Q2 2020 Alamo Group Inc Earnings Call
Good day and welcome to the Alamo Group Inc. second quarter 2020 Conference call. Today's conference is being recorded this time I would like to turn the call over to Ed misery deep.
VP General counsel and sector. Please go ahead.
Thank you.
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On the fine with me today, our Ron Robinson, President and Chief Executive Officer, Dan Malone Executive Vice President Chief Financial Officer, and Richard formerly Vice President Treasurer and corporate controller.
Management will make some opening remarks, and then we'll open up the line free [noise].
During the holiday management may reference certain non-GAAP numbers in their remarks.
Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.
Before turning the call over to Ron I'd like to make a few comments about [noise].
Statements.
We will be making forward looking statements today that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results among those factors, which could cause actual results to differ materially or the following.
Market demand cobot, 19 impacts competition, whether seasonality currency related issues geopolitical issues and other risks factors listed from time to time in the company's FCC reports.
The company does not undertake any obligation to update summation contained herein speaks only as of the state I.
I would now like to introduce Ron Ron. Please go ahead.
Thank you did you want to thank all of you for joining US here today, Dan Malone, our CFO will be our call with review of our financial results for the second quarter. I will then provide you comments I'm. Following our formal remarks, we look forward to taking your questions. Dan. Please go ahead.
Thank you Ron.
The key takeaways from our second quarter in first half 2020 results are.
Second quarter net sales were down 5.8 per cent compared to prior year as the effect of acquisitions did not fully offset a 22.3% organic sales decline.
Record first half net sales were up 6.6% with acquisitions.
But down 13.4% organically.
Second quarter, adjusted EBITDA was down 4.9% from prior year, but higher than prior year as a percent of sales.
First half adjusted EBITDA increased 9.7% over prior year and adjusted EBITDA margin was also up as a percentage sales for the same period.
Net income and earnings per share were down due to covert 19, but acquisitions were again accretive to net earnings even with the whole burden of incremental interest amortization and inventory step up expenses.
Second quarter operating cash flow was $53.1 million up almost 60% over prior year outstanding debt was reduced by $51.5 million during the quarter.
Quarter in cash on hand, plus loan availability remained above $200 million and quarter in backlog was $217 million down 6.9% since the end of March.
Second quarter 2020, net sales of $268.6 million were 5.8% lower than the prior year second quarter without acquisitions organic sales were down 22.3% without the unfavorable effects of currency translation organic sales were down 21.2%.
Organic sales decline was primarily due to coated 19 impact.
First half 2020, net sales of $583.1 million, where a company record and 6.6% higher than prior year with the contribution of acquisitions without acquisitions organic sales were down 13.4% without the unfavorable effects of currency translation organic sales.
Were down three tall, 12.3%.
The organic sales decline was less than the quarterly comparison because of stronger pre told good results in the first quarter.
Industrial Division second quarter 2020, net sales of $182.3 million represented a 6.2% decrease from the prior year second quarter.
South the impact of acquisitions. This division's organic sales were down 31% due to covert 19 disruptions to operations and customer demand.
Agricultural Division second quarter 2020 sales [noise].
$86.4 million down 5% from the prior year second quarter, and U.S. dollars and down 2.4% without the effect of unfavorable currency translation.
In the second quarter, we continued to see modest organic sales growth in our North American operations, plus some incremental Dixie chopper sales, but this was offset by the cobot 19 impact on our operations and customer and customer demand overseas.
Net income for the second quarter, 2020 was $13 million or $1.10 cents per diluted share compared to prior year second quarter net income of $20.7 million were one dollar and 75 cents per diluted share second quarter GAAP net income from acquisitions.
During the full cost of incremental interest amortization that inventory step up expense was accretive by 12 cents per diluted share.
Net income for the first half 2020 was $28.5 million or $2.41 per diluted share compared to prior year first half net income of $35.9 million were $3.05 per diluted share.
First half GAAP net income from acquisitions was accretive by 16 cents per diluted share, including the full burden of incremental interest amortization and inventory spec step up expenses.
Second quarter 2020, adjusted EBITDA, which excludes the more bark inventory step up charges.
Was $34.5 million down one at $1.8 million were 4.9% from the prior year second quarter, our adjusted EBITDA as a percentage of net sales was 12.8% in the second quarter compared to 12.7% of net sales in the prior year quarter.
Higher more merch margins, a higher mix of replacement parts sales and a favorable mix of whole good equipment sales more than offset the unfavorable margin impact of cobot 19.
