material difference as a consequence of that and we now know given the situation. We think in raw markets and just broadly economically it's smart to get on volume. So I think what you'll see is an IND.
Creasing volume trend going throughout the year, we'll take a few quarters for you to see material change.
Got it no. Thanks for the color and then maybe just a quick question on on the industrial segment I mean, the the overall gross actually looked relatively robust considering kind of the macro backdrop I guess can you speak to the condition of the end markets that you're seeing and and what that means in terms of some share gain that it looks like you may have been picking up.
Yes, I think our industrial business I would agree I think its fared pretty well I mean it shows ops for instance, you know water looking like a one from an eight to five we really probably think it went down two points.
And.
This this is several factors I mean, certainly some markets are softening, but it's not softening across the board in the industrial areas, you'll theres a number of places.
Where it's still quite strong and we see those areas. So the FNB business chemical plants commercial buildings life Sciences. As examples those markets are really on impacted whereas steel auto and paper, which I think there's a lot of noise around.
We would also say, we see some of that softening there as well, but with that said.
I think we view this market I mean, if this is a conditions were end, we think ultimately our new business efforts will overcome a lot of that softening, maybe not 100% of it but we can still grow at a very good clip in that business. Obviously, if it gets dramatically worse, then we'll have to update our forecasts, but thats.
Not what we see right now.
Great. Thanks, very much really called.
The next question comes from the line of Vincent Andrews with Morgan Stanley . Please proceed with your question.
Thank you and good afternoon.
Maybe you could just help us unpack the.
The volume performance, if we strip out.
Energy and then the low margin business as you exited if you could just kind of walk us through the segments and where you are happier where you think there's more work to be done.
Well you know we would.
I don't know.
I've ever had a quarter, where I thought I was happy with our volume growth.
And this would include at meaning we have aggressive targets that we go chase, but be unpacking the takeaway.
You know paper paper was down this year and in the energy segment, we probably lost a point total so you know without those we would be up a point, but that's not where we need to be which is really why sort of this shift in emphasis we have very good trends in pricing and other things. We know we're going to have good carry and we've got.
Get moving on adding even more share I would point out against every one of our major competitors, we track wins and losses, we've gained share against all of them, but you've gotta go on a really major share gain strategy when you have softening markets.
If I assess a follow up to that into the pricing pivot.
Are there specific new business initiatives that you're putting in place in that product specific or is it digital new technology ERP system, driven I mean.
Or is it just basic blocking and tackling.
Well, we always use innovation is one of the primary fuel means to the end.
As we bring additional benefit to customers, new and or existing and thats absolutely critical to equipping the sales team. We have good success in new business. So certainly the new digital efforts that we've had are starting to bear fruit, we're seeing it in a number of accounts in QSR, where we really led in the institutional side, we're seeing.
Food retail as well and water was one of the early adopters and we've seen very strong efforts around there as well, but with that said no theres been clear new targets established for the last four months of the year, what we're trying to achieve what kind of momentum we're trying to drive the sales teams look.
All of these initiatives there all over it it's clearly tracked clearly monitored is led by Chris stock back our COO and that initiative will also we're quite confident help us gained volume momentum as well as pricing momentum.
Thank you.
Next question is coming from the line of Gary Bisbee with Bank of America Merrill Lynch. Please proceed with your question.
Mr. MRP your line is.
Question.
Our next question will be coming from the line of Manav Patnaik with Barclays.
Thank you.
First question is also just to follow quickly on the pricing shift in what change between I guess today and the prior quota is it just any backdrop that the there's weakness in the industrial side or was it just and maybe.
Maybe to give more color on why that decision was made today.
Well, one really made today. It was obviously made several months ago and.
As we start moving this shift I mean, you got to it takes a little time to enacted.
This is like a natural occurrence for us sooner or later, our natural band is growth than pricing.
And so what I would call as it was a call to get back to natural state versus sort of a abnormal state words pricing over growth and as we look at the situation. We saw rise if you will stabilizing in terms of market. In fact, we had a little daylight Q3 year on year.
Raws were slightly cheaper this year than they were a year ago in total when we net everything out and so you know that conditions. Certainly was we had forecast we started to see that in fact, it was true and it takes a little time for these shifts to star bearing fruit. So you've got to be a little bit ahead of the curve.
