Q3 2019 Earnings Call
Thank you and welcome to our third quarter 2019 company called.
Joining me today.
Our chairman and Chief Executive Officer, and Jim Peterson, Our Chief Financial Officer.
Well, our remarks to be scrapped with a presentation available on the Investor section of old website, I would call Dot com.
Before we begin.
Thank you that as we kind of this call we will be making forward looking statement to assist you in understanding whirlpool corporation's future expectations.
Well the actual results could differ materially from these statements due to many factors discussed in our latest turnkey and other periodic reports.
We want to remind you that today's presentation include non-GAAP measure.
We believe these measures are important indicators of all operation.
Exclude items that may not be indicative of resulting from our ongoing business operation.
We also think the adjusted measures will provide you a better baseline for analyzing trends in our ongoing business operation.
Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for the reconciliation of non-GAAP ice and to the most directly comparable GAAP measures.
At this time, well, it's not disappoint in listen only mode.
Following our prepared remarks, the call I'm going to be open for analysts question.
As a reminder, we accept participants no more than two question.
With that I'll turn the call over come out.
Well, thanks, and good morning, everyone.
On slide three we show our third quarter 2019 highlights.
We delivered very solid global resolve the ongoing EBIT margin of 7.2%.
Hundred basis points increase compared to prior year.
We're pleased with our first half performance continue that positive momentum this quarter.
These results were present, our third consecutive quarter of global margin expansion as we progress towards our full year and long term goals.
In North America, we delivered impressive margin expansion for strong price mix execution and focused cost discipline.
In Europe , we drove near breakeven ongoing EBIT result, as momentum from our strategic actions to stabilize volumes and rightsize, our business drove strong year over year and sequential improvement.
Given our strong year to date performance, which we expect to continue we're confident that were trending towards the high end of our full year ongoing earnings per share range of $14 75 to $15.50.
Lastly in August we paid down a 1 billion term loan which resulted in significant progress towards our long term leverage target of approximately 2.0.
In total were very pleased with our momentum year to date.
Turning to slide four I will discuss our third quarter results in more detail.
We delivered organic net sales growth, which excludes the impact of embraco and currency of approximately 2%.
Ongoing EBIT margin was 7.2% for the quarter year over year increase of 100 basis points, that's positive price mix and focus cost discipline more than offset the impact of slightly lower unit volumes.
Our nine month free cash flow reflects normal seasonality of cash usage and was impacted by our plan settlement payment to the French competition authority and cash taxes paid for the sale of Embraco.
Turning to slide five we show the details of our first quarter margin performance.
Three of our four reasons delivered positive price mix, resulting in margin expansion of approximately 150 basis points as we continue to realize the carryover benefits.
Previously announced pricing actions.
We continue to expect margin benefit from price mix through year end.
However, at a more moderated level as we compare against last year's fourth quarter cost based pricing actions in the U.S. kitchen segment in Brazil.
Additionally, we continue to see the benefit from our cost takeout initiative deliver favorably impact across all regions, resulting in the margin expansion of 25 basis point.
Lastly, improving trends in raw materials outside of North America, partially offset continued care of headwinds, resulting in an unfavorable margin impact over 25 basis points.
The net impact of currency in hedging was neutral for the quarter.
Margin benefits were partially offset by continuation of increased marketing and technology investments.
Overall, we're very pleased if our ability to leverage our global scale life product innovation proactively manage costs and deliver strong global result, despite ongoing macroeconomic volatility.
Now I'll turn it over to Jim to review our region results.
Thanks, Mark and good morning, everyone.
Back to slide seven I'll review, the third quarter results for our North America region.
We delivered a very strong financial performance with revenue revenue growth despite weak industry demand in Canada.
Additionally, we delivered record EBIT as strong price mix execution, and disciplined cost takeout offset lower unit volumes and continued freight inflation.
This marks the eighth consecutive quarter of margin expansion in North America.
Highlighting the fundamental strength of our business.
