Q3 2021 Univar Solutions Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Univar solutions third quarter, 2021 and he's come from.
My name is Emma and I'll be your host operator on this call. Currently all participants are in listen only mode. After the presentation. We will conduct a question and session and instructions will be provided at that time.
If at any time during the conference call you need to reach an operator, Please press star followed by zero.
I will now turn the meeting over to your host for today's call Heather Kos, Vice President of Investor Relations and communications that Univar solutions Heather. Please go ahead.
Thank you and good morning, welcome to Univar solutions third quarter earnings call and webcast.
Joining the call today are David Jukes, President and Chief Executive Officer, and Nic, Alexa Executive Vice President and Chief Financial Officer.
Last night, we released our financial results for the third quarter ended September 32021, and posted to our corporate web site at Univar solutions Dot Com a supplemental slide presentation to go with today's call.
Slide presentation should be viewed along with the earnings release, which has also been posted on our website.
During this call as summarized on slide two we will refer to certain non-GAAP financial measures for which you can find the reconciliations to the most directly comparable GAAP financial measure in our earnings release and the supplemental slide presentation as.
As referenced on slide two we will make statements about our estimates projections outlook forecasts and our expectations for the future.
All such statements are forward looking and while they reflect our current estimates.
Risks and uncertainties and are not guarantees of future performance.
Please see our SEC filings for a more detailed summary of the risks and uncertainties inherent in our business and our expectations for the future.
On slide three you will see the agenda for the call David will start with third quarter highlights and end market trends, Nick will walk through our financial update and then David will close with progress on our business strategy.
I believe that we will take your questions with that I'll now turn the call over to David for his opening remarks.
Thank you Ed Good morning, good afternoon, and good evening to everyone and thanks for joining our call.
With the hard work of integration and systems migration now well behind us I'm delighted to report another exceptional quarter.
<unk> business and a team that is clearly a huge operational stride.
Driven by strong commercial execution supported by growing customer demand, we delivered strong year over year growth, despite constrained supply and supply chain challenges.
With a focus on growth by putting the customer at the central all we do we are fully realizing the value of the next two acquisition and excellent teaching program, whilst remaining laser focused on continued organic growth. We are now exploring inorganic growth opportunities to further leverage our cost structure and digital advantage.
Key highlights from the quarter or we could have an exceptional Q3, adjusted EBITDA $211 million with liquidity nearing $1 billion a quarter right.
Our headline sales were up versus prior year as we continue to deliver organic growth.
Market share grow in the quarter as evidenced by our positive win loss ratio and higher retention levels for new customers.
With Mexico going live yesterday, our entire SAP migration projects have now been successfully completed.
We remain on track to deliver on our commitment of $120 million of net synergies from the Nexium integration by quarter one 2022.
Our digital investments are delivering real benefits you'd 41% of our U S customers now registered on our e-commerce channels and able to utilize 24, 7% self service capabilities.
Additionally, approximately 23% of your best customers are utilizing digital tracking capabilities.
Mounts of orders placed through our digital store fronts increased by more than 38% quarter over quarter.
And we strengthened our position in a global specialty end market first of all with several new supplier authorizations in the quarter.
With our strong performance in deleveraging goal achieved we're pleased to announce that the board has authorized a $500 million stock buyback program, which Nick will talk about in detail later.
In the third quarter, we continued our trend of outpacing prior year in both sales and margin due in large parts of our committed market position in key products as well as our extensive network of facilities and the advantage of our own trucking fleet.
I believe this quarter was a clear validation of our core value proposition, providing security of supply safely to our customers and sound product stewardship to our suppliers.
Industrial solutions, so accelerated double digit growth with strong performance in lubes, metalworking and household and industrial cleaning due to demand and our strategic supply position.
Despite challenges in automotive coatings is a result of the microchip shortage, we found new opportunities to grow our case business and deliver new solutions for our customers and suppliers.
Personal care food ingredients continued their trend of double digit growth.
Personal care demand has returned in color cosmetics and skin and beauty care, while in food growth has come from increased demand in prepared foods and restaurants as well as the steady shift of consumer preferences towards meet Consumptions.
Unforeseen shortages in certain key ingredients are really exemplified our value to customers in both industries, because we've been able to support them without bespoke formulation capabilities and strong supplier partnerships.
