Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Q1 2020 Sonoco earnings Conference call. At this time, all participants are in listen only mode.
Your presentation will be a question answer session.
Question during his section you'll need to press star one of your telephone please be advised the today's conference is being recorded.
Any further systems. Please press star Zero, Oh knowledge is going to conference over to your speakers today Roger Schrum. Please go ahead Sir.
Thank you, Josh and good morning, everyone and welcome to Sunocos Investor Conference call to discuss our first quarter financial results.
Joining me today, our Howard Coker, President and Chief Executive Officer, Roger for Executive Vice President and Julie Albrecht, Vice President and Chief Financial Officer.
News release reporting our financial results was issued before the market open today and is available on the Investor Relations website at Sunoco Dot Com and.
In addition, we will be referencing a presentation that's old on our first quarter results, which is also posted on our website. This morning.
Before we go further let me remind you that today's call in presentation contains a number of forward looking statements based on current expectations estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially.
Furthermore, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the companys financial condition and results of operation.
Further information about the companies use of non-GAAP financial measures, including definitions as well as reconciliations of those measures to the most closely related GAAP measure is also available in the Investor Relations section of our website.
Now, let me turn it over to Howard for some brief comments.
Thanks, Roger on good morning, everyone. Let me start by simply saying thank you.
Our entire sonoco team I.
I can't really come close to expressing how much. We appreciate the great work all of our associates are doing during this unprecedented times.
Destroys we're hearing from around the world about extraordinary effort, our people or or executing to meet the critical needs of our customers are truly cobbling.
Our team's efforts on controlling what is vitally important including the health and safety of our people the quality of products productivity improvements and cost management led to an outstanding first quarter.
I'd also point out that our balanced mix of consumer and industrial businesses perform extremely well during the quarter as we had strong results across many of our of our businesses, particularly on the month of March.
Which we believe is largely attributable to consumer spending more time at home.
That said the Pandemics impact was clearly starting to weigh on some of our for markets as we entered the second quarter.
Also the unprecedented increases on recycled fiber coal will have a significant negative impact on our second quarter results.
Which of course, we will eventually recover.
Julie will go through all of these results and our guidance in a manner.
Because not go the global company with more than 320 operations in 36 countries, we've been experiencing the realities of the virus outbreak since it was first reported in China in January.
As a virus spread throughout Asia, and Europe, the Americas and now across the globe, we've been working with our team to protect and help our associates to make the critical needs of our customers and where we can contribute to our communities to help drive increased testing and assist healthcare workers.
On slide three you'll see that throughout the globe Sonoco isn't isn't on the east Central service provider of consumer industrial and medical packaging, 80% of our consumer packaging sales are linked to food products, where we're being called on to meet an increased demand for consumer sure.
Having to stay at home.
Our paper operations in the U.S. in Canada produce over 200000 times of uncoated recycled paperboard, which is used to wind told a paper another tissue and towel hygiene products.
Our global tubes, and cores operations play a key role and servicing the food, Hi, Janick medical and textile industries.
We're also produced less flexible in favor for medical packaging and that's all Mercedes Division provides temperature assured packaging for critically needed virus testing and transportation of lifesaving vaccines and other drugs.
I thought for you will see examples of how our associates have rallied to our customers calls for help during the crisis to aid in fighting this deadly virus.
Recently, our Alloyd Division received an urgent call from a medical customer to see if we could use our unique digital printing and laser scoring capabilities to produce plastic face feels to be used by medical <unk> providers and first responders.
Oh it has been experimenting with a unique digital process. We too are we take a fall straight from an engineers computer.
Convert it to a machine code and able to make parts in an hour with no tooling or lead time.
Customer originally asked for 100000 face yield we were able to the blue over them and a couple days that same customer increased its orders Twentyfold I'm pleased to say our alloy team.
Fill any order and preparing to produce much more.
Our former Safe Division is geared up operations and and is working with one of the nations largest logistics companies and a large medical products company to ship virus test kits to hospitals and metal medical research labs across the country using our unique temperature assured cool.
Tech our medical packaging business. That's currently gearing up to produce large quantities a former scan thermometer covers which are essential for safe use by health care providers and our tube and core operations in Spain worked over time to de lever to to be used by an automotive supplier. It was retooled.
Our operations to produce called face masks for local hospitals.
In addition.
We're trying to help out where we can in our local communities as shown on slide five we donated hundreds of safety glasses and other protective gear to our local medical center here in horsfall to keep nurses and medical staff say as they treat patients.
Our parameter the store division donated thousands of pounds of clear P.T. sheet to Georgia Tech in Atlanta to assist in making 50000 disposable facials for medical personnel.
These are just a few of the efforts, which illustrate how our team is impacting lives around the world and we couldn't be more proud of their efforts.
With that Julie why don't you take us through the first quarter numbers and I'll come back to discuss our recently announced project Horizon machine conversion.
And conclude with some color of what we're seeing entering the second quarter.
Absolutely. Thanks, Howard I'll begin on slide six received it earlier. This morning, we reported first quarter earnings per share on a GAAP basis of 80 cents.
And based earnings of 94 cents per share, which was above our guidance range of 83 to 89 cents per share.
It's 94 cents basic earnings per share is above the 85 cents a base you P.S., but we delivered and the first quarter of last year.
At a high level I first quarter 2020 earnings were impacted by overall lower demand, which was more than offset by strong productivity spread among various categories, a fixed and variable costs.
In terms of the 14th <unk> difference between base and GAAP earnings per share. The primary drivers were nine cents due to restructuring activities and six cents related to non operating pension costs.
Now looking briefly at our based income statement on slide seven and starting with the topline you see the sales were $1.303 billion down $48 million from the prior year period, and I'll give you more details about our key sales drivers on the sales bridge and just a moment.
Gross profit was $267 million 4 million below the prior year quarter as our gross profit as a percent of sales with a very strong 20.5%.
<unk> expenses of $123 million were favorable year over year by 19 million driven primarily by cost reductions across the business, which more than offset the addition of S.G. nay from acquisitions.
Oh, that's resulting in operating profit of $144 million, which is $16 million above last year.
Our first quarter operating profit as a percent of sales was 11% a solid 150 basis point improvement over the first quarter of 2019.
I'll review the key drivers to operating profit on the bridge in a few minutes.
Net interest expense of $16 million was $1 million higher than last year due to higher average debt balances, but mostly offset by lower interest rate on our floating rate debt.
Income tax expense of $33 million was 6 million more than last year, driven by a combination of higher pretax profit and a higher effective tax rate.
