Q2 2020 Leggett & Platt Inc Earnings Call
Greetings and welcome to the look at Empire second quarter Conference call and webcast. At this time all participants are in a listen only mode.
Good question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host.
Isn't nikolay. Thank you should look like you may begin.
Good morning, and thank you for taking part in Leggett <unk> Platt second quarter conference call I.
Last quarter, we are conducting the call from different locations. Please bear with US if you experience minor delays or mix audio quality.
On the call today, our Karl Glassman, Chairman and CEO.
So president and COO John.
Okay, Executive Vice President and CFO.
Chicken tenders, an easy P and process the specialized products and furniture boring you touched on product segment.
When he Watson Vice President of IR, and Kathy Braskem recently promoted the senior director of IR.
Before I proceed with the agenda I wanted to let you know that today after 22 years out like getting Wow, we'd be will be leaving the company.
Wendy began her career with I get in 1998 enjoying the IR team in early 2017.
She has done an outstanding work in the IR role and brought tremendous value till I get in all of her pastoral.
Please join me and congratulating Wendy on her outstanding career with like it.
We wish her great success as she moves on to a new exciting opportunity and the next stage of her career.
She won't be sincerely matched.
Joining us for the first time today is cherish or what director of IR. He won't be working directly with Kashi and me here has been with like get since 2007 and has a strong background in accounting and financial analysis.
Sure I had held roles in internal audit and corporate development, where she participated in some of the largest transaction in orchestrate, including the acquisition and integration of East, Yes last year.
We're excited to have Terra that's the newest member of our IR cheap.
The agenda for call. This morning is asphalt was Karl will start with the state of the main points, we made in yesterday's press release.
Rich will discuss demand trends and the status of our operations among the many complexities driven by the Cup at 19, Panama pandemic, and Jeff will discuss financial detail.
This conference call is being recorded for like getting plot in copyrighted material. This call may not be transcribed recorded or rebroadcast without our expressed permission.
A replay is available from the IR portion of that gets website.
We posted to the Investor relations portion of the website yesterday's press release and set a powerpoint slides that contain summary detail or the key information we sure. We're sharing with you. This morning, along with our regular quarterly financial information then segment details.
Those documents supplement the information we discussed on this call, including non-GAAP reconciliations.
I need to remind you that remarks today concerning future expectations events objectives strategies trends are a result constitute forward looking statements.
Actual results or events may differ materially due to a number of risks uncertainties and the company undertakes no obligation to update or revise these statements.
For a summary of these risk factors and additional information. Please refer to yesterday's press release and section in our most recent 10-K and subsequent 10-Q entitled risk factors and forward looking statement I'll now turn the call over to Carl.
Good morning, and thank you for participating in our second quarter coal.
Yes, we reported yesterday second quarter sales were $845 million down 30% versus the second quarter of 2019.
EBIT decreased in the quarter versus second quarter last year, primarily due to lower demand.
A non cash goodwill impairment charge get our hydraulic cylinders business reduced second quarter EBIT by $25 million EBIT was further reduced by approximately $3 million a restructuring charges incurred primarily from pandemic related cost reductions.
Second quarter earnings per share, we're a five cent loss, including 19 cents per share from the impairment charge you had two cents per share from the restructuring.
Adjusted EPS was 16 cents down from 64 cents in 2019.
Our second quarter results were significantly impacted by the Cobot 19 pandemic. We were pleased to see sales improved sequentially throughout the quarter is demand improved in most of our markets.
The Swift cost reduction actions implemented at the onset of the pandemic helped to mitigate some of the earnings impact from lower demand levels.
We continued to experience demand recovery throughout July although it varied right across our markets and geographies given the ongoing affects other pandemic and continuing economic uncertainty.
We have improved or liquidity and we continue to carefully manage our cash and balance sheet.
We also reported yesterday that our board of directors declared a 40 cents per share third quarter dividend.
We recognize the importance of the dividend to our shareholders and our liquidity supports this decision.
