Q1 2020 Earnings Call
[music].
Good morning, My name is Keith and I'll be your conference operator today.
At this topic I'd like to welcome everyone to good years first quarter 2020 earnings call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
She would like to ask a question. During this time separate press star and one on your telephone keypad.
If he would like to withdraw your question press the pound cake.
I'll now hand, the program, Alberta, Nick Mitchell Senior Director Investor Relations. Please go ahead.
Thank you Keith Thank you everyone for joining us for good years first quarter 2020 earnings call Im joined here today by Richard Kramer, Chairman and Chief Executive Officer, and they're in Wells Executive Vice President and Chief Financial Officer, The supporting Slide presentation for today's call can be found on our website at Investor Day, Goodyear Dotcom and re.
Play of this call will be available later today replay instructions were included in our earnings release issued earlier this morning.
If I could now draw your attention to the Safe Harbor statement on slide two I'd like to remind participants on today's call that our presentation include some forward looking statements about the hears future performance actual results could differ materially from those suggested by our comments today.
The most significant factors that could affect future results are outlined in good years filings with the FCC and in our earnings release, the company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise our financial results are presented on the gas basis and in some cases.
Non-GAAP basis.
Non-GAAP financial measures discussed on the call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide presentation and with that I'll now turn the call over to rich.
Great. Thank you Nick and good morning, everyone I hope our call here today finds all the view as safe and healthy as you can be and for your families as well and I hope you're working through this pandemic as best you can.
Now during my time at Goodyear, we've managed through the effects of the great recession, the European debt crisis. The early two thousands recession and 911 and it's not an exaggeration to say that were in the midst of a crisis of historic proportions.
Our business was first affected by Cobot 19 in China, but over the course of the first quarter. The impacts became widespread as a result, our first quarter volumes fell 18% and segment operating income fell into negative territory, given the effects of lower volume and Unabsorbed overhead.
The impact of this crisis spans well beyond the economic outcomes, presenting both personal and suicidal challenges that are simply unprecedented.
And I'm truly amazed that the way our associates rose to the challenges.
In a matter of weeks, we fundamentally change the way we work to ensure the health and wellbeing of our associates.
We closed our corporate and regional offices.
And instituted work from home protocols around the globe.
Ensuring that our associates remain engaged and connected with digital tools.
These same tools have helped us staying constant contact with our customers and suppliers, allowing us to quickly adapt to the changing market conditions and maintain the continuity of our business. Our goal is first class service and support for our customers and consumers. During these trying times.
We've also modified operations at our company owned retail stores to safeguard our associates and align our staffing to meet market demand without sacrificing our commitment to keep healthcare professionals first responders grocers and our fleet customers Road ready.
In the us our Goodyear Auto service and commercial tire service Center locations responded to the covert 19 challenges by creating a zero contact service offering.
This allows us to limit personal contact and do our part to keep critical workers and supplies moving.
And to further advance this effort, we're offering free department of transportation inspections to us commercial fleets and free tire services to essential workers members of our fleet services team have also been working hard to keep our fleet customers up and running.
And the impact can be seen in our results as shipments of commercial replacement tires were up more than 10% in the us during March.
Good here and its associates have also stepped up to support our communities through donations of personal protective equipment to the medical community and also through supporting our local health systems and food banks.
As just one example, our engineers in Luxembourg harness the capabilities of our Threed printers should produce parts for protective faced shields and helping to supply for those on the front line.
Well, we have focused on continuing to serve our customers in communities Weve also taken a number of operational and financial actions in response to the crisis to safeguard our business.
Through our 122 year existence, Goodyear has always faced adversity head on and emerge stronger than ever.
Confident that we will overcome the impacts associated with this crisis as we are taking a necessary steps to protect our company.
The most significant of these actions was idling production across the majority of our global manufacturing facilities and chemical plants.
This ensures that we can protect our associates and helped mitigate the effects from the steep drop in industry demand.
I would like to extend my gratitude to our plant teams for their hard work to idle these facilities quickly and safely.
We've also taken several other actions to further reduce our costs into preserve cash in the current environment, which we shared with you in our pre release and which Darren will cover in more detail today.
I can assure you that we will continue to manage our business prudently as we move ahead.
Well, our Americas in European businesses are just now experiencing the most severe contraction our business in China has entered into what we believe is the recovery phase.
Good year Pallante in his operational and fully capable of producing to demand.
The plant does not yet running at full capacity, but is able to meet the needs of our customers.