First quarter 2020 effective tax rate of 26% was 190 basis points higher than the prior year quarter due primarily to various discrete items.
So moving down to net income our first quarter 2020 base earnings were $95 million or 95 or 94 cents per share.
I'll add that first quarter opens on margins improved by 200 basis points to 15.8% versus the 13.8% in the first quarter of last year.
Now looking at the sales bridge on slide eight you see that volume was lower by $36 million or 2.6% for the company as a whole.
We did have one less business day this quarter than in the first quarter last year, which likely represents 1% to 1.5% of this volume change.
But my following comments about segment volume do not adjust to this same number of days basis.
Consumer packaging volume was down by $7 million were approximately 1%.
This segment, so volume growth in rigid paper containers in Asia, and South America as well as in certain of our plastic food markets, but these were more than offset by lower volume in rigid paper containers, North America, and Europe as well as in the plastics industrial business.
Display and packaging volume was below last year down $12 million or almost 9% driven primarily by domestic displays and retail security packaging, which were indirectly related to the exit of our pack center contract in 2018.
Volume in paper and industrial converted product was down $9 million are almost 2% due to weak tube and core volumes in the U.S. in Europe as well as much weaker demand across our kinda techs operations and specific to context, they were negatively impacted.
Primarily due to the Corona virus impact in Asia during much of the first quarter.
These decreases were somewhat offset by favorable tube and core volume in Brazil, and in North America paper, where we continue to maintain high utilization of army machines through the Pope end use market.
And finally sales volume in protective solutions was down by 8 million or 6% driven by the continued trend of weak volume in automotive and consumer fiber packaging, especially related to the appliance market.
Now moving over to price you see that selling prices were lower year over year by $25 million driven primarily by our industrial segment due to significantly lower cc prices and lower market pricing in our Corrugating business.
You'll see on the FCC slide in the appendix that southeast Oh Cc official board market pricing averaged $42 per ton in the first quarter of this year compared to a $75 average in last year's first quarter.
Moving on to acquisitions, you see an impact on the topline a $36 million from the tech acquisition in consumer and the Correnso acquisition in the industrial segment.
So its operations delivered sales and earnings inline with our expectations.
And finally foreign exchange and other was negative by $24 million with the largest driver being a $17 million negative impact from foreign exchange translation due to the stronger U.S. dollar.
So moving to the operating profit bridge on slide nine and starting with volume mix are lower sales volume of $36 million combined with the impact of mix had a negative impact on operating profit of $14 million.
This impact the spread among the segments, but with a heavier negative dropped through in both the consumer and industrial segment due to sales mix.
Shifting over to price cost I'll remind you that this category includes the earnings benefit from higher selling prices and the impact of all inflation and deflation, including material costs as well as all variable and fixed costs.
In the first quarter, we had $11 million of unfavorable price cost driven by not recovering sufficient price to offset our wage and benefit inflation.
Absent this sales prices less raw materials energy and freight inflation or deflation was favorable by $4 million.
Next do you see that the current though and tech acquisitions added $5 million to our first quarter operating profit.
No continuing to total productivity you see that our total productivity was positive year over year by $26 million with a favorable impact across all four segments.
The main contributors to this positive impact, we're procurement and fixed cost productivity.
And finally, the change in other was favorable by $10 million with various moving pieces, but mostly related to lower SGN a extent.
Moving to slide 10, you'll find our segment analysis, where do you see that consumer packaging sales were essentially flat with the addition of tech being offset by lower volume.
Excluding the forming films operation in Flexibles.
And the negative FX translation impact from the stronger U.S. dollar.
Operating profits in the consumer segment were higher by 9.2% on strong productivity as well as a one time $3 million gain on the sale of certain fixed assets.
Our consumer segment margin was a strong 11.5%.
Well 100 basis point improvement over the first quarter of last year.
[noise] display and packaging sales were down 11.8% due primarily to lower volumes and a negative FX translation impact.
Operating profit, however, increased by 25% and margins improved by 200 basis points to 6.7%.
As with the consumer segment. This earnings increase was driven by strong productivity.
Our industrial segment sales were down just over 4%, mostly from lower pricing due to the due to the decline in Oh C C market pricing as well as lower demand and negative FX translation, but all partially offset by the added sales from last year's Correnso acquisition.
Question.
Operating profit in the industrial segment was higher by almost 12%.
This strong earnings growth is attributable to the at Correnso acquisition and improved productivity.
The industrial segment operating profit was a solid 11.4%.
160 basis points from the first quarter of last year.
And finally protective solutions sales were down 7.7% due to weakness in certain markets, but operating profit improved by 27% due to strong productivity results.
The segment's margins improved to 11.8% or a 320 basis point improvement over last year's first quarter.
For the total company sales were down 3.6% well operating profit was higher by 12.5%, resulting in company wide operating margins of 11%, a 160 basis point improvement over last year's first quarter.
So moving to cash flow on slide 11, our first quarter 2020, operating cash flow was $88 million compared with 92 million in the first quarter of 2019, a decrease of $4 million.
This d. This decrease was driven by an increased consumption of cash by working capital and by various changes and other assets and liabilities, which was largely offset by an increase in cash provided by accrued expenses.
Mid way down this slide you see that our working capital balances increased during the first quarter by $68 million.
Which was a 22 million dollar increase in cash usage by working capital compared to the prior year quarter.
The primary driver to this higher working capital change was accounts receivable, which consumed 24 million more cash in the current quarter compared to last year.
The primary driver to this day, our increase with sales mix and its related impact on average customer payment terms.
So moving on to free cash flow, which we define as operating cash flow less net capex and dividends. Our first quarter 2020 free cash flow was $14 million, a 4 million dollar increase over the prior year period.
This slight year over year improvement was driven by lower net capex spending of $11 million.
Our gross capex spending in the quarter was $34 million, which was 8 million below last year. In addition, we had a 3 million dollar increase in fixed asset sale proceeds in this year's first quarter.
And finally, you see that our cash dividends paid and the first quarter of this year were $43 million compared to 41 million in the prior year period.
Moving to slide eight I'll first note that we are withdrawing our full year base earnings per share guidance as well as our free up as well as our cash flow guidance for 2020.
This is specifically due to the unknown severity and duration of the cobot 19 pandemic and the related lack of visibility to the impact on the Companys served markets.
However, we are providing second quarter based EPS guidance at 73 to 83 cents.
Compared to 95 cents a base earnings per share in the second quarter of 2019.
This wide guidance range reflects uncertainties regarding the challenging macroeconomic conditions stemming from the pandemic, including the negative impact of higher recycled fiber costs and a stronger U.S. dollar.
