Q3 2019 Earnings Call
Greetings and welcome to L.D. Foster company third quarter 2019 results conference call. At this time all participants are anyway, certainly mode. A question answer session will follow the formal presentation. If anyone should require operator system. During the conference. Please press star there on your telephone keypad. Please note.
This conference is being recorded.
Now turn the conference over to your hosts.
Judy they log Investor Relations manager Mr. Locke, you may begin.
Thank you good evening, ladies and gentlemen, thank you for joining us for I'll be Foster Companys earnings Conference call to review the Companys third quarter 2019 operating results in 2019 fourth quarter and for your outlook. My name is Judy backlog and I'm the investor really.
Nations manager there'll be foster.
Hosting the call today is mr., Robert Bowers, I'll be fostered president and CEO .
Also on the call as Mr., James Maloney, I'll be foster Chief Financial Officer.
In addition to our press release, we have a third quarter presentation on our web site under the Investor Relations tab for those who have online access.
This evening, Jim will review, the Companys third quarter and year to date financial result, and discuss fourth quarter and for your outlook.
Afterwards, Bob will review, the Companys third quarter and year to date performing.
Provide an update on significant business issues and market development.
We will then open the session for questions.
During today's call our commentary and responses to your questions may contain forward looking statements, including items such as the company's outlook for our businesses in markets cash flows margins.
Operating cost capital expenditures and other key business metrics issues and projection.
These statements involve a number of risks and uncertainties that could cause actual results to differ materially from statements we make today.
These forward looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly released the results of any revisions to these statements in light of new information, except as required by securities laws.
All participants are encouraged to refer to I'll be fosters annual report on Form 10-K for the year ended December 31st 2018 as updated by subsequent items filed with the Securities and Exchange Commission for additional information regarding risk factors that may affect our results.
In addition to the results provided in accordance with United States generally accepted accounting principles. Our commentary include non-GAAP earnings before interest taxes depreciation and amortization.
Or EBIT da statement.
Adjusted EBITDA and non-GAAP net debt.
A reconciliation of net income to non-GAAP EBITDA and adjusted EBITDA.
And a reconciliation of total debt to net debt have been included within the company's 8-K filing.
Statements, referring to EBITDA adjusted EBITDA and net debt are considered non-GAAP measures and whether or not intended to replace the presentation of our financial results in accordance with gap. The company believes that the presentation of these measures provides additional meaningful information for.
Investors to facilitate comparison of past present and forecasted operating results.
Our accompanying earnings presentation reconciles these non-GAAP measures to the corresponding GAAP measure.
With that we will commence our financial review discussion and I'll turn it over to Jim.
Thank you Judy.
Thank you all for joining us today.
I'm going to cover the third quarter and year to date financials, along with providing a fourth quarter and full year outlook.
I'd like to begin my discussion with net sales.
Third quarter 2019, net sales declined from the second quarter $254 million compared to $167 million in the prior year.
Year to date net sales were $506 million compared to $462 million, an increase of $43 million or 9.4%.
Starting with the construction segment sales increased from the prior year quarter, my $6 million or 13.6%.
The increase was supported by each division within the segment.
With piling products, increasing 3.6%.
Fabricated bridge increasing 17.8%.
And precast concrete products with an increase of 25.4%.
Year to date sales increased $27 million for 24.2% with bowling products, increasing 26.8%.
Fabricated bridge, increasing 23.3 person and precast concrete products increasing 21.4%.
The increase was driven by the strong backlog as we entered into 2019.
In the rail segment sales decreased by $17 million or 19.8% from the prior year quarter. The decline in sales was driven by the timing of transit projects and the Crossrail volume.
For the first nine months of 2019, the rail segment sales increased $6 million for 2.6% our year to date rail products business saw a sales increase of 9.9% mainly due to demand for new rail and insulated joint products and also expanding.
Next.
Our year to date rail technologies sales, partially offset the segment increase with a 7.6% decline in sales. This decline was primarily due to European transit market as activity levels on the Crossrail began to decline as we approach the completion of.
Project.
The tubular and energy services sales decreased $2 million or 4.1% in the third quarter when compared to the prior year.
Quarter due to weakness insert upstream market.
Year to date sales increased $10 million or 8.7% driven by growth in our protective coatings and measurement systems business unit.
Where sales increased 20.1%.
This increase was partially offset by a reduction in test and inspection and threading services sales.
8.4%.
Now looking at gross profit.
