Q3 2019 Earnings Call
Thank you for standing by and welcome to the high Street retail materials handling 2019 third quarter earnings Conference call.
At this time all participants are in listen only mode. After the speakers presentation, there will be a question and answer sorry.
To ask a question Dream section you will need to press star one on your telephone.
If you require any further assistance. Please press star zero I would like to turn the conference over to your speaker today Christina Kmetko. Thank you. Please go ahead.
Thank you good morning, everyone and welcome to our 2019 third quarter earnings call.
I am Christina Kmetko, and I'm responsible for Investor Relations and hater, Yeah. Joining me on today's call or Al Rankin, Chairman, President Chief Executive Officer, Patriot materials handling Colin Wilson, President Chief Executive Officer of high for your grip and can filling our senior Vice President and Chief Financial Officer yesterday.
I mean, we published our third quarter 2019 results and filed our 10-Q.
Copies of the earnings release in tank you are available on our website.
Anyone who is not able to listen to today's entire call. An archived version of this webcast will be on our website. Later this afternoon and available for approximately 12.
I would also like to remind participants.
This conference call may contain certain forward looking statements. These statements are subject to a number.
Certainties that could cause actual results.
Could differ materially from those expressed in forward looking statements made here today in either our prepared remarks or during the following question and answer session.
We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly conference call. If at all additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-Q also certain amounts discussed during this call may be considered non-GAAP [laughter].
non-GAAP reconciliations of these amounts are included in our earnings release and available on our website.
Now, let me discuss our third quarter results in activity.
We'll discuss the highlights first and then get into the details.
Our 2019 third quarter consolidated revenues decreased modestly to $766 million.
783.9 million in last year's third quarter.
This decrease in revenues, our consolidated operating profit increased significantly to 19.5 million from 12.2 million last year.
The lift truck business is 44% increase in operating profit was the driver of the substantial improvement partly offset by luck.
Bazargani and neither.
The improved 2019 operating profit could not however, counteract the substantial unfavorable change an income taxes.
As we recorded an income tax provision in the 2019 third quarter compared with a substantial income tax benefit in the prior year quarter, which included a 5.5 million dollar tax benefit from U.S. tax reform.
As a result third quarter 2019, net income decreased 12.8 million.
76 cents per share from 15.4 million or 93 cents per share last year.
[noise] looking specifically at the lift truck business.
I feel group's revenue decreased to $725.3 million from 740.89 modestly higher revenues in the Americas predominantly generated by price increases were offset by revenue declines in EMEA and Jay pick the overall decline in the consolidated lift truck revenues was primarily due to fewer you know.
Shipments in all regions, mainly because of a continuing shortage of key components on certain part of the line products from key suppliers.
The shortages also contributed to a change in the mix of products within the backlog, which resulted in a higher average sales price per unit in the 2019 third quarter.
Lower bookings this quarter were partly a result of extended lead times on certain product ranges caused by these same supplier issue as well as reduced but still robust market level.
Hi through your group's operating profit increased to $28 million and third quarter up from $19.4 million last year because of improved results in all three lift truck segment.
In the Americas, EMEA, we were able to realize benefits from price increases as always favorable retroactive tariff exclusion adjustments of $8.7 million.
Suppliers for certain components imported from China, the lower operating loss in Jay pick was primarily the result of the absence of $4 million a been favorable onetime purchase accounting adjustments made in the prior year associated with our acquisition of maximum.
These improved results were partly offset by the effect of lower unit volume.
Shifting mix to sales of lower margin products.
Higher costs, resulting from manufacturing inefficiencies, mainly in the Americas associated with component deliberate disruptions from key supplier.
And higher operating expenses, primarily from higher product development cost to support our strategic initiative.
And our Bolzoni segment, both any reported net income of 700000 dollar.
Revenues of $75.8 million for the 2019 third quarter compared with net income of $1.4 million and revenues a baby 4.4 million in last year's third quarter.