Lastly, we're excited to announce that we were awarded a five year exclusive supplier relationship with the R. Horton the largest homebuilder in the United States. This relationship further reinforces the strength of our brands product portfolio and logistics network as we bring winning products to more customers beginning January 2020 .
Turning to slide eight we review the third quarter results for our Europe Middle East Africa region.
Unit volumes increased 5% across our core European business led by growth in Russia, UK, Italy, and Poland. Among others. This growth was offset by improving although week middle East and Africa demand.
Despite the continued weakness in the middle Eastern Africa, and the impact of previous business exits net sales excluding the impact of currency were essentially flat for the quarter.
We delivered significant year over year and sequential improvements with ongoing EBIT near breakeven as momentum from our strategic actions continues to drive results.
And our 2019 Investor day, we highlighted the following key actions to restore profitability to EMEA.
Exit of Turkey Hot point.
Hey, South Africa.
Fixed cost reduction and regaining volumes.
We're pleased to say that we are fully on track.
We have fully exited our Turkish domestic sales operations as well as our hot point branded small appliances business.
We also completed the sale of our South Africa operations and are continuing to deliver structural operating improvements in the region.
Now, we turn to slide nine to review the third quarter results for our Latin America region.
Net volumes were negatively impacted by temporary trade inventory adjustments that a key Brazilian retailer.
We have already begun to see unit volumes return to normalized levels and expect to recover volume in the fourth quarter and in early next year.
Organic net sales, which excludes the impact of Embraco and currency increased approximately 4%.
EBIT margins contracted in the quarter as positive price mix.
Favourable raw material inflation was more than offset by lower unit volumes related to temporary trade customer inventory timing.
Let's see devaluation in Argentina, and weak Mexico demand.
Finally, as a reminder, we completed the sale of our Embraco business unit on July Onest, meaning this is the first quarter without the Embraco compressor business consolidated in our regional results.
2018 in first half 2019 results will continue to include the impact of our Embraco compressor business reference our appendix for a schedule of them Broncos quarterly results.
We now turn to the third quarter results for our Asia region, which are shown on slide 10.
Excluding the impact of currency net sales increased 7%.
Strong momentum continued in our India business, delivering double digit revenue and EBIT growth alongside continued share gains.
Although unit volumes increased in China, the cost of the brand transition initiative resulted in elevated margin pressure.
That said our brand transition strategy in China is on track with the value share of Whirlpool brand exceeding Samuel brand for the first time during the quarter.
Before we move onto our full year guidance I want to make a few comments regarding our third quarter consolidated financial results compared to prior year.
Our SGN a favorability of approximately $60 million was primarily due to strategic actions in EMEA and currency favorability in Latin America.
Favorability in interest in sundry income of approximately $50 million is primarily driven by currency related hedging gains the net earnings impact from currency hedging throughout the income statement was immaterial in our results.
Now I'd like to turn it back over to Mark to review our guidance.
Thanks, Jim on Slide 12, we are reaffirming our ongoing guidance assumption for 2019.
Revenue guidance remains unchanged at $20.6 billion as a moderate improvement in U.S. offset by continued softness in Canada, Mexico, and the exit of some of our European businesses.
Our EBIT margin guidance is now 6.8% or slightly above.
Letting our solid year to date performance in confidence in our ability to deliver fourth quarter results in line with our full year commitment.
Our free cash flow guidance of approximately $800 million, which includes embraco sales proceeds and related term loan repayment remain unchanged.
In total were trending towards the high end of our full year ongoing earnings per share range and have decreased 40, a GAAP guidance as additional product warranty liability expenses was partially offset by adjustments to embraco gain on sale calculation.
Strong momentum through the third quarter, we are confident our strategy and actions would deliver continued progress towards our long term goals.
Turning to slide 13, we show the drivers of our ongoing EBIT margin guidance.
We now expect 200 basis points of improvement related to price mix benefits in 2019.
