Q3 2020 Tenneco Inc Earnings Call
Good morning, and welcome to the Tenneco's third quarter 2020 earnings Conference call.
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I would now like to turn the conference over to Linae Golla, Vice President of Investor Relations. Please go ahead.
Thank you and good morning.
Earlier today, we released our third quarter 2020 earnings results and related financial information.
The presentation corresponding to our prepared remarks is available on the investors section of our website.
Please be aware that our discussion today will include information on non-GAAP financial measures all of which are reconciled with GAAP measures in our press release attachments and other earnings materials, when we say EBITDA means adjusted EBITDA.
Revenue year over year comparisons are measured at 2019 constant currency rate unless.
Unless specifically described otherwise largely refers to value add adjusted EBITDA margin.
The earnings release and other earnings materials are available on our website. Additionally, some of our comments will include forward looking statements.
Please keep in mind that our actual results could differ materially from those projected in any of our forward looking statements.
Over the next several weeks, we will be participating in threed virtual conferences, including the Gabelli automotive symposium at 2020 Baird Global Industrial conference.
And the Barclays Global automotive Catherine.
We look forward to speaking with many of you there.
Our agenda for today's starts with CEO, Brian Kesseler, giving an update on our business operations and current liquidity position as well as focusing on our efforts to build a stronger organization.
Our CFO Matti Masanovich will then provide a summary of overall third quarter financial performance.
Well by a detailed review of our third quarter segment performance from our new COO Kevin Baird.
And he will also provide an update on our balance sheet and overall business outlook and Brian will make closing comments before opening the call up for questions.
Now I will turn it over to Brian Brian.
Thank you Wendy good morning, everyone and welcome.
I hope everyone continues to remain the same from healthy.
Before we begin I'd like to take a moment to welcome the newest members of Tenneco's Executive team, Kevin Baird, Our Chief operating officer, and Matti Masanovich, our Chief financial officer to the call.
The addition of both Kevin and Maddie further strengthens the deep experience and knowledge of our leadership team.
And we're happy to welcome them to the Tenneco team.
I'd like to begin with an overview of our third quarter performance on page four as we continued to ensure the health and safety of our team members our global operations largely returned to normalized production during the quarter.
Who's got close to pre pandemic level.
And low inventories in the U.S. gives us good line of sight for the fourth quarter.
When we last spoke in early August we were confident that the third quarter was going to be better than the second quarter. However, we were pleasantly surprised with the pace and magnitude of the global automotive recovery.
America, Europe, and China volumes.
Can you just strengthened sequentially and our team was able to deliver solid profitability and cash flow I'm a higher than initially expected sales.
On operating leverage and higher structural cost savings, we achieved adjusted EBITDA dollars.
Just above the prior year.
Around $250 million more value add revenue.
And our year over year, adjusted EBITDA margin expanded 90 basis.
We remain on track to reach our savings targets from accelerate plus program.
Which made significant contributions to the company's EBITDA and cash performance in the third quarter.
Additionally, we were able to increase our cash conversion from a mix of capital spending discipline.
Effective working capital management and some recovery in are factored receivables as a result, we.
We generated $475 million of adjusted free cash flow in the third quarter.
Our cash performance allowed us to meaningfully reduce our debt relative to the second quarter.
We paid down $1.1 billion of our outstanding revolver balance and reduced our net debt by over $400 million from the end of the second quarter to the end of the third quarter.
We built roughly $400 million in liquidity during the quarter and had $1.8 billion of total liquidity liquidity at quarter end.
Matti will address our balance sheet and liquidity position in more detail later in the presentation.
Turning to page five for an update on strategic priorities, we continue to execute our salary plus cost reduction program that targets delivering $265 million of annualized cost savings into our run rate by the end of 2021.
Second we are focused on reducing our capital intensity and are always centric business is that primarily represents greater discipline in capital spending.
And then our Motorparts business better working capital management.
Typically inventory efficiency is our primary opportunity.
Third we are optimizing our business portfolio to enhance our margin and cash flow performance for the long term.
Using our value stream simplification methodology, we're strategically positioning our business lines to optimize portfolio growth returns and cash flow.
Ultimately some businesses may not stay with the company long term if they do not align with our long term product and market strategic objectives.