Oh no one is operating profit decreased to $700000 down from 1.7 million last year.
Primarily due to costs related to the transfer of its North America operations from Illinois to Alabama, including $500000 of additional restructuring expenses.
Finally at Nuvera revenues increased to $2.4 million and third quarter from 2 million in the prior year quarter.
<unk> net loss also decreased in the quarter to $5.8 million from a net loss of 6.4 million last year, primarily because of an accrued dividends from one of new bears investment.
Despite these improvements neither third quarter operating loss increased to $9.3 million from 9 million last year as a result of higher warranty expense and an increase in material car.
Looking forward, we continue to focus on our six strategic initiatives and then many projects we are undertaking to execute these initiatives.
Which we believe we'll have a transformational impact on our competitiveness market position, an economic performance over the next three to five years.
You longer term outlook, we established at the beginning of the year still generally hold we have made some adjustments as we have progressed through 2019 and begin to focus more closely on 2026 expectation. Let me walk you through these updates.
In total the many projects we have discussed throughout 2019 have required and continue to require significant upfront expense in capital expenditure investment. We expect further increased investments to continue in the 2019 fourth quarter and peak in the 2024 year.
We anticipate the kids capital expenditures will decline significantly in 2021, but remain at levels higher than 2019, well expensive investments are expected to generally remain at the 2020 levels for the next several years, excluding the impact of normal inflation.
This quarter was one of increased investment we believe the return from these investments has started to be realized and is expected to increase over the next five years.
Before I provide an update on our financial outlook, let me provide some updates on specific more immediate projects and how those are expected to affect 2019 in 2020.
We've put the introduction of the first set of modular and scalable counterbalance to try.
To occur in the second half of 2020 in certain markets.
Neil.
I see Joaquin Stacker global products launched in certain markets in the third quarter and are expected to be introduced in other markets. During the 2019 fourth quarter. These products along with other new products launched earlier in the year are expected to have a significant impact on result in 2020.
Hi for U T and yell you X brand lift trucks in new line of high quality and reliable low intensity trucks for global markets in standard trucks for the Chinese market from high feel Massimo will be lunch globally, beginning with the J. peg, Brazil in Latin American markets during 2019 fourth quarter and increasing.
Over the course of 2022 all countries.
We had previously noted that our China production activities were to be consolidated at the Haynesville, Matt <unk> facility by the end of 2019.
Transition will now occur in two phases. The first phase anticipated become to be completed by the end of the here in the second phase expected to be completed by the end of 2020.
We continue to add sales capabilities around the world, but we're also looking to reduce cost and other areas to contain spending.
Well done is phased out its production at a time, what Illinois facility and substantially completed the ship the manufacturing to sell it and.
It distribution center and certain other operations are currently being maintained in homes one.
In conjunction with this project Bolzoni has recorded $2.5 million of restructuring charges. Thus far in payments related to this restructuring plan are expected to be made through 2020. In addition to the restructuring charges already incurred bolzoni anticipates it will incur additional charges of approximately $800000 to 1.5.
Million dollar for the further restructuring for further restructuring related costs during the fourth quarter of 2019 in into 2020.
Advanced for the responsibility for the development of non fuel cell engine component and the overall assembly of class one class two bucks placements Daiichi a group is nearing completion. This will allow new there to be entirely focused on fuel cell stacks an engine by 2020.
Last quarter, we adjusted Newberry quarterly breakeven target due to a delay in shipments of engine for key customer in China.
Starting from the need for additional unplanned customer driven product validation.
Shipments are expected to ramp up throughout the second half 2020, but if there are further delays with validation and production for this China customer it may push out the breakeven date unless other opportunities crime currently being pursued our realized.
Those are the highlights of the specific projects adjusted during the quarter now let me provide more information than the overall financial outlook.
In summary, while the third quarter of 2019 reflected continued investment in all of our program.