During Q3 consolidated gross profit decreased $4 million or 11.5% over the prior year quarter to $28 million.
Gross profit margin of 17.9% was a reduction of 80 basis points from the prior year quarter.
Gross profit.
For the first nine months increased $7 million or 8.6% over the prior year period totaling $94 million with each of the three reporting segments contributing to the increase.
Year to date gross profit margin was reduced slightly to 18.6% a reduction of 10 basis points.
The rail segment gross profit decreased 11.8% in the third quarter due to lower shipments of new rail and declines in services provided for the London Crossrail that had been anticipated as the projects approaches completion. The nine month period gross profit however was 6.5%.
Above prior year nine month period.
This increase was driven by increased sales volume.
For our domestic rail products business unit.
Also contributing to the growth was a gross profit margin increase of 70 basis points.
Which was primarily attributable to our Allegheny rail and domestic transit products our construction.
Segment gross profit saw a 5.7% improvement over the prior year quarter, and a 16.1% improvement over the nine month period due to significant sales growth for the segment. The segment's gross profit margin decreased by 100 basis points.
The decrease primarily resulted from the dilutive impact of a greater sales contribution by our lower margin distribution products.
Tubular and energy services gross profit decreased 22% over the prior year quarter due to weakness in the upstream markets we serve.
Year to date, the segment reported a 7.2% increase over the prior year period, driven by our protective coatings and measurement systems business. Conversely, gross profit margin year to date decreased 40 basis points compared to the prior year, primarily due to test inspection and threading services volume.
Yeah.
Moving onto our expenses.
Our consolidated selling and administrative expenses increased $600000 or 2.8% to $22 million in the third quarter and or nine months SGN <unk> expenses increased by $1.5 million or 2.4% to $67 million in.
2019, mainly due to supporting the $43 million of sales growth during the year.
As a percent of sales. This resulted in a decline of 90 basis points compared to the prior year.
Net interest expense was reduced $200000 or 16.7 per cent for the third quarter and $800000 or 16.2 person for the first nine months when compared to the prior year.
The company's income tax expense for the first nine months of 2019 was $2 million with an effective tax rate of 12.7%. Our effective tax rate includes a 9.2% benefit related to the realization of U.S. deferred tax assets that were.
Previously offset by evaluation allowance.
Third quarter 2019, net income was $3 million or 29 cents per diluted share compared to $6 million or 61 cents per diluted share last year.
Year to date, net income was $16 million or a $1.53 per diluted share compared to $10 million or 95 cents per diluted share in the prior year. This represents an approximate 60% increase in earnings.
EBIT da totaled $9 million them third quarter of 2019 a.
A decrease of $4 million compared to last year.
Year to date EBIT da totaled $36 million, a 6 million dollar improvement over the prior year.
As a percentage of sales nine month, EBITDA was 7.1% a 60 basis point improvement over the prior year period.
Turning to the balance sheet.
Our trade working capital decreased $14 million compared to June 32019, due to the decline of accounts receivable of $14 million and inventory of $6 million accounts payable and deferred revenue decreased $5 million.
During the third quarter of 2019 as compared to June Thirtyth 2019.
As we expected as a result of continued profits and the reduction of work our working capital.
Our net debt decreased $21 million in the current quarter.
Now moving on to our cash flow activity, our cash provided from operating activities in the third quarter of 2019 was $23 million compared to $15 million in 2018, the 8 million dollar increase in operating cash flow was primarily related to continue.
Profits in reduction in trade working capital in second half of the year as we discussed this on our Q2 earnings call.
During the third quarter of 2019 are investing activities included capital expenditures of $1 million, which was flat when compared to the prior year quarter.
The current year expenditures relate to plant expansion and automation integration programs within tubular and energy services segment.
We anticipate our 2019 capital expenditures to range between eight.
And $11 million and we plan on continued focus on programs that are targeted at growth and improved operational efficiencies.
I will provide some commentary on our new orders and backlog activity next.
As we've said in the past our quarterly order activity varies quarter over quarter due to the timing of customer projects, especially when we have a larger order in any given quarter.
We believe it is better to evaluate our order activity for a longer period than just three months for that reason, we have been providing you with information on our quarter.
And trailing 12 month order activity.
Our third quarter 2019, new orders were $144 million, a decrease of 22.5 per cent compared to the last year's third quarter for the trailing 12 month ended September Thirtyth 2019, new orders were $627 million.
