Q4 2019 Earnings Call
The conference call today's conference is being recorded at this time I would like to turn the conference over to Adversity, Vice President General Counsel and Secretary Alamo Group. Sir. Please go ahead.
[music]. Thank you.
By now you should have all received a copy of the press release.
However, if anyone's missing a copy it would like to receive one please contact us to want to eight to 7.3746, and we will send your release and make sure you're on the company's distribution work [laughter] there'll be a replay of the call which will be getting one hour after the call and run for one week.
A replay can be accessed by dialing 18882 03111 too with the passcode 3971238.
Additionally, the call is being webcast on the company's website at Www Dot outdoor Das group Dot com and a replay will be available for 60 days.
On the line with me today are wrong Robinson, President and Chief Executive Officer, Dan Malone, The Executive Vice President Chief Financial Officer, and Richard Worley, Vice President Treasurer and corporate controller.
Management will make some opening remarks, and then we'll open up the line for your questions.
During the call today management may reference certain non-GAAP numbers in their remarks.
Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachment to our earnings release.
Before turning the call over to Ron I'd like to make a few comments about forward looking statements, we will be making forward looking statements today that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, [laughter] forward looking statements involve known and unknown risks and uncertainties.
He's which may cause the companys actual result in future periods to differ materially from forecasted results among those factors, which could cause actual results to differ materially are the following market didn't <unk> demand competition, whether seasonality currency related issues geopolitical issues and.
Other risk factors listed from time to time and the company FCC reports.
The company does not undertake any obligation to update the information contained herein, which speaks only as of the state.
I would like I would now like to introduce Ron Ron. Please go ahead.
Thank you did and we want to thank all of you for joining us here today.
Oh CFO, Dan Malone, we'll begin our call with the review our financial results for the third for the fourth quarter.
I will then provide a few more comments on the results and following our remarks really taking your questions.
[laughter]. Thank you Rob.
Before getting into the results I will start with a few comments regarding the fourth quarter impact of the more bark acquisition.
I will then well focus on orders backlog and sales before addressing margins and earnings finally before closing my comments I will also discuss.
Our Corona virus exposure as we know what today [noise].
On October 24th we completed the more bark acquisition the largest in the company's history.
We immediately shut down their operations for about a week to get a clean cut off to conduct wall to wall physical inventory accounts and provide employee orientations [laughter]. This shut down along with normal holiday closures limited their number of operating days right out of the gate still more bark accounted for most of Alamo groups 2000.
19, adjusted EBITDA growth [laughter], including the pre acquisition period more bark also achieved the 2019 adjusted EBITDA estimate we previously provided.
Our fourth quarter 2019, GAAP earnings results were negatively affected by large non cash expenses caused by more bark opening balance sheet adjustments to step up acquired inventory values from historical cost to fair value as well as the allocation of a significant.
Portion of the purchase price to Amortizable intangible assets as opposed to goodwill the inventory step up totaled $8.1 million of which we expense $3.3 million during the fourth quarter.
We will expense nearly all the rest of it during the first half of 2020.
The incremental amortization amortization expense, resulting from the more bard and Dutch power acquisitions was $1.7 million for the quarter and $2.2 million year to date or for the full year [noise].
Before discussing new orders and backlog I should note that while we did not carve out Dixie chopper sales and earnings during 2019 due to their immateriality their fourth quarter, new orders and backlog worst significant and merit discussion are married inclusion as part of the effect of acquisitions on those specific.
Measures.
Fourth quarter agricultural orders exceeded the prior year by 46%.
The benefit of acquisitions and by about 34% without.
You may recall from last quarter's comments, our third quarter two prior year quarter comparison of agricultural Division New order bookings was affected by an approximate 24 million dollar pull forward of new orders from the fourth quarter entered the third quarter of 2018 this occurred because our dealers accelerated.
The orders to avoid and announced price increase while this.
Timing issue and unfavorably affected our third quarter comps it had an opposite favorable effect on our fourth quarter comps.
For total Alamo group, excluding this timing effect and the orders booked by all three of our 2019 acquisitions fourth quarter, New orders were up slightly compared to the prior year quarter. This was truly a mixed result, as we saw strong rebound in the in industrial Division mower and excuse.
Later orders continued strength in vacuum truck demand and about 5% higher North American bookings in the agricultural Division.
This slightly more than offset weaker new order rates and sweepers and snow removal as well as not lower international bookings in the agricultural Division.