Not behind it there's no doubt that all the pricing actions that are in flight are going to be completed by the sales team. We continue to monitor that I'd point out that we had still strong new business growth, even when pricing was in front. So we'll continue to have good pricing effort evil and growth.
As in front.
Okay got it Thats Super helpful. And then just given your comments on the net new business the acceleration from zero to 10 to 40.
I guess.
In the fourth floor to a broadly just some thoughts on how we should interpret that into growth next year. Because I think you said all you need is really 15% so that 40 sounds.
Stand out there.
Yes, and it's not a small relatively small number right in terms of the whole BNL. So I mean, if I wanted to give you a very simplistic example, we've got a business at a 100 million in the loses 5% a year in attrition.
Then if you want to grow at seven you're going to need to add 12% and new business somehow let's pretend. It only comes from net new gains in corporate accounts, we have some businesses like that K would be like that really the only sell corporate accounts well as you go through this new start doing the math that 12 has got to continue to grow.
Each year, roughly a 15% rate if you want to continue to grow at seven and so that's how we look at this and so we measure that is very closely we'd like to be more around the 20% rate. So that we have some wiggle room. If you will in our numbers and those are the types of things that we look at because they're good forward.
Indicators for us, but as I mentioned I think John It asked the question that doesn't it's not like an immediate show up so if we land a new contract we will count it as new business that day. It may take us three to four months to fully install and to realize that volume, but at the same.
Time, we're counting losses the day its announced even though it may take 406 months for that lost to fully see itself into RPL and we think that's important and so really this whole number is really a measure of our loss of our large wins and losses principally in corporate.
Accounts.
Got it thank you.
The next question comes from the line there Gary Bisbee with Bank of America Merrill Lynch.
Hey, let's see if this works this time.
Yes, I guess, Doug one more cut at the revenue the thanks.
There was a number of areas, where the comps were actually quite a bit tougher FNB paper being too you talked about timing at life Sciences. We know you walked away from some low margin business that.
At institutional recently like how much of the sequential deceleration is sort of those those factors that can normalize relative to actual change in the underlying trajectory like because of weaker macro conditions or for other.
Right.
Yeah, I think it industrial I mean, I think when you normalize you get like this if we were going out.
Just to kind of topside this thing you'd say, there's like a two point.
Apparent deceleration I mean, we've still got to grow on our higher base, you'll recall at 1.1 market and one point this sort of gear shift from pricing to new business.
And that's why we know we get on this new business, we're already starting to see the results. We know we will end up if you will gaining back some of that sales momentum now we aren't going to be able to cover any market condition nobody's ever expected as to nor will we promise that we can but if the conditions.
Remain more or less like they are today. We think this is still a relatively good market for us to continue to perform in the fashion that we're performing.
Great and then the quick follow up just done on pricing you said you expect to enter 2020 still having pretty solid pricing, but obviously that.
Comps get more difficult as we move out because you start lapping the bigger price increases gotten what's reasonable.
You know to think about over the next year I mean is it sort of like the 1% or so that's been the long term average or 1% to 2% or or any way to help us. Thanks for that thanks.
Yes, I would say you know find and it's not going to be at the current rate, which really when you strip out as I mentioned upstream averages up right, it's a little over 2.5%.
It's about the rate that we expect in the fourth quarter and it is going to slow through the year, but it will be significantly above our normalized 1% call almost terminal rate that we have so I think we're in a position next year, where we don't forecast inflation really in our.
Material base to still have benefit from pricing.
Thank you.
The next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you Doug can you discuss the competitive dynamics and us institutional and any concern that and maybe more aggressive view on the new business development.
My illicit some price response from the large competitor.
Yes ill, David I haven't we haven't seen.
Huge change in their behavior.
Really anywhere I would say.
As we look at our wins and losses.
Against against our main institutional FNB competitor.
It's.
Four times more wins and losses.
And.
So our advantage I think in technology and feed on the street and the ability honestly to to deliver great value. I think continues to show up so im just the numbers that we have we don't see it if we look at retention kind of ex the.
Large margin Walkaways situation.
We have very good retention.
On so we're not seeing it we're not getting nickels and dimes with small and medium accounts.