In order to what you saw in the first half of the year, we expect the fourth quarter two improved significantly in comparison to the 2018 fourth quarter last realized last year.
But still showing weakness such as that was seen in this first in the third quarter.
Efforts, we have taken to abate significant shortages from key suppliers in the United States are succeeding.
However, one not fully resolved yet we expect these shortages to substantially ease during the 2019 fourth quarter and be resolved fully by the end of year.
The status of tariff has been changing continuously and although we are still experiencing significant additional cost from both the section to 32 and three a one tariff.
The section three to one tariffs have been abated somewhat by granted exclusion and partly offset by our supply chain groups Curian alternative non Chinese suppliers and negotiating price reduction.
The exclusions were applied retroactively to the July 6th 2018 effective date and extend for one year. After the notice of exclusion or April 2020.
As I discussed last quarter, we recorded duties were comparable for the period of July 620, 18 through the 2019 second quarter.
Are we recorded additional recoveries from supplier, who provided components for which retrospective and exemptions were granted.
Anticipate some further but substantially lower recovery in the fourth quarter.
In addition, our current lift truck backlog contain certain deal specific pricing agreements at less than target margin to gain targeted accounts and for which margin improvement efforts have taken sometime to mature.
These agreements reduced our profitability in the first nine months to 2019, However, we expect margins to recover fully from but when 18 material cost inflation in the heavily discounted deals by the end of the 2019 fourth quarter.
We also expect margins to continue to be enhanced by the exemption of tariffs uncertainties chains component.
We have reduced the tariffs surcharge, we'd applied products sold to customers.
In this context, we've been operating profit ATRIO group, Tim from considerably in the 2019 fourth quarter and full year over the comparable 2018 period.
An increase more significantly in 2020 over 2019 with improvements expected in each quarter over the respective 2019 corner.
Further improved results are anticipated with the significant increases through 2023, our objective is to achieve our 7% operating profit margin target in this period.
You mean reasonable market conditions continue.
Expect Bolzoni is operating profit decreased substantially in the 2019 fourth quarter and full year, primarily due to restructuring of its Americas operation.
However, as we get through the Americas restructuring results in 2020 are expected to significantly improve over 2019 with further improvements in the following year and its target of achieving a 7% operating profit margin.
New bears results are expected to improve in the 2019 fourth quarter and full year over the comparable 2018 period with breakeven targeted to be achieved in the fourth quarter of 2020.
At each of these two businesses the investments being undertaken are expected to lead to increased operating profit through higher volume decreased credit cost and improve pricing, partly offset by a higher level of operating expense in future years.
As a result overall, we expect consolidated operating profit and net income in the 29 in fourth quarter and full year to increase significantly over the comparable 2018 period, excluding the impact of the 5.5 million dollar tax benefit realized in the third quarter of 2018.
In 2020 consolidated operating profit net income are also expected to increase substantially over 2019.
Of course, the absolute profitability will reflect actual market demand levels. We showed some softening in the first nine months in 2019 or markets are still at historically high levels. We believe the market is in a downturn, which is currently projected to be moderate and up limited duration. Therefore in the remainder of 2018 and 2020, we're currently forecasting strong.
But lower forklift market level.
He also continued to forecast a resolution to Brexit in a way that does not significantly harm our business prospects.
Before I open up the call for questions I want to discuss a few balance sheet and cash flow item, our cash position at September Thirtyth was $62.8 million up from 50.3 million at June 32019, but down from 83.79 at the end of 2018.
Our debt balance was 251.1 million down from 370.9 million at June Thirtyth, but up from a December 31st balance of 301.5 million.
Empire constraints in the expenditures, we are making associated with our strategic initiatives have significantly affected our cash flow and our working capital.
As it was all of these factors, we expect or 2019 full year consolidated cash flow before financing activity decreased significantly compared with last year.
After you exclude the impact of the 2018 acquisition of hasty on that small which was a 78 million dollar cash outlay.
