Q4 2019 Earnings Call
To the Hamilton Beach brands holding company Q4, 2019 earnings Conference call.
All participants are in eight listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you will be to press star one on your telephone if you require any further assistance. Please press star zero.
With that like Dan the conference over to the way and that.
If investor Relations. Please go ahead.
Thank you Sheryl and good morning, everyone welcome to our fourth quarter 2019 earnings conference call and webcast for Hamilton Beach brands holding company.
Greg trap, President and Chief Executive Officer, and Michelle measure Senior Vice President Chief Financial Officer, and Treasurer will discuss our fourth quarter results and our outlook.
Also present for the Q and I will be Scott Tidy Senior Vice President North America sales and marketing.
Yesterday after market close we issued an earnings release and filed our annual report on form 10-K with the FTC. Both documents can be found on our website at Hamilton Beach brands Dot com.
A replay of today's call will be posted this afternoon and when available a transcript will be posted.
Today's presentation contains forward looking statement, which are subject to risks and uncertainties that could cause actual results could differ materially from those expressed in either the prepared remarks or very lucky Wednesday additional information regarding these risks and uncertainties was included in our earnings release and 10-K because.
Any disclaims any obligation to update these forward looking statements, which may not be updated until our next quarterly conference call. If at all and now I'll turn the call over to Greg.
Thank you the win good morning, everyone and thanks for joining the call.
Following the closure of kitchen collections retail operations, but the end of 2019.
We entered 2020 focused on Hamilton Beach brands in our strategic priorities of revenue gross margin expansion and strong cash flow generation.
As many of you know last October we announced a difficult but necessary decision to wind down the kitchen collection business. The closure of all Casey's stores by the end of 2019 occurred as planned and kitchen collections results for now reported as discontinued discontinued operations.
The shell is going to discuss the details of the wind down which marks an important turning point kitchen collections net losses at negative cash flow had been a hindrance to our overall business and we look forward to the benefit of the wind down becoming evident in our market value overtime.
I'll now review, our fourth quarter 2019 results from continuing operations, which included the second highest revenue and operating profit for any fourth quarter in our history and net income was the highest saw record and by a significant amount.
Compared to the fourth quarter 2018, we delivered 4% revenue growth driven by increased U.S. consumer and international consumer sales, partially offset by a modest decrease in global commercial sales.
Operating profit grew 46% and net income from continuing operations increased 53%.
We're pleased to deliver a strong bottom line you know with even with a top line that was not as robust as expected.
As we indicated going into the fourth quarter, our placements and promotions were strong the main issue impacting customer order patterns in the third quarter was the ongoing adverse impact of tariffs.
In the fourth quarter, well, we did benefit from that shift in order patterns. The generally soft holiday season, most retailers experienced impacted our top line.
The late in the late Thanksgiving shortened the holiday shopping season and diminished store traffic.
Strong retailer investments in pre season promotions, we're not enough to give people to shop earlier.
As a result for the industry and our company peak sales were delayed by several weeks and the Reorders that we had anticipated to now fully materialize.
As a reminder, tariffs are still in effect. Despite the trade deal that the U.S. signed with China earlier this year.
As part of that agreement the 15% Terror front list for a was reduced to 7.5%.
However, we're not fully benefiting from that cut list for B and been scheduled to go into effect on December 15th was cancelled entirely certainly a relief. However, the remaining tariffs still impact 25% of our business.
This is for B was not cancel to for right before the implementation date, we still experienced a major resource train distraction and market disruption all through the second half from 29 team because we've had to implement mitigation plans to continue to pursue exclusions for list for a which includes coffee makers the largest category.
Business.
Despite some challenges in the fourth quarter, we were pleased with many positive results, we experienced a strong sell through of our top promotions, we generated a record ecommerce sales our revenue growth outpaced the industry.
Well the U.S. small kitchen appliance industry dollar sales grew 2.8%.
The mass segment in which the Hamilton Beach and part to solid brands compete declined 4%.
The smaller premium segment, which are only the best brands compete increased 12.6%.
Looking to the future Hamilton Beach brands has a lot of great things going on.
Message I'd like you to take away today is that we're a very shrunk company.
We're a leader in our industry with a strong portfolio of iconic brands ranging from value to luxury and covering more than 50 categories.
Let me provide some highlights the illustrate our shrinks and momentum based on our performance in 2019.