First half 2020, adjusted EBITDA was $71.5 million, which was $6.2 million or 9.7% higher than the prior year.
First half.
The first half adjusted EBITDA margin was 12.3% of net sales compared to 11.9% for the prior year period.
The first half comparison is better than the second quarter comparison due to the strong results realized during the pre kobin portion of the current your first quarter.
During the second quarter of 2020, we generated $51.3 million of operating cash flow.
Turning to $33.3 million in the prior year second quarter, an increase of almost 6% strong operating cash flow is expected to continue throughout 2020 due to management emphasis on asset efficiencies and controlling expenses.
At quarter end, we had $82 million of cash on hand, and $122 million of availability under the existing credit facility.
Maintaining liquidity above $200 million during the quarter, we reduced outstanding debt by $51.5 million and improved our leverage ratio of total led to total debt to EBITDA as.
Well, we currently have more than adequate liquidity, we cannot forecast the duration of full impact of the cobot 19, Pandemics. However, we still do not anticipate any near term liquidity issues.
We ended the second quarter with two $217 million order backlog.
A decline of 6.9% since the end of the first quarter and 5.3% lower than the prior year second quarter.
Excluding acquisitions backlog was down 19% from the prior year.
To recap our second quarter and first half 2020 results second quarter net sales declined 5.8% with acquisitions and are down 22.3% organically.
Record first half net sales were up 6.6% with acquisitions, but down 13.4% organically.
Second quarter, adjusted EBITDA declined 4.9% from the prior year quarter, but increased as a percent of sales in the quarter to quarter comparison.
First half adjusted EBITDA increased 9.7% over prior year and adjusted EBITDA margin was also up as a person as a percent of sales for the same period net income and and earnings per share were down due to the cobot 19 impact, but acquisitions, where again accretive to net earnings even including the full burden of incremental interest.
Second in inventory step up expenses second quarter operating cash flow was $53.1 million up almost 60% over prior outstanding debt was reduced by $51.5 million during the quarter quarter in cash on hand, plus loan available loan availability remained above.
Thanks.
Okay, and backlog hundred $17 million down 6.9% since the end of March I would now like to turn the call back over to.
Thank you Dan.
Alamo groups second quarter results were certainly solved as Dan just reported as our press release reported.
Given the dramatic effects cobot is having on on the economy in our business in general I feel our results held up reasonably well sales were off about in line with the expectations. We indicated last quarter, but earnings were better than we thought they would be and cash flow, which we felt would be strong came and even.
Better than we hope, which allowed us to pay down over 50 million against our our debt.
Okay.
Given the circumstances I'm very pleased with lower performance and proud of our staff in general because it was certainly no easy accomplishment. The second quarter was quite a roller coaster ride with plant closures stay at home directives travel restrictions and all the challenges. We've all phased in are still contending with and I know we were not alone.
In this endeavor is nearly everyone's had to adjust their way of living and working to deal with the crisis, but while some businesses could adaptive working remotely better than others. Let me assure you were not an industry that can work from home we cannot build our equipment virtually you we have to.
Have people show up and our people really made the extra effort to ensure we continued to function effectively and never lost focus during the last quarter on doing so economically and efficiently.
I'm glad to say that as of now all of our plants are open and operating and we're continuing to make deliveries in a timely fashion and while our new bookings are running at a lower level than last year. They are still coming in at a consistent pace.
Fortunately our customers in both our agricultural and industrial sectors are continuing to function. So our equipment is being used on a regular basis and needing to be maintained in replaced at a similar if lower level today.
Almost industrial division products, which is most do you know are heavily oriented towards governmental entities for infrastructure maintenance.
Had experienced some soft market conditions in two ways. The initial challenges in especially late in the first quarter and early in the second quarter was just related to the ability to function with all the cold related issues. I mean, we had a lot of we were having to have more people work from home the markets. We're in a lot of.
Our governmental customers were not are not as well equipped to to work from home. So there were a lot of operational issues, just in communicating and dealing with the customers into and for them to conduct business in.
Normal way and so Thats why probably late March most of April there were a lot of just operational issues in just trying to function and and communicate.
We're seeing now these types of issues.
Have improved and most of our customers in both our divisions are functioning reasonably well and being able to conduct business in a somewhat normal fashion, but now we're seeing more issues related to on the governmental side, particularly to revenue shortfalls and budget constraints, which.
We believe will impact their spending for the rest of this year and into next year as well.
They are still a utilizing our type of equipment on a regular basis, we feel we will hold up better than other types of industrial equipment, but we will not be immune to the governmental budgetary constraints.
