Q1 2021 Welbilt Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Welbilt incorporated Twenty-twenty Q4 earnings call.
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I would now like to hand, the conference over to your first speaker today, Mr. Rich Sheffer. Please go ahead.
Good morning, and welcome to Welbilt's, 2024th quarter earnings call and webcast.
Joining me on the call today is Bill Johnson, our President and Chief Executive Officer, and Marty a guard, our Chief Financial Officer.
Before we begin our discussion please refer to our safe Harbor statement on slide two of the presentation slides and in our earnings release, both of which can be found in the Investor Relations section of our website Www Dot welbilt dot com any statements in this call regarding our business that are not historical facts are forward looking statements.
And our future results could differ materially from any expressed or implied projections or forward looking statements made today.
Our actual results may be affected by many important factors, including risks and uncertainties identified in our press release and in our SEC filings, we do not undertake any obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or other circumstances today.
As presentation and discussion will include both GAAP and non-GAAP measures. Please refer to our earnings release for our non-GAAP reconciliations and other important information regarding the use of non-GAAP financial measures now I would like to turn the call over to Bill.
Thanks, Rich and good morning.
Before we get into our fourth quarter results I want to share some details on the current market environment.
Looking at the Miller Pulse weekly same store sales graph on slide three you can see the recovery in the restaurant markets since the historic drop that began in the second week of March.
Our same store sales have consistently been positive since early July.
Most <unk> have more than 50% of their sales come through the drive through windows prior to the crisis.
How are also embracing delivery.
As a result, they have been more resilient than casual dining restaurants, and pre crisis saw the majority of their sales tied to dine in traffic.
Same store sales at casual dining restaurants began the quarter down 15 to 20 per cent compared to prior year, but lost momentum beginning in November bottomed out down nearly 40% in December.
It recovered much of the ground day loss since the first of the year and are now down just slightly more than 20% compared to last year.
Spec conditions began improving for casual restaurant operators as temperatures warm up enough total outdoor dining colder areas. We make further progress on vaccinating the population.
The National Restaurant Association estimates that 110000 restaurants are 16% of the pre COVID-19 population from closer temporarily or permanently.
They also reported that restaurant employment remains $2 5 million below pre COVID-19 levels. The majority of this those operations that rely on indoor dining or surface.
<unk> have also reduced head count as they have been closing their indoor dining rooms share.
You could take out and delivery only model.
In EMEA most countries still have restrictions on dining away from home more allowing takeout and delivery compared to last spring.
Market expectations are that most of these restrictions will start to be ease beginning late this quarter through the second quarter.
In APAC, there's a split between countries that are operating with few to no restrictions like Australia and China.
Those that are still significantly impacted by the pandemic, primarily southeast Asia and India.
Increased distribution of Covid vaccines globally and will help these markets reopen.
We've heard several <unk> publicly comment during their recent earnings calls that they will begin to focus on new builds in 2021 as their same store sales have recovered and ex U S share growth opportunity do you see.
Continued weakness in casual dining.
Given our strong position with most of these changes we expect to benefit as this market segment starts to expand again.
Looking at other end markets.
Seen increased interest from C stores about expanding their food and beverage offerings, you have new programs with a number of major C store chains and are optimistic that this will expand as the markets continue to recover.
Moving on now to slide four of our presentation to review our financial results.
Our net sales declined 16, 2% in the fourth quarter with organic net sales decreased 17, 6%.
This continued the gradual improvement that we have seen since the first two months of the pandemic.
The sales still down in the mid teens percent, we delivered an adjusted operating EBITDA margin of 18, 8%.
Which is a 20 basis point increase from last year's fourth quarter.
Along with the increased margin, we delivered $37 7 million of free cash flow in the quarter, a 10% increase compared to last year's fourth quarter.
This operating performance was made possible by the progress the welbilt team made on the transformation program over the last year and by the cost containment actions we took in March.
On slide five sales in the Americas decreased 15, 1% in the quarter from the prior year.
Sales to <unk> increased year over year in the fourth quarter, driven primarily by an increase in non repeating large chain rollout sales.
The majority of this attributable to the rollout of <unk> high speed ovens that is the continuation of that program with a global customer that launched in Q3.
We also saw an uptick in sales of Garland clamshell grills for the large <unk>.
And the general market sales decreased in the quarter, but we did begin to see some momentum building from the C store segment and Rollouts of Mary Schaff ovens come with their own combi ovens and fresh blend smoothie machines.
We remain very excited about the C store segment other areas within the general market, such as casual restaurants education health care travel and leisure end markets were softer in the quarter due to the impact from rising Covid cases.
Finally kitchen per aftermarket sales decreased primarily due to the absence of any bulk parts buys from Mastercard distributors in this year's Q4.
Looking at EMEA on slide six sales decreased 15, 6% organic net sales down 21, 1%.