Our first priority remains the health and safety of our employees and their families along with our customers and suppliers and the communities we serve around the world.
As Mitch will describe in more detail, we are focused on creating a safe work environment I am extremely proud of how our employees are working together to keep each other safe and healthy wall, serving our customers during this challenging time.
Our long term fundamentals have not changed we continue to be leaders in most of our markets focused on innovation and working closely with our customers to provide more of what they need to be successful.
Our capabilities are unmatched in our large in expanding addressable markets.
The diversity of our businesses makes us stronger.
We have an outstanding track record of strong cash flow and we remain committed to our long standing transparency and financial discipline.
We are dedicated to our long term vision for the company and we are confident that we will emerge from this crisis strong and focused on the future I'll now turn the call over to Mitch.
[laughter], Thank you Carl and good morning, everyone.
As mentioned sales into second quarter were down 30% versus the second quarter at 2019 with demand improving each month throughout the quarter.
April sales were down over 50% may sales were down almost 30% and June sales were down just over 15% all versus the prior year.
We continued to see sequential improvement through the first three weeks of July with sales near prior year levels.
As demand improved through the quarter, we ramped up most of our operations implementing safety protocols, bringing employees back to work and tackling supply chain challenges.
Given the ongoing uncertainty in the global economy rigor, we remain focused on keeping our variable cost structure aligned with current demand levels.
[noise] as we discussed last quarter, we reacted quickly to reduce our fixed cost.
These actions reduced our second quarter cost by nearly $40 million at current demand levels. We now expect full year fixed cost savings of approximately $100 million.
This is lower than the previous estimate of 130 million to $150 million as demand recovered faster and more robustly than expected and several of our markets.
Sales in our bedding product segment were down 28% in the second quarter.
The reopening of brick and mortar retail locations and continuing strong E commerce demand drove sequential improvement throughout the quarter with April sales down, 54% may sales down, 20% and June sales down 14% versus prior year.
Yes.
The sequential demand improvements have continued with sales up 1% through the first three weeks of July.
Demand in the U.S. Betty market continues to be strong sales in both U.S. spring and he's yes were positive year over year in June and maybe the first three weeks of July.
Sales in our specialized products segment were down 47% in the second quarter.
We saw sequential improvements in this segment throughout the quarter as automotive Oems restarted production in Europe, and North America and production in Asia continued to improve.
During the quarter segment sales were down 63% in April 54% in May and 29% in June versus 2019.
The sequential demand improvements have continued with sales down 13% through the first three weeks of July.
In our automotive business all regions, our operational at various levels of capacity.
Our Asian facilities are operating at 90% of capacity, our North American facilities. They are operating at 80% of capacity and our European operations are at 70% of capacity.
European and North American OEM has restarted production in May and demand has increased sharply.
North American sales been driven by demand for trucks and as you piece.
We're very pleased to see a recovery from the steep declines in April and May who we are closely watching global demand trends as the economic impact from the pandemic remains unpredictable.
Market demand in both aerospace that hydraulic cylinder has held up initially but declined in the later part of the quarter.
We expect that aerospace demand, where well we remained weak for some time given the many challenges in the industry.
Demand signals for hydraulic cylinders are somewhat mixed at this point, but we are preparing for lower sales in this market as well.
[laughter].
Sales in our furniture Floreana textile products segment were down 22% in the second quarter.
This segment at least initially was less impacted by the pandemic than our other segments, primarily because of the strong demand in our geotext that keogh textiles component components business.
Fabric converting or flooring products also held up well and home furniture improved as the quarter progressed.
Recovery and work furniture has lagged the other businesses in this segment.
Industry demand in this business maybe challenge for some time as work environments change to meet evolving expectations of employers and employees.
For the total segment April sales were down 40% may sales were down 22% and June sales were down 7% versus the prior year.
The sequential demand improvements have continued in July with sales up 7% for the first three weeks.
[noise] looking forward, our operational priorities for the third quarter are increasing production to meet strong bedding demand.
Tackling widespread label like labor shortages, especially in the U.S.