So even when they delayed new equipment purchases, they often have to spend more on repairs to their existing fleets and we're already seeing evidence of this is our spare and where part sales seem to be holding up much better than new equipment sales and this is consistent with patterns, we have seen in previous downturns.
We also feel as in the past, we will benefit somewhat by being part of their normal operating budgets and not reliant on special appropriations things like new highway bills or special capital spending initiatives.
In the second quarter, our industrial revenues.
Some part of the smaller part of their revenues come from non governmental related spending and this was off even more than governmental spending as in some areas such as oilfield and construction there were even greater impacts in the short term. This was felt the most in areas such as our vacuum truck rental offer.
Patients. However, if it falls historical patterns areas, such as the should also rebound a little quicker as well and we're already starting to see some evidence of that.
In our current results Alamos agricultural division sales have actually been more of a bright spot for us as they have held up even better than our industrial sales.
Farms and wrenches, while not immune to the cobot related issues have generally continued to function throughout this crisis and if anything I think what we feel that we may have benefited from the softness in the agricultural market of the last several years.
Since the industry entered this cold period, with lower dealer inventories and and a little pent up demand due to lower levels of replacement for the last several years. So the softness of the last several years of has.
Has created a little bit more demand for us in the short term.
Farmers and ranchers continuing to operate.
Interestingly, our North American agriculture equipment sales were actually up year over year in the second quarter.
Whereas overall sales were down mainly due to weakness in Europe, which in general has had more cobot related operational issues and probably came down even harder on on restricting stay at home.
Initiatives and restricting commerce, especially during April and debate.
But as I said all of our plants in Europe are our opening functioning as well I think we also benefited in the U.S. from increased sales to the hobby farms sector as of.
With all the stay at home directives that as a hobby farmers were home more and working in their fields, another land and having to buy and replace equipment, though a little bit more steady.
I also feel agriculture should continue to hold up reasonably well moving ahead essence acreage under cultivation seems to be holding reasonably steady and they'll farm incomes are still being constrained by soft commodity prices.
The farm incomes are still a little constrained, but I think their operational activities are actually being conducted reasonably well, which we think we will benefit from.
Our company has also helped in the second quarter bar healthy level of backlog going into the quarter, which allowed us to maintain sufficient levels of production throughout the quarter.
And although our backlogs came down slightly from the previous quarter. They are still at a solid level to support our third quarter operations, but but the key to Alamos ongoing performance as long as this pandemic prices continues we will be new order bookings and they are still running below historical levels.
Well I'm pleased that this is actually showing signs of improvement as well, particularly in June in the first weeks of July as new orders have been we are seeing have been picking up versus the previous several months.
And that's that's important because new orders are the key.
And until they get back to the levels they need to be.
And I'm sure you the our company will maintain its disciplined action to manage our balance sheet limit capital spending control operating expenses and take other such actions necessary to maintain our financial stability.
And as we've said repeatedly even if sales and earnings are Sol, we feel our cash flow should remain strong and we demonstrated this once again in our second quarter performance, where we were able to reduce our debt over $50 million, while still maintaining healthy cash balances of over 80 million.
This focus will remain a priority for Alamo for the foreseeable future.
I'm also pleased to report that despite the challenges of goal that we continued to make reasonable progress on the integrations of the acquisitions, we made last year, including more bar, which was our largest ever.
While some initiatives such as international cross selling have certainly been constrained with the lack of ability to travel and and this the these have been slower to get underway other areas such as improvements in technology and the plants and supply chain synergies are moving ahead and then ill.
Somewhat even on schedule are ahead of schedule. So all in all we remain very pleased with the three acquisitions, we completed last year and still and we definitely feel when business conditions return to more normal levels. Each of these will contribute nicely to alamos overall development.
As I said earlier, the second quarter of 2020 was quite a rollercoaster ride.
And while some of the challenges have settled down in the last few months. It is still going to be an uphill climb for us in many manufacturing companies, but I feel confident in the ability of our people to maintain our focus and discipline for as long as it takes and I want to thank you and our investors for your support as we as we move.
Turning to our way do this to the situation with that I would now like to open the floor to any questions you might have.
If you would like to ask a question. Please signaled by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function has turned off to allow your signal to reach our equipment in press star one to ask a question.
We have the question from Chris Moore CJS Securities.
Hey, good afternoon, guys. Thanks for taking a couple of questions.
Chris.
Yeah good afternoon.
Did you start with backlogs I understand a little bit better so just trying to get a sense as to whether.
Products are cycling through.
