Q3 2020 Neenah Inc Earnings Call
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At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session I don't need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today Bill Mccarthy you may begin.
Thank you and welcome to need its third quarter 2020 earnings call with me today are Chief Executive Officer, Jewish retail and fault, the Sante start Chief Financial Officer.
Julian Paul will cover activities and financial results for the third quarter in detail provide a few comments on our outlook and then Julie will wrap up with a discussion about key initiatives underway that will create substantial long term value.
Following these prepared remarks, we'll open up the call for questions.
We released earnings yesterday afternoon.
No I understand there was some other news last night. So in case you missed it let me recap a few headlines.
Sales in the third quarter were $191 million and up almost 20% from the second quarter, but below 2019 due to the continued impact of coated on demand.
Operating income follow this pattern as well with a significant rebound from second quarter, but not yet catching up to last year.
Non routine items of $2 million for restructuring and other costs compared to 2.5 million last year on an adjusted basis third quarter operating income of $16 million in 2020, compared to 21 and a half million in 2019.
GAAP EPS of 46 cents compared to 84 cents last year, excluding adjusting items. Adjusted EPS was 55 cents. This year up from a small loss in quarter, two but below 95 cents in 2019.
Complete details of non-GAAP items, along with a reconciliation to comparable GAAP figures can be found in our press release.
Lastly, I'll note that our comments typically include forward looking statements and actual results could differ from these statements due to risks outlined on our web site and in our SEC filings.
With that I'd like to turn things over to Julie.
Thank you Bill and good morning, everyone. Our third quarter performance was very encouraging as we saw sequential monthly improvements in sales that led to significantly improve profit in both business segments.
As expected technical products recovered more quickly led by strong filtration performance and operating income for the segment increased by more than 30% versus last year at.
I'd also note both business segments returned to double digit EBIT margins, and we generated our highest ever third quarter free cash flow with disciplined management of working capital and capital spending.
These results reflect the great job our teams have done maintaining the health and safety of our employees supporting our customers reducing cost across all areas and preserving our strong liquidity position I'll comment on each of these and then later in the call. We'll talk about progress on initiatives that will create value by accelerating our growth.
Sales and increasing our margins.
As always our top priority is the health and safety of our employees to address co bid we've implemented numerous changes to the way we operate this year.
Employs quickly adapted to these changes while continuing to play safety above all we have a number of manufacturing facilities in the Midwest and while this region has experienced a recent surge in cases, our teams have worked successfully to prioritize health and safety, while maintaining operating efficiencies and avoiding disruption to our customers.
It's a real credit to our teams that despite these many changes and challenges we reduced injuries by over 25%. This year as we work toward our expectation of no one getting hurt while working at Neenah next as I mentioned, we've worked very closely with customers to ensure their needs are met and this unusual year. It's.
During times like these that I believe we build deep long term relationships with increased levels of collaboration and interdependency, we've launched innovative new products and customers have continued to grow share with us.
Our global footprint local supply chain and agile flexible asset base provides an advantage to respond to changing needs and our financial strength is also valued as customers want to know their supply chain, a secure and that we are well positioned to grow with them in the future third we aggressively reduced costs across all of Nina.
In the third quarter, we removed almost $15 million of manufacturing costs and $4 million of SDMA through actions to optimize capacity restructure parts of our organization and deferred or eliminated spending in multiple areas.
As noted previously these initiatives resulted in $7 million of permanent savings split between SDMA and cost of manufacturing finally, our actions have helped us maintain a very strong liquidity position liquidity increased in the third quarter driven by our impressive cash generation and we remain well ahead of our initial plan.
I'm very pleased with how our teams have continued to unlock and increase cash flow. This year with over $180 million of available liquidity, we have significant financial strength and flexibility as we exit 2020, and I think I can speak for all of us when I say, we can't exit soon enough to.
