Q2 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to unify second quarter 2020 conference call.
This time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you would need to press star one on your telephone.
Please be advised to today's conference is being recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to your speaker today, Mr. AJ Aker Vice President Finance. Please go ahead Sir.
Thank you operator, and good morning, everyone on the call today is our Perry Executive Chairman, Tom Coburn, President and Chief operating officer incorrect create short executive Vice President and Chief Financial Officer. During this call management will be referencing a webcast presentation. There can be found it you fly dot com and by clicking the second quarter Conference call Link management advises you to.
Certain statements included in today's call will be forward looking statements within the meaning of the federal Securities law.
Many of the cautions that these statements are based on current expectations estimates or projections about the markets in which you buy operate. These statements are not guarantees of future performance involve certain risks that are difficult to predict.
Actual outcomes and results may differ materially from what is expressed forecast weren't body segment you are directly to the disclosures poverty FCC on unified form seem few ensync Jay regarding various factors that may impact. These results also please be advised that certain non-GAAP financial measures such as adjusted EBITDA adjusted working capital admit that maybe discuss on this call.
I'll now turn the call over to out here.
Thanks, JJ and thank you all for joining US today I'm pleased to report that the final determinations were antidumping and countervailing duties will finally reached in December and as expected associated duties are being assessed on imports and polyester textured yarn from both China and India.
And as you've heard us discussed in the past subsidize imported yarn as a flooded our domestic market in recent years. So we welcome. These announcements as they are critical steps in advancing our efforts to compete on a level playing field.
We've already seen a pickup in demand on these specific product line as.
As we entered the third quarter and we're excited about the opportunities we have in our local markets to regain market share and to grow our topline, especially as we enter fiscal 2000 at 21.
During the second quarter, we're able to achieve solid sales performance in profitability gains across most of our operations with the exception of the nylon segment.
And our Parkdale joint venture.
Q2 showed sequential improvement in our trends as we turn around our business a unified.
However, the recovery is a bit on even though we still have work to do.
Price realization and nylon business need work and we're taking actions to improve overall performance.
We're pleased to see us DNA cost decrease on a year over year basis and the team also maintained significant cash flow improvement. This performance validates our strategy of focusing on our core competencies revitalizing the Americas and also aligning our cost structure.
We're very encouraged with the trends on sales volume cast generation cost control and our Asian business right now.
Additionally, there's broad momentum at the customer and also with the consumer level for environmental sustainability, which bodes well for free.
We're disappointed in the dialogue business that it was much lower than we had anticipated in Tom's going to walk you through some more of those details, but we remain committed to this segment as our customers continue to see unifies a full service textile provider and nylon plays a critical role in our go forward innovation efforts.
Got to continue to develop programs that leverage all of our assets and deliver the highest performance for our customers and we remain well positioned to drive further year over year growth in the second half and we're encouraged with the overall business momentum I'm going to turn the call over to Tom right now for a high level discussion of our company's performance during the second quarter.
Todd.
Thank you Alan good morning, everyone.
Our second quarter results came in motion as expected with overall sales operating income and adjusted EBITDA.
Improving on a year over year basis.
We also has a meaningful accomplishments this quarter with through whatever free products continuing to lead our sales rose I.
Additionally, cash flow generation through that first there was meaningfully higher year over year, continuing the positive momentum we had in the first quarter as our cost structure continues to improve.
As Al also mentioned, we finished the quarter with positive news from the U.S. International Trade Commission.
Vitalizing anti dumping and countervailing duty rates.
These duty rates are generally consistent with the preliminary rates, whereas imports from China or assess 97% hard duties on top of existing import duties and imports from India at rates of 18% higher.
This represents the culmination of a significant time and resource commitment from unified and it is important to note that we spent approximately $2 million an outside counsel for you over the over the 15 month process.
Well costs were significant we believe this was that was necessary for you had about to be able to compete appropriately in the U.S. market.
Polyester textured yarn.
We have already begun to see the initial uptick in orders and believe that we have the ability to recapture a minimum about 20 million sales on annualized basis as we enter fiscal 2021.
That said recapturing the lost business will take time to wrap up in Dallas for the second half of fiscal 2020, we have factored in only $5 million.