A 5.7% decrease over the prior trailing 12 month period.
The primary decrease in orders for the quarter and the trailing 12 month period is the large port Everglades project booked in our construction segment in 2018 third quarter.
The tubular segment, new orders for Q3 decreased 24% from the prior year quarter. This was driven by softened activity in upstream market, we serve when compared to the prior year quarter.
For the trailing 12 month period orders increased 9.9%.
Construction segment, new orders decreased 38.7% and 18.4% for the Q3 and the trailing 12 month period, respectively.
As previously mentioned the Port Everglades project was booked in the prior year third quarter and an order of that magnitude has not been booked in 2019.
The third quarter.
Orders for rail segment decreased 3% and 4.8% for the Q3 and the trailing 12 month period, respectively.
This decline was most significantly felt in our north American and European Transit activity.
Backlog stood at $194 million at the end of the third quarter.
A reduction of $50 million or 22.9% from the prior year backlog of $252 million.
Bob will discuss in much greater detail dynamics of our order and backlog activity.
So I will move onto our fourth quarter and full year outlook next typically our fourth quarter sales are below third quarter as certain segments of the rail and construction markets complete seasonal projects.
However, with a starting backlog of $194 million.
We are forecasting fourth quarter sales to be above the third quarter and in a range of $155 million to $170 million and we anticipate another quarter with gross profit margins in excess of 18%.
This is expected to result in full year 2019 sales in the range of 662 $675 million up at least 5% from the prior year sales of $627 million.
This volume is expected to bring our full year 2019, EBIT da to exceed $45 million an increase from the prior year adjusted EBITDA of $41 million.
As discussed.
We expect our sales and profitability to be better than the third quarter, and we expect to generate free cash flow in the fourth quarter to continue to strengthen our balance sheet.
That concludes my comments on the third quarter of 2019.
With that I will now turn it over to Bob for his business review.
Thank you Jim.
Hello, everyone.
This is a challenging quarter to explain all the moving parts, which is why Jim covered both third quarter and year to date results in more detail. This time.
As we felt it was necessary to help you understand our current performance.
This quarter's a good example of how our business can fluctuate from one quarter to the next.
Our focus is always more on how the year is progressing.
We're continuing to have a good year and the nine month year to date results are very favorable to prior year. Despite the fact that we expected third quarter sales or profit.
To be above what we reported.
Last quarter I discussed the second half outlook, which was expected to reflect typical seasonality trends, including declining sales and backlog through the end of year.
As order patterns changed with timing of key projects and some pockets of weakness emerged we're now expecting fourth quarter sales to exceed the third quarter.
More importantly, we're now expecting fourth quarter operating profit to exceed third quarter operating profit.
This was partly driven by the fact that our third quarter pre tax profit included a number of expenses that are not expected to repeat in the fourth quarter.
I'm going to cover more on the fourth quarter outlook later.
Our year to date performance beginning with the sales increase of 9.4% has put us in a position to have a good year. This is in part due to the success, we've been having for the past year that drove record level backlog to begin the year.
As the year progress, we've experienced slowing demand in a few markets and a shift of projects outward into later periods. This has led the third quarter sales declined by 7.7%.
While still achieving year to date sales growth of 9.4%.
So to help explain the dynamics of orders and sales I'm going to put things into three buckets.
The first is the influence the two substantial projects are having on prior year comparable orders and sales London Crossrail project and forward to support Everglades project Arctic two projects.
Second bucket consists of customers and markets that are experiencing delays, including capital projects that are being shifted further out into the future.
And the third bucket is the pockets of weakness in upstream energy and U.S. freight rail markets. In this case demand for our products and services has softened.
Well, let me begin with the first category the cross rail and Port Everglades projects are having a significant impact on year over year comparisons for the third quarter and year to date results.
Port Everglades project is the $28 million project booked last year in Q3 for our cruise ship terminal project in Florida.
The shipments of piling for the phase. We originally secured is now complete sales have been recognized in every quarter. Since they began in Q4 of last year.
This has caused total piling sales in Q3 to be up 3.6%. However, total piling orders account for 68% of the total consolidated company order decline in the third quarter.
This project has also had an unfavorable impact on third quarter operating results as expenses that had been considered an investment to win future Marine orders with the same contract or were recognized and I'm happy to report that we have secured additional work from that customer recently.
