Q1 2020 Earnings Call
Keenly focused on protecting our balance sheet and the pandemic highlights that critical importance of continuing to do that.
I'll leave it there and let David do a thorough update on liquidity later.
We know the time will come when mobility and commerce gets back on a path to normalcy, we believe AG will be a key part of that return in the broader economy.
Our team has experienced in dealing with volatility and challenges in our end markets and I'm confident that we'll continue to take the needed actions to work through this crisis I want to close again.
With stadium I appreciation to the one Titan team and our thousands of employees around the world working everyday to manufacture our products.
I'd like to tell to turn the call over to David.
Hey, Thanks, Paul and good morning.
Today as normal I'll review some of the more important things items from our performance in the first quarter well spend some time outlining our current actions to manage liquidity and profitability. During this period of unprecedented volatility and uncertainty as we all know the first quarter was just a prelude to the challenges that have been brought on by covered 19.
As Paul said, the second quarter was much more challenging owner so the second quarter will be much more challenging on our financial results that we are responding decisively with the actions to ensure that we minimize the impact where possible and also have adequate liquidity to manage through it.
When we reported in early March we certainly didn't anticipate the acceleration of the virus and the impact on our global operations that have transpired during the last 60 days.
That said, let me get into some detail.
Net sales for the first quarter over $40 million or 13% more than what we saw in the fourth quarter of 29 team with seasonal upticks in the business, particularly in aftermarket.
As we described in the release activity was much more it was more in the category of normal for operations in the first two months with exception of our small operations in China, but as the quarter progress. The impacts of cover 19 started to have a more material impact on the business.
On a constant currency basis revenues would have been down 14% for the first quarter or 56 million from the prior year.
The negative currency impact was nearly 13 million or 3% of with much of the impact coming in Latin America and Australia.
Well AG sales leg the prior year by 10% the biggest impact on sales again this quarter was in earthmoving and construction or sales declined by 40 million from the last year. The drivers were across the board with the biggest impacts coming in or undercarriage business with a decline of 22 million year over year in the AMC segment.
The remaining declines were primarily in the UK in Australia, the consumer segment experienced a decline of $10 million of in the quarter, reflecting continued sluggishness in the utility truck tire sector in Latin America, along with North American sales related partially to deemphasize product lines.
The biggest direct impact on sales from covered 19 were felt in Europe and to a lesser extent in China from our best estimates. The net set net sales were impacted by $14 million for the quarter in these areas as operations, where either curtailed or suspended from government mandates or demand impacts.
Our north American wheel sales were down $24 million, 24% on changes in mix and pricing and to a lesser extent volume.
Our North American tire sales were also down 9% with the biggest driver being OEM sales as customers lower production levels. Our aftermarket sales in Q1 were robust and inline with our expectations.
Our Latin American sales were down 15% from Q1 2019 with all this coming on lower currency translation effects volume in Latin America was inline with expectations and our prior year levels.
Australian sales were also down 9 million year over year with the majority of this coming on lower volume and AMC as mining replacement activity was slower but as we've discussed we've also de emphasize tire distribution and tire servicing since the first quarter of last year, including the sale of some unprofitable branches.
Russia.
Was in line with last year with volume up overall market conditions are still challenging in Russia with no significant economic activity, but dealers did increase volume year over year slightly.
Our overall sales volume on a consolidated basis was down 12.6% from last year.
Price and mix in the quarter was was mixed between geographies and businesses with an overall slight negative impact on sales of 1.1%.
There was a slight change in mix of products sold that pricing has declined in some areas where raw material adjustments have been made with OE customers.
The reported gross profit for the first quarter was 27 million versus 45 million as first quarter of 2019.
In the first quarter of 2020, we also recorded a $2.6 million asset impairment charge related to equipment in TTR see our tire recycling operation in Canada.
This charge was necessary to reflect their current value of the equipment. After we concluded our property damage insurance claim during the first quarter.
Our reported gross profit margin in the first quarter 2020 was 8% versus 11% last year without this impairment charge gross.
The gross profit margin was 8.7%.
A decline of 15 million year over year.
Obviously with the drop in sales of 69 million, our gross margins naturally declined as well, but the impact from a lack of labor and overhead absorption across the business caused the decline in gross margins in order to preserve margins year over year, we would have needed to lower labor and overhead by approximately 28 million and we were only able to reduce it by 23 million.
