Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Albany International third quarter 2019 earnings call. At this time all participants are in that listen only mode. Later, we will conduct a question and answer session instructions will be given at that time, if you should require.

Assistance during the call. Please press Star then zero.

I would now like to turn the conference over to our host Mr., John Hobbs Investor Relations. Please go ahead.

Thank you to Lisa Good morning, everyone. As a reminder for those listening on the call. Please refer to our detailed press release issued last night regarding our quarterly financial results with particular reference to the notice contained in the text of the release about our forward looking statements.

And the use of certain non-GAAP financial measures and associated reconciliation to GAAP.

For the purposes of this conference call those same statements apply to our verbal remarks. This morning.

For a full discussion, including a reconciliation of non-GAAP measures. We may use on this call to their most comparable GAAP measures. Please refer to both debt earnings release, as well as our FCC filings, including our 10-K.

Now I will turn the call over to Olivier Zero, our Chief Executive Officer will provide some opening remarks Olivia.

Thank you John .

Good morning, welcome everyone and thank you for joining all third quarter earnings School.

I'd been international delivered another very good growth during Q3, 2019, I'll be seeing our expectations.

I wont to congratulate all about had been use employees for contributing to these very strong results.

We did you road studied the euro your growth.

Total company net sales increased eight Brussels or 9%, excluding the impact of currency translation FX.

We also continued to deliver strong profitability.

Go broke through Q3, two southern 18 operating income grew by over 36 persons and adjusted EBITDA by almost 14%.

Overall, we are clearly running ahead of expectations for the for your that we shared with you on the Q2 earnings School.

These outgrow promos is fundamentally driven by three sector.

First.

Hi, I'm sure you're aware, we're all the exclusive supply your for the life of the program of components find cases Sun blows and space those for both the leap one the variance used on the Airbus Athree hundred Twentys and you will find Muni Andy leap one be variants.

Used on the Boeing 737 Max.

We mentioned on the last goal that we're reducing our second house production rates for the leap one vehicle, but knows as we await the a return to service of the Boeing seven the needs of and Max.

And we expressed concern about de risk of potential additional guts to production into second half of the you.

However, since then why do we have reduced our production rates, we have reduced it by less than we had on Tc bid.

During the recent quarter, we worked with our customer to maintain a production rates of leap components higher than the delivery rates of those companies.

The the action, which has been taken to ensure that we can retain our talented and experienced workforce is expected to continue for the balance of the.

Due to the terms of all contract was our customer the irrelevant accounting standards require us to recognize both revenue and the gross profit on that production.

As a result.

Reduction has contributed to some over performance for the second half of the your comp route to what we were expecting last quarter.

Saga.

Once again this quarter. The he sees segment benefited from a February board net change in the estimate the profitability of certain long term contracts.

Reflecting improvements in labor productivity and operational efficiency.

By their nature was their reserves from improved operational performance the timing and the magnitude of this type of adjustments are difficult to forecast.

Third we also talked on the last call about softness in the paper products and markets in the first half of the your which we expected to result in weakness for a mission, including business in the second half of the year.

Well, we have seen corresponding decline seen Oregon using several markets.

Most notably in Europe , and Asia Pacific, We have been Fourteeneight that the stuff NAV has not yet resulted in a reduction you know mission, including volumes in North America, which is our largest market.

In fact, we delivered mid single digit revenue growth in North America. This quarter and the we have also managed to maintain and even grow our overall segment gross margin.

I should note that these does not mean, where immune to the pulp and paper market softness in North America. Instead, it's likely die mean, and we do still expect to see some softness in mission, including revenues in that market and our overall segment profitability.

In future periods.

All that said I could not be more proud of the company's resolute this quarter and of the efforts made by our talented dedicated and experienced workforce.

Turning now to the current state of each of our segments.

In engine of companies, we continue to Threeq of strong quarterly growth.

Net sales grew by 27% compared to the same quarter last year or 28% when excluding currency translation effects in another remarkable achievement.

We remain on track to meet the full rate production demands of our key programs, including Leap Boeing 787, F 35, and CH 50 Threek.

In terms of current period profitability a C delivered 23.9 of pursuance adjusted EBITDA margin for the quarter well ahead of our expectations.

We delivered strong productivity and operational efficiency gains achieved through our relentless focus on operational excellence, which helped drive both the February ball niche engine in the estimated profitability of long term contracts and at.

Additional profitability improvement.

