Q3 2019 Earnings Call
Getting bite and welcome to well built.
Third quarter 2019 earnings call.
This time all participants are in listen only mode. After the speakers presentation, there will be a question and answer session.
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Now I'd like to hand, the conference over to Mr., Richard Shuffle, Vice President Investor Relations. Please go ahead Sir.
Good morning, and welcome to well built 2019 third quarter earnings call and webcast.
Joining me on the call today as Bill Johnson, President and Chief Executive Officer, Marty a guard, our Chief Financial Officer, and Joseph matter Sabic, Our Chief operating officer.
Before we begin our discussion please refer to our safe Harbor statement on slide two of the presentation slides, which can be found in the Investor Relations section of our website www dot well built dot com any statements in this call regarding our business, but are not historical facts are forward looking statements in our future results could be.
Really from any expressed or implied projections or forward looking statements made today. Our actual results may be affected by many important factors, including risks and uncertainties identified in our press release and in our FCC filings, we do not undertake any obligation to publicly update or revise any forward looking statement.
Whether as a result of new information future events or other circumstances. Today's presentation. A discussion will include both GAAP and non-GAAP measures. Please refer to our earnings release for our non-GAAP reconciliations and other important information regarding the use of non-GAAP financial measures now I'd like to turn the call over to Bill.
Thanks, Rich and good morning.
You saw in today's earnings release and on slide three of our presentation.
We're pleased with our operating results in Q3, despite facing softer than expected end market conditions in the Americas EMEA.
Organic net sales increased 0.6% in the quarter foreign currency translation headwind up 1.2% resulted in a 0.6% decrease in net sales.
Operationally adjusted operating EBITDA decreased $4.6 million or 5.3%.
And the margin decreased 100 basis points.
We had positive contribution from price a material cost and tariffs in the quarter offset unfavorable manufacturing variances due to the softer than expected sales and inefficiencies and those plants that are currently participating in the transformation program.
It was also a favorable incentive compensation adjustment last year's third quarter. They created a negative comparison this years third quarter I.
Well, let Marty dive deeper into margin variances in his comments.
Moving to slide for our transformation program remains on schedule for achieving the key objectives, we outlined at our Investor day.
As an example, our procurement team has been very active and initiating sourcing events.
That will cover all of our addressable material spend by year end.
As the RF Q process has one of the longest timelines of any of our activities.
Represents 40% of our anticipated savings.
We decided to bring forward the RF cues from all the waves to have them issued by December 31st.
For six months ahead of schedule.
This increases the likelihood that we will achieve our targeted savings from procurement within our original timeline.
We continue to make great progress at both of our wave one north American manufacturing plants.
See them on schedule with their planned activities.
We have started to take delivery of new fabrication equipment at the plants and will install test and go into production with this equipment over the next few months.
We'll continue to improve the layouts of our assembly line and where we've done that we see inefficiencies and lead times improved significantly.
As we finished installing the new fabrication equipment and continue expanding line slow changes over the next one to two quarters, we expect to begin driving the cost out of these operations.
We began work on our third North American manufacturing plant in September .
Which signifies that we have moved into the second a four waves or transformation program.
We are applying learnings and people from the first two plants that should allow us to move faster, but this plan.
We've also accelerated Kitchencare originally scheduled and wave three and the wave two and have launched their planned activities.
Well report progress on both next quarter.
We remain on track to deliver the targeted savings we envisioned.
The first two plants from wave one not procurement team has identified additional savings above their original plans, which gives us higher confidence retrieving our targets.
As a reminder, there is an unavoidable lag from identifying and implementing our new processes and ideas.
Seeing a fishing gains on those lines, reducing head count and other cost at the facilities.
Seeing those cost reductions run through inventory and finally to the income statement.
This is why we are only expecting a small benefit in 2019 from these actions.
And really only seeing a meaningful ramp up in the second half 2020.
Reaching our previously established target approximately $30 million annualized run rate savings by the second half of 2020.
That I'll turn the call over to Joseph for a summary of our segment results.