With our continued focus on affair competitive environment, we're closely monitoring whether polyester textured yarn from China or India is being sure that third party countries and then either in the U.S. Mark.
Additionally, on the regulation I think it was important to note that in mid January the phase one child deal was signed by the President.
At this point the White House has decided to maintain early section 301 tariffs at 25%.
Including goes on Chinese fibers yards and textile inputs.
Textile machinery and parts are also included in this category.
For the time being we do not anticipate the phase one deal to generate changes that have any significant impact unified.
Now turning to second quarter results.
Well results were very favorable year over year comparison.
Global pricing pressures, along with lower than anticipated demand certain you guys products Paul's resolves to comment just below our expectations for the quarter.
Total sales volume increased 18% on a year over year basis during the second quarter.
Hey result of strong sales from free branded products primarily in Asia.
Well the volume increase was meaningful we saw less favorable sales mix of lower average selling prices, especially due to lower nylon volumes.
And while the margin pressure, we experienced in international business was driven by sales mix and pricing pressure amidst raw material cost fluctuations our portfolio continues to drive momentum in Asia.
A testament to the level of quality and desirability that a reprieve platform all.
As I said before the current business environment in the Americas remains challenging and evolving.
We are confident that we have the ability to recapture of market share and U.S. with a new duties in place and hope to be all incremental volume as the year progressive.
Only commercial and innovation fraud.
The opportunity 40, bobbing technology that bring value to circular initiatives is critical for customers and our plan.
Our commitment to Repreve and sustainability remains strong as we continue to innovate across our portfolio.
One example is now we're now working what I'd be on research and have entered into a memorandum of understanding regarding their chemical recycling technology.
Beyond research novel Technology Ball Cat.
Leverages volatile and recoverable catalysts that acts as a molecular saw order.
Allowing for optimal filtration is separation of contaminants as well as our color removal.
We are energized to provide expertise and development insights regarding many aspects of this technology, including feed.
Stock.
Recycling and melt extrusion.
To bring an emerging technologies to scale to meet global demand.
Next a few commercial examples of recent recent adoptions with emphasis on growth driven by our Asian segment.
The original dockers Alpha khaki pants, he's using our true tee up 365 technology and they're all season Tech was stretch and continue to expand at retail.
Three country is producing more sustainable products in is converted over 75%.
There are three cycle jackets to Repreve based insulation.
Oh, which is under the Deckers umbrella.
Adopted repreve and all scrim behind the plush lining and multi styles, including the classic slipper, many flop high low and kids classic to shoes.
Oh, Neal is expanding repreve offering a snow and swim layer for.
2020, the Jack it's a big jobs in the O'neill Blue line and the hyper free board sure will be made with for free.
Patagonia is ladies series of sustainable garments for the season feature reprieve in the shale and lines of the new recycle high power fleece down Jack.
We are excited about the opportunities for four repreve and our sustainability partners as momentum continues to deal.
Now I'll walk through our segment performance for the second quarter.
Let's start with our largest segment polyester.
We are pleased with the progress a segment has been making.
With raw material costs moving in our favor this quarter optimizing our manufacturing base and capturing synergies from previously acquired companies, we are able to double gross margin year over year.
The segment sales mix, partially offset by lower demand in our higher margin industrial automotive products as the overall automotive industry has seen some softer you guys textile demand.
Moving to our now.
Second largest segment Asia.
We again again continue to see meaningful topline expansion opportunity.
Although we are currently seeing more growth in lower margin products in Asia.
This region has been flourished.
And has been a bright spot for us.
An enormous market share available.
We have made progress to better position and optimize our supply chain.
Including a new strategic partner in Southeast Asia, which we expect will allow us to realize cost benefits for margin improvement.
Current actions are expected to materialize in July 2020.
Brazil was impacted by difficult market conditions in pricing pressure, which led to softness in sales and profitability.
Fortunately, the Ecomm economic and political conditions in Britain, Brazil seem to be moving into right direction.
We anticipate this will serve as a catalyst for second half of the year, which we will monitor the economic climate carefully as the year progresses.
The nylon industry in the U.S. as experienced a continued movement towards Asian sourcing.
Our now a business experienced a difficult quarter as a segment saw lower sales volume and consistently lower fixed cost absorption.