Within the general industrial portfolio, you're seeing strong demand across the various markets with ongoing strength in chemical manufacturing and the electronics industry.
You see increasing demand in mining chemistries amidst the presence of extraction chemistry as a result of global efforts to diversify away from fossil fuels.
Our extensive organic chemistry portfolio is supported growth in VSAT, while the ability to leverage our scale enables us to provide customers continue.
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Although now a much smaller parts of our business, we did see growth in energy and oilfield chemistries as oil rig counts have steadily increased our breadth of west, Texas indices reached levels not seen since 2014.
In support of their ESG goals customers upsetting to us for new and innovative ways to partner with them to ensure sustainable solutions in this sector.
Our services business was stable in Q3, despite the ongoing impact of automotive disruptions hampering our performance in this sector and although wage services, that's been challenged due to capacity constraints in the industry.
Leveraging our network capabilities to continue to provide full lifecycle product management market.
For 2021, given our confidence in our execution and our strong performance year to date, our adjusted EBITDA guidance for the fourth quarter is $180 million to $190 million and we are once again, raising our full year adjusted EBITDA guidance range to 770 780 million.
Yeah.
We believe with integration and systems migration in the rearview mirror, we can now fully leverage our asset base, including private fleet and digital capabilities are improved commercial execution approach to sustainability and the upstream behind 2022 actions to further position us for continued success into 2022.
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We believe we have the right people products tools and strategy, which we expect will grow our delivered gross profit at rates greater than general consensus of the economy and as such we believe we are in a strong position to deliver sustainable long term shareholder value.
Now, let me turn the call over to Nick who will walk you through our third quarter results and our outlook before I make some closing comments and we get to your questions.
Thank you David.
Hello to all I am pleased to share Universe solutions Q3 financial results update you on our business activities and provide our outlook for the rest of the year.
Sales were up 22, 8% on a constant currency basis, excluding results of the exited Canadian agricultural business and disappoint from prior year's financials, we estimate net sales to be up 27, 9%, whereas gross profit was up 25, 1% on a constant currency basis.
This growth is primarily due to the impact of chemical price inflation and higher industrial demand.
Third quarter adjusted EBITDA of $210 9 million was up by 26, 4% on a constant currency basis adjusting for the exited businesses.
The increase was primarily driven by the chemical price inflation higher industrial demand and the realization of Nexium net synergies, partially offset by higher ws in a.
The total USA was impacted by higher variable compensation similar to the prior quarter, a higher environmental remediation costs and certain severance costs.
These incremental costs reflect our continued efforts to streamline the business and all such costs will be embedded in our adjusted EBITDA.
For our detailed schedules in the appendix adjusted earnings per diluted share were <unk> 62 cents for the quarter, an increase from 30 cents in the prior year third quarter.
Operating cash flows of $123 7 million were significantly higher versus the prior year period, primarily due to higher net income.
Net working capital was a significant use as a result of the exceptional growth in sales due to the noted chemical price inflation and end market demand.
Capital expenditures for the quarter were $30 million and next year integration related expenses were on plan at $15 million.
Our ROIC was 12, 8% for the quarter, reflecting the strong performance and good asset utilization and leverage now stands at two eight times, which is already below our original F. 'twenty two year target of three point out times.
On slide eight we have aggregated the key metrics across our four reporting segments and will provide further details in the appendix.
Except for Canada sales were higher across all geographies benefiting from chemical price inflation and the higher end market demand.
Canada has reported decline was largely due to the exit from our agricultural businesses.
We had strong gross profit and adjusted EBITDA growth across all regions. However margin percentages were lower across all geographies, excluding Canada, primarily due to the higher chemical product costs other costs as noted in some inflationary impacts in operating costs.
And they are in Latam comparative margin changes were greater due to the higher sales in Q3 of 2020 related to products sold in the essential end markets.
We remain confident in our ability to execute on our strategies in 2021, and our teams are now fully focused on growth and margin improvement strategies.
We have targeted deliver gross profit growth greater than general consensus of the economy, which is currently estimated at five 8% as we continued to execute well through supply chain disruptions, while servicing robust customer demand amidst product shortages.
In addition, our expected next year net synergies are $25 million for the year as planned.
Accounting for all these factors as well as Q3 performance as David mentioned, we are increasing our expected adjusted EBITDA guidance to $770 million to $780 million for fiscal year 2021, $60 million higher at the midpoint from our prior full year guidance and over 21% higher.