During the quarter due to high level of fixed cost and in our plants, leaving roughly $5 million stranded costs and thereby hitting our margin.
We did a nice job with managing labor and variable spending within the plants in the quarter as we continued to take necessary actions to manage the decreased volume levels again, we're dealing with a dynamic and ever changing environment, making it very challenging to manage efficiency, but our teams are keenly focused on an everyday.
Now, let's spend a few minutes on segment performance. Our agriculture segment net sales were down 9.8% on a year over year basis currency negatively impacted sales by 3.4%. This quarter volume in this segment was only down 1.8%, while we had a fate unfavorable price and mix of 4.6.
7%.
AG sales in North America entire were down 5% due to the OE customers keeping production levels down.
As I alluded to earlier, our OE sales in North America were down in the first quarter, primarily on lower pricing and mix with on our OE sales.
Russia sales were up 3.7%, while European exit down 12%.
Our Latin America AG sales were down 8% from the last year entirely on lower currencies.
Agricultural segment gross profit for the first quarter was $14 million down from 22 million in the prior year. There were no you unusual impacts across the business and the decline in margin related to lower.
Labor and overhead absorption from lower sales, which I mentioned earlier.
Earthmoving and construction segment experienced a decrease in sales of 22.5% on a constant currency basis net sales would have decreased 20.2% for the quarter versus a year ago.
The direct impact of covered 19 on sales was 11.9 million in the in the first quarter, primarily in Europe, and China as I've said before volume was down in the segment by 22.9%, while price and mix was favorable by 2.7%.
Items undercarriage business was the largest impact for the quarter as construction Oems accelerated their sharp decline in demand. We are we saw the biggest impacts in Europe, and China again, this quarter keep amount of construction industry only started to see contraction toward the middle part in the second half of last year. So Q1 2019 sales.
Well reflected a decently healthy construction market.
Our European wheel business also saw.
A more significant decline at 29.7% due to the construction market in the UK.
Australian AMC sales dropped by 6.7 million as we've closed some branches and continued to pivot away from mining tire distribution.
And finally, our volumes in North America were down 5% in the quarter compared to Q1 2019, but there was a sharper decline related to OE at OE wheel sales.
Gross profit within the earthmoving and construction segment for the first quarter was 10.8 million versus which represents a $7 million decline from a year ago. This includes a $2.6 million asset impairment charge without this gross profit would have been 13.4 million. The gross profit margin in the EMS segment without the impairment charge was nine.
Good 0.7% versus 10.3% in the prior year, the biggest driver to decline related to lower volume and the impact on fixed cost absorption considering the dramatic decline in sales the business performed solidly with improvements in efficiency and improved pricing, which occurring in a number of facilities as a countermeasure to dip.
Yes sales.
Finally, the consumer segments first quarter net sales were down for 24.5% compared to first quarter 2019, the negative impact from currency translation was 5.3% in the quarter.
Volume decreased by 18% in the impact of mix and pricing was negative at 1%.
This had little to do with price again this quarter it as mostly mix.
The most significant impact on volume related to lower demand in that Latin America utility truck segment.
Along with North America.
We are where we are deemphasizing certain product lines, such as specialty products.
And a TV tires.
This segment's gross profit in the first quarter was two and a half million which was down.
One and a half million from a year ago gross margin was 7.8%, which was a decline from 11.9% in the first quarter.
This was reflective of lower sales volume and the impact on fixed cost absorption across Latin America again in light utility truck sales.
Truck tire sales.
In volume and a similar impact in North America.
Our SDMA in R&D expenses for the first quarter were 34.4 million, which is slightly higher than the fourth quarter due to payroll taxes and slightly higher sales commissions on higher sales volume. However, this was lower than a year ago by $4 million or almost 11%.
We substantially completed our ERP state Bilazarian efforts in the first half of 2019 related to the first phases of implementation in late in 2018.
We also reduced our sales and marketing costs and I'll discuss this a little later, but it is an imperative that we continue to evaluate our SDMA costs.
To support the organization in light of the current crisis and I anticipate will make even more than monster will progress on reductions as we progress through the year.
The single largest impact on the BNL. This quarter was the foreign exchange loss of 17.4 million.
In the first quarter 2019, there was a.
Foreign exchange gain of 5.7 million, which as creates a difference year over year of 23 million.
As we discussed in the past Titan has a large number of intercompany loans.
In place relating to our international operations that are subject to currency revaluation every reporting period.
