Q3 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to Univar solutions third quarter 2019 earnings Conference call.
My name is Julie and I will be your host operator on this call.
At this time all participants are in a listen only mode.
After the presentation, we will conduct a question and answer session instructions will be provided at that time.
If at any time during the conference you need to reach an operator, Please press star followed by zero.
I will now turn the meeting over to your host for today's call Heather Kos, Vice President of Investor Relations at Univar solutions Heather. Please go ahead.
Thank you and good morning, welcome to Universal Solutions third quarter, 2019 conference call and webcast.
Joining our call today, or David you, President and Chief Executive Officer, Icarly, Gosh, Executive Vice President and Chief Financial Officer.
This morning, we released our financial results for the third quarter ended September Thirtyth 2019, the second full quarter that includes Nexeo solutions chemical distribution business, which we acquired on February 28 this year.
We have posted to our website a supplemental slide presentation to go with today's call.
The slide presentation should be viewed along with the earnings release, both of which had been posted on our website at universe solutions Dot com.
During this call as summarized on slide two we will refer to certain non-GAAP financial measures for which you can find a reconciliation from the comparable GAAP financial measures in our earnings release and the supplemental slide presentation.
As referenced on slide two we will make statements about our estimates projections outlook forecast or expectations for the future. All such statements are forward looking and while they reflect our current estimates they involve risks and uncertainties and are not guarantees of future performance.
Please see our SEC filings for a more complete lifting of these risks and uncertainties inherent in our business and our expectations for the future.
On slide three you will see the agenda for the call.
David will start with his perspective on the quarter and our next do integration progress.
Carl will walk through our results and outlook and finally, David will close with some concluding remarks.
Following that we will take your questions.
With that I'll now turn the call over to David for his opening remarks.
Thank you Heather and good morning, everyone.
We had another busy exciting quarter Uniboss solutions that can many steps forward in executing our growth strategy integrating next year's chemical distribution business.
I'd like to highlight several key accomplishments.
As well as talks to some of the challenges we faced.
In summary, though we control the control as well that she's a forecasted EBITDA.
Our operating performance was excellent seen in high margins and conversion rights.
The integration of legacy Univar Nexeo continues to go well.
And then she cost savings can you continue to be at or ahead of our previously these girls forecast.
First wave of ERP migration went live successfully.
Our working capital efficiency improved cash flow was strong balance sheet continued strength.
The macro global economy, However continues to be a challenge.
Carl will take you through the details in a few moments, but first let me a little more color to those headlines.
The double digit growth you saw in our revenues gross profit dollars. An EBITDA reflects the addition of Nexeo plus margin improvements from our improved sales force and disciplined cost management as well as net cost synergies from integrating the legacy organizations.
Yes, we have opposing forces in our results.
Sustained improvements in execution and capture of cost synergies from the next few acquisition, which themselves sequentially rising and I'll now at least as large as we estimated last quarter were offset by lower demand for chemicals globally.
Our results reflect that had some it hard work about global sales force supply chain manages and many others to control the Controllables wind business and satisfied customers in a lackluster demand environment.
We said since last October but demand was off that our customers are anxious about the future direction of the economy and that business.
That trend continued in the third quarter across many of our end markets stretching into those feeding into automotive construction proteins energy agriculture, and general industrial industries, that's now pretty wide sways across GDP.
We continue to integrate the supply chains of legacy Univar and legacy next year and as you've heard me say before the exit scrambled, meaning we are losing the identity of each legacy business. However, our best estimates. The results of include next who in the prior year indicate that our revenues.
<unk> down high single digit, reflecting lower price and volume about equally split.
Excluding estimated supplies dis synergies from the acquisition, which we anticipated.
This is generally consistent with the results of our key supplier partners and data from other industry sources.
However, our estimates on the same basis for adjusted EBITDA indicate we owned about 3% less than last year, reflecting our sustained focus on margin and cost management, along with synergy capture.
Those revenue and EBITDA estimates are consistent for our Q3 results as well as our year to date results.
While we were intensely focused on managing through the short so we're equally focused on the long term on the tremendous growth opportunity, we have to grow share and capturing more of a huge global addressable market for distributed chemicals and ingredients.
We strive to redefine chemicals included distribution by delivering more value, making it more efficient from our customers to buy from us lower costs for our supplier promise to sell through us more profitable for our shareholders by lowering our total costs to operate a.
A battle Cry remains streamline innovate and grow the business.
During the past few months, we successfully delivered on a number of significant integration milestones I'd like to highlight a few of those to you now.
The first wave of business systems migration to a single S&P system in the Americas began in mid October in the Pacific Northwest and so far I'm really pleased with the results.
I've just returned from that why visited the number of our sites and talk to our team members on the frontline to see first hand that coping with the change.
Im delighted to report that our wave one sites are operating well and the teams are energized and then great spirits.
Customers itself with no interruption of service there being no missed deliveries our production and transportation schedules are wrong time invoices are being issued accurately and also on time.
Wallace our inventory management process isn't records of records are working well.
Support teams business process experts will be in place for as long as I needed to maintain on the job training in the new systems and ensure continued smooth business operations put our teams are learning fast growing that customs the new processes.