Finally, we're investing in our targeted growth businesses, which.
Which encompass all our key end markets aftermarket light vehicles commercial and off highway vehicles and industrial.
Turning to page six we're making good progress on reducing our structural costs would accelerate plus on track to achieve $165 million of annualized cost savings run rate by the end of this year. Since these are run rate targets, we expect carryover benefit into 2022.
At the segment level, approximately 60% of the savings will benefit cost of goods sold.
The remainder comes out investing in <unk>.
In addition, a portion of its already plus reduces our structural corporate expense, which is all that's DNA.
Our working capital improvement also continues to gain momentum and we are on pace to achieve a one time $250 million benefit by the end of 2021.
This improvement comes primarily from inventory efficiency gains resulted in higher turns and lowers lower days on hand.
Required to support the operations going forward.
We expect to realize half of that benefit this year.
The benefit of temporary cost actions, which included salary reductions unpaid furloughs and other nonrecurring items was about $50 million in the third quarter.
The temporary salary reductions have been restored to our team members as of the fourth quarter.
Now I will turn it over to our CFO Matti Masanovich for a detailed view of.
Our financial and operating performance in the third quarter.
Matt.
Thank you, Brian and good morning, everyone. It is great to join you on my first earnings call as CFO of Tenneco.
Turning to page eight I'd like to review, our third quarter results at an enterprise level total revenues were $4.3 billion in the quarter and value added revenues were $3.3 billion, 8% lower versus the prior year on a constant currency basis.
Adjusted EBITDA was $388 million, a slight increase from the prior year quarter, Despite an approximate $250 million year over year decline in value added sales.
Value added adjusted EBITDA margin was 11.8%.
Favorable 90 basis points on a year over year basis, and primarily driven by the motorparts in powertrain segments.
Adjusted earnings per share was 33 cents.
And includes a 73% effective tax rate.
This quarter's tax rate was impacted by the mix of our earnings in jurisdictions, where we had large unbenefited losses and did not record a tax benefit.
The third quarter, we assessed the recoverability of our deferred tax assets using historical and forecasted 2020 pre tax earnings.
Which were largely impacted by kilobit until a valuation allowance charge of $523 million primarily related to our U.S. business.
Those deferred tax assets, although impaired are available for future years that charge of $523 million has been adjusted from tax expense to arrive at the 73% effective tax rate noted above.
As previously mentioned, our adjusted free cash flow was $475 million.
And strong on a seasonal basis, we benefited from efficient working capital management and disciplined capital spending.
Turning to slide to page nine.
We show more details on our revenue and earnings performance.
Our light vehicle value added revenues declined 6% year over year compared to a global light vehicle production decrease of 3%.
On a consolidated basis, our commercial truck off highway and industrial value added revenues declined 13% year over year, whoever our China commercial and on road rep value add revenues.
More than doubled year over year on the back of market strength and content growth related to the new China six emissions regulations.
Our aftermarket and OEM business was down about 8% year over year more weighted towards the European markets and no, yes channel due to a slower European recovery from Cowen.
On the lower right profitability improved year over year, adjusted EBITDA was $388 million and margin was 11.8% up 90 basis points. Adjusted EBITDA. It was just above prior year levels quite significant lower value added revenue.
We continue to gain more traction with our accelerated plus initiatives, which we expect to deliver more savings because we continue to execute those initiatives and there's demand normalizes on a go forward basis.
Now I will turn it over to our Chief operating officer, Kevin Baird for more details regarding our segment performance Kevin.
Thanks Matti.
I've been with Tenneco for about 90 days now and I am pleased with the progress. The company has made to date in executing its key operating initiatives.
There's more to do but I am proud of her team is working together to make the enterprise stronger and healthier.
Moving to our segment review, starting with clean Air on page 10.
<unk> value added revenues were $958 million.
5% year over year decrease on a constant currency basis, our end markets light vehicle.
Commercial truck off highway industrial and other as well as always service were down similarly year over year.
Segment, EBITDA was $149 million.
A decline of about 5% from the prior year period, adjusted EBITDA margin was 15.6%. It was about even with the year ago period cost savings were offset by the timing of commercial and engineering recoveries in the prior year.
