Q2 2020 Core-Mark Holding Company Inc Earnings Call
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Welcome to the Cormark second quarter 2020, Investor call. My name is John I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you do you have a question press Star then one on your Touchtone phone.
Please note the conference is being recorded and I'll now turn the call over to David Lawrence.
Thank you today's call will be led by Scott Macpherson, our President and Chief Executive Officer, and Chris Miller, Our Chief Financial Officer before turning the call over to Scott I will point out the core Mark intends to take advantage of the safe Harbor provisions of the private Securities Litigation Reform Act as noted in the earnings release, we filed this more.
Turning.
Please remember that our comments today may include forward looking statements, which are subject to risks and uncertainties and actual results may differ materially from those indicated or implied by such statements. Some of these risks are described in detail on the company's as SEC filings, including our annual report on form 10-K, the company does not undertake any duty.
To update such forward looking statements. Additionally, we will refer to certain non-GAAP financial measures. During this call you can find a reconciliation of these non-GAAP financial measures. The most directly comparable GAAP measure and other related information, including a discussion of why we consider these measures useful to investors in our earnings.
Release in our quarterly report on form 10-Q, I'll now turn the call over to Scott.
Thanks, everyone for joining us today on our second quarter call consistent with the first quarter I want to begin by recognizing our employees customers and vendors.
Grateful for their commitment cooperation and support through it remains a dynamic environment.
Slide 19 is certainly challenged our industry was significant swings in volume margins and product mix, although we saw consistent volume improvements in many product categories through the quarter.
Margins remain compressed affected by lower volume incentives consumer demand and mix. Despite these continued headwinds. This organization has proven its resilience by leveraging technology to align our variable costs, making meaningful progress on our fixed cost initiatives and executing on our productivity metrics.
I have a high level of confidence in our ability to successfully navigate the challenges that lie ahead related to the pandemic, while continuing to move the business forward to the benefit of our shareholders to that end Im sure you notice, we restated our full year guidance, which had been previously withdrawn.
Obviously, the trends related to cover the 19 remain uncertain, but after experiencing three consecutive months displaying reasonable consistency from a cost volume and margin perspective, we had a foundation on which to provide some transparency to our outlook on full year results. This will provide more details on our assumptions in his prepared remarks.
Turning to the quarter, our EBITDA of $52.5 million demonstrated the ability to flex our cost structure, despite the volume and margin challenges.
From a revenue and margin perspective, it's important to recognize the industry trends related to consumer behavior recent industry data shows C store trips down approximately 10% to 15% rebounding from peak declines ranging from 25% to 30% early in the quarter offsetting the steep trip decline has been an increase in the average size of.
The purchase basket, which has been up consistently in the 15% to 20% range throughout the quarter, driven primarily Brett by product mix.
On the surface Nielsen and IRI would indicate that C store volumes are up 2% to 5% for the quarter, but underlying details revealed that sales growth is being driven primarily by alcohol and tobacco, reflecting continued declines in a number of key categories, including prepared foods snack and alternative nicotine.
Looking at our results for the second quarter total sales declined by 1.7%, reflecting 2% growth and cigarette sales and a 9% decline and non cigarette sales.
These results reflect a recovery compared to April were cigarettes were down 3% and non cigarettes down 20%.
The remaining gross profit margins presented a significant headwind throughout the quarter seeing a 58 basis point compression with approximately half of the decline driven by the mix of cigarettes versus non cigarettes and half driven by the impact of lower margins within our non cigarette categories.
The decline of non cigarette margins was caused by mix and margin challenges in the segment. The mix impact resulted from sales weakness in the higher margin categories of food Candy and health and beauty and general coupled with the strength of lower margin tobacco products.
Turning to rate lower margin percentages in our health beauty in general category, which contains vapor products was the majority of the issue.
The decline and vapor margin percentage reflects both the impact of lower incentives associated with volume declines as well as a change and vendor sales mix, we expect to see a meaningful rebound and veight margins as sales volumes recover longer term, we continue to expect to see steady growth in the alternative nicotine category.