Thank you Bill and good morning, everyone I will make a few comments on our topline results within the segments starting on slide five with the Americas sales were relatively consistent with prior year, we continue to see growth in the general market sales increased with the majority will follow buying group customers we.
There's been striving to cultivate improved relationships at both the buying group level into dealer level.
And see this is stronger than to have never been.
We remain fully committed to the channel.
We saw slowed down in projects with a large chain customers beginning in the middle of the quarter.
It appears to be a push out of demands with some large customer is we haven't seen projects get cancelled, but we don't have visibility at this time and when there was started up again.
Only kitchencare aftermarket sales declined slightly in the quarter, mainly from aftermarket parts sales to a large chains.
We did see growth in kitchen kits sales to the general market.
Looking at you meet on slide six.
Pardon net sales decreased 5.4% organic net sales decreased.
5% wallboard incurred and three inflation was EUR, 4.9% headwind, it's a dollar strengthened against European currencies.
While we saw some sales growth from large chains general market sales were softer in the quarter.
Moving to slide seven third party net sales in apex increased 4% organic net sales increased 5.2%, while foreign currency translation was a headwind to 1.2%.
We're continuing to win with local and regional chains in a peg across multiple product categories, which is reflected in the general market sales growth.
Sales to large global chains, the increased slightly in a big this quarter.
Before I hand to colder to Marty I would just comment did wealth sales did soften in Q3, we continue to have confidence in our innovation program.
Who share a few highlights here first with fresh blend we have established I reference custom on the West Coast Dead will help us increased exposure of this new product nationally. We're also making progress with additional large convenience store chains and expect to see some of them begin to add these products.
Through this store in the near future.
Second is the new unity fully automated coffee machine from crime unity is gaining traction in China with large global chain customer, who is beginning to get them to the local stores.
We're also in the field trials with several U.S. customers get up progressing very well do remain excited about claims potential in the U.S. market.
Now, let me to get into the operating details of the quota and I'll update at 29 seen outlook Marty.
Thanks, Joseph and good morning, everyone I'm going to start with some comments on the adjusted operating EBITDA margin driver shown on slide eight.
Looking at volume mix and net pricing most of the positive impact came from net pricing mostly related to March is price increase that we put two in the Americas. We also had a benefit from the January price increases that we implemented in EMEA and APAC.
Material costs, including tariffs were combined 70 basis point tailwind this quarter, we've now lapped the implementation of the first two list from the section 301 tariffs that began impacting us that third quarter last year and are benefiting from the favorable ruling we received last quarter related to certain products that were originally included in this one.
Our results are still impacted by the cost increases in pass through tear cost from our vendors that we've discussed the last few quarters, but we had a net benefit during Q3 versus last year.
This pattern should generally continue in Q4, though we are watching stainless steel prices currently due to the rapid increase in the nickel component pricing.
Other manufacturing expenses, mainly labor and overhead where our biggest headwind this quarter as softer sales impacted our fixed cost absorption in our manufacturing plants.
We also experienced inefficiencies in our plants that are currently included in the transformation program.
He is inefficiency occurred during the transition in new production layouts, and the upgrading of fabrication equipment at the plant.
As these transitions are completed we expect manufacturing efficiencies to improve and contribute to our future margin expansion.
SGN a on an adjusted basis and the excluding FX was 110 basis point headwind in the quarter. The biggest driver here was the impact for last year's favorable 3.7 million dollar adjustment for compensation expense related to the departure at a former CEO amounting to a year over year 90 basis point negative impact.
In the third quarter, if you're reading the face of the income statement SGN is also elevated by the inclusion of the transformation program investments not included in adjusted operating EBITDA you can track the specifics through the non-GAAP reconciliation schedules.
Last item FX was a 10 basis point headwind, we saw the strengthening of the U.S. dollar continue to have a large in fact again this quarter, particularly in EMEA.
So to recap the third quarter adjusted operating EBITDA margin of 20% was up sequentially from Q2 by 60 basis point, but down 100 basis points from last year with price in material cost improvement being offset by transitional manufacturing headwinds and the non recurrence of last year's dark SGN a credit.