We've taken the lessons learned from wave warm and incorporated them into the Planful way too as we move ahead of pace and we confidence.
Implementation teams.
Shortly to the way to region in the southwest to launch migration in January .
As a reminder, this system migration is long overdue the legacy Univar business enables us to build agility into our operating model as well deliver efficiencies by operating on a single system integrated across the company.
Moving to our Digitization efforts, we've consolidated our entire product castle with products from both legacy Univar and next year now available on our new E Commerce platform store Dot Univar solutions Dot com.
This is an exciting milestone with October being the first month that customers are able to purchase online from the combined univar solutions offering a may eight months. After we closed on this acquisition.
We continue to invest in our suite of digital capabilities.
Tools that bring real and differentiated value to customers and suppliers as we continue to execute on our goal of being the easiest to do business with customers and suppliers, both large and small.
Additionally, we continue to invest in our growing advanced analytics team, we're expanding our artificial intelligence capabilities rights across the business and across the world.
Although still in its infancy, we're excited by the results so far and we'll continue to expand this capability on the quest to be even more customer centric and have a better understanding of their preferences order patterns and additional requirements.
As I told you last quarter, our U.S. commercial team had redesign the sales territories of the combined legacy companies, providing greater productivity and opportunity to grow share, but giving more selling time and creating an estimated 20% to 25% of additional capacity.
This has now been successfully rolled out across the country and since mid October all sellers are in position and operating of the new territory.
I've actually opportunity to meet with a number of them over the quarter and I'm pleased to report that they're excited and energized by having more time more support more solutions than ever before to grow that business and the paycheck.
Our salesforce attrition remains low levels, we observed since we closed the deal in March.
A market focus line of business. Thank exclusively specialty chemicals ingredients is the verticals such as food ingredients and beauty and personal care is now fully staffed with technically qualified subject matter experts to help customers identify and solve them most crucial.
Problems.
Customers can now coal on the results is about bank of dedicated technical experts and application development capabilities.
From our flagship solution century, Houston to its newly commissioned sister in Essen, Germany and through our global network of 46 regional solution centers, a 28 locations across the globe.
We have as much capability is anyone and significantly more than most does have a technical and application development excellence to the market.
Real opportunity, but growth is in the hands of our improved sales force and we continue to invest in having the best equipped most skills salesforce in the industry.
To date over 60% of our USA sellers and managers have been certified in our counselor sales process, which helps them build long term when when customer relationships.
The remaining balance of that team will be certified by the end of Q4.
During the third quarter, we move forward without site consolidation plan and close to further three branches.
These closures will lower our warehousing and administrative costs, while selling those sites as we said, we would will help offset ANEXIO integration costs.
We're working to finalize the sale of two of our largest sites. The next several months.
Another positive indicator and harbinger of future growth is the new or expanded presence authorizations. We were awarded in the quarter from Premier supply upon such as beers that Dow Eastman innovations and Novas arms.
These partnerships and the leaving chemicals ingredient products. They bring truly excited I'm delighted with the support from our promise.
Perhaps most notable amongst these awards was dow's decisions were appointed as a distributor is a beauty and personal care market in Germany, Central Eastern Europe and Turkey.
This marks a significant step change for us in markets, where we have traditionally been underrepresented and reflects the growing confidence our partners have been our dedicated industry focus model and will add to our expanding portfolio.
Apart as recognize the value that our commitment to invest in our expertise and digital capabilities brings them and supports our mission to streamline innovate and grow.
Now, let me turn the call over to call you will walk you through our third quarter results and explain our full year guidance, then I will close with some additional comments.
Thanks, David and good morning, everyone.
As David mentioned, we delivered solid third quarter financial results with revenues gross profit and adjusted EBITDA up double digits.
Our operating efficiency and the quality of our total business continued to rise across every metric in the quarter, including gross margin conversion ratio adjusted EBITDA margin and per unit measures.
This reflects realization in our income statement of targeted cost synergies from the merger of the legacy Univar and Nexeo businesses as well as continued focus on margin management and disciplined cost control.
In the third quarter, we reported GAAP net income of 2.5 million or one cents per share compared to 49.6 million for 35 cents per share in the prior year.
The current quarter increase from the addition of next years earnings and better operating performance was offset by the impact of taxes of 18 cents.
Cost to integrate nexeo of seven cents and non cash charges of five cents.
Adjusted diluted earnings per share for the quarter was 36 cents compared to 40 cents in the prior year.
The modest decline can be attributed to a slightly higher tax rate for adjusted EPS purposes, and FX headwind.
Let's review the six financial metrics that we view as a key to evaluating our performance.
On a reported basis gross profit dollars exclusive of depreciation grew 17% currency neutral to $545 million.
And we expanded our gross margin by 80 basis points to 23%.
When adding legacy Nexeo chemicals, the results to last year's financials, we estimate the gross profit dollars exclusive some depreciation were down about 4% driven by 1% of FX, a little over 1% by anticipated supplier dis synergies.
And 2% by lower chemical demand from global industrial markets.
Our third quarter adjusted EBITDA of 184 million also grew 18% excluding the impact of currency.
Adjusted EBITDA margin expanded 30 basis points to 7.7%.