Yearend 2019 backlog of $261 million is up about 9% over the prior year in.
The Dutch power, Dixie Chopper and more bark acquisitions added about $40 million.
To your in backlog without the contributions from acquisitions, our yearend backlog was down about 8% from prior year Industrial division backlog without more bark in Dutch power was down about 9% from a very high year end 2018 level.
Agricultural division backlog without Dixie Chopper was down about 4% year to year, which is considerably better than the 16% unfavorable comp we saw as it as of the ended the third quarter.
Fourth quarter 2019, net sales of $300 million is a company record and exceeded the prior year fourth quarter by about 17%.
Full year sales of $1.1 billion, we're up about 11% over prior year.
Excluding the impact of the more barkan Dutch power acquisitions comparable sales were up less than one per cent for the quarter and about 4% for the full year.
During the quarter Industrial Division net sales of 222 million exceeded prior year quarter sales of $172 million.
Excluding the effect of acquisitions industrial this division net sales were about $179 million up 4% over the prior year quarter.
Hi, vacuum truck and sweeper shipments offset slower sales of industrial mowers, excavators and snow removal equipment.
For the full year industrial division net sales of $768 million increased 20% over prior year.
Excluding acquisitions, the industrial division full year sales grew 9%.
If we also exclude the impact of currency translations net sales in this division grew 10% in local currencies.
For the full year all business all businesses contributed to this division's organic growth except for industrial mowers.
Fourth quarter Agricultural Division net sales of $78 million were down about 7% from the prior year quarter.
Full year agricultural division net sales of $351 million were down about 5% from prior year, excluding the impact of currency translation net sales in this division were down about 3% in local currencies.
While we saw an uptick in north American agro agricultural equipment orders during the quarter the impact of weather trade disputes and other jewel geopolitical events continue to constrain global agricultural economy.
[noise] fourth quarter gross margin of $68 million grew 9% over the prior year fourth quarter, primarily due to the Doug more bark in Dutch power acquisitions.
Excluding the $3.3 million of inventory step up expense adjusted gross margin grew 14%.
Fourth quarter adjusted gross margin, excluding inventory step up expense was 23.8 million or I'm, sorry, 23.8% of net of net sales, which compares to 24.5% of net sales for the prior year quarter.
Favorable product mix lower production levels higher import tariffs and lower rental fleet utilization continued to never negatively affect gross margin and more than offset the benefits of lower steel cost.
Full year 2019, adjusted EBITDA, excluding the inventory step up expense was $128 million and 3% above prior year. If we also exclude nearly $2 million of nonrecurring transaction cost related to the nine 2019 acquisitions.
Full year result would top $130 million.
Adjusted EBITDA growth in 2019 was primarily due to the partial quarter of more bark results.
And organic growth in the industrial Division.
Excluding the inventory step up charge and the incremental and amortization expense, a more Bart and Dixie chopper acquisitions contributed $2.2 million and $3.8 million, respectively to fourth quarter and full year adjusted operating income.
Fourth quarter 2019, adjusted operating income of $22 million was about 12% lower than the prior year fourth quarter, primarily due to the factors affecting gross margin already discussed, but also due to an increase in R&D spending and Dixie Chopper stop start up expenses.
Our effective income tax rate was 24, 25.4% compared to 25.7% in 2018 after excluding the prior year onetime tax adjustment related to new tax legislation.
Excluding acquisition cost and the effect of more barking up the more barkan Dutch power acquisitions, adjusted net income was $15.5 million or $1.32 cents per diluted share excluding the onetime favorable tax adjustments fourth quarter 2018, adjusted net net income was $16.3 million or.
$1.38 cents per diluted share.
[noise] fourth quarter 2019, net cash provided by operating activities was $47 million, which is over 400% above prior prior year quarter operating cash flow of $9 million.
This was mostly due to fourth quarter liquidation of nearly $32 million of receivables and inventories compared to only $3 million in the prior year quarter, when industrial division organic growth drove higher working capital requirements.
Full year 2019, operating cash flow of $91 million as a company record and over 600% better than prior year.
[noise] fourth quarter 2019, investing cash flows were highlighted by about $350 million cash used to acquire more bark and 11.5 million of capital spending which as expected continued to track above prior year full year capital spending was $31 million compared to $27 million.
In 2018.
Due to acquisitions debt net of cash increased about 350 million over the prior year quarter, excluding acquisitions debt net of cash would've been about $53 million lower than prior year.