I already mentioned that we currently are producing leap components at a rate higher than that at which we are delivering them and expect to continue to do so through the end of the euro.

We are monitoring very closely the ongoing situation with the Boeing 737, Max program to which we are a key supply your through our joint venture we saw a fall on the leap engine.

We do not have additional insight beyond what has been publicly reported into the likely path for that aircraft a return to service.

However, as we have indicated before the somewhat unique structure of that program, which is being operated under a cost plus fee arrangements mitigates some of the financial impact of any leap production changes.

However, while our gross profit right on the leap program is likely to be relatively stable. If so slow down the word to extend that significantly into 2020, each would clearly create topline pressure for the segment.

Overall I continue to be very excited about the future for a C. I believe that are focused on new business development as advanced technology operational excellence and meeting customer needs position us for ongoing future success.

Turning to machine clothing for Q3 2019 on a currency neutral basis, we delivered net sales almost 3% below a strong Q3, two southern 18.

However year to date on the seven business net sales are roughly flat to the prior year.

We have previously said that we expect more than packaging tissue and towel and but right PMC sell of increasing two more or less offset declines in the publication grade BMC cells.

This quarter's currency neutral rasool supported that expectation.

We delivered low single digit year over year growth on products for both packaging in tissue grades, we either significant double digit declines in products for publication grades.

We're very pleased with our profitability this quarter.

Even with the lower volume and resulting lower fixed cost leverage. This year, we delivered gross margins of 52.4 per cent compared to 50% last year.

We monitor the competitive environment very closely particularly at times like this.

When there is softness in the end markets and we remain confident in our competitive position.

We believe that our cost advantage driven by both scale and continuous improvement manufacturing initiatives combined with our superior customer service and technology leadership position us well to compete in the marketplace and all driving our.

Exceptional profitability.

With that I would like to turn the Mike over to Steven who will provide more details on the quarter and our guidance for the full year Steven.

Thank you Olivier good morning, everyone.

I will talk first about the results for the quarter and then at the outlook for the balance at the year.

For the third quarter total company net sales were 271.1 million.

An increase of 7.6% over the 251.9 million delivered in the same quarter last year.

Adjusting for currency translation effects the growth in net sales was 9.0%.

In the scene clothing also excluding currency translation effect and in part due to the strong Q2 in 2018 net sales declined by 2.6% caused primarily by or attach a decline in sales a publication and pop rate, partially offset by a modest net increase in sales across all at the great.

Yes.

He see net sales grew at 28.3% primarily driven by growth in the leap.

35, and Boeing 787 programs.

Third quarter gross profit for the company was 104.1 billion.

An increase of 12.7% over the comparable period last year.

The overall gross margin increased by 170 basis points from 36.72, 38.4% of net sales.

Within the end see segment gross margin improved from 50.0% to 52.4% at net sales due to reduced depreciation expense foreign exchange impact next benefit and material savings.

Partially offset by lower net sales driving a reduced fixed cost leverage.

Within a scene the gross margin improved from 14.6% to 20.8% as net sales.

Driven by higher favorable net change in the estimated profitability of long term contracts higher net sales driving increased fixed cost leverage and improved productivity.

Third quarter, selling technical general and research expenses decreased from 49.0 million in the prior year quarter to 48.7 million in the current quarter and also decreased as a percentage of net sales from 19.5% to 18.0%.

The reduction in the amount of expense was driven primarily by the revaluation of non functional currency assets and liabilities.

Which resulted in a loss of 400000 in Q3 at 2018, but a gain of $700000 in Q3 this year.

Total operating income for the company was 55.7 billion, an increase of 36.4% from 14.8 million in the prior year quarter.

And see operating income increased by 2.2 million driven by lower STG at our expense.

Lower restructuring expense and higher gross profit.

While HTC operating income grew by 380% to 17.3 million.

Driven by higher gross profit.

Lower restructuring expense and lower STG into our expense.

The income tax rate for the quarter with 24.7% compared to 28.9% in the same period last year.

Discrete tax items and the change in the estimated annual income tax rate reduced income tax expense by 1.5 million in Q3 2019.

And by 400000 in Q3 last year.

Net income attributable to the company for the quarter was 40.0 billion, an increase of 44.2% from 27.7 million last year.

The increase was driven by improved operating income and the lower tax rate.

Earnings per share was one dollar and 24 cents in the quarter compared to 86 cents last year.

After adjusting for restructuring expenses and the impact of foreign currency revaluation gains and losses.