Moving to slide nine free cash flow was 54.2 million in the quarter, bringing year to date cash flow to 39.7 million and increased from 26.2 million in 2018, driven primarily by working capital improvements.
This was the second consecutive quarter of generating an excess of 50 million of free cash flow and physician to us again to achieve a free cash flow conversion ratio of 100% or better for the full year.
Cash increased by 28.5 million during the quarter, while our overall debt balance decreased by $23.3 million, our leverage ratio improved to 4.5 turns and remains a little ahead of the projections, we shared at Mays Investor Day. Finally on slide 10, I'd like to make a few comments on our updated 2019 guidance that.
We provided in today's earnings release.
Beginning with sales, we lowered our organic sales growth to be between one and a half in 2.5% for the year following the softer than expected growth in the third quarter. We're at 2% year to date and expect Q4 to be around that range as well.
Our Q4 view for the Americas reflects our expectation if some general market Prebuy ahead of our annual list price increase in January along with their efforts to earn annual incentive for 2019.
We expect large chains to remain choppy with some of these customers continuing to delay projects into 2020.
In EMEA, we still expect full year growth, but expect the fourth quarter to be down year over year, we're expecting to soft market conditions persist through the fourth quarter and faced a difficult comp from a large chain rollout that began in last year's fourth quarter.
We expect a APAC to delivered the strongest full year growth of the three segments, but see a tough comp from last year's fourth quarter driving a softer finished the year.
We have updated and narrowed our full year adjusted operating EBITDA margin guidance to be between 18, and 18.5% about even with last year. Despite a weak starting the first quarter.
There are really to moving pieces here, the first being a 50 basis point unfavorable revision to manufacturing costs driven by both the de leveraging effect of the softer sales and are more aggressive efforts on the transformation and related cost impacts. We saw in Q3. The second shift is at 25 basis point favorable adjustment to the FX impact.
Our next.
With regards to the manufacturing cost the emerging efficiency gains at our transformation plans along with the recent sales adjustment is enabling us to begin reducing our workforce levels at our plants in the fourth quarter, we expect additional reductions in the first half of 2020 at the transformation plants as their efficiencies improve we also announced.
Nation up our cram Shanghai plants into another of our existing facilities in China. This is expected to be completed late in 2020 with savings benefiting 2021.
Overall, you'll notice the net adjustment at the midpoint of our guidance ranges across margin drivers is flat with the prior year and down about 25 basis points from the low end of our previous range.
When considering the depressed first quarter, we experienced followed by three quarters, we expect to be around 20% and where we are with the transformation program. We continue to feel good about 2020, and our margin expansion journey.
Moving down the PNM from there our updated guidance range for adjusted diluted EPS is now 60 70 to 72 cents per share. This reflects our updated sales and margin guidance ranges and our updated effective tax rate of 30% to 32%.
The increase in the tax rate is due to our expectation for lower us income at 21% with the same level of net unfavorable permanent adjustment, which tend not to vary with changes to income levels.
We will address our 2020 tax rate outlook, when we provide our annual earnings guidance in February .
Because my comments operator, we'll now open the call up for questions.
Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad, well pause for just a moment to compile the Q and a roster.
Your first question comes from.
Jim CN from Citigroup Your line is open.
Thanks, Good morning, maybe one for Josepher or bill.
With regards to the Americas.
Essentially looking at you call it flat year to date organic and given some some pricing I assume.
It implies a slightly down volumes just as we came into the year. If there was a bit more optimism just across the space with regard to the prospects for.
For my teams or maybe just update us in terms of some of those those discussions you've had you call out large chains a number of quarters.
I don't know stats, if that's just a general pause you think or is it just kind of ongoing friction between some of the franchisees are all the above and and then as it relates to looking further out the targets for outgrowth of of 1% to 2% on.
On an organic basis do you still feel feel good about that thanks a lot.
Yes, so lots and lots in that question the I would say that.
We felt pretty good about that we feel pretty good about the general market you know the general market as as kind of performed the way we thought it would perform.