The second project is London's Crossrail project, which we have been discussing for more than two years as our European business has grown substantially by providing services for telecommunication systems and automation solutions related to London's New Transit rail stations. These are stated.
Our passenger information security and monitoring systems that grew to be a substantial portion of our European rail business volume.
This project is headed toward its conclusion as the last few stations are nearing completion.
As we work on the remaining stations. We're looking forward to the next group of investments that include high speed rail projects in the UK.
And increases in funding for the UK network rail systems, We believe our service team is uniquely positioned to win a portion of these projects.
The second bucket involves the impact from transit rail and midstream energy markets.
Both of which have solid underlying long term demand at the moment.
But our dealing with timing of new projects and some delays for new construction.
Excluding the cross rail project the transit rail market has been fairly strong in recent quarters as expansion projects to address demand and congested cities is driving investment. This is a big factor in that 10% year to date growth in rail products. However, this is.
Not a market where business is steady every quarter, it's driven by large capital spending and often encounters delays due to public funding issues.
We're still optimistic about this market long term, although the market environment from time to time dub does give rise to fluctuating volume from one year to the next one quarter to the next.
Similar characteristics are encountered with midstream pipeline projects.
There are significant demand for greater takeaway capacity to support production growth in key basins across the United States.
Our backlog for coated line pipe and measurement systems has been strong over the last 12 months from orders that tend to come and larger miles and can take many months to ship.
It's not uncommon to have quarterly sequential order declines or increases.
For the quarter, our two divisions, serving mostly midstream applications had declining order sales and backlog. However on a year to date basis, both orders and sales have increased.
Theres widespread agreement among industry experts that pipeline capacity is needed to support rising production volume.
And the current capacity is insufficient to deal with the anticipated growth.
In support of this need we were very pleased to have secured an order. This month for protective coatings valued at approximately $20 million that has provided a significant boost to October backlog.
The third and final bucket, our pockets of weakness.
And the upstream energy market energy tubular services have softened as a result of cutbacks in new rig deployments.
Tariffs and quotas that are hurting our volume from foreign pipe sources and other supply chain pressures from users cutting costs by asking for fewer services.
This market was view just a year ago as a potential growth area as U.S. developers forecasted production growth from shale regions that would far exceed prior volumes you asked as exporting oil and natural gas liquids at volumes never seen before you hit the market is struggling.
And companies in this space are still consolidating or struggling to achieve positive cash flow.
With well walking on mix driving decisions, it's critical to be focused on the most profitable locations.
We are continuing to reorganize operations to address this need by expanding service offerings in the Permian region, we are adjusting operations and the Rockies to react to shifting demand into Wyoming and.
And we are continuing to add services and strategic locations, where demand has the greatest.
Unfortunately volume of foreign made pipe coming into our Texas facilities has declined.
Lower imports on foreign oil country tubular goods have made our Texas operations less profitable putting additional stress on a business that still hasn't fully recovered from the last downturn.
We are continuing to prioritize efforts to improve profit and this division, including new business from domestic pipe sources in the meantime, the tubular and energy segment as a whole has increased segment profit on a year to date basis and has the highest segment profit margins among our ROE.
Reporting units.
The United States freight rail market is the other pockets of weakness the U.S. freight rail carriers have reported declining commodity carload volume in recent quarters.
Most industry news and public companies statements refer to general economic slowdown.
Golf conditions in agriculture.
Continued softness in coal.
And lower intermodal shipments.
The freight market is about 40% of our rail segment sales and does contribute to a sizable portion of new rail shipments. So the impact on our results from this sector was not more widespread and was largely contained a new rail shipments in the third quarter.
On a year to date basis, new rail shipments have increased and help drive the 10% year to date growth in rail products.
I'm going to turn to operating performance now make just a few comments here gross profit as followed a similar pattern as sales with third quarter gross profit declining while the year to date results still look pretty good.
We're particularly pleased with the year to date gross margin improvement up 70 basis points in the rail segment driven by our rail product divisions.
There were a number of other divisions in the construction and tubular segments reporting gross margin improvement.
But the cost related to port Everglades, and the weak energy market provided enough of a drag on margins to keep the two segments from improving.
The nonrecurring expenses I mentioned, we're more impactful to the third quarter.
Well be 80 basis point decline in year over year third quarter gross margins is valued at about $1.2 million.
We incurred expenses in Q3 related to customer investments and reserves for potential disputes that we don't expect to repeat these expenses exceeded $1.2 million in the third quarter.