Adjusted earnings per share was $1.17 cents this quarter compared to 85 cents in the comparable period last year.

Adjusted EBITDA grew 13.9% from last year to 71.4 million for the current year quarter.

And see adjusted EBITDA was 55.8 million or 36.9% of net sales this year.

Down from 57.8 million or 36.6% of net sales in the prior year quarter.

A C. Adjusted EBITDA grew from 16.5 million or 17.5% net sales last year.

To 28.6 million or 23.9% of net sales this quarter.

As Olivier mentioned in his remarks A.C. results for this quarter benefited from a favorable net change in the estimated profitability of long term contracts.

At the risk of repeating my remarks from last quarter. We review the estimated profitability of all long term contract every quarter and why we frequently report net changes sometimes positive sometimes negative in estimated long term contract profitability.

The $3.3 million favorable adjustment in this quarter was again unusually large.

Several of our contracts on which we've been executing successfully for several years.

Achieved cost are wrapping objectives during the quarter that caused us to increase the gross profit rates at which we are recognizing profit on those programs.

Those increased rates effect not only the profitability of those contracts in the current and future periods, but requires that we record in the current quarter the effect of those higher profit rates.

Revenue previously recorded on those long term contract in prior periods.

The $3.3 million I referenced a moment ago represents those incremental profits associated with revenues previously recognized in the prior period.

Therefore, while improvements resulted from strong operational performance both in this and earlier quarters and finally, we'll recognize profit on the effect of contracts at a rate higher than we had done previously the overall profit recognized in this quarter on those contract is not reflective of the ongoing level.

Of profit.

Turning to our debt position.

Total debt, which consist of announced supported on our balance sheet as long term debt or current maturities of long term debt.

Decreased by 58 million to a balance of 424 million at the end Q3.

And cash decreased by about 41 million during the quarter, resulting in a reduction in net debt of about 17 million.

Under the definition of leverage ratio used in our credit agreement, which limits us to $65 million cash netting against gross debt. We finished the quarter with a leverage ratio of 1.42.

While disregarding the limitation and cash netting results net leverage ratio of 1.01.

Our reduction in net debt. This year has been in part driven by our working capital initiatives for the first nine months of the year cash provided by operating activities increased from 61 million in 2018 to 127 million in 2019.

Capital expenditures in Q3, 2019, or about 14 million, reflecting continued investments in equipment to support multiple ramp ups in AC.

The lower levels of capital expenditures this quarter and last have been driven by the timing of some projects some of which will now be completed in 2020 and does not represent any material change in our investment plans or priorities.

Looking forward to the full year, we now expect MC revenue of 595 to 605 million inline with prior guidance of relatively flat revenues on a currency neutral basis compared to 2018.

But we are raising our EBITDA expectations for the full year.

We now expect the segment to generate adjusted EBITDA in the range of 205 to 215 million 10 million higher than our previous range.

In the fourth quarter higher proportion of NC sales are typically generated from inventory de stocking.

Causing seasonal compression at the MC gross margins as lower production rates lead to under absorption.

We now expect H E C to generate revenue for the full year in the range of 445 to 455 million within the prior guidance range of full year growth of 20% to 25% over 2018.

With adjusted EBITDA of 95 to 105 million.

We had not previously provided quantified guidance for 29, a C EBITDA other than to indicate the adjusted EBITDA margins would be higher than in 2018.

Our current guidance range implies adjusted EBITDA margins of 20.9% to 23.5% significantly exceeding the 2018 level of 17.1%.

During the fourth quarter.

Even with the production of the components running ahead of deliveries as Olivier mentioned, we expect to see a significantly larger impact than we did in Q3 from the previous previously disclosed reduction in leap one be production.

As we use extended holiday shutdowns to manage production level, while retaining our talented and experienced workforce, resulting in significantly lower segment revenue in Q4 compared to Q3.

At the company level for 2019, we are also revising our prior guidance for a number of metrics.

For the full year, we now expect revenue.

Between 1.04, and 1.06 billion down from prior guidance of between 1.05 and 1.08 billion.

Adjusted EBITDA at between 250, and 260 million up from the prior guidance of between 2225 and 240 million.

And effective income tax rate, including tax adjustments of 26% to 27% down from the prior guidance of 27% to 29%.

Depreciation and amortization up between 60 973 million slightly below prior guidance of 70 to 75 million.

Capital expenditures in the range of 70 to 80 million down from the prior guidance at $80 million to $90 million.