More quickly now more slowly kind of maybe the average number of days in backlog currently versus where it might have been you know this time last year.
And is that influenced by mix or are you trying to get get a better sense, what what's happening there.
Actually so far it has not changed appreciably I mean, our lead times are about the same.
<unk>.
You know deliveries are running of we got to view, there's a few sporadic issues on some on some maybe some purchase components, but by and large the supply chain is supporting us in a fairly normal fashion.
And and.
Our lead times are fairly normal and sold the backlog is as a number of days of sales is held up fairly consistently.
With pre covert conditions.
Is the mix in there much different you had talked in.
Q1, where you.
Some of the big ticket items were the ones that that.
Kind of warrants selling through at this point in time it is that still the case.
That has is changing slightly I think as the big ticket I mean yell at some of the big things like great all excavators and have more barks big Big industrial machines.
So a little bit softness more softness early on and they have actually both of those kind of various have improved so big ticket items that have actually improved slightly army. All sales are still a little soft like said industrial has been a little softer than I got AG is up in fact, yeah their backlogs even since the end.
For the quarter if continued decline.
So you have to invite today, our backlog is higher than it was at the end of the water and and.
But but in big ticket items that have shown a little come back a little stronger than they were a couple months ago.
But but all in all fairly consistent like I said, probably.
Spare parts have held up better than the whole goodsall spare parts as a percent of sales you.
I would would be up a little bit.
Which would be a more favorable mix and certainly spare parts.
Well, they really very have very little bit to do with backlog. The good because they go in and out of backlog so quickly.
But but that would be a little bit of a different on on the mix.
Which is favorable because I'd say, it's a higher margin thing and it tends to be young.
Flow through much quicker, but other nap.
Other than that the trends have been more subtle.
Got it it's helpful. Thanks, Sean I'll jump back in line.
Sure. Thank you Chris.
Our next question comes from Mike Shlisky <unk> co your securities.
Hey, guys good afternoon.
Hey, Mike.
So.
Thanks companies that we've heard from today I think kind of given you mentioned about intra quarter movements in the sales orders.
Perhaps quantify for us how sales orders progressed sequentially and May over April June over May in July of June.
Beyond what you've already set up to speed up you kind of numbers in kind of success, but but behind that progression would be appreciated.
Yeah, well as I said April.
Well there were lot of operational issues, you know for I mean, I think we were all kind of dealing with the you know sort of this new paradigm that we've been faced with.
So I think you know there there were more operational issues and that limited I mean, you know.
Orders as people were you know like say only doing with doing what they had to and looking ahead was a little.
What would you know there was more issues with that.
The so those started to get better in May and they've even continued to get better in June while they're still certainly some operational issues like say, they're fairly limited, we figured out ways to work and to make our keep our plants open and yet due to conduct business in a safer way and ever.
Thanks, So now what we're seeing I mean, he has a said on the governmental side I think budget constraints, we're already starting to see would be there being a little cautious and because I don't think they know exactly how much money theyre going to have the spend and they're trying to deal with that and that's a very dynamic situation. So so that's that's changed but.
But even within that like I said, the AG has held up fairly steady and as we moved into the you know that from a.
You know like say the little bit more uncertainty is.
On functionality.
It all started improving.
It may was better than April June has been much better than may and so I mean, each month over month. The on really both sides of the business. We have seen consistent improvement as people figure out how to work with it and tried to get back to a young conducting business in a little bit more normal fashion like I said essentially.
No our equipment on both sides of the business of X. is actually staying.
Being is being utilized regularly being worked regularly and a and as you know needing to be maintained and replaced an all regularly and saw though.
So you know like now that they are functioning better.
The each month has gotten better like said back in July has already looking to be better than June.
But if there's still a lot of uncertainty out there you know we're certainly we're concerned that they're not be a second wave of cold did that really takes affects operational issues within.
And our customers like said, we've got a little bit more of that on the governmental side than the AG side I think the AG side farmers are they don't have worry about social distancing and in their fields and they don't have to work.
And as long as they have crops in the field and animals on the farm they have to be maintained to some level you know again just to.
Take a holiday from certain working their farm. So so I think we see a little bit more stability there and.
And all but but but still is the equipments work in operational issues have gotten better and.
But and like say sales are improving month over month.
But the.
Likes the government the question with governmental is cash and when are they going up.
Europe has been as as also said of little bit slower.
They were they came down and harder on operational side, especially during April and may, but they're really pushing to get things back open and all but probably a little bit more you know a little bit even more functional issues for <unk> issues with functioning.