Wrapping up our teams have done an exceptional job working safely. During this most challenging of times supporting customers in new ways, and with new products aggressively managing costs and maintaining our strong financial position their success driving results. This year, along with initiatives I'll talk about later position us very well for the future.
But now I would like to turn things over to Paul to cover third quarter financial results in more detail.
Thank you and good morning, everyone as you heard from Julie our business delivered meaningful improvements in sales profit and cash generation in the quarter, while demand for some categories remains below pre cobot levels. Our teams have worked to mitigate this by pursuing topline growth opportunities.
And aggressively managing costs to improve margins and protect liquidity as a result, we're continuing to make progress in both segments, Let me start with technical products sales.
Sales for the quarter of 124 million were up 16% versus last quarter, though down 6% from last year because of reduced demand due to covance. The year on year impact was seen most acutely in some of our industrial categories like labels and security.
Products that tend to be more economically sensitive.
Digital transfer and backing fared better and filtration performed very well growing 9% over last year.
Explication filtration volumes grew 7% overall, including double digit growth in North America, and we also added sales from face mass media launched earlier this year net.
Net selling prices were slightly lower primarily because of price adjusters related to lower raw material costs. This was partly offset by favorable currency translation due to a stronger euro.
Adjusted operating income was up an impressive $8 million from last quarter and also up $3 million from the third quarter of 2019.
This improved performance reflects a cost reduction effort, a more profitable mix and a modest benefit from lower input costs net selling price changes, which offset impact of lower sales volume.
In fine paper and packaging net sales of $67 million were up more than 20% versus the second quarter, but down from a strong third quarter last year with the biggest impact and lower commercial print volume.
Net selling prices were modestly lower in the quarter, mostly related to reduced raw material costs. We've implemented a number of initiatives in commercial print consumer products and premium packaging that will help restore demand as we work with customers to accelerate their co bid recovery.
Adjusted operating profit bounced back strongly from the second quarter, but still fell short of last year, primarily due to lower sales. These.
These items were partially offset by spending reductions and modest benefits from lower input costs net of selling prices.
Our actions have positioned fine paper and packaging to respond quickly to further improvements in end markets earlier. This year, we curtailed production on one of our paper machine restructured parts of the business and dramatically reduced inventory.
While these actions disproportionately impacted fixed cost absorption, we're now at a more balanced inventory level and capacity utilization, which should ultimately help accelerate our return to historical mid teen operating margin.
Looking next at a few corporate items consolidated EPS unit of $19 million was down $4 million from last year unallocated corporate costs on an adjusted basis were $3.4 million and in line with last year, we've acted aggressively to take out costs. This year and the quarter was also.
I'll buy certain temporary benefit from credit under the care Act that further cuts than selling and marketing and other onetime items.
As our business continues to recover we expect the variable cost and EPS DNA and unallocated corporate expenses to begin to approach pre pandemic level. Once we're able to start travelling and meeting with our customers again, we then expect to grow EPS today at a rate lower than our ultimate sales growth while investing.
Fortunately in areas that will drive growth and margin like innovation.
Quarterly net interest expense was $3.6 million in line with what we had communicated but up from 2.8 million in 2019, approximately 400000 of the increase was due to an overlap in July prior to the redemption of our bond going forward quarterly interest expense.
Should be around $3.3 million, primarily for our $200 million term loan B, which has an interest rate of approximately 5% our tax rate for the quarter was 23% in line with our projected ongoing rate of 22%, but higher than last year's 11% rate, while the third quarter rate in.
Both 2020, and 2019 benefited from the reversal of reserves for tax audit after statutes of limitation expired in 2020. This benefit was offset by increased expenses due to a change in our projected mix of income by jurisdiction.
Turning to a few balance sheet and cash flow items as Julie noted our liquidity is in great shape and we grew during the quarter to more than a $180 million. This was comprised of over 40 million of cash and $140 million of unused available borrowing capacity, we ended the quarter with debt.
Of $196 million, primarily our term loan b and had no borrowings against our $175 million credit facility cash.