There was a significant change and currency rates in the first quarter versus the end of 2019, most notably between the US dollar in euro compared to the Australian dollar the bridge Brazilian Reigh driving this impact in the PNM.
We're in the middle of a restructuring project related to the rationalization of our loans and foreign legal entities that began to be implemented in the first quarter. In this drove some of the impacts as we either settled or capitalized loans.
We will never eliminate this volatility completely but I do hope that minimize it with the appropriate structure to manage our business.
We recorded tax expense in the first quarter of 55000 on a pretax loss of 27.6 million.
Normally we have.
We have been recording tax expense in the region or two and a half to 3 million per quarter to reflect the normalized cash taxes, we pay in foreign jurisdictions.
Of course, our anticipated level profitability in these jurisdictions is lower than what we've seen due to the impacts of coated 19, a coupled with that we were able to reverse approximately 600000 related to previously recorded contingent reserves relating to the expiration of statute of limitations.
Now, let's move over to Q1 cash flow.
I'll start with the fact that cash ended the quarter at $60 million down 6 million from the end of the year the impact of currency devaluation in the quarter was 7 million.
And that mostly occurred in March when the world's markets began to spin out of control.
We generated approximately $4 million of operating cash in the first quarter versus a negative 15.6 million in the first quarter 2019. This is despite the significant negative impact from lower earnings as we continue to drive more efficiencies in working capital management, including the impact of noncore asset sales and related transactions of 12.
And in the quarter, we generated free cash flow in the first quarter of 2020 of roughly 9 million.
Our receivables in increased by 27 million in the first quarter from year end.
The fourth on the $40 million increase in net sales from the.
Our dsos held steady at 56 days and this is important as we expect to see solid collections over the second quarter during the period of most volatility on our operations.
Our ending inventory at the end of March declined by 22 million from the end of December.
As a reminder, we outlined a target of 25 million any working capital reductions this year not taking effect any topline changes now we have strong focus with our operating teams to manage inventory various closely as we know there is a balanced managed lack of long term visibility with.
Customer demand as recovery occurs we need to ensure that we can meet customer expectations. Nonetheless, I do expect that working capital will remain a source of cash flow in the near term.
Capital expenditures for the first quarter were 6 million versus nine and a half million.
Dollars in the last year.
Given the need to preserve cash flow in light of these challenging conditions. It has been necessary to suspend capital spending other than what is necessary to maintain our production in the near term.
It is challenging determine exactly where this will end up for the year, but at this point I would expect that being the range of 20 to 25 million down from our original target of $35 million for the full year.
Our overall debt levels declined again this quarter as of March 30, Onest 30 million was outstanding on our domestic ABL line down from 36 million at the end of December with the completion of another tranche of sales of shares on our wheels, India, along with the receipt of the property claim for our Trc, Canada.
Operations totaling 12 million, we paid down on the line during the quarter.
Due to the working capital needs towards the end of March we did not pay down to the full extent of the receipts.
Short term debt also declined by $15 million during the first quarter as we paid down according to normal maturities of loan arrangements in certain foreign jurisdictions.
Primarily Russia and Europe, a portion of this is Scott the decline related to extend the alone in North and Latin America.
Response to liquidity initiatives in late March our overall net debt declined by 7 million from December.
On March 4th we outlined our initial targets for 2020. This included a $75 million target for EBITDA on anticipate flat sales.
And involved impacts from key initiatives for cost reductions and profit improvements across our business.
While this was just 60 days ago World has become an infinitely more complicated volatile and uncertain in the meantime.
So we've been updating our forecast continually every week.
To say the lease the second half is not entirely clear with our customers and they're not giving us any long term demand expectations are most current forecasts show a decline of around 12% in sales from 2019 levels.
Our bottom line performance will be pressured as a result.
With lower sales, we do currently anticipate adjusted EBITDA to be similar to our performance in 2019.
It's important to note in our cost reduction and profit in prudent initiatives have been in our necessary to carries through this period of uncertainty I'm not going to go through all the initiatives that we outlined last last call again. This morning, but each of these initiatives remain intact and we've also been taking additional steps to preserve profitability and cash flow.
Hello.
One important aspect that I want to outline relates Crs DNA in R&D costs we.
We've we've discussed target reductions of SDMA in R&D to $140 million for 2020 previously.