For them than in North America, but I think there the even there so they've been a little slower and softness there has been a little bit deeper than in North America, but.
They're all improving and yeah we.
Of course, we had more plants in Europe close during April.
They're all now have reopened.
But you know in May and I'll operationally, they're doing okay, but it's you know again businesses saw for some of the same reasons and soft here, but they've been kind of a step behind us in the U.S.
Okay.
Got it if I can follow up with you on that on some of you add comment there one on them.
Yes.
All the across our plan this year, not just corn beans, but boats in barley and everything else out there. We've got about 10 million extra acres. This year versus the this is to try year all that and then has to be clear that you work tended to et cetera.
Do you get a sense that there could be elevated replacement coming next year, assuming cobot as.
More or less gone by then.
Yeah.
That would help a little like I said earlier acreage under cultivation is remaining steady like you said I mean, there's a little bit more in and of course it it seems to be shifting a little bit between commodities is based on on prices.
So yeah, but I I see I agree remaining steady, but they sort of <unk> and that helps I mean, if you have so many acres under cultivation you have to heavy equipment to manage those but it would help if they were getting a little bit better commodity prices for those commodities I think.
Like say farms of the are operating at a.
Fairly.
Steady level, but but it's a fairly low level like it's been the last couple of years morsel due to farm incomes being solved and.
The than.
Acreage under cultivation. So I think that that provides a baseline and keeps things steady, but but it would be nice to see a little bit better higher level of farm incomes for that for that sector to really rebound nicely. Mike. This is Richard also on top of that too. If you recall last year in March and April there was some heavy flow.
Adding in the Midwest, so that caused that cultivation acreage to be down.
Versus this year.
Right correct exactly okay, yes, okay.
And then I was just switch over to a quick modeling question as well that's pretty admirable given over the prior you had pretty consistent EBITDA margin.
More or less and so the a change between which segment brought you those.
It's good to see as well I kind of kids in the second quarter, where there any.
Temporary cost reductions that will be coming back immediately in the third quarter.
Hi, good handle on scaling of things back and forth.
Yes, no Mike that's that that that margin improvement is really just a straight up continuing its a function of the more bark margins being higher you know there's there are some lower commodity costs, but those are trending down.
We had a favorable mix of parts. So you know you know the impact that that can have and then even in the whole goods. We were we've had a favorable mix. You know you think about some of the things that were down were like the big ticket truck mounted.
Type of equipment, and yet and we don't have a big margin on the resale of the chassis. So so whole goods any and even on the AG side, we had a favorable mix of whole goods. So its whole foods mix its parts mix.
It's higher higher more bark margins. That's that's the main story.
So then it doesn't sound like I said given this the first third quarter of having more back in your business. It.
You have any kind of even a small enough scale back in your top line in the third quarter, you should be able to keep wrapping up the margins as well mix me as we think as good a small pieces change.
We think EBITDA margins are going to be a good story all year long.
Got it.
It sounds like you Kinda answered my next question that maybe just kind of go onto the chassis availability situation as I recall, you had a good inventory of chassis during a time when other folks and I've had some bassi chassis to two attached things too.
So the kids today, and how do you feel about retaining and.
Passing through all that no those casino products.
Yes, so far chassis availability has been has held up fairly steady I mean, I know you know early in the you know like the goal with thing several you know auto and truck plants were shut down I think most of them are back opening and and all and but but yeah, yeah right now between our own into.
Tory and.
And the market availability.
As I said, we've had no major supplier issues I mean, we've had one one off issues, where you wanted to the special chassis and that one was hard to get but but other than that I mean in general we.
Jenkins from Joe Mondello, Sidoti and company.
Hi, Ron Dan.
Good afternoon joke Angel.
So I wanted to ask about the government business and what you're hearing there so compared to when we last talked at the end of April.
It sounds it almost sounds like things have gotten worse, but it is it is that the case or is it a case in point, where we've just gone a little further down the line and you're just talking with your customers more and things of.
Got it and further along in terms of budgets and and that's really what the cases and then just to follow on to that are are you expecting because some of your wording. It's a little unclear or are you expecting the back half of the year related to the government business to be worse than say the volumes.
That you saw in the second quarter.
No, we're not expecting things to be necessarily we're like I said communication with the customers. It has improved but their budget situation is still a big no.
And I think you know what.
You know they don't know a you know I don't know.
But but I I you know like as I said, even industrial orders have been picking up month over month. Since you know they were very soft April better in may better in June looks like they're running better in July.
And so you know each month seems to be getting a little bit better I think that bodes well.