Our retention to actually improved in industrial throughout the year.
Which is terrific given the very strong pricing performance that theyve had so at that that's what we know.
Very good just on buybacks, Doug you bought back no stock in the quarter was that due to more active M&A pipeline and housing and the M&A pipeline today.
Yeah, we've got a large pipeline I've mentioned this in we're obviously going after a number of what I'd call middle to smaller deals I.
I think we also have larger.
Folks that we'd be interested again, but.
There you got to be pretty pretty price disciplined.
Typically there longer their companies are the history and and your ability to improve them as X, but not ex times three and so we need to make sure that we're going to get a return for our shareholders over any reasonable period of time.
I would say.
I never really want to recession, but I mean, theres, an upside and there's a recession coming I just can't tell your what year, it's going to be.
It will be it will be a better M&A environment.
Thank you.
The next questions from the line of John Roberts, Yes. Please proceed with your question.
Thanks in the institutional SP you for the business that was exited was that business that ecolabs never should have been in or was it business that you got in and then the customers eroded in that business and if you can characterize for us businesses that your exit the business here you're exiting.
No we were in that business a long time.
The value equation, we had was was favorable.
Offers that were put on the table for the customers were dramatic decreases on what I would characterize as lower margin business for us before we ever would consider meeting you know those deals and so while it was good who is going to be upside down if.
We met those.
Like bids.
And so we chose not to do that we of course continued to try to secure the business at a.
Much different price than it was being offered in the customers made a choice.
This is it happened I mean this isn't the first time.
I wish it would be the last.
And as I mentioned before we've been through we went through a wave of this and FNB for a number of years I would say, we secured almost all of that business back accumulate think a one that we haven't im sure. There is one.
We've had an institutional over years, it kind of moves by region and in many cases weve reached secured that business as well so we've got to maintain price discipline going.
Selling customers for a cash loss just as make any sense to us and we do not believe our cost advantage or we have this monster cost disadvantage I think we just understand the cost of doing the business quite well.
Okay, and then post spin we've put the downstream energy business into the industrial segment in our the margins about the same as the overall industrial segment currently.
Yes downstream will end up in the industrial segment in fact their margins are higher.
Thank you.
The next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your questions.
Hi, guys as Dan Rizzo wonderful Lawrence how are you.
Good.
So with the pricing and the shift to growth for next year is there a certain special with external factors that would kind of makes you shift your policy again, I mean would be a spike in oil or I mean, how do you think about if things were to change in terms of input cost environment.
Oh, absolutely I mean, you can draw scenario would be smart to Reprioritize again input pricing ahead of growth.
We we aren't anticipating that environment, obviously, but should it happen we can pivot quickly there.
Okay.
Thank you very much.
Next question, it's coming from the line of Christopher Parkinson with Credit Suisse. Please proceed with your question.
Thank you.
The results in SMB continue do pretty well and enterprise selling across our water pest elimination. Among a few other substrates can you just give us an intermediate to long term an update on where these initiatives stands where they could go in 2021 just are there any other glaring enterprise selling opportunities within industrial comparable to SMB. Thank you.
Well, yeah, I would I would probably characterize it is why don't I say within water just because it's really water and FNB partnering very successfully and honestly there are a lot of legs left and that partnership there's many customers, where we may have small.
Penetration of the combined concept, but not full enterprise and there are others, where we haven't penetrated yet at all so I would say I think the teams done a great job, but there's still plenty of room left to go even there with that said you. If you look at the water match up with instead.
Two shuttle, particularly in the hotel segment and with healthcare in the hospital or acute care segment. There is significant upside with water in life Sciences pharma continues to make sure that they create you really sterile boundaries, even external too they are building.
Etcetera. So there are a number of initiatives and opportunities as we go forward the data that we're getting and the new capabilities through digital just enhance our capability to what I would say as Mary.
These solutions to create outsize impact for customers.
Got it you've also been done a lot more say products and service programs in health care over the last 12 18 months, including some stuff internationally.
Quickly walk us through the two two to three at key growth drivers for 2020 in both the U.S. and abroad, just given the strategy evolution. Thank you.
Yes look I would say.
Number one continue driving.