On page 11, we show powertrain performance at constant currency revenues decreased 8% year over year compare.
Commercial truck off highway industrial and other revenues declined 15% year over year and always service revenues fell 9%.
Despite the lower revenue segment EBITDA increased to $124 million and adjusted EBITDA margin was 12.3%, which represented a 220 basis point increase compared to third quarter of 2019. The business is starting to see tangible savings from the fixed cost reduction actions executed earlier in the.
Here.
The Motorparts segment is next on page 12 third.
Third quarter aftermarket revenue decreased 7% year over year constant currency, primarily due to cope with 19th constraints and the strategic decision to exit certain product lines in certain regions.
Motorparts revenue continued to increase month by month through the quarter and into October.
In the quarter the team secured incremental annual revenue of around $35 million in our garage Gurus program launched an industry first mobile customer training experience in North America.
Year over year operating performance of $39 million improved significantly despite lower revenue fueled by cost reductions and manufacturing distribution and that's GA in the.
Segment, EBITDA was $131 million and adjusted EBITDA margin was 17.9% that's up 270 basis points year over year.
Please turn to page 13 for details on ride performance third.
Third quarter revenue of $600 million was down 12% year over year in constant currency, primarily impacted by program rationalization in North America. The facilitated the footprint consolidation completed in the middle of the year.
Segment, EBITDA was $32 million and margin was 5.3% compared to 6.3% last year. The volume mix decline is related to program rationalizations in the operation of performance you can see that we are beginning to benefit from the North America ride control facility consolidation, where we reduced capacity from four plan.
Just two weeks.
We expect further benefits to be realized in 2021 is the consolidated operations stabilize our ride performance business contributed to the positive cash flow in the quarter as well.
In our S. T business, we launched six advanced technology suspension programs in the third quarter, including CV essay to adjustable damping for Mercedes AMG Black series, Supercars and intelligent suspension business with Volkswagen for their new I'd three battery electric vehicle platform.
Sure.
In addition, we launched conventional business for a battery electric sq the for another customer.
I'll now turn the call back to Mary to discuss our liquidity and deposition.
Thanks, Kevin as of September Thirtyth, we paid down $1.1 billion of our previously fully drawn revolver. As you may recall out of an abundance of caution we drew down the entire $1.5 billion revolving credit facility in the second quarter.
Our plan was to pay down the revolver to a more reasonable amount once we can get comfortable with the underlying health of the industry and put that extra interest cost back in our pocket.
The sequential improvement in demand in the second quarter to the third quarter and overall market confidence returning to more stabilized levels, we're very comfortable paying it down and having the availability on our revolver.
At quarter end liquidity increased to a very healthy $1.8 billion compared to $1.4 billion on June Thirtyth 2020.
And consisted of total cash balances of $721 million and undrawn revolving credit facilities of $1.1 billion.
Moving to our objective to optimize cash performance in.
The past couple of quarters, we've been talking about her emphasis on reducing capital intensity. This quarter, we made capital investments of $96 million as we continue to invest in the business.
On a full year basis for 2020, we expect capex to be around $380 million with some benefit in spending levels impacted by our teams focus on reuse of existing equipment.
That is a significant reduction to the over $700 million that we spent in 2019.
In the third quarter, we continued to execute on our structural cost savings projects or accelerate plus program to improve earnings. In addition, we did an excellent job flexing or trade working capital in the quarter. We continued to reduce our investment in net working capital as we drove efficiencies through our processes, which delivers significant cash flow.
More specifically, while our receivables and payables increased as a result of increasing sales and volumes.
Our metrics around Dsos and depots for enhanced as we return to more normalized levels of factory.
And we continue to improve on our payable terms with our suppliers.
Regarding inventory this continues to be a major success for all segments of our business with our Motorparts business, leading the way improvement more.
More specifically, we have improved our inventory turns over 20% compared to the third quarter of 2019, increasing or delivery performance and lowering or finished goods intensity needed to service our customers.
A final note on trade working capital, we measure our net trade working capital as a percentage of revenue.
In Q3, we have sustainably improved our net trade working capital efficiency by approximately 250 basis points.
One of the prior year.
Cash from operations also benefited from a net reduction of other assets and liabilities, including the reduction of customer tooling balances.