Net cost benefits have been slightly reduced by 25 basis points as ongoing cost productivity actions offset by the impact of lower unit volumes.
The reason revisions we continue to expect at least 50 basis points of margin improvement year over year.
Jim will cover our recent guidance and cash priorities.
Thanks Mark.
On slide 14, we show our regional guidance for the year.
In North America, we saw a moderate improvement in the us demand environment for the second consecutive quarter, providing confidence our guidance range for the full year.
In Latin America, we revised our industry guidance expectations to 3% to 4% as Mexico demand weakness continues to weigh on the region.
Industry expectations for EMEA and Asia remain unchanged.
In total we continue to forecast approximately flat global growth for 2019.
Regarding our EBIT guidance, North America was revised to 12% plus reflecting our continued confidence in the regions ability to drive meaningful margin expansion.
In EMEA, we're confident that we are executing the right actions to restore profitability and continue to expect EBIT margin of approximately breakeven for the full year.
In Latin America, we have adjusted our guidance to approximately 6% taking into account the impact of temporary trade inventory moves and weaker than expected Mexico demand.
Lastly, our margin guidance for Asia remains unchanged.
In total we expect margin improvement of at least 50 basis points as we continue to leverage our year to date momentum and drive strong global results.
Turning to slide 15, I will discuss the drivers of our 2019 free cash flow.
We reaffirm our expectations to deliver free cash flow of approximately $800 million, including the net proceeds and term loan repayment related to the sales embraco.
With our year to date momentum and strong global results. We continue to expect strong cash earnings.
Reaffirm our capital expenditures and restructuring assumptions and we're focused on driving sustainably lower working capital.
As previously mentioned, we made payments to the French competition authority in the first half, which netted to approximately $100 million and our restructuring guidance reflects ongoing asset optimization in our European region inclusive of restructuring of our Naples, Italy's manufacturing plant.
Turning to slide 16, we provide an update on our capital allocation priorities for the year.
The sale of our Embraco business unit is now complete and the proceeds from the sale we're used to pay off our 1 billion dollar term loan in August as we previously communicated.
This brings our gross debt to EBITDA to 2.5, which puts us well on track towards our long term target of approximately 2.0.
Additionally, we completed the sale of our South Africa operations, which is another step forward in our plan to restore the EMEA region to profitability.
Lastly, we repurchased $50 million of shares and expect to continue repurchasing shares at moderate levels going forward.
Turning to slide 17, I'd like to highlight our initial planning assumptions for 2020.
We are anticipating industry growth of approximately flat in North America and globally as modest growth in the us and Brazil is offset by continued softness in Canada, Mexico in China.
Unfavorable impact of previously announced tariff is expected to be offset by using material cost.
Anticipates, approximately flat depreciation and amortization expense for the full year.
Lastly, we expect restructuring expense to be approximately $75 million to $100 million on a go forward basis and in effective tax rate of 20% to 25% further details on our 2020 guidance will be provided on our January earnings call.
Now we will end, our formal remarks and open it up for questions.
Thank you, ladies and gentlemen in order to ask a question. Please press star followed by the number one on your telephone keypad. Please limit yourself to two questions before reentering the Q and thank you.
First question comes from the line of David Macgregor from Longbow Research. Please go ahead.
Yes, good morning, everyone.
Hi, David first question just on EMEA can you just remind us on the EMEA profit benefit from exiting Turkey, and the hub point Sta in South Africa.
Yes, David it's market you may recall, when we laid out these actions, but pretty much a year ago. We said the combination of Hotpoint as C exiting Turkey.
Fixed cost action and everything else is about a $50 million annualized run rate profit so I would see.
In the quarter, we've got pretty much but met share.
Thoughtfully in there and on top of that you have the additional benefit of now having solid role from a core key markets, which kind of gave us that can volume leverage. So it's I would say we much half of improvement comes back from a strategic actions fundamental strategic actions. We have a part came back from we see some group and our core markets them at healthy.