We introduced 80, new product platforms last year, our products held a top three market share and more than 30 categories. We gained share in 25.
New products included a number of air Fryers and pressure cookers.
Making us well represented in brands and sizes.
Our new Hamilton Beach sure, Chris Purifier, Toaster oven is being particularly well received.
We also introduced new products and traditional categories, such as blenders food processors single serve coffee mixers slick occurs juice instructors and indoor grills, we plan to similar lineup of new products for 2020.
At the consumer Electronics show in January we showcased a wife I connected coffee maker and slow cooker.
In 2020, we're introducing a number of new products in multiple categories across all of our brands and these new items will be launched in time for this year's holiday selling season.
We're excited about new items, such as an expansion to our popular flex Bruce single serve coffee maker line and an egg bites maker, both of which enable consumers to create popular coffee shop items at home I'll discuss more new products in a month.
[noise] innovation is one of our key strengths and one is deeply ingrained in our culture our process for new product development has been decades in the making before stirred deep collaboration across our consumer research marketing engineering and quality teams in fact, our whole approach to innovation relies on.
Yes.
Working together to bring research driven consumer needs to market.
The value continuous improvement and we're refining our well honed innovation process. So we can be even more competitive with new entrants in our space and some of the disruptive innovation that has occurred in recent years, including a strengthened ability to pass follow.
We continue to make progress with our six strategic initiatives, they are working well and our content and contributing to our strength.
Many of you have asked us to provide more specifics about the growth of the individual initiatives and what percent of total revenue. Each represents today, we're providing that information for you and we'll update it annually.
We performed very well in the ecommerce channel and 2019.
Our global ecommerce sales grew 27% and accounted for 25% of total revenue.
These amounts were even higher in the more developed us market.
The digital space is a string through us as we focused on this channel early and invested in the infrastructure needed to facilitate online sales and growth.
In 2019, Hamilton Beach continued to be the number one brand based on units sold in the E Commerce channel.
Our products continue to earn favorable reviews and ratings of four stars and above and we increased the star rating for every brand in 2019.
Our only the best brands grew 7.4% in 2019 and accounted for 9% of our total revenue.
The growth was driven by our Wolf Gourmet and Hamilton Beach professional brands as well by the new Cartesian premium cocktail delivery system that we began selling through last year through an exclusive multiyear agreement.
We were delighted at the parties in product and our Wolf Gourmet precision Grill were selected as one of Oprah's favorite things for the holiday selling season, giving them high profile visibility with consumers.
We expect significant upside in the only the best business and plan to add new products potentially more brands.
The Wolf gourmet.
We're rounding out our full line of countertop appliances with a stand mixture that we launched last year and the kettle that we are introducing later this year.
Also continue to round out our line of Hamilton Beach professional products.
Hey, mixes that we introduced last year or selling very well.
Last year, we launched the Hamilton Beach professional juicer mixture grinder in India. This year will offer the that that product in the U.S. for consumers, who enjoy preparing Indian cuisine at home.
Also bringing out a new immersion blender food processor with the Spiralizer, New sure Chris Digital oven all under the Hamilton Beach professional brand.
Our chief touch screen Iron that we introduced last year is selling well this year, we're introducing achee handheld Carmen steamer.
For West and we have a great news, who lead immersion circulator vacuum sealer, dehydrate or and smoke and if user.
Turning to our global commercial products after several years of averaging more than 5% revenue growth, we experienced a modest decrease in 2019, mostly due to the unfavorable impact of tariffs on the U.S. business.
Commercial products accounted for 80% of our total revenue.
We continue to be very optimistic about the potential for this business and expected to return to growth in 2020.
About half of our commercial sales are in the U.S. and.
The other half in markets across the globe.
Our international Foodservice business grew in 2019.
Globally, we secured some very nice wins last year with dairy Queen Burger King and more recently with the look and coffee chain in China.
In 2020, we'll be introducing a brand new line of immersion me immersion blenders, which are a very important tool for chefs.
We're pleased with the many partnerships we have developed around the world we have good momentum for for new opportunities.
Our international markets in which we have a longstanding presence in Canada, and Mexico, and Central America and more recent presence in emerging markets in Asia, and Latin America and generated a compound annual growth rate more than 5% for the past five years.
In 2019, virtually all international markets were soft revenue revenue decline modestly.