From the midpoint of our initial guidance for fiscal year 2021.
Guidance for our Q4 2021 adjusted EBITDA is in the range of 180 to 190 million, which reflects continued strong trends yet has two and a half less shipping days than Q3 and the seasonal slowdown.
Let's review some of the cash flow highlights for our 2021 outlook.
We continue to target net working capital in line with our guidance of 13% to 14% of annualized quarterly sales.
However, strongest sales principally driven by chemical inflation in the second half of the year have and will continue to result in a higher use of cash from net working capital versus our prior guidance.
While we expect Q4 to be a source of cash following normal seasonal trends. There is an overall higher net working capital requirement foreseeing through to the end of the year as we service customer demand and principally reflecting the higher values due to inflation.
We expect that other expenses will be a cash source due to the higher variable compensation accruals in the current period tied to sales and profit which will be carried into and paid in Q1 2022.
This line item in our summary table of cash flow. It should typically have a cash use of $35 million as we've guided in the past.
Next to integration expenses, which are not included in our adjusted EBITDA forecast are expected to be up to $64 million for the year as mentioned before this is the final year for our next year integration expenses.
We are expecting approximately $115 million worth of capital expenditures for the year.
In line with our initiatives to invest in high ROI projects the increased competitiveness.
Consequently, we are targeting net free cash flow of 200 to 210 billion for 2021 versus <unk>.
$290 million midpoint than our prior guidance.
This is primarily due to an additional 200 million use of cash from net working capital partially offset by changes in some of the other line items.
As we look to 2022 and beyond and a more stable working capital environment. We continue to expect approximately two months.
Given our profile.
Performance and deleveraging and expectations for good cash flow generation, we are.
We're pleased to be announcing an authorized $500 million share repurchase program over the next five years.
Share repurchases will be viewed opportunistically and at a minimum we will buyback amount related to executive compensation dilution.
Our strong results for the third quarter reflect solid execution throughout the businesses and we are excited about our outlook for the full year and beyond.
Our teams everyday continue to drive good performance in challenging environments and I'm also pleased to have reported the progress we've made against our <unk> and growth objectives. We are continuing to implement our plans to achieve a run rate adjusted EBITDA margin of 9% by the end of the year.
Of 2022, and we intend to provide more details on our expected performance from 2022 through 2024 at our upcoming analyst day on November 16th.
David.
Thank you Nick.
We're excited about the progress of our business strategy and continue to grow our market share in the quarter in both North America and across the globe supported by a number of new protocols realizations.
Yesterday, we successfully migrated our Mexico business onto our SAP platform and delivered $5 million of net synergies during the quarter remaining on track to deliver on our commitments of net synergies of $120 million by quarter one 2022.
So focus now is delivering growth through an effortless experience for our customers coupled with the technical differentiation and end market expertise that creates more value for customers and suppliers alike.
Moving onto <unk> 22.
To date, we've realized approximately $196 million in gross proceeds from disposals in.
In quarter, four we expect approximately $6 million from further asset sales in Europe unexpected realized most of our targeted total net pre tax proceeds.
With our strong earnings leverage well below our original year end goal of three times with <unk>.
Eloping strategies for selective tuck in acquisitions, principally in the specialty product area.
Subject to regulatory approval.
Which we'll talk more about at our analyst day.
We're also pleased to now have specific plans for returning capital to shareholders.
Our commitment to being a digital leader continues as we accelerate the omnichannel approach that is essential in today's hybrid working environment.
Accelerates our market share growth as well as drive efficiencies.
Our single.
Integrated digital Commerce platform Univar solutions Dot com.
Enables customers to search select source and self serve whatever the time of day or night they choose.
It's delivering results as we continued to enhance its capabilities based on customer feedback.
For customers seeking the convenience of real time pricing in instant checkout, we sleep launch that ability for a limited number of products, allowing visitors to purchase from us directly online in less than five minutes.
Based on the initial success, we now plan to quickly expand the number of products available.
Quarter over quarter sequentially, we've seen a 27% increase in document downloads and a 38% increase in orders placed through our digital commerce channels with our platforms now active across the Americas Northern Europe.
Our digital vision is clear we are beginning to realize the benefits of these capabilities as a source of sustained competitive advantage as we follow our customers throughout the buying journey meeting them wherever whenever and however, they want to buy.