Large chain sales were impacted by strong <unk> sales last year declines in the general market, where similar due to the reimposition of local dine out restrictions.
As I previously mentioned the impact wasn't as bad as what we experienced in the spring as kitchens were allowed to remain open to takeout and delivery in most countries.
You did have a continuation of the small rollout or crown with European governmental entity during the quarter.
On slide seven sales in APAC decreased 21% with organic net sales down $23 one per cent.
Net sales growth in Australia, again, this quarter and solid sales growth in Japan, and Malaysia from the first time since the beginning of the pandemic.
Sales in China decreased due to tough comparisons from two rollouts in last year's fourth quarter. The shift of a coffee customer to EMEA that was included in APAC results last year.
We still view the China market is fully recovered.
However, southeast Asia, the Philippines, and India are still being highly impacted by the pandemic.
Moving to slide eight progress we have made on our transformation program once again positively impacted our results for this quarter.
We delivered approximately $5 million of in period savings in the fourth quarter, which is a $20 million run rate.
Looking at our various initiatives our procurement team has implemented many new agreements with current and new suppliers and is continuing to work on implementing the remaining opportunities presented by RFP responses.
Most of which are now going through the product qualification and testing processes.
We continue to see savings from our procurement activities ramp up in the quarter, which kept us positive when netted against commodity inflation the began to increase in the fourth quarter.
More of the early benefits are now beginning to flow from the balance sheet for their initially capitalized into inventory and onto our P&L.
We will continue to see some inventory obsolescence and transitional cost as we ship suppliers along with the recent escalation on the logistics costs those should not be fully offset by the savings we are now generates.
We are continuing to develop our own site like value analysis value engineering, our VIP initiatives.
The RFP process didn't provide the right solution for our businesses.
These initiatives.
Initiatives have identified additional savings opportunities supplement the RFP process and is a great example of how we are transforming the culture of our company the one that embraces continuous improvement.
This will help us keep a full pipeline of savings opportunities moving forward.
We remain confident that we will lead our procurement activities close to our original timeline from May lag in actual dollar savings until the business returns to pre COVID-19 levels.
We've continued to make progress with the five North American manufacturing plants that are currently part of the transformation program and have seen productivity gains emerge in not only day sites, but most of our sites globally. As we are deploying our lessons learned broadly accelerate improvements.
Some of these productivity gains have been substantial by dealing with lower volumes and inconsistent production shifts to work against us in some facilities.
These productivity gains have led to leaner operations and a smaller workforce with head count reductions that began in Q4 of 2019 and continued into each quarter of 2020.
Anticipating some additional productivity related to head count reductions continuing through 2021.
We've taken delivery and installed some new fabrication equipment. However, the pace of capital spending for additional fabrication equipment has been slower than originally anticipated due to the impacts of COVID-19.
We expect the pace of capital spending will increase from 2021, allowing us to catch up on these planned savings.
We are working on an additional plant consolidations currently.
This one in Shreveport, Louisiana, where we have had two plants to support our prime minister them Barco businesses. We are in the process of consolidating one of those plants into the other one.
Expect to have this completed during the first half of this year.
As I mentioned, we did see a step up in transformation program savings in the fourth quarter.
Within period savings increasing to approximately $5 million.
Which is a $20 million run rate.
We remain fully committed to delivering the 500 basis points of margin improvement from the transformation program and expect to complete all the planned execution actions that will drive the savings by the end of 2021.
However, the timing of realizing the full 75 million of cost savings in dollar terms along with the all in EBITDA margin target of 23% will be delayed due to the pause experience related to the pandemic, creating uncertainty of when sales and manufacturing volumes returned to pre COVID-19 levels.
Before I turn the call over to Marty I want to share some recent developments from some of our other.
<unk> initiatives.
On slide nine we introduced the newest version of kitchen connect and launched our new common controller until our first product line last quarter.
As a reminder, kitchen connect is our open cloud based digital platform that brings the benefits of connectivity the commercial foodservice operators and a stable secured digital environment.
Because it is an open cloud based solution, we can share data with other kitchen management platform to connect competitors' equipment to welbilt kitchen connect.
Our new common controller connects to kitchen connect three point O and is now being integrated into new products across all of our brands.
We will also be retrofitting several existing products with new controllers and will offer kids to operators, who want to retrofit their equipment with a new controller to take advantage of our integrated digital platform.
The operators increasingly demanding digital capabilities when choosing what equivalent day, we're using their kitchens welbilt integrated approach of having a leading cloud based data management system, but can only control or are they using the same operating logic across all of its brands.
Welbilt, Inc. At the leading edge for digital platforms in our industry.
Since our dual launch last quarter had several chain operators expressed interest in adopting kitchen connect.
One was welbilt equipment into their operations.
We're currently working with these customers on field testing within their operations.
More on this in future quarters.
The last item I want to cover is an update on our ghost kitchen efforts.