Our plant leaders have implemented several procedures to help our associates stay safe and our commitment and approach to protecting our team has been recognized by the Dalai and government as a benchmark for virus prevention measures.
Next we survey the landscape, we see several encouraging signs in China.
The only channel today, essentially all of the major OE plants in China are up and running.
What we're expecting the Oems to ramp up slowly due to existing dealer inventory new car sales are gradually increasing off the low seen in February.
And we're also seeing the nomination process for OE Fitments, starting to return to pre covert 19 levels.
Fundamentals are also improving in the replacement channel essentially all our distributors were opened for business just three to four weeks after the curve flattened in China.
Our dealers opened on a more gradual trajectory, but they are now mostly all open and serving customers.
These favorable developments leave us cautiously optimistic that the volume recovery phase has begun in China, and we're positioning our business there and around the world for the recovery.
As we think about bringing the majority of our workforce outside of China back to the workplace our top priority remains safeguarding the health and wellbeing of our associates.
Our leaders are working to implement measures recommended by the centers for disease control in prevention, and other leading authorities, including attention to personal hygiene enhance disinfection visitor protocols and physical distancing.
We are implementing a phased approach to restart production based upon regular assessments of local market conditions in inventory levels across each product segment.
Our supply chain and pre current procurement teams are working nonstop to ensure we have adequate breadth and depth to the required raw materials. So that we can move quickly once we see the relevant market signals at this point, our 60, our key suppliers remain online or have adequate inventory to meet our needs as our plants reopened.
Earlier this month, we reopened some of our chemical plants and has begun a limited ramp up of our commercial truck tire manufacturing facilities in the us in Europe and earlier. This week, we began to reopen tire production in most of our consumer factories in Europe as well as in isn't that Turkey.
While market visibility remains somewhat limited our assessment of sellout trends and customer signal suggests that demand in our western markets will begin to recover over the next couple of months.
In light of this view, we expect to have the vast majority of our manufacturing facilities up and operating by the end domain.
Still consumer sentiment remains low globally, our fleet customers are deferring capital investments and we anticipate truck ton miles will decline in the second half for the year.
So we know we need to be realistic with our expectations for the remainder of the year.
While the majority of our attention over the last several weeks has been directed to the situation at hand, we're also continuing to focus on our strategic priorities and to this point I'm pleased by the early progress we've made with our efforts to align our distribution in Europe.
We've secured agreements with nearly all of our targeted first full service distributors, which ensures market coverage across the region.
And even amid the cobot 19 disruption we are already beginning to see evidence of improvement in the value of our brand in the marketplace.
We've proven this strategy is highly effective in the us and I'm confident we can repeat that success in Europe.
The challenge is brought on by difficult market conditions like those were experiencing today reinforce the importance of having a strong distribution network that ensures our route to market.
In the us tire hub combined with our retail and commercial service centers is doing just that and it doesn't stop there.
If you like me I suspect much of what you're buying today is purchased online and delivered similarly, we're seeing a significant increase in online sales at Goodyear dotcom in the U.S.
There are two points to think about here.
First is the value of the business built upon digital connections and through the infusion of data enabled services.
Covert 19 has solidified this growing trend, including for tires as we've seen our online direct to consumer business grow in this down market.
And second an integral to my first point is the increasingly important role of supply chain to our industry.
Think of supply chain in terms of the role that the last mile plays with respect to enabling the ecommerce delivery process and also the related need for services and fit for purpose tires for those last mile fleets and vehicles.
Also think in terms of the need for dealers and distributors to operate with lower inventory levels. During this crisis, thus, putting a premium on tire manufacturers on time supply, it's about having the right tire in the right place at the right time now more than ever.
And the investments that we've made in our E commerce platforms mobile installation capabilities and our aligned distribution initially initiatives like tire hub are allowing us to stay connected and relevant with our customers even when they're sheltered at home.
As the importance of ecommerce grows we should benefit from the headstart. These investments have provided over the competition.
Now in addition to these market facing initiatives, we've continued to make progress against our objective to increase the competitiveness of our manufacturing footprint.
Last year, we announced a significant modernization and restructuring of two of our manufacturing facilities in Germany.
Im pleased to say that we remain on track to generally generate at least 60 million of conversion cost savings from these projects by 2022.
And as you know we also set a goal of obtaining a similar amount of savings from restructuring plans, we were evaluating in the Americas. The tentative bargaining agreement, we reached to close our manufacturing facility in Gadsden, Alabama would position us to deliver on these targeted improvements.