And up in through you know kind of July you know, even you know I would say the QSR is where we're on track and then we saw a shift in the latter half for the quarter and the QSR ours and a more shifting out of the quarter in and out of.
The year I think the weakness the that we see in Americas, certainly comes from that piece of the business.
The general market, Ken and general performed exactly how we thought it would perform.
Through the quarter.
As we look going.
Into the fourth quarter.
We do what we've modeled there's probably some pre buy activity getting in front of our.
Price increase in January that Weve that we modeled in a little bit but.
I would say that that's the color on the on Americas.
Yeah, Bill and looking forward, maybe a couple more data points here the project how please feel pretty active.
You know into QSR segment and in the general market. So.
Not looking at this is a is it didn't tremendous factory versus just some projects being delayed.
Our new innovations has been performing extremely well in the market and we aim to test period with quite a few franchisees and including to general market. So overall I am I still feel pretty good where we are and where are you going.
But with that said there certainly is softness in the market that overall when you when you combine it combined the two segments together and we that softness has continued.
Your next question comes from Jeff Hammond from Keybanc. Your line is open.
Hi, good morning, guys.
Hi, Jeff Good morning.
Can you just talk about.
I guess I'm trying to parse out.
Manufacturing kind of whats disruption and whats.
You know kind of de leveraging from a lower volumes because it seems like some of this transformation disruption is pretty temporary and would go away.
Yeah, Jeff It's Marty here, you know they intertwine, a little bit, but roughly speaking I would say, it's something like half and half.
And then you know we're going to work at.
The what I'll call the fixed cost overhang.
One of immediately we alluded to some headcount actions that will be taking and that'll continue kind of in steps across different facilities.
And that'll help get rid of that and then the transitory kind of stuff relative to transformation. We think the lead plant will get through that sooner rather than the later you know maybe the fourth quarter other plants will step in a little bit. So it will be with us out a little while and we've kind of reflected that in how we talk about our.
Targets for next year on an exit basis as opposed to the first half. There's all this lags of getting these things in place and getting the cost savings through inventory and on out.
So we think we're going to probably operates sort of like this through the fourth quarter.
The comparison gets a little easier in the fourth quarter, but some of these manufacturing issues, we'll we'll hang around a bit into the first half and then we really started to see the forward progress in the back half of next year.
Okay, and then just on the savings into 2020 I mean.
Sounds like you're going to get de Minimis. This year, you'll exit 30 million whatsoever.
Good way to think about.
You know kind of incremental cost savings from the transformation 20 over 19.
Yes, So we talk about 30 million a kind of exit basis. That's an annual run rate. So think of that is something like 8 million a quarter.
On a 400 million dollar sales base, so that's about 200 basis points and.
So whether we get all of that in the third quarter.
I don't know, we'll be working towards that that's kind of a target and certainly by the fourth quarter, we'd be looking for that could be showing up I mean, they are meanwhile, moving parts around price and material costs and stuff, but but all in we were hoping for that kind of margin expansion as we get to into the back half of next year and then the rest of the targets we set right.
Related to the second half a 2021 step up from there.
Okay, and then a couple of final cleanup questions. Just kitchencare just seems like it's very stubborn when do we start to see more consistent growth there and just what's implied fourq you tax rate. Thanks.
And so on Kitchencare, you know, we're kind of it was kind of flat and the and the third quarter.
You know the recent acquisition of parts town and heritage coming together.
We're trying to figure that out in terms of what that means we we don't see it we've been in contact with.
Both companies, we don't see it as an issue in the fourth quarter, but going into 2020.
Is there certainly will be some overhang of the kitchencare business as they consolidate their inventories.
So we're we're monitoring that pretty closely.
To see what the impact is on 2020 2019 that shouldn't be should be business as usual and normal activity for us but.
It was it was it was flat in the.
Coming into the third quarter.
Your next right.
Oh, yeah, Jeff should be 30% to 32% that full year guidance should hold up in the fourth quarter as well.