On Slide 10, you can see one of our standard Ghost kitchen designs that was developed by our kitchen team to help the operators of these kitchens adopt an efficient modular layout that is digitally enabled by kitchen connect day.
<unk> per ghost kitchen is expected to grow rapidly with an estimated 1000 ghost kitchen openings over the next four years and the Americas, representing approximately $100 million of equipment we.
We estimate that we have some equipment in the majority of post kitchens in operation today have agreements in place with multiple ghost kitchen operators for their claims for openings in 2021.
This is yet another example of where our leadership in digital capabilities will help us grow in an emerging market segment.
With that I'll turn the call over to Marty.
Thanks, Bill and good morning, everyone I'm going to start with slide 11, and the discussion of our adjusted operating EBITDA margin results as you might expect day year over year drop in volume had impacts to water system and these margin drivers. Although this is beginning to be mitigated by the progress we've made in executing our transformation program.
<unk>.
Volume, which we measure at the gross profit level and is netted against the impact of net pricing drove a decline of 100 basis points in the fourth quarter.
Flex the 16% decline in sales versus prior year, partially mitigated by positive net pricing as our 2020 price increases continued to hold up.
Material costs, including tariffs was a 30 basis point positive contributor this quarter compared to the prior year.
This is a reflection of the net savings coming through from our transformation programs procurement activities, which are still ramping up but more than offset rising commodity costs in the quarter.
We have seen more inflationary pressure so far in the first quarter of 2021 related to both vendor pandemic related operating constraints and logistics costs, particularly overseas.
We expect these headwinds to be present through the first half of the year, but despite that we believe that our transformation program efforts in our upcoming 2021 price increase will be effective in expanding our margin from 2020 as we proceed through 2021.
Other manufacturing expenses, mainly labor overhead and warranty were 20 basis point positive contributor to margin this quarter.
We continued to effectively flex our production expenses to the lower volume environment again this quarter.
As a reminder, we implemented a reduction in force at the end of March that address both lower volume and anticipated productivity gains and took an additional that smaller action early in Q3 as we made further progress on improving productivity in our plants and gained more visibility on upcoming demand.
As volume improves sequentially in many of our plants. This quarter, we minimize the head count that was brought back in and held onto the productivity gains that we've made.
We still have a degree of fixed cost, we could not impact proportionate to volume, but that was less impactful this quarter due to the higher volumes.
We are continuing to execute the transformation program related labor strategies across our plants in 2021 had several more equipment upgrades planned over the next few quarters as Bill mentioned, we are executing a few facility consolidations and we remain encouraged by the organization lean focus.
We expect to continue taking additional restructuring actions over the next few quarters as each plant progresses and its individual transformation program.
SG&A on an adjusted basis contributed 70 basis points towards margin improvement in the quarter.
Our actions within the manufacturing footprint on SG&A. We also took early and aggressive action to contain spending as the pandemic impact emerged in March.
Many of those actions continue to contribute to lower SG&A costs and enabled us to show favorability in most of the SG&A categories in the quarter ex.
Professional fees marketing and travel expenses were all favorable.
As a reminder, if you're reading the face of the income statement. The SG&A includes the transformation program investments that are excluded from our adjusted operating EBITDA.
You can track the specifics through the non-GAAP reconciliation schedules.
Moving to slide 12 free cash flow was a positive $38 million in the quarter and increased 10% from last year's fourth quarter.
Working capital was a slight use of cash in the quarter with a decrease in inventory offset by slightly larger reduction in accounts payable.
Overall, working capital remains well managed.
Also impacting free cash flow is our investment program in both traditional capital spending and the transformation program.
For the quarter, we spent $4 million in capital down $12 million from 2019, we finished the year at $20 million and capital spending down from $34 million in 2019, reflecting the reduced activity through the pandemic restrictions.
We will ramp this back up in 2021 to be more similar to 2019 spending levels with investments planned per equipment upgrades facility investments new product innovation and it initiatives.
The transformation program investment is reflected in both SG&A and restructuring for.
For the spend reported in SG&A after the $2 4 million in Q4, we have spent 59 million since the program began in May 2019, and.
And combined with the transformation related restructuring charges of 9 million since inception, we have now incurred approximately 67 billion of the original $75 million to $85 million range.
Investments planned.
We expect to finish the incremental spending later in 2021 and to be in the lower half a day range for the full life from the program.
One last reminder, on our free cash flow is that it is traditionally a seasonal use of cash in the first quarter as we paid customer rebates and annual incentive compensation build of inventory and experienced seasonally lower volumes.
Then generate seasonally stronger cash flow in the remaining three quarters ex.
On this chart, we have remained free cash flow positive since the beginning of the pandemic.
While we are not providing a free cash flow forecast today, nor expecting it to achieve pre pandemic levels in 2021 absent an abrupt market disruption, we expect free cash flow to be materially improved in 2021 moving on to liquidity.