Revenue generated in international markets accounted for 24% of total revenue in 2019, we expect to return to growth in 2020.
We continue to expand selectively outside of the traditional small kitchen appliance market into new categories, where we have identified opportunities to leverage our branding sourcing distribution and ecommerce expertise.
The ecommerce channel enables us to introduce new products quickly and relatively inexpensive Lee and to react on a timely basis to consumer responses to new offerings.
2019, we established a new brand for personal care products coal bright line and launched our first oral care product Sonic rechargeable toothbrush.
We plan to add more personal care products under the bright line name, including hair dryers facial cleaning brush and we developed through our innovation process.
You also have a new Hamilton Beach countertop pacemaker among other new products.
Well, our new category initiative is in its early stage you believe that can deliver significant long term growth.
Our six initiative is strategic acquisitions, we continue to pursue bolt on tuck in opportunities in both the consumer and commercial space.
That would add revenue in the range of $50 million to $100 million always considering the right fit at the right valuation.
We recently fill the new position the reports to me.
The Vice President corporate development strategy.
To intensify our focus on acquisitions.
Then all of our initiatives moment momentum underway gives us the confidence that they have strong potential to drive long term growth and thereby increase shareholder value.
I'll now turn the call over to Michelle Thank.
Thank you Greg good morning, everyone.
My initial comments will focus on our fourth quarter results from continuing operations.
Revenue increased 4.1% to $207.1 million.
Operating profit increased 45.5% to $25.5 million as a result of gross profit margin expansion and a 19 in the half percent decrease and SGN a expenses.
Gross profit increased 8.1% to $44.9 million or 21.7% of revenue.
The improvements in gross profit and gross profit margin or primarily due to the higher sales volume and the sale of higher priced higher margin products.
SGN, a expenses decreased to $19.1 million from $23.7 million, primarily due to lower advertising and promotion expense and decreased environmental expenses.
Our effective income tax rate was 23.8% for the quarter compared to 22.1% in prior year.
The increase is primarily attributable to deferred tax expense recognized from the fourth quarter for evaluation allowance against certain deferred tax asset for kitchen collection.
Net income increased 53.2% to $19.4 million or $1.43 cents per diluted share compared to 12.7 million or 93 cents per diluted share last year.
For the full year cash provided by operating activities fell short of our expectations due to timing.
In 2019, we were near breakeven versus prior year, where cash provided by operating activities was $17.3 million.
Well inventory decreased $13.8 million trade receivables increased $25.6 million as a result in the late order pattern in the holiday selling season.
Which shifted the timing of collection of a larger amount of receivables into the first quarter of 2020.
As a result, net debt was higher than prior year at $56.3 million compared to $42.2 million.
We expect net working capital improved significantly during the first quarter as a result to this timing.
Capital expenditures decreased to $4.1 million in 2019 compared to $7.8 million from 2018, reflecting lower spending far ERP project.
We're very excited to report that we expect to take the new system lives during the second quarter.
We returned nearly $11 million to shareholders last year, including $4.9 million and dividends and $6 million and share repurchases.
The board approved a new stock repurchase program for up to $25 million a stock beginning January one 2020, and ending December 31 2021.
I'll now turn to kitchen collection.
Last October the board approved the wind down of Casey due to further deterioration in foot traffic, which lowered our outlook for the prospect of a future returned to profitability.
As Greg mentioned by the end of the year, all retail stores were closed and operation sees.
Casey's operating results are now reported as discontinued operation.
For the full year 2019, the net loss was $28.6 million compared to a net loss of $5.4 million in 2018.
The 2019 loss included several onetime charges, such as a $15.2 million for the estimated cost to terminate lease agreement.
We expect the wind down to continue through the first half of 2020 to facilitate the settlement of remaining liabilities.
Ill obligations under the KC revolving line of credit were paid in full in accordance with the forbearance agreement with the lender and the facility was terminated on December 3rd 2019.
As of yearend Casey's current liabilities exceed its current assets by $24.3 million. We expect that once available assets are paid out remaining liabilities will be reversed and reflected as income from discontinued operations.
Neither Hamilton Beach grants holding company, nor Hamilton Beach brands Inc. has guaranteed any of Casey's obligation.
As a result of exiting kitchen collection, our consolidated earnings per share and cash flow will improve going forward.
As our financial statement show for the full year 2018, the last year Casey with operating as a going concern.