I don't see yeah, I don't see anything that's going to make it worse I was in fact, the zinc governmental budgets are a bit of a challenge and you know that is you know federal government is talking about some kind of you know this next stimulus package is going to help bolster have money.
Oriented towards the states and and.
Thank you know.
I think it's necessary I think.
I, just hope that they do it sooner rather than later.
You know whatever they do.
But but yeah I think it you know like say I don't having particular concerns I think yeah business is going to stay soft while bajan. Good there our budget constraints, but I think will hold up fairly steady our order intake is coming in you know very you know fairly steady is you know the throughout this just at a lower level and I think you know that levels picking up.
And I see no I don't have anything particular says all its something is going to change or is going to get worse, but but I mean, you know and we have a pretty good about you know I'm glad we had a pretty good backlog going into this and we still have a pretty good backlog and as long you know that helps smooth out some of the some of the rough spots and some governmental ordering but.
But but you know and that's why you don't course always for manufacturing company New orders are are the key.
And yet you know there's uncertainty when your customers budgets are in the shape governmental czar so.
I'm concerned I'm always concerned, but but I have no reason to believe that theres anything untoward that some some problem working around the corner that I'm not aware of.
Okay and.
How much severance expenses did you see in quarter.
It fairly minimal because we actually I mean, your while we have had some permanent lay offs. I mean, you on the majority of the people, it's been furloughs and temporary layoffs and and work share programs and such so that you know you don't have severance cost you know there there is still on on our books and and that we we've had.
A few more layoffs, but but I mean like say the first levels or it's been you know.
Not not a lot of seen tenured employees. So the dollars have been fairly.
Fairly negligible in our results.
Yes, so so far severance expenses not been a particular issue.
Okay and.
[laughter] at what point.
Thanks, I guess have rebounded pretty strong from April to July so maybe.
Maybe a furloughs just start to come off as your volumes start rising.
I guess, there's maybe also an option where.
If things do look like they are maybe a little more slow and prolonged.
Then you take much more structural changes is that sort of how you're looking at I.
I guess, the yeah, I think that that's right I mean at some point, we want to see how will you I mean, we have actually half the people on fertile we had two months ago.
So on me all the number of people being furloughed has been cut down and you know and you're right, but we've done a few we see that some areas, where we think it's one of the be saw for a while we have done converted the few into permanent lay offs too. So have you know we sort of outlined that in the press release and I think that.
So yeah I mean, you know will probably as we think in the next few months, we'll have a few.
More come off for low maybe a few more go onto that are you know until a permanent layoffs, but.
You know that.
We're still waiting to see sort of where we think some of the the business levels are going to sort of settling that at least for the next couple of years. I mean, you know our view is you know it's not just getting to the end of this year, but look we where we think how business is going to start shaping up next year.
As an end the key to that I mean first of all we got to get this covert situation under control and some kind of a solution to that that is going to allow things to.
Are you worried about the second wave but.
Just like permanent changes to the to the way people do business. So we're worried that were concerned but I mean, you know like said Thats why I think we're being cautious and we're being.
Taken steps necessary, but it's not like like I said that we think.
Theres something major coming down the road one thing we have done in this is we you know we worry.
Last or each year, we've done a little bit complaint consolidations and.
Last.
And we have.
You know each time, we do that usually there's a few.
Layoffs and some.
Consolidations as we do that and we've already.
You know that's one of our goals is to over long term instead fewer bigger plants and then go over there I mean, you know we're continuing with those initiatives.
Already so I mean, we're probably a little do another we did couple last year, we're doing a couple of this year in overall they do another one next year. So so I mean, you know that kind of ties into that.
As well.
And I guess to follow up on that.
Where are we with the Milwaukee consolidation is that pretty much all set in stone I think it was supposed to be done by the end of the first quarter and.
The the the consolidation that you're doing this year I I wasn't what are you exactly are you doing and is that going to be material or these.
Some pretty foundations or.
No look first of all alright, Milwaukee, one is to finish up and running I mean, some of the one thing you'll notice we as I've said, we've cut back on Capex, and we really have but but it looks like capex in the first half was little higher than we'd sort of indicated and that was because some of the cost of from the you know the Milwaukee.
Q1 was in sort of you know a working account instead of turned into a capital in into the.
Put onto the capital account and so it looks like we actually saw a bit more but of all that was really have a hold over from last year.
So our army all sort of like the delay in the timing from last year. So we really are have got back but that is done it is up and operating we have the plants, we consolidated into that we own one level that one's not only have been close it's been sold and we and and we've collected the money.