Regarding our Corona virus exposure, we estimate that between 40 and $50 million of the components. We buy are manufactured in China.
Most of these can be sourced from non Chinese suppliers, but the supply chain for some power transmission components used on mechanical mowers could be temporarily disrupted most of our agricultural division sales would be exposed to such a disruption but as of today, our major suppliers are back up and running though not necessary.
Early at full stop currently we're looking at two to four week inbound delays and we have boots on the ground in China closely monitoring the situation at each of these suppliers in the meantime, we're actively pursuing sourcing contingencies to mitigates the risk that the situation worsens.
Today, we have seen no corona virus impact on demand for our products.
In summary, our fourth quarter and full year 2019 results included completion of the more bark acquisition the largest in the company's history record fourth quarter and full year sales of $300 million and $1.1 billion respectively.
Continued margin pressure from lower production volume unfavorable product mix and lower rental fleet utilization, which more than offset the benefit of lower steel cost and strong fourth quarter and record full year operating cash flow over 400% and 600% respectively above the prior year I'd now like.
To turn the call back over to Ron.
Thank you Dan.
Oh, well, you certainly heard and Dan presentation, our fourth quarter results that have lot of noise in it everything from acquisitions inventory write ups will.
Amortization.
Some market challenges and young girl Novartis another issues, but all in all our actually we're we're pleased with the achievements we made in the fourth quarter, and then and with our.
Turning 19 results in total would you all.
Certainly a were.
Offer little and below our expectations were still the second highest in the company's history.
And sales were at record levels.
First of all <unk> said, we acknowledge your earnings were somewhat short of our expectations.
But as Weve.
Reported starting in our third quarter, our results were impacted by weak agricultural market conditions, and some unfavorable mix, even <unk> in our industrial sector.
And some of these same conditions affected our fourth quarter results, but not quite to the effect. The they did in our third quarter, which we think.
You know very positive development and it is also good to know the sales for the year, where is the Sid or even before the contribution from acquisitions at record levels.
Even with the decrease in agricultural sales, our overall sales for the year, excluding acquisitions were up 4%.
And even more so in local currencies in fact with regard to currencies.
Noted we Oh.
Our industrial and agricultural division are probably going to have a little bit more currency effect in their results going forward now that we no longer report our European operations separately.
But I also think there's change in reporting which just started with our fourth quarter results will actually make our reporting more consistent since we now have all similar products reporting together.
And while our organic profits were below the previous year <unk> <unk>, we should weaker sales and I cultural and our margins even in our industrial division were still affected by some unfavorable sales mix.
Well, we had fewer of the internal challenges that that affected our results than a that we reported on in the third quarter would just again like that so.
Definitely some fruit much of the fourth quarter.
And we were also pleased the bookings for the quarter we're up.
This was particularly welcomed in our AG sector, which had been in fact, it but declining backlogs during most of 29 thing.
Again, showing some signs of stabilization in that market.
But of course for us the major development has been the the the acquisitions we completed in 2019.
Wrapped in October with our largest ever more bark. We believe this was a significant achievement for alamos future, though it certainly clouded our fourth quarter results.
We completed this deal in late October and understands it.
They were down over a week just to close the books.
Count the inventory get everybody trained and before being fully operational and of course and that was quickly followed by Thanksgiving holiday season, and the their normal Christmas shutdowns. So our results were obviously limited.
We were really pleased that we were still able to generate over 35 million in sales in just in that short time.
And again as Dan pointed out the our cost were further impacted by.
This I mean in addition, there was the transaction related expenses higher amortization cost him and the required step up in inventory valuation, which alone added the 3.3 million the cost to goods sold in the fourth quarter.
So obviously the higher level of amortization expense will continue as we move ahead you know certainly the transaction expenses will go away in 2020, M. and the step up in inventory of valuation should be all flushed out through the system, but you know practically all by the end of this first half of the current.
Here.
Well still have some a little bit of integration expense, but we believe more bark should be a very major contributors to our results and 2020.
Good indications this can actually be seen in our 29 think results where despite softer organic results.
Acquisition related expenses.
Our unadjusted EBITDA for 2019 was at record levels for Alamo Group, and we believe it will get significantly better in 2020.
In addition, we are pleased by a number of our other internal initiatives, which we feel will help our organic sales growth to drive further operational improvements.