From an operational perspective, we delivered warehouse throughput and transportation cubes for route metrics that exceeded prior year levels. In spite of the significant volume metric impact over 19, we accomplished this through quick and decisive headcount actions and the hard work and commitment of our employees. We also took aggressive cost cutting action.
Ins throughout the rest of the organization, including sales merchandising and general expense that helped to better align our cost structure to the volume and margin pressure, we faced in the quarter. It asked DNA, we reduced expenses by almost $5 million as compared to the prior year period.
It's important to note that while we are proud of our efforts to reduce expenses in response to the cobot 19 crisis, one must recognize a significant portion of our cost reductions are variable in nature, including labor travel and other miscellaneous costs tied to sales volumes.
From an asset management standpoint, despite some bad debt expense in the quarter, we generated solid free cash flow, including the benefit of solid inventory management and receivables oversight. We did a nice job of executing on our inventory strategy related to the recent cigarette price increase generating meaningful income contribution in the quarter.
Maybe most importantly in an environment, where liquidity is critical we preserve the health of the balance sheet, finishing the quarter with financial leverage of approximately 1.5 times.
Under the heading of business as usual, we have maintained a sharp focus on strategic execution throughout this pandemic and believe that the actions. We are taking now will position us to drive growth in sales and margins as we emerge from the crisis.
We have accelerated the transformation plans for our Salesforce focused on driving greater efficiency and alignment of incentives and despite a slowdown in conversations with prospective new customers early in the crisis, we are seeing some recovery and activity as customers are more willing to engage.
We forged ahead with the exciting relaunch of our Smartstart program, which compares merchandising resources to World class category management.
This program has been a cornerstone of our same store sales growth for nearly two decades and this was the perfect time to launch our redesign in an effort to recapture momentum and drive growth in sales and margins across our customer base.
Communicating emerging category management trends during the pandemic can be challenging and let us to leverage our new center of excellence by launching online virtual experiences featuring educational videos, new programs store set designs and optimized product mix using real time data analytics, we continue to evaluate change.
And consumer behavior in the current environment and have launched programs to capitalize on the opportunities brought about by the pandemic, our new personal protective equipment program as a turnkey solution for convenience retailers containing a wide array of gloves masks, sanitizers and cleaning supplies to satisfy consumer demand on the food front.
We relaunched our grab heat need program to feature packaged hot food items for consumers on the go and before year end, we will be launching our private label program and begin adding items to our product mix source through cormark curated which is focused on bringing new innovative products to the convenience retail industry.
We continue to drive meaningful progress on our finance transformation as we leverage investments in technology to drive greater efficiency and many of our transactional processes to cope with 19 crisis has taught us a lot about what we can achieve in terms of operational efficiency as we continue to evaluate and implement changes to help mitigate the impact of.
Arjun pressure.
And on the acquisition front, we still see significant opportunity ahead and continue to have active dialogues, but recognize that the timing of potential transactions remains uncertain and the current economic environment.
And all the results for the quarter reflective of a company with a dedicated workforce committed to its strategic priorities of continuing to grow profitably, leading category management and leverage costs.
Obviously during this crisis, we have had to pull hard on our cost levers as much of the volume compression was beyond our control, but we have continued to move our growth initiatives forward positioning us well as we gravitate toward historical consumer behavioral trends.
I'll now turn the call over to Chris for additional detail on our financial results for the quarter and color on our most recent trends.
Thanks, Scott and good morning, everyone.
I'll start off by covering our second quarter performance provide an update on our balance sheet and cash flow and then wrap up with our outlook for the remainder of the year.
Net income for the second corner decreased to $16.9 million compared with $17.7 million last year.
Diluted earnings per share for the quarter was 38 cents consistent with last year.
Excluding LIFO expense diluted EPS increased two cents to 52 cents for the quarter.
In a quarter with an unprecedented impact on sales and margin as a result to covert 90.
