Q2 2021 Welbilt Inc Earnings Call

Yes.

Good day, and thank you for standing by and welcome to Day Welbilt, Inc..2021 Q2 earnings call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference or Richard.

Speaker today, Richard Sheffer. Please go ahead.

Yeah.

Good morning, and welcome to Welbilt 2021 second quarter earnings call and webcast. Joining me on the call today is Bill Johnson, our President and Chief Executive Officer, and Marty <unk>, Our Chief Financial Officer.

Before we begin our discussion please refer to our safe Harbor statement on slide 2 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.

These statements on this call regarding our business that are not historical facts are forward looking statements on 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's 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.

Please note that we will only be providing prepared comments on today's call and will not be conducting a question and answer session.

Now I'd like to turn the call over to Bill.

Thanks, Rich and good morning.

I'll start by simply saying I'm excited about the pending all of the group transaction.

On that won't address it today as we continue to run our businesses independently.

Beginning on slide 3 of our presentation, our net sales increased 92% year over year second quarter with organic net sales increasing 85, 8%.

<unk> now lapped the most disruptive quarter during the pandemic.

Paul it's exciting to be talking to you about growth. It is important to note that our sales are still behind the pre pandemic levels of 2019.

Our sales growing year over year, we delivered on an adjusted operating EBITDA margin of 18, 6%.

As of 900 basis point increase from last year's second quarter.

Adjusted diluted net earnings per share was 22.

Compared to a loss of 7 from last year's second quarter.

Along with the increased margin and earnings per share of our second quarter free cash flow was $31.9 million, making us free cash flow positive year to date.

On slide 4 sales in the Americas increased to 87, 4% in the quarter.

Our year with organic net sales increasing 85, 3%.

Volumes are recovering in the Americas, but aren't back to pre pandemic levels, yet when you compare 2021.2019.

The Americas are also benefiting more from a strong pricing environment than either EMEA or APAC.

Sales to <unk>, an increase year over year in the second quarter, driven primarily by an increase in non repeating large chain rollout sales.

He saw Rollouts of cross Robbins grills.

On hot holding cabinets with multiple chain operators.

And the general market sales to dealers and buying groups increased in the quarter across most of our brands.

Finally kitchen care aftermarket sales increased again this quarter is more professional kitchens are opened and equipment utilization is increasing driving demand for service.

Looking at EMEA on slide 5 sales increased 134, 1% of organic net sales up 110, 9%.

Total dollars EMEA surpassed 2019, but that was in a large part D of significant foreign currency tail.

Actual volume still has to improve more before the region has fully recovered.

However, we were pleased to see EMEA take a step forward with reopening many more professional kitchens this quarter.

Large chain sales increase in the region of these operators are beginning to invest and they execute their expansion plans.

General market grew as local dine out restrictions ease, allowing more restaurants to reopen which spurred new equipment sales with these operators.

Easing of these restrictions also helped drive kitchen care aftermarket sales growth during the quarter.

On slide 6 sales in apex of increased 64, 6% with organic net sales up 57, 9%.

Sales growth was led by China, and Australia again this quarter because those countries were fully recovered from the pandemic.

More encouraging was that southeast Asia returned to growth in the quarter with only 1 country, Thailand still down year over year.

Fallen true southeast Asia remains weaker than the rest of the region is continuing to dampen our overall growth in APAC.

Moving on slide 7 free.

Actually we have made on our transformation program once again positively impacted our results this quarter.

We delivered a little over $3 million of in periods of savings in the second quarter all from productivity improvements.

As of $13 million run rate.

Have some material cost inflation, we would have delivered in periods of savings of approximately $7.5 million and increased our run rate of approximately $30 million. So we can still see the programs progress.

Looking at various initiatives on 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 our SKU response.

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.

Net it against commodity inflation, we ended up with material cost headwind per quarter.

We're continuing to develop our on site led value analysis value engineering of <unk>.

Initiatives the RFP process didn't provide the right solution of our businesses.

V. A b initiatives have identified additional savings opportunities.

Supplement the RFP process.

Due to the ongoing supply chain disruption that we have been experiencing the last couple of quarters. We've.

We've had to rebalance some of our resources from these procurement initiatives to help search for new suppliers of critical mass.