The program selling initiatives that are already underway. They continue to have success. We know long term. That's one of the smartest strategies and the team continues to work to Paul what I would call some commoditized.
Segments, and wrap them with digital capability to create additional programs moving forward. The others. We discussed at the Investor Conference that we add is OEM solutions and a lot of this is nearing our capability and other med tech device.
Companies capabilities in creating joint solutions. It really gives both sides and advantage and these can be quite sticky as well those would be two big initiatives that we continue to push we continue on on iOS to push internationally in geographic moves outward using their technology.
Where we don't want to build if you will a ground up ecolab health care business and we continue to build out countries like Australia, China et cetera, with more traditional ecolab full service approach.
Thank you.
Our next question comes in Atlanta, Rosemarie Morbelli with GE Research. Please proceed with your question. Thank you good afternoon, everyone.
Hi, good looking at to downstream in and she then that you mentioned the timing of new business started at the end the timing of also maintenance could you give us a miss you make up the impact on the downstream that flows and then is that a business that you can catch up in the fall.
This quarter dual you'll have to wait until the string of snakes, yet because of weather.
Yes, no I mean, the downstream business will we think be much better in the fourth quarter because of the timing issues that we discussed so mid single digits type performance.
I would say downstream is is not that much different than some of the other businesses. They have been clearly all over pricing as well and have done a very good job securing pricing. It's helped them drive significant enhancement in margin because they had to rebuild margins as well as a result.
Of raw material price inflation and so they are also in a shift to make sure that they get on and have growth and pricing. Good growth first as they start driving share gains in they've got plenty of opportunities to do that.
And then it quickly.
If you could did touch on how much dismiss overall you may have lost because of your pricing Senici and then if you could update to extend the transaction. The old came the transaction in the UK ready Istent.
Well I'll do Holcomb I mean, I think is been announced.
We have a disagreement with the.
Antitrust authorities. Unfortunately, the power in this disagreement as a symmetrical.
Just the same way we plan to challenge it through through the legal channels that are available to us, but clearly it's not a positive and so we'll just have to look at move through its course in terms of.
Yep.
Customers, we lost because of pricing I mean aside from the conversation. We just had around those two customers and institutional which is now well over a year old story in terms of when we got the news.
I, we don't know I don't know of I'm sure. There's a few but not material in the best evidences. The evidence I cited earlier, which is what we call our retention, which we measure very carefully by business. Our retention Corporately is better and it's it's improved throughout the year end in.
Just real.
So we don't really see the pricing has had an adverse effect on our customer base.
Thank you.
Our next question from the line of Mike Harrison Seaport Global Securities, Let's see if your question.
Hi, good afternoon.
Was wondering about the water business you mentioned some softening in autos in steel.
Can you talk a little bit about how those markets were trending.
During the third quarter and into Q4, where they worsening and I guess kind of the heart of my question is that autos.
Ben week for some time. So is it is it theres shutdown activity that happened in Q3.
And I guess, why didnt or why Havent autos slipped a weaker earlier in the year because they've been under some pressure for for some time.
Yeah, well autos I think as well publicized scenario so.
No I don't think we see a situation where that turns around by any means in Q4, I mean, you might have GM.
This is specific customer because strike on strike off but aside from that I mean autos weakened throughout the quarter and we would expect them to remain weak in Q4 as we go through in terms of steel we got more a mixed messages. A goal is I mean, we've secured new new business in that area, but overall.
All I mean, the steel business as a consequence in part because autos and other industrial is down but.
We don't we don't look at that one is hopeless that business continues to grow we would expect it to grow in the fourth quarter.
And then a question on the FNB business.
Just looking for an update on the protein market you mentioned.
That that market grew moderately during the quarter, but was wondering specifically if you can comment on what you're seeing a related to African swine fever, and the impact that that Ted on on protein markets.
Yeah, I don't think thats going to have a material impact on us.
Given most of our exposure in protein would be beef and chicken.
So you know we've seen the protein business continues to grow its low single digits, we would expect more of the same.
All right thanks very much.
The next questions from the line of PJ Juvekar with Citi. Please proceed with your question.
Good afternoon, and this is Eric petering out for future.
Doug your volume and mix was flat in the quarter, how do you think that comparison versus underlying industry trends.