Which we define as cash and short term investments plus availability on our revolver.
We ended the fourth quarter was $375 million of total liquidity, which is well ahead of where we were at the end of the last three quarters and close to even with December 2019.
In summary, we're very pleased with our free cash flow and liquidity performance through the pandemic in 2020.
Cash and cash equivalents, plus restricted cash increased by $2 million during the quarter, while our overall debt balance decreased by $40 million, providing the $42 million improvement in liquidity this quarter.
We remain in compliance with the liquidity EBITDA and capital expenditure covenants in our amended credit agreements with significant headroom.
Finally on slide 12, I'd like to share a few initial thoughts on 2021.
First we will not reinstate full year guidance until conditions patiently stabilize and become more predictable we.
We are providing first quarter sales guidance, which we expect to be down between 11% and 16% from 2020.
We expect this will be our last quarter of negative sales comparisons and we will be able to provide sales growth guidance next quarter absent a significant setback in the fight against Covid or some other external shock to our end markets. We currently believe that 2021 will show full year growth compared to 2020, but that we won't be back to 2019 or pre pandemic levels.
In 2021.
Similarly related to our EBITDA margin, we expect to deliver meaningful expansion from 2020, but are not likely to reach the pre pandemic 2019 level and.
And we still expect a degree of seasonality, particularly related to the first quarter, where some of the inflationary pressures I mentioned earlier are evident we have seasonally lower sales and our expected price increases have not taken effect yet this.
This is just a reminder, the quarterly pattern from the last three years and by no means do I want to suggest any doubt about our transformation program.
As Bill stated we remain confident the transformation actions are working on a transactional level. We can clearly see the savings are materializing and we are confident those benefits will accelerate as we move through the year.
Under the headwinds of the pandemic related volume declines and hopefully temporary inflationary and logistics cost pressures. Our efforts are positioning us to be stronger and more profitable company in the quarters ahead, when both our transformation actions are mature and the market has recovered we've not.
Lost sight of our 500 basis point improvement goal, nor our path to it.
That concludes my comments operator, we'll now open the call for questions.
At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead and press Star then the number one on your telephone keypad.
Again, Thats star one to ask a question.
Our first question today comes from the line of Jeff Hammond with Keybanc capital markets. Please proceed with your question.
Hey, good morning, guys.
Hey, Jeff Good morning, Jeff.
So just thanks for the color on <unk>, just trying to get a better read on.
From what Youre seeing from you know order momentum perspective sequential trends into January February understanding seasonality.
Any kind of disruption from kind of this COVID-19.
Emergence and and restaurants shutting down in and kind of how that all plays in into into the guide.
Yeah. So.
We say in the January time period.
It's better than the fourth quarter, actual which was 16, 2%.
The shutdowns are having an effect the you know there's there's a slight.
Martin noise in the order patterns in February we think that'll.
Kind of normalize for March from the guide that we're giving you here.
But to be sure that it's choppy.
Week to week right now.
Okay and then.
Just you mentioned kind of rebuild and.
Companies starting to talk about plans for new store reemergence like when do you start to see things.
Some of that will start to move ahead.
As we kind of come out and we get some momentum on vaccines et cetera, well.
While we saw a little bit of it in the fourth quarter in the Americas. We had some we had some rollouts that from some of the <unk> taken effect little smaller rollouts.
And what we're hearing from from them as you know everything that was in 2020 delay.
Delayed out of 2020 will take place in 2021 I think.
There is some small things happening in the first half, but it's really a second half kind of event.
We'll start to see more pickup of that type of activity.
Okay, and then just on the savings.
Good to hear that Youre on track.
And you gave kind of run rate exiting 2000, 20 million exiting 2020, where do you think that.
How are you thinking about incremental savings for 2021 are exit run rate savings.
2021.
Yes.
<unk>.
We're not ready to sort of give you a specific kind of range around that but it should continue to build I mean, each quarter. We think is ramping and we are continuing to finish the qualification of parts and the.
Procurement sightedness, continuing to buy a little bit more of those new parks at lower cost and the productivity as we talked about continues to expand so I can't quite give you.
The kind of range you'd like but let's say, it's going to continue to advance in fact, probably faster it will probably advanced faster than Q4 did from Q3. If you recall I think we were at $4 million a quarter $16 million run rate in Q3 and out $20 million I think that pace will pick up a little bit as we get through 2021.
And it's probably a couple of quarters.
Longer than what we said at the Investor day.
What it feels like right now and then.
We kind of said that we would be there somewhere around the end of 2021 hitting that kind of stride.
But it is still subject to volume constraints right.
I just don't know when the volume is coming back, but all the actions that we've taken.
You can see them in the numbers are taking hold.
Materializing, having material effect on margins.
Okay. Thanks.