Turning to slide 13, I'll now provide some additional comments about the key assumptions for our second quarter base earnings guidance.
Related to Cobot 19, we expect to have a mixed impact on demand for our products with the net impact being slightly negative to earnings compared to the second quarter of last year.
Howard will provide more color about the expected impact on our businesses in a few minutes.
Also to prepare for expected an unknown challenges that lie ahead, we're taking various actions to reduce our operating costs and our SGN expenses above what we have been doing in the prior quarters.
Moving to our price cost expectations for the second quarter, driven by our outlook for OTI see prices to continue increasing due mostly to supply demand dynamics related to cope with 19, we are expecting a significant negative impact to our industrial segments earnings compare.
And to the second quarter of last year.
Well, we are proactively increasing our industrial segments pricing related to higher input and other costs. We expect the timing of price cost changes to work against us in the near term.
In addition, and also generally related to Corona virus and the broad global economic impact we expect the second quarter earnings headwind from a continued strong U.S. dollar and from slightly higher interest expense due to increased borrowings we are undertaking to increase our cash balances and enhance our show.
Sort term liquidity position.
Finally, I'll note that we have assumed a second quarter tax rate of 25.5% in our guidance range.
Now shifting to our cash flow. This year. We're also taking important actions to protect our cash flow generation this year.
Among other things. These include reducing our expected capex spend and deferring our voluntary U.S. pension contribution related to the termination process to 2021.
Specific to our updated Capex forecast, which is $170 million, we have worked with our businesses to reduce our original capex budget of 195 million by $45 million, but we have added $15 million to $20 million of Capex for the very strategic project.
Horizon.
Moving to slide 14, you see the recent actions we've taken to improve our liquidity position by entering into new term loans and accessing our revolver. While also increasing the short term cash investments that we hold at Sunoco products the parent company.
Our current liquidity position, it's approximately $650 million, which includes approximately $400 million of cash.
In addition to focusing on generating solid free cash flow. We will continue to review our options to potentially access the bank and debt capital markets.
Our key objective is to maintain a strong liquidity position as well as a solid investment grade balance sheet.
So this concludes my review of our first quarter financial results and our guidance and liquidity, so with that I'll turn it over to Howard.
All right. Thank you Julie.
If you turn to slide 15, I want to spend a few minutes talking about project horizon, which is what we're calling and new 83 man dollar capital investment over the next several years that will significantly lower uncoated recycled paperboard mill operating calls in the U.S. accountable.
The majority of this investment will go towards transforming a horse for corrugated medium machine, which you all should recognize is our number 10 machine and to a state of the or Youre be operation with annual production capacity of approximately 180000 times.
This new machine is being designed with the goal of being the largest and lowest cost producer of your albeit in the world.
Calling this investment project horizon as will be creating a much brighter future for North America, you all be system or resolving the volatility we have experienced over the past several years as an independent producer of corrugated medium.
Project Horizon will start with the development of a new recycled fiber stock prep system and horsfall.
Which will allow us to use lower cost mix paper and old corrugated containers or raw material.
Our existing number set number 10 machine as a high speed for ordinary machine that will be upgraded with new forming Preston enroll finishing capabilities as well as new electronic controls.
When completed this new machine will be able to produce a wide range of you'll be paper grades, which will allow us to me many of our internal and trade customer names.
As I work in stock Prep development will begin later this year and the machine conversion should be completed and online in early 2022.
As part of the mill system optimization program. We will also increased capacity of our parental mill and Wisconsin.
As shown on slide 16 after full lap all production. We're projecting this investment will provide approximately $24 million an annual cost savings.
While delivering returns well above the cost of capital.
As a result with the number 10 conversion will be exiting the volatile corrugated medium market by the end of 2021.
And the expected efficiency of the converted machine will give a company the opportunity to rationalize some of the higher costs assets and our mill system.
And our light an announcement, we have made it difficult decision to permanently close or number three you RB machine on Hartsville, and our front Valley, Ontario, Canada paper mill do the slow flowing market conditions.
We're working with the affected employees and household and transition them into other roles in the milk complex will provide retirement oral benefits and Trenton, we're working with the local union to develop a closure agreement.
After this investment is completed Sonocos mill system will be in the top quartile performance and as illustrated on slide 17 will have nearly a 20% cost advantage over the near supplier based on a third party analysis of the project.
This investment will also ensure the long term viability of a harsh paper mill comp words.
Finally project Horizon will also generate important environmental benefits.
Clearly no electricity consumption than our U.S. mill systems.
16%, which will drive a 16% reduction in greenhouse gas emissions, while total water use for our mills and the reason well declined by 25%.
As I mentioned earlier, we're starting to see the Pandemics empaque weighing on certain of our four markets as we entered the second quarter.
On slide 18, we've put together graphic which it helps to illustrate the impact of the pandemic answering the second quarter on our diverse platform with grain, meaning it's generating a positive impact.
Yellow, meaning it's neutral and red meaning all right I guess, you can get the picture.
Specific to our business, we expect our consumer related businesses to continue performing well in the second quarter as food consumption trends should continue to be driven by stay at home sooner.
In addition, we should we expect our paperboard operations in North America to be relatively steady as increased demand for paperboard, serving the tissue and towel market should help offset declines with some of our industrial converted products businesses.
Fortunately tubes, causing Collins volumes are expected to be negatively impacted around the world. Although although there are pockets of strength in certain markets.
Such as plastic film.
As we mentioned, we expect precise recycled fiber prices to continue to increase during the second quarter.
Likely reaching above $100 a ton by June.
Which should benefit our recycling operations.
But provide a significant price cost headwind to our paper based business during the quarter.
Until we ultimately achieve recovery of those her false and the second half of the year.
As a reminder, most of our paper tube and core contracts a quarterly material cost recovery mechanisms.
In addition, we've announced the 50 dollar time price increase for paperboard and a minimum of 8% increase for tubes and cores in North America to help us for callable this higher inflation.
Finally, our pharma say temperature assured packaging business should continue to produce strong result, as it is supplying coolers critical for virus testing and pharmaceutical transform.
However, we expect second quarter earnings in our protective solutions segment will be negatively impacted by lower demand and our molded.
I consumer fiber businesses, which saw the automotive and appliance markets.
In closing one of the strongest aspects of our company culture on people is our ability to rally ourselves where prices overall more than 120 year history. We have successfully navigated through floods buyers hurricane financial market distortions and now one of the worst Brandon.
Pandemics and generations.