GAAP earnings per share of between $3, an 81 cents and $4.01.

Up from the prior guidance of three or four and 334.

And adjusted earnings per share of between $3.75 and $3.95 up from the prior guidance of $3.05 and $3.35.

Looking forward.

While we will not be providing 2020 guidance until our Q4 earnings call next year.

I do want provide some color on what we're currently seeing that may impact ADAC years results.

We currently expect another good year in 2020 in terms of overall performance, we do see several headwinds first as Olivier mentioned in AG scene for this quarter and the balance at the year, our production rate for leap components is higher than the rate at which we are delivering those components to our customer.

Yeah.

Due to the nature of the contract with our customer under the relevant accounting standards. We are recognizing revenue and gross profit on that extra production in 2019, even though the produced components will be delivered to the customer in future periods.

This is generating a pull forward of revenue from those periods into 2019.

In addition, considerable uncertainty still exists with respect to return to service of the 737, Max and the subsequent ramp up in our production of leap one be components, which may lead to additional impacts to our revenues from leap one be components in 2020 .

Second as you are aware our APC segment profitability. This year has benefited from net favorable changes in estimated long term contract profitability with almost $9 million of net benefit recognized year to date.

While often difficult to forecast these types of benefits are unlikely to be recorded in the same magnitude in 2020 .

Third.

In machine clothing, we continue to expect that the softness we are seeing in global pulp and paper production will eventually ripple through to our results in the North American market.

We've been fortunate that this has not yet occurred due to the timing lag between paper product production and machine clothing deliveries, but impact us it'll likely will possibly to some extent in Q4, this year and more probably into 2020 .

This will impact both Mcs topline performance and the segments overall profitability.

As I mentioned, a moment ago, we will provide a more complete update on the outlook for 2020 . When we next to get together for our 2019 Q4 earnings call with that I will pass the call back to Olivier for further comments.

Thanks Steven.

In closing I would just like to reinforce how good we feel about the business.

I am proud of the accomplishments of both the M.C. and easy teams and we're thrilled to be able to increase our guidance for the year.

We think we're well positioned for fiscal year, 20, and I'm, particularly excited about the opportunities for profitable growth over the long term overall I feel very good about the business and our ability to hit our expectations.

With that let's go to the line for any questions operator.

Ladies and gentlemen, if you wish to answer your question. Please press one then zero on your Touchtone phone, if you're using a speakerphone. Please pick up the handset before present the numbers.

I will now go to the line of Pete.

Kubicki.

Please go ahead.

Let me, let me turn on I guess on leap one be just so I understand the accounting could you guys are actually booking revenue.

Fits.

Well, you're not receiving cash so we're building work working capital I guess for some amount of time is is that correct.

Yeah listen you used to it correctly I mean, you know, we just would like to however grew too.

Be clear that the.

Inventory build that we're proceeding with after adding agreed the right with our customers approval.

He is not.

Something you know really big I mean, we're talking about only a few weeks would see you few weeks not months a few weeks of of inventory build across funding to lose fan blades pursues.

A few weeks increase versus what we heard the.

You know at the end of June 2019 in of growth the weeks of emerging in the in the in 2000 expected 2020 demand now when you look at the expect food ramp up of the Boeing seven to do them in marks to 57 is quite than that.

Two weeks royalty increased isn't quite acceptable and also you able to remember also that the that we started early 19 with a pretty lean inventory across all components. We also have on the Eutwenty in regards to the leap one new variants to be already rolled forward.

The expected ramp up prior to avail bus on the on the 20, new as they move gradually from 63.

Two how unum when you add Peter just from an accounting perspective to make sure you understand what you will see on the balance sheet as we go through this.

While we talk about building inventory and given the nature of that our accounting treatment, where we are recognizing revenue and profit those finished goods do not appear in the inventory line in our balance sheet, rather they will appear in the contract assets line on our balance sheet. Since they are really owned by at our customer we just have now.

Not yet invoiced those customers to those parts, but we have termination coverage should we ever need to sell those those parts. Our previously treated as contract assets that you will see a slight build in the inventory line at really unrelated to this at ramp up in in production and it's really due to the overall.

Slowdown that we previously this class discussed where there are certain raw materials, which for long lead time average reordered up to six months ago, AFE, which are currently getting delivered which are in excess of our current needs. So you'll see some build in inventory line, but that is really just raw materials and so that is not that finished.