So that.
Yeah that when went well it's a good plant I'm glad we got it done before all this is.
Just because.
It makes it much easier.
So we also has announced we did last year in Canada, We took our RPM plant, which was 20 minutes away from our 10 coal planting combined those two in the last quarter. We also sold.
That plant the Tim though RPM one.
In Quebec.
And sold close that gap the money.
What we've announced when we bought.
More bar, where they had three locations tune the U.S. in the smallest one was up in Canada, we had sort of the our plans word to move that into.
Could take down from three to two locations and we know that is.
Thats the one that's a fairly small when that but but we've announced we were so that is now underway and should be complete this year.
To close one of the more bark ones and move it into the another one of their plants that moved the won't close one in Canada and moved into their one in Ohio. So.
Thanks.
That is underway and yeah, yeah. Unlike said, we're always looking at these opportunities.
Two.
Less than our footprint and we got a few others that because in next couple of years. So we plan on continuing on those.
Of.
No on a regular basis.
Okay, and just last question sort of a follow on to where you ended there with more mark.
It sounds like covert downturn then.
Set you back too much regarding integration and synergies and you know a lot of things that you're you've planned on and probably still are planning on doing could you just update us on how you know the integration with more Americas overall doing.
Yeah, I think in general it it's going well like I said some of the international Cross selling we wanted to do is kind of been put on hold just because of a logistical problems with traveling especially internationally.
The purchasing synergies I think we feel good that we have.
Identified and achieved a lot of procurement opportunities.
With lower sales, obviously, we're buying less and so we're not sold the dollars having come in quite the site at the.
Total as much but the pace is you don't like say we.
We've achieved what we plan to and believe as the sales picked up we'll deal with those.
These savings will pick up as well we had we knew to that we'd like to help I mean, you know some of the cutbacks in staffing at more bark.
It's related to cope with lower lower opportunity lower business levels, but it's also somewhat related to the fact that we've been installed more technology in that plant I mean, we literally from the day, we bought that in October of last year started making some capital investments and in some labor savings technology and putting in ROE.
Some robots, there, which we funded early on in this and those are actually now coming up and starting to operate and we're very pleased with the technological.
Developments that we made there, which we believe have very good short term paybacks and so I mean, you know so operationally those are proceeding ahead.
Per procurement once a procedure to head and.
So I t., we kind of little bit of a delay because.
In the very beginning when there were people being furloughed, we didnt have all hands on deck, but we have restarted that integration and we still plan to complete that this year as well.
Okay.
Yeah, so by and large it's moving ahead and like I say the one one plant integration is actually is moving hits Telcel. So no. We're we're.
We're.
Moving ahead actually better than I thought we would be able to given the operational challenges of.
Lack of being able to travel and everything else that we've all been based with.
Okay, well, thanks, a lot good luck with the rest of the year.
Yes, Thank you Joe.
Just a reminder to ask a question. Please press star one now.
Our next question comes from Chris Sat Chi Singlet research.
Oh hi, everyone.
Just sad to see a question on.
On Europe, the Europe operations.
You could shed some light there.
Why why with Europe, facing a more operational and demand issues.
In North America.
Yes.
You know.
First of all like in France, I think the government came down much harder.
You know they were.
Like here I mean, most of our businesses were all deemed essential in Europe. They really wanted you to justify.
Like it was harder to justify they put more restrictions on travel. So early on like said when we are plants in France, and now we're close down more.
We like say was just I think the whole country was a little bit harder to to function moving around transportation was harder everything was harder some with respect to England, I mean, youre thinking one was a little slower starting and really had more.
You know seem to have more incidences of you know the covance situation.
I think they were hit pretty hard for awhile and again they respond it's interesting.
England in France, our plants, especially during April most of our plants were closed down for almost like say here. We go in the us.
Plant closed for a couple of days and then reopened there was it was it was two three weeks.
Before they would reopened.
It's interesting our plant our three plants in the Netherlands never close day, they seem to be operational and functional throughout this but.
Like I said I think the governments in England, and France really had a lot more directives to keep things shut down and really limited travel and and.
You know.
You really almost if you were out on the road you almost have to have some kind of.
Letter to say why you were out on the road so.
First it was operationally a lot more challenging and.
I think people.
Function as much we that order intake was very low during those those months, which.
It has improved now that they're more back functioning and everything but that created sort of a gap in the backlog.
While they were shut down and so, but so little bit more operational challenges there and.
So I'd like to Europe, just came down harder.