Your next question comes from Larry de Maria from William Blair. Your line is open.
Thanks, Good morning.
Could you maybe you guys touched on this and I didn't catch it but can you talk about the magnitude of pushouts compared to your expectations.
And.
And I don't think fell but do you guys expect anything come back in the fourth quarter sounds like it's more about next year and really just try to get to the core of the reason of why we're getting push outs as a company specific or is it in just the uncertainty in general with the large global change. Thanks.
Yeah, I can started than 10 billion might Wanna, yeah jump in as well, but.
The majority will follow up who shows.
Larry to into the QSR sectors. So in the areas of someone the beverage and someone the hot side.
But again those projects are still active.
This funding available so quite honestly, we really not exactly sure weight that will push back.
Okay.
Yes, so they I mean, you know these things tend to move quarter to quarter on us and you know kind of.
I would say you know the Miss that we had in the third quarter was almost all on related to QSR right in the movement of Q. Okay. So that's the magnitude.
Thank you now.
I'm just forgot the guidance into year end to end up to full year in the fourth quarter and if we start with EPS you guys gave we rolled back up to E. B T.
It looks like you're lowering the lower end by about 1 million in the rest of tax is that right and secondly looks like still a pretty wide range in fourth quarter for sales EBITDA margin to cetera.
We're obviously over a month into the quarter why have their reason why such a wide range is it that variable or we just have you know some conservatism given some of the Lumpiness that's occurred.
Yeah, It's Marty here I think thats the case Weve some of the some of the behavior in the fourth quarter gets tricky. These guys are trying to earn incentives.
Theres this pre buy the price increase there is our own ability to build and shipped product that you get to the holidays and having seen the third quarter softened sort of abruptly as we did after a pretty good July we just we just felt like we needed to open the range or keep the range a little wider than you might think this late in the year you could call that conservatism were.
Trying to.
The.
Fares, we can with the guidance and that's the way we felt was what's necessary and then and then EBITDA has some of the same issues associated with leverage as we finished the stretch.
But in general you know if you if you look at the guidance and imply the fourth quarter, it's kind of inline with where we've been running so.
And that's what we actually feel like the business is going to do.
Okay, and then if we like I said, if we roll up that EBITA separately helpful. Thank you LPT from where you guys.
Yes, and the share count et cetera is it right. The low end of that you'd be to guide is really only about one and half million below the prior range and and then a lot of adjustments are there for tax because you already said that you're going to come in on a lower half of the prior guidance isn't that right.
You know I haven't done exactly that math, but I would say that sounds it sounds reasonable to me yeah that fit the EPS was yes.
Proportionately the tax rate.
And the rest of it has been pretty close from a from a low end of the guide the previous guide.
First we don't we don't guide quarterly so that's based on your models not ours, but I think what your sales use any annual actually I'm using the annual that.
Thank you.
Your next question comes from David Macgregor from Longbow Research. Your line is open.
Yes, good morning, everyone.
David.
I Wonder if you could just talk a little bit digging a little bit around the nexgen business because when you. We've really got started on that I think you talked about it was going to ramp over 12 to 18 months and we're kind of approaching that now.
And so I'm wondering if there's any way to just.
You could talk.
About the growth prospects on that going forward is driven by whatever they're generating organically or do you feel you have a reasonable opportunity to pick up incremental business incremental listings there.
That's my first question.
Yeah. So you know the first off you know it's been a good relationship for the last year year and a half that we've been working with them.
But we fully expect to be at the run rate, but by the end of this year. The they have delivered on the volumes that they've committed to and so.
It is.
Predicated upon how much business, they can convert or switch.
Away from prior suppliers and they're actively working to do that so I'm I'm very pleased with with.
The action so far.
Is there an opportunity to pick up incremental listings I mean, how does that play out.
Yeah, I think you know I think you know there's always a opportunities for that and a you know we constantly are working with them as a partner defined areas, where we can be bring value to their businesses and.
You know, it's once you get started with with.
These guys. Our hope is that we'll continue to grow and expand our business with them.