And just on the North American volume declines are you able to bucket, though across kind of value mass and premium. Thanks.
Yes, David it's Mark and here's what I think I wouldn't read too much into a north American volumes decline because.
This is minus 6.9 or 7%.
It's almost entirely coming from the Canadian market weakness, but we didnt, who shared just nobody in this weakness and the SD Kitchenaid SD volume as you know the kitchen and SDN heavily Q4 focused businesses with promotion periods.
Whenever you have trade inventory means come kind of last week September 1st we have filled with that kind of any impact.
At the end of the our North America revenue versus the up 4.5% and move core majors business. We didnt have a very late in volumes are essentially flat to slightly down. So we didn't see thats kind of impact great. Thanks Mark.
Your next question comes from the line of Megan Mcgrath from Buckingham Research. Please go ahead.
Good morning.
Q.
Follow up a little bit on your 2020 comments I know you don't want to get that much more color.
Could you tell us just give us a little color on your ROI assumptions for next year are you assuming.
Commodity prices as of this week or are you taking into account.
I assume you're sort of in negotiation process for contracts, how you're thinking about that heading into next year Meg Meg and this is Jim and again, what we really start with as we look at where the prices are today going into the period, where we begin to negotiate contracts and take that into consideration.
Additionally, we look at the tariffs that have come into play this year and that could still come into play.
And estimate those out so at this point in time as we've said, we we do expect.
Sure.
Unfavorable tariffs to be partially offset by favorable materials, but then once we get to.
The January earnings call will really detailed that more and we'll have a much better feeling at that point on where we think material costs would be for the full year next year.
Megan it's mark maybe just to echo what give us in giving some additional color first of all what we layout to date met the point in time that could well teams into end of January but right now we certainly do see on the raw materials side, we see a moderation of raw material level keeping in mind, we still have accumulate if inflation of two years in premier.
I'd now baseline, but we see a moderation.
And.
From that perspective, we have a certainty of slightly positive outlook for our mine on the ever Hanmis to Jim's point, you havent tariffs versus an element of carry over because not all the terrorist during the second full year and right now we have to take into account what has currently being announced but not yet implemented which will be a food service like the headwind so the tool.
Pretty much net themselves out, but I would expect between now and Dan Reba will be some moving parts here.
Thanks, that's really helpful and I wanted to follow up on the warranty costs in the quarter.
I was sort of an unexpected expense there for any more color you could give on $900 million and.
Any anticipated cash impact from that.
Yes, Megan and this is Jim.
To begin with this is something that we're in the middle of the process of and we've identified a component related issue with with the product we sell in EMEA.
And right now we've put our best estimate out there of what it will cost.
To to rectify that and again at this time, that's an estimate and there's a lot of work going on to identify what the final remedies will be.
If we look at it from a cash flow perspective, we would expect that more to be a early next year type of issue in terms of when you will see the impact.
As I said as these actions are kind of unfolding as we speak.
Thank you.
Thanks, Mike.
Your next question comes from the line of Curtis Nagle from Bank of America Merrill Lynch. Please go ahead.
Good morning, guys. Thanks for taking my question.
So just a quick one in terms of.
I guess confidence in EMEA turnaround in another negative margin, although I guess some progress made in this quarter.
Looking at what's implied for Fourq can you I think it's something around 3% margin.
Pretty significant.
Uplift from where we are now so I guess, what gives me confidence what do you have in places like right now thanks.
Okay LPG.
At Curtis as Mark first of all I would see.
We have would look at this Q3 is a very encouraging sign but our actions that you put in phase of fully on track.
And to have pretty much a 35 million youll be improvement is no might away come from is a big.
But we still losing money, but we're pretty close to breakeven, having said that and that's I would call that have enormous seasonality non European business, which is a little bit more skewed towards Q4 when elbow regions.
If a normal seasonality, where we will be above breakeven and positive in Q4, I'm not quite shrub we agree with the math of 3% and we can put up separately on this one but it will be into positive territory, but probably not to the magnitude of 3%.