Your next question comes from the line of Duffy with Baird. Please proceed with your question.
Thank you and good morning, everyone.
I guess.
I'd like to start maybe with a little more color on on the fourth quarter.
I'm trying to sort of separate out the impact of the rollout, which it sounds to me like you called out as per <unk>.
A little bit of a one time items that helped you in the quarter relative to <unk>.
The actual replacement demand that you also noted in your press release that is starting to materialize. So can you can you sort of help us understand what's going on there and I ask this.
And trying to understand your guidance for the first quarter right because if I look at the midpoint.
It seems like the dollar revenue is very similar to what you.
Reported third quarter. So we're stepping down sequentially trying to understand how much of that is the natural seasonality of the business relative.
Relative to maybe the onetime effect of the rollout or maybe channel stocking or something like that that might help you in the fourth quarter.
Yeah I think.
We had a couple of rollouts that.
In the fourth quarter that were kind of in total in kind of the $10 million range.
Compared to Q4 of.
2019.
2019, which is where a couple of million dollars. So that's the order to the Meg order order of magnitude that.
Kind of the Rollouts that happened kind of tailwind in the fourth quarter for.
For the <unk> segment.
That's helpful. And then you get the sense that your distributors behave any differently than they did in the prior year.
As far as their own sort of stocking goes.
Yes.
There was there was no of course, we Didnt announced price increase and sometimes we do it in January on January one sometimes you do it after the first quarter. This year, we've done it after the first quarter.
The net for the first quarter.
So.
Sometimes they do pre buys on that they werent doing any of that partly because we didn't have a price increase announced in and mainly because of their own cash constraints and liquidity issues.
The inventory in the channel is relatively low right now and as Marty said, Theres, some seasonality too to inventory stocking and.
Right now, we're starting to ramp up.
Particularly ice demand for the second quarter second and third quarters, a big demand for ice products and so it will start ramping up inventory levels and working with our distributors too.
To get their stocking levels up but in general I think when you talk to any of the dealers on the general market side of things that their inventories are really low at this point.
Theyre just not carrying anything.
I see and then just.
To clarify here as far as the guidance for the first quarter and a sequential downtick in revenue.
It sounds to me like this is pure seasonality that we're experiencing here do you think that the business can build sequentially from Q1 in terms of revenues higher sequentially. As you look at Q2, and Q3 or are you thinking of a different progression at this point based on what Youre seeing in the end markets.
No I think you've got it pegged right as seasonality in the first quarter in years, it will be able to grow from there.
Great and then my.
Follow up.
Is on the transformation program and the way, we should think about margins. So if I understand slide.
Slide eight correctly.
You're maybe going to spend closer to 75 million you already spent $67 million. The implication here is that most of the work is done it's behind us and maybe now all we need is volume. So if I look at the at the targets that you've reiterated here 23 margin, 23% EBITDA margin on <unk>.
That is close to 2019 levels I guess this would imply 44% incremental margin on $440 million of additional revenue.
So my question is this.
How should we think about the way these incrementals kind of ramp would revenue should the FERC 200 million EMS revenues carry different incrementals than the subsequent $200 million.
Should be incrementals be higher.
Earlier in the recovery.
Or should we see higher Incrementals later as your savings are sort of maturing and ramping up thank you.
Yeah, It's Marty what I would say is.
The the paces of the of the rebound and recovery in revenue is not exactly the same time pattern as the savings ramp up.
So I think the Incrementals will be a little steeper in the second half of the revenue gains as the procurement cycle really runs its course and the productivity side run their course.
Whereas some of the steeper rebound in revenue will happen kind of in particularly the second quarter. When we're comparing against the depths of 2020 will be the steepest. So.
You'll get some natural.
The bounce and margin in that second quarter for sure from just scaling SG&A and so forth year over year.
But the real drive towards the 500 basis points and that 23% will come as the.
The DTP really matures in the second half of this year and index into 2022.
And I would say that there is a significant amount of work still to be done.
Even though some of the dollars have been spent we have a lot of the capex is.
For fabrication equipment and things like that are that have yet to be installed up and running fully operational all bugs worked out so there's still quite a bit of work to be done on the productivity side of things.
That we see to accomplishing that this year.
John.
And as Marty said on the.
Procurement side of things, that's just an ongoing every day play right in there.
That we'll see that mature towards the end of the year in terms of all the actions that we've taken.
And then the final is filled back up again for more after that right. So we don't stop.
Yeah I appreciate that it is just a little counterintuitive if you ask me.
I would expect incrementals to be higher as volumes are just starting to come back and then moderate over time, but it sounds to me like you're saying that maybe we should be thinking the opposite here.
I'll get back in again, thank you.
Maybe it's that it's that lag around procurement in particular, thats powerful a qualifying products getting them.
Starting to buy them and getting them into inventory buy them at scale as opposed to.