On an estimated basis, adding legacy next year to last year's results adjusted EBITDA was about 3% lower with 1% for Mac, FX and 2% from lower demand.
Our cash flow year to date is significantly ahead of last year.
Partially due to the release of net working capital from lower sales.
Constraining the resilient nature of our business model with counter cyclical cash flow.
However, we also had notable improvement in working capital efficiency.
Our top priority for use of cash in the short term continues to be de leveraging.
We used our residual cash earnings in the quarter to pay down $165 million of debt.
Return on invested capital was down a bit from 11% last year to 10% this year, reflecting the inclusion of legacy nexeo assets, while we advance towards fully capturing synergies from integration.
We measure ROI see by dividing adjusted net income for the last 12 months by net assets deployed.
We project and improvement in ROI see in 2020 as well as continued rise thereafter, as we successfully execute our integration and synergy capture plans and continue to be prudent in deployment of capital.
Our leverage ratio was 3.9 times at the ended the quarter down from 4.1 time in the second quarter and flat with the third quarter last year, which was a period before acquiring nexeo.
We will continue to use our residual cash earnings for debt pay down as well as fund high return investments in our business.
And expect to end this year lower than the third quarter from a leverage ratio standpoint, excluding any paydown of debt that might result from portfolio divestitures.
Given the low interest rate environment, we continue to evaluate opportunistic refinancing options based on current market rates as we always do.
And finally synergy capture.
We reaffirm our forecast to capture at least $20 million in net synergies this year.
And achieve a 120 million dollar run rate of net synergies by the entered the third year from closing.
Our estimate of integration costs remains at approximately 225 million over those same three years.
And we continue to expect at monetizing excess assets will provide not all but substantial funding of these integration costs.
Let me now share highlights from each of our geographic segments.
When adding legacy next of chemicals results to last year's financials on an estimated basis adjusted EBITDA in the U.S. was down about 3% as demand for chemicals ingredients in most end markets during the quarter was lower than the third quarter last year and was down further from.
The first half of this year.
Gross margins were higher up 80 basis points to 23.4%, reflecting our margin management focus and favorable product and market mix.
But estimated volume was down about 6%.
While many of our industrial end markets were lower than last year, we felt the impact of anticipated dis synergies, including much lower volume from the U.S. upstream oil and gas fracking market.
With the next two acquisition, we brought back into our portfolio. Some business. We had previously withdrawn from in prior years.
You're now seeing a decline in business in that end market.
On the cost front, we managed our discretionary spending well and are starting to realize the flow through of net cost synergies from Mexico.
As a result, our U.S. conversion ratio increased 70 basis points.
Just under 35%.
In our Canada segment, adjusted EBITDA increased 15% on a currency neutral basis.
We shared with you in prior quarters that putting the energy in AG markets Aside our core industrial chemical business was growing nicely, particularly in eastern Canada. This continued to be the case in third quarter, especially in our focused industries line of business, which includes food and.
Greetings personal care pharmaceutical and taste markets.
On the other hand demand for our products from the Canadian energy market and the AG market continued their trend line at well below historical levels.
In our Americas segment, adjusted EBITDA declined 7%, excluding the impact of currency in a challenging and progressively weakening macroeconomic environment.
As we observed broad base weakness across most end markets.
As we've done so before we will continue to be disappointed with our spending as we navigate this challenging market environment across our EMEA segment.
In our last time segment adjusted EBITDA grew 14% on a currency neutral basis.
Benefiting from improved operating performance in Mexico, and the Brazilian agriculture sector, along with contribution from legacy Nexeo business and strong cost control.
Our Mexico team performance was excellent as they improved market share and won new business in the energy sector.
While our Brazil team dealt with low demand in a soft industrial economy. They had a strong month in September in beauty and personal care markets.
We also are internally celebrating our first sales order in our new subsidiary company in Colombia.
Moving now to cash flow you.
You can see in our GAAP financial statements that net cash provided by operating activities of $215 million in the quarter with four and a half times higher in last year's third quarter of 46 million.
This reflects release of working capital from the lower demand.
But also reflects delivered meaningful improvement in our net working capital efficiency.
We are benefiting from harmonizing payment terms between legacy Nexeo and legacy Univar and have been carefully scrutinizing, our inventory levels and tightened up our controls on slow payments and selling terms.
Capital expenditures were $27 million in the quarter.
We continue to expect around $100 million of capital expenditures for the year, the largest part of which represents discretionary digital investments.
Turning now to our updated outlook for 2019 in the fourth quarter.
As you can see in our results our revenues gross profit in adjusted EBITDA are growing as we benefit from the addition of Mexico and our sustained improved operating performance.
We are confident in achieving the $120 million or more projected net synergies from the next few acquisition.
These gains though are in the short term being partially offset by the macroeconomic slowdown, which many of our supplier partners. Another industry players are also dealing with.
At the beginning of the year, we issued guidance with the assumption that industrial production globally would be about equal to 2018.
Lower than its historical projection of 1% to 2% growth.
However, this year's market demand from industrial and energy end markets has been running below last year has progressive we contracted.
We saw that in the third quarter and again in October sales.
Taking all of this into account, we now expect full year adjusted EBITDA to be within a range of 700 million to 725 million.