Working capital is expected to improve significantly in the fourth quarter of 2018 as the inventory supplier issues are resolved, but we do not expect this improvement fully offset the higher working capital experience in the earlier parts of the or.
For the 2020 full year, we expect consolidated cash flow before financing activities increased significantly over 2019 that concludes my prepared remarks, I will now turn up now open up the call for your question.
[noise]. That's his time I would like to remind everyone in order to ask a question for stars on the number one on your telephone keypad.
The first question comes from Joel Joel model of Sidoti and company. Your line is.
Good morning.
Well known anymore.
Just one quick housekeeping question.
The retroactive tariff exclusion income.
What line.
On the gross profit line or us.
Uh huh.
That's going to that's gonna hit gross profit show. It's essentially those tariffs were included in the cost of goods sold when we incurred them. So we reverse it through the same one.
Okay.
And then I guess.
The supply chain constraints.
Do you see the timing of when.
Good.
That sounds like the fourth quarter.
To see some improvements.
When do you sort of interest.
<unk>.
Yes.
This is called on.
Definitely now.
Run about an hour certainly as we go through.
November ended December .
It really was centered around one key supplier, we had some minor issues or the other suppliers.
But it was wrong a key supply about supply as many of Ocas things.
Which run into a.
Basically the <unk> capacity demand caused by some of the.
Customers in the class eight truck business that business is softer than what sort of getting back on track with them fully or right. At this time, we have some clean up to do but generally we see all of that are being behind us a as we go through the fourth quarter.
And we should be basically out of the that issue completely by the end of the.
So looking.
Third quarter.
Yes.
[laughter].
<unk>.
The gross margins.
Schools.
Gross margins.
<unk>.
Okay.
Is there anyway you can.
Quantify.
Hello.
The supply chain constraints.
Third quarter.
Well it impacted in many ways I mean, it impacted in terms of our working capital is we have lot of 70, Bill talked a lot of components that we couldn't build trucks.
Into it affected our revenue.
Because there was a significant number of trucks, we couldn't get out of the Doe a and some of the structural margin truck. So certainly a it impacted our margin.
I mean, we have it should shift stone and other factories.
Third quarter.
Then as a components became available we have to work overtime.
So it had a a very significantly impact on our operational performance.
And how has the.
Affected at all and I assume most your competitors.
Similar.
I do feel like has affected demand at all.
Extended lead times.
Okay.
We did have some cancellations you know I mean, I wouldn't say major 100, and the one under 200 range during the third quarter as far as the lead times now.
Sort of.
On the line product, where we're back to normal the 14 weeks or we do have some of the models that are impacted by the component shortage.
I would probably five weeks beyond that.
But it's something we can manage.
We also have been yeah, we do have inventory in the field throw dealers you know that can help to dump them.
We are the peaks and troughs of demand so I would not come so on a must be it in the fourth quarter about the impact of lead times.
Certainly did impact our results from a third quarter, however, due to be absolutely clear.
These extended lead times it caused by the shortages.
As a practical matter probably did causes to lose certain business on certain individual products, but where the components were simply not available to produce within the time that people were willing to wait for the trucks. It was very very frustrating situation and I would just to add to what cone said.
But.
We doubled so issues with this particular.
Given their wines and the classic truck market there not a good fit with us in many ways from a long terms <unk>.
<unk>.
Moderate Doug completely ever very good supply or continue to work with them, but I would say.
We have.
Other suppliers as well so we are going to ensure that we never get in this problem.
And part of the issues of <unk>, we were getting dates of when we were expecting them to get back to normal then that would miss those dates and so we're building out schedules around that promise dates and then we'll probably do we promised talk so but did cause some frustration with customers during the third quarter, but I'll repeat I repeat what I've said I mean, we're not going to.
I want to happen again.
So looking at sort of a additional sources of the same components.
But given the nature and given the number of components. The supplier was supporting us with its talking to some time to get all dot lined up but we've secured against having the the issue we paid as we move into 20 all anymore. It is really good ones.