What I'll say buying them at full volume and then getting it through the inventory capitalization cycle. It out through the P&L. It just even even though that the transformation spending has been done that exercise that procurement followed through will run I mean, it's been going on several quarters has several more quarters to go and so the lag of getting that into the P&L non.
Drive the incremental margins it's just.
Not to be underestimated.
Thank you for the color I appreciate it.
Mhm.
Your next question comes from the line of Larry de Maria with William Blair. Please proceed with your question.
Thanks, Good morning.
First question I think through the first few quarters, you had about $12 million in kind of government assistance.
Credits cash et cetera that flowed through to you guys I'm curious what the full year benefit was if that was impacted the fourth quarter and then secondly does any of that come back in 'twenty, one or do we have to overcome.
Obviously multimillion dollar headwind and how do we do that thank you.
Well, Marty kind of scrambling for the numbers there I'll tell you that.
Yes.
We did see benefit in the in the fourth quarter we.
We do still have some benefit in the in 2021, obviously not to the magnitude that.
The 2020 was but I'll, let Marty give you the exact numbers here.
We're going to get we're going to get the K out.
Imminently.
Imminently and and Youll see it in there in a footnote there was some more in the fourth quarter.
Tapering down it's in both cost of goods and SG&A.
So.
I wont scramble around to this number now, but you'll get you'll get access Stewart in the K.
Soon and we'll be able to do the analysis.
We don't expect much next year as these things come back just a little bit in some of the more in the international market is really where we see a little bit of that still has opportunity.
Okay. It just seems like low is probably in the low mid teens overall net seems like a big number to overcome in 2021, considering 16% of I guess EBIT EBIT through.
Through the first few quarters.
But I guess, maybe switching over to price.
First quarter ended the first quarter you have some price increases come through can you give us order of magnitude and how much confidence you have that.
Thats enough or are we going to have to raise price again, how broad across Europe.
Portfolio of the price increases are good obviously.
Awful lot of inflation supply chain inefficiencies out there in the industry.
Yeah. So we went out with a price increase on the spare parts piece of our business in January. So we did get we did get part of it implemented in the first quarter on that.
The.
General market.
The rest of.
GSA global strategic accounts.
Starts in the second quarter.
And it varies by product line anywhere from 3% to 5%.
Depending on the product line.
Can be.
And that in that range.
And we typically net.
60% to 70%.
The number that we go out with.
Just based on.
Contracts.
Timing and issues different issues like that depending on the customer.
Okay. Thank you and our last question Mary Chef, obviously did well for Q.
Was that part of the one off things that help the year over year help or is that indicative of the industry moving towards some overstocking of cooking equipment that may have some legs and I'll leave it there. Thanks.
No.
Believe that we are growing share and Mary chef and.
Being able to maintain net share and what you are seeing a sustained progress with Mary share.
Okay. Thank you.
Hey, Larry before you drop just wanted to revisit the governmental assistance.
The Q4 impact.
Was just.
Little bit over $4 million most of that in cost of sales just a couple of hundred thousand in SG&A and for the full year, we were at just under $13 million.
More evenly split between cost of sales and SG&A, but I think one thing to remember while its a number to overcome.
Without that we would've reduced costs further so one way or the other I think.
You know it.
We still would have had a positive impact just allowed us to keep keep folks around that we otherwise would've furloughed or.
Or taken other actions so.
Without.
The absence of government assistance.
Okay. Thanks rich.
Thanks.
Your next question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.
Good morning, everyone.
Thanks for the discussion on just sort of from your customer conversations Youre, having I just wanted to expand on that.
And just kind of what people are saying on the role of technology and connectivity et cetera, as to whether or not next week or next month next quarter, but just over the next few years if it does.
Right.
A larger refurbishment or or change in the average content that you have I mean, just in general.
Comments on the sense of urgency your customers with a sense of.
Value add your customers are seeing from the sort of things youre evolving. Thank you.
Yeah. So it's it's.
It is important.
Is happening at the larger <unk> right now in terms of people wanting connected devices is where the the initial thrust is and I think that's important because once you start once they started they started making it affordable for everybody else for those smaller players.
As it becomes more prominent.
Every piece of our equipment is born digital now.
And we'll be in the future and capable of analytics and connecting to either our cloud or customer cloud.
We're able to connect other people's equipment to our cloud.
So the it's.
It's a very open platform and it has to be because theres. So many different pieces of kitchen equipment from different manufacturers in the kitchen that you have to have an open platform.
We have somewhere around 8000.
Units connected across thousands of kitchens right now.
I can tell you the debts.
Double what it was a year ago.
And we see this accelerating and improving.
And just ex almost exponentially as people start to get more equipment connect.
Connected there's just too many benefits from having connected equipment for people not to buy a connected equipment.
The ability to monitor energy to monitor usage to monitor maintenance.
All of the things that it brings and especially if you look at some of the dynamics going on right now in the political landscape. It together you have $15 an hour of labor.