And that will start to come down because obviously, we slowed our at order rate of those product and that inventories of still good it's well, we'll use well within the shelf life of any raw material, we get and then you'll see a slight uptick in in the receivable line and this is really just related to the true up on our contract as production rates come.

Down our current cost is in excess of the at the are predicted sales price start of the year that that true up that we add.

Address with our customer at the end of the year AG bills in accounts receivable during the year appetite by far the largest impact will be on the contract assets line, where that finished goods that inventory will appear.

Okay Thats really helpful guys I. Appreciate it can you just can you share with us the rate you're actually add on the one day, whether it's 42 month or 52 or 57.

Our customer is not authorized us to disclose analog fully you know and we cannot really in the nor can we speculate road on where the growth will be into 20 route from your customers. So full nordmann booking.

Yes, I understood and Olivier just just one clear you are getting up for demand signals on on the one day.

We also on a 300 or they just got yesterday. So that's that's a fair statement.

Well, you know very well above the no its price for very long time road bye bye above swimming during tons wanted to move up prior to the production. The pollution went to view to btwenty over the 320 in Euro audio only 25 million I think is euros again.

No. This morning them and they really want to renewal you'll keep on ramping it up so that's where we're getting ready on our side right.

To make sure that.

We will never be any reason like we have never been in the button, we continue to never be aneurism ride for preventing or customers right to ramp up.

Yes.

Well thanks, Thanks, guys.

Thank you.

We'll now open the line of Kristine Liwag. Please go ahead.

Hi, good morning, guys.

Thank you for joining the call.

Sure I.

I just wanted to get a little bit more clarity about how your cost plus.

Cost plus incentive fee contract structure from leap engine work.

Basically.

Can you discuss if what cost would not be recoverable production rates decline and then also if you have lower production volumes to your incentive fee hurdles adjust meaning if volumes are low, but you operate well relative to that low volume our their incentive fees that you could get Annaly program.

Okay. I think we'll let me first and for you at the high level and of course, Stephen will jump in with who is more color origin to it but as a very high level means into our our AR.

You know contract cost plus sign a fee.

Contracts troop drew arrangements with the.

We though we suffered we see good so there were seeing as you understood the who well I mean mitigate any downside financial impact on our bottom line.

Because of fixed cost twice our recovery a goal there for the.

The gross profit right.

The gross margin on these varies some product is.

Relatively stable right, so well no production decreases.

80, any production shown onep components would drive.

Depreciation and downside pressure right.

On the on the topline.

However wrote our gross profits words stays constant as we drive productivity as we lower our manufacturing cost of goods or revenue per unit.

Drops at the some times the incentive fee peak season, there for the gross profit weights.

First on third gross margin increases and as a result of volume demand demand for the leap engines growing over the Eurs I think it. So we're talking about growing leap engine shipments a little manufacturing rights moving from 18 are these you to about 2500 and renewing 25.

Volume inquisitive, therefore, our revenue.

Due to reorganize revenue increase and therefore as a result of a gross profit roads are increasing because of the incentive fee kicking in our goodall done on gross margin wage increases right. That's a very high level and now I'll leave it to Stephen do get more accounting you know.

Flavor to it right shoring Christine and in terms of AG Youre concerned about our with our costs, which we would not recover if demand ready slowdown. The short answer is there are no incremental costs the costs, which are under allowable under that contract are largely at variable costs.

Related to production such as cost of poor quality, where we do not get to recover all of those in our contract and that is typically a percentage of revenue irrespective of volume rather than some fixed cost, which would start to overwhelm our gross profit rate on the program where volume to go down at right now.

You're correct in trends in Libya as Craig in terms of describing how the incentive fee works, how our our profit rate can step up as we get our price down given where we are right. Now there is at third is not a huge amount of room for our rate to move down as our gross as our production rate goes down on our.

Average cost per unit goes up because we're still relatively early in that program as we were sitting in a position where there was far more headroom for increased gross profit rate on a go forward basis as we got our production rates at as our production costs went down. So I don't think you should expect to see some significant reduction in it.

Gross profit rate, if which we're recording profitability propped on that program as the production rate declines.

That's really helpful.

And that's a lot of color. Thank you for that.

And maybe switching gears a different program on Boeing also recently announced that they're cutting the 77 production rate from 14 per month per month can you discuss how we should think about.

When that would hit year revenue outlook I think they've said another 2020 is when they would see this our ended 2020 twos when they did see this rate cut and then also how we ship we should think about margin impact of that lower rate for you.