Cash generated from operations was a very strong $36 million and included around $20 million from working capital management.
In the fourth quarter. There are initiatives, we are pursuing that we'll have a temporary negative cash impact for example, we're accelerating $6 million of Twentytwenty. One retirement plan cash contributions in order to generate a significant cash tax benefit working.
Working capital needs are also expected to increase however, overall will deliver sizable cash flow in 2020 as a result of the many initiatives our team successfully completed.
We're also carefully managing capital spending third quarter spending was $4 million and year to date, we spent $12 million with full year spending expected to be around $17 million. This is about half our normal level as we've cut or deferred noncritical items, but continue to fund projects that deliver mean.
Meaningful cost savings or are key to long term growth next year, we expect capital spending to return to a more normal level of around $30 million to $35 million.
I'll wrap up with a few comments on our near term outlook in general demand should continue to recover with global economy, and we've been encouraged by what we've seen so far in the quarter. However, as a reminder, the fourth quarter seasonally our slowest and consequently, while year on year percentage comparisons should continue to.
Crew overall sales may be similar to the third quarter, while we've seen limited impact at this point. The recent resurgence of co bid makes forecasting a challenge and hopefully we've all learned how to manage more effectively in this environment to minimize impacts.
Fiber cost should remain fairly stable in the fourth quarter, while there have been some recent price increases most of our contracts have a one quarter lag to market, providing us time to implement selling price changes if warranted other input costs are projected to rise modestly in the fourth quarter with increases in certain chemicals and energy.
Fourth quarter results will also include $1.5 million to $2 million of incremental costs for annual maintenance Downs, primarily at our filtration operations in Germany.
In summary, third quarter results were very encouraging revenues profits and margins improved significantly in both segments as markets recover.
Technical product profit surpassed last year led by impressive filtration performance. Our teams have been successfully managing working capital and cash flow and our financial position is strong. This gives existing customers reassurance that Nina can grow with them and provides us flexibility to act on new.
Opportunities that can drive our business to higher level.
With that I'll turn it back to Julie.
Thanks, Tom in addition to safety, which I spoke about earlier I'd like to wrap up by sharing information on a few key initiatives focused on driving long term value by accelerating our growth trajectory and increasing our margins. Let me start with the top line I'm pleased with the recovery in each of our business segments, and we're well positioned as we head.
Into 2021 technical products is clearly on a path to pre cobot levels led that faster recovery in our larger growth categories of filtration and digital transfer of course has continued uncertainty with the resurgence of co that assuming no significant change in market dynamics, we expect technical products to fill.
Only recover to pre cobot levels early in 2021.
In fine paper and packaging revenue recovery is projected to take a bit longer and we expect to reach around 90% of our pre curve. It quarterly run rate of $90 million next year.
Looking beyond the near term, we're focused on expanding and for growth platforms that can accelerate our long term growth rate and provide clear direction for our efforts and investments.
These aren't filtration specialty coatings custom engineered materials and premium packaging.
These are growing profitable and defensible market aligned with our manufacturing technologies and material science know, how these platforms more than double our addressable market and allow us to unlock synergies as we gain scale I'll talk briefly about each.
First growth platform is filtration and attractive category, and which we're very familiar while today, 70% of our filtration business supports transportation end markets. We have started to expand our presence in industrial air and water consumer beverage and recently accelerated entry into premium face mask media.
Subset of air filtration, we have unique capabilities that unlock opportunities in these adjacent market and a path to market through many of our existing customers are targeted filtration markets are large and growing and supported by accelerating macro trends related to health and the environment.
Specialty coatings as our second growth platform most of our technical products are coded or saturated with unique chemistries and balanced at neenah, and we have opportunities to extend these capabilities and leverage our strengths and digital and specialty coating and new markets. Recent examples include expanding our die sublimation.
Portfolio to include natural fibers, and launching a sustainable floor graphic media in Q3 to meet the safety needs of Covance and environmental needs of our customers.