This action will further align our manufacturing capabilities with the segments of the market that are growing.
No. There's no question that in the near term trends in our business will be shaped by the cobot 19 pandemic. However, we know mobility will resume and tires will be in demand. Our team has experienced in dealing with market volatility and I'm very confident that we will continue to take the necessary at.
Ones project to protect the company during this crisis, while also positioning our business for long term success.
And I want to reemphasize my appreciation to the members of the Goodyear team, who are working hard to support essential businesses, our customers and our communities on behalf of the 63000 associates around the world, who make up the Goodyear family, we're committed to doing our part as we make our way through the crisis and.
To begin the recovery.
Now I'll turn the call over to Dan.
Thanks Rich.
As you should be able to tell from our press release on April 16th and from our release earlier today, we've taken dramatic dramatically.
Steps over the last six weeks to respond to the disruption caused by covet 19.
And to reduce as much as possible the financial impact it has on the company.
We quickly shut down production in the us in Europe and work with suppliers to stop the flow of raw materials and other supplies to reduce expenses and to avoid tying up capital.
The inventory unnecessarily.
We then evaluated all.
Other categories of expense, including marketing research and development and salary payroll.
While we have plenty of experiences.
Team with cost cutting and general belt tightening we had to add some plays to our playbook to deal with this level of decline in business activity.
This includes reviewing the roles of 9000 salaried associates and Furloughing approximately 2000 of them for the.
The entire second quarter Furloughing, another 6000 for part of the quarter.
And reducing and deferring pay by 10% to 30% for those who are working.
With only a weeks where the planning we reduced our payroll spend by nearly 65 million for the second quarter, taking advantage of the government income replacement programs to ensure our.
Our associates are supported.
In addition, we cut marketing and other administrative and general expenses by 75 million for the second quarter.
Simultaneously, we were working on ensuring our cash and liquidity position was protected to the greatest degree.
Possible.
This resulted in a number of actions to preserve cash, including reducing our capital expenditures by over 100 million.
Deferring investments in distribution suspending our dividend preserving over 110 million between now and year end.
And and leveraging government relief efforts to defer payroll and other tax payments and improvement in 660 million for this year in the us alone.
In addition, we continue to work with our core Bank group to complete the refinancing of our 2 billion dollar asset based revolving credit facility, which we closed on April night.
Proceed proceeding with the refinancing of this facility at all in the midst of the covert 19 disruption was a testament to the resilience of our team and the support of our lenders I'd like to express my sincerest depreciation to bolt.
The renewed credit agreement extended the maturity to 2025.
We also obtained favorable adjustments to the calculation of the facilities borrowing base enhancing our ability to utilize these this.
Deliveries during times of lower inventory and receivables.
This adjustment amounted to approximately 350 million at the end of the first quarter.
The other key Nonprice terms and conditions remained effectively unchanged.
Last week, we reached a tentative bargaining agreement with the United Steelworkers to close this facility, while providing appropriate support for the disk.
Placed associates.
On a combined basis the actions taken in gadson over the last year are anticipated to generate approximately 130 million of manufacturing cost improvements for our Americas business units in 2021, when compared to 2019, improving our competitive position significantly.
This tentative bargaining agreement remain subject to approval by the membership locally.
Second we're also seeing some favorable developments in the clause in markets that should help mitigate the impact of lower volume later in the year.
While this situation is different than we experienced during the great recession, historically, our raw material prices dropped significantly during difficult demand environments.
With any corresponding decline in pricing occurring more gradually and on a lag.
This could offset some of the impact of lower volume and economic downturns.
Slide 10 illustrates the benefit we saw during the great recession.
Between the first quarter of 2009 in the second quarter of 2010, we experienced the benefit of more than 700 million from lower raw material costs after taking into account the impact of price changes.
At spot prices are modeling suggests our commodity costs would be 50 to 100 million lower in the second half compared to 2019 with most of that benefit coming in the fourth quarter.
Turning to a review of the first quarter, while our results were significantly affected by the severe decline in global tire demand and our decision to suspend production protect our associates and avoid building unneeded inventory our results reflect a few strengths of our business model.
First our businesses deemed essentially in the us the most other parts of the world.
That means that even while our factories were closed our retail locations warehouses commercial truck service centers and other customer facing assets continued to operate ensuring that we can support our customers even during the stay at home orders.
Second unrelated to this our replacement business continued to generate rep.