As we look forward based on our current demand forecast, we expect to have positive free cash flow for the fourth quarter.
We remain fully focused on our debt maturity windows. Our next significant debt maturity is in April 2022, and we are actively monitoring the credit market conditions for the right opportunity to replace that bond and extend its maturity.
We have made significant progress in the third quarter towards the year end target of net debt, even with or better than year end 2019.
You can see our debt maturity schedule and leverage ratio on slide 16.
Total debt of $5.8 billion improved by $1.1 billion compared to the second quarter 2020.
Net debt of $5.1 billion improved $429 million compared to the second quarter and was $123 million lower than the prior year.
We remain fully compliant on all debt covenants with significant cushion to our covenant levels.
Turning to page 17 for our fourth quarter outlook.
We are using a more conservative production assumption relative to the latest aegis forecasts and expect fourth quarter value added revenues to be similar to the third quarter.
In addition, we estimate a slight decline in aftermarket revenues relative to the third quarter, reflecting normal seasonality.
As we look at our fourth quarter profitability, we expect strong year over year margin performance with EBITDA margin, increasing nearly 200 basis points of margin expansion is enhanced by a favorable comparison to the prior year of note accelerate plus savings continue to build and partially offset the elimination of the temporary cost savings realized.
In the third quarter.
Our key financial assumptions for 2020 are shown at the bottom.
We continue to expect approximately $380 million of capital expenditures, our DNA forecast is approximately $630 million, we expect cash taxes of approximately $140 million.
We estimate our net debt will be at or slightly below the 2019 year end level of $5 billion.
Overall, we are expecting a strong second half margin and cash flow performance.
I'll now turn the call back to Brian for concluding remarks.
Thanks, Mary turning to page 18 for a quick summary, before we open the line for your questions.
As we move through the fourth quarter and into 2021 margin expansion and cash flow generation.
Remain our key priorities.
Because in our efforts on these two items will continue to build a stronger organization and optimize shareholder value.
As I mentioned, we have multiple avenues to drive further improvement.
We're focused on reducing structural cost as part of our accelerate plus program and.
We continue to identify more opportunities through our BFS and continuous improvement process.
We intend to lower our capital intensity from both our capital expenditure and working capital standpoint, we expect improving working capital turns as we deliver on the accelerate plus working capital improvement target.
We continue to optimize our business line portfolio and are assessing each one of our business lines determine where we can further enhance margin and cash performance.
We are increasing investments in our growth targets. These targets have been demonstrated higher return on capital solid macro trends in the markets they serve as well as the capability to grow faster than their underlying markets.
From a debt reduction perspective free cash flow generated from the activities I just mentioned will be used to pay down debt.
We are confident in our ability to maintain significant cushion on our debt covenants and as Mary mentioned, we will continue to monitor credit market conditions in the near term to address our next significant maturity in April 2022.
Focusing on these priorities will allow us to create enhance shareholder value through significant debt reduction and targeted growth and bus.
Ultimately building a stronger tenneco.
In closing I would like to thank our global Tenneco team for their continued hard work and dedication to our organization as.
As we reflect on the challenging year and look ahead I'm confident of tenneco's ability to deliver on our key focus areas generate earnings and cash flow, we continue to pay down debt. Thank.
Thank you for joining our call. This morning and for your continued interest and Tenneco.
With that we're ready to take your questions.
We will now begin the question and answer session.
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This time, we will pause momentarily to assemble our roster.
And our first question comes from Rod Lache of Wolfe Research. Please go ahead.
Good morning, everybody.
Was hoping first you could talk a little bit about the below Hs forecast for Q4, I'm curious if you're seeing any indication that that the Europe light vehicle production is.
It's getting up ticked lower obviously, there's a lot of.
There are a lot of developments, there with UK and locked down and so forth and he just kind of high level color on what market conditions look like.
Hi, This is Brian maybe I'll grab that one so we're.
Cautious on Europe, especially with some of the more show some of the recent shutdown announcements this year coming across there.
Also our.
Aftermarket business generally sequentially moves down from a seasonality standpoint, Q3 to Q4, China continues to look strong for us.
We're still cautious in North America, that's not so much from production as we see being schedule, but we see a you know across the network. There's some stress on the supply chain.