I mean these initiatives include a variety of some new product introductions, Oh that had been made recently in some of bar. We've also made its you know that our capital that Capex spending has been up as we have been spending more on our plants to to improve our manufacturing efficiencies and invest in technology.
And of course, the Big Kids I mean, you know the big driver of the increase in our Capex for the year was it was our the news.
Greenfield plant, we built in Wisconsin, which is part of our plan to.
Well really for four or five plant consolidations completed within about a two year period now so.
Most of these we've previously discussed and all these are well underway and very pleased with the direction that's taking us.
And certainly there's still no variety of challenges that we continued to face a the agricultural market is still small still showing some signs of stabilizing a little bit more the U.S. However in Europe. This sector is a little weaker and actually you made worse by some unfavorable weather condition.
In the last you know.
Yeah.
Our industrial products seem to be holding up steadier and we're pleased to see some areas like our Boeing products as Dan comment, which were a little soft.
Major profit contributor for us than they were a little soft and 29 thing but are starting 2020.
The certainly improved bookings in and the.
Outlook for the element it's back to normal.
And of course, there the there's a variety of external issues that we've been commenting on I mean.
Certainly the U.S.
Presidential election.
Europe, the Brexit situation, it's still not totally <unk> you know the you know we know it's coming we just don't know what the terms or.
Trade disputes with China sort of the same thing, but are some agreements made but it's still not clear how all that's going to.
The effect this because we're still paying <unk> tariffs at all.
And of course at the top of the list as Dan pointed out as the Corona virus situation, which is a major concern forever one.
We're pleased that are our major component suppliers in China are open though.
Not at full staffing levels.
And at this time, we do not feel the situation will have any impact on our first quarter results oriented you know everything we need from there to meet all work commitments in the first quarter and [noise] <unk>.
<unk>.
But we could face some disruptions in the second quarter, if components do not start flowing at sub level from China within the next month or so.
Yeah. This would be mainly as Dan indicated in our agricultural operations.
<unk>.
In our industrial <unk>.
But as a result, we're monitoring the situation daily taking with actions, we can to protect our deliveries and and Ah you know mitigate any any.
Worst situation, but you know I don't think anyone knows the full effect. This if you will have on us or our suppliers or our customers are.
The global economy for that matter at this point.
So while there are definitely some areas of concern we actually feel good about the outlook for Alamo group. There was certainly a lot of noise in our 2019, Oh fourth quarter results, but we actually feel the results are better than the first appear and we think this will begin to become more evident as we move through 2020.
With our various internal initiatives combined with the.
Uh huh.
Contributions from acquisitions, we feel the outlook for 2020 is very positive.
And weaken absolutely assure you that in this current year, I mean, who have a much stronger internal focus a.
Working on a the integration of the acquisitions and our other various internal initiatives and our total focus would be on delivering the results. We know we're capable of producing.
So with that Ah. Thank you for your support than we would now like to open the line to any questions you might have.
Thank you Sir if he would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speakerphone. Please make sure your mute function is turned off to allow your <unk>.
Again, Please press star one to ask a question.
<unk> for just a moment to allow everyone the opportunity to signal for questions.
Our first question will come from Chris <unk>.
J S Securities.
Hey, good morning, guys.
Hi, Chris Good morning, <unk>, just trying to understand a little better. The you know it's kind of the ultimate impact that more park will have.
The ingestion Mark just a couple of things is there much seasonality more bark is Q4 normally slower and slower time of the year as there is there any impact on seasonality there.
There's a little impact or you know vegetation related.
Activities are usually is a little slower in the you know at the end of the year in first of the geared in the winter months domain when snow, they're not cleaning up Russian day breed quite as much. So it's almost not as much on the equipment itself is in the spare parts, which now and the spare parts are certainly.
You know the little bit higher margin. So you know not significant but some seasonality or more bark. Though is you know like said I mean, you know when we announced the acquisition. We gave some room for for you know what Weve you know their sales levels and every.
Thing and we believe that you know certainly there are still in line with the the indications. We made then and as we pointed out their margins are actually a little bit better than our margins. So I mean, we think that they should have a.
Somewhat positive effect, though.
Yeah again, you got to take out the noise of the inventory step up in the short term and.
The amortization, and then and things like that but but no. We actually think there will be very nice contributor with the little bit higher margins than we have in general.
Yeah, no it sounded like just from a revenue to expense matching in Q4 beyond that the onetimes items. There was it a little more expense there and then revenue you had shut down that one week. So I'm, just trying to understand kind of that balance but.