Managing supply chain issues associated with the global shortage of non woven fabrics stemming from a surge in demand for medical P.P.E. applications and the ongoing government restrictions on production in Mexico in India.
Monitoring changes in demand and and monitoring and changes in demand signals and responding rapidly to control cost and optimize cash flow.
We developed a layered approach to manage the impact of the cobot 19 pandemic in order to effectively reach all levels of the company.
Yes, we focused on four primary work streams safety in social distancing communication is training, a visual management manufacturing layout and governance and compliance.
As cases around the world around the World continue to increase we also have seen an increase in confirmed cobot cases in our facilities.
Contact tracing indicates that while employees are contracting the virus in their local communities. Our safety protocols are effective at preventing transmission of the virus among our employees at work there.
The health and safety of our employees is our number one priority and I'm pleased I'm pleased that our efforts are paying off.
[laughter].
To our employees I sincerely. Thank you for your dedication ingenuity and resilience the global pandemic has forced us to alter the ways, we operate and interact with each other our customers and our suppliers you have found creative new ways to make it work.
No. It makes your job is more challenging on top of all the uncertainty that the pandemic brings to our personal lives I.
I'm incredibly proud of how we have pulled together across our businesses and corporate functions to overcome these challenges. Thank you very much for all your effort.
I'll now turn the call over to Jeff.
Thank you Mitch and good morning, everyone.
Throughout the second quarter, our primary financial focus has been on maximizing liquidity generating cash and disciplined uses of cash.
In early May we amended our revolving credit agreement to change our financial Covenant to a 4.75 times net debt to trailing 12 month EBITDA metric.
This change increase the availability under our revolving credit facility, which started up the backed off for our commercial paper program.
As of June Thirtyth, our net debt to trailing 12 month EBITDA as defined in our revolving credit facility equated to a maximum borrowing capacity of $1.2 billion.
On June Thirtyth, our total liquidity with $1.3 billion and was comprised of $209 million in cash on hand, and 1.1 billion in available capacity under the revolving credit facility.
Cash from operations was $112 million in the second quarter, a decrease of $60 million versus second quarter 2019, primarily due to lower earnings.
We continue to monitor all elements of working capital in order to optimize cash flow.
Our primary focus on customer collections as an example by the end of second quarter the level of our accounts receivable and current status had improved and were consistent with pre cobot 19 levels.
We're also taking steps to carefully controlled inventory levels as demand improves.
Adjusted working capital as a percentage of annualized sales was 15.4 <unk> said at the end of the quarter.
Which reflected a combination of very weak sales early in the quarter and working capital increases later in the quarter to support demand improvements.
Regarding our uses of cash we continue to expect our capital expenditures to approximate $60 million for the year.
Dividends sure require approximately $210 billion for the full year.
Our scheduled debt repayments for the remainder of the year are $25 million.
And we're limiting our acquisition activity.
In connection with our annual goodwill impairment testing, we recognize the 25 million dollar goodwill impairment of our hydraulic cylinder business.
The impairment was primarily driven by the anticipated longer term impacts of the global pandemic and as a complete write off of the goodwill associated with this business.
The goodwill impairment also resulted in an unusually high tax rate in the second quarter.
This noncash expenses not deductible for tax purposes.
Absent the impact from the impairment and the restructuring charges call discussed earlier, our second quarter adjusted tax rate is approximately 29%.
So in summary, we remain committed to maintaining our strong balance sheet.
Investment grade credit rating and our position as a dividend aristocrat.
We continue to take the necessary step to maximize liquidity and financial flexibility as we navigate the current economic challenges.
With those comments I'll turn the call back over to Susan.
That concludes our prepared remarks, we thank you bring your attention Karl will direct arguing they session in the group will be glad to answer your questions.
Yeah, we're ready to begin culinary.
Thank you.
I'll now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad confirmation Tom will indicate your line is in the question Keith.
You May press star to if he would like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before passing pressing the star keys, one moment, please while we pull for questions.