We continue to invest in our customer experience leveraging the insights from our net promoter scores.
Our overall score through September and then good.
Richard improvements across all regions in Q3 with the USA the highest monthly school.
We're listening to customer feedback and adjusting all developing processes accordingly, while it's building out the effortless experience, we believe our customers deserve.
To support this and using our advanced analytics capabilities, we've accelerated the development of our customer 360, predictive insights tool, which allows us to follow an individual's customer experience and get ahead of any issues that might be surfacing.
It also serves as a good guide for prioritizing overall process improvements and he is already operating with 70% accuracy.
Altogether, our digital investments and customer centric approach is designed to maximize the effectiveness and scale of our operations turning data into a strategic asset, making it easier for customers and suppliers to do business with us.
Moving to ESG, we've made strides with our agenda and possibles carbon neutrality by 2050.
Highlights this quarter include new supplier authorizations for a variety of more environmentally friendly ingredients and solutions.
<unk> investments in projects to reduce our carbon footprint in line with our net zero commitments.
Raising consciousness by rolling out an all employee sustainability training program.
Continuing to put safety first which is evidenced by our world class safety record.
And continue to advance diversity equity and inclusion.
By leveraging leveraging technology designed to mitigate unconscious bias from our hiring practices.
ESG is a priority for us understanding because it's our home our responsibility.
Each of our core values and aligns with our vision to redefine distribution and be the most valued chemical and ingredient distributor on the planet as well as being better stewards Earth's resources.
So before we come to your questions and to summarize we delivered exceptional Q3, adjusted EBITDA, while realizing our pros to help keep our communities healthy fed clean and safe even during challenging times.
We have again raised our full year adjusted EBITDA guidance. This time to 770 $719 million.
We remain on track switch.
Chiba commitments of $120 million is that synergies by quarter one 2022.
We're investing in furthering our digital advantage, which we believe is becoming increasingly attractive to customers as well as driving efficiencies.
You guys 22 program is tracking very well towards delivering divestment proceeds lower leverage and 9% EBITDA margins by year end 2022 through global and functional excellence.
We plan to use our cash to fund growth initiatives through a combination of high ROI capital investments selective accretive bolt on acquisitions and return of capital to shareholders initially with our newly announced $500 million share repurchase.
Our focus remains on our strategic priorities, putting the customer at the center of all we do and working to take full advantage of every opportunity to drive growth.
We believe this quarter's results again, evidenced that our strategy is working.
Getting momentum and we see plenty of opportunities for both organic and inorganic growth right across our portfolio.
We believe the company's positioned to deliver enhanced shareholder value and plan to provide a greater outlook on our strategy as well as our plans beyond 2022 upcoming virtual analyst day event on November 16.
Thank you for your attention, please stay healthy and safe and with that we'll open it up for your questions.
Thank you.
Time, if you'd like to ask a question simply press star followed by number one on your telephone keypad.
We'd like to withdraw your question. Please press star followed by the number.
Please limit yourself to one question and one follow up please hold while we compile the Q&A roster.
Our first question today comes from Bob <unk> from Goldman Sachs. Please go ahead, Bob Your line is now open.
Thank you and good morning.
David I'm curious on the on the share repurchase.
You intimated it was an initial return of capital maybe.
Ongoing effort in the future, but how do you balance that versus tuck in deals.
When I look at your stock it looks like two or three turn discount to your nearest peers. So it seems cheap, but I would also guess.
Appeal of integrating tuck ins is pretty high as well so how do you how do you compare and contrast, what to do with that capital.
Thanks for the question Bob first of all I mean, I think we're delighted that we're in this position.
That we're having a conversation about what our options are without cash we successfully got the leverage down to below three which is our year end target and that $2 eight this quarter and $2 six for the year end is a very encouraging number.
I mean, our focus has been on maintaining strong liquidity and deleveraging.
And priority now becomes looking at how we invest in growth in our high ROI capital projects.
And accretive tuck in M&A opportunities.
<unk> really being in a position to return capital to shareholders, starting with about $500 million no.
The buyback is.
It is also a priority and we need to balance those two things, we'll talk about more about that in our analyst day on November the 16th but I'm just delighted to be in this position.
Can I ask you on Mexico, when you look back on it now what would you have done differently in hindsight.