So now goes a financially strong company, we believe our diverse business mix will reach will remain resilient during the expected pandemic driven recession.
And we will come out of this prices as a much stronger company.
Now with that operator would you. Please review the Q1 a procedure.
Thank you as a reminder, two questions. Please press star one on your telephone so sorry portion across the balance sheet keep standby.
Our first question comes from George Staphos. Thanks, Marissa you proceed with your question.
Hi, everyone. Good morning, Howard Thanks to everyone Sonoco for its the efforts with ER with its endemic.
I had a question really on on the cost controls when did they go into place and what do you expect to be able to generate from these cost reductions and productivity on an ongoing basis.
And related we how volume dependent or that I had a couple of follow on.
Ill now, let Julie cover more detail, but.
As you look in Q1 really the cost controls and this is this is what we do we've been looking at our overall cost for.
Oh really.
Oh, we're all it's a challenge ourselves so.
A lot of what we're seeing in Q1 were activities that we put in place to a second half of Q2.
Last year.
As it relates to the go forward, we've got quite a bit of activity going on and I'll just pass on the Julien let her up a little more color on.
Yeah, absolutely a thanks Howard Thanks, George Yeah, I mean, I guess I'd Echo part of what what Howard said I mean, you think about.
On our path over the past kind of year plus towards improving opens up margins our focus on simplification.
Yes, the business really management down through the literally the operations have been really struck focused on.
Taking cost out of our our organization in many ways.
I will say so he definitely see some of that pay off in the first quarter.
But you know clearly in March and really the second half of March when we really moved into.
A lot from an overhead perspective by that I mean office workers working remotely obviously, a dramatic decrease in travel that did accelerate some of that cost savings, albeit that was not the largest driver in the first quarter.
So when we look at the second quarter, you obviously have several pieces of this you've got the continued benefit from permanent cost takeout in our organization.
You've got and then you've got things that we I guess started doing it at the end of the second quarter less travel I'm, obviously people working remotely. So you think about less.
Cost around meetings that are even in house and that type of thing and then we do have various other cost reduction actions that we are starting to see up that are really more specific to corona virus and you know our expected a you know the challenges we're facing in the second quarter and then obviously TBD after that.
So I guess, it's kind of a along way of saying I think we feel.
Good about sustaining cost reduction that we have put in place.
And and then we are obviously some of the things that are trending down now like travel and that type of thing obviously, we'll pick back up at appropriate times with business activity.
Hey, Julie so I appreciate how tough it is perhaps to quantify and I appreciate the qualitative commentary.
But is there anyway to quantify.
On a run rate basis as you sit here today, what benefit you get from productivity from incremental cost anything that would help us as analysts and investors figure out what kind of shock absorber you have the next few quarters and if the answer is you can't really do that now that's fine, but I just wanted to.
Try again on that first question.
Yeah, absolutely I think when we look at the second quarter and we have you know talked as a leadership team about actions.
That we will be expecting to take that our call it different from what we've done in the first quarter.
It's in that you know probably 20 25 million dollar expectation so coming out of you know our overhead structure that are unique to the situation.
And that is part of again, what we've considered in this guidance is you know despite a net negative impact from volumes and the drop through to gross profit and obviously that the price cost headwind specific the FCC. This is.
These costs additional cost reductions are part of our mitigating action.
Thank you for that.
Two quickies I'll put it in one question then turn it over just to be C or can you comment and maybe you did my phone line had dropped for a portion of the quality and what kind of volume trends, you're seeing early into Q and X pricing.
What kind of price cost headwind cost had when are you seeing from Assisi or maybe a better questions b, what kind of price costs are you banking on into Q with your pricing actions. Thank you guys I'll turn it over.
From from a volume perspective.
Yes, so from a macro.
The way we're looking at this is those obviously as you saw on the Red yellow.
Grain chart, we've got some some some very favorable conditions in select markets, but also we've got the negatives as it relates and the commentary around automotive white goods et cetera, and a bit of mix in the model.
Effectively we're saying that the it's pretty pretty close to two a wash.
As it relates possibly a single digit type volume related.
Impacts in the quarter and it really turns into a conversation around your second half of your question, which is the price calls.
So we are seeing a very negative.
Situation with the FCC.
Spike that we saw and the timing of that spikes in very first week of a quarter as you know our recovery. It's typically in the in the beginning of of each quarter. So we're going after carry a bulk of that through the second quarter.
And that is one of the largest.
The largest impact that we see.
As we go into this into the score.
Okay I'll turn it over thank you.
Thank you. Our next question comes from Mark Wilde with Bank of Montreal. Please proceed with your question.
Good morning, Roger.
Howard and Julie good.
Good morning, and our.
Oh, no wonder just to start off if you give us any.
Sense of the type of volume, we might expect in the industrial business in the second quarter I think that's typically the most cyclical piece.
And maybe just any reference to kind of what you saw in 2008 2009.
Yeah, I'll tell you what mark.
As you know Roger forward here and I can give you some pretty detailed color all know what I will say as if we look at where we were in Oh wait no nine and then the mix of the businesses has changed.
So from a macro perspective, and again I'll, let Roger get into more detail or we're not looking at the similar type fall since we saw a buck innovating on Roger If you don't mind just color.
Thank you Howard markets you a few examples the I go back delayed on nine our industrial drop was about 17% from a volume standpoint, you know into death of the a of the recession.
So if you look at the U.S. and the second quarter, what we're modeling or low double digit type declines driven primarily by you know we see the global textile market, all 30% to 40% in the quarter.
Mark as you know printing and writing all communications papers were saying are down 25% to 30%.
Theres 20 machines that we know of that already down in the second quarter or plan to take downtime in the second quarter.
So thats a significant drop off in the U.S. on other hand, we're saying film will continue to be strong into second quarter of up about 3% Brown papers, containerboard, we're saying up slightly quarter over quarter.
So you take the mix of all that into the U.S., Canada were down again down low double digits, Europe's better Europe's and probably a dropping and we're saying in the 5% to 7% range you'd see similar drops and the mature markets in Western Europe, but we're seeing offsetting positives in Russia, and Turkey, and some of the other emerging markets.
So that gives you a feel for the TV core business in Europe, our paper system as full as Howard said from the beginning and that's pretty much across Europe and the U.S. we.
We see softness in Asia, but it's primarily China related it's just demand we're simply just meeting the demand of our customer base. So we're running our mill in China, when we need it Indonesia is fairly solid so I think hopefully that gives you a feel for what you're looking for more that's perfect Raj.
I Wonder could you also give us a sense of kind of what's a bounce back has been to date in China.