We are focusing on improving on that target now given the fact challenges we face and now anticipate to and project SGN in R&D costs should be between 135 million and 140 million for the full year based on our new initiatives.
I will finish my discussion this morning, with what we're doing on the fluid liquidity front to manage through the current situation. We have done the natural things by eliminating discretionary spending non essential travel and we have furloughed portions of our workforce in locations as we have reduced or suspended operations during March and April.
In some cases, we have been able to access government programs for reimbursement of payroll costs in the us we're taking advantage to defer payroll tax payments along with certain pension obligations among others as provided by the provisions of the cares Act.
For our international operations, we had been and are working with our banking partners and government backed programs for payroll protection and loan facilities. Some of these are still in process, but we are confident we're going to be able to access loan programs in Europe that will give us additional credit capacity capability of $15 million to $20 million.
Based on our expected cash flow needs to manage our Latin operations Latin American operations, we secured an additional $4 million of credit and have extended approximately 6 million of debt.
That would have been much mature between may in November of this year for an additional year at relatively the same terms prior to the exit execution of the agreement.
As of March 30, Onest 2020, current maturities and long term debt was 46 million.
A significant portion of this relates to revolving lines of credit in our international operations subject to annual renewals with various banks. We continue to expect that these credit lines will be rolled over and renewed at their various renewal dates added the total in current liabilities only approximately $6 million.
Is currently anticipated to be paid for the remainder of 2020 in accordance with their specified maturity dates.
Headroom on our.
Domestic ABL credit facility at the end in the quarter was 62 million of course, our debt capacity is dependent on our borrowing base subject to fluctuations in a AR and inventory, which will vary in the coming months.
Over the course of the last year and a half we've been able to manage liquidity with working capital cash balances and our credit facilities.
We continue to work on initiatives to sustain profitability improvements through shedding are driving positive changes in our own profitable businesses as well as generating cash from the disposal of certain noncore assets I mentioned on the last call that we remain on track for additional noncore asset sales and related transactions and that continues to be the case.
Our current expectation is for an additional 20 to 50 million in noncore asset sales that should be completed in the next 60 to 90 days. We're also looking at additional opportunities to increase credit capacity with our banking partners and other financial institutions.
The current crisis is not be an easy on the business no doubt about that but our leadership in our operating teams all of the world of stepped up in ways. We can only dream of to manage strongly and proactively through this.
We continue to take all steps to manage the road ahead now I'll turn it over the call back to the operator for any questions you have.
We will now begin a question and answer session to ask a question you May press Star one on your Touchtone, Paul If you use any speakerphone. Please pick up your handset before pressing the keys to withdraw your question.
Please press star.
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And we now have question in the Q.
Caller. Please go ahead and announce yourself along with your company name.
Hello.
Hello.
Hi, This is Joe Mondello from Sidoti and company Nigel.
Don overall yeah.
So David could you just walk me through some of the liquidity.
Just buckets.
First off what do you have right now given the extended credit that you did have received.
On your revolver accessible and.
How much I assume at the end of quarter, you did not have the cash related to the care Zack how much was that as well.
While we have not access to any direct funds from the cares act, but we will be a little deferred payments on payroll taxes further.
The remainder of the year versus and then pension obligations.
I don't have a number on the on the tax on side of things zone, but.
You know.
It's an obviously all of our U.S payroll, so until it's becoming a fairly significant impact.
Positive impact on cash flow.
Pension obligations are all in the several million dollars range I believe for payments that we'll be able to be deferred to 2022. So.
So with that and so but the go back to your original question unit and talking about liquidity things.
The go back to Europe, we have we have revolving credit lines that we've always had available and they're working through.
Particularly Gov government.
Backed lending facilities the banks, obviously have to.
Get through a process with that and.
But obviously the government back piece of this in Italy, primarily.
Is going to come through in its mostly in what our one operation of 102 operations over there. So as I do expect the $15 million to $20 million of of additional available liquidity at probably in the form of on committed facilities.
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For us to build access for the next several years of be couple of years tunnels maturity on those.
On in Latin America, we access for millions of additional.
Debt and we extended the terms of 6 million on on existing debt as well, so thats going to provide.
It's at least.
6 million lower Nanthealth paid this year and than we have additional capability in young in and it had put actually executed that in March.
In the US long answer said owned just briefly that we have $62 million a headroom nozzle than in the March we had.
Roughly 30 million borrowed on the on the credit facility.