We're pleased to deliver growth and FIFO EPS and only a modest decline in EBITDA.
Largely driven by our actions to rightsize, the business and reduce operating costs.
Total sales on the cornering declined 1.7%.
$4.26 billion.
Following a 3% decline in cigarette sales in April we saw recovery and cigarette sales throughout the second quarter, resulting in overall sales growth of 2% for the quarter.
Total carton sales declined less than 1%, which was offset by cigarette price inflation of 2.8%.
Current declines for the quarter significantly on the outperformed the historical trends.
We believe that this shift primarily reflects the changing consumer buying behavior. As a result to cover 90 and is consistent with the trends we have seen from industry metrics, such as the Hilton and IRI.
Non cigarette sales decreased 8.9%, reflecting declines across all categories with the exception of other tobacco products, which grew by approximately 6%.
Consistent with the trends and cigarettes, we saw steady recovery and non cigarette sales throughout the quarter from peak declines of approximately 20% in April.
Despite the steady recovery across most non cigarette categories, which TP continued to outperform causing continued imbalance in mix and compression on margins.
Total remaining gross profit margin for the quarter declined by 58 basis points.
From a total sales mix perspective.
Our cigarette category finished the quarter 250 basis points higher than prior year, which compressed our overall remaining gross profit margin by 26 basis points.
In addition, the impact of cigarette price inflation compressed our total margins by another six basis points and the remainder of the decline was due to sales mix and rates within the non cigarette category.
The growth and LTP in relation to other non cigarette categories and lower rates in our April products drove the majority of the decline in non cigarette margins.
Our margins and vapor last year and efficient from incentives tied to volume metric growth targets and more favorable vendor sales mix, we expect to see a meaningful recovery and vapor margins over the longer term.
Year term, we expect to continue to see margin pressure.
On a year over year basis, reflecting a combination continued outperformance of cigarettes as compared to non cigarettes.
Continued mix challenges within non cigarettes, and lower margins and vapor.
Based on our sales results in July the pace of recovery and both non cigarette sales dollars and sales mix has moderated and we have not seen a substantial change in our overall sales mix as compared to where we finished the quarter.
In recent pause in the pace of recovery that we saw during the second quarter likely reflects the acceleration and coven cases, and the slowing pace and economic reopening EPL state and local level.
Our cigarette holding gains for the second quarter were $7.7 million compared with $3.8 million and the same period last year.
The increase in holding gains reflects the benefit of a higher price increase than the same period last year and higher inventory levels associated with the strategic channels and cigarette inventory.
Total operating expenses declined by 10.8% for the quarter significantly offsetting the impact is 11.9% decline in our remaining gross profit.
The decrease in operating expenses includes a 12.4% reduction in our warehouse and delivery expenses and the 7.4% reduction and asked DNA.
And warehouse and delivery our cost savings, primarily reflected the benefit of reduced headcount and strong performance and our key operational metrics, including throughput and kids for route which benefited from our efforts to reduce the number deliveries per week.
Also improve safety metrics, coupled with the reductions in headcount, helping lower our cost associated with workers compensation for the quarter.
In terms of other puts and takes within total operating expenses, we benefited from reduced travel expenses. However, these savings were largely offset by increased costs associated with Coca 19, including personal protective equipment increased cleaning costs and other expenses, including temp labor associated with.
Next time and quarantines.
As Scott mentioned, a significant portion of our headcount savings are tied to variable labor reductions associated with sales volume.
While we've made head count reductions in SDMA, we expect that we will begin to ramp back up our selling and merchandising headcount beyond 2020, as the economy reopens and we have greater opportunities to grow our market share and drive growth in same store sales and margins through our merchandising programs.
Based on the actions taken to date, we estimate we realized approximately $2 million to $4 million and permanent cost reductions that we can sustain and a more normal sales and margin environment.
And we remain focused on executing on a number of strategic initiatives focused on further reducing operating expenses over the longer term, including our finance transformation.