Compared to our prior forecast of 725 million to 740 million.
That compares to $640 million earned last year.
That means that for the fourth quarter, we expect adjusted EBITDA to be between 155 million and 180 million up from the 144 million. We earned in the fourth quarter of 2018.
We are not however, adjusting our free cash flow outlook, our resilient business model means we are cushion from the impact of lower revenues during the slowdown by a release of investment in net working capital.
Our company is performing very well through this short term transitory slowdown.
And we are pleased with the rising net cost synergies from our successful acquisition Nexeo earlier this year.
We are confident in our plan and know that our strategy is creating long term value for all of our stakeholders.
With that I'll turn it back to you David.
Thanks Carl.
Before moving to closing comments I mentioned on our last call. The we have started a strategic review of various lines of business within our portfolio to determine whether we are the best home for those businesses that this is a high priority for us.
We have a number of profitable and attractive businesses that like the like assume legacy Nexeo plastics business, maybe adjacent so our coal chemical ingredients and distribution business.
We have advanced our analysis on up closer to a decision on one of those businesses.
As a reminder of capital deployment priority continues to be debt reduction. So the any proceeds from a sale will be used to pay down debt without trying to get below three times levered by the end of 2020 .
Yeah.
We realized the what maybe at the fall most of your mind is what do we think about 2020 .
And we'll have more to say about that in three months time after we finish the year.
From a macro sense, we're setting up preliminary 2020 planning assumptions. So expect about the same level of demand for chemical ingredients from industrial market that we experienced in the second half of this year.
That means we're not counting on a rebound will bounce back recovery in 2020 , nor are we expecting at this point any further downside.
So the average of our actual Q3 results with our expected Q4 results would serve as a good trend line at this time for our expectations, but market demand at our earnings run rate in 2020 .
Although short term customer demands become more difficult to predict as I've outlined earlier, we've operated in these types of constrained type markets before our asset light model helps us fared better than many others.
Now we have multiple leaders in our control in our favor such as roughly $50 million of incremental integration cost synergies next year.
Along with a larger more skilled sales force in the U.S. with greater market coverage and the capacity for growth as well as disciplined spending capital deployments.
We believe this will all have clearly sets us apart from the rest.
When we merge Nexeo unusual we created a new company universe solutions on a confidence in the strategic rationale and value creation opportunity has only grown.
I'm pleased to say, we have clear tangible evidence that the new culture is taking routes on our growth strategy is working.
We remain focused on controlling the controllables, while simultaneously building for the future.
Execution continues to improve we're executing kept pace with discipline and the confidence in our ability to remain agile and execute effectively sustainably and responsibly.
We believe universe solutions is uniquely positioned to continue to improve its profitability grow market share and grows the size of the distributed chemical.
And ingredients market.
To achieve this I'll focus with suppliers, it's the value with increased transparency safe and secure handling of all materials and provide CLIA markets expertise through dedicated sales and product teams that allow for industry specialization.
A focus for our customers, it's a couple already industry, leading safe and secure handling service levels and parts availability with the deep industry and pullets expertise digital should leadership and technical solution senses that will help deliver further value.
But in summary, the.
The Q3.
We controlled Controllables and achieved a forecasted EBITDA.
We improved our operating performance with high margins and conversion rates. We continued to successfully integrate legacy univar and nexeo with synergy cost savings at or ahead of our previously disclosed forecast.
We successfully completed the first wave of ERP migration.
We improved our working capital efficiency with strong cash flow and strengthened our balance sheet, all while operating in a challenging macro global economic climates.
As I said.
A busy but exciting pulls a feasible solutions.
Thank you for your attention and with that we'll open up the questions.
If you would like to ask your question you want me to press Star one on your telephone to withdraw your question press the pound or high school.
Please standby Bobby compile the QNX cost.
And our first question comes from Michael Macdonald with Wells Fargo. Please go ahead. Your line is helpful.
Good morning, everybody.
Hey, good when I was wondering.
Morning, I was wondering if we can get a finer point on the EBITDA guidance for Q4, it seems like a little bit or larger range. Then what we're accustomed to I was just trying to figure out what what you're baking in from the macro perspective into that range.
Sure I mean I think.
Firstly Q4 is always a difficult quarter to coal anyway.
Because of the seasonality with all the holidays in particularly I think this year. What we don't know is what piece I'm just going to be line, whether December is gonna be a very very short month with people going to close down.
Over the.
The Christmas period for longer or not so that's pretty difficult coal exactly what's going to happen across the quarter, hence the the larger.
The normal guidance window, I think what we've seen is holdings per Bill day.
Go down in Q.
Then through Q3, I'm certainly if we look at September it sequentially lower than than August So we built and.
Lower volumes per day through the quarter. We also look at some of the headwinds that we're getting from from energy and some of the.
Margin headwinds are getting comparison, you comparatively year on year feeding in that some of the benefits from Nexeo integration.
And as I think we said on the call you know really pleased the way that's going to be things that we're capturing that but it's the they the.
It is helping us really buffer what is a.
Difficult to call macro environments, and I honestly I've got no idea about December I honestly don't know I really don't know December is always difficult to call, but this year I think, especially so because I don't know what people are going to.