Thank you. Our first question is from Bobby Griffin from Raymond James Please.
Please proceed with your question.
Good morning, everybody. Thank you for taking my questions I hope everybody staying safe.
Yes in care congrats on a your promotions and Wendy Congrats on the next role going to Miss working with you, but a happy for you on a on a personal level.
I guess the first question I had Karl maybe was on a production and capacity side of things we've heard from some other industry players that capacity.
Was an issue as demand ramp back up pretty quickly during the quarter can you maybe talk a little bit about your capacity to that hinder growth or sales growth in Twoq, you and you know kind of where are you at a capacity standpoint and backlog standpoint, as we look at Threeq you.
Good morning, Bobby Thanks for the question I think that you're specifically I'm asking in the area of the U.S. bedding business.
So will go down that path that.
As you know I'm really what happened when things got so soft in April that we pulled down a production we were working off of inventory and then the second week of May we started to see a surge of of betting demand in the U.S. not knowing if it was stimulus.
Its related or if it was a build up the memorial day or at that point didn't know if it was a head fake to be real honest with you and the demand has continued to be extremely strong.
Interesting data point in the month of June we shipped more inner springs and in that month than any month. Unlike its history, which is remarkable considering the backdrop, but as regards where we sit from a production capacity go for forward what some of the issues are Mitch why don't you.
Take the details if you don't mind, Yeah sure Carl I'm happy to and good morning, Bobby You know, we're certainly doing everything we can to add to meet demand as Carl said I think that demand is outpacing the overall capacity in the industry. So we're running full out but there's a few challenges that I think we.
Well as I think everybody are facing the first is is labor it could just general availability across the U.S., especially as we tried to ramp up second and third shifts or as well as the loss of employees to 14 and communities with 'em large cobot outbreaks we used.
In this particular, the or in some parts of Georgia, Missouri, Texas, and California, right now we seem to be I'm doing a little bit better in that area, but it's constant constant battle for us.
The other big issue. Good I think the industry faces is availability as of non woven fabrics as I mentioned the diversion those fund onto a to medical PPD. You know has had a big impact they're all our alternatives needle punch, but they are more expensive slower to run and availability of those fabrics is.
Still still constrained.
So I think that this problem is likely going to be with us for a while probably well into next year.
And with the non with them demand outpacing supply I think we continue to see nonwoven prices increase.
And then I think the final element that comes into play is government restrictions in certain parts of the world.
Today, Mexico is constraining our production capacity.
And a couple of our plants impacting particularly automotive and adjustable beds and I'm also some impact in India in automotive and P.H.C., So where you have been short running full out but theres some challenges for us to deal with on a day to day basis.
Okay. That's helpful. Appreciate that.
Yeah, Bobby to add a little bit to that I don't think that it had a significant impact on two Q to finish the answer that the in U.S. spring it might have slightly impacted the last week or so it definitely impacted July that we're just not able to keep up with demand or are people.
All our pressed they're doing a fantastic job under really difficult circumstances tried to communicate on a daily basis, but I see it more as a threeq you wish you then it having been a twoq you issue.
It.
As you point as we really worked through our inventory had a little bit and now it's you know day to day.
Okay. That's very helpful. I was actually part of my follow up it it'd be safe for us to look at the or state for us to think about the July data that you gave us Mitch and think that overall order growth is it likely running above the overall reported sales growth that you talked about embedding just given that production catch up that's taking place.
Yeah, that's right.
Okay, and then when we think about the pricing of the non woven fabrics I'm you know, we've always talked about pricing the pass around steel related aspects, how big of a deal is the non woven fabrics and kind of the cost of an inner spring and then is that price increase that you're gonna Pasadena customers is a big enough to kind of moved the needle that we should account for when.
We think about second half revenue for the betting segment.
So I think you probably saw like our price increases are up about 15% 16%.
Due to the nonwovens. So you know some impact, but I wouldn't know say that its overly material.