Well it will not no overreact, most should bode these announcements I means for civil we'd have to wait and see.

You know the outcome of the trade negotiations fluid between us and China.

Basically the while the those slowed all expected slowdown reduction in building by building was driven by the Asian potential drop in Asian demand right.

So, let's wait and see really what happens.

Anyway, when you look at the Grand scheme of things I mean, the Boeing 787 demand for us the I mean needs.

Very important program, but it's.

In the I would say a single a high single digits right.

Of our of our overall sales of our total revenue right.

So therefore, you know I don't see any measuring back then.

We will address that's you know.

No in the in the second half of 2000, some 20, but I'm not well not if you will vary prove you partner with that certain announcement.

Great and I'm, if I could ask one more program question.

On another large program you have exposure for the F 35, our this week Lockheed finally secure the agreement for 34 million dollar order that seems to span production rate for lots of 12, 13, and 14 to that stretches for a few years and it seems like there on target to increasing their production rate offer that aircraft in the next few years.

Do you need to spend more capex to meet the expected production of the F 35 or are you already at the Capex that you need to deliver.

For that program.

Based on its a very good news for storage, we're very pleased right or to a about these loans when from locking them in the US we decided indeed, one of our greatest to program growth platforms, and we are with very very happy to support and we keep on supporting that program as we have done in the past Muessle maneuverings on bone and put it.

Between productions on both we have we put.

All those components.

Let's see remove seals.

Are you fix wings.

Schemes and tooling from our Salt Lake City Salt Lake City business, we have invested the.

Quite a lot when energy in the past a few euro toward that program, we have the capacity roads and we do not presently we do not foresee any.

You know significant capex increase to support right the growth of the expected know for very long time expected growth way of that program.

Thank you very much.

Thank you Christine Thank you.

I'll now open the line of Peter Arment. Please go ahead.

Hey, this is asher carry on on the line for Peter.

I just have a question about machine clothing.

You could talk little bit about.

In closing market, which has its challenges.

I would have been some softness of margins were about as high as they've ever been could you highlight from the operational metrics, you're seeing that drove that improvement and would you be or Paul similar lever levers in the case at some of that softness.

Spreads to North America.

Thanks News. Thank you good question listen.

Well the wall.

Yes.

From a margin standpoint, I mean, we're very pleased right you have been able to drive 52.4% growth Mondrian versus 50% plus your that increasing gross margin in a year over year was primary predominantly driven by a decrease in the depreciation and amortization.

Was basically driven by more a favorable mix and I'll come back up a market standpoint was driven by some nice procurement serving material savings offset somewhat by a as you saw as Steven mentioned above 2.6% right decline in volume dry.

Being a low we're a recovery my fixed cost recovery, but that'll Martin side now that was very nice productivity gains also that we can put you into driving the business is rising and we'll continue to drive a quarter of took off during the used to come.

That being said from a market standpoint.

You know.

I don't want to change I want to be overly pessimistic and the change the fundamentals of the market where the.

And Mark you had the paper market is still a market that will be growing as we see it wouldn't be confused me at about one pursuant to euro Roger will demand of paper and paperboard, one person to you'll never roads right between 18, and 23 and of course, we can have some of bundled continuously we.

We also continue to believe that the ER.

The our sales of a publication grade the PMC product, both newsprint and publication and why Jean will continue to erode as to about five to 10 pursuant to your into in the next the in the next few euros anywhere, but by the way we've seen that.

Already we're seeing that today.

September 19, the year to date right.

And we also continue to really seeing goes as it is the kids also you today, we will need to thing that the increases in both in packaging.

Tissues, and our paper grades, but was the PMC sales will also more or less offset the declines in publication grades now so thats true that the fundamentals of our market, we're still seeing it with anything on the year to date visitors actual and we'll keep on seeing that now if you however, as a as Steve.

Even with expressing need however to be cautious right.

Looking at the next to the next few quarters, you know that the top line or PMC cells right. He is really driven by.

By.

The GDB words, the GDP growth right and if you look at what's happening here today by by region really a you know that the US economy right is still expected to grow both will definitely.

Slow down next year or the the.

GGB GDP growth in 19 is 2.4 person down from the 2.9% in a gene and currently projected to be 1.1 person in 20, if you switched to Europe .

You are very well know that Europe will be Dexter ratings. This year and also next year with GDP GGP growth are you going down from 1.2% in 19 expected, 0.9% next you're right. So we have to be Joe floor and also a you know China, China as you very.