The new during late March and April Lockdowns, while replacement volume was low and never stopped and has started to recover over the last two weeks, even though auto production has not.
Third our commercial truck tire business remain particularly critical with replacement volumes through March only slightly below last years levels as large fleets work to keep essential goods on store shelves.
Together these attributes mitigated the volume decline that we experienced during the first quarter and leave us better position to navigate the current environment.
Turning.
This slide 11, our first quarter sales were 3.1 billion down 15% from last year, primarily driven by lower volume, but also impacted by unfavorable foreign currency translation.
These effects were partially offset by improvements in price mix.
The 1 million from year ago.
This decline can be largely explained by lower volume lower factory utilization and costs related to temporarily shutting down our manufacturing facilities.
Segment operating income.
I am includes the impact of approximately 65 million for lower factory utilization and period costs directly related to shutting down our manufacture.
I think facilities in March.
Our results were also impacted by discrete charges of 472 million primarily related to two items.
The first was the establishment of a valuation allowance on deferred tax assets performed.
Tax credits driven by the expectation of lower near term income in the U.S.
The second was 182 million noncash goodwill impairment charge, reflecting the expectation of lower income in our EMEA business.
After adjusting for these items our loss per share totaled 60 cents.
The step chart on slide 12 summarize.
This is the change in segment operating income versus last year.
The impact from lower volumes was 120 million, reflecting a decline in shipments of approximately 7 million units.
In addition.
Production cuts resulted in a 70 million decrease in overhead absorption.
This include both the impact of production cuts taken towards the end of 2019 and the effects of suspending production.
Earn carbon black prices.
The benefits of lower feedstock costs were partially offset by the impact of unfavorable transactional foreign currency and higher feedstock costs.
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Inflation of 38 million offset an equal amount of cost savings cost savings opportunities were adversely affected by the decline in volume.
The 57 million decline in the other category includes several unique items.
First suspending production our manufacturing facilities resulted in a $15 million write off of work in process inventory.
Second we experienced lower factory utilization at our gadson manufacturing facility, even before the shutdown due to ongoing work to transition SK used or other plants in the US. This dynamic resulted in us expensing about $10 million of production costs incurred in the first quarter.
Third earnings declined by 8 million in our other tire related business. The decline was driven by weaker results in our chemical and retail operations.
Turning to the balance sheet on slide 13, despite the disruption our balance sheet at the end of the first quarter was stronger than a year ago with net debt down approximately 100 million.
As of March 30, Onest 2020, and pro forma for the refinancing we had total liquidity of approximately 3.6 billion, including 971 million of cash and cash equivalents also above our year ago levels.
Slide 16 summarizes our cash flows.
We used $561 million of cash during the quarter for operating activities, primarily reflecting seasonal working capital.
Turning to our segment results beginning on slide 17, America's volume decreased 13% to 14.5 million.
The us in Canada began to see significant volume declines during the month of March Waller, Brazil remain steady.
Shipments of commercial tires were relatively stable with units down less than 3% in the US we increased our share of the commercial truck tire market, increasing our replacement.
Volume by 5%.
This performance included a double digit increase in March as we benefit from our efforts to keep our warehouse operations and commercial truck service centers open to help keep our fleet customer.
Prudent in price mix and favorable raw material costs.
Turning to slide 18, Europe Middle East Africa as unit sales were down approximately 20%.
Both consumer OE and replacement shipments fell around 20%, primarily reflecting the approximately 30% decline in industry shipments in March.
Our replacement sales were also impacted by expected declines related to actions, we're taking to restructure our distribution across Europe.
Similar to the Americas demand for commercial replacement tires was relatively stable with industry shipments declining only 1% against.
This backdrop, we were able to deliver modest growth with our commercial replacement volume increasing about 1%.
EMEA segment operating loss of $53 million was down 100.
7 million from the prior years quarter, driven by reduced volume at higher conversion costs, including the impact of lower factory utilization.
Period costs and other charges totaled approximately 20 million.
Turning to slide 19, Asia Pacific Tire units totaled 5.2 million down approximately 24% from the prior year.
Original equipment unit volume decline more than 30% grower drove driven by lower industry demand in China.
And in India.
Replacement tire shipments decreased 17% also reflecting lower industry demand in China.
Segment operating income of 6 million 41 million lower than last year.
This decline primarily reflects lower.
For volume and reduced price mix, including the impact of competitive conditions in our consumer OE business. These factors were purse.
Please offset by favorable raw material costs.