You could interrupt production schedules occasionally we don't see any issue on our side currently but.
But we you know we do get some good indications in the marketplace.
So stress on the supply chain, probably mostly due to demand characteristics that were Sam which is strong but also some of the challenges operationally is different.
Organizations, even ourselves deal with some of the Covina outbreaks my hot spots.
Yeah that makes sense and secondly, I was just hoping you.
And just to address a couple of questions that we had about the outlook.
I just maybe first talk about the this level of EBITDA that you're seeing in Q3 and Q4.
It looks like in the low to mid 300.
Adjusted for that the nonrecurring items in the third quarter is there any reason to believe that that run rate of EBITDA wouldn't be sustainable at this level of revenue would be sustained.
Can you talk about what normalized Capex would look like is that closer to DNA and then any color.
On the businesses that may or may not stay with the company that you alluded to is there a formal process underway right now too.
<unk> to make something happen there.
Yeah, I'll start with I'm trying to get them in order to it but if I Miss one just kick back in.
[laughter] same margin performance at these revenue levels, obviously, we'll be at the $50 million.
Temporary and one time savings that would go away here in the Q4 period, so that will put pressure on margins, but you know our accelerate but that continues to ramp and drive.
Income.
Partially offsetting the Q4 and then we would expect to continue to build on that so we we kind of like that space as we go and look to continue to drive margins.
[noise] overall capex perspective.
Oh for sure when we look at 380 is kind of a necessary rate through the times that we're in this year seven are way too high from a from a generalized run rate somewhere in that 550 to 600 million.
On a normalized year is probably a reasonable target for for you to assume for us it'll ebb and flow a little bit.
You know different business conditions are different business wins, but.
Well you know as we.
Looking at our expected second half performance.
Cause the status of each of our yearend objectives, a run rate of $65 million working capital under 25, and net debt at or below started here all those objectives should be able to go green on the status quo.
Okay and then the yeah. The comment you made on businesses that might not stay with the company can you just provide any more color on what would you considering at this point yeah sure we will break the business down and take a look at it.
This is bad maybe.
At the return on invested capital targets.
I would say they are more smaller in general.
So they wouldn't look too.
Move to a workout, we've taken each of them and put them into three categories. Each of our business lines from which you kind of break down regionally to about 40 plus.
So our target growth once we we highlight.
Kind of the big ones, there and in the presentation. We've got another group that weve put in to optimize.
Really optimizing that actually that we've already invested in a lot of that heavy investment.
In 2019 as time for those businesses to pay that back and we've got a category called workout in there so any progress on that but.
Over the course of two to three quarters we've.
We've got to be able to see a road map to get back to what.
What we deem acceptable for the longer term and if they can't do that then we would look to.
Monetize them.
In some of the smaller ones, we can even make decisions just discontinue.
Okay, but in aggregate just lastly, you that that last category of workout or any sort of high level revenue.
If you aggregated them, all how big would they wood with those amount to.
Yeah, I think [laughter] I'd hesitate to put a number to that rod only because sometimes we put things in workout.
We've seen good plans to get there so.
That will be quite a bit from the little bit hesitant to put a number on it right now.
Okay, great. Thank you.
Our next question comes from James Pecoriello of Keybanc capital markets. Please go ahead.
Hey, good morning, guys.
Just within the fourth quarter guide it sounds as though you're you temporary cost out measures will be fully unwound. So that's my first point of clarification, then just to get to the tenant half percent EBITDA profitability you talked about.
Where we might see the most significant sequential step down you're guiding to 200 basis points and year over year margin improvement I'm, just trying to get a sense for what segments maybe Ben.
Benefited the most from the temporary measures you know as we bridge to this fourth quarter. Thanks.
Matt.
Yeah, I'll take that so yeah, the $50 million of temporary cost initiatives are in the third quarter, they're not going to recur we were going to you know put take away.
And reinstall wages at a 100% so we had to reduce wages tend to 20% across the across the board.
And some of the salaried and SGN a workforce is so well it does go back in into the run rates and I think it's you know it's shared its shared across each segment and and corporate so there's really no no one's going to be any any more impacted than another as we kind of take a take a step back and look at the overall not overall no as you know the third.
Quarter, we saw enhanced profitability.