Yeah, and then and the thing is is like a that one week were shut down it's not like everybody went home they were out Franklin County, So we got to and you know we had a good interest accruing that week and everything else. So it yeah. It. It just was a little bit of a slow start mainly because we wanted to make sure we had to clean store.
Hey, Dan if I look in the industrial margins in Q4 versus Q4 18.
It was 5.5% versus 10.2 I think it if you add back the one times you know the incremental amortization step upset you. It gets you to about 8%. So then you had kind of talked about it was a combination of mix.
Rental feet.
Utilization and volume it's mix that the big driver there in terms of getting back towards that double digit level.
Oh, it's no just want to one of the several factors. It yeah. We did listed first so little bit larger impact there.
But all three of those factors you know come into play.
In the industrial Division real remember, we had a really weak.
Quarter on on Boeing and excavators in the third quarter.
And so you know while the bookings kinda surge there after quarter end.
On those two product lines, you know that really isn't affecting the fourth quarter. That's that's kind of more of a delayed effect is gonna it's going to benefit us in 2020. So you know productions levels will still lower we were absorbing less.
You know you saw the inventories come down you know.
We're absorbing less cost into inventory.
So you know all of that has a little bit of an impact well you know the compresses margins, but we don't see that as anything other than a temporary impact [noise].
[noise] last one from me just in terms of the expected more bark intangible amortization for fiscal 20 can't can you can give us just it counts that we booked more.
More barkley booked a million and a half for two months. So if you extrapolate that out it's it's 9 million yeah.
[laughter] estimate yeah ordered yep understood, but I'm going to start.
Okay, Yeah here too.
There is your there's your opening place holder alright, alright ill jump back in line appreciate guys.
[music].
Thank you. Our next question will come from Joe Mondello with Sidoti and company.
Hi, good morning.
Born go.
The EBITDA margins that more buckets historically.
Scene, you know, excluding the purchase accounting amortization, that's still sort of intact.
Yes.
Okay, and then the interest I'm just.
Selling over a few assumptions that I've made this acquisition the interest expense seemed a little higher.
They did.
Yeah you.
I, probably should have commented on interest interest was about five and a half million or the quarter, but if you think about it we were about $150 million for three weeks and then up around $500 million for almost the balance of the quarter. I think we did the pay downs Sadat pretty late in the quarter.
I back into about 4%.
You know using that kind of weighted average outstanding debt Jos another way to look all too. If you look at that attachment that we have number two we net tax effect. The interest expense, which is like 3 million. If you back into the gross number that's about 4 million of additional interest expenses. So normally we would have been about.
Yeah, so not only for me that is related to the acquisition [noise].
Okay, but not in total that's about 4%.
Good and then lastly, with the acquisition can you talk about the synergies I know you have a lot of opportunity not sure. If you can quantify anything but anything that you can.
Providing talk about what you're doing how much it's going to benefit you and what the timing issues.
You know that they're in several buckets for sure I mean, you know one of the big ones is procurement and we're pleased that I mean, you know you know like say, we haven't put out any any numbers, but the you know that we're we're actively working on all that then we feel we're already achieving a you know who have.
[noise] reached agreements to achieve about half the the the benefits already but none of which will show up till the second half of the year 'cause they got to flow through their old.
Inventory at their old purchasing rates and so I mean, you know I think but procurements are big when certainly putting them on our operating systems and this kind of stuff I mean, that's that's a function, but we'll be going throughout this year. We have already I mean, you know literally started three capex is there oh.
We're ready to on investing and the shop on some new robots and some.
Some new gutting capabilities, which we believe will help their their call. So there's some operational ones and then the you know the little bit longer term I mean, you know more work has been.
Good company, but very strong north American not as much international and we've already got our European are all Brazilian in our Australian groups have all been there lately and you know we hope the but you know about four then this year have some new Cape of international capabilities that up to.
Market their products through our distribution networks outside of North America.
And so I mean, you know as I said its a.
It's a there's a variety of issues different buckets and all of them are underway, but most of delmar sort of second half of this year into next year before.
We believe they'll start.
I think evident that the results.
Okay, and then last question regarding more bar.
What is the incremental depreciation that comes with more bark, how does the acquisition effect, but.
Tax rate the whole company.
You know I think from the depreciation lease, we not add or giving you that information yet.