Bringing new suppliers on won.
To produce these components.
Difficult Josh.
And it has taken us quite a while to find or suppliers that are acceptable to Boston.
Our quality.
To take on this kind of.
<unk>.
Okay.
And.
Okay, and then on the price cost side.
You mentioned at least in the press release.
You started to see a benefit.
Your prices.
Cost spread.
Yeah.
Benefits in the third quarter.
Do we continue to see.
A positive trends in terms of price cost.
Fourth quarter, and the 2020 or.
Is that sort of dr. normal.
<unk>.
Well I look at Cowen elaborate a little bit, but I think it it is back to where we wanted to be in most cases, there. Some additional benefit that will come through but we feel that we accomplished some very important things we.
Took some business as we said at the time lower margins to build the confidence of customers that we have not done business with before.
We feel that we have accomplished huh.
And at this point, we're not willing to continue to go forward a in many cases with those relationships until we get recognition of the value for money that we're delivering in terms of them.
<unk>.
Of the product so.
I think we accomplished our purpose with some.
Rather one time decisions that we made to build long term value in the business.
But I think that process is pretty much behind us at this point.
More call, Bob and I agree [laughter] because of the extended lead times why some of these lower margin trucks of bled into the fourth quarter.
We were expecting them to be behind us and the third Oh summarize by saying I think we've been very successful on the pricing front and a 2019, we've had to be because the cost situation has been very volatile.
And very arduous and.
First of all we had the impact of the 232 towers.
Calling me, we're still going strong and supplies were looking to purchase price increases along.
I would still incurring some impact I would say about half the impact we were doing before from appeal one tops.
He knows the economy is softer than we've seen some softening of steel prices other being coming down.
Basically the <unk> well Korlym BOP later.
Almost at the same price or well before the other Thomas will impose there's still much higher than the where when we saw the economy soft and no two or three years ago. So.
So our margins have improved I mean, we have reduced the surcharge or that we were applying because we still are incurring some impact from nuclear one Carlos.
But I I applaud the you know the Americas theme or because I think they've done a very good job managing through all this I'm passing on a pricing into into the market.
And in terms of just the overall economy in the market.
Following a bit.
How would your how is the product mix in terms of orders.
Are you seeing more of a slowdown in your larger higher margin type.
Among the different classes.
How the order trends.
Well, it's as you suggest it does vary product category by product category again cone can elaborate a bit more somewhat the sharpest downturns had been in products, which are not our strengths in the warehouse type.
Our product areas.
Some markets or class two forklift trucks, but there's also as you would guess from I'm just reading about a general economy.
Yeah.
Yes.
Industrial activity that some of the industrial customers, who are in a harder one for us are no longer flying at the rates that they were.
They are coming back to more normal rates another way to think about it is that coming off the.
The downturn.
Probably.
2011, 12 13 14.
People were placed a lot of trucks that they had deferred replacing and by the time you got to 2019 most of that replacement activity that has would end up is completed show now we're back to a more normal cycle is away I would tend to think about it.
When people, they're more normal replacement cycle to have an extended out the away because times are terrible and.
So there is some downturn, but they're also some signs that the market is picking up in certain areas such as very mixed set of signals out there.
At this point, we think there were some.
Action that was related to purchases in anticipation of tariffs.
To try to purchase at more favorable prices before the inevitable price increases that came through.
Anything else you want to add to that cone key market forces North America, North America actually increased slightly in the third quarter over the comparable period of last year.
Yeah first two quarters with first quarter was down significantly second quarter down not so much in third quarter actually show to pick ups a small pickup.
You look at the European market I mean, that's down around about seven in the <unk> percent.
All classes combined some pockets of impacted more than others.
You know, Germany is a key market, though and I think last time I looked at the numbers they were down so the double digits, but.
Overall, we see them I concur with everything else said I think we had a surge.
Because of the anticipated.