Two of our largest customers move certain programs offshore and consequently, we saw any impact to our nylon business during calendar 2019.
The team has been working very hard to backfill some of this lost volume and because global consumer demand for getting Highline continues to grow at a modest right the pipeline remain solid.
We continue to believe in our nylon business and those assets, which remain a critical component Abra innovation and development efforts. While this business will remain challenging for another few quarters. We continue to believe in the long term opportunities and we will build this business back to a leading possess.
Issue.
Lastly, during the quarter, our Parkdale joint venture saw a significant setback with weaker leverage and lower margin pull through.
Parkdale continues to be an investment that we value.
And in the past has been a meaningful meaningful contributor to cash generation.
For example, there 10.4 million distribution last quarter allowed us to meaningfully reduce our leverage and put us in a strong capital position.
To conclude the second quarter results reflect some strong improvements in our core business and continued cash flow momentum.
We're just a few shortfalls inovalon and certain other pockets we remain optimistic on the road ahead and come away from the quarter feeling encouraged I will now pass the call to Craig.
Thank you Tom and good morning, everyone.
As Tom noted our operational results were significantly improved over the prior year second quarter, and we have achieved another strong quarter of cash flow performance.
I'll review the key drivers of our performance in my discussion today, and I would like to begin with an overview of Q2.
As we experienced several positive financial changes over the prior year second quarter.
We will begin on slide three at the conference call presentation.
Overall for Q2 gross profit increase in connection with a more favorable raw material cost environment in the U.S.
Which was partially offset by the nylon shortfall and global competitive pricing pressures.
Our cost reduction efforts flow through as a comparable benefit to that she may.
But we experienced three notable headwinds in operating income.
First and unfavorable foreign currency transaction losses generated a comparable decline of $800000 from Q2 2019 to Q2 2020.
This resulted from comparatively weaker exchange rates in both Brazil and Asia.
As a reminder, strong Brazilian reality is generally positive for our Brazil business.
While our strong U.S. dollar is generally positive for our Asian business, but neither of those occurred this quarter.
Next we commenced a wind down plan for our Sri Lanka sales and sourcing operation.
And recorded the associated severance and exit costs of approximately $400000.
And the last impact to operating income involved in legal fees associated with the trade petitions.
We expected the finalization of those petitions to generate a 500000 dollar expense in our third quarter fiscal 2020.
But the favorable resolution in December 2019 triggered that expense to be to apply to Q2 2020.
This does not impact our full year view at fiscal year 2020.
Over the course of the trade petition activity, we have undertaken in fiscal 2019 and 2020.
We have spent a total of $2 million on these activities.
The performance shortfall from Parkdale accounted for $1.6 million of the $1.8 million negative change in unconsolidated affiliates.
And Q2 fiscal year 2019.
$2 million a tax credits that did not repeat in the current quarter.
Excluding the tax benefit in the prior year underlying net income improved by $1.2 million. Despite the parkdale shortfall.
And by more than $2 million when the Parkdale shortfall is ignored.
Our expectations for the fiscal year 2020 effective tax rate remained significantly improved over fiscal year 2019.
And our latest forecast places the full year rate at 23% were less which is consistent with our rate in the first half of fiscal year 2020.
The 55% effective tax rate applied in Q2.
For 2020 is associated with a lower amount of taxable you have sorry.
Net income and earnings per share of Q2 fiscal year 2020 were $409000.02 respectively.
Moving to slide four of the webcast presentation.
Review sales highlights by segment.
Consolidated net sales increased 1.1% with significant volume growth in Asia that was partially offset by the volume decline we experienced in the nylon segment.
Polyester segment sales decreased 3.5%.
Pricing was impacted by the lower raw material cost environment in the second quarter, but we are encouraged as we see the front edges of our trade initiatives materializing with return textured yarn customers.
As we mentioned last quarter automotive and industrial products have been slow due to softer demand impacting polyesters sales mix.
Nylon sales decreased 24.6% as a result of a large customer transitioning certain programs overseas.
In Brazil sales volumes increased 3.2%.
Despite competitive and economic pressures, while declining raw material costs and foreign currency exchange drove down pricing.
Sales results for the Asia segment continued their stock strong performance as volumes increased 53.6%.
Despite uncertainty and global trade in international competition.