How would you handicap the probability of that happening in 2020 at some point during that year.
It's hard to say.
We have almost daily conversations with these guys on on all aspects of their business and remember that.
You don't necessarily have to be a primary category with any of these buying groups to participate with the at the dealer level. So we worked at each and every dealer no matter, what whether they're in the buying.
Regardless of the buying group will will will work with the dealers. So but you know look going forward. We are always looking for opportunities to grow share and to to work with our channel partners to take share. Okay. So question was just around the product production inefficiencies.
Impact revenues.
Your ability to deliver products into the market.
Yeah, I don't think there was too much of a revenue impact you know the.
The revenue shortfall came from just the lack of orders not a lack of being able to deliver.
We've seen our lead times come down as these volumes the softness of has occurred so.
It's a little bit of the opposite problem quite honestly Marty was alluding to is that.
Some of these costs build up on you because you can't get the cost out fast enough when the volumes kind of come down, but we've seen all the lead times in particular, one business that I know you follow we've seen the lead times come down substantially there as we as we've improved our efficiencies and and partly because little black volume.
That particular sector.
Thanks last question for me is just you typically see sort of an uptick in competitive discounting and promotional activity in fourth quarter. As you pointed out we're after their volume rebates and there's a lot of reasons why that happens.
Heading into a price increase and you've talked about the possibility for pre buy.
Is it likely that you will see competitive discounting at the same levels last year or given that you're heading into a price increase your might be a little less of that this year, but we think about them.
No I think I think you still we'll see varick, it's very competitive environment. There's a lot of discounting going on where as you can tell you know from our commentary, we're being very selective about where we do that.
We're trying to.
To maintain our discipline, there and I think when you guys do your channel checks, you'll find out that we've been very disciplined in our approach to that that's true.
Okay. Thanks Bill.
Your next question comes from Jamie Clement from Buckingham. Your line is open.
Hey, good morning, gentlemen, thanks for taking my questions.
Sure you hear me, Hey, guys Yep Yep.
If I commented on the the large QSR chains.
<unk> rollout business how.
The large chain I guess.
Well policemen type of business, how did that progress as the quarter went along like in other words.
Some of the rollout projects got pushed off did they also kind of pulled back the other stuff that was what was that generally more consistent.
No. It's a replacement Jim has been pretty consistent we don't see an issue in the replacement business versus you know new store development, new store openings brick and mortar type of stuff and.
And installation so that's the area that we have seen this push outs.
Is it possible I mean, obviously you know when the month of August .
Yeah, the financial news headlines weren't grade it seem like there, we just incremental uncertainty that kind of hit the marketplace certainly the stock market reacted is it possible from your customers just got a little bit speed.
Yeah, I mean, and there is that there could be lots of reasons you know I mean, we can we can say that happened in August and a continued in September and we and we I would say, we still see little softness still to this day. So whatever it is it hasn't it hasn't reversed itself.
Okay fair enough thanks very much.
Your next question comes from Walter Liptak from Seaport Global Your line is open.
Hi, Thanks, Good morning, guys.
Hi, Good morning wanted to ask about.
I wanted to ask about Europe .
You know that the numbers Didnt look too bad there in terms of organic growth, Yeah, I wonder what you're thinking about for I use the general markets we could.
So presumably projects are still good.
No it's the visibility like.
For projects in in the you I guess.
In the fourth quarter and going into 2020 isn't a more stable market.
Well you know I think it's.
It's it's a difficult market with the Brexit, we see Germany retracting, we have some pretty tough comps in the fourth quarter to overcome we had some big rollouts with the change last year and in the fourth quarter, so and and as we.
As we model it I would say that we were were modeling it kind of a very conservative in the fourth quarter, we don't see a lotta upside in EMEA in the fourth quarter.
Okay great.
And the Oh the repricing.
I might've missed it but did you talk about the percentage or the average price increase that you're putting through for January .
Yeah, No we didn't talk about it we're still working with our customers where in the you know discussing it with them so that'll come out in February .
Okay. Okay.
Okay, I wanted to ask about cash flow and inventory levels with the.