I wouldn't I wouldn't of integrated it during a global pandemic.
Dave.
We migrated the systems.
Successfully people didn't think we could do that we did that very successfully to the teeth of a pandemic. We're now benefiting from that single instance.
For instance.
Think we integrated that business.
Well given the conditions that we were in and certainly we see that table now really paying off its really as we hit our operational strides we'd really see the benefits of that deal paying off.
And one last quick one you mentioned taking market share and you have a national presence that really gives you a competitive advantage can you quantify that market share capture and then how do you ensure I think post pandemic you'd add some.
Unique sales opportunity that maybe you didn't have the.
Permanent traction on some of those sales so how do you make sure you convert this market share gain during the supply chain problems in the permanent market share. Thanks.
Well, we're very very pleased with our commercial execution.
And we're very very happy with how the organization is operating today, it's operating with much greater agility.
And now with a singular focus on having the customer the central we do that helps retain.
Estimates through through the good and bad times, our NPS score on a focus on customer experience those predictive insights tools. Those are all things to make sure that we really give customers a great experience and then we become that after this experience to become the easy button for them. So our win loss ratio is improving our customer retention improve.
That's how we would demonstrate our market share, but really focusing on on our customers and their experience with us and adjusting our processes. Accordingly, and then really adjusting up selling model because he knows how customers are going to want to buy today and in the future. It's a hybrid work.
King environments, so adjusting up selling model. So now we're meeting them, where they want to buy wherever that happens to be I think that's a great driver of opportunity and share growth for us.
Yes. Please go ahead, Sir your line is in Arlington.
Yeah, Hi, guys. Thanks.
I apologize if I missed this but did you give any thoughts on what you're saying.
Normalized EBITDA is here.
Thanks in terms of what's sustainable.
Not.
Great.
Josh Thanks for the for the <unk>.
Question.
I think that.
Giving guidance, we're not looking at 2022 guidance today, that's something we'll share a bit more about at our Investor day, but clearly since Q2 chemical price inflation has continued demand.
<unk> has remained strong.
You got more confidence in our commercial execution. So it's.
It's difficult to give an exact number but we would say something in the $725 735 range as a base rates is probably where we think at the moment.
Okay.
Great. That's really helpful and I guess kind of related with that is.
This profit to EBITDA conversion increased pretty meaningfully sequentially and year over year.
Above 34% now versus the average closer to 33.
Yes.
Understanding theres a lot of moving pieces underneath that.
Is there anything that you could point to that drove that step up in terms of your execution sequentially year over year, and where do you ultimately see that conversion, perhaps getting to your 9% target has some supply demand, but I think there's still a gap versus peers. So curious what do you see.
The runway on that metric.
Well again jokes I think we're going to share a bit more about that at the Investor day, We will give you some ideas and some some metrics on that but we do see a tremendous opportunity to leverage our asset base. We have an installed asset base, we have our own fleets of trucks.
We see great opportunities to leverage that further, particularly as we think about provide a more sustainable solutions and working with our supply partners to provide to help them support their ESG goals. We also have.
A very fast growing.
Specialty end market business I mean, our specialty business is growing incredibly well, we spoke about our food business and our beauty care business growing double digits all of that adds to the mix, but we will share much more about that at the Investor day.
Got it thanks, I'll look forward to that and then just a couple of weeks. Thank you.
And we look forward to seeing it, albeit virtually.
Thank you. Our next question today comes from.
<unk> from Exane BNP Paribas. Please go ahead norm in line as Nelson.
Yes, good morning, Dave.
David you just talked about the double digit growth in two then do you see I was wondering if you want.
And then the other one for I guess focused industries.
For so called specialties.
For Q3.
Yes. Thanks for the question I think we don't share a lot more about that and how we see the business.
And maybe the Univar solutions that you don't know at the Investor Day, I think there are some some interesting and some meaningful trends that we would like to share with you in some detail. So I think it will show a lot more about that at Investor day.
Are you thinking.
Getting a bit more disclosure around specialties assistant on specialty is the way I guess most of your peers doing it.
Well I think it's been and I think it's a lazy and inaccurate.
Description of us to put it in the commodity basket, we have a substantial specialty business and we're going to be showing that and showcasing that at the investor day.
And then thank you.
And maybe I just wanted to limp.