Hey sees impact on earnings was a loss of 39 cents per share and Casey use $5.8 million of cash.
Next I'll discuss our outlook for the full 20 year 2020 compared to the full year 2019.
As you know our business and seasonal with the majority of revenue and operating profit aren't in the second half of the year.
For the past five years on average 60% of our revenue and 85% of operating profit have been earned in the second half of the year.
Based on nine placements and current market trends, we expect revenue to grow modestly and outpaced the industry, which is expected to be revel relatively flat overall.
We expect growth in all markets as well as the E Commerce channel and our only the best brands.
Given currently no retailer plan operating profit is expected to be in the range of flat to modest increase.
As clarity increases about second half placements our outlook will be updated.
We're aiming for modest gross margin expansion as we continue to focus on the sale of higher priced higher margin products.
However, the decreases in SGN, a expenses in 2019 or onetime in nature and are not expected to repeat.
Cash flow before financing activities is expected to increase significantly as we move towards our goal is generating cash in excess of $20 million.
Planned capital expenditures and 2020 are expected to be $5.2 million and our effective tax rate is expected to be approximately 25%.
This outlook is based on our current understanding of the impact of the current a virus on our suppliers in China.
First we're very happy to report that all of our employees in China and their families are healthy.
Under predictable nature of the virus makes it very difficult to anticipate potential impact to our business.
We are monitoring our suppliers, who are slowly returning to production at varying degrees of capacity.
Based on the current situation, we expect a manageable period of inventory challenges and we are taking a number stuck to work with our customers to minimize disruption.
As I mentioned earlier the majority of our revenue profit occurs in the second half of the year and we do not expect disruption to impact the second half.
We continue to monitor the Corona virus situation closely as it remains fluid and highly unpredictable.
Well need to adjust if conditions worsen, which could necessitate an update to our outlook.
That concludes our prepared remarks, and we'll now turn the line back to the operator for QNX.
Thank you if you would like to ask a question at this time. Please press star one on your telephone handset well pause briefly compiled acuity roster.
And again that is star one to ask a question. Our first question comes from Justin Kleber from Baird. Your line is open.
Okay.
Yes. Good morning, guys. Thanks for taking my questions and appreciate the additional color.
You provided as it relates to sizing some of those strategic initiatives.
Wanted to just start on the 2020 revenue outlook for modest growth can you rank order for us at least how you're thinking about growth across your three primary businesses U.S. consumer.
International consumer on global commercial.
Justin This is Greg.
So I think we were going to take we're taking the approach that we should probably have.
You know until we get a better view of the back half promotions given the fact that.
Our north American businesses, the port mode as part of a business that will we're assuming.
Yes, just up a little bit on that front.
And all the stronger level growth in commercial and international.
And I think as we move in the second quarter, we'll start to hear about placements and promotions those types of things and be able habit better sense for that but I think generally speaking the in the outlook. We gave you would count on.
Yes, a little bit of growth in North America business, and a higher rate is international commercial.
Okay, and then obviously you guys don't provide quarterly guidance, but I imagine you have a pretty good feel for how the first quarter is shaping up.
Given more two months ended the year should should we expect revenue.
To grow in the first quarter year over year or is this 2020 outlook more more backend loaded.
Yes, so it's really a full year look Justin.
Got ups and downs by quarter.
And but thats really what we're going to stick with the full year guidance.
Okay fair enough that the impact I guess from the Crown virus is there.
Is there a specific revenue hit that you're assuming here and the first half of the year that you'd be willing to share and then.
I know Michelle mentioned.
Supplier slowly returning to production I mean can you.
Frame that I mean, what percentage of your factories that utilize our back up and running today and at what capacity.
Sure, let me give a bit of back revenues look all the people really flummoxed by the.
The status thing so.
First of all I'll, just say as Michelle says real important that we have.
As of today, there's no employee or family member that has been affected by the buyers who is real which as you know very very important thing.
It's also important remember that the majority of our revenue in our profit encouraged the back half.
Also we because there's a lot of news coming out from a lot of companies. We have an asset light business model. So you hear about large expense pressure on companies that own manufacturing facilities in China, and we don't have that pressure Fortunately.
[music].
And because now also just operationally because Chinese new year happens every year.
We have always brought in many weeks of inventory to cover multiple week shutdown that happens at a time of year.
So we've been receiving inventory.