Yes, I'd say, we were we were down to.
We're probably now it does lead to sell on average the 60% capacity across our and this is industrial.
Look at the consumer would then we've been five in industrial I think we're running something like 60% capacity.
Close it was probably in the 30% range Mark. So again, we're just we're we're running we're not missing shipments were just running to the demand level that we have so probably lose a 30 today about 60.
Okay, and then finally, Julie just any thoughts on those.
A year end 2020 targets that you'd laid out there I mean I think in this environment you know.
We all understand that getting pushed back but can you talk with us about kind of a timeline or whether you backed away from those targets that you laid out a few years ago.
Mark are you talking about the 16%.
Yeah, we I think we've mentioned that.
We don't I guess, we we don't have those as our explicit target really publicly any more although we are continued to focus on absolutely <unk> you know driving our profitability and obviously quota virus provides a unique challenge you know to the business. That's our immediate focus is as you know keeping people say for.
During our businesses meeting our customers' needs managing our liquidity, but yeah I think in Howard can can echoed. This you know not as much maybe the end of 2020, but definitely moving beyond that.
We remain committed to 16% or higher open top margins. So we we won't take our eye off the ball when it comes to increasing our profitability.
Again, you know that the sales target that was out there for 6 billion again, it's yeah, I think putting a timeline on that is not appropriate, especially now clearly depends on our activity in the <unk> M&A.
You know.
Part of our World and so I think again, it's just a matter of overtime well, but you know definitely outside of 2020, how are we tracking towards growing the top line as well.
Yeah, well turn it over.
Okay.
Thank you. Our next question comes from Adam Josephson Keybanc. Sir you May proceed with your question.
Thanks, Good morning, everyone I hope, you're all well unhealthy.
Thank you Adam we are good good.
Roger just one clarification on what Mark was asking about so I think you said, you're expecting to be down low double and industrial in the us into Q, but that your paper system as fall. So can you just help me just square those two comments.
Low double digits in a tube and core saw the business out on that you look at our paper system are our trade sales were holding up fairly well Howard mentioned earlier tissue and towel still strong from the from the first quarter. If you look at flooring. So home improvement type projects seem to be strong edgy board market seems to be strong were top in it.
Off with Paul So, we're balancing out any downturn and achieving core with with a trade sales and so far we should we think that will hold up to the quarter. Adam yes. Thanks for clarifying I just one more for you on LCC. So I think.
Howard mentioned, you expected to be higher than 100 by Joan.
This is all driven by Covestor or so it seems felt the demand and that the falling generation.
Do you expect how are you thinking about conditions returning to normal whatever normal might be at this point do you think that after just on the economy is going to start to get back to something resembling normal collections will improve and and that paper demand will will fall off a bit after the panic buying or how are you thinking about that.
Progression of RCC.
Later in the year.
Really a you know.
This back to that'll crystal ball isn't it.
So as we and we really don't know what to think about Q3 Q4.
That's why our focus has been really trying to give you guys. As that's best colors, we cannot Q2 and the rest remains to be saying at this point in time, but we do think that Oh.
Conditions are such that that we will see the inflation that we noted or I noted in the opening.
Comments and well just have to sale that plays out.
As this whole a pandemic issue plays out.
Sure and interest on the consumer business can you just talk about what you saw in March from the panic buying what you're seeing in April presumably your customers are trying to.
Replenish their end of inventory just give us a feel for what you saw in March if you're able to fulfill all those orders what about April and then how you see a trending.
Into May and June.
Yeah, well it is there an echo going on here.
Really have started for us obviously here in the U.S. and for the most important Europe to towards a lot until mid mid part of March with yes, we saw relatively strong demand on the only a particularly on the food side of the business.
Have we been able to fulfill the orders, yes, not not an issue for us it really bulls I'm frankly to a lot of our customers on having the capacity to fill the demand that that they're saying.
So it's really started mid March.
It has a continued to pick up we expected to maintain itself through the quarter.
And frankly as we then this is just spot my muscle philosophy on things as we do hopefully start coming out of this say in the third quarter. So we feel like it's going to take sometime before the at home consumption is going to really dropped back the norm is going to take time for people.
To get back a comfortable to go to go out and mass into the to the restaurants et cetera. So.
In a way we're looking at it or I'm looking at it that we'll we'll see this thing peak at some point and then as a relatively hopefully solve decline back to normal.
And at the same time, hopefully the industrial side will be picking up on <unk> on a relative scale to that as well.
The other thing I'd say as if you look at the mix of our consumer products. So we do participate more in the a and the the snack type categories.
The flows in sectors flows in being a them. They are the trays and mills were limited capacity.
Plus a very delicious those long flows and lasagna, it's things like that we don't feel like that the products that were participating then on the consumer side or necessarily will be a once we're fully folks will wake up and say Oh My God luck <unk> you know we've got so many stack ships that are covered because.
We just didn't consume on to stay at home So we feel like.
Long way of saying, Oh, it's going to be strong through the quarter or not I'm optimistic that will carry on.
At some scale for sometime to calm.
How are last question just on the perimeter the store obviously, its but it was a push for the company to get to the perimeter or the store as people are gravitating toward fresh food and away from center the store package food and now we've seen seemingly over.
Reversal of that what how is this crisis affecting the perimeter the store business for you both in California and Florida.
Adam This is Roger.
It held up on in the first quarter, we're actually some of our customers are struggling to get a the farmers are starting to get workers to pick the crops, but.
But his business was very strong in the first quarter, we're seeing a high single digit growth as we head into the second quarter and AG business.
The very season was a little bit late strawberry season, and on both the east coast in the West coast, but we're seeing that pick up now.
So all in all it was from a demand standpoint bond in the first quarter. We don't last time about the new leadership team we have in place from an execution standpoint or execution is improving.
On the West Coast wishes, the former Peninsula company, where we had issues I remind you we spent almost $5 million and manufacturing improvements capital improvements.
We sell those kick in and month to month throughout the quarter, we saw improvement in our manufacturing productivity.
And that business.
So we're pretty optimistic going into the second quarter. They don't hold up in the let's call it mid single digit growth.
So all in all not bad.
Thanks, Thanks, so much Roger appreciate it.
Thank you. Our next question comes from Ghansham Punjabi with Baird. You May proceed in question.
Thank you good morning, everybody I mean, you've covered some of those Howard, but you know just specific to the second quarter. I mean understanding you don't have a lot of visibility beyond that but for Twoq, you specifically relative to the guidance you've given a let's say 78 cents at the midpoint. What are you embedding in terms of the aggregates segment volumes.