Yeah.
When we look at the bridge between I guess, the heaps 95, which was the midpoint of the nominated EBITDA you provided three months ago and the new one that's around Kevin Cherokee.
Should we assume that valuable crude oil available compensation has also increased.
<unk>.
Or is it mostly the Bachelor underlying.
Structural I guess conditions.
Accounts.
I think as we.
Said some moments ago.
The demand is remains very strong chemical price inflation has continued through the end of the year. It looks like it will continue into 2022, and we're really hitting our operational stride and so I think those things give us more confident about the numbers that we will we will.
Well, we'll achieve in 2022 and beyond.
Thanks, Dan. Thank you David Thank you.
Our next question comes from Kevin Mccarthy from Vasco Research Partners. Please go ahead, Kevin Your line is now open.
Yes, good morning.
My first question relates to your earnings cadence, obviously, the third quarter results came in quite a bit better than.
You would have anticipated in early August.
So I'm wondering are there particular regions or product lines that performed much better in August or September.
And then you had expected.
That would be worth calling out or is it rather the case that.
The macro forces on a top down basis are are lifting virtually all of your businesses.
A higher level than you would have anticipated.
Thanks for the question Kevin.
We are executing very well across all our lines of business. Our commercial execution really is is incredibly strong these days.
Our installed asset base in all fleets of trucks really does give us an advantage.
And of course, a great supplier relationships gives us it gives them an advantage when supply chain sophisticated Arlington, Ida dislocated supply chains, which is something we didn't anticipate going into Q3.
And also we felt that maybe some of the supply chain disruption.
On on globally traded products.
May have Av on blocks itself any dividends it got worse and so I think we just we were in a very good position.
We now are commercially and operationally agile enough to make the best of that very good position to deliver what I think was a record performance.
And then as a follow up if I look at your guide for EBITDA in the fourth quarter. It seems to imply a sequential decline of between 20 and $30 million would you describe that as normal.
Normal seasonality based on the portfolio is now configured or are there particular headwinds or tailwind that.
That you see that would create.
A different sequential pattern than normal seasonality would suggest.
No Kevin I think we see very good.
We need good execution and continued strong demand. Although you know clearly the supply chains are still challenged and we got two and a half days.
Yes in Q4 than we had in Q3 and typical seasonality without another $20 million Roughish number on that so so if you take those two were actually slightly above what would be a normal run rate.
Okay. Thank you very much.
Thank you. Our next question today comes from David Begleiter from Deutsche Bank. Please go ahead, David Your line is now open.
David Good morning, sorry to harp on this again, but I may have missed this but chemical price inflation. This year. What do you think it added was adding to EBITDA and <unk>.
If and when chemical prices moderate a rollover to give all that back.
Hi, David Thanks for the question I mean, it's hard to put a number on chemical price inflation for this year.
I think within our.
Kind of normalized.
Our guidance of 725 735.
So no guidance, but kind of base Mark we're thinking of.
Some profits.
Plug with some offset by some onetime costs and some higher executive comp.
We think some of those store profit go away into into next year, but we've got some offsets and we can still continue to grow our business I think that what we are right now is.
It really agile and particularly commercially agile.
So I feel very confidence about our ability to manage price on the way down as well as we manage price on the way up but clearly on the way up there is some stopped profits built into the number but that's that's factored in that kind of offset of higher executive comp and some other onetime cost is in that kind of 795.
135 at baseline.
Very good and just next year working capital how much what do you expect will be a source of working capital next year.
Well I'll take that David next year, we obviously expect to have.
A more normalized working capital level.
Increase in the current period, obviously, driven by the chemical price inflation and the strong sales performance as we go into next year, we would expect a normalized working capital flow and then the benefit from the other elements of the balance sheet, we do call out some of the puts and takes on the other expense items.
<unk>, which is benefiting us in this quarter, but will be a use next quarter, but our target is to very much get to a 50% free cash flow conversion off of an adjusted EBITDA, which we've spoken to have referenced over the last year plus in total we expect that realization into next year from a working cap.
Standpoint, our target is to be in the 13% to 14% of each quarter's annualized sales were a little bit above that this quarter, we expect to get down below that 14% by the end of the year and stay in that range going into next year.
Thank you very much.
Okay.
Yeah.
And do we have any more questions.
Our next question today comes from.