Do see continued pressure on nonwoven pricing and it's not out of the question that that we'd have to pass that through again later in later in the year, but I don't think it's a overall massive inflationary impact to us Bobby.
Okay very helpful I'm going to jump back into queue, but I appreciate the detail.
Thank you Bobby.
Thank you. Our next question is from Susan Mcclary with Goldman Sachs. Please proceed with your question.
Thank you good morning.
Needless to say Wendy we'll Miss you bought good luck to Kathee and Terra we're excited to work with them as well.
First question is just you know can you talk a little bit to the inventories in the end market you know it sounds like things are extremely well when we think about betting in autos, but can you just give us perhaps some insights on what you're seeing there and how you're thinking about you know being able to supply that inventory given all these constraints that you're saying.
Yeah, Susan all start in embedding inventories don't exist, we have a very good customer who emailed Mitch and I have this morning that said, we understand the supply chain issues I can sell every mattress I can get my hands on so that gets you in in my history, certainly I've now.
Ever known that the consumer to walk into a retail environment or to buy the product in an omni channel environment and not get instantaneous gratification from a mattress perspective, what our customers are telling us that there is not cancellations of those orders the consumer is forgiving and kinda understands the environment.
We're working in so there's just simply it's a case, where there is significantly more demand than there is supply into mixes point, we're working daily on trying to mitigate that it's a good it's a good problem, but I'm a little painful for our people every day on the automotive.
[music] side major Steve you want to handle that inventory question.
[noise] for sure because this is Steve I'm. Good morning, Susan Yes from an automotive perspective. The last information. We have is from June and the June inventory numbers are just about 2.6 million units or 58 days supply so yeah, well within the range.
Oh that the targets actually towards the lower end and that's down about 1.3 million units.
June of last year for about 30% to 33%.
Those declines you know a happened despite the U.S. sales you know in May falling 26, 26%, so really what's kind of happened as the echo that factory shutdowns that kind of help.
Self correct, the yeah inventory levels at about two two months.
And as Mitch was mentioning in his comments now there are some models, particularly some trucks and I should be a where production is needed to increase that those products on the dealers lots are becoming a fairly limited supply.
Okay.
And following up on that I had a slightly higher level question. You know, we've obviously seen a lot of stimulus that came through over the second quarter.
How are you thinking about or have you heard anything from your customers on how perhaps that has impacted the demand that we've seen and obviously with you know all the conversations that are happening today in Washington around then next level of stimulus activity into potential that maybe there was a gap that comes in there. How are you thinking about what that could mean for dinner.
Dan and this level of that TV that you're seeing today.
There is and that's a great question with an answer that is pure speculation, but certainly yes. I said, we saw some quick pick up once the stimulus checks were initially cut and.
Thought that it was stimulus driven and we don't believe our customers are telling us that the demand continued so aggressively actually add to this moment that they believed that it was not stimulus driven wholly that it was driven by a consumer at least in our betting and home furniture.
Your markets that is very much focused on the home and it's interesting that if you look at historically consumer spending on travel and entertainment. That's one trillion dollars of spending that isn't finding a home right. Now. So that's you know cruise lines Air Air.
Airfare movie theaters things like that so the consumer is very focused on their home, we believe that that bodes really well for the future, but the question really that we can't answer is with the the let's call them challenges are some people.
I would call it dysfunction in Washington, what happens with extraordinarily extra ordinary unemployment and does that start to slow demand. We haven't seen any of that we think that like I said home focus is driving that consumption, but frankly, we.
Just don't know I mean, there's that's part of why we don't give guidance. We're appreciative of every order that we take and the margins associated with that and the goodness that it provides for our employees from a safety of job, but the visibility into the future is a really tough the.
Forecast.
Yeah, Okay, I appreciate that but that your thoughts are helpful. There. Thank you Carl.
You're welcome Susan.
Our next question is from Peter Keith with Piper Jaffray.
Please proceed with your question.
Hi, Thanks, everyone and a good congrats to Wendy is well into the others on the team with the promotions.