Okay. Thanks very much.
Your next question comes from the line of Michael Real from JP Morgan. Please go ahead.
Okay.
Thanks, Good morning, everyone owning bombing.
I wanted to focus for a minute on the North American margins in the third quarter very strong results.
Will that more than we were looking for and I was curious.
You know kind of drill down a little bit in terms of the drivers of that improvement if it was all effectively price mix.
There was some other drivers there and particularly.
As part of that answer if you could also address.
Any changes in the competitive backdrop as LG and Samsung had been ramping production this year.
At their own facilities.
Yes, Michael This is Jim and let me kind of start off here and then Mark will add some more commentary to this too but as we look at North America again, it was a very strong quarter.
We are seeing continuing benefits of many of the price increases that we've taken as well as mix.
Coming from recent product launches and all that so thats one of the bigger drivers that we see obviously cost has been a headwind within North America, whether it was material costs that have started to moderate some but tariffs continued to be a year over year cost increase as well as we've talked about freight costs. So you know we've been able to offset that obviously with.
The price increases we took but also as we said are the mix of our business is very healthy.
Terms to the competitive environment, what I would say is.
Through Labor day, we did see some increased levels of competition again not outside of our level of normal.
Outside of what we expected as we look towards the Black Friday holiday period, that'll obviously be an indicator of where things are and all that but as we've said in the past. We we do participate promotions when we see that they create value and right now I think we've had a very good track record within the North America business of continuing to balance.
Margins versus the promotional periods.
Yes.
Mike and maybe it's Mark maybe you have additional color I want to give on North America.
And we entered a not just Q3 of entire year.
This is an environment, where frankly, we do not get a lot of help on the outside I mean.
Industry demand has been pretty much moving sideways anti year with cost inflation tariffs and logistic costs.
Groupon, LG and Samsung that fully in production and yet we delivered 12.8% EBIT margin Beta tells me.
How you look at the North America business Ms businesses in a really really good shape and were very strong momentum and.
We have enormous confidence on that business.
That's great I appreciate that and I guess secondly, just through visit in earlier question on.
And the profitability there and.
Obviously still expect a lot of things things out of that reason or a lot of improvement over the next year too.
Yes.
Right now as you kind of look at the business plus or minus breakeven.
I was hoping you.
Given your another quarter or two into the turnaround than you laid out some of the plan.
At your analyst day.
Kind of just remind us.
How we should think about the next year or two.
In terms of the next two or three steps that are right in front of view in terms of driving improved profitability for the reason is it all essentially is it much more driven by recapturing some some of the share gains some of the new product introductions.
And retailing wins that you hope to achieve.
Maybe if you could give us an update on how those.
How those initiatives are progressing and how we should think about the next 12 to 18 months, particularly in a backdrop, where Europe is still overall somewhat.
Challenging.
Michael This is Jim I'll start off with that and I think the way you need to to look at it as we talked about the actions earlier and Mark talked about these and we talked about on Investor Day remember those were implemented. This year. So you have carryover going into next year of benefits of that have us being out of Turkey of us having disposed of the South Africa business and of the cost takeout.
You will see a continued level of cost takeout within the EMEA business again, just because we've done a lot of the big actions doesn't mean that we don't have a lot of other things we're focusing on there to continue to adjust our costs, but also them. We talk about the the 5% core growth within that business and we do expect that to continue into next year as we gain back share and some of the.
Countries, where we lost it.
So again, it's going to be a balanced next year of cost takeout with an incremental volume coming in due to a stability of that business.
Your next question comes from the line Sam Darkatsh from Raymond James. Please go ahead.
Good morning, Mark Good morning, Jim how are you.
Good morning.
A couple of questions first regarding North America, specifically and in light of the volumes being down 7% how are you feeling about inventories.
Was your production in line with shipments this quarter what are you expecting for production and then also looking into 2020 or you are you where you want to be from a production versus shipments standpoint, I'll start there.