As far as where we are now I don't have any at all how the borrowing base for April at this point, but.
We have borrowed an additional phones in April but we're still have.
Significant headroom hasn't changed dramatically at this point so.
I guess the the big his question is what is going to be over the next several months and I do believe it will be decreased somewhat but we still have more than adequate headroom to manage the business.
Okay. So the 62 million was what you have available on your Abbeel, that's kind of March that's correct and.
Management.
You expect more than 25 million I would've thought.
Anyway to quantify the or your as well.
Yeah, I think I think it obviously with us, but the decrease sales expectations for the year that inventory levels will come down more than that.
I think you.
Working capital as a balance we have the managed inventories at the right levels for the write downs to be able to manage the recovery, but obviously working capital is more than just inventory and you got receivables and payables that we have the mills.
As well and those could does go up and down the primary source of liquidity is really on inventory.
Where they think about.
And so I think it will be more than that Thats, why I think I'm confident that we're still going to be able to manage it pretty well.
Okay, and you said, you're anticipating $15 million to $20 million of asset sales, though is that correct no actually I said that I'm expecting between 20 and 50 million.
Uh huh.
Additional sales.
And.
Could you provide a little more color on thoughts there.
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Going to be over the next 12 18 months or anything but now how confident.
I'm fairly confident in the numbers and I expect that it'd be the 60 to 90 day range.
And these are things that these are transactions that are in process and I fully expect that we are going to be able to realize those.
Okay, and then last question, just regarding sort of liquidity and cash flow.
And your expectations with the inventory and what you stated.
In Capex to be do you have any.
Outlook or do you think you'll be.
Cash flow positive for me.
Okay.
I believe that we could we have the opportunity to be a balance between how much debt, we pay down versus.
How much cash with bank, but its a.
With with all everything Wade together, I would expect that where at least where at least at parity.
Okay.
On your DNA R&D comments.
You stated that you're looking for about 135 40 million is that correct, yes, thats, what I expected levels to be.
Based on our current expectations were driving hard on.
Some of these cost reductions and certainly we're saving money on the natural things is we've cut out discretionary spending and those types of things, but we're also looking at other structured reductions.
Okay.
And.
Last thing for me.
A question, but all.
In terms of your Colgate impact could you just.
You talked a lot.
On a prepared commentary you know what you're doing how it's affecting you.
I mean, some of the details could you just help us six.
Explain.
More so really what's happened to your plan operations I know, there's a lot of effects with.
Your customers.
The supply chain in terms of your actual plant operations.
Was with anything down in the month of April.
Could you just walk us through the sort of March April.
Me to date.
In terms of where your operations are and where they were.
Yeah.
No no way I look at as we've seen really three waves of the the cobot 19 impact.
The first one was the government mandated closings and so where we saw that most significantly.
It would be in March for this quarter would be in Italy, where we operate under carriage.
Mainly undercarriage at 300 carriage and one wheel and then in Spain, where we have undercarriage foundry.
You know the impact at first was really just government driven.
The restrictions on operations and door closing the plants down for a period of time this to sanitized them.
That took place in March and then as you saw the virus move around.
From from March into April.
We saw it got another government degree in Brazil, where we had to close down for for two weeks.
All the locations now are back operational so what you're seeing is kind of the second wave that started impacting us in April which would be the our customers and their fluctuating demand.
As they started shutting down some of their facilities, we had to adapt to that.
We've we've done that by extending some shutdowns, taking some furloughs, reducing head count reducing temp labor.
Reducing over time basically controlling your your output levels in relation to the the demand that was was coming in the door and now you're kind of seeing near the tail end of April into May is that kind of what I would call. The wave three of the the virus impact which is the supply chain issues at some of our customers.
So really to answer your question. It does kind of very on you know what time period, you're looking at what wave of the crisis in that that the waves all took place at different times of our operations, whether you're talking North America, South America Europe.
So at this point, we continue to look at a Joe and as David highlighted as well.
We were adjusting our work schedules were adjusting our labor output and we'll continue to do so.
Whatever it takes in the second quarter in into the third to make sure that we're keeping them aligned but the biggest impact. This period really as you saw in our results was to Earth, moving construction, where that first wave hit as most significantly in Europe at our Italian undercarriage facility.
And just a follow up regarding that.
Could you give us an idea of how much.
Italy, and Spain facility makes up.
Is that.