Well no China is slowing down a slowing down or because of X number of reasons. So it shows a higher environmental pressure reduction of exports from China into North America, we seem to US we do trade war and we're seeing a continuous decline Louis ensuring our goal.

Both.

6.6% in 18 don't grew 6.1% in 19, and I believe expected to go down to 5.8% in 24, therefore, we need to be a pure full.

We need to look at it biomarkers.

We enjoyed the we enjoyed a in the third quarter and actually year to date.

Some pretty strong growth year over year growth.

In North America in the packaging packaging growth, we're very pleased about it very pleased to see it especially in crude green.

Where we saw a some pulled refills.

The producing go ahead, a little bit overhead the of the holiday seasons for Thanksgiving zone in the and the end of the you're already there. So we saw some nice nice influx right over packaging a machine clothing. However, however, the packaging right production in.

North America, According to where we see as dropped about in the need in the mid single digits.

We know that the quarter New board pulled assumes will continue.

In the us to direct is substantial amount of market related downtime.

During the next few malls.

And also in 20, and therefore, Oh view a is that the packaging the the packaging growth.

We'll be a kind of endemic road going into 20, so we might not see Stephen was expressing the same growth are the same increase year over year in packaging grades BMC cells in the U.S. and also coming back to China, we'd have to watch out we have to see you know how low.

Along with those a environmental regulations very strict regulations will last.

And we'll have to see a you know how the trade war.

Between us and China will will will the effect of it and how long showing now we'll keep on reducing right their exports into use. So that's all those factors that we have to work very very carefully and in Europe . You also have debris rates of growth in Brazil. The break this issue that we're watching very carefully that explain why you if you will when.

We look at 20, we're seeing a cost if you will but a repeat the fundamentals of the industry has not I'm not sure.

Okay.

Thank you.

Thank you Ashley Thank you.

As a reminder, if you'd like to ask your question. Please press one then zero at this time.

Now open the line of Latam Carmen. Please go ahead.

Hi, This is Jeff Molinari I'd forgotten today, good morning out earlier this year.

Hello.

Good thank you.

Congratulations on strong quarter. Thank you for taking my questions.

So you covered a lot here already but I wanted to come back telecom long term contract provisions.

There are so in this quarter, there's a 3 million positive favorable coopervision last quarter was $5 million, where those related that or do they span multiple programs.

And then I have a follow up after that one.

So so far in first part dance first part no. They weren't related in that are both you know certainly.

There are not at the same issue you know appearing in multiple quarters each quarter, we measure the impact that everything we know about that at that point in time and at and so the where new facts between Q2 in Q3, which led to that change in Q3, they do span multiple programs and.

In the one where.

You typically don't see much change certainly out on particularly a positive side and is in the at the Lee programs. The Albany Safran because as we mentioned the gross margin is relatively stable. There you know unless we trip over something where we where we add kick into an extra layer of incentive fee, but normally we would project that so we thought it.

The unusual to see a major positive pickup on the leap programs at but other than that it is it's across multiple programs and our salt Lake City, and our Barney operations and and the though and there is no single common thread between the pickups. We saw in Q2 into pickups, we saw in Q3. However.

Thank you Stephen for that definitional, but however, what I would like which would point out that you know those those benefits right or 8.8 million their nose. Your two dollarsthree point threemillion products before in the quarter.

Our really are the result of a very strong right could you usually were very strong labor productivity improvements.

And Oh, Bershawn, all efficiency gains right I mean, it's really what we're working on which we've been working on a you know relentlessly scenes.

For the past couple of years.

Deploying deploying a very DC planes, Oh parish and no systemic across our manufacturing network are driving everyday a you know labor labor productivity improvements and the.

Key assets will improve months equipment effectiveness improvements driven by three fundamental operational drivers process productivity to technology initiatives manufacturing productivity through.

Lean manufacturing initiatives and reduction in downs Roland less reduction of our own known quality cost way. So I think is very important too.

We're very happy we're very and I cannot think more my team.

Two at each of our brands are worldwide to drive and deploying these operating system and we're very very happy to seize originals.

I appreciate the color that's very helpful. There.

And if and I have.

Another question for you.

On the production rates, you see for lead teeth and above boeing's rate.

So they've been at 42 cents marches.

And I think you guys had high 6700 ransom prior to the grounding. So have you guys have been pretty much above them all year. Her can you give any other color.