Your opportunities include extending our technologies into premium release liners image and performance labels and other markets requiring advanced coating technologies.
Our third platform is custom engineered materials, you may be familiar with composite Mr products made from two or more different materials, whether resulting combination as a higher performing product we create products today by blending various fiber glass.
Glass cellulose or nonwovens to meet customer specific requirements, we see opportunities to leverage this material science expertise to solve other demanding and critical customer needs.
In our fourth growth platform is premium packaging. This is an attractive growing market and our team has done a nice job of building out capabilities and a robust pipeline of innovative products, our flexible manufacturing and finishing capabilities coupled with our product and design skills are highly valued by premium brand managers as.
Consumers increasingly look for more sustainable alternative EMA has environmentally friendly solution for even the most discerning customers and brands.
Since these products utilize the same assets as our premium paper business, we expect to offset the secular decline in printing papers as we accelerate growth in premium packaging.
We will grow in these platforms, both organically and through M&A organically as a specialty materials company, we're reinvigorating our innovation process and gain momentum as our pipeline of new products continues to expand I've shared on past calls some of the innovative products. We've launched this year going forward, we expect sales from our innovate.
One pipeline both to increase our growth rate and to be margin accretive and we make solid progress. This year. Our M&A efforts remain active in our radar screen as robust we're focused on acquisitions that are a good strategic fit and provide attractive financial returns, while recognizing that we'll be cautious in the near term due to market uncertainty.
I mean this is one of the reasons I'm. So pleased with our financial position as we emerge from 2020 and provides us flexibility to invest and grow our business as we see opportunities.
Our four targeted platforms represent a potential significant increase in our addressable market and can boost our organic growth rate by 1% to 2%.
Just begun our journey I am excited about the opportunities these markets represent to accelerate our growth and to increase margin.
Let me talk a bit about other profitability initiatives clearly our margins will benefit as our volume recovers and we more fully utilize our installed capacity.
In addition, we started work this year and what we call. Our Neenah operating system. This is a framework on principles practices and tools that will standardize and harmonize the way we operate in our facilities and create a greater culture of operational discipline. We're implementing the system globally and have started this year and two of our largest plant within a niche.
We will focus on incorporating lean principles entities operations.
I started my career at our manufacturing plant and recognize how much value. We can gain with a disciplined manufacturing system, we're expecting the neenah operating system to deliver over $20 million and annual efficiency and cost improvements as we implement over the next five years.
So to wrap up you've seen that we've addressed this year's challenges head on and where emerging from 2020 and a position of strength with a clear path to accelerate growth and catalyst increased margins.
Initiatives are underway to create substantial value by expanding our four target growth platforms that meaningfully increased our addressable market and accelerate our growth rate with innovative new products supplemented with value added acquisitions.
And implementing a global operating system that will deliver substantial savings and improved profitability and grow EBIT margin in each of our business segments to mid teen levels.
While there is a lot going on we remain committed to the financial principles, we've been known for disciplined capital deployment and relentless focus on return on capital maintaining a prudent balance sheet and returning cash to shareholders through an attractive dividend.
Success is not possible without a talented and dedicated group of employees and I. Appreciate all that our teams have done and continue to do I am excited about our future and appreciate your interest today I'd like to now open the call for questions.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad. Your first question comes from the line of Steven shift.
<unk> Davidson your line is open.
Thanks, Good morning, everyone. So youve answered many of my questions partially in the global manufacturing, we're now to the year.
Nina.
Operating system, Yes, neenah operating system and write that down.
So $20 million over five years, so what should we kind of be plugging in for.
For 2021, we're assuming that you're just getting going now.
Sure we're launching now in our two largest facilities and as a reminder, the neenah operating system. It encompass of safety and cost and quality and delivery. We are really focused on safety and cost and we're ramping up through the next year and as you're probably aware the lean principles create a high level of sustained.
Building execution, but they don't happen overnight, so whilst $20 million over that five year period of time.