Do around some holiday vacation, whether it'd be longer or shorter I really don't know so that's why the guidance is a little wider than they would normally be.
Okay, that's fair enough.
And then if I could just follow up on Canada. If if this turns out to be more of.
You shaped recovery versus like a V shaped we've done it been accustomed to the last couple industrial recessions. What do you guys have in your back pocket, maybe additional cost out actions or growing in a different and different verticals then what you're accustomed to can you just add a little color there that'd be great.
Well I think we're very focused on.
He said.
Oh controlling the controllables in a lot of things that we can control, we do have a great opportunity too.
To restructure our business and redefine how we go to market through the legacy ANEXIO legacy Univar and integration and that will feed into the Canadian business as well the kind of the business.
In the core industrial and chemical ingredient business is doing really really well.
It's kind of.
It's masks by a weak energy market and another bad AG season, but the coal business. There is doing really rather well, but we'd want to be playoff.
Layouts hour.
Playbook, which is our integration playbook, which is around the S&P integration, which is around building shared service centers, which is around continued to take cost out of the business take more costs of the backend. So we can invest more in the Frontend. We think there was more growth for us in some of those key verticals, which we we've identified.
Food ingredients for instance be to personal tag case pharma ingredients only just so clearly we see the some good growth that we can get in those as well we true no fit more counter cyclical so the through a number of things that we can we can play but we we have we have a game plan and we're going to speak to what game plan now is not the time too.
So run around and get excited now the time to play the game that you know you can you can play and Youve rehearse fall and you've trained for and you executes on that on the plan that we have.
So far too much both the analogy in that sorry.
Oh, it's okay I appreciate the color good quarter I'll pass it along.
Thank you thanks, Mike.
Our next question comes from Lauren Slabaugh with Exane. Please go ahead. Your line is open.
Yes, hi, good morning.
Good morning.
Hi, I'm going to question on the synergies silicone.
I think has guided that you would have more seasonal scanning Q3 than in Q2.
And it sounds like you had the same amount about 1% on GP. So I'm just wondering how are you factoring in the business people, though those synergies that's carried into Q4 that you didn't sound benign before you said one of the reasons why the Q4 guidance of between Canada, and I guess, we had assumed.
The first question and then the second question is on.
And that the disposal of excess real estate.
David when you say that the two largest sites to be dispose, though seen it coming month.
Is that the bellicose once you had in mind in terms of disposals, all his demo to come.
Okay, well, let me answer the second one first if I may.
On some I think the what we sat is we have a number of sites to close not all of them are equal in value.
We will prioritize we are able to prioritize a couple of the more valuable sites.
Head of the other side sales. So so we are we're doing that and we think that we'd be able to dispose of those.
You know within the next several months.
We'll use that.
We'll use that cash to pay down debt.
But.
As I said not every site. These equal so it will not it's not the bulk of the number of sites that we have but it's it's a.
It will be a something.
Hey, good proportion of the total amounts of cash that we will get from from this disposal of assets.
Okay.
Right on the dis synergies.
Let me just recap the third quarter in our volumes, we estimate on a pro forma basis or including Lexia in the prior year, we're down about 6% with about a little more than 1%, maybe one of the half percent, we attribute to synergies and I'd say that was a little larger than what we expected coming out of energy.
And it's very hard to parse.
At this synergy in that energy space versus so reduced drilling rates that are going on in fracking right now so.
That's a tough math to separate those two up as far as the the width of the range in the fourth quarter.
We really do look at volume for build day, that's that's a key metric to us and we have very extensive data on that so are the with the that have that rate is really comes down to what David said earlier about.
How many good build days were going to get in this third quarter. There's only eight weeks left we I have heard from some customers that they may have.
Have yearend early this year [laughter], a and start focusing on 2020 so.
We're just gonna have to see how they've ever goes into December and that's really the basis for the with.
Okay. Thank you.
Thanks.
Our next question comes from Kevin Mccarthy with vertical research. Please go ahead. Your line is open.
Yes. Good morning, David I was wondering if you could provide a little bit more color on wave one of the IP integration.
In terms of a pace in future sequencing and related to that does it allow you to begin the process of facility closure. So perhaps you could update us on.
Kind of the cadence of of the 40 locations that you plan to reduce in coming quarters.
I'm sure Kevin. So we went live on wave long you know mid October on on schedule and as I said on the call I was up that the ended the month I'm too to meet with the teams.
On all the key sites and to see how was going I mean, it's gone.
Very well need these things can go through the paddling and I've I've lived through the ones that go really badly in the past this one phone really.
I really rather well so we said when we made the acquisition of next year that one of the attractions is to move the legacy univar business onto a multi IP platform and that we felt that this deal re de risked it by having a.
A system, which was it wasn't about the bits and bytes, we've narrowed it down to be a.
Master data.
Transfer and then a change management program and that's what it's turned out to be so the mass today, So I think.
That's been trying to pretty well.
That you have to really scroll through the master data in some detail it takes a little bit tribal noise just bought some of the the mistakes in that the team has done a great great job on that and then the change management people have to learn to work in a different way and I have worked for the last you know how long they've worked in the business and Thats gone really well so the spirit the engagement of the team.