Our cure rate has trended throughout the year.

Thank you so I know, it's like it's a good question no one in but we.

We we Oh, we do so hoping to explain you. We we produce right a in we ship lose components against a demand coming from several not from Boeing that's point number one way and I can't really agents on public I cannot really explain.

All right to idle given we don't even know is growing GE with a the variance between the Boeing production in the Sophos production right. So our production schedule is driven by supposed human once again.

We had a to a very lean inventory across all variance of report them early into your and as I said earlier, we have only and we will have only increase the.

Value few weeks not a few months line.

The our inventory dealers of finished goods and we at the end of the your.

We we are.

We will reduce.

Use them grow Stephen explained in his remarks will reduce in Q4 versus Q3.

Our our production rights are there for our inventory build or leveraging by the way leveraging the seasonal or the calendar. We have a lot of many many a holiday is influencing November a week.

Things, giving in the U.S., we have the end of the euro holidays.

We will be there for extending.

Our leaders shut down in order to produce less than in Q3 naturally still producing a bit more than the delivery right, but we're doing that once again in accordance with the full and we're doing that.

Who is agreements and.

And mentoring employees are very talented experienced and did you get did a you know team across the world in Mexico in the U.S. and ER and in France until you know, we see a recovery rates from from suffering in Queens.

Pretty pretty quick recovery and return to service of the Boeing 737, one okay.

Okay. Thank you.

Thank you Jeff.

I will now go to to the line of Jonathan Franzen. Please go ahead.

Mr fans of your line is open.

Oh.

Okay.

Yeah, I think we should grow old yet or is there anyone operate is anyone else in the Q.

Yes, I will open the line of Pete.

Skibitski. Please go ahead.

You guys. Just was wondering if you give us the update on how the M&A pipeline is coming along maybe how valuations look in this environment Oh, okay. Thanks.

All the and then May well, you know listen you around the certainly you about words or the newsroom Bruce.

M&A, sorry, Oh, I'm, sorry, Oh, I'm, sorry, you took unfortunately, I'm sorry, M&A listen we don't we don't have publicly a publicly disclose of go through Neil.

Any.

Good control on strategic transaction right, but as I've mentioned many times.

We keep on exploring.

We keep on exploring a inorganic growth the book to me jeans.

Whether we act or not we'll need to deepen with very few factors are most importantly, how they would feet we the our.

Try to Jake and the financial criteria.

And as I've shared with me in your view in the past I mean, our strategic hotel Youre puts you pretty clear.

It's a really means so looking at two booking genes that would that rule, the ER and enhance our our technology that would the we stick the there's that would fit well on existing competencies.

Speaking about potential project to differentiate in materials.

Adjacencies processors and sees.

And also definitely targets that crude or that would bringing a very strong.

Let Joe Yours project process, no, how and the niche as well as nish Nish IP right. So that's really what we have been sharing with you right in the past you know to enhance right and increase our or profitable growth.

And from on only on the on the financial criteria. A you know we want to be very cautious very very prudent and we would be targeting.

So do you know strong they are a single I mean, maybe double digit double digits IR.

And ER, we believe Stephen Tonight and units I would seem really believe it or you know in help with ice age in the in very well defined very well defined synergies warmer than in the module that would say Mughal synergies right. So that's really where what we do and what we're doing and we are a we have.

The brought in a as you know.

A very talented individual working for us with basically devoted this time a is devoted on the on exploring opportunities throughout all our end markets a special euros buyers and we'll continue to do so yeah and from a valuation perspective.

Pete and likewise, we've seen some assets transact lately at very high prices. There is that one in particular in that you really approach in the high teens from an EBITDA multiple perspective at those aren't enough prices that we are willing to chase and so you know that main may limit us and some opportunities we may have to.

Walkway is we're not going to chase prices like that and it's nor are we by the way a bottom feeder that we're looking for you know just at the lowest smartglass that there because as Olivier describes we want high IP want high technology, which implies a a fair and reasonable price and but we're not going to chase something up in that you know that 15 16 cents.

And in 18 times EBITDA, that's just not the level at which at we intend to transact.

Yes, I appreciate the color. Thank you.

You're welcome.

There are no more callers in queue for Q and <unk>.

Well again, thank you all for joining us on the call. We really appreciate your time today and your continued interest in Albany International.

I would like to conclude today's score by organizing the until your Albany team for a another very strong quarter of performance. Thank you.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using ATM T. Conferencing service you may now disconnect.