Turning to slide 20, I wanted to provide you some thoughts on topics that should be helpful to you.
From a year ago.
Overhead absorption will continue to be adversely affected by reduced plant production.
We're currently planning production down almost 25 million units versus the second quarter of 2019 or about two thirds.
To reflect expect expected second quarter demand and to reduce inventory.
Reducing production during the current plant closures is more efficient than running factories at reduced levels later in the year, which should provide some benefit as business levels recover.
The guidance, we provide our modeling assumptions page for calculating the impact of production changes is still good approximation.
However, the impact of the second quarter will be essentially immediate rather than and are now.
From a lag of approximately three months to account for the accounting treatment of low utilization.
In addition, our other tire related businesses are also significantly affected by the weakening economic environment.
Traffic and volume at our retail locations is low and the sharp drop in business and leisure travel is adversely impacting our aviation business.
In addition, our Ken.
Source of funds in the period, rather than the traditional use of funds. This is normal in a recession.
However, we expect these benefits in the near term will be more than offset by the reduced accounts payable given that we have not been purchasing any raw materials. Therefore, we anticipate working capital to be a use of funds for the second quarter.
When come.
And with losses expected in the quarter, we could use something like 1 billion a cash in Q2.
Ramping back up after Q2 by itself should not be a big cash drain and we continue to expect working capital to be a significant source of cash in the second half of the year.
Also we now.
Thanks, working capital to be a source of cash for the full year, although the amount will depend on how much inventory we need to have at year end.
Turning to slide 21, you will see we have updated several of our other financial assumptions.
Yes by 50 million to reflect the impact of the plant closure of our Gadsden, Alabama manufacturing facility.
Lastly, we expect our cash taxes to total approximately $60 million, which includes the 30 million we paid in the first quarter related.
The income earned in earlier periods.
Operator, we'll now open up the line for questions.
And at this time, if you would like to ask a question. Please press star one on your Touchtone phone that star and one on your Touchtone phone for questions.
We'll go first today to Radware.
So with Wolfe Research. Please go ahead.
Good morning around morning, good morning.
A lot of information and.
I appreciate the detail I was hoping you can just give us some help with some of the bridging items that you talked about for Q2, which obviously is going to be the toughest.
At this quarter the year, so if I think about.
Volume last year you did.
Yes, your I mean, thats the guys the modeling assumptions still work.
And I am here and obviously there the volume itself will be spread across different geographies. In every geography is a bit different but directionally, you're doing the math that I'd.
Hey, Jeff.
Okay, Yes, and then separately you've got the 150 from the other businesses that wouldn't be in Manhattan, and it sounds like a 140 million of savings I mean, it sounds like those are the major bridging items.
If I understood them correctly.
On on the working capital your comment about the billion dollar use I mean was that just working capital where you do is that billion argues overall.
Okay. So rob.
The.
The income modeling that you were just talk in your way through.
Yes, effectively what I, what we've done is we've taken the the losses along with the working capital.
And set if you take the operating losses in the working capital.
Together that could result in a use of around $1 billion a cash in the second quarter.
Right, so only a small part of that.
As working capital Okay. Good, yes that that makes a lot more sense.
Okay and then.
Can you just.
Give us a sense of.
Finally, we're seeing.
Massive.
Volatility in and the commodity complex in oil and presumably all oil derivatives are down huge.
Well.
No it even numbers that you give on a dollar base.
We are buying carbon black for $40.
In the fourth quarter.
And the spot price right now is $17 for the.
For the same barrels so, yes, a 50% drop due to dying.
It was I was closer to 40 cents, a pound and now it's more like 25 cents a pound. So we've seen those dramatic reductions I think and.
We have incorporated where spot prices are and our thinking about what benefit we might get.
And the second half.
However, it is mitigated by the fact that we're not really buying materials right. Now. So we had materials from the shutdowns occurred as we ramp back up we'll start to biomaterials again.
We won't buy a significant amount until the third quarter. So we would.
Start to get some benefit in Q4.
So I guess the active question is going to be what's the price of these materials in Q3.
Because that's when we're actually going to be buying them now we've assumed that will take a while this material prices to go back up.
And so we've assumed some benefit and that is what we have given in terms of that 50 to 100 million. If we exclude the effect of the transactional effects of currency.
Okay.
I think I understand but basically.
I guess I'm, just thinking about just the magnitude of of.
Raw materials as a percentage of Cogs typically.
And I mean are we looking at kind of a weighted average decline at this point of.