We continue to drive solid progress on this front and expect to realize cost savings again this year.
And we're well positioned to delivering the plans and $4 million annual operating expense savings on a run rate basis by the end of 2021.
Turning to the balance sheet, we ended the quarter with $225 million drawn on our credit facility.
$494 million available to borrow and $108 million in cash.
For the six months ended June Thirtyth, we generated $219 million and operating cash flow, including $140 million from changes in our working capital.
The increase in cash and a portion of the working capital benefit was due to deferred excise taxes in Canada associated with a temporary program that permits us to defer certain tax payments until third quarter of 2020.
The other significant drivers and working capital benefits included a reduction in inventory and the temporary increase in payment terms from two of our tobacco vendors in Canada in response to cope with 19.
We expect to temper retrans improvement to return to normal in the third quarter.
Excluding the benefit of the deferrals and increase turns we still drove about $50 million and improved cash flow.
We provided in our press release this morning updated guidance for 2020.
We currently expect sales to be between 16.5 and $16.8 million adjusted EBITDA to be in the range of 173 million to $183 million and diluted EPS to be between 90 cents and a dollar six per share.
EPS, excluding LIFO expense is expected to be between $1.42 and $1.59.
Cigarette inventory holding gains are expected to be between 24 million and $26 million. The guidance does not assume any other significant inventory holding gains such as the $7 million of can be income we earned in 2019.
Other key assumptions, our LIFO expense of $32 million, a 26% tax rate and 45.3 million fully diluted shares outstanding.
The guidance assumes no new acquisitions are large customer wins, and lastly capital expenditures for 2000, 2.8 or expect to be approximately $35 million.
In summary, while we cannot estimate the duration of the impact that Kogan 19.
We remain confident and our ability to mitigate a significant portion of these headwinds through our cost reduction initiatives.
We continue to maintain a very healthy balance sheet with strong liquidity and low debt.
Well positioned to emerge from this pandemic to continue to drive shareholder value through our capital allocation priorities that include acquisitions share buybacks and dividends.
Operator, you May now open the line for questions.
Thank you will now begin the question and answer session. If you do have a question press Star then one on your Touchtone phone. If you were securing from the Q. Please press the pound sign or the hash key diffuse new speaker phone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question press Star then one on your Touchtone phone.
And our first question is from Ben Yang view from Stephens.
Thanks, Good morning Ray.
Morning, then.
Morning, So I want to first ask focus on working capital on the balance sheet. Chris you provided a lot of good helpful color. There I thought it was notable the debt pay down in the working capital improvement.
Some of it is transitory.
But could you help us think about where you expect in debt load to be exiting the year another seasonality in Threeq you typically.
The kind of give us a sense of what you think will look like coming out of 2020 from a debt leverage perspective.
Sure Bond so I think for 2020, I mean from our free cash flow standpoint.
We're going to generate meaningful cash flow free cash flow this year.
I would say comparable to last year.
So I think we're going to end the year.
Yeah.
From a leverage standpoint, probably one to one and a half times.
That's great Okay.
And then Scott you talked about.
Navigating through coveted taught you a lot about the business you've learned about how efficient you can be.
Recognizing there is a lot of your cost structure. That's variable when you think about coming out of cobot and demands returning back to normal.
How can you help us think about.
Potentially improved operating leverage in the business and how you think about maybe better flow through going forward.
Any context or color you can get would be helpful.
Sure Van I think start was saying that Chris called out in his script that we think we've captured $2 million to $4 million of kind of go forward, we'll call that fixed expense that we have stripped out of the business and that's primarily still in the us DNA side of the business.
As you know into warehouse and delivery side.
You know a lot of that is variable expense.
And we did as we called out we actually were able to achieve throughput and cubes for loading rates higher than what we were last year over the course of the quarter. So I think thats, where I would say we learn how we can be more efficient we picked up some efficiency and what I would call our variable labor, which I think is sustained.
I will.