You can write any even within the U.S. or like you know like New York, New England came down harder we had more operational issues in New York, New England kind of areas than than we did in other parts of the country and.
But they got hit harder and.
You know you go back and forth did other parts of the country.
Should they have done more or should they be doing more now but.
Yeah, we'll all be second guessing, but I'm just saying.
England in France, we're much more operational issues.
Right.
Okay.
Just another quick question on I guess, you guys reduced debt by.
50 million.
This past quarter.
[music].
Good day, I mean in each in the next quarter if its cash flow. It's just it's good.
Are you going to plan on reducing debt again or are you looking our what's it seemed like for M&A opportunity.
Well you know going into this year since we did three.
Acquisitions last year and did our biggest ever and had more debt than we typically carry.
I mean, we had already said we were going to slow down on M&A activity going into this year, even even before covert hit and we're focused more on integrating acquisitions from last year and paying down debt. So the fact that the sort of the whole industry decided to take an M&A holiday for cobot suited us just fine because we were already taken one.
So I think you you're right and I mean, a lot of you know sale processes of what we're we're sort of delayed and especially in industrial.
Manufacturing industrial Cai companies, maybe hi, Tech, maybe pharmaceuticals, or medical or those kinds of things went on but but but not many not industrial manufacturing and I think there are some properties you know assets out there that people would like to probably sell and I think there theyre already looking at trying to stop.
It up some of these sale processes again.
But I still think it's going to be a bit challenging travel is still challenging right now and people are only doing absolutely necessary travel and their thing is I think industrial companies valuations are going to be a little bit harder because I mean, you know, thereby uses Uni you can't you EBITDA from.
Today, you got to look at pre Cove, it but you know how long is going to be before we get back to pre cold weather I mean, I think this could be oh like say, even if things start getting gobi gets sorted out things start getting better I think it could be a little slower recovery. So I think the.
I think M&A like say I think we're up.
We're looking.
We believe acquisitions remain a part of our strategy and we want to pursue them and.
But we don't we're fairly.
Conservative on financial structure, and we want to make sure we have the wherewithal to within our comfort limits of of pursuing it and.
We'd probably do some smaller before we do bigger but.
Yes, we would we're still looking we would still look but like say are in short in the short term our focus is much more.
Internal.
Okay.
A great last last I guess.
I just wanted to know I mean.
What do you what do you guys see is at the.
Please stand a chance of your factory seeing shutdown again.
No.
Your guess is as good as mine I mean, I, yeah, I don't have any particular.
Insights into that I think most our plants are de you know given that we support a lot of governmental and a lot of agricultural functions our plants of.
In the past have been dean pretty well essential and have have gotten ability to stay open. So I mean, I think that we're it's probably a fairly low probability that they'd get shut down for any long periods of time, I mean, if the recovery health issues or.
Not either either within us or within an area.
You are on also.
Like recently, one of our plants in France.
They we had to go in and they said, there's a big big increase in this part of the France of Covitz solely they were making everybody shut down for a day and test everybody. I mean, you know we literally.
Head the test everybody in one in one of our plants and.
And then we could reopened but but.
Unfortunately.
Number one they could test everybody in one day and get the results in the next day. So I think and that's that's another key too is just where we go with the scope. It situation is there going to be a second wave is going to be as bad than the first or we are we going to have those.
So I'm kind of.
Of drugs that can solve this problem or what's that.
I mean, there's there's lot of what if scenarios, but I mean, I think we'll do better than most just because our neat plants are pretty well deemed essential I think it hurt helps that most of our plants are in basically more rural areas smaller towns and we don't have been plants in big cities not in not only in the U.S., but not in European.
I mean, we're in the smaller communities, which seem to be a little bit the easier to control I think in our plants. We are able to you know.
So the social distance, even within our plants because it's not like we're running assembly lines, where we have people shoulder to shoulder I mean, you on people who operate in sales within our plants and they don't tend to accumulate in big groups and and so.
So we don't have problems with that so so actually I think we'll continue to function I don't see major problems, but but on the other hand, I'm like say don't the.
My Crystal ball of how co what's going on developed is pretty cloudy. These days.
Okay, well, thanks, thanks to that.
Thank you.
There are no further questions at this time I would now like to turn the call back over to management for closing remarks.
Okay, well again, thank you all for joining US today. We appreciate your interest in support of the company and and like I said I think we act that's a challenging situation, we feel good about where the company is and and other than our ability to deal with the with at least the yes.
Shoes, as we see them now.
Currently so anyway. Thank you and we look forward to speaking with you on our third quarter conference call in the end of October.
Dave.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.