Sales of the pre products led the rain Asia as we continue to attract quality brand programs and maintain a leadership position in the recycled market.
Repreve platform remains a growth engine of our Asia strategy as it continues to be about paid.
Moving onto gross profit on slide five.
Consolidated gross profit increased from $14.2 million to $15.7 million lobby associated margin increased from 8.4% to 9.2%.
We are pleased with this improvement and with aid from the raw material cost environment any yes.
We were able to overcome shortfalls in Taiwan.
Looking at this from a segment perspective polyester, primarily benefited from a more favorable raw material cost environment.
With a doubling of gross profit in terms of dollars and as a percentage of sales.
Nylon, primarily experienced weaker fixed cost absorption due to lower revenues.
And its margin rate decline from 9.0% two 0.3%.
Brazil face competitive pressures during a declining cost environment generating gross margin decrease from 18.2% to 16.4%.
Lastly, Asian sales mix included significant shift and staple fiber sales, which currently carry a lower margin profile.
As these products are used to see new programs and initiate further customer development.
As a result Asia gross margin declined from 12.7% to 11.5%.
However, as Tom mentioned earlier, we are constantly evaluating more efficient and effective supply chain solutions for operations.
We're making progress on one of multiple improvements to the sourcing of recycled raw materials for our Asian operations.
Moving onto slide six we present equity affiliates.
Pre tax earnings from equity affiliates decreased by approximately $1.8 million from Q2 2019 to Q2 2020.
Parkdale results, primarily reflect lower operating leverage during a period of elevated costs.
There were no equity affiliate distributions in the second quarter, probably did receive a $10.4 million distribution for part sale in the first quarter fiscal year 2020.
Slide seven covers debt and cash highlights.
We ended December 2019 period.
At $129.3 million in debt.
Net debt was $92.1 million, a 13% improvement for reduction from June 2019.
At December 29, 2019, our weighted average interest rate 3.2%.
As for the rest of the balance sheet, our working capital position reflects that typically elevated levels that are consistent with a routine December shutdown period.
Additionally, our cash position indicates continued solid cash generation by our foreign operations.
Before opening up for questions Slide eight details our guidance that was contained in today's press release.
I will take a moment to provide some context as we've decided to adjust our expectations to reflect a few things that occurred during the quarter.
We continue to expect significant growth in Asia to fuel the 10% to 13% growth in sales volume.
But translation into net sales growth is now expected to be offset by additional headwinds we have experienced in the nylon segment.
Lower demand for automotive and industrial products and the current foreign currency environment.
While we are expecting antidumping results to have a moderate positive impact and short term. This will take some time to take hold and we expect to see a more substantial tailwind in fiscal year 2021.
Vast weve slightly reduced our fiscal 2020 sales expectations.
To come in closer to fiscal year, 2019 levels between $700 million and $715 million.
Our outlook for sales does anticipate some moderate market share restoration on our polyester business.
From the completed trade initiatives at the majority of that benefit ramps up in fiscal year 2021.
And while gross profit will likely continue to be pressured by the short term issues, we've noted in nylon and Brazil.
Our recovery efforts and polyester growth in Asia, and meaningfully better ash in a cost structure will still provide significant growth over fiscal year 2019 for operating income net income and adjusted EBITDA.
Lastly, we have lowered our capital expenditures estimate some 25.
Million dollars to $23 million based on the timing of certain projects.
We have reduced our expectations for our effective tax rate to now being 23% or lower.
Again, we're pleased with the significant improvements over fiscal year 2019, and we look forward to fiscal 2020, providing platform to grown market share expand our innovative portfolio and leverage our unmatched supply chain for further global growth.
We will now open up the lines for questions.
Thank you as a reminder to ask a question press star one on you touched on telephone to withdraw your question press the pound Keith Please limit yourself to one question and one follow up.
And our first question comes from Chris Mcginnis with Sidoti and company. Your line is open.
Hi, Good morning, Thank you for taking my question.
I'm, sorry, maybe we could.
Thank you.
Maybe we would start just with China and kind of the current situation. There could you maybe just walk through any any kind of current issues, maybe that could be a positive for you.
You see playing out.
It may be impacting your business positively the bank the way thanks.