All along so far the have containers on the water and coming in.
As we speak.
Also every year after Chinese new year, the suppliers have a ramp up process, where the workers come back.
As slow pace and so we have in our model.
A slow ramp up post Chinese new year.
As that as happens every year.
Also it's important to note that Hamilton Beach, and our retailers have safety stock or safety time that provide some buffer do depends on the retailer in the situation, but it can be six a 12 weeks, even depending on the on when you put those two together.
So.
Theres a lot of variables that go into into determining what do we think the cap will be but lot of the.
[music].
Things that we hear about about slow ramp up and things are happening all the time. The issue really here is how much delay in that normal ramp up is happening from what we expected.
And so right now talk indoor suppliers.
In monitoring their sub suppliers.
We know that that all the majority of our suppliers are back up and running.
All of them are limited capacity at a ranges from.
Tend to 50% capacity and like I said, Theres always a range of ramp up that happens anyways, but all are reporting they expect to be back up.
At full capacity in the next two to three weeks.
Thats.
What they think they're all working hard to meet that.
This is definitely fluid unpredictable, but if that.
Is what happens it becomes.
A manageable situation, we've modeled out all sorts of potential ramp up periods and delays.
And all most of those are very manageable.
And.
What that would happen would be as a.
Likely that gap.
To what we expected would would occur likely in the second quarter.
And then the than this spike that comes with the refill once everybody is up and running would come either late in the second quarter or in the third quarter. So there's not could be a large.
It could be a very small manageable gap.
And what refill happens can either be in same quarter or split a little bit by a month or two which would push in the different quarters.
So.
Then lastly, we know we do have some worst case scenarios, which we think of low likelihood.
But that would that would change the situation dramatically.
But as of now they seem to be.
Coming up to speed in a way that those don't seem to be likely so.
Again, the situation unpredictable, but hopefully that gives you some some color Jason on the fact that we think this is manageable, but certainly every week, we'll learn more and see how things are coming along.
That's that's great color. Thank you for that Greg.
Just maybe shifting to your outlook for margin expansion gross margin expansion.
It looks like 2019, you were down about 70 basis points.
For the full year or do you think you think you can call back all of that degradation here in 2020 or.
Should we expect something more modest then then the decline that you experienced in 19.
I think were.
We believe we're going be back in line with our trend line.
Things like commercial level higher rate.
As an example, so I think just and we're projecting where we think in terms of some of our only the best business growing within our mix. So just based on our view the year.
Equally back in a we'll get back to where our so theyre trend line was and we hope of course are working hard to get to kind of go up a little bit, but I think our goal is to be back up to a better level.
This is a huge change, but a little better level and in this year.
Okay and then a good question just on the ERP system going live in Twoq. You can you help us understand maybe what test or controls I guess are in place to ensure.
The transition to this this new system is seamless and.
No it doesn't have any major hiccups associated with it.
You just in the ERP system, one the greatest benefits is the warehouse management system automating that and we're currently using it for a very small portion of our business. The Westin business. So we have been testing it and using it for almost a year now.
So we feel pretty good that it's working there are some unique pieces that Hamilton beach is a little bit the bigger business is a little bit more complex, but you know we've been through we're going through user acceptance testing right now we've been through several rounds of end to end testing. So we're definitely being very cautious.
In the go no go decision, but today, we're feeling pretty good that we've done what we needed to do to make sure it's going to work for us when we go lives.
Okay. That's great to hear guys. That's all I had thanks, so much for the time.
Thanks.
Thank you and again, if you would like to ask a question. Please press Star Wars.
Our next question comes from Michael fishermen from Sacramento. Your line is open.
Good morning.
Hey, Mike.
Could you flesh out or just a little more detail on the trade receivables in Q4, and how much you've recovered into cash already into Q1.
So yeah, Mike you know the holiday season was really Backloaded, we didn't see as much coming on some of the pre Thanksgiving activity that we had hoped. So you know are typically terms with our customers are net 30. There are standard terms some customers are a little bit.
At longer than that so as the sales for later in the.
Period, we just didn't get the collections that we had hoped we would I'm not really going to give a number but I think working capital at the end of January is definitely much stronger than where we ended at the end of December.
Okay, and then Greg it enough Scott's there too but.
Could you just talking about E commerce, whether the full year or fourth quarter and how that deferred.