Well you know as we mentioned earlier that's heavily influenced by.
Energy.
Which was which was off considerably and also paper.
I think even those declines were very much in line with industry trend you might even argue we held server gained share in those markets and then on the balance I think it now I mention how many Andrew I got a lot industries to walk through but I would say I think if you look in total.
I think were if you look at our net wins a net losses, what we think is actually going on in the markets.
I would say, we feel we are gaining share but not at the rate that we want to or need to in the market environment. We're in right now.
Okay helpful and health care. Your team has been inundated with product launches, including digital dashboards predictive analytics and core temperature fluid management.
Do you think that's enough to get topline growth higher.
Well you know we're bouncing around you know the low to mid single digits right now I think it's going to take us a while the move out of that range.
So I think those things are going to enable us to do it but as we talked in the Investor Conference I mean, we need to continue if if you will evolving in the portfolio much more to growth some of that we do by taking things that have been commoditized and putting them in the growth category. In some is just over time the stuff.
In the growth category grows faster than the stuff not and we start seeing a natural shift as we go.
Thank you.
The next question comes from the line of Andrew Wittmann with Robert W. Baird. Please proceed with your question.
Great guys, yes, theres been a lot of questions on kind of the topline I wanted to dig in a little bit more into the margin profile I mean as you look over the course the year the SGN a margin it's been following each quarter sequentially.
Around here from like 20, 927, this quarter about 25, and you're guiding 25% SGN a in the fourth quarter I guess as you as as we look at that 25% in the quarter and then guidance for the fourth quarter is there anything unusual in that does that make sense unusually low or anything or is that.
At kind of the way to be thinking about it as we head into 2020.
Yeah, I don't know there's no big.
News in there that would say makes it look artificially low I mean, certainly we work on productivity routinely we still believe there's productivity in front of us as we leverage more effectively new tools.
We need to equip our teams with capabilities to enable them to manage more business successfully and we are working on those tools. All the time there are always in flight and so we do not fully by any means that we're at the end of like our productivity journey, but we've got to do it in a way that makes.
Sense I eat can people adopt the new technology does it work does it truly enable us to continue to serve customers the right way and I think we've done a good job doing that as as evidenced by both retention, which is good and continued decline in SGN a ratio.
Great. Thanks for that I guess my follow up question would be.
I guess similar on the gross margin side.
Obviously, there's a lot of factors that have that go into this and the last couple of quarters, you're starting to see some gross margin leverage from the pricing, which is great to see I was just wondering what the with the bigger puts and takes our Doug mentioned looking at on a gross margin side, obviously raw materials has been a story for many many years now are there other factors that come out of your cost of fish.
Currency initiatives that you've got in place, which I think were largely us unibased.
Are there other puts and takes besides the raw material complex.
That could factor into your gross margin performance as you head into 2020.
Yes, no I think Theres a number I mean, one we got on a lot of formulation work and what I would call as optimizing where we make wide and particularly the energy business.
Were impacted by DSS Sep.
Rollout that we had that was really more on what I would call legacy ecolab plants, primarily so as a consequence, they were liberated they weren't frozen and so you see even there and in tough volume situation.
Good gross profit and very good a while leverage that is both SDMA and a lot of the work in the plants et cetera that opportunity exists across the board and the supply chain. Sep work is largely done we got a few plants left to do but it's really.
Not material and now those plants are leveraging the new tool understanding and having more clarity about what's happening in terms of all the way through freight, but but making we do a batch process should we be rethinking formulation structure and the rest in so ill.
Lot of this work is still in front of us and I would say greatly enhance and enabled by the work. We just did with S&P. There's also a clearly work to be done on SG anyway, and so this is why we still believe you know delivering double digit EPS is really the right path and the way.
Way to think about us going forward, because we can grow and we can also grow while obtaining leverage not just through volume, but through efficiency work both in plants and.
CNHTC.
Thanks.
Thank you we've reached end of our question answer session I will turn the floor back to Mike Monahan for closing comments.
Thank you how that wraps up our third quarter Conference call. This conference call and associate discussion on slides will be available for replay on our website. Thanks for your time and participation in our best wishes for the rest of the day.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect. Your lines at this time and have a wonderful day.