Part of the valuation that we're going through right now there's gonna be some step up so things that said, so we're not going that information not just yet.
As an effective tax rate you know most of their.
Sales are in the United States, So you're going to federal tax credits.
They do have a obviously you stay intact, there, but I wouldn't say that it's probably going to be roughly the same range in world right now.
You see a swing maybe you know you Tencent ourselves.
Okay.
A couple of questions <unk> industrial segments, it I'm sorry.
Yeah, I've noticed a you know there there was a tax benefit because we bought LLC interest there was a tax benefit which will affect cash taxes, but you don't necessarily see that in the GAAP tax provision number. So you know, there's a cash taxes should actually be better.
And then will put the vision, we're going to put you know continued to put numbers into a deferred tax liability.
Okay.
And I had a couple of questions extra segment could you clarify I Miss one of your comments you were talking about excavators and vacuum trucks I think your <unk>. When you were talking about the order rates was that.
Positive rates with those products are.
Fourth quarter, yeah, well vacuum trucks continued to be strong. So we have we have strong you know the wall. The rental fleet utilization has dropped some and we really didnt see a big pickup in that and the fourth quarter. The you know the order rates for new trucks have continued a strong.
Excavators rebound and remember we had a really kind of a a week sort of third quarter report on excavators as well as industrial mowing and while the industrial mowing has been down all year excavators was more of a drop off you know in or around mid year. We.
We saw strong rebounds, and I, we even mentioned this I think in our call last quarter than we saw strong rebound in orders and excavators and industrial mowing in the fourth quarter.
Okay and could you just talked overall, how the order rates have been trending through the first two months of this year.
I think so far we're around right now Jonas trendy no I wouldn't say 100 [noise].
Huge cost.
They are trending positive for us right now.
We've got a few areas obviously, they continue to get there probably struggling but overall I think are bought some or we're not seeing huge impact yet yeah.
Our Oh, no I wouldn't say their study and up in it up which is I mean, you got to remember last year I mean sales were going down in it I get bookings were going down most of the year and so you know in you know like it's good to see it's that are bookings are now.
Coming back above or sales levels, and so and is that mowing equipment up nicely I mean, some of the soft areas from last year excavators. Boeing equipments are you doing well or excuse me I mean sit back and structures are continuing to be very strong.
And I mean, those off a little bit.
<unk> I mean sweepers probably are you.
Off a little bit, but Ah, but in total there there there is strong.
You know and better.
I think or even the mix a little bit between Europe, you're not quite as strong your pricing a little bit, especially in the NIH, yeah, they've had some adverse weather, but but actually industrial products in Europe, or a bookings or are very strong instead he too so.
You know <unk>, <unk> European <unk>, but Oh and Paul.
Total they're up a little.
Alright, and last question for me sticking with industrial I'm could you.
No you can expand at all.
You know if you can quantify anything that would be great but talk about.
Productivity initiatives that you it's been focusing on.
Consolidation automation.
You know, how you're seeing that going into benefits and the timing.
Yeah No <unk>.
We're pleased with two major consolidations, we announced the you know I'm talking about last year, one was a we.
Expanded our 10 kill facility in Canada to allow us to move our RPM facility a nearby RPM facility into that one the men consolidate the manufacturing that has now been completed a you know late late last year.
That's done the other major one was the new planted in for Super products in Wisconsin.
Where we'd be able to greenfield plant them like want to go. The we started and you know like that that construction has been completed on on basically on time on budget and do we started moving in order to literally the office started moving and just before the first of the year and now most of the production is is gearing up.
You know leads that we would.
The.
Your production in the first quarter and that we're on track for that on track on budget and so that will allow us to close the you know you know consolidate.
Several [laughter] excuse me several plants and into one and in fact, we though.
They haven't sold but we've already got contract to sell one of the or the one of their plants that we did all you know when we did on in Milwaukee. So all that's on time on me obviously, none of this is starting to show up in the numbers, yet, but we think it will and and we.
Most of our as we said we spend a little bit more on capex spend a little bit more and so I mean, we we are on target and believe most of that stuff will start contributing to our bottom line you know leased in the second half of this year.
Okay anything else.
Significant.
Our always doing a lot of random things and you talked about on automation.
He is as I mentioned, we're already buying in the on some new robots it but the more bark, where oh, we got a new paint system coming online at Revard, We've got.
You know yeah I mean.