And we'll see benefits next year, but there are some startup cost them upfront cost and 21 from a personnel and training standpoint that will offset some of the initial cost reductions in year one.
I wouldn't want to leave you with the impression, though that we're managing cost and reducing cost every single day as a manufacturing company. It has to be part of our DNA.
To be successful so what the need to operating system doesn't it really accelerates amplifies those efforts and makes them sustainable and then at the end of curve. Our expectation is clearly the $20 million annually that we should be we should be seeing.
Okay. So it's going to be maybe a little backend loaded or couple of years before we start to see it. So I Trust you would give us.
Road map marks.
We will understand yes, we'll give you as much roadmap as possible and like I said, we'll see benefits next year they'll just be some upfront costs that may offset some of those benefits next year. So I wouldn't call. It completely back end loaded, but it won't be a light switch for sure.
Yes.
And.
My question is when you answered warehouse, so hey for.
Well that's good so you are anticipating what we need.
In paper I expect that you at least talk to some of the commodity guys, who is going to be a permanent step function down and I was going to say, 10% and that if you're going to return to 90% of previous.
Sales in paper is that about right and then do you think that your.
End markets will have the same kind of secular headwinds that.
The commodity you guys have or basically blossom grosses packages.
So a couple of things I think you got it exactly right. We're expecting to return about 90 cents, 90% of our pre covert quarterly pace, which was about $90 million.
We're expecting to see that in 2021.
So a couple of things I would tell you that's different as we looked at the last recession and our performance in fine paper pack and packaging, we saw a step down somewhat of a recovery, but not entirely likely expect this time and then the market leveled off for a couple of years. So there was less secular pressure for a couple of years, that's what I would expect now obviously.
Theres a lot of moving pieces and this was a different time with co that but the other thing it's very different about Nina from the last recession and different from the more commodity players is the diversity of our portfolio in the end markets that we serve about 50% of our portfolio and fine paper and packaging as consumer products and premium pass.
Packaging and where the greatest secular pressure and ongoing pressure is in that other 50% of commercial print. Our commercial print is really not driven by office uses as much of it is driven by advertising. So there's just different influencers in the end markets.
From our competitors and from our last recession, but we still feel good about the pipeline, we've built particularly in consumer products and packaging.
The other thing that I would just tell you thats not differences I think name has done a really good job managing this business over the long term, we know how to run this business. It's been in secular pressure under secular pressure since the mid ninetys, but our expectation is to return to mid teen margins continue to generate strong cash and reinvest that cash.
Cash for growth in our growth platforms.
And do.
Do you think you'll be back to that $90 million of revenue rate by Q1 of 20, sorry 2021.
Well I think there is a lot of uncertainty right now with the resurgence in sales.
Forecasting is more challenging right now that that has been in some time, but it will be a ramp up but we're seeing nice sequential improvement in fine paper and packaging across all the categories in which we compete.
But it might be more from a modeling perspective to assume thats an exit rate.
As opposed to you know.
360 million in sales next year.
Yes, I would I would assume it ramps up over the year.
Okay last question on paper, which has to do with the market pulp you guys purchase.
Can you tell us can you remind us how much pulp you buy and you know I wouldn't call. It a competitor, but another company that buys market pulp is incorporating about a $50 per ton increase.
Is is that about so what kind of magnitude of increase are you thinking.
The the tonnage that you buy and will you be able to offset it your pricing.
Yes. So this is Paul so a couple of things on that pricing. So I think as you know we as as the market pricing tends to hit US. We yes, we have a bit of a lag both in terms of when we get that pricing and then how that gets passed on and so if you see in our comments that we talked about now we talked about.
Our selling price came down a bit but our raw material costs came down as well you know so we were able to match that up and so as long as the movement isn't too dramatic.
Our expectation is that we're going to recoup that change one way or the other fairly soon in the process and so we're not expecting dramatic increases were expecting pretty modest increases and so from our point of view, we think that that the bottom line impact will be minimal on those assuming that.