EBITDA basis on a two of our segments, a powertrain and Motorparts and we continue to expect a you know that that there was an enhanced level of profitability, but on the year over year basis.
That putting back in the in the cost well it goes in ratably across the across the segments and and corporate.
Got it no that's helpful and then.
As we think about next year.
You know if we want to try to quantify what the year over year headwind might be from a temporary costs helped measure standpoint, So you get the 50 million.
Unwound in from Threeq to Fourq, you just thinking like on a on a full year basis 21 versus 20 versus here.
And then you know it is that math you know if my math is close you know on the structural savings side, you might be looking at you know $135 million an incremental benefit right. So is the bias. My ultimate question is the bias to your normalized incremental margin above.
Above above that that level or or is there like equal our they're equal offsets.
I would say.
So I think the 50 million, we talked about Q3 is.
Sure you're right on there I remember in Q2, we had about $100 million of temporary cost action. There weve made some figure it just seems to pay salaries.
Those and other programs that we participated and so we've got a.
Comp against that in Q2.
Yeah, I think the ZIP code that you're talking about from a.
Treatment and earnings in Q1 from accelerate your.
Year accelerate plus and the rights of code so.
So.
Most of our improvement year over year.
In the first half of the year is going to be difficult to comp against with that.
$800 million in Q2.
As we have.
You would expect us to be able to offset some of that in Q3 from a temporary standpoint.
So with the savings that we're generating that makes sense.
Yeah, Yeah, no that's for sure.
If I could just slip one more can you just help us better understand the mechanics behind the deferred tax asset write down I mean, it sounds as though it's primarily related to your U.S. business that you can still utilize your animals in the future. So what exactly reflects the valuation allowance charge is it simply.
Simply a function of the lower U.S. earnings outlook over what timeframe just any clarity on this I think would be helpful. Thanks. It's it's based on a cumulative the rule is a cumulative rule over three years, so 2020 being primarily impacted by by coded yeah, we had to take the valuation allowance charge in the U.S.. So obviously future years.
Our ability to generate income restructuring you know, we're structurally headquarter costs et cetera or are in the U.S., so but essentially it's a three year came in a rural and that's what creates a valuation allowance against the deferred tax assets.
[laughter].
Got it thanks.
Our next question comes from Ryan Brinkman of JP Morgan. Please go ahead.
Hi, Thanks for taking my question you know well margin has obviously been negatively impacted this year due to the sales de leverage just given to accelerate Pos and other cost reduction you've undertaken in the wake of COVID-19, what do you think will be the ultimate impact of 2020 on your normalized margin, even if that margin as you know some years out.
Do you think normalized margin has increased and if so how should investors think about the magnitude of improvement based on some of these new savings. He found this year.
Yes, so were measuring they accelerate plus cost savings off of a baseline of 2019 so.
So we take that $265 million that we are targeting to put into a run rate by the end of 2021.
Yeah, I think it would be safe to assume that we're targeting a mean shift up in that margin.
From an EBITDA percentage of value added revenue so I.
I think that simplest way to think about it and I know, we're getting about 100, we're talking about a 165 of that to 65 into the run rate by the end of this year and then the remaining hundred into a into the end of 2021.
Okay. Thanks, you know obviously, there's been a you know recently strong contribution to your EBITDA from improved execution is captured in the operating performance driver on EBITDA and slide nine have you looked at what the various segment EBITDA walks on subsequent slides, it's clear that comparatively less improvement what seen at least in the third quarter from the clean Air Division.
And it looks like you're highlighting there you know the lumpiness of engineering recoveries, a year ago is contributing to that optic but I'm. Just curious if you could sort of walk through where you know rate the various businesses in terms of how you feel they are executing and which of the division that there may be the most door comparatively less opportunity to improve results going forward.
The good news, we see good opportunity in all four segments.
Obviously, you see in this quarter powertrain and Motorparts contributed strongly.
We continue to look for opportunities to make them better clean air as you mentioned Didnt show from a bridge standpoint, the operating performance, but we yeah yeah.
Kind of a comp issue, there, where we had roughly $15 million of a timing on on commercial and engineering recoveries last year that was difficult for to comp against.