Things, you're doing with with the line flow changes.
It didn't look like you're having to add extra inventory.
You know I wonder, usually fourth quarters pretty decent for working capital and free cash flow.
What do you what are you thinking about through the fourth quarter.
Yes, so so far the things we've been working on have longer term inventory upside reducing working capital in that in nearer term there'd probably be stable levels and there maybe a few projects where as we consolidate some facilities and stuff we have to build some inventory, while we take down we start up.
Onsite and maybe take down another so there's a little bit of upward pressure netting that do this but not a lot not enough to disrupt January the seasonal pattern fourth quarter should come down first quarter generally consumes working capital and inventory. So we.
We still feel good about the cash flow generation the fourth quarter in the de leveraging even as I will say, even as we ramp up the capex a little bit you'll notice our full year.
We've been we've been slow relative to the full year sense of capital spending will will pick that up a little bit first corps fourth quarter first quarter second quarter be a little heavier, but even with that we still feel good about the cash generation and de leveraging.
Okay and just so we haven't idea you know the capex is up a little bit but this isn't it doesn't sound like it's a big.
Yes, big incremental program the it might be running.
Six 7 million per quarter through next year.
Yes, well get some guidance after the year, but but you're right. It's not a big capital intensive business and we see a a bit of an uplift, but not not substantial and not not in the scheme of our cash flow generation not not big So I'll call I'll hold off on confirming your quarterly run rate till we get to the next call and we talk about.
Full year more broadly but.
Suffice to say, we don't think Capex is something that's going to disrupt the historical cash flow pattern or the company or de leveraging program.
Okay, great. Thank you.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
Your next question comes from Rob Wertheimer from Melia Research Your line is open.
Hey, good morning, everybody I'm, sorry to hit the beat the dead horse again, but the on the QSR side can you characterize this in terms of.
Past trends the only thing that's happened at points, where there's a reflection pending or you know I don't recall being called that quite as aggressively but maybe it's happened a few times and then could you just clarify smaller restaurants, you're not seeing the same hesitation right.
Yes, so I mean look theres no playbook for these QSR is they all kind of.
Just depends on their rollouts right and depending on what they're they're rolling out. So I would say, Mike 10, plus years, you know I've certainly seen it before where you know things roll out and move out from quarter to quarter of seeing them.
No more infrequently role in or pull in but that does happen from time to time.
Usually it doesn't roll off the table so it just move somewhere else.
And you know they tend to be rather large projects. So they do have a meaningful you know.
Effect on your results from quarter to quarter. That's why you see the Choppiness and that's what we call them out because it's really hard to overcome them with just general market type behavior.
But with that being said you know the biggest part of our business as general market and so there's stability there and yeah, we haven't seen the smaller restaurants with smaller chains.
I haven't seen you know the replacement business I think it was Jamie had the question replacement business is still moving along fine.
Okay. That's very helpful. Thank you and then I mean, you touched on this earlier as well, but looking into 2020 do you expect any revenue negative disruption from factory work that you're doing or right now that's not something anticipate.
No I would say you know it's.
We've been able to keep that noise to pretty pretty muted to this point you know as we go through the transformation process, we're getting better and better at this and identifying ahead of time, where we have what we might have issues. So hopefully it's a it's a small impact in <unk> and not something that.
They have to call out too much.
Thank you.
Sure.
We have no further questions I turn the call back over to Mr. Bill Johnson for closing remarks.
Thank you to conclude todays call I want to reiterate that I believe well built has the right strategy to focus on profitable growth and drive significantly more dollars to the bottom line we.
We expect to drive our profitable growth by improving our go to market approach to deliver more dollars or sales and by improving operations and therefore margins. Our transformation program is ahead of schedule and I believe our investments in this program will become apparent investors as we move into 2020 I have confidence in this team to continue delivering profitable.
Growth and Delevering the balance sheet. This concludes todays 2019 third quarter earnings call. Thanks, again for joining US this morning and have a great day.
Ladies and gentlemen, thank you for your participation you may now disconnect.