They're going to be focusing on how do they get more labor out in their kitchens right, having this digital technology and connected kitchens really enables that and then.
All things digital delivery.
Takeout options all of those things everybody's working on their digital capabilities, we're coming out with a new product.
In the second quarter.
Sorry storage cabinets that are Murko brand is having and it specifically centered around.
People picking up orders at retail outlets.
Are they scan the codes from their phone onto the cabinet and they pull their food out.
Again, it's all loaded from the back and the customer never gets never has to touch anything other than their food. So.
A lot of innovation coming as a result of connected kitchen, and we we think that we're.
And a very strong leadership position with our common controller common user interface and having the ability to.
Connect multiple welbilt devices, using the same control or in the same user interface same amount of training.
For operators they can operate a grille. They can operator prior that can operate a holding cabinets using the same controller.
So it's just going to accenture.
Thank you John.
Yes.
Your next question comes from the line of David Macgregor with Longbow Research. Please proceed with your question.
Good morning. This is colton west on for David Great work on navigating through the challenging environment.
Just to start the commentary around <unk> looking at new builds just pretty encouraging can you describe what youre seeing as quoting activity year to date compared to the fourth quarter across the various end markets and are you still seeing little in the way of order cancellations.
Yeah.
Yeah, we're not seeing a lot of order cancellations.
I'd say that.
A lot of the projects.
<unk> projects are still on hold.
We know they're out there.
And I think like I said that we will see that activity pick up in the second the second half of the year, but.
Theres a pretty big.
Big pipeline of projects that it's just a question of when they pull the trigger on them and start moving them forward, but I think with.
All the recent Covid cases, and just the news around the Lockdowns.
It slowed a little bit, but I think.
There is a reasonable expectation to see that in the second half of this year at this point.
Okay and then.
Mentioned that distributor inventories remain lean.
You anticipate kind of a gradual build back to pre COVID-19 levels, taking place this year and maybe next.
Or do you expect that dealers will carry a lower profile going forward than they did previously.
It's I think there's some interesting dynamics right because he who has the inventory we will get the sale in some cases right and so I think youll see.
Dealers put more inventory in as they have more faith that that does vaccinations are taking hold and the people are going to be operating closer to normal line. So I think you'll start to see and ramp their inventories up because if.
If they don't have it in inventories and somebody will make the call to go to the next Guy right, who does have it when we see this in ice all the time, which is why we have to be really.
Careful.
Make sure that our ice distributors have significant.
The volume in inventory during the second and third quarters. So that they can meet all the demands that are pretty quick.
And in that quarter so.
Okay, and then last one from me what are you seeing in the market in terms of permanent restaurant closures. So far in 'twenty, one compared to call. It the fourth quarter exit rate and what are your initial thoughts on closures for the full year.
Yes, I have no idea I think it just.
I think the restaurant Association just came out in 110000 restaurants are closed.
<unk>.
The second round of closures is really hurting people even worse.
Because of that.
They were exhausted from the first round and used up a lot of their their natural cash and just their ability to withstand this.
Pandemic and having a second round is really.
It's going to be difficult on them. So I don't know what their closure rate is going to be but it's not going to subside.
These lockdowns going.
Okay. Thanks, so much for the color and good luck in the new year.
Thank you.
Your next question comes from the line of Walter Liptak with Seaport. Please proceed with your question.
Hi, Thanks, Hey, guys good morning.
I wanted to ask first about.
Yeah.
Just see I think.
Ghost kitchen opportunity the 100 mill.
And I Wonder if are those sold centrally or are those sold direct to the customer through a dealer channel.
There's a little bit of both it happens.
There's different types of ghost kitchens kitchens as a service there's restaurant operating kitchens kitchen incubators, so just kind of depends on.
The type of format in the way that it goes to channel.
But.
We do deal with dealers for the most part.
In this area.
Direct.
Any direct sales actually.
Okay got it okay. So it's sort of a jump ball general market for for the 100 mill.
Is there anything specific about your sales were except that are there is there do you have an idea of the mix of large chains versus small customers that are going into these ghost kitchens because maybe.
Competitive advantage there.
No.
I don't I don't have the.
Don't have.
Our mix that I can give you on that I mean, there there's.
Different people that are doing different things you got to.
Like Chipotle and some of these other restaurants are adding an extra.
Line in their back of their kitchens right.
Kind of.
What we would call.
Our restaurant operating and net restaurant operating kitchen kind of format and then you just have.
Other people that are.
Put it in the.
Parking lot somewhere right.
Just different.
But I don't I don't know.
Victoria.
Okay, Okay, great, but Walt Walt I think this rich I think really though.
Sure.
These these ghost kitchen operators.
They're going to they're going to focus on.
The top tier equipment connectivity is an absolute certainty for them they have to have it to make their model work.