Although the third quarter performance was lower than expected our nine month results still look very good overall with a 20% EBITDA improvement and 63% net income improvement over prior year.
So I'm going to wrap up with fourth quarter and for full year outlook.
The starting backlog of 194 million has provided some support for the changing sales forecast whereby fourth quarter sales are now expected to exceed the third quarter.
I'm happy to report, we just secured $40 million and three large projects in October one of which was the 20 million dollar project for protective coatings I've just mentioned.
The other $20 million is one of those delayed transit orders, we've been speaking about as well as a small are piling project from the engineering and construction firm that gave us the port Everglades project.
As Jim mentioned, our fourth quarter sales are forecast to range between 155 am 170 million.
And we recognize the potential for deliveries to change as shipments toward year end, sometimes are affected by weather.
We've taken into consideration our primary concern around the energy market, our forecast for EBITDA to exceed the third quarter level, which was 8.6 million.
Has some upside potential.
We'll be striving to beat that number in order to deliver full year EBIT da that exceeds 45 million and would be a significant improvement over 2018.
I thought our operating cash flow in Q3 was very good as expected working capital was a significant contributor to the performance.
And we expect to generate free cash flow into fourth quarter that will provide funds to reduce debt further at year end.
So our balance sheet is continued to strengthen.
Expect that we'll end the year, having made further progress on reducing our net debt to EBITDA ratio.
And the company is in a good position to fund our key growth initiatives another strategic actions intended to drive value.
So all in there with my comments and return it back to the operators. So that we can take any questions that anyone might have.
At this time Govi conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is into question Q you May Press Star too if you would like to remove your question from the Q4 participants using secret equipment. It may be necessary to pick up your handset before pressing the star Keith.
On the fees, while we pull for questions.
Our first question is from Chris Van Horn FBR. Please proceed with your question.
Good afternoon, Thanks for taking my call.
Thank you Chris.
I just want to start with the gross profit and make sure I heard you correctly.
It sounds like there was some onetime items exceeding 1.2 million. So if you adjust for there's one one time items, we have a gross profit that's more in the 18% level and ill just want to confirm that that's the right way to think about it.
That is the message we were trying to sand.
We didnt actually want to restated ourselves since you know.
I don't want to.
Restate numbers too much and this but essentially yes, there were 1.2 million of extraordinary items that we don't expect to recur.
Okay got it and then if I look at I look out.
Heading heading through this quarter and into 2020.
Well majority of your your margin opportunity come from your product mix do you see is coming from a higher volume combination of both.
You are asking with regard to 2020 volume.
Just in regard in regard to margin expansion opportunities do you see the opportunity for margins to move higher based on your product mix or an overall increase in volumes or combination of both is there any other factors that if we should think about.
Well I don't I.
I don't think at this point in time, we've probably forecasts that there would be significant expansion due to product mix.
That that one you can probably.
I'd say rollout when that does happened what is usually occurring is that our new rail on our piling shipments are changing because those two businesses split their distribution models have gross margins well below the company average.
But I wouldn't forecast something for those two product lines that are significantly different from the rest of the business. So I don't think gets its going to be a mix issue.
It all this you know so we're not forecasting at this point in time, what the what the coming quarters are going to look like but margin expansion opportunities, which is where I. Thank you are coming from they're going to be more related to volume and cost reductions then they would be mix.
Perfect exactly exactly what I was asking okay.
And so if you could you give us a sense you think you mentioned you have 190 million in backlog.
Is there a difference in timing based on the projects that are in there I mean, there probably is a difference and timing, but could you get into a little bit details of is there is there a broad difference and timing of some of the some of the awards and backlog and any sort of sense of how those might roll out.
Yes, I wouldn't describe the timing to be substantially different from the timing profile that we had one our backlog was you know kind of at the peak level. This time last year when it was a $250 million we always have.
Orders in protective coatings part of our business to go to pipeline construction and that backlog some orders can run for a year.
That's probably the one that is the longest when you when you take a look at our backlog some of the measurement systems that we have those could be backlogs that could run out six to eight months.
But most everything else, we have particularly in the rail segment.
And then that construction area other than that Port Everglades project, which was a 28 million dollar piling project and took US a year to complete most of the timing for the rest of the business in those two segments. You know the profile of that hasn't hasn't really changed compared to.
The way it normally looks.
Okay got it.
And if I look at your 155 to 170 guidance. Thank you. Thank you for offering that.