Hi, Tim business in Italy is that a large percentage of that TM business and how long was that would that down from most of April.
Yes, so we.
For the Italian business, we basically we were both down for a couple of weeks if you want on.
As a 100% if you will but then other weeks we were at varying levels of production.
And.
For the undercarriage operations. It's interesting will have a I don't have a specific number as $10 and sense and things like that but the it is the feeder for the in global supply chain for undercarriage from from Italy, and Spain, and so it's an important aspect of that business, but again.
Think about him call it 50% of.
Productive levels, if you will in the month of April.
Yes in Spain for example, we have.
Various aspects of that business, but.
The the primary under carries aspect of that business was down for just a couple of weeks as well and but other parts of that operations that supply different other markets was running 100% due to high levels of demand.
Okay.
All right I'll hop back in queue. Thanks, a lot, but thanks.
[noise] [noise] [noise] [noise].
Your next question comes from the line of current let's see of Imperial Imperial capital.
Good morning, guys can you hear me.
Good morning.
Sorry, I was disconnected for awhile, but I.
I think on I think I've.
I've gotten most of that and by the way you know I'm glad to hear.
Everything is.
Appears to be well under control. There you guys are doing well keeping your employees safe I mean, that's.
Its job one.
With respect to liquidity measures you you've outlined.
These are.
This is the this adds up to quite a bit of.
Of additional liquidity I, just want to make sure that I'm not double counting anything.
You're talking about 15 to 20 million of additional banking availability of availability through banking transactions.
Yeah.
Another 20 to 50 of noncore asset sales.
Yes.
Additional.
Net working capital reduction.
Yes through the course of the year, yes.
Were you able to quantify or where you were you in a position to quantify how much working capital you think you can take out.
Our initial target was 25 million and that was based on stable sales year over year. So I.
Certainly.
I believe that's the that's that's really a achievable number given where we are but we certainly could be up more than that.
And again that I'm being careful about this a target because as recovery occurs in the second half and then if we started to see a nice recovery, which we have absolutely no idea as to how quickly that happens we have to manage inventories to be able to complete the demand levels and in our customers' needs. So I'm going to be careful about how much more weeks.
And predict for it but you know I still believe that at least 25 million would be achievable.
Okay. Thank you and then.
I believe you mentioned operational levers and I I was hoping maybe you could expand on that.
Operational in the levels for liquidity, you may mean levers of.
Ways that you can improve liquidity through other operational.
Means I didn't know what what that meant but maybe that's well I I think I alluded to it a little bit earlier, but you know, obviously deferring payroll tax payments of lowering capital.
Expectations, we had originally <unk> target of 35 million, and obviously with lower profitability and and need to preserve cash flow. We were going to we're going to be cutting that back to 20 to 25 million for the year.
And and again the extension of pension obligations that let's set several million dollars as well so all the things that we can.
Patch ourselves too and there were also you know in certain operations a globally.
I'd say this is more of the case in Europe, where we're able to get and government reimbursement for payroll protection.
And these are these aren't loan facilities. These are just direct reimbursement to keep our payroll or and keep our workforce together and thats.
Particularly in UK, and a little bit of nearly as well.
Okay, Great and thank you and then I think you mentioned that that you borrowed another 30 million under the.
Revolving credit since quarter end no no that's not the case, we had 30 million outstanding at the end of the quarter, we borrowed a little bit more since then but you know not significantly and so that was actually outstand, we had 36 million outstanding in the year. It dropped to 30 million at the end of the first quarter.
And it's in and around the range of that now.
Okay, well I appreciate it. Thank thank you gentlemen, yep.
Thank you.
And your next question.
Hi, guys on the line of Joe Mondello.
Hey, Joe.
Donny and company.
Hi, guys just a few follow up questions. If you will.
So just to clarify.
I would assume it's fair to say that the second quarter is going to me.
After then.
Order.
Yes, that's the case.
And so I guess.
I was wondering if you could expand.
Sort of what Youre thinking for the back half.
Sure.
In terms of.
And then I guess more so in the context of your comment.
Made in the press release regarding sort of flat.
I'm just curious on how you're thinking about.
In the back half sort of make up.
Uh huh.
Yeah, I mean it.
It's tough to sit here today, and say, we have visibility into the back half the year and so.
Our comments were around our internal actions that we believe we'll have a strip. So they can significantly impact that we can keep EBITDA flat.
Looking at 2020 compared to 2019.