You know I would say and I called out in my comments and one thing I'd caution everybody on around expenses is clearly in Q2. There were some expenses that you know to maintain and and grow the business. We're going to have to spend I mean, we didnt travel in Q2, and so there are some expenses that will return that we didnt see in Q2, so just.
Be mindful of that.
Makes sense, Okay last one from me.
Can you talk about just the health of your customer base, how would you characterize it helps to help on the industry and if you can delineate between large and small operators and or geographic trends and be helpful as well.
Sure you know maybe I'll start with geographic I mean, we have I.
I would say we've seen a stronger return in the middle parts of the country, probably where we've seen the most compression.
The remaining as in California, which we definitely have a presence in California.
And largely thats due to the restrictive nature of their their reactions to cobot.
So thats been slower to come back.
You know from a from a customer segmentation standpoint, I'd say, our convenience store customer health has remained in or is recovered and is fairly strong.
Other than you know clearly we've got some mix impacts we still have our non convenience segment is the one that's most pressured it obviously that's casinos schools airport locations and that represents a little over 50% of our non cigarette deficit to prior year.
So although it's not a huge part of our total revenues, it's a meaningful part of our non cigarette revenues in a meaningful contributor to margin as well.
So that that definitely is still had an impact we are starting to see recovery there, but it's definitely more gradual.
Yes, I don't know if I caught catch all year all your questions.
That's perfect that's perfect.
Really nice job managing through this and good luck on the rest of year.
Thanks, Ben Thank you.
Our next question is from Chris Mandeville from Tempers.
Good morning, guys, Yeah, not sure what terminals as you're correct, but Jefferies.
So Scott I'm actually without power here in Connecticut, and so I apologize if my math is off a little that but in looking at your updated guidance I think yes. Its sales growth turns negative EBITDA growth actually both further negative in the back half of this year. So maybe you just referenced some of the reason why but from the customer out.
A little bit more just a function or.
Having to spend as we see some some gradual recovery in volumes or are you you're really trying to position ourselves for for a greater share gains going into 2021, just some color there would be helpful.
Yeah, absolutely Chris.
The first thing is you know from a revenue standpoint, I mean, obviously the revenue has been driven by cigarettes, and even altria called out on their most recent call that they don't expect to be flat moving forward. They expect to see some carden decline through the balance of the year. So that definitely has a material influence on topline.
From an EBITDA standpoint, I want to make sure that you capture the fact that last year, we had a $7 million price increase.
So we don't anticipate Natwest candy.
Definitely don't anticipate that going forward.
So as we looked at the back half of the year from a guidance standpoint.
I'd say at the bottom half of guidance you know, we anticipated at a very modest improvement in revenues margins.
You know and obviously expenses that aligned with that and at the top half of our guidance. Obviously, we're seeing some recovery in margins in recovery in revenues definitely recover in mix and non cigarettes, primarily.
Okay.
Okay I appreciate that.
And then I guess I noticed that a customer count declined by about 2000 stores quarter over quarter.
And then you can help us understand where these losses are coming from and why and then.
Think about them a major accounts like 711, Walmart and Murphy that are coming up or and I will shortly be Adam.
Update on them or any comments regarding the confidence and being able to retain them.
Okay.
Sure So let's start with customer counts. So the lions share of that is businesses that were deemed non essential that still we're not open.
So that was that was the bulk of it we did have a small.
You know decline in our convenience store count and I would say kind of I know been asked this that I didnt quite address it is I would say at the very lowest tier of convenience. We had some some decline in store count now, let's say thats, a really low volume stores Workovers definitely had a probably a disproportionate impact I'd say overall the health.
All of our convenience stores chains independence.
Overall has been pretty strong I mean, you know we've seen obviously they have mixed in margin challenges as well, but I think that fuel margins and and so those things have helped prop them up and obviously the stimulus to sell spending and so yeah. I think the health of our customer base is strong I think the recovery of the non convenience store.
Portion is is obviously been a little slower.