And in some cases help our supplier of spine sources for components they need the manufacturer of their parts for us.

Shifting of resources combined with inflationary pressures on extending the timeline for us to achieve the original savings target and we remain confident that we will complete our procurement activities and deliver these savings.

So we see these inflationary pressures begin to abate and we remain committed to offsetting these pressures saving.

Of savings, we are now generating and through the price increases that we implemented earlier this year.

And then all of the remainder of 2021.

We have continued to make progress at the 7 North American manufacturing plants that are currently part of the transformation program and have seen productivity gains emerge at not only the sites, but in most of our sites globally. As we are deploying our lessons learned broadly to accelerate improvements.

Some of these productivity gains have been substantial despite dealing with lower volumes and inconsistent production shifts of work against us from some facilities.

These productivity gains have led to leaner operations on a smaller workforce of recent volume improvements have resulted in net rehiring of some production staff.

Dissipate remaining below prior head count levels, we continue to increase our productivity levels.

We've taken delivery of installed some new fabrication equipment on these investments will contribute more on staff fully integrated.

We're working on 2 additional plant consolidations currently 1 of us in Shreveport, Louisiana, we have 2 plants that support our prime net churn merkle businesses.

We're in the process of consolidated 1 of those plants into the other 1 sort of delayed the final closing into next year. So we can meet our current high demand.

The loss of initiated the consolidation of of manufacturing plant in the EMEA region and expect to complete this by the end of 2021.

So their current supply chain challenges and rebalancing of resources, we now expect to complete all of the planned execution actions that will drive the transformation savings in 2022.

Incremental spending on the program is largely concluded and we now expect the pulse transformation program expenses and the less than 75 million.

Since we've already incurred $71 million of these costs there should only be small additional cost over the balance of the program.

With that I'll turn the call over to Marty.

Thanks, Bill and good morning, everyone on.

Let's start with slide 8 and the discussion of our adjusted operating EBITDA margin results of broad theme. Here is we are pleased to see our execution of progress being able to widely covered the gradual fading.

Related volume headwind and more recent commodity and logistics of inflationary headwinds.

At 18, 6% EBITDA margin of 900 basis points ahead of Q2 last year.

190 basis points ahead sequentially this year.

Got it.

This progress is not just the procurement of productivity elements of our transformation program.

Certainly contribute of broadening of our execution of a pricing war on coal.

SG&A of adoptions of more well.

But we recognize that we're not where we want to be yet remain resolute die from additional margin improvement.

So working from slide 8 specifically volume, which we make sure that the growth possible bolt on instead of against the impact of low pricing.

Well of an increase of 200 basis points in the second quarter.

That's the 86% increase of organic sales versus prior year.

Small positive net price increase we had of course of quarter benefit from the general market list price increase that went into effect at the end of the first quarter along with the kitchen here of aftermarket unreasonable price increases that went into effect on the first.

Cool.

And then of additional price increases later in the second quarter on a few brands and more already end of third quarter of additional brands that will provide increasing offset kind of inflationary pressures as we move through the second half of kind of part 1.

Material costs, including per well of 150 basis point margin headwind this quarter compared to the prior year.

It is a reflection of the inflationary pressures from rising commodity which is composed of logistics costs, we incurred from the <unk>.

And some delayed impact of what a great.

Based on that came off the balance sheet.

It all easing.

These inflationary impacts more than offset the savings because of the from our transformation program some of that.

Yeah.

We expect these inflationary headwinds to be present and.

It might be increasing through the next few quarters, but despite that we believe that the positive impact from price and production volumes. Our transformation program vessels from our recent price increases will be effective on expanding our margins over the balance of 2021.

Other manufacturing expenses, mainly enable overhead warranty work.

Based on Covid positive contributor to margins this quarter.

Given the improvements we've made of their pulse decided real operating leverage as production volumes improve broadly across our business this quarter.

It worked to minimize the head count brought back from the local of holding on to the productivity growth.

Right.

We are expanding the transformation program related to lay of the strategies of cross defaults in 2021.

Volume of supply chain headwinds to ease over time.

Gains from recent and pending of equipment upgrades.

We are executing the 2 facility consolidations formats.

Organization is focused on clear initiatives towards our margin goal and we are of course.