Sam its market in short we are we going to be that give you little bit more color I'll actually our inventories on a pretty good shape. As you know we spent a lot of time is you're bringing down our inventories early in the year and we're pretty much well on track.
Obviously, but hurt us a little bit on the production leverage, but we've dealt with it but more important part of the Mets behind the units, which I was referring to earlier, we feel pretty good about the trade inventories out there in particular small domestic where you know you have a lot of volume in Q4 I.
I would describe trade inventories at right now being fairly low.
But more important thing for US is what we see on the sell through by either sell out in the stores.
Both majors and small domestic when pretty good shape, we feel very good and that gives us a lot of confidence for Q4.
And then my follow up question is actually a follow up on a prior.
Inquiry about or am I, you mentioned that you expect a moderate tailwind.
From raw materials next year, perhaps offset by the tariffs.
There's a fair amount of confusion, though as to why that tailwind is only moderate.
Based on what we can see obviously with the steel markets and copper and aluminum and what have you. So I'm wondering why it's only moderate.
Were you letting more of your steel purchases float this share do you have longer dated hedges for.
For some of your.
Purchases of base metals, and plastics and what have you just trying to get a sense or why that might be based on what we can see externally Ken.
It's Mark let me maybe try to take this on first of all as a reminder.
Both steel and particularly on the base metals as you know we tried to identify very long or hedge as much as the Ken within our within our policies and guidelines the by definition.
Flipside, I mean, we never buy it's about the spot barely impact to us and in particular during times of elevated raw material prices you should assume.
And a bit of discount in notebooks versus the spot rate. So such yes, what you probably referring to office, both are coming down and we see that.
But again, it's we bought below this both in our full year cost below spot prices, having said that we're certainly encouraged by the trends.
And encouraged by the momentum in raw material.
You May also know that the big do contracts that typically get negotiate towards the end of the year early next year.
And I think the current momentum, which is in good shape and good position to virtualize contract negotiations, but we will not know until end of January .
Yeah, we're big and typically moves a little bit faster.
Element in raw materials plastics plastics, you can't go alone, we typically buy quarterly or even shorter term because it simply cannot go long. So any volatility you may have on oil prices ultimately in most cases reflect back on volatility on the plastics and that is still a little bit an uncertainty move that was.
Certainly good guy for us in 2019.
Thank you both.
Thanks.
Your next question comes from the line of of our own the tile from Gabelli Research. Please go ahead.
Good morning, I wanted just.
I wanted to start with with price mix in North America. It looks like sequentially. There was an acceleration, which I assume it is driven by mix. If you could talk and they try to parse that out for me between price and mix and then maybe give some high color on how you expect mix to evolve from here and maybe call out.
Some of the things you're doing to drive that mix going forward.
So far its market, let me, maybe first take but the first evolves.
What most people should.
Avoid this doing those slides logistically unit decline and take the revenue and assume that price mix, because it's not that high on our major domestic appliance business again, but we have being flat to slightly down volume. We had revenue growth, which is indicative of we had very favorable price mix in North America, we communicated.
For the entire company of with 1.5% price mix in Q3, and North America was above that so North America, let met and Thats a very good performance in particular, if would take into account, but what kind of running against already lost this price increase to some extent not all but to some extent base. It tells you the price mix.
Yes, we should get in Q3 is a combination of both the.
The announced price increase and how we executed but we also feel pretty good about the mix management, which came from new products and we'll be rolling up a market. So we feel pretty good above the mix.
Okay.
In regards to the D.R. Horton when can you give us a little bit more color. One do you currently already do business with the ordinary this all be 100% incremental good talk about.
It does include all major appliances, and then what does that mean for your overall margin would this be accretive similar or how would you how would you categorize that going into 2020, yes. Elvira. This is Jim and I'll, probably start with it and Mark can add some comments to at this is this is a new.
Customer for us and again, it's a big win that.
We're very excited about will involve all of our major domestic appliances.