From a contract standpoint, I mean, obviously, we don't speak to specific contracts.
But we had four of our top 10 that we we add due in this year.
Three of those we've already resign.
I feel really good about our positioning for for the other ones.
So I think we're in Oh, that's block.
Great and then the final one from me before I hop back in the human here.
I think Chris had referenced that as we've looked at quarter to date trends in the non cigarettes category you saw some stalling out in terms of improvement from sales mix for that matter.
Maybe you could put a finer points just on what you're seeing and food service and how to think about that going forward and and what you might be doing in terms of programs to help facilitate better growth with your customers. Thanks.
Yeah, you bet, Chris so.
Yes for sure we've seen you know our category that's down the most as our foodservice category that that lies within the overall food category in our reporting.
The food category when we go back to April and late March was down well into the mid Thirtys down now more in the in the Twentys and high teens.
But still most of that decline is driven by fast food, what I'll call. It a restaurant quality food and fresh food.
And that definitely has recovered but the recovery has been slower in it has stalled a little bit I think it's consistent with what you see in the restaurant industry and I think you've even seen I saw your most recent IR eyes stuff that came out that as the country has seen a little a little pullback because of the results are covered we've seen some flattening.
Of our trends.
So I think obviously, there's some alignment there.
So I think we will we will see fast food continue to recover and from a program standpoint, I mentioned on my call. We're doing a number of things around food and fresh and snack, we just relaunched our grab heat need program.
Just in the last week, which is really a program driven at.
Packaged foods that has the option to be self serve or.
Register serves so served by the employee.
And that's really a program that I think we'll gain traction because I think still today people are a little hesitant to go to the buffet go to the.
The roller grill or the open pastry counter.
And I think that that confidence will return, but I do think we're doing some things right now to to capitalize on the current consumer behavior.
Okay, great. Thanks, guys best of luck in back half.
Thanks, Chris Thank you.
Our next questions from Kelly Bania from BMO.
Hi, good morning, Thanks for taking my questions.
Wanted to go back that Scott to the really strong performance in the warehouse throughput, which I think you said exceeded prior year levels.
Just hoping you can elaborate on how you did that I would've thought lower drop size per customer would be headwind and just really strong performance there that sounds like.
Some of that is sustainable so maybe just help us understand.
How you're achieving that strong performance.
Yeah. That's a good question Kelly and I would actually say I would pointed to transportation and delivery before I pointed to warehouse.
We had great customer partnerships and they really helped us as the volume decline, we were able to cut some of our delivery frequency, which allowed us to maintain drop size, which also helps the warehouse because they're not picking into a lot of small orders are picking a fewer number of larger orders. So.
I think some of that is definitely sustainable and a number of customers until the volume returns have allowed us to reduce delivery frequency and thats been very helpful. The other thing I'd say is you know we were very strategic in how we reduced our workforce and I think the way we approached it was really on reducing it by getting rid of.
Lower performers in the organization. So I think clearly that helped us from a productivity standpoint, as well and obviously maintaining that means you know as we bring back workforce, we're bringing back quality people, but those I would say or the drivers behind it.
Okay.
That's helpful.
You also mentioned do you expect a meaningful rebounds in the margins this sales recover.
Can you just help us understand.
Understand what.
In terms of timing and magnitude expected there, especially within the back half, but maybe even beyond over the next.
Year to too in terms of debate category.
Yes, Kelly, it's that's a it's a really it's a tough question.
One of that we've seen an vape you know I think I said on the last call I expected they have to be flat to up slightly through the balance of the year, We'll obviously I was contemplating up.
Quicker recovery from Cove, and like I think we all work, but I think what we've seen is a real shift in consumer behavior as I think as people are at home or not in public places as much there clearly consuming more combustibles.
You know, we've seen combustibles basically be flat for the first time and probably decades.
So that has had a disproportionate impact on veight.
I think in the long run I truly believe in the long run that alternative nicotine as a growth category, whether that be vapor other forms of nicotine and clearly altria and others are spending their investment funding is all around the alternative nicotine space.