Inflation and towers and things are more back to normal in the north in North America, we are watching very closely Joe I'm the the market by segment.
No big trucks are very important to us so we're looking at that very.
Segment.
But we really nothing any of them trending trending down customers a little bit more cautious in some areas like customers in other areas mobile is showing steel is the steel market is still going strong well.
I think it would just.
Were cautiously optimistic about the north American market basically stabilizing I don't about no.
I was an 18 levels.
We go through the balance a 19 into 20.
Hey, John if you look at our average sales price in in our backlog and won't be booked we had about a 3000 dollar increase in the average unit value that we booked in the third quarter over the second quarter, we saw the relatively high value in backlog primarily related to those trucks that we were.
And able to fill that with a premium trucks that have higher average sales prices.
So that's still in the backlog in the backlog is that still at a level higher than our average sales price and the bookings.
But I think the trend was a good trend in terms of the average sales price in the third quarter compared to the second quarter.
And when you in terms of that comment are you, referring to the orders booked or because I know I understand the backlog because you weren't able to get some of those higher margin trucks out the door that those are still sort of propping up that value back to the backlog value what about in terms of the orders booked.
It also pretty positive in terms of.
Orders on a volume basis, if Oh say was pretty normal yes, I was just trying to give you some numbers based upon the unit shipment booking and backlog people, we have in the earnings release and.
We saw an increase in the average sales price in the trucks, we booked in this quarter over last quarter.
Okay.
What about when you look at the market growth.
You're doing a lot of different things to try to drive share gains when you look at the market growth relative to your growth what does that say to your share.
Oh sure I, just thought as you've done very much by industry segment and so we're looking at each individual segment strategies to address each we have themes dedicated teams.
Aimed at the end the different market segments I don't think there's anything materially changing at this moment in time or that would cause us to adjust our approach to the market.
Yes were very strong in the counterbalanced products, Oh, we have more opportunity in the where housing.
We have launched some new products, we have some new products getting ready to launch.
But also the effort of our industry sales teams and a industry support teams are really focused on.
Bundling together all of the the activities necessary in order to.
Sell these excellent products into the market and we're doing it with with some success.
We expect that success to increases we as we fully launch on all of our initiatives.
And in terms of new products I believe Christy at some point said something like new products are going to be I'd make a significant impact on 2020 was that referring to.
Merrily maximal or is that a general comment of new products for the company.
I think it's a it's [laughter] moldable, new products coming along certainly we see global.
Potential for the maximal bill.
Hyster and Yale UTI and you Act these are.
Well we.
Hi, reliable good quality.
Very cost competitive trucks that really serve the low intensity markets.
We have new each truck coming out, which we think is the best in North America, which we believe will be the.
The best product on the market.
And then we have out as we go through 2020, we start launching our new molecular and scalable.
Counterbalance range IC engine and the electric.
That will be hitting the market in the as we go through 2020, which we think will be a real winner for us in in the market. It's a huge.
Product development program, that's being in the making for.
Several years now when we will be launching the first of those trucks around about mid year 2020.
Okay, and then and then got the trucks, we launched in 29 team that we expect to.
Really gained momentum as we go through 2020.
And then just going moving to sort of.
Senses.
I understand that you're continuing to invest for the long term and you're going to see some areas where expenses are rising.
And these long term initiatives.
You also mentioned in the prepared commentary I believe that you're trying to find other areas.
The cost structure to offset some of that how do we think about how much.
Oh, Hi, Ben rising over.
Over the last year or two.
And at what rate does that compare 20 twond.
Some of these offices.
Hello.
Increase in 2020 or I'm, just trying to understand.
How much of a headwind of near term.
As you look at 2020, I think you got that the level of general expenses that we have at this moment in time.
Well not at peak with close to peak.
We clearly we've got so the general inflation, yeah happening that will impact our cost structure.
Okay.
Briefly mentioned about the engine validation that you're still waiting on any more color in terms of.