The business process experts, we have on sites. This super uses we have on sites sold on you know very well.
Our other glitches poster all day today that this issue about issue, but that's what the business process experts are there in soup uses of that is a health and through so it's gone it's come pretty well and Weve you know we closed in the months right now it's going to seamlessly. So we're very encouraged by that.
We've taken some lessons learned from that because clearly you know the that's what you do you look at Incyte Web went went really well what could go back. The next time, we've taken that we run through those through a workshop.
With the whole team and we now think about the wave two which will happen in January in the southwest.
You know that gives us some confidence that we can stick to our schedule.
And then clearly wants we have a site stable.
Well sites unstable on on a single ERP platform. Then we can think about rationalizing the side. So the site closures follow sequentially behind the S&P program. So all of that is on track all of that is working well.
I think it's Fox, who will I I'm too old and I've been around too long right now to declare victory, we certainly Tom declare victory.
But we certainly could have lost the game by now we sent we haven't done that I'm very encouraged by what we are.
Let me add to that Kevin on the cadence of the sale of the up to 40 properties.
You know that first of all they're not all the same size I think we've you know that and we're very encouraged that the two largest ones. We have that those two in our sites up and that's valuable to into most valuable ones [laughter] and so this could be lumpy it won't be a straight lined over the next three or.
For years, I mean, basically you're asking for a prediction or when we close on these sites, which you can imagine it's pretty difficult to predict but the good news is that we expect.
A large amount of value to be created cash to be created from the sale. These sites over the next three plus years.
That will make a substantial.
Payment against the onetime integration costs.
That's helpful. Thank you and then secondly, I wanted to ask about your your monthly sales experience I appreciate the the uncertainty looking out to December David but I was wondering if you could comment on what you did see in October I think you mentioned in the prepared remarks September was weaker than August .
It did that extended into October or was was October different trajectory for your prep, perhaps you could elaborate on that.
No no. It was designed it's it's this.
12 isn't the same thing.
Mhm.
Okay.
Thank you very much.
Thanks, Kevin.
Our next question comes from Steve Byrne with Bank of America. Please go ahead. Your line is open.
Yes. Thank you [laughter] David Your you a sales force is certainly going through a lot of changes in recent years, you've got a lot of new blood in there and new territories in new areas of expertise and so forth [laughter] what metrics do you look at to judge.
The level of productivity of the you know redesign salesforce and where would you say they are out in terms of the level of productivity that you'd like them to be able to achieve.
Yes, Steve. Thanks. Thanks. The question I think we look at my Firstly, I think and I'm happy to the way the Salesforce.
Developing I'm happy with the way we brought the two legacy organizations together into one organization and I'm thrilled with it seems work to be able to put those sales stretches together and now I'm.
I couldn't be more excited than we have one single cell team with one single roster of accounts into the market and that really only happened in the second half of October .
But it does.
I mean, we have more capacity more people more time to go call on customers.
I see that feed into.
Check growth in the upcoming years.
Let me I think in terms of measuring that health and wellbeing about sales organization.
The.
Churn rates of our salad is one thing and that's.
Gone down significantly so weve Katz of those those low levels that we've seen since the close of the acquisition that means when we train people staying and they're enjoying their experience which is a good won't then we look as I call rights. We look at the close rights. We look at the win loss ratio and we look at the delivered gross profit growth as they have no as well.
The pipeline in pipeline closest to the day and I think that they're important metrics that we see.
In terms of productivity.
I think that we get a level of productivity by having smaller sales territories more focused.
Sales territories. So so that gives us a level of productivity I think a second level or product so to be.
We get by having better trained about his skills Becca planned.
Count Ross's, that's a skilled and trained salespeople.
Okay. That's what we'll see why now I think this the food labor productivity, which gets built in.
Particularly for the legacy Univar sellers.
As we move through the systems migration, because the systems migration means the.
We essentially becoming easier to buy from because we have more automated systems through the organization that both sellers should not need to get themselves evolved and putting an older through our system and that's probably one of the biggest strains of a satellite capacity is that they can they get involved in processing.
The older through the system and so we're having now to help them learns the trust the system to love to system and trust the system and just go ounces up so that's another level of south capacity, which will get I don't think where anyone dig into that right now, but we'll get that.
2020 really into 2020 won't but I think we have a good sales organization right now I think it's good that went out key verticals that fully staffed.
Great technical capabilities in those I think this supports you find great application development discounts for the sales process that we have.
I was with one sales groups. It's been trying here in Chicago yesterday, you know, Brian you people into was going through the program going through the process, we got over 60% of ourselves.
Engaged in that process right now they find that really really beneficial for them. We'll have everybody. So if you find that by the end of the yet no I'm very calm the goal.
With what I'm seeing from us sales organization, but there's a lot more to come.
And I was curious.
What products you distribute that you provided some level of formulation service to it and does that provide you any opportunity to create your own private label products.
I'm so.
Private label is not something we're really about we do have some of our own private lands in suffice sense, but that's a really smallpox about business and is is that we've had that food.
Probably 40 years I'm more guts.
Our application development lapse of that.
I hope you to postpone Caftwo case.