So in the long run that is better margins for us alternative nicotine and combustibles and I think in the long run that helps our margin profile.
To try and be a little more definitive in the shorter run free Kelly I mean.
Clearly we had a couple a couple elements that affected our margins overall around vape I mean, one of them was a lot of our programs vape and other things not just a bar our volume driven we have volume incentives and and clearly in a declining environment that affects disproportionately affects margins.
And then the other thing that we had happened in in our Veight margins is kind of a change in manufacture mix as we saw jewel see more headwind pressure in the first and second quarter. They were a little more lucrative from a margin standpoint.
So how does that all improve I think revenues and growth in getting innovate back on track from a sales standpoint helps margins a lot because I think the mix will normalize we'll have the ability to make some incentive funding again and so.
It's hard to say it depends on how quickly the recovers I would say, we're still going to see significant pressure in Q3, and probably Q4 and as we see consumer behavior normalize I think into next year, we'll start to see the margins recover I know that was a long answer but thats, obviously, something we're very focused on.
No that's very helpful.
And you mentioned I think the lower incentive which I think our specific to this category can you talk about what drives the return of of incentives like what level of volume our growth.
Get back to kind of more normalized incentive.
Yes, Kelly, we have incentives quarterly incentives with a lot of our manufacturers.
Not just in the Bev space. So clearly that has an impact on our margins.
But you know I would say that meaningful year over year growth for any of our manufacturers qualifies us for some level of incentives and usually there's you know a sliding scale on some of those as well.
Okay. That's helpful. And then just had one last one on your guidance.
Correct me, if I'm wrong, but I think you mentioned you're not assuming.
Substantial change in your mix from where you ended the quarter. So.
Can you just remind us you know a little bit more on how you ended the quarter in terms of mix.
Yes, So you know I mean for the for the quarter margin standpoint were down 50 basis points. We anticipate that that may have improved slightly over the balance of the year to get to the bottom in the guidance to get to the higher end, obviously, we'd see more improvement in that from a mixed.
Standpoint, we were down I mean cigarettes are up 250 basis points. Obviously, we're assuming that that's not going to maintain at at that rate and obviously as I answered. Chris is crust question earlier, we anticipate some carton declined in the back half of the year, which will help to normalize mix by itself.
Right.
Thank you.
Thanks Kelly.
And once again, if you have a question press Star then one on your Touchtone phone.
Your next question is from Bobby Griffin from Raymond James.
Good morning, all continental on her body and thank you for taking your question.
You bet.
Oh, yeah quite sometime to follow up on that product category progression. How do you seen a different in a pot Kettering pot of great recovery from regions of the country that have recovered more quickly are you seeing a benefit from it and candy sales or overall sales growth in each category.
I would say we haven't seen a disproportionate.
Category category by category recovery by parts of the country I'd say.
Nearly as I called out the West Coast in California has been more pressured but I'd say, it's recovered consistently with the rest of the country I haven't seen a disproportionate impact on food or E cigarettes or anything else.
Okay. That's helpful. And then do you believe that corporate 19 pandemic will create any interesting M&A opportunities. They can take advantage of as we exit the crisis.
The short answer yes.
I think the longer answer is.
I think most wholesalers like US right now are focused on their business and and not looking to be out in the market selling.
But I think.
The other piece of that is the rest of really do a good job of evaluating a business and make an acquisition we have to understand kind of what a steady state looks like and I think we're still obviously amid covance still sorting that out but I definitely think it will bring opportunity for acquisition in the longer term.
Okay. That's helpful and best of luck on.
Thank you very much.
Okay.
And we have no further.
Simultaneous call back over to David for closing remarks.
Thank you all for joining us. This morning, we appreciate your interest if you have any questions feel free to reach out to me my contact information is available on the Investor Relations section of our website. Thanks, so much.
Thank you, ladies and gentlemen that concludes today's call. Thank you for participating in and you may now disconnect.