No across each of the cores and then second a you know can you just give us a breakdown Julie in terms of.
How you get from 95 cents from a year ago to this to the 78 cents at the midpoint how much of a headwind is from ULCC. Thanks.
How are you going to talk all the volume and though sure.
On the.
If I'm looking at this correctly on the consumer side.
Looking at roughly 4% or so.
Hey, low single digits, yes, now whatever you're looking at yep. So in total consumer low single does the digits on the industrial again negative side low single.
DMP on the low double digit side on the negative side.
And protective for us, but to the automotive and the white goods sector. We're seeing the biggest said and that's a on the high single digits negative.
Right.
Yes so.
Yeah, I guess, yeah, just to add some a little more color guys come to your question about 95 cents to the mid point this year of our guidance is 78 cents.
Yeah, I guess, maybe first to start with some non operational items that I mentioned you know the stronger dollar headwind. We're estimating of course, we don't know where rates are going to go in the second quarter, but if you assume kind of a continued U.S. dollar strength like we had in March you know that's roughly four to five cents of a headwind.
Yes versus where we where rates were last second quarter I mentioned interest expense, its very minor or maybe a penny or so of that so.
All in call. It five census of non operational negative items, a 19 to 20 in the second quarter.
You know and then you know too. So all this you know impact on our portfolio as Howard and Roger has been commenting on and I said in my comments.
From an EPS perspective, we are expecting that net net to be slightly negative year over year.
Maybe another just five sensor so based on you know what we are estimating again, it's hard to have the perfect Crystal ball about what's coming our way in the second quarter, but we've kinda put our best foot forward here.
You know from a price cost perspective, I'm you know Howard you know, we've again teed up this is fairly significant.
You know I think best guess at this point is kind of a 10 to 15 cents headwind TPS again, you know, we do expect FCC to transact, but we are working on the top line how much of the topline offset there but again.
We are I guess from a price cost perspective on earnings you know where in one of those quarters, where we're battling but you know kind of that the up up like uptrend write up of cost and so you know we're going to be on the call. It negative side of that like we are and certain other quarters.
Yes on the positive side no again, you every year, we've got a few cents coming in from Renzo in Tech you every year. So we can't forget about that positive impact.
Really you know.
Productivity cost reductions other inflation, we're kinda just netting that all quite frankly to zero because it's hard to know exactly how that's really going to play out. So you know that should if you add all that up hopefully gets you to 78 cents. Yeah. I think it's back then to the opening comments Ah.
What a if you look at the mix of the businesses you know we feel really good about how the portfolio balances itself out this thing really as the quarter his role in shaping up to be a price Gulf conversation around recovery of the FCC, which we will and.
That really is the bottom line the big picture.
What we're seeing.
Okay. Thanks for all the detail and then for my second question I mean on the consumer side, just given the acceleration in volumes you're seeing.
Should we expect any sort of growing pains did you ramp up production.
You know higher cost to serve customers et cetera, especially for this period of employee EPS. If he is or whatever you might be seeing from a logistics standpoint.
Should we think about that particular dynamic.
Yeah, I'll, let Robert comment anymore details at this point no you know it seems to be more of an issue on our customer side, we do have pockets or.
We typically not necessarily well almost the the the pharma side of it with tech, we're making what Roger a billion plus a annually of covers for phone thermometers, we could make 2 billion. So yes were weren't rushing hard to two to increase that type of capacity.
But all in total no we're not really saying, a an issue with us being able to supply the market.
In the market demands yeah, I agree I don't think you'll see any of that Ghansham. We've got strong protocols in place across the global platform in operations teams on an excellent job keeping people safe and keeping our customer supplied.
I'm, sorry manufacturing productivity in first quarter was strong as has been in sometime.
So we've got some good momentum there so.
I don't think you'll see any significant.
Cost escalation due to the due to dinars.
Okay. Thanks, so much stay safe.
Thank you.
Thank you. Our next question comes we'll gain policy with Wells Fargo.
[laughter].
Good morning, everyone.
Morning.
I was hoping to see kind of revisit slide nine and I apologize. If you covered this Julie my phone calls as well, but EBIT bridge I'm seeing on variables warrants of about 11 million possible.
I appreciate some of that was coming from.
Labour inflation.
Well I would've thought given some of the rising LCC would have hit what happened in February March what does it paper industrial converted but yet.
If it was better than last year, and certainly better than what our model was looking for so I'm curious if there's anything unique too.
[noise] that segment I mean, yes any side, that's what happened.
Yes.
Yeah, so and I picked up but yet and maybe a couple of questions. There. So definitely in industrial yeah. They did have a they were you know maybe not quite half of that 11 million dollar negative price cost and you're right that was just you know all these moving pieces, but you know I.
Oh, I see see going up you know inflation catching up on sales price you know that type of thing I mean, I, although like energy in freight our deflation in the quarter a slightly so you know various moving pieces in this total price total cost category, but you know definitely industry.
<unk> was net negative again, you know call. It it could have been 40% or so of the total but yeah productivity as I've I've mentioned throughout my comments was very strong and this is driven this is procurement. This is manufacturing and this is fixed cost productivity. So the industrial segment did.
Ah you know have very very strong results in the in this area and so you take a some negative price cost a little bit of negative volume very strong productivity all those kind of probably net it's about the ROE in the in the segment.
So you add in a strong results from from current though and well that that kind of gets you the pretty close to the.
Segment improved performance year over year in the first quarter, yeah. When we when we were coming in or into Q1 with the initial inflation. We saw a C.C. We felt like we were going to be able to balance out out as we said at the time with productivity with the the investments that we've made in our mill network.
Really over the last three years and as Julie said Ah Correnso has turned out to be a really really a good asset for us and the team has done an excellent job and Uh huh.
And balancing the the.
Supply chain, if you will take advantage of that locals machine.
Okay, and then maybe a little bit on on project Horizon I'm curious if there's.
Historical precedent that you've seen for I guess I'm in the marketplace was converting.
Containerboard machine CRB. So that's something that's really that for a whole lot of milestones.
Yeah.
First of course off yes.
I didn't know didnt necessarily simulate why we did it and once we acquire friends.
It gave us Wow, that's exactly what they had done a multi multiple years ago they've taken a.
Oh, no I'm not certain if it was containerboard and think it may happen, but then converting it over to.
World Class a you are be so it's certainly gave us the the footprint ER and the the model and the confidence now in the North America, and we're pretty much a cylinder basis network. However, if you go over to Europe or more for near.
The trends on machine is for near it also gave us the <unk> as as his number 10.