But you know I think overall I'm pleased with the way the clean air team as is executing and we wouldn't expect to show.
Meaningful year over year improvement.
Going forward as we execute on the plants Air ride performance, you know a little bit more suppressant that maybe we'd like to see but that's a function of US you know finalizing the movement of the two plants that we.
Took out of operation in the middle of the year as we're now putting everything into the two locations, where it's going to be permanently house.
Got to make sure that we're ramping through that in protecting the customers through that so you know that.
That benefit which is encompassed in our accelerate plus numbers, but about $20 million to $25 million.
Run rate improvement in our ride performance business as we as we stabilize those operations through next year. So.
So I think there's a great opportunity in a in the team continues to use our value stream simplification and continuous improvement tools to identify more opportunities.
Yeah that work is never done.
Okay. Thanks, and then just lastly, I know you're not guiding to 2021, but is there any sort of high level puts and takes you can provide on free cash flow. So for example, lingering onetime costs related to the separation or you know how much cash restructuring we should assume I know you continued to make progress on working capital on underlying basis.
Payment terms that are up but on the other hand, you know with presumably I you know recovering industry production, how should we think about all those things.
Well the trade working capital improvement target, we have for as part of the accelerate program of $250 million by the end of 2021, we were still targeting for that this year and a half of that next year. So that's $125 million when you look at from a [noise].
The perspective of looking into 2021.
When you're going to see us probably beep.
More cautious.
On Q1.
Just because I'm not sure we've seen or anybody understands the true underlying demand here in the North American market I mean, it's great that we're still trying to replenish inventories but.
But you know Weve got to see what this thing looks like when we get into Q1.
There was another part of that question right I think I might have missed.
It was yes.
Restructuring restructuring restructuring costs, two weeks said, we talked about accelerate plus being $250 million cost to achieve a 150 million of that its target this year of which year to date. We've spent about two thirds of it. So you can think about that then that remaining remainder being made up here in the fall.
Fourth quarter, and then that $100 million is a good estimate at this point I saw a bit of a step down restructuring, but you know I.
I think any business that's kind of in the manufacturing sector. There is all there should always be some continuous improvement restructuring that's always planned and so kind of that $100 million rate is.
I think it's a good proxy for what we should be driving for continuous improvement in our in our restructuring projects going forward.
Very helpful. Thank you.
Again, if you would like to ask a question. Please press Star then one.
And our next question will come from Joseph Spak of RBC capital markets. Please go ahead.
Hi, Thank you very much money I, just want to confirm the 50 million of.
One time this quarter I guess 150 year to date did you say that was Ah okay. The sort of pro rata allocated across the segments, because I guess I'm just trying to understand really you know how much better the underlying structural improvement in powertrain motor sport Motorparts lives this quarter or this quarter.
Well I am specifically didn't give you an answer to that question earlier, so Ah Ah.
It's a little bit more weighted to the powertrain segment, but we are not going to give out the details across the segments and then through corporate.
There's a little bit a little bit more weight in the powertrain segment.
And then just on on on Capex I know you got a a lot of the questions earlier, but I think it's obviously I think you mentioned it was.
Yes, you are spending too much in years prior but I think even versus where you.
Initially were planning to spend at the beginning this year, it's down like 40%. So can you give us some sense of you know what has really been.
Hi, how much of that is really just to lead and maybe needs to come back over over the next couple of years.
Yes, so weve deferred probably some maintain repair replace.
Capex this year that will you get caught up a little bit next year, well, we haven't sacrifices capex on new program launches make assurant protect those.
But that 550 to 600 range.
Commented on earlier next year, even with the makeup we should.
[laughter] will probably be in that range for next year, we'll give obviously more details on that as we go through Q4 earnings and Oh look next quarter.
Okay, and then just in terms of.
Some of the assets that.
No. My you may look to divest, which I think is something you've talked about for a while I think in the past you mentioned.
The market wasn't you know really their ucaas multiples either weren't willing to sort of look past some of the you know lower operational Ah.
Figures given brought on by the pandemic or or you know maybe buyers as far as they're ready to.
Market any update there as I'm as what you see is that loosening up a little bit as sort of numbers.
They'll begin to normalize a little bit do you sense that there is to create or potential. Maybe then three months ago to consummate some of these transactions.