What we see it a broader level for the back half the year is primarily related to AG, where we have more aftermarket exposure. So we know for a fact that farmers are going to be very active are.
We're already seeing that here in North America, where their head of the trends this year compared to last.
We know that in Brazil, where we have a significant aftermarket business. The same thing will take place as well. So we feel more comfortable with AG from the perspective, the mix of our products being more aftermarket driven.
Combined with the fact that.
The agriculture is such a big part of the broader economy.
Governments have to protect their supply chain related to agriculture, and food and so the the risk of further downside to AG, assuming they have a good planning cycle in Russia, North American South America in Europe.
Is fairly mitigated because of that and so.
We don't necessarily have the exposure into the Oems, what they're seeing right now, but I think we all can say the back half of the year, there's going to be some pent up demand that will get released into the AG agricultural space and you know I think we feel pretty confident that there will be.
Portion of the sales lost in the first half that will be recovered in the second half now to the extent of it the timing of it.
You know, we clearly don't have that type of visibility at this point, but.
That you know that's the AG side of it the construction part of our business where you saw.
More significant decline already in the first quarter visibility is top there I can't sit here today and you know David made some comments about.
The mining business in Australia, being a little weaker I think theres less visibility on exactly what that will look like but we've already seen a stronger impact to our business in the in the first part of the year.
Pertaining to earthmoving and construction in so.
Again, I think as we look to the back half of the year it points us into direction, where we we believe with our internal measures. We can keep EBITDA revenue relatively stable, but we're not able to sit here and give a sales forecast per se on you know what we see really beyond what we've already commented on the second quarter.
Hey, Joe Let me, let me just to add on to that is that I outlined it in my comments that you know current forecast would have us in the range of being down 12%.
Obviously first quarter in second quarter won't be.
They will be higher levels of comp comparison to it in terms of a decline year over year.
The second half the year, we already know if you go back to our performance in the second half of last year was it was fairly weak we started to see the impacts in the construction markets, particularly and we went there very low levels on a volume in the fourth quarter. So that forecast would suggest that you know, we're we're becoming much more in line with two of what we what we did last year.
In that we're obviously averages out to you know what what the.
The year over year performance full year would be so that's that's really the premise for how we develop the forecast and the expectations around sales and EBITDA, but again.
I will caution in fact, it and you know that the visibility is limited and this is the best we can estimate at this time.
Yeah, I was actually you're Gonna I was curious on what your thoughts were on a third and fourth quarter, especially the fourth quarter with the Earth moving I understand that an easier comp even though the visibility is still sort of yeah.
It is getting there was a severe destocking effort in the fourth quarter last year. So we feel like that I don't think inventory levels are at high levels right. Now. So the expectation is that maybe you know maybe we can we can kind of see flatness with.
In a compare.
Comparative way.
And last question for me.
And in on time here, but I'm, just hoping to understand a little bit more on the gross margin on your cost of goods sold.
Regarding cost actions.
Gross margins.
Yeah again, its as Paul outlined.
We've taken all the measures of are taking out any excess labor.
Out of our our plants all across the globe and in some cases were getting government reimbursement for furloughs over overseas. So that's that's a nice impact. So we don't have to have the impact of those costs.
We have already you know all the things that we took that we actually been working on for some time. The 80 20 measures that we took across our.
North American plants entire that you have created better efficiency you can we actually saw some of that coming in Q1, where are we actually had a year over year better performance in margins.
I expect that to continue through the year.
We had last year, if you think refer to remember we had.
Some pretty high cost in inventory that went through our north American wheel operations and that's a again a very significant year over year impact that we believe is out of the way and it's not longer. There. So were you know that should be a and a significant improvement in that.
Profitability and you know we can.
And notwithstanding the fact that we have all these things going on across the globe. We have taken costs out and just about every single operation and created better efficiencies. Our Australian business is in a better place than it was a year ago. We've had had the stock a lot of the tire inventories over the course of 2019 that should help us improve.
Profitability as well.
And in the final measure really being our SG universe.
Okay reduction.
Perfect Alright, well thanks for taking my question then I hope.
Oh, well and say.
Yeah.
Same to you Jim you Joe Thanks.
This concludes Sachs question and answer session I would now like to turn the conference back over to Mr. rights for any closing remarks, well I appreciated by joining the call today stay safe stay healthy and we'll talk to you again at the end of second quarter. Thank you.
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