<unk> for two other robots or just the new robot that Bush Oleg we made some you know when we brought in the Dixie Chopper production into our Illinois manufacturing Rhino manufacturing plant we spent the.
No.
Money on some new equipment, there to be able to make that <unk>. Some believes that equipment more efficiently. So yes, you're right. We've got a number. These and then you know we said last two years, our capex spending has been considerably above this year. I mean, you know like say the big year needs that we spent 31 million I'm going to almost.
Shifting million was just the Quantico plant all that wasn't in 29, I think some of that.
Tail over into 20.
2020, but a you know so I think this year 2020, capex spending to be off a little bit I think but this year, we will start.
Second half this year, we'll start seeing the benefits of all of the you know not just the news.
Plan, but a lot of this extra capex spending we've been doing.
Okay. Thanks, Thanks for taking my questions after that.
Thank you Mike Oh, we can do.
Thank you again as a reminder, if he would like to ask a question. Please press star one now.
Our next question comes from Mike Shlisky.
With that train company.
Hey, guys. Good morning can you hear me okay.
Yeah, Mike Mike.
Oh, great can you maybe quantify the cost savings if the R&D that.
Okay expects them, having two seconds band three all the way people costs, they're gonna be changing or so the cost maybe changing going forward.
You know as far as you know overhead cost I mean, you know obviously, we had three division managers now he's got to and that was very expensive position.
But you know, it's like say, it's not as much the overhead cost savings so that consolidation as much as is the the improved flow of information between like products. So I don't see a I mean, you all think that's where the opportunity is.
And I mean, even know likes it yeah, there's there's a little bit.
Oh, the topline crop cost savings.
It's not like bucket.
Okay.
I'm often asked about outlets for 2020 down is there any budget if when you had in place.
Actual dollars, maybe yes shared with us about how much that you want to pay down here.
Well, so you know it and and kind of a normal growth or a slower growth period.
Like we're seeing it I mean, you know we're not seeing this super Hot.
Double digit whole good growth that we're seeing in industrial division in particular over the last few years, you know we generate a lot of cash you know that proof of that as you know just look at our cash flow statement. The last few quarters, we've generated a lot of cash we feel like at the at the new level of you know EBITDA and given.
Our effective tax rate you know, we've been saying that you know we should pay over 100 million.
Yeah.
You know going forward I do you know we can you know you can you can do the math on it but you know we can make a significant debt debt reduction in and you know borrowing.
You know another deal you know, but that's what you should see I mean, the only thing change that is often if we you know if we go the other direction and grow the organic growth heats up you know we might absorb a little more money back into working capital right now we're kind of in a liquidation mode.
Like to ask.
I think to add to that as well as is Oh more work.
Further inventory levels.
Acquisition or calls like ours. We studied the returns are strong we wanted to be.
There's opportunity there.
One of the goals for both of them.
Each one of this year is to reduce their inventory levels that were the right now.
No.
Got it but as Dan said and previously literally going forward or me, a boring acquisitions that kinda stuff I mean over 50% of or.
Our EBITDA should be.
You know available for.
Free cash flow available for debt reduction.
Okay.
Perfect.
It's just the I got liquidating as well and other things in house in the order pattern a quarter.
Is there anything else about the tone you hear anything like it was for 2020 actual commentary you're getting from pharma is out there about what that might look like issue.
I like the comment I heard the.
Somebody said the sentiment is good but the numbers don't show it yet [laughter] and a I think that the.
You know we felt the you know there was just the biggest eggs showing in North America.
The Big National Farm machinery show in Louisville, which just took place couple of weeks go you know the I think that was the sentiment was better you know I think people felt that the.
Oh buyers meal farmers were there and showed a little bit more enthusiasm and and the out you know, but feeling better and the outlook, but Ah you know like say the it certainly hasn't shown up in the numbers yet Oh I mean, you know like say bookings are up a little bit that's that's good.
There's the.
But it's still going to take some.
Some strengthening and some and some commodity prices I think before you're really going to see the farmers or start buying again.
Got it.
And then one last but not much given without a good was our question for me.
How do you feel about that business is growth in nothing 2020.
Can you can you give could you be able to have used and that's what you did in the trailing 12 month somebody outside and and my perspective or is that a higher this year.
You know the last couple last the you know on several years they have been growing at a little bit higher rates than we have been growing.
Our than that and I think than most industrials in our space has been growing and we think that that's likely to continue good you know there'll be a couple of percent growth the winter girls higher than we have I, just think that their products and you know what the all things being doing for Manny.