That leaves a metalworking fluids that that fall <unk>.
We didn't catch is so that adds to look at what was actually brand advocates for the supplies that we represent and that's what they value.
Even though it's a more customers value.
Is that we Sal.
Some products that go well with other People's Chemistries. So we can add one supply as stock.
Hi.
[laughter] flies emulsifier to get a great formulation our customers appreciate that supplies appreciate that so that formulation capability is something that customers are reaching down. So it was more on multiple and brings real value for them.
Securely.
As we get into tougher markets. I mean, we have more solutions are more capability than anybody else to help them stay capacity, it's off a market. So we'll continue to invest in that because we think it's a differentiator for us and we have great capabilities that but I don't want to be I don't want on label mean, we do dilution <unk> co.
Caustic an H.C. Alan so well, that's just timing goals as though we are only we have our own brand in.
But we're not into home when notions of online we represent some of the best brands in the World from investment advisors in the World and we're proud of those brands and we're delighted to do it.
Thank you.
Our next question comes from Bob <unk> with Goldman Sachs. Please go ahead, Sir your line is open.
Thank you good morning.
Okay I wanted to explore a little more of this.
Some of the Salesforce effectiveness and intensity and I think it was a major pillar over the last couple of years of of improving efficiency and I guess, it's been a little less obvious you know externally where the traction.
Has has picked up there.
Yeah, you just mentioned you know harder sales harder times are better for you maybe you can add more value.
Is there also a counter that maybe it harder times the incumbent suppliers there more willing to.
Concede anything they can to keep the business or maybe give us some sense of why we haven't seen as much obvious traction on.
Winning volumes are winning share or maybe you have and you could give us some validation of that as well.
Yes, sure Bob and I think.
A couple of things.
And let me address the kind of traction the sales organization foods.
I mean, you know you know better than anybody who's done a huge amounts of woken that sales organization to train them to develop them to change the kind of sellers that we have and also to change the kind of products that we have to change the kind of of materials that we sell to add more differentiated chemistry is less of the big volume low margin products.
To come away from the from some of the Big energy markets. So some of those very low price products. So it's difficult to say in the topline.
I would I would suggest to you, though the if you look at our ability.
To be able to manage margin and deliver value through the business. That's down by a very good group are probably matches and a very good group of sellers finding value with customers and be able to extract that volume and I think if you look at on margin improvements in on TGP improvement, That's testament to the kind of sales organization.
Additional sales organization that we have today.
I think as we go into tougher times.
I encourage ourselves to walk through the door of a customer and to say Hello I'm.
John Doe Jane Doe from Univar solutions I'm here to save you money.
I mean, we that's saving money wont be by dropping the price.
We have more solutions than anybody else to help customers stay in business through tough times that might be changed the chemistry might be changed the package type it might be.
A different dilution it might be a different supply chain, often you might be using some of our digital capabilities. It to take some cost that we can find ways to bring value to customers.
Is this with a suite of offerings bigger than anybody else that should allow people to be able to hold I had high and to go bring real valuable solutions to customers in the toughest at times I would argue when times are good customers haven't got time to change out one chemistry, if another because that busy hanging onto.
Brian grow demand when times get bad than people have to find ways of staying in business I'd have to find ways of getting value and I think we have more solutions anybody else and it's not just price by the way. We actually you know we have some great supply partners and they supporting is tremendously well. So we can be just competitive anybody.
But but I'm here I'm from Univar solutions I'm here to save you money, we can do that and we can do that better than anybody else.
Gotcha.
You also mentioned something in your bullet points or early in the presentation about advanced analytics.
Yes, a little more granularity on what you're doing there may be an anecdote or two that explains how that's driving value or what what's to come there.
Sure I mean, we employ people that I would never sold and employment distribution business you know whey protein data scientists, we have a great group of people.
Who are trying to who are using AI to help us for all intelligence out of all the data that we have now that what that does is that allows us to.
If.
That's it insights into our sellers and out sales organization to go and sell things now that could be looking get older patents. So we can toll customers and say, we think you're about to run out until we think you're about to water. We've had a couple of comments from from customers coming back to a saying.
You are you waiting our minds right now you know yet yes, we are so rather than wait for the older to comment it's prompting our inside sales to be able to call at the right time to be able to capture all doesn't capture demand. That's just one way that we can do that and it also helps is.
Looking good.
Pricing and looking at pricing get a micro market level to help us understand.
That pricing given it may be suggest.
Well, we can capture more value a move on so there's a range of places where we are.
Deploying that I mean, the other area that is also on cross selling.
The simple kind of customers, who both its also fall that Colorado and ethics, helping to do that as well. So again it feeds information into our salaries. So it helps them at the right questions at the right time and gives them and writes a probability of capturing the older.
And you think that's a competitive advantage at least to the smaller competitors you deal with out there or is everyone. Adopting this in the industry do you think.
I don't know I haven't heard anybody else doing it's not easy to do and we've invested quite a bit of money at it what we are able to do that always invest that money and scale across all our business. So we now using these tools in Europe and in last time and everywhere. We can use. This it's it's you know it's right once read many kind of.
Mentality to this so we can invest.
And scaling across one anybody else is doing I haven't heard anybody else haven't that any another major competitors talk about.