Karl I know you said, it's hard to forecast in the future. So of course I'm going to ask a question about forecasting into the future.
But I thought you were going to give me answers leisure [laughter], maybe probably more than a qualitative basis, though so just thinking about a co bit backdrop to let's say in the medium term is around us for the next year or so I'm I'm curious on the segments within your business that you think.
Our benefiting from we'll call it cobot related spending I think you referenced the home if you could flesh that out as areas that you see some positive activity there could be sustained and then Conversely, you mentioned a bit in his prepared remarks around extend weakness in to work furniture and aerospace, but but also are there any other areas that we might be or.
Looking at that could also be negatively impacted medium term.
Peter All I'll take the positives as leave Mitch the negatives, which so it's good that actually the positives continued to be global betting a we're certainly seen some more recent uplift in Europe. So those kind of home focus is not north American.
Centric gets its really global so I believe betting home furniture, certainly the housing statistics bode well for our flooring business. The Haynes businesses in both Geo components and on the converting side.
That it's highly correlated to home focus up some P. P E manufacturing. So those businesses. We have every expectation will continue to do really well.
There may be a little bit of a head fake for some of you in that if you think of our betting segment you might think of it as you as spring you see us in and are you in that bedding business, where it's much broader it has some industrial materials business, which is is soft and we expect that to continue.
To be soft and I I actually aired I, when I said U.S. betting I do mean, not only the spring business, but he see us easy us is doing a terrific job and that business is growing at a faster rate than U.S. spring, but so those are the positives.
Mitch I may have left some out but if I did want you hit those and if you would take the longer term negatively potentially negatively impacted.
Okay. Thanks, Carl [laughter], Hi, Peter and I think you I think you hit the highlights the positive impacts Carl.
I think that for the most part.
I think that <unk>, you know autos, maybe somewhere in between certainly recovering from the depth of of of of what we saw in the second quarter and we're pleased to see that Peter I think you're right I mean, the our aerospace business is likely to remains challenged as that industry.
Sort of sorts through the many difficulties that are there yeah. It's a relatively small part of our overall business pretty nimble and you know I'm fairly diverse actually a and across our customer base. So so we'll hang in there and see what we can do to to adjust or the a in the face of that.
Softer demand and then I think work furniture, probably we'll see less of an extreme decline in demand, but but certainly probably will lag returning to levels that we've seen in the prior years remember that we participate both from a.
Like task a chair part of the industry more traditional office, but also a lot on that collaborative softseed side and so we'll see how that plays out as people <unk> adjusted their their work, whether it's at home or how they work in the office there maybe some opportunities there, but in either case, where were challenged there will do.
Our best to two I'm to adjust our cost structure to the demand that we see.
Okay. That's helpful guys.
I also just wanted to dig a little bit into the the segment performance in July and maybe to kick off first that the furniture flooring in textiles sales growth of about 7%. That's it's only three weeks, but that would be abnormally strong gross in the face of what you stake as we go work for.
Nature business so.
Punch line on on that furniture segment, what's what's driving that strong growth with some of the kind of really weakness and then also embedding we talked quite a strong bedding market is only up 1% in July so called maybe you could dig into little more on those areas of weakness that's holding it back.
Yeah in betting really Peter up a lot of it is you have to look at the whole segment and the negative impact from the industrial the wire rod sales or a challenge we still have not fully anniversaried.
The are getting out of the consumer products business. So there's some comps that are broader based than just the U.S. spring SCS business, So said differently those.
Consumer focus betting businesses that are embedded in the betting segment are performing much better than the segment totals would indicate.
Mitch do you want to unpack the other segments or add any commentary on but have you want maybe just on a better to be clear. So you know the fraud trade sales wire trade sales.
I have been a drag and remember that we exited the fashion bed business that we had last year. So that's a bit of a drag on the overall betting segment. So I'm just around that out on that furniture, Florida textiles segment, I think you're right. I mean, we're you know were furniture is lagging, but I guess I'd say, it's not awful but.