And so again as we look forward to this it say it is a volume increase for US next year and an increase in terms of the margin of the business, it's not outside of the norm. So the margin of our overall business. So again, we feel very good about it yes about our it's mark.
Obviously, we won't get into details about the volume and the margins, but it is a 100% incremental I think the more important thing is we four years have been talking about us we want to focus more more on the homebuilder.
And the housing market, it's a big part of it cohort is the leader in North America highly respected company and moved very proud to have one.
Have been aboard with an exclusive contracts as a big deal for us.
Okay. Thank you thanks.
Your next question comes from the line of myself from RBC capital markets. Please go ahead.
Good morning, Thanks for taking my questions.
Michael.
Mark.
Just back on the North American volume I wanted to.
Better understand that a little more because you call, Canada as being a headwind and that makes sense, but less we saw its kind as only 8% of.
That business from a revenue standpoint, so I guess I'm still struggling to understand how any decline can really explain the majority of the 7% overall decline so maybe a little more color on that and when you talk about the kitchenaid timing what exactly that contributed.
Michael I mean, I can only repeat what I said earlier the entire volume decline is largely due to Canada and small domestic appliances kind of market has been down.
And then small domestic applies again, you've got to keep in mind, but the vast majority of salad out.
In small domestic lines happens in Q4 surveys every year, there's a lot of inventory moves to begin happening around September October and met industry. We feel good about the sell through but right now we trade inventories are right now for digital so I'm not overly nervous about it had been MD. Despite all of this when we should open 5% revenue growth in North America.
These kind of margins so I'm not at all nervous about these volumes and in particular, knowing that our major domestic appliances, we did not lose any share.
So we feel very good about that.
Okay got it.
And then the second question is a a follow up on that the tariffs and theres been a lot of commentary. This year that you guys have been able to provide around.
Monthly numbers of tariff impacts us and on the website posted what.
Just for and the step up if it happens and list on two and three could mean on a monthly basis, but given your earlier commentary around just the carryover effect.
Into 2020 can can you just quantify.
How much.
This is truly incremental to 2020, if we consider all current implemented tariffs and then the proposed increases and or list for just give us kind of the what impacted 19 and whats incremental 20.
Yes, Michael it's Mark so going to appointed there's the element to have already implemented tariffs we have a certain carryover as you may recall beginning of a year, we talked roughly about $10 million every month and now we talk about in the range of 12 to 14 also depending how much volume we have how much of imports.
So put a number behind the carryover, it's probably around 20 million, but we can provide more details maybe little bit more but then you have the addition of the element of tariffs announced but not implemented and right now as it is prudent we have to take that into account and that is an additional element of a small headwinds we of course all recognize there's on search.
And the around the actual implementation and followed by end of it and we'll know more.
Okay. Thank you thanks, Mike.
Your next question comes from the line of Ken Zener from Keybanc. Please go ahead.
Good morning, gentlemen.
Morning, Ken Good morning, Ken.
So a lot of questions asked so if we just take a step back I was looking at your Threeq you presentation last year, where you gave guidance for this year and you guys did pretty well.
Obviously, if you only got one Q, we can start seeing where the parts switched around for example, we had lower volume.
Which hurt your net costs, you got better price mix by a little bit and ROI tariff.
Moved in your favor.
So.
Clearly.
That was a variety of things moving how does that kind of play out I mean was that a one off situation because ROI went down so much having you're talking about modest tailwind for ROI.
Next year.
But how often does that occurred given your guys kind of experience, we have volume come down which hurt your net cost out capabilities.
Basically offset by ROI, that's kind of my first question. I mean is that something that is normal or is that tends to happen once when inflation drops dramatically. The first year, yes, I'd say Ken.
To say that it's the norm.
Would that would not the wind assets the norm when you look at it.
Obviously, when when volumes come down you do expect.
The pressure on demand to come down also.