Chris This is Tom I mean, we continue to be really encouraged by our business in Asia.
Can trend continues to grow and expand.
You know we've talked many times about the product mix and.
And how it affects the overall margin, but you know we we're growing the the chip and Blake.
Our end state will fiber, our chip and cycle fiber at a much.
Accelerated rate over what we are the higher value.
Filament product so.
The margins are a little little depressed, but as we've said before we are cold debating Malaysia.
Malaysian source of raw materials that it's going to help us improve the margins.
On a longer term basis, you know, we probably won't see the effects of that until.
Early in 2021.
So we continue to be encouraged with many opportunities to do expand our business and.
And is.
So very good growth platform for Repreve, So that's kind of where we are.
Sure in just in relation to kind of kind of its run a virus and the impact on businesses in the region, though would it would you you seem to that can be a positive for you all sand or you see anything that it would come your way is is that kind of start to impact businesses.
Chris We really don't know we're asset light. So we don't think will be substantially impacted by the situation.
You know that had been some announced.
Extended downtime.
But at this point in time, we don't think it's going to be positive or negative drive business situation over there that changes.
I will.
To monitor let people know as we go full personal to how we have no assets on the ground in China. So we won't have any factory shutdowns or any kind of loss shipping days, but.
I don't know, we're going to dig through that in the next day or two and get a little better handle on it if I were to bet slightly positive, but nothing significant but probably no negative.
Okay. Thanks, and then just one last one just around the anti dumping the commission.
An annual sales is what you think you lost out and you should be able to recapture that overtime.
You know the.
We ended the year brought the.
The final decision by the International Trade Commission. So China is at 97 plus percent India's is 18 plus percent own a duty own anti dumping right.
We've seen the significant decline in imports from China and I.
A meaningful decline in the important from India.
So we're going be encouraged what we see.
We're continuing to monitoring other countries to see if you know some of that.
Those imports and moved around a bit but.
We saw.
Increases in our demand.
Our recycle product at the end of our second quarter, and we're encouraged but what we see going into the third and fourth quarter. So we think we won't get to where we felt we would be but wouldn't want to project off of five weeks, but we definitely have seen it picked up and our us.
Sales of shipments in the last five weeks.
Great.
Thanks, I'll jump back in queue. Thanks for taking my questions.
Thanks, Chris.
Thank you. Our next question comes from Daniel Moore with CJS Securities. Your line is open.
Al Tom Craig Good morning, Thanks for taking the question Hi, Dan Good morning today.
Let's talk a little bit about the mix you just alluded to it didnt detailed Tom So appreciated PVA continues to grow now up over 50% of revenue as you look out over the next four to eight quarters do you expect chips.
Like in staple fiber to continue to outpace.
Higher margin.
You know yarn sales and 10 and sort of.
TV product with.
More benefits if you will when do we expect that makes to maybe turn a little bit more favorable over the longer term.
You know Dan the opportunity for.
She up and staple fiber are so much greater.
What the filament ideas in Asia, We think we think it's going to continue so our focus is going to be on improving the supply chain for those products to improve margin, but you know there's a lot of demand for filament as well and we're going to continue to grow higher value will is just.
The situation and the demand for that particular type of products and NGL and cycle Viber is just outweighing.
The filament growth. So we were going to remain vigilant and focusing on our supply chain to improve the margins on the lower lower end of this.
Product.
But suffice to say the focus will be and continued gross profit dollar growth at least in Asia for the next couple of years.
I think thats fair to say okay.
And then shifting gears to nylon maybe elaborate on on.
Plans or steps you might take to backfill some of that lost revenue do you see the trend to offshoring continuing beyond the current customer to then you know if it does other steps you can take in terms of capacity reduction cost reduction rationalization more detailed everything right.
Dan Nylon has been very important sector for us for for many years.
Here that it has.
Then declining year over year.
Yeah, we should we we had a cut a couple of customers showed some facilities during during the though.
Last quarter.
But we know it's a very important product line for us, we still have repreve nylon, which we can expand and grow with.
We are expanding with other customers other opportunities.
We're talking about and some of them will come to fruition over the course through the third and fourth quarter.
We remain committed to growing and and getting that business back on track and we think that possibility exists with the through our innovation.
Pipeline and so customer base that we're working with today.