Last fourth quarter.
Yes.
Michael This is Scott.
If you look at last year, I think we we kind of communicated throughout the year, we did get our our E. Commerce issues that we had in 2018, we felt like we fix those and corrected those throughout the year. So we actually saw nice growth as we reported.
Particularly in the.
In the U.S. in Canada business, but we also saw that across the board and all of our markets.
Could you just given a little more detail on did anything change relative to how Amazon in your their peers, we're dealing with your fourth quarter last year versus what transpired through the year.
Well I think we communicated back in 2018, we had some issues regarding our map policy. We also had some issues regarding some of the online retailers who are much more focused on margin and as a result that changed what we thought was going to be the promotional focus.
I would say in 2019, we we corrected.
Those issues, we did not have the map problems that we had in 2018.
We felt like we were very strong and relevant and and we're growing share with our larger dot com retailers and able to get the promotions that we expected. So we we didn't have that unexpected.
Concerns that we experienced in 2018 because.
They were they were focused on the margin aspect. We were we were aligned with them and making sure our promotions, we're going to meet their margin thresholds and their volume thresholds.
Mike This is Greg just adding a couple of quick comments on that.
In the markets where.
Ecommerce penetration is behind us like Canada as Scott said.
The team's doing a great job there. So we're seeing very strong growth in very.
The larger percentage of our business is being done through that channel Mexico is further behind Canada as an industry, but is just take it off in the past year to 18 months and the teams and a great job to be.
Really on the on the forefront of that.
That market commercial is.
Globally commercial is.
Very different.
Business model, so it's having a.
Different impact on there, but in the US who if there's a couple of players. They are pretty strongly that were really really doing well and so I think overall, we feel good that it's a broad based strength of us and the industry keeps going that way and so we're going to keep following the customer in the consumer and and be there wherever they're shopping from.
Okay and can you just flesh out.
You know why commercial revenue would have been impacted by the tariffs.
In the U.S. sure, Yes sure Thats good question so the.
Yes ill give you sort of two examples one is.
Our amended these business is one where.
If theres a reduced.
There is increased costs, what low the operators would would say was they've got a set budget for there.
Segments in their business running their hotels, whether a one or two unit chain or a broader one and one costs went up on a number of the products they were trying to buy.
They had a cut back on things maybe that.
Okay, but not they would normally would have refreshing to up an iron ore a.
Coffee maker in a room, but they're going to put off those.
Refreshments.
Four to cover the costs of.
Yeah, the things that they have to have so we saw amenities business in particular fall off but also on the food service side.
Equipment went up across.
Number of businesses that the chains purchased not just our industry and so thats just cause them to slowdown to see what happened with tariffs as you know the tariffs were going to be on again off again, and so a lot of folks didn't want to pay for something and then have a turnaround and go back down in price. So just created a lot of uncertainty.
Or tighter budgets and so we just saw a lot of customers delayed decisions and now that.
Decisions have been firmed up it seems like there back to getting on the business here and I love to see how the corner virus impacts some of those things, but right now what we're hearing is.
Based on tariffs that are going back to sort of business as usual now and trying to focus on.
Meeting their business needs.
Okay and the the are you expecting greater than 5%.
Revenue growth in commercial in 2020.
We are not giving guidance by area, but we did say is that we are we have a growth rate over the past number of years. That's the 5% number you mentioned and we want to accelerate our growth years going forward.
So.
And we invested more to do that so.
Certainly that.
The goal is to get commercial growing as fast as possible.
Okay and just.
In terms of line of sight you know this.
Comment here anticipated closure of some large pending opportunities that's.
In addition to lock in and dairy Queen.
Yes.
Okay, I'm sure you're going to say, you're not I don't want to get a detailed but looking has thousands of locations is there anyway.
Help us understand conceptualize, how big of an opportunity these accounts can be.
No I will say, so we'll sort of stick to the guidance, we give Mike. That's a fair question. One thing that we've got always balance here is that.
Yes, Scott where to get some placements on big major retailer on the shelf with the product sales while he gets orders every month.
When we pick up a big chain.
In one year.
You get a big pipeline fill and then you usually give us a little bit of residual.
Chain might open up new stores or machine might break and so you have a much lower.
Sort of ongoing demand. So every year you get a big chain, you've got a reason because not only get another one to offset that.
But then gives another one to deliver that grown so.