So I think there does that does drive a preference for.
For manufacturer like Welbilt that has leading capabilities around connectivity not just a cloud based system, but then the common controller.
<unk> us make the.
Make us the easiest to connect and get the data up to the cloud and back down to the cloud is usable information and drive operational savings for these operators.
Okay, Okay, great makes sense.
<unk>.
The APAC was was down and I understand that's on a difficult comp with 2019 fourth quarter.
Provide us with a little bit more detail about sort of the outlook for China. They seem to be a little bit ahead of us are you seeing more of these <unk> openings.
In APAC.
Uh huh.
Happening sooner than in the U S.
Gross look like for APAC and your guess.
Yeah, I mean, China is fully recovered it was down a little bit in the fourth quarter, just because they had tough comps but.
We see we see a good year in APAC.
Particularly in China, and Australia, which are two markets that we have significant presence in there.
Some of the other APAC regions are kind of in the same boat as the U S. They're struggling a little bit but.
Yes, we do see a good year for for the APAC region.
Okay, Alright, great. Thank you.
And again, ladies and gentlemen, if you would like to ask a question. Please go ahead and press Star then the number one on your telephone keypad.
Your next question comes from the line of Nick Del Rey with Baird. Please proceed with your question.
Hi, Thanks for taking a follow up.
<unk>.
I wanted to see if you guys can give us a little color on your raw material hedging program I know you employ that and I'm wondering what various commodities.
This program covered at this point and how far in advance are you are you kind of.
Bought what portion of 'twenty, one you might have covered at this point.
Yeah. So Mig we look out typically four quarters and are covering the main metals right just three or four of the main metals really and.
Really are looking for when the prices and an outlier relative to the market and then and then hedge the closer we are we hedge a little bit higher percentages. The further out it is much lower percentages.
And we have a general bias not to do it. So we're really looking for times when it feels like there is a there is an outlier.
And I would say relatively small percentage of 2021 has covered I don't know, if that's 25% or I don't know somewhere less than half I am sure but.
And again, we're trying not to do this unless there's some some outlier kind of movement there.
Yes.
As rich just a little more color on the.
On the hedging program so.
We designated our hedges late in 2019 with the new accounting rules.
Added complexities that they put in and trying to comply with these so we haven't been adding new.
New hedges for the probably call it five quarters.
And letting the existing ones roll off so we still have some protection out there.
Going through 'twenty, one here, but it'll continue to wind down a little bit as we move through the year.
Right so.
It's fair to say that we should be kind of thinking spot pricing for <unk>.
Things like stainless aluminum copper and things like that as you're looking and.
Maybe like Q3 Q4 share right.
Right, Yeah, I think predominantly spot.
Go ahead and realize a lot of vs or components that are that we're buying as well that have <unk>.
Metal content, but it's not as direct as the commodities moving it's not us.
Volatile is that.
Understood and then.
The pricing framework that you presented the 3% to 5%.
Are you comfortable with the fact that that can put you in a.
At least a neutral kind of price cost.
<unk> for 'twenty, one or does that.
What will that require additional action as the year progresses.
No I think Inc.
We took the time, we saw some of this happening in the fourth quarter. So we took the time to really evaluate what the impact would be and we think we've got it covered so.
But if we have to go back out.
Things worsen.
We will go back out.
Something to correct it.
Understood and then final question from me.
Yes.
The end markets are finally recovering fortunately.
In Europe.
Youre doing better as well from a from a margin standpoint, as we've seen in the fourth quarter and your stock has recovered I guess I'm curious as to how youre thinking about the balance sheet going forward. There is still as we all know quite a bit of debt there.
What is your view on the strategy here as we think about the next two to three years any updated thoughts from the board.
Curious can help thank you.
Yeah. So as we look at pre Covid, we were on a.
Kind of self help program using our earnings that we generate to reduce the debt I think that's still the right course of action here as these markets are recovering we see this being able to delever to an acceptable level over the next couple of years and so.
Thats a course of action that we are going to be taken.
Okay. Good luck guys.
Thanks, Nick.
And there are no further questions in queue at this time I'll turn the call back to Mr. Johnson for any closing remarks.
Thank you before we end today's call I would like to thank our employees.
When considering the challenges we collectively faced in 2020 are considered their performance to be at the top of any group that I've been privileged to lead.
I want to reiterate my continued belief that welbilt will emerge from this crisis, a stronger company that is structurally leaner and more efficient.
We will focus on opportunities, where we can use our competitive advantages of innovation and digital leadership to help our customers succeed and grow.
We will continue to leverage our culture of innovation.
Service to win the battle for brand preference.
Outgrow our end markets.
We will deliver on our promise of margin improvement and Delever, our balance sheet as this crisis abates.
This concludes today's 2024th quarter earnings call. Thanks, again for joining us.
And have a great day.
Yes.
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Sure.
Sure.
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