Which.
Gave us the confidence as we are very early on with the cleanser machine started integrating that board in our tube and core buildups fine in a exactly how good the performance could be this gave us all the confidence that.
Yes number one we can do this conversion and we can do it quite effectively we've got footprint for and once we do the conversion the materials coming off the machine or going to be very consistent with performance of what we're been CNO from our cylinder network for all these many many years.
Great. Thank you.
Good luck guys.
Thanks to Mike.
Thank you. My next question comes from Debbie Jones with Deutsche Bank. You May proceed with your question.
Hi, Thanks for taking my question I wanted to focus on display and packaging. He has a follow segment I mean, they didn't seem to me that I know there could be some list. There. If you stress test this business what percentage of it you think is more resilience and what might.
Suffer in this current consumer environment, especially said where does it continue on.
Yeah. This is Roger I think Howard mentioned, we're we're estimating a second quarter down low double digits. You know the promotional obviously promotional off items, obviously are down so we're seeing that some of the even some of the holiday promotional items, we're already starting get some words.
That those will be reduced for this year I think for obvious reasons. This is one of the businesses. The Julie reference where we've been very aggressive and very early came out with strong cost control to kind of significant amount. That's an eight out of that business in the fourth quarter in the first quarter. This year, we saw that pay off in the first quarter two small.
I would agree but that'll hit more for the balance of the year also in that segment is our allied business, our blister a card business.
I'm also we're seeing some some headwinds as you would expect.
For those types of products, but the same story very aggressive in the first quarter, taking cost out substantial cost out. So we are preparing for the worst and hoping for the best but as far as volumes for the second floor, you notice that low double digits and we're focusing on controlling costs.
And driving it a as hard as we can you know it all depends on how is ours plays out from for a a for the holiday promotions that could turn the other way, but again, we're preparing for the worse.
Okay, and if I get asked a bit more about NCC I'm not asking is pretty surprised here, but could you just get a bit more granular on near the ebbs and flows of a collection right now are seeing improvements obviously, there's a big impact from Kevin 19.
And just kind of going to get more detail about what the problem.
Yeah, there's no I'd say, we're not seen much improvement at this point in time, a generation as a as low as to the point, we've actually pull back ourselves in terms of export to make sure. We've got enough material to manage our own network here. So at this.
Point in time.
We do not see change and therefore, a as we opened up with we expect to see a further pressure on price a as we have deeper in the quarter.
Yes, Thanks, I'll turn it over.
Thank you heard next question comes from Steve shirt.
You didn't see you May proceed with your question.
Thanks, everyone. So late in the call that I'm, largely good but [laughter] qubic crisis seems like the black Black Swan so compared to 2008.
Did you have time to even prepare you had a long detonator for use in 2008 and what lessons are you applying.
In the current environment.
Yeah, we are.
We did one of things we did early as go back to 2008 2009, as we talk about our liquidity Uh huh.
Obviously, our cash balance the impact it had on various sectors and as we modeled out into Q2, we we try to look at what did we see a and eight and nine by market by segment and they carry that over to where a different company today from a mix perspective.
And what do we see during then carry that over the now using that as some type of gauge if you will to say how back at this good could it get as bad as of late at night.
Good to get worse.
So we really use it from that perspective, <unk> to help us build our models, which in turn.
Probably more face on the liquidity side of things and making sure that we're comfortable as we entered this situation.
But I don't know if I'm answering your question, but but that is the one exercise that we certainly did.
Okay, well it sounds like there were a few lessons learned and then just a granular one on display packaging I know that you know your entire cost cutting initiatives have played into the better performance, but you also mentioned that the exit of the pack Center was was part of the reasons.
Formats for productivity was better so was that just exiting or money losing business.
Yeah. This is really just just clarify it the parts of the the DNP business, Alloyd and and I think to some degree or the the.
Displays business itself, they still had sales to certain customers up kind of indirectly related to the pack center and so ultimately we ended up.
Losing certain contract we as we said indirectly related to exiting the pack center. So it's kinda like a follow on indirect impact that negatively you had been a part of that that business is volume since kind of like early really probably to mid last year.
Okay. So that's why 2018 event still resonates in 2020, well thanks, that's right for everyone.
Thanks.
Thank you and as a reminder to ask a question you want each principles.
Our next question comes from Brian Maguire Goldman Sachs. You May proceed in your question.
Hey, good afternoon. Thanks for taking my question I, just a follow up on some some earlier questions around the Cc news and recovering that and Howard I think you sounded very optimistic about being able to recover that over time I guess.
She really just comes back to how you see pricing in any industry I know your predecessor, maybe that you specifically that the predecessor and others. I was just see see prices were going down sort of talked about this deanna supply demand driven market with pricing as opposed to a cost driven market. It seems to be now we're implying a little bit.
More of this is gonna be driven by cost, but just wondering how you see the supply demand part of that.
And can that be tight enough to get the cost recoveries through even in the midst of what's going to be a pretty bad recession here.
Yeah, I guess, a couple of that first of all contractually we will get the cost recovery at the end of the core.
With of course put out a general market, but our mills as Rogers indicate a running a.
Relatively full as you'll know, we we announced earlier in the week or that we are shutting down two mills.
We say hey, that's because of market conditions. It is because of market conditions, but let me remind you that.
I guess over three years ago, we announced the project 64 man hours.
Well, we were going to invest into our best Mills. So we actually increased the more the entire.
Output by Sunoco through those investments now Oh the plan all along has been to take out higher cost assets. When we completed that project 2018 proved to be a a remarkable years <unk> related to demand. So we delayed taking those assets now.
And that really ran into 2019.
First half so the decision that Oh, taking out capacity at this point in time really relates to the fact that we are on that much more efficient and creating that many more times through this capital investment when I was three years ago.
And we're just pulling the trigger on its somewhat coincidental to the fact that now we've seen the no cc surge.
And and we need recovery, so again, a long way of saying I'm. You know were full we've got very efficient assets out outstripping and we're taking up the higher cost <unk> assets and we will recover the assisi as as we said.
And just a couple of questions on the project Horizon I guess, one just from a time at point of view it seems like you're taking a lot of other actions to shore up the balance sheet happened to liquidity cutting back on Capex deferring the pension contribution.
So why is now the right time to be outlay I know, it's not huge dollar amounts, but you know if it's a you know when actually 20 million of Capex in 80 million or so all in just.
Why why not maybe wait till whereas the other end of all this just to make that causes an investment in I don't know if you you said or you can say, but yeah about how many tons somebody thousand tons is have you RP capacity do you think is coming out between the number three machine and trend Valley.