The home furniture has really bounce back strong full worried has held up very well and both the haynes converting a geo businesses are strong. So they have been the rest of the segment has been strong enough to more than offset that bit of a struggle, we continue to see and work furniture.
Okay sounds good guys. Thanks, a lot for all the insight.
Thank you Peter.
Our next question is from Susan Mcclary with Goldman Sachs. Please proceed with your question.
Thank you again [noise].
Can you talk a little bit about what you're seeing on scrap steel you know raw materials in general obviously for easy asked me, so well come down a tremendous amount in the second quarter, it's come back a bit though just kind of across you know sort of your big raw material inputs, what's you're seeing there and how we should think about that for the back half of the year.
It makes you want to take that.
Yeah sure Susan I think I'm not a whole lot of impact actually I think that scrap and Rob pricing is moved up and down a little bit but is relatively stable and we don't see any big impacts there at least right now on the chemicals side.
There was some weakness in the second quarter I'm. The major major producers are trying to push through some price increases.
Again, I'm hopeful that that won't be too impactful lever either way, maybe it gets back to sort of where we were in the first quarter, we'll wait and see and then a we talked about previously the impact from that a shortage of nonwovens and the increase pricing there that's probably the most significant inflationary deep factor.
<unk> that we see right now.
Okay and one question you know with all these moving parts that you are seeing are there any changes in how you're thinking about the incremental or decremental margins for this third quarter across your different segments 18 that we should just be aware of as were kind of looking out.
No Susan you know that the the answer is different depending on the business unit or frankly, even segment recovery of auto is a really good thing for us and the strength of betting is is a good thing the incremental one decrementals stay.
Well, we believer in that 25% to 35% range, depending on bond business unit.
Okay, Yeah, I mean, they held up really well, especially in your furniture segment, which was nice to see so it's good to hear that we're still targeting in there. Thank you know Susan thanks for mentioning furniture, our people did a herculean task of and executed so well on restructuring our home furniture business last year yeah.
You know the sales are somewhat negatively impacted year on year comps. It it really lessons has lessened year to date, the the kind of the comp headwind.
Becomes a lesser issue in Threeq you, but they did some really good work that showed up at the bottom line. So thanks for acknowledging that.
Yeah, no absolutely I mean, the margin performance there was really impressive given you know all the headwinds that they say so it's it's good to see you guys have done a really nice job in that segment you people didn't really nice job in that segment too so.
Yeah.
<unk>.
Thank you. Our next question is from Bobby Griffin with Raymond James. Please proceed with your question.
Good morning, everybody I'm quick couple of follow up questions won Jeff when we think kind of a high level with the cost Takeouts about 100 million identified maybe about 60 million in the back half understanding a lot of that depends on where demand moves too, but if we hypothetically think that demand gets back to prior year levels at some.
Point, how much of the cost takeouts could be permanent versus some that we need to come back.
Good morning, Bobby in and Thanks for the question you know at this point the first of all the team has done a tremendous tremendous job, it's called and Mitch mentioned earlier really stabilizing our cost structure booked with the cost actions that we're taking back really at the latter part of first quarter you know as we think about moving.
Forward any outlook you know, it's going to be in our opinion a challenge right now to give you a number but I will tell you that we are working extremely hard to maintain as much of those cost savings as we possibly can even if demand starts to stabilize I'm in the L. quarters. I think you know using the word permanent in this type of still volatile environment.
It is somewhat of a up a challenge for us and so we probably right now would not want to give a number but rest assured that we continue to keep that cost containment discipline in place and are looking to hold onto as much of that cost savings as we possibly can now.
Okay. That's helpful. And then secondly, Mitch I just wanted to kind of fall back up on the comments about capacity and betting just make sure I understand things correctly.
Well the capacity constraints caused that segments revenue or that business units revenue Jack to decelerate here in Threeq, you or or is it kind of the opposite that you'd expect it to be able to accelerate as you're able to catch up further on capacity as we move through the third quarter.