I think well just sort of say is that.
Yeah, we feel good that we have enough wins coming along hopefully wins coming along to offset the wins, we had last year.
And the goal is to keep feeding that pipelines that we can at least deliver that 5% growth per year and again. The goal is we're investing try to beat that.
As the luck in when did that impact 2019, or that's going to come in 2020.
Should we both.
Okay, and then in terms of the international revenue I know the 24% of your revenue 19 can you. Please tell us how much is in China specifically.
[music].
No, we're not going to break that out, but we will.
Markets or segments become.
Big enough, we will start to provide more color on that.
But it's fair to say that Canada, and Mexico or your two biggest markets.
Yes, so we've been we've been in those for many many years. So those are definitely the our strongest.
The North American market is where we've been for decades since thats, our strongest place to be.
Okay and in terms of.
What occurred in the third quarter about the change in retail ordering patterns.
Does that manifest in Q4 or.
It has not happened because of the compressed holiday season or does it.
Get pushed back into Q1 can you just give us some detail what happened and the changing retail or order patterns.
Sure so.
We definitely had orders pushed into the fourth quarter from the third quarter as we mentioned.
And then when we always talk about is there's sort of several drivers of our our performance in the fourth quarter and one is placements. So do we have strong placements. We had we do think we do know we had strong placements.
Do we get strong promotional support.
And we believe we based our outlook to you all based on.
The placements that we knew the time and and so we were that'll worked out as we thought.
And then no is the big wildcard in the holidays is.
Consumer purchases and therefore, the retailer reorders. So if you can imagine.
Yes, we might have some products that don't sell what weve to what we think we are going to sell so therefore, the retailer them would not order.
Reorders because it didnt sell through well good news is all our products sold just fine.
But what happens it could be something were a different category or different competitive there didn't sell through and they don't have open to buy dollars that could be a headwind.
And in this case, what you see when you show the results from all the major retailers what you heard was.
Most most retailers they ahead.
Our holiday season. They described is below expectations, some had really difficult ones and some had okay, but not as much as they thought they do.
Because of that.
Later holiday period in shortened holiday period, they didnt give that foot traffic, where those purchases. So we didnt get.
That is additional.
Reorders that we normally would have it if the holiday season sold to the level that we all expected. So we did get the third quarter delayed purchases, we just didn't get that.
Final retailer coal push.
For the holidays.
So as we go into the fourth quarter.
Sorry in the first quarter, yes, theres, a normal restocking of shelves that type of thing and we're right back on now a situation where the back half was our biggest part over a year. So I think we look at the fourth quarter last year as being a really good particularly the bottom line not as good as we wanted and we're well positioned for having having a solid year.
In 2020.
Have you seen any changes in retail order pattern continue worse in less than with all the change in the tariffs.
All right.
The.
Definitely there was a lot of work in effort and discussion and distractions for the tariffs all the way through the holiday period, and now post holiday period, when things were going to happen and they're not going to happen and rates are changing.
And so.
Definitely was definitely is.
A topic of discussion although it is certainly lower than it was as we went on to went into the holiday season I was caught on if I missed anything on that front.
Thats right Michael on the.
The.
As you know some things came off the list on February 14th.
And so I think some retail to still trying to balance out their inventories, but for the most part it's definitely smoothed out.
On the you in the U.S.
Thank you.
Thank you.
And thank you again, if he would like to ask a question. Please press star one on your telephone handset.
And I don't show any further questions in the queue at this time.
I will turn the call back to Mr. trough for closing remarks.
Thank you and I'll leave you with a few key takeaways as I stated at the beginning were very strong company with many positive things happening in the business. We have a strong team that continues to execute.
The creativity impressed professionalism that we believe will win overtime.
Leaving the investing for the long term many of our strategic initiatives have gained strong traction and generated above market revenue growth.
We expect to increase returns over the next several years as the initiatives achieve higher levels of maturity and as we focus on growing our brand portfolio, introducing new products expanding distribution channels and leveraging our current cost structure.
No debt level positions us for many forms of investing in growth.
We're an asset light business, it's a relatively low level of capital investment and the potential to generate strong free cash flow and strong return on total capital employed which has generally been high relative to industry standards. We will continue to we will continue our longstanding focus on a strong balance sheet.
Financially flexible and financial flexibility as we work to build long term shareholder value. Thanks again for joining our call today.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].