Well, let me start with your on your last question effectively 35000 tons, because if you'll recall dating back multiple quarters.
We've said that we have taken out I think what a sport 50 or 60000 tons that was front valley selling pulp into China. So this move really is only taking about incremental.
Quarter to quarter type a 45000, Oh why are we doing a project horizon, because we wish we have done a three years ago frankly, that's the way I feel about it but I think its reflection on the fact that we have a.
Again, we have a very strong balance sheet, we can afford to do this or is this a three phase type or investment <unk> somewhere around between 15 and 20 million. This year with some benefit applications mid next year from a from a stock prep perspective, but.
As you have I think we opened up with and the commentary if any commentary is a this is this is a a time when you have strengthened your balance sheet that you can take advantage of some opportunities that when this thing comes a and it will come.
To an end.
We're going to be a much stronger company because of that so it's not only or are we gonna be making the appropriate strategic capital investments as long as things stay as we see them.
From a from a market perspective of we'll be looking at any potential tack ons bolt ons, except for that makes really really great strategic sense.
Once we come out of this crisis. So that's what we're doing it we're hoping that in two years now well of course, [laughter] say of course, but we hope will be out of this and will be that much strong.
Okay. Just last one for me I know coming into the year. There were a lot in new product introductions to capitalize on the sustainability trend and you guys had test launches with some of your brand owners and customers.
Given the environment and the climate that were in are you seeing any of that your customers look to maybe rethink or delayed some of those launches maybe they're just focused on other things trying to make sure. They can get the shelf stock at the supermarkets or maybe there just worried consumers may not want to go for new concepts in a time.
But there's so much uncertainty any any kind of change on those plans.
Hi, Brian It's Roger I would call at more of a delay I mean, obviously sustainability is going to be critical it is critical to the critical again in the future.
We are seeing some slowdown and delay in some of the people that were thinking about a potential conversions.
Obviously rigid plastics packaging in today's environment with the virus, especially transparent is is a very popular so that's a good thing for many parts of our business. We have some major projects, we're working on with with somewhere a large customers for growth going forward that are continuing is tougher in today's environment.
It's continuous I would just characterize it as a delay at this point.
Nothing more than that.
Yeah, I think if one thing I'll add to that is a enough that we've set a multiple times, the but our customers trying to figure out how to get their alphabets up so.
Yeah, we're actually seeing where.
Limiting the number of skews that want to put out there just trying to pump out as much volume as they can it's not just with us is across the entire sector.
Okay that makes sense, thanks, and stay safe everyone. Thanks.
Thanks, Thank you.
Thank you. Our next question comes from George Staphos with Bank of America.
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Hi, guys. Thanks for taking the follow on late.
Two questions. One was just to piggyback on what Brian to Tee it up.
I suppose at this juncture if your customers are delaying sustainability, it's not face yet on any data they have on consumer perception I don't know if you have any commentary on that I guess would be it can't be because it's been such a recent event in terms of what's been happening with Covidien wanted your thoughts there and then you might have mentioned earlier again my funded.
It out on the 45 million dollar reduction in Capex. The gross number if you will can you quantify or bucket, whereas those cost reduced capex reductions occurred thanks, guys and good luck in the quarter.
So George on the delaying sustainability the first off to be clear that we we are very very engaged an active ER with customers in terms of of projects.
Just a commercialization there of as I think going to be delayed, but we are continuing to work on select projects in that regard a 45 and capex I think it's really across the business or.
You know, we we're still focused on UBS, some pretty critical growth the productivity projects that Roger and his team a you know we've done this before we look and say hey, what what can wait for another day.
That's really across the entire company.
So how are there was no specific area that got a little bit more weight in terms of reduction is that fair that that is fair.
Alright, guys, thanks very much.
Well.
Thanks.
Thank you. Our next question comes from Adam Adam Josephson with Keybanc you May proceed of course.
Thanks, everyone for taking my follow up that Julie just on pension you were in hindsight smart enough to make that couple of hundred million dollar contribution.
A year or two back and then you're going to top it off with this 150 that youve a deferred to next year can you just talked about how likely you are to make it next year and then related Lee what what that to the extent you mark to market your assets and liabilities what the.
Funded status is looking like with just a steep drop and discount rates and and the smaller drop an asset prices.
Yes, sure Adam and I I will tell you we are I'm grateful amongst ourselves with our board that that we all made this decision to last year, you know fund up to about 95%.
On a P.B.L. basis, right, just the normal accounting basis and shift we're really at about 93% invested in fixed income and that's a you know that's a $1.4 billion of pension plan assets.
So, it's pretty meaningful and and and very specifically with those investments they are liability matched and so we work really closely and monitor this monthly even before this crisis right with our actuary and our investment managers to make sure that the assets and the liabilities are moving and think so we continue to estimate that on a P.B.
Basis, we're still around 95% funded.
And we remain very committed to that to the ultimate termination process. So we are just a you know quite frankly, there are certain parts of the timeline, we control in certain parts and we don't control we weren't even shirt was gonna be wrapping up this year anyway, but we are taking some actions to specifically push it into 21, but we do remain.
And committed to ultimately sitting in the final amounts and annuitizing and removing the the liability from our balance sheet.
Thanks Julie.
Thanks [noise].
Thank you. Our next question comes from Deep Sea with Wells Fargo. You May proceed with your question.
Thank you guys for taking the follow up I'll try to make a brief I'm curious if youve seen any.
Teams and challenger brand versus kind of a bellwether brands that were assessing this woman sells the doses. So I'm just curious if there is little deeper pockets and more resources what are the supply chain, otherwise falls and so as far as our insights on the shelf.
Okay, but you are a little soft on the middle part of that can do you or if they said again change I apologize.
Just any change from challenger brands to the bellwether large staples that was a cousin sand in the center also does this list.
I I don't think we say not at all.
Oh, I can say is that our customers and not only some of it all but parameters levels in the first inside or.
Just pushing out all they can so is or is there a ship a slowdown as it relates to them. So the emerging brands.
Well the can speak about Oh.
It's just a heavy demand period right now I would suspect maybe that would be the case, but certainly not impactful and certainly not impactful to.
Thanks again.
Thank you and I'm not showing any further questions at this time I would like to turn the call back over to Rogers from Britain.
Thank you again, Josh and again, let me. Thank each of you for joining US today. We appreciate your interest in the company and as always do you have any further questions. Please don't hesitate to contact thank you again.
[noise] [noise] [noise]. Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participation you may now disconnect.
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Okay.
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