Timing on.
Systems.
<unk>.
Yes.
I think we said everything in the release.
We've got a very good partner, we have to do some work to get the engines.
Such that they can be.
Really sold in high volumes to multiple customers through that partner.
Beyond that I think everything I said in the release.
Okay. So so looking at sort of.
The cadence.
The sort of revenue I'm, just wondering you have a couple of contracts there it's not just the one.
Jason.
Yes.
Do you anticipate when do you anticipate revenue to start to ramp up is it's going to be more of a back half of 20 or do you think you can see improvement in the first off.
Well, we I mean, obviously as we start shipping the engines in quantity the revenue will start ramping up.
Revenues tied to the comments I dismayed, yes, it does ramp up through.
The course of 2020 right I mean that is the key determinant.
The fact that determining factor as we look at the fourth quarter.
And the revenue and margin from from not contract.
And again it all obligations on the on behalf of the Chinese partner.
So in as much as we can ship the number of units we have in the schedule with achieved the breakeven if any reason as a delay then that will push the break even out.
Okay.
And then on the battery box replacement side.
What is the update on production move to Greensboro is that all.
Situated at this point.
It is I mean, we're producing in a in Greenville, and a I have to admit and relatively low numbers at this moment in time.
As we probably going to a ramp up period, yeah as we speak.
And one but they all of the production for the club all the production for the could be a a class want to class two products have been moved to Greenville. The class three products is still being produced in and believe it grew at this time.
You know what are the things I I think I'd say that perhaps as an outline in much detail in the in the earnings release is that debt.
At Nuvera, we have because we're commercializing a.
Developmental product as you would expect there are number of things that we run across that happened in the field.
As a units are deployed.
We feel that.
We've addressed.
All of those issues from an engineering point of view, but we still have some work to do to get them all implemented in the field.
Most importantly bring down the.
The cost to the warranty costs associated with those products and give put our best foot forward with our customers by having products that.
Our operating according to fully developed commercial standards. If we can do that we'd be the only one of the industry and that's our objective.
But we got a task to do I would say over the next couple of quarters to get our all of our.
Engineering fixes implemented in all the boxes in the field and then be producing.
Products, which incorporate all of those the engineering improved much. So over the next couple of quarters. We've got some things to clean up that will benefit both the cost structure in the long term and customer satisfaction, which is probably the most important of the two in the long term.
The battery box replacement accounting.
Moved over to the Americas segment or is it still baked in.
The July we've got.
The class when in class two product as well as the distribution of PV ours is handled by the Americas.
Fuel cell engines, and the assembly of the class three BB ours is still in Orica.
And then the financial reporting is in accordance with that division of responsibility.
Right.
The new generation of.
I think you're introducing a second generation of battery box replacement that.
So posted.
Designed.
Has that been introduced or what's the timing.
First quarter two.
2000, and a 2020.
So it is a.
New design.
It's lower cost.
Were very optimistic about the the prospect the only caveat I would give you is the one that we would have for any product which is that.
As a new product comes down we want to make sure that we have a thoughtful and sensible phaseout stays in program. So that we don't have.
Excess inventory that we have to write off so there may be some period.
We're looking at right now to make sure that we sold out all the inventory of components and balance things out as best we are able before some of those new products come up to what I would call full production at this point, so that that process will be going on and.
The first half of the year.
Or so.
Okay, and then last question.
Potentially sort of related.
Last answer there.
The supply chain find.
Improve the supply chain and the economics of the supply chain, how is the progress going with that.
Well the intensity of the effort being put into that continues at the highest possible level.
We certainly have.
In place the capabilities that we need through 2020.
But we are continuing to work too.
Restructuring and.
This call will be available for replay beginning at two PM Eastern time today through a lesson for us to nine PM Eastern time on November six 2019.
The number to dial for the replace this 805 to 5.367 4.558, Fivenine to 056 or internationally style for 045373 406, you may now disconnect.