If I if I look at that range it sounds like it there the the the puts and takes between 155 oneseventy it could be due to a variety of reasons, whether it's timing.
Whether it's what could be I think you mentioned a little bit of weather possibility is there anything else to think about of of the difference between the 150 570.
Yes, that's largely yet.
On the low end and a bit of our conservative side would be the weakness in the energy market.
That's probably the the market that has us most concern from a weakness standpoint, so that's not one of our most sizable businesses, but it's.
Let's see area that.
From a market standpoint would have the most risk.
Whether traditionally that will affect our precast concrete buildings.
And Thats, usually significant shipments as we go into the ended the year, sometimes there are some rail projects that get affected by it but.
That is that's largely I think where you know what are the risk normally comes from.
You can't really point to much else.
Okay, and then last from me.
Yes.
From looking at your end markets and your product lines competitive landscape seems.
You know pretty pretty limited depending on what you're looking at but is there have you seen a rise in the coming from a competitive standpoint.
When when booking these orders or is it kind of the way it's been over the past year.
Yes, I don't think theres been arise.
We compete in very competitive markets.
I can't point, Danny real new competitors.
Part of what you may be probing out is it sometimes when markets get a little bit week people tend to fight a little bit harder for what business. There is out there I can't say that.
I can give you any examples.
Along those lines either.
When contracts come up for bid, particularly in our rail segment, which has a number of multiyear contracts that we have on our product lines.
There's always a fair amount of competitive tension at that time, but again I don't think I can describe that you know as any more intense right. Now then I would have described it one or two years ago. So I think the environment you know pretty much is similar to what we've had in the past and.
We've got enough competitors in every segment, we compete and so.
Think of it think of it as very similar to what we've had in the past.
Okay, great. Thank you so much for the time.
Yep Yep. Thank you.
As a reminder, we are now conducting a question answer session. If you would like to ask a question. Please press star one under telephone keypad for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keith one moment, please while we pull for questions.
Our next question is from Brett Kearney.
Gabelli funds. Please proceed with your question.
Hi, guys. Thanks for taking my questions.
Yes. Thank you congrats.
Just wanted to ask if you could provide.
I guess anymore.
Qualitative color what you're hearing.
Transit business I'm, sorry, the rail business side, I guess, both latest indications as some of your customers on the freight rail side are looking into 2020.
I guess take into consideration some of the volumes saw and carloads that you referenced and then on the trends or rail side as well sounds like at this point you alluded to you know.
As Powell these securing funding I guess just any color you can provide on what you're hearing seeing there.
Activity levels and kind of the funnel projects are tracking on the trends at side as well.
Yes, I'll start with I'll start with the freight piece.
That's a difficult one day answer today, we'll know a little bit more around the January timeframe, which is a time when the U.S. freight rail carriers typically release projects that they wind up telling the market about.
Certain conferences that we participate in with them. They don't actually always project dollars of spend but they give us directionally, where it looks like it's going to go.
And they talk about certain specific programs, but are going to be funded.
So it's difficult for me to project right now how you'll see the volume for 2020 in comparison to 29 team for both the maintenance and the capital side of what we participate in.
And as I said, a little while back that's about 40% of our rail volume so it's important to us.
It's not the majority of what we have what we do.
But transit is when equal side.
Bob an equal amount, it's a little bit more than 40% as well, one then industrial and other applications as the balance.
So transit has been a really strong area for us in the last 12 to 18 months, we booked a number of projects.
Backlog increased substantially as we exited 2018 and then the 19.
So we have quite a few projects in the pipeline and we found the period here most recently, where some of the new ones Havent yet been started so thats one of the significant impacts on our order bookings, but our outlook for transit you know has not really changed we think the market for.
Our transit in North America.
And in Europe , where we participate are going to continue to be good long term markets to compete then.
There will be projects that move around over the course of 2020.
Yes.
And there are down I can't give you Directionally where are we thinking that's going to go exactly.
One of the areas, we're keeping our eye on that is somewhat unpredictable will be the spending in the UK.
And whether or not the issues that they are wrestling with in the UK and their economy.
How that might affect network rail.
Investments next year.
But we do know for sure that we will see some volume decline in the London Cross rail project ill and we're eagerly working on things in the across the whole UK to try to replace that volume so that will be one of our headwinds.
But I do think that we might see some more volume out of the UK network rail, but I think we have to get past Brexit a few other things going on to really know whether or not that's that's going to be a good year.