You know the forced out west and and you know some natural disasters would seem to be continuing into a fairly [laughter] above average rates. So no. We think that their growth rates should be a little bit about you know should be positive and a little bit above hours, but.
It's you know we're excited.
And when there.
No.
Negative effects to the whole economy from corona bars, or anything else, but but the we still feel that they should be a positive growth rates above our.
Okay and Guy that's because I appreciate it.
Thank you Mike Thanks, Mike.
Thank you we'd have to follow that from Joe Mondello with Sidoti.
Hi, guys just a couple follow up questions regarding the AG segment revenue was flat.
Given the dynamics that you see in 2019 should your margins expand.
Oh I think so we you know we've done a good job of adjusting costs down to you know if you look at our largest business in that segment they've done a great job of adjusting their cost structure to their current level of demand.
So just on the year to year comps are gonna be a lot easier in that in that segment and I think the other our second largest a business in that segment also one of 'em seen a a similar performance except for that we we moved Dixie chopper in and so we had a lot of startup makes.
Fences relating to bring it up but they're going to leverage that additional volume.
You know in that facility utilizing you know available capacity in that facility. So I would expect their their their numbers to improve as well <unk> product mix in 19 was off to a lot of our higher margin products that we sell off were slower person lower work.
Oh classic splitters, so a lot more than 15.
We want more of those 15 20 foot units going out because that really shows gives us the March.
Yeah, 15 voters <unk> bread and butter for us we need the professional farmers to be back you know buying equipment and that would help you know and if I was to roll the dice and bet on it I know you know I think there's probably a pretty good chance for that.
Okay, and then just another <unk> question, you would drop that seasonality and I believe you're probably talking about the revenue is there any difference between the seasonality of revenue margin there.
[noise] imagination like that that's what I'm, saying the revenue probably doesn't fluctuate quite as much as the as the margins [noise].
Second third quarters are certainly for vegetation maintenance equipment, that's when the equipment to utilize more it's it it consumes more spare parts and and though and so yeah. So you know like I said that you know even a little bit more so on margin.
Seasonality that all revenue seasonality.
Okay and regarding the Mark.
Segments, I'm, you addressed sort of the factors that sort of away.
I'm wondering given especially the orders that you saw what that's going to theaters and what you're sort of outlook.
In the trend that you're seeing with you know margins.
Estriol going into 2020, you think those sort of rebound in the second half levels.
Yes, I mean, we do because I mean, you know we think the mix is going be a little bit more back there's more more more more conditions and 2020, because it would you like said, yeah was AG being off but but the mix in industrial being a little bit unfavorable when we think that that mix.
Got to return to more.
Normal conditions certainly [noise].
We still have I mean, it's really going to be some noise in it you know those they're gonna be some step up in the inventory valuation.
The more bark resulted in our overall results for the first half of the year being a little bit integration cost too, but but no. We believe that that organically our margin should should rebound to the.
A normal levels.
Okay and just lastly, this is probably a sort of a nuance question regarding the reconciliation table at the end of the press release related to some of the onetime most of its really more bark. It looks like the net of the.
Inventory step up in the earnings contribution from more bark. It's a negative number and then if you look at the net income that negative number that number from the earnings contribution is actually bigger than the negative number in operating income.
Wondering if that attacks thing or.
No I think we yeah, what you need to look out when you go up to the operating income level three split out the earnings from acquisitions. That's just straight earnings if you really need to look at the well be a number going forward will be that plus the amortization to step up will always be highlight and I went back that out you go down to the net income is the combination.
I have all three of those taxes asking that number okay. Yeah. We just said we broke it out in the operating pretax you know number we broke out the the three pieces do NAV together to a negative number but you know we burden them with the additional you know what the step up adjustment.
And we burden them with the additional amortization, that's what made it a negative number without that they were you know were contributing operating earnings. So that's why that but the 2.154 million well that was a contribution to our operating earnings. So and then we didn't do the same breakout after tax.
<unk>, Okay, Yeah, I would I was only.
<unk>.
They should not the operating income levels, yeah right [laughter].
[laughter].
Yeah. Thank you.
Hi, Thanks.
Thank you I'm currently showing no further questions in the queue I'd now like to turn it back over to management for closing remarks.
All right well the again, thank you for joining us today of you know we look forward to speak with you on our 2021st quarter call, a which will be in may So I have a good day and thanks for your interest.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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