Our set of assumptions is correct.
Okay and last question I promise I'm, not very fast rate or just not very quick so the growth.
Platforms before that you mentioned is industrial air and water base mass media and what were the other two.
Let me go through them, because I think I think year, you're islands, one of 'em instead of four growth platforms. The first one is filtration and so industrial air and water said end of that particular growth platform.
As as the others I think you mentioned the second one a specialty coatings. So today Nina at Neenah, we co and saturate.
A lot of our products, particularly in technical products and we have the ability to extend that into adjacent markets as well it could be things like more performance and image labels. It could be things like silicone release labels that type of advanced coding technology. That's the second one the third one is custom engineered materials. So this.
That one is all about manipulating fibers to get a better or different end use characteristic from for our customers. So composites might be an example of that and we do that today, we manipulate a mix fibers, whether their class or nonwoven their cellulose fibers and then the last one is premium packaging and that one that we'll continue to lean into.
Well in advance and that runs on the same assets as are our friends, our paper business and so it's a really nice utilization over time of that asset base to ensure that we remain competitive from a cost position as well.
Got it thanks for taking my question sure. Thank you.
John Ken Wang.
CJ Your line is open.
Hi, good morning, everybody. Thanks for taking my questions.
Good morning.
The first one.
With some color on the expected revenue heading into Q4, which which was helpful. Thank you, but I think if I heard you correctly.
You're going to see additional drugs from inputs maintenance downs and maybe some expenses rolling back in and the carriers benefit I guess expiring putting it together is it fair to say expenses pretty big sequential downtick in the margins.
Are there offsets or savings that we should be thinking about.
Yes, I wouldn't say a pretty big downtick in in margins. So what we wanted to highlight was that.
We have some items that we are expecting like so like the maintenance the maintenance downs are going to be a little incremental at the same time, we're driving our mix.
We are still focused on cost control and so even though we had some savings from the cares act and from the equivalent around the world showing up the NSG M&A and even though we have some permanent head count reduction and we don't expect estimate a bounce back up to historical levels next quarter.
Might be a little bit higher on a run rate basis than it was this quarter. So you know so I think there will be pressure on margin in the fourth quarter from those items, but I wouldn't expect it to be a drum.
Dramatic impact.
Okay. Thank you that's it.
And then just.
Clarify the 20 million expected savings over the next five years that that doesn't include the 7 million permits him.
Right.
Maybe as a follow on to that does address savings.
Great and.
Need to realize any certain volumes or revenue levels to realize.
The 20, the 20 million dollar savings those are really based on our current expectation of recovery. So as of course as volume continues to recover that helps our margins and as we continue to accelerate our ramp up in North American filtration that helps our margin. So there's definitely other things that will drive margins. In addition to the neenah.
Operating system, but it's incremental to the $7 million. It is not dependent on getting to a significantly larger volume numbers based on our current short term forecast based on the businesses. We're in today and it's really focused in those areas that are that are very mostly variable in nature.
Okay, Great and then the last one for me Joe you've drawn a line in the sand I guess for the paper revenue I guess, the 90 million run rate at some point next year.
Just a lot of growth initiatives.
On top of that Thats fine packaging on the other side and technical.
We will do some great.
When do you see yourself I guess with the rebound in the economy and these growth initiatives returning to 20 energy revenue levels.
Maybe what kind of long term growth rates are you charging.
To conclude.
Okay.
Wow that was a couple of questions in there. So let me see if I said amount first I just want to make sure. The 90 million dollar run rate, what we're trying to send messages our expectation as we get to about 90% of our previous co vet pre coded run rate, which was $90 million. So that's.
Asked about demand destruction in the past Thats, the 10% were expecting.
Just to clarify from a fine paper and packaging standpoint.
Your second question I think was a lot around growth and 2019 and when we hit back and what I would tell you that.