Almost 50% that would you think where does that be sustained.
Actually benefit pretty massive having 21.
Yes, so just carbon black and view the dying.
Relative to the fourth quarter, you usually get into that 50% range, but obviously it just is it takes some time to work its way into our cost of goods sold there are other commodities have not been as affected.
So yes, I do the same master natural rubber, yes, we were buying it at 60 cents. It's 50 cents today, so not down nearly as much.
So I wouldn't go as far as the 50% even if things were to stay at these prices I think our expectation is by the time, we get to you know to 2021, when we would be getting sort of the ongoing benefit of the decline that increased our production is going to bring those material costs back up hard to tell her.
How fast that happens okay.
Okay alright, thank you.
Our next question is from Ryan Brinkman with JP Morgan. Please go ahead.
Thanks for taking my question and thanks for the update on the raw materials tailwind just now how are you thinking though about your ability to capture those raw material savings net of price mix I think earlier the industry and Goodyear had complained of an inability to fully recoup the effective sharp raw material cost inflation thinking specifically of the 2017 timeframe.
Going forward, how do you expect if dynamic to work in a period of sharp raw material deflation I think it is easier as one might imagine to not cut price for the full extent of input cost inflation than it is to raise price to the full extent of inflation or well capturing the benefit be maybe unusually challenged by them.
Magnitude of expected industry volume headwinds and related unabsorbed fixed costs.
Yes, Ryan I think it's a it's a very relevant question and and certainly one we're thinking through and I think if you go back I don't recall the pages, but Darren actually touched on this a bit and I think if you look to it to previous downturns and what we've seen is the benefits of lower feedstock really more than offset sort of the price.
Using pressures that comes on the lower feedstock prices as well as the soft demand. So net net what we've seen is a benefit during these periods and yes, the impact on price ultimately happens, but it occurs gradually and sort of on a lag basis. So that's that's that's how we've worked through this in the past and I think.
There is a basis to think that that situation would.
I would again present itself and I think if you even if you look at how we were seeing pricing in the market today I mean, if we go round the.
The world in the in the US look through Jan in Fab.
We really saw positive early a positive pricing environment with several of our competitors as you know announced plan price increases and we announced a price increase of up to 5% in early March in Europe.
We look around again, mostly as summer market at the points that we've seen what we saw stable to slightly positive pricing environment again really focused on summer winter will present itself as we work ahead and then.
So I think as we see that it's a it's exit those that if there is a reasonable environment right now, we'll see what happens I think there and the explanation.
Was very clear and that we do see those lower raws right now it's not simply a straight line as we got to start buying again, and we'll see where those prices end up as demand comes back, which we think it will but we do believe that that situation.
Of being able to capture the benefits of the lower feedstock.
In this downturn is something that we can do.
Okay. That's helpful. Thank you.
Your next question from our maintenance service with Morgan Stanley. Please go ahead.
Great. Thank you for taking the question I'm sure I was hoping you could maybe walk us through the the working capital dynamic here and how that flows from the first quarter into the second quarter.
And then the second question is the decremental margins here in the quarter were quite high and actually we think about that into twoq.
Yes, so I think the.
Two things are going on in let let me take the working capital question first I'll come back from a margin question, yes, so the working capital in the first quarter.
I would say large largely behave.
As we might expect and a softening environment.
And that we had.
Some decline in receivables Newman and.
Yes sales softened.
Our inventory.
Didn't change a whole lot.
But our payables were relatively stable as well. So we had what I would characterize is a fairly normal first quarter of working capital build based on seasonality.
And so so that I would look and say first quarter didnt look much different than first quarter normally looks.
When we get into the second quarter.
Yes, we're.
What we're seeing is that are obviously our inventory.
With the production cuts were taking we're expecting to reduce our inventory so it'll come down.
As it shows given demand receivables, obviously with lower sales are going to come down as well.
But we're also seeing is that when normally we have got 90 days or so of payment terms from our suppliers, which provides financing for our inventory.
Because we are not really buying materials for production right now by the end of the second quarter.
Most of our suppliers will have been paid at our payables will be much lower.
And that's a temporary effect.
As we start buying materials again.
Your payables will normalize and that's part of why we're saying that we expect working capital to be a significant source of cash in the second half and by the time, we get to the full year, we're expecting working capital to be at least a modest source of cash for us.
In this environment, so, yes, a little bit of a.
A unique effect here from having a very quick and extended shutdown like this.
Okay.