Digital tools and digital offering in quite the comprehensive way.
The we are investing.
Got it thanks, so much.
Our next question comes from Jim Sheehan with Suntrust. Please go ahead. Your line is open.
Good morning, Thanks for taking my question. David you caught can you comment on the competitive environment are you seeing any increase in competitive intensity during the next CEO integration.
Well I look I mean, it's it's a competitive environments anytime and.
No I think.
No I I think there were many people who thought that we would.
Mess up the next integration and so far we haven't we had lot of competitors chasing after off salads. When the deal was first announced in our Salesforce attrition remains low at a number of capacity as you said that we would stumbling fall by bringing the two cultures together and we happens there's been a number of impact as you said, we're going to screw up the.
They pay integration and we happens because a number of compasses aside we got it was that they'll they'll capitalize them when we start to close sites and we happens so I really focus on what we do and how we how we can serve customers ask supply is better and playing our game and then let the competitors worry about how they.
How they deal with that so it's a very competitive marketplace. It always will be about capacity market price. Yes. I think we were we were in the cross has for a while from the second that we announced the Dale and clearly when the cross as right now because.
In many markets with a big guys. So there will be booked but but we are disappointed most of our competitors by not stumbling in the wise they predicted.
Great and you mentioned a data point volume per Bill day.
And you've got extensive data on that.
It sounds like an interesting metric and I'm, just wondering is that a better metric by which outsiders can see the progress you're making and what you consider disclosing any metrics like that.
I look volume to build a helps is.
Look at a trends on TGP. The Buildout is much more important because volume is not really the driver for us is about to the gross profit I.
I don't know, whether we want to share that far of wise, but it is something which we used to try and.
Understand for our business, what's happening in what's going on.
Thank you.
[noise] as a reminder, if he would like asking questions. Please press star one on your telephone or.
Our next question comes from.
Hi, with Deutsche Bank. Please go ahead your line is helpful.
Thank you David just any comments on 2020 kind of thinking about 2020, where are you, suggesting to annualize second half EBITDA as a run rate for that for next year.
And then perhaps add in the incremental synergies or.
Did I misunderstand that.
Hi, David No I don't think that I think that's kind of how we're thinking about life.
We think we don't expect any.
Any particular in table bounce back in 2020 in the economy. So from a macro points of view, we look at the second half and think about that is probably a reasonable run rights for 2020 . That's what we're looking in our internal thinking and then you add and the incremental synergies to that and that kind of gives you a.
Guidelines aware, where we where we're thinking but we're not.
The macro is always the macro weve controlling the Controllables, we know what we control we're confident about that.
But the macro is the macro we don't expect it to materially deteriorates from where it is in Q4, but we don't anticipate a bounce back when not banking on a bounce back Laura.
A recovery next year it becomes grateful went off banking line.
And we met referenced September being below August we're what end markets did you see slowing occur or by region.
Well you know I think the.
If we look I mean, our European business.
Come up 23 quarters of growth you know it's down 7%.
Currency neutral.
And you know infinity to how to bump in quarter three last year. It was also positive comparatively a European economy is slowing down and he's getting.
Getting back to its getting.
Gradually was what our business is doing very well and managing through that I think they see you saw a wide range of industry slowdown be set that I'm you know the industrial markets in the USA is slowing down.
And we saw that guide down I mean energy energy in North America.
Really is a is is the one which is probably showing the most mark slow down in the last quarter with too.
They the situation in Canada in Alberta is kind of well publicized fracking is slowing down in the U.S. So that's probably.
The biggest long now energy clearly no. One knew is important so was that as he was.
Five years ago four years ago, when we were very much energy.
Focused company, but it's still.
You know something like 8% on North American sales I'm. So that's that's one which is really.
Disappointed.
Thank you.
Our next question comes from a Laurence Alexander with Jefferies. Please go ahead. Your line is open.
Good morning, guys, It's Dan was one Florence.
You mentioned that the next your business in oil and gas is.
Oil and gas business, obviously is assuming some weakness as I recall, a few years ago. I think you guys kind of exit that business or rose significantly de emphasized. It is are you doing looking to do the same thing again, I just walking away from their again or they better positioned off then you're backing that.
No and timely question no I mean, I think I've got you said I mean.
You know North American energy is about 8% about business its about 5% business globally.
And.
As you did you referenced a number of years ago, and Univar legacy Univar was very big into the energy market very big in the energy market and.
It.
Wasn't always very profitable and we moved away from a loss of that.
Over the last few years on some of the accounts that we moved away from went to an axiom.
And so when next year when you all come together those accounts.
I, probably gone to someone else now and so it's not odds looking too.
Come out of energy completely we're very happy to be in energy.
Where we can support the business profitably, but is about profitable business for us, it's not about shipping volume and shipping railcars. So that's.
That's the kind of nexeo angle on it.
Alright, Thank you very much.
Yeah.
We had no further questions at this time I will now turn the call back to [laughter].
Thank you, ladies and gentlemen for your interest I mean, if activation if youve any follow up question. Please reach out to the Investor Relations team. This does conclude today's call.
Ladies and gentlemen.
Thank you for participating you may now disconnect.