Okay and lastly from me, maybe just talk about.
Expand on the guide posts that you're seeing that give you confidence.
Yeah.
As it relates the anti dumping tariffs and polyester in North America specifically.
You know sounds like fiscal 21, you expect to be it see a larger benefit just you know that at the conversations or anecdotes or or data points that you're seeing that give you that confidence. Thanks.
Yeah, I think we we feel comfortable in the $5 million.
Mark that we publicly stated.
I think we're also comfortable with recapturing over time getting the $20 million of sales that.
That said as well so I think we're on track to be exact a world where were you publicly stated we want to be and then he overtime.
And in the US Weve you know when it first was announced back in July .
We were waiting to see what would happen in the business, we thought we'd see a positive improvement in the U.S sales and nothing really happens then it got to be the.
The fourth calendar quarter of last year going to fall.
So little tick up in the business and then towards the end of the quarter, we saw a little better tick up in the business, but once the December 12 announcement was made.
And I think some of these low priced inventories are probably work themselves through the market.
We've seen let's say the last week of December and all of January strong sales improvement significant improvement over what we were doing so we're in the negative column before and now we're in the positive.
And I would expect that to continue but I don't know how big.
And but if I look at back over the the anti dumping on things like staple fiber several years ago.
It was a slow build and then it finally took off im hoping that we see that same thing.
Helpful and I'll sneak one more and if I may parkdale.
Obviously.
On a bit of.
Decline year over year in terms of.
Tax on the income statement are those assets still generating significant positive free cash flow at least through the first half of your fiscal 20.
And any changes in your view, our thoughts regarding potential strategic alternatives for that investment.
Dan This is Craig gardening Parkdale definitely has.
Come into a period, where they've had some elevated cost they've had some challenges I think with the cotton crop and they continue to operate that business center and it really good manner.
But they've come up with some obstacles that.
Definitely are different than last year in years, you're definitely seeing that as you're pointing out.
And our portion of their earnings.
We feel like.
It's still a very good investment for us very good strategic partner for us.
And really.
Were working.
We're continuing to to believe nm to continue to make improvements to the business. So so no change as anticipated.
Thank you for the color.
Thanks, Dan.
Thank you. Our next question comes from Marco Rodriguez with Stonegate capital. Your line is open.
Good morning, Thank you for taking my questions that more mark good morning.
I was wondering if you can talk a little bit more about some of the pressures you guys have been seen this last quarter, you specifically brought out international pricing pressures and I believe you you some forbid share in your prepared remarks about competitive levels.
Being kind of described as aggressive.
Can you maybe go into a little more color as far as what are the dynamics, you're kind of seen up there the drivers.
This is specific to maybe a region or a particular competitor and any sort of color around those would be very helpful.
No Marco this is Tom.
You know we knew when we file the anti dumping suit Onea international.
That there would be some movement around the region and southeast Asia.
Certainly we've seen an uptick in volume and the.
Some lower prices coming into our in into the North America, North American region from Vietnam from Malaysia from a Thailand and we're monitoring.
Those volume.
You know, we think because of capacity they will flatten out overtime and everything will will normalize and we'll get to benefit how the anti dumping which we anticipated.
But if not you know we will all we always held the option of.
Initiating more action.
Against countries Rat-a-tat dumping as well.
It also Marco throw in on Central America.
Our is gotten very competitive in that market and we've decided to protect our market share and our sales are up 26% volume sales and.
No I think theres, an opportunity to not be quite as aggressive, but I think.
We're working on getting the right pricing in that market.
Got it and then talking about your guidance here I'm looking at what sort of is implied on the numbers if I'm doing my math right.
It looks like for fiscal 20, it's about a 10.5% gross profit margin give or take a few basis points can you maybe talk a little bit about how you see that progression in the second half way fiscal 20.
Yeah, I think you're right on.
Marcos I think where we're expecting that full year gross margin to be probably just a little bit higher than 10% and in total we do think we'll see some benefit here in in Q3 to some of the actions that we've talked about including the anti dumping, but then we really feel like.
And seasonally it usually is our strongest quarter that Q4, probably will show quite a bit more growth in and we're expecting to be noticeably above that 10% average for the full here in Q4.
Okay. That's helpful. And then maybe if you can talk a little bit more about.