Yeah, I think it's the latter Bobby I think that you know we yeah I think were overcoming the challenges you know finding ways to solve them finding ways to get more labor onboard working through the supply chain issues on nonwovens coordinating better with our customers. So that you on production so no I don't.
I think it'll it'll cause us to go backwards I think we'll continue to accelerate assuming that demand trend stays there.
Okay and is the growth, we're seeing and bedding is it broad based across customers or we've seen really you know the last couple years, there's some big customers have done well some smaller customer I mean, some of the bigger customers, having its kind of been mix what does that July demand pick up you know pretty broad base.
Yes, I think it's very broad based across customers across channels.
Really across the entire industry.
Okay. That's all very helpful. I appreciate let me jump back in your best of luck in Threeq you.
Thank you Bobby.
Our next question is with Peter Keith Piper Jaffray.
Please proceed with your neck your question.
Yes. So a one last question for me and maybe it's going to be a for Wendy who's done I go to on the subject, but it's on the anti dumping and countervailing duty investigations.
Could you provide us with some updated thoughts on a on the timeline that we can be thinking about the next couple of months and assuming that the department of commerce or does apply some type of duty rate. When do you think youre domestic bedding business might be going to see some benefit from that.
Oh I'll jump in.
Peter we don't expect that timeline could change so we would kill it back.
A preliminary duty order sometime in mid to late October.
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For the you know how to preliminary anti dumping duty and so I think if you. If you consider that ran at 90 day look back period. The department of Commerce had where they have the right to look back at import.
I'm coming in that puts you and you know mid to late July So I would expect.
Part numbers I'm starting in mid July mid July to be a lot less than what we've seen over the last several months I mean, we still saw from that you know seven subject country, we still saw over half a million matches that come in in May. So so I think you'll start to see those numbers come down starting.
In July.
When we get the alliance partners.
Yeah. Thanks, Thank you Wendy and Peter to add onto that we're we're already seeing the impacts it's a remember the vast majority of those mattresses, our our foam based but you see us is very very busy though some of that is just abnormally strong domestic demand in some of it is demand that's being driven.
As those products.
Onshore.
Okay very helpful guys. Thanks, so much.
Thank you.
Our next question is from Judy Merrick with Sunshine Trust.
Proceed with your question.
Thanks. This is Judy on for Keith Hughes.
I just wanted you had any other commentary you could give on the auto outlook anything you might have learned to you gave the capacity with Asia being higher [noise] isn't even ones from the Asia and the trend to be consistent there or any other culturally Atlanta auto for pets. Thanks.
Good morning, Judy.
Steve If you don't mind why don't you kinda and thank you for the question by the way we need to talk more about auto if you. If you unpack that if you would Steve.
Yeah sure good morning, Judy.
Oh, we don't have.
The kind of visibility and we'd like to have a going forward or what we are seeing in Q3 is because the demand continues to.
To increase that we as we've seen before but going out into Q4 and beyond.
You know industry.
Experts such as I guess and H S is saying that so we'll continue to see the recovery through Q3 in Q4, two roughly 90% of Uh huh.
Normal or 2019 level.
And that we should see that recovery continue into 2021 being up about 13% over their forecast for 2020. So continued.
Improvement in the market, but it's going to take you know several years to get back to the EUR 2019 levels the positive side, where the for the business is the you know the models that are nice demand are also the highest content vehicle, so that plays well or for like it over the.
Over the long haul.
The industry trends in terms of.
Sustainability electric vehicles autonomous.
Autonomous vehicles are all still in play although some of that is being pushed out and that continues to give us a opportunities to play in the future. Although the timing on some of that's a may have it may have changed so industry will continue to recover we expect pretty significant income.
Freeze in the 2021 of things hold up by the way.
We are planning and on a longer term, our our strategies our product development seem to be right on target for customers.
Okay. That's helpful. Thank you.
Okay.
There are no further questions at this time I would like to turn the floor back over [laughter] hoist for closing comments.
I'm just wanted to thank you guys for joining the call today, and we'll talk to you next quarter. Thanks.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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