And again I want to start with barring any significant impact from the resurgence because we know we're seeing some lockdowns happen in Europe and other areas, but based on what we're seeing today recovery in all categories is happening it differs by pace and there is some expected normal seasonality that will feel it's led by filtration.
Both transportation filtration, our core business as well as the incremental business and face mask that weve penetrated this year, there's stability in our large industrial categories things like Backings, and then fine paper and packaging is recovering as well and as expected assisted a little bit slower pace, which is what we expect.
We're working really closely with customers and we've seen opportunities to grow share. During this time, we've launched innovative new products that has driven incremental revenue, we're really working to proactively manage their recovery.
Some growth catalyst and with some margin catalyst in place.
Got it thank you very much.
Sure.
Chris Mcginnis from Sidoti and company. Your line is open good.
Good morning, Thanks for taking my questions My quarterly.
Thank you. Thank you.
Just on the on the.
The comments around the mid teen margin profile.
In fine paper is.
At that 90% run rate or is that at current levels.
That improve just wondering if that's helpful.
Sure well the first step process to get to double digit EBIT margin, which we did in Q3 in both segments and as volume continues to recover those will continue to ramp up as our innovation pipeline continues to become more and more accretive those will ramp up as our neenah operating system begins to get.
Implemented those will ramp up so I'm continue expecting continuous sequential improvement in our margins again barring any significant impact on our surgeon and then of course, we have normal shutdowns and some seasonality that impact sales as well, but at a high level I would expect continuous margin improvement and we saw that in Q3.
We also thought three co, but really nice margins in fine paper and packaging as well as technical product improvements I feel like our strategies were working in Q1 and as we exit the.
Start to emerge in Q3 from a recovery standpoint, we're seeing them work as well as some nice margin recovery this quarter.
Sure.
Definitely opens no.
Gross profit.
I guess just around packaging.
It was was last year, just a really strong quarter for packaging or is this impacted awards or growth actually in the period for.
For the past few calls.
Last you asking if there was a growth this year and package.
Yes, yes for this year.
This your packaging currently as its been impacted by the virus as well so from a year over year standpoint.
We're not seeing packaging up versus last year, yet, but it's recovering at a much faster pace than some other parts of our category like commercial trends.
Okay. Okay.
Pauses I thought last quarter, it was up a little bit.
One of those balances.
Now now and continuing to grow sequentially and I will tell you I am encouraged by the innovation pipeline that the team has developed around packaging and some of the sustainable solutions that we're launching I think right now and how is the sales top of mind for everyone and it quickly turns to the health of our environment as well and the team has done a real.
Hi, nice job developing some products like floor graphics that you see everywhere, if you're out at all and their cellular space and recyclable and an alternative to some of the less environmentally friendly options as well as styrene alternatives and some of those areas. So I'm encouraged by what we're seeing from a new product standpoint.
No no given the next question but.
Our next question after that.
Can you just talk about maybe your appetite for M&A in the current position would you want to wait for a little bit more clarity on the phone we recover before you.
Yes.
Well I'm really pleased with our current cash position and liquidity position and that.
As an important part in our M&A remains an important part of our strategy and we are seeing solid deal flow right now well continue to be cautious because we're an uncertain times, we may take smaller bites, but having strong cash generation and liquidity gives us the opportunity to capture that.
But the targets that we see that are a great strategic fit for neenah and accretive. So we'll just be more cautious, but still participating from an M&A standpoint as far as our continuing path.
Great. Thanks.
Thanks for taking the questions and good luck.
Well.
Thank you.
There are no further questions at this time I'll turn the call back over to Bill for closing remarks.
Okay. Thank you as you've heard we've successfully addressing the challenges this year.
A clear pathway to accelerate top line growth and catalyst to improve margins. Thank.
Thank you for your time and interest today and as always please feel free to reach out to me. If you have questions. We hope to have the opportunity to talk to many of you at the upcoming virtual conference hosted by their next Thursday November 12. Thank you.
This concludes today's conference call you may now disconnect.
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