Okay terrific. Thank gets very helpful.
So one other follow up.
Thank you.
I appreciate the outlook the guidance you provided the quarter remainder of the year.
That's just a function of I guess some of the orders that.
I guess kind of got pushed out and you've gotten thus far in October or do you kind of intend to.
Provide.
Either quarterly or annual.
Kind of outlook on a on a continuing basis going forward.
Yes, right now we're not planning to provided on a regular basis.
One of the things that motivates us to do that this time is it last quarter on the on the call. We suggested that this what the second half outlook might be like and I indicated that we would probably see sales in the fourth quarter would be below the third quarter.
And that was because we thought would see typical seasonality and then things change through the quarter.
Given that plus the profit that we had as well in Q3.
We thought that that might be an indication to the investment community of what the fourth quarter might look like.
We thought that.
Those comments, along with third quarter performance might cause people to be way off if you will in the fourth quarter.
And given the fact that we're approaching the ended the year. We made the decision to provide that guidance to to try to help people understand what's going on on our business and I guess I'll go back to what I said at the outset up my comments, there really weren't quite a few moving parts.
This quarter and even on a year to date basis, where the year over year comps, depending on whether you're looking at orders and sales and by what segment.
That were pretty significant so we try to do our best be transparent and give you as much information as we can but I would tell you that you know we're not changing the company philosophy, just now to provide guidance for the year in every quarter when when we go into next year, we'll we'll make that call. However.
Great quarter, but.
I would tell you are right now.
I don't anticipate a change yes.
Okay terrific.
Like I just sneak one last one then.
You all have done a.
Good job continuing to strengthen the balance sheet.
With net leverage now around 1.2 times you noted.
Your intention to continue to.
Improve that in the fourth quarter as well I know, it's early but any thoughts on.
I guess potential use of capital deployment as we look into 2020 from some of the cash flow you might be able to generate next year.
Yes. This is this is Jim.
As you can imagine.
We.
We want to strengthen our balance sheet and continue to do that.
To be able to look at other opportunities such as internal investments like we talked about.
With capital spend and looking at those types of initiatives.
We're also you know always looking for good opportunities.
In the.
In our in our adjacent markets.
To do an acquisition nothing really on the table at this point, but we always want to have that in hand, the funds to be able to do something like that.
Does that.
Terrify your question.
Sure Yes, yeah, that's very helpful. Thank you guys very much.
Yeah. Thank you Brad.
Our next question is from David Wright Henry Investment Trust. Please proceed with your question.
Hi, Good afternoon, I wanted to ask a question about pre cast.
In the last couple of quarters, you've highlighted concrete building sales.
As being up and I wonder.
Why do you think that is why are you selling more of those.
Well if you are you specifically asking about precast buildings or the entire precast division.
No no just about the buildings it just such a plane, Colorado trying to Jeff's should we infer anything about the general economy municipal spending et cetera, because you're selling more of these things. Okay. Okay. All right, yes, because I know and prior comments, we're usually talk in more about the division and then actual buildings.
Because from time to time, the number of buildings that we ship.
Can certainly change.
Well, let me start with the fact that.
We have been doing I think a good job of penetrating the northeast part of the country.
We acquired a business down and Waverly, West, Virginia and back in 2014 timeframe.
And so it's been with us for awhile, but we have been integrating new and different buildings into that business since that period of time.
And that we were really we had no location in the northeast prior to that.
So that location and the fact that we have brought up the CX T. building designs into that location has continued to allow us to grow substantially in that location.
And that's gone mess gone very well for us.
I cannot point to specifically.
Certain municipality spending or budgets that are related to parks and recreation and those sorts of things that are that are really driving buildings. We continue to expand the product line. We continue to look for applications you know when lots of different utility applications.
But there's some some sort a market for us thats driving that I wouldn't tell you is a substantial change.
But I would also add that.
We're picking up business on other pre cast products too.
Texas facility is doing a terrific job and from time to time, we might comment on it may sound like buildings, but were commenting on the whole business, but you know the growth in that division has been terrific and fairly steady for us, but part of that is because we're adding other non building product lines as well.
Okay that was my question I appreciate the answers thanks much.
Thank you.
We have reached the end of the question answer session and I will now turn the call back over to Bob power for closing remarks.
Alright. Thank you everyone I appreciate the interest and the questions and we'll look forward to catching up with you as we wrap up the year next time, we talk so thank you very much good night.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.