Yeah, I mean, we see it picking up a bit earlier.
Earlier, I think it was much more of the sponsor our sponsor interest and again not just on any assets, we might have but just generally in the market as weve talked with our advisors.
You know sponsored money private equity enough money was earlier in.
Forward looking for deals I think and you know we're not anywhere near any fire sales will get fair value. What we think is fair value for assets if they.
If it makes sense.
So I think it's still hopefully eaten up a little bit like the strategic certainly I'm cautious coming in.
But you know as we mentioned that the Q2 earnings call, we're kind of mid flight with a potential.
Transaction, but as soon as we.
You will see recognition for pre covert margins and valuations.
You would expect us to.
To Opportunistically plan that yes.
No sooner than later.
Okay, maybe just one quick line, if you can sort of give us a sense as how you thinking about the C. You know age market heading into into 21, I think like China was a.
My understanding commercial trucks are a pretty strong.
Strong this year because of.
Some regulatory change, but on the flip side is.
As you think about some of the construction equipment seems like inventories are pretty low there and I know I know you generally don't know where your product goes could you know because it goes to the engine and not necessarily the product, but what are you. What are you hearing from your customers. There in terms of you know inventory trial I guess.
Right.
Yes, we we obviously followed.
Hey, guys like Deere and caterpillar supply them.
No viable customer stuff so.
That space, how they go we go on.
<unk> commercial truck side, we continue to see.
Growth with the China six continued to accelerate through.
Through the balance of this year and early next year, perhaps six and India moving along a probably a little too early to tell on the commercial truck side in Europe.
And as I know you're aware, Joe we don't have a huge pressure.
On commercial truck here in North America.
Okay. Thank you very much.
Our next question comes from Mark Van Halen of Lombard Odier. Please go ahead.
Yeah. Thank you very much for the presentation, what print 11 timeframe do you have in mind for the refinancing of the April 22 maturity.
I'll take that one Brian you know, we're we're we'll continue to monitor the market and I would say over the near term or you know we'd be looking to to to replace and extend the maturity, but but we're you know we're actively monitoring the market, obviously and we're looking for as it opens and and as co-operative we'll we'll go into.
Marketing and replace and look for a longer maturities.
[noise] do you imagine coming both <unk> and all of you have you thought about that.
Oh, sorry could you repeat that question. Please.
Yeah, all right and do you think of that possibly calling the baldini brltwenty one as the bonds callable.
One.
I think you know what you're given the you know given overall cobot uncertainty and and just you know uncertainty in general.
We'll take a very cautious approach.
Liquidity of the company I think we would refinance and look for a longer term long term maturity.
I guess, the prudent though kind of prudent thing to do.
Okay.
Thank you very much.
Thank you.
Our next question comes from Emmanuel Rosner of Deutsche Bank. Please go ahead.
Hey that isn't on for manual or two questions first.
First can you maybe go over some of the underlying dynamics in aftermarket by product and how those are sort of shaping up going through year end and then secondly, I think you mentioned some easy wins in ride performance could you maybe go over that and and the maybe the size.
Is that would that kind of 10, you think you might access to going forward. Thanks.
Yeah, if I do the easy one I don't want to get too far from their customers and some of the TV.
Revenue or take rates that they're assuming so.
I think we we just recently announced a went on.
Supercars, obviously those are those are lower volume, but.
But the.
Mercedes.
Hi, good electric vehicles strong.
Advanced suspension technology.
Unit, and our NVH performance Materials' unit or both.
Benefiting from the.
<unk>.
Platforms that are in development.
Your both from traditional land and some of the new entrants. So from an OE perspective, so not a lot of not a lot of numbers I can put to it just because I don't want to go as I said I don't want to get some more customers.
The other question was.
Oh aftermarket, yes, so aftermarket.
We saw as that continually sequentially improved through the quarter.
I wouldn't talk about it so much from individual product lines I look at Morris channels, the retail channel.
Is up a bit more year over year than say the traditional channel.
Overall and the other thing I think is good sometimes we'll get questions on is that on inventory positions and what we see as.
The inventory positions on our categories.
Our lower this year at our at our customers than they were last year. So yeah I think that's also.
For us.
This concludes our question and answer session.
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