Rich baidu of limitations.

Thanks.

SG&A on an adjusted basis because of 530 basis point headwind this quarter.

Our actions within the menu capturing.

Over a year ago. We also took aggressive action to contain SG&A spending as the pandemic APAC emerged in March 2020.

Of those actions are continuing to contribute as SG&A categories were flat or increased well below the growth rate we had in sales this quarter with.

The primary drivers of the higher SG&A costs. This quarter were compensation expense and commission the effect of both the higher incentives being earned this year and the non recurrence of some of the measures taken in last year's second quarter.

Lots of the impact from the pandemic.

As a reminder, you're reading the face of the income statement SG&A includes the transformation program investments and transaction costs that are excluded from our adjusted operating EBITDA.

You can track the specifics through the non-GAAP reconciliation schedules in our earnings release.

Finally of the weaker dollar provided the larger than normal benefits of our margin this quarter.

Moving to slide 9 free cash flow was a positive of 32 million source of cash in the quarter ex U.

Minder, our free cash flow of seasonal fourth quarter impacted by our paid customer rebates and annual incentive compensation building, an inventory and just seasonally lower volumes.

Our performance in this year's second quarter brings us to a positive free cash flow generation year to date and marks the first time in several years that we have been year to date free cash flow positive gross booking.

Working capital was a use of cash in the quarter with higher receivables at quarter end user sales growth and an increase of inventory is from your securing incremental supply of critical components and minimize supply disruption.

For the quarter capital spending was $5.2 million roughly flat with last year's Q2, we continue to expect Capex from 2021 to be more similar to 2019 spending levels with investments planned for equipment upgrades facility investments new product innovation and IP initiatives.

Moving on to liquidity, which we define as cash and short term investments plus availability at our revolver.

Ended the second quarter with 392 million of total liquidity.

<unk> of approximately 39 million from Q1, and well ahead of where we were at the end of Q2, 2019 and 2000 of Quanta.

In summary, we are very pleased with our free cash flow of liquidity performance.

Fashion cash equivalents cash restricted cash increased by 14 million to end of quarter, while our overall debt balance decreased by 25 million, which combined to account for the $39 million increase in liquidity this quarter.

We're well within the limits of our leverage ratio of covenants you came back into effect at the end of Q.

We needed to be less than 775 times levered at quarter end as measured by our credit agreement debt commissions.

Can see on the slide we finished the quarter at 5 <unk>.

We expect this metric to continue improving quickly during the second half of 2021, as our EBITDA increases versus last year, and we generate positive free cash flow.

We expect to be in compliance with our covenants of sufficient headroom.

On 'twenty 1.

Finally, I'll offer a few updated thoughts on 2021.

We are reiterating the 2021 net sales and adjusted operating EBITDA forecast that we issued in a form 8-K in early July.

We continue to believe that 2021 will show double digit full year of growth compared to 2020 with debt.

Back in 2019 of prepaying debt net global since 2021.

With regards to our EBITDA margin, we expect to deliver meaningful expansion from 2020 and believe our 2021 full year margin will be in line with 2019.

We expect continued inflationary pressures to be increasingly offset by the price increases we implemented in Q1 and the additional increases we implemented recently.

Sure we come out ahead in the coming quarters, and the balance of pricing and inflation.

We are confident that transformation program is on track to deliver our margin objectives in the quarters ahead on both of our cash.

Information actions from mature and then Martin.

That concludes my comments as rich mentioned at the beginning of the call we will not be conducting a question and answer session today.

I'll turn the call back over to Bill for his closing remarks.

Thanks, Marty before we end today's call I want to reiterate and I continue to believe the welbilt as a stronger company sort of structurally leaner and more efficient than we were at the beginning of the pandemic. Our when we began our transformation program in May 2019.

We will continue to focus on opportunities, where we can use our innovation and digital leadership to help our customers succeed and grow.

We will continue to leverage our culture of innovation and customer service to win the battle for brand preference.

We will deliver improved margins and much improved free cash flow as we increasingly overcoming inflationary pressures that have limited our visible improvement this year.

This concludes today's 2021 second quarter earnings call. Thanks, again for joining US this morning and have a great day.

This concludes today's conference call. Thank you for participating.

Correct.

Okay.

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That's true.

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