The just the capital allocation priorities you guys have I know you talked about.
A slight reduction your capex just based on some timing aspects, but if you can maybe talk about.
The priority as you've seen the next 12 months that'd be helpful.
Sure I think for us.
Continuing to be.
Thoughtful on the capital expenditures, we've talked about the larger projects vivo coolers detection machines that we have that are coming in our current forecast anticipates that we will start to send some dollars in Aflac 24. Those are the first wave of those machines in and the bulk of that flowing out in flight.
21.
We feel like we're investing in the right areas the right strategic areas the right maintenance areas. So we feel that 23 million forecast for the year is a very comfortable level for us. We're also anticipating being able to continue to reduce debt or specifically net debt and we've seen a nice redux.
And then that 13% reduction in the last six months.
We feel like we'll be continuing to invest a bit in our working capital, especially as we.
Build in Q3 and onto Q that strong Q4 that we're anticipating however, we think that continuing the capital investments capital expenditure investments plus paying down the that really that's the main prioritizations right now.
Got it and and last quick question, if I might.
If you called out again second quarter on ROE here, the industrial and automotive market in terms of their they're kind of weakness there. Maybe if you can just talk a little bit about anecdotally, what you're hearing from those clients, what they're sort of expectations are for the remainder of calendar year 20.
I think the in general the automotive industry saw a slowdown.
During our first and second quarter of our fiscal year.
You know GM.
We're stood a strike during that period.
Some others now its reduction of.
Models and what have you. So I. Thank you Andrew industry as a whole saw shut slowdown.
During the period in.
We are watching what's going to happen.
In the third and fourth quarters, but Oh reached that may feel a little above an uptick, but we don't expect.
Total recovery from where we were.
Before that although that took place.
And our third and fourth quarter.
Got it thanks, a lot guys I appreciate your time.
Yeah I thought.
Before before I turn it over to ha to close it up I just thought I would make here.
Comment on so how I see the business moving forward and why we have optimism. So if you think back about this time last year.
We were in a tough spot on many fronts and I really think the best way I would describe the business in the last two quarters is sequential improvement.
And I'd say that the sequential improvement will continue in quarters three in quarter four continuously moving forward a little bit and what that recovery has been on even with a few surprises. So I don't want to diminish those but here's what I would say as far as positive.
The sales volume is very positive on many fronts and I'm, particularly encouraged with.
The overall.
US business it lets call it the last five or six weeks. So it looks like the anti dumping is finally, starting to hit I don't want to project. So much positive on five weeks, but it appears that that's a trend that we can definitely see improving and if you look at our revenue which was weak at 1.1% if you.
It took out the nylon it was actually up 6%, so I'm feeling a little better about our overall trends there. The other thing our board puts a big focus on as cash generation.
And cost controls and I'll tell you both of those are in a very good spot night expected to continue our Asia business is very fast growing and over the last several let's call. It two months I think as he has GE becomes such an important part of the economy and so much discussion about it in the news in the press.
Yes.
I think it's beginning to have a positive impact on Repreve and I hear more and more positive discussions with our customers about repreve and their interest on our innovation on repreve, such as in a nylon and and notion plastic.
Opportunities definitely price realization.
And I'd look at into different ways. They are price realization in Asia price realization in Central America is where were you need to put some efforts and there are two different plans, but those plans are in place and I expect some improvement.
And then nylon and I would expect we have several ideas on nylon I think they'll really materialize towards the end of this fiscal year.
And I think we'll start anniversarying the departure of the plants that shutdown.
But we intend to keep nylon as part of our overall portfolio because our customers see us as a full textile company not partial and so we're compelled to work on this nylon thing, but that's it overall I mean, that's that's the way I'm looking at the business, we've been working hard I.
I think we're making a lot of progress we still have a lot of work to do though but of that so that I feel very pie at all of US sitting here feel very positive about where we're heading for the second half of era.
So.
With that let me turn it over to AJ for the close. Thank you everyone for participating today. Our next earnings release for the third fiscal quarter ending March 29, 2020 is tentatively scheduled for Wednesday April 29, 2020 with a conference call to follow that same day at 830 am Eastern time, Thank you for joining.
Hey, Scott.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect everyone have a great day.