And in terms of commodity costs and all that so as we look forward to next year again as Mark talked about earlier, that's really why at this point in time, we're giving guidance on what we are indications on what we see on materials, but not necessarily giving the guidance yet because there are a lot of moving parts still and once we get to January we have a much better understanding just like we.
Would have in the third quarter last year versus when we got to January this year.
Yes, Ken it's Mark maybe also some additional color obviously this year our entire company business was writing heavily on the price increases previously announced price actions.
And we had to deal with cost inflation. The good news is as we come to the end of this year, we still have a benefit to the pricing and we're really.
Starting to turn the corner on the cost side. So thats. Good news so in a year from now no I don't think we will be reliant on one or two drivers.
Thank you should expect more cost take out from us in particular as you get a little bit more tailwind from ROI.
And of course by definition menu you run into the anniversary of price increase you would have less pricing, having said that keep both in mind, we have in a lot about business a lot of product innovation coming into into play into Q4 Q1 in Q2 next year.
Always gives us a significant makes opportunity. So in short I don't think we will be entirely relying on pricing you should expect more from cost, but we will give more details in January .
Understood now related to.
I am assuming a lot of its product innovation Mark.
With the U.S. volume, where wise for the year.
As wise.
Yes.
Price slash mix and I think you're obviously, implying there was some good mix in North America.
Given that you didn't lose share.
Hi, does that seem strange to you all that.
You are seeing flat volume, but the consumers mixing up as opposed to your initial expectations of volume growth.
What does that I mean.
How does that sink in your mind that people are trading up but the volumes flat.
And Ken I'm, not quite sure I would and I don't think we set but industrial total consumers mixing up our business has been mixing up this good right.
Yes, exactly your business yet our businesses in them is really we have good mix up good mix up opportunity as you know we introduced new hire an entire will pool kitchen range.
We'll have next year brand, new dishwasher platform, which will be really superior marketplace. We're introducing a new vertical top load of which is a significant part about business, which comes out in Q1, two product innovation give us the power to mix up and in the marketplace and consumer paper it I'm not quite.
Sure Med is reflective of entire markets min tire market that would stays pretty much flat.
Okay. If I could one last question comment on India. Thank you very much.
India, India continues to be very strong business for US again, we're seeing significant growth within the India market very strong margins there.
And so from that standpoint, it continues to be one of the bright spots that we have within the different countries that we do business in but no nothing significantly different again, we're performing very well they are maintaining and gaining share.
And consumers continue to see good results.
And it's mark, but I certainly do appreciate but let us and on a positive note in there because it's a really good business something we're very proud off so now when we come to the end of our acuity. So let me just maybe summarize some of our key messages on slide 19.
As you've seen we're certainly very positive momentum in our global business and relative margin expansion, we delivered year to date and having Q3 at 7.2% EBIT margin ongoing is a very strong performance.
In North America again, no matter, how you look at it our strong fundamentals have allowed us to be agile in a volatile macro environment.
And despite change them economic trade and competitive landscape on North American business has delivered margin expansion.
Eight consecutive quarters.
And in Europe , We're pleased to see continued momentum from our strategic initiative and we delivered near breakeven results on an ongoing base.
And it's not been pretty much a year since we laid out our strategic initiatives for returning returned to profitability and since that time, we've sold and exited unprofitable businesses. We regained volume in key countries across Europe and have successfully execute our various cost takeout initiatives. So overall I think we we laid out but then we executing according to plans and.
We start seeing results.
And Additionally, we completed the sale of on Graco business unit and use of proceeds to pay down our outstanding term loan and making significant progress towards our gross debt to EBITDA goal of 2.0.
I would also like to mentioned a few key highlights that reflect our commitment to environment Society and government governance issues were named two with $2900 Jones sustainability Index, when North America, and we were named a leading company on the 2019 diversity best practice inclusion index. So I'm very pleased about performance year to date I'm confident we execute.
On the right operational priorities across the globe and I just want to thank you for joining us today and we look forward to speaking with you again on our fourth quarter earnings call in late January .
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.