Zander from Jefferies. Please go ahead. Your line is now open.
Good morning, Thanks for taking my questions.
On for Laurence.
As you look through the EBIT margin of 9% in 2022 is that still achievable. If we do hit a deflationary environment next year.
Hi, Dan Thanks for the question.
We're very very pleased with the way we are executing very pleased with with how their business is routing out until it gets commercial stride.
And its operational strides so we still feel very confident about achieving that 9% margin target.
And then.
You kind of pivoting to cash deployment.
Your balance sheet is more in line with what you wanted.
Has there been talk with the board of just about a dividend at all or are you just sticking with M&A and share repurchases.
Well as I think I've said a moment ago.
Priorities will share more about our priorities for the cash on.
The Investor day, and my priorities Firstly, we're delighted to be in this position I think to get to this target ahead of schedule as is.
Every credible.
And it takes a moment should just take a moment to to enjoy that.
We will prioritize high ROI.
Hi, Roy capital investments.
See good opportunities for <unk>.
Organic growth for tuck in acquisitions like the one we just announced.
We hope to be completing subject to regulatory approvals in Brazil.
The share buyback is its an initial share buyback and then we'll consider dividends as part of that share as part of that capital.
<unk>.
Capital allocation strategy, but that's something we will engage with our shareholders.
Hold its own more.
As we as we get through the process.
Thank you very much.
Our next question today comes from Steve Burns. Please go ahead. Your line is now.
Yes. Thank you David I wanted to ask you whether your view is that.
The suppliers that you have had relationships for a long time, where there is a trend towards more outsourcing or maybe less outsourcing to third party distribution and I ask because some of the coatings company.
Been frustrated with transportation issues.
Pulled more transfer and more distribution in house and I was curious.
Youre seeing and whether thats.
A favorable trend for you.
I'm Stacy thanks for the question.
A couple of things I mean, I think that the.
Do see.
More opportunities for outsourcing for producers do.
Do things as a difference between distributors, who own their own fleets and those who go out to third parties, we own our own fleet that gives us a distinct advantage from so called asset light distributors, who have to go out to third parties and flights in the marketplace and so I think we have a distinct advantage that I think we've demonstrated that this takes advantage of the other <unk>.
Some months I think also we have a big part supply.
In helping our supplier partners with area as chief strategist and so we're thinking about how we align how we realign supply chains to make them more sustainable and I think that installed asset base, we have as well as having not fleets of trucks really is an advantage for us.
And can you comment on your trends for share gains.
From both of your the supplier end of the platform as well as the customer end.
And then there is more effective for you to gain share by convincing your your suppliers to allocate more products to you or to pursue more wallet share at your customers.
Steve will you have we have a full line card of opportunities and solutions. I mean, we are we have a lot of runway to drive growth.
And so we.
We like our new supplier authorizations, particularly in that specialty area, where.
The chemistry, maybe all the ingredient may be exclusive.
Because it.
It comes as almost as an annuity because the molecule will be specified in our formulation and so that gives us an instant hit of growth, but you only get the otherwise they won't stay with us.
As you appreciate it's a competitive marketplace.
But also by having that growth at customers by having those strong supply our customer relationships.
It enables more business to come from suppliers. So you really have to we really have to be able to demonstrate and create value on both sides and we wake up every day thinking about how we create value on both sides because it can't be just a one sided game.
Thank you.
Our next question today comes from Michael Mcginn from Wells Fargo. Please go ahead. Your line is now open.
Yes.
Hey, good morning, everybody. Thank you for the questions great quarter.
I was wondering if I could ask about the ERP is there a framework that you guys think about.
Following the full completion of integration, whereas a dollar of sales previously would have led to.
'twenty.
<unk> of SG&A creep or now Thats more fixed.
Fixed costs are more fixed in nature and how that plays into your.
Long term EBITDA margin guidance.
Hi, Michael Thanks for the question.
Okay. I think that's just celebrate that we've moved to the Americas onto sapa and didn't create to the business and the process and we did that in the teeth of a pandemic I think thats I think thats it.
It's a great thing now we have as.
We now look to see how we can optimize that.
With.
The next phase of work that we do.
We've already had some benefits.
By taking out manual intervention through our processes.
But we see tremendous opportunities to get operating leverage through that platform.
This part of our product part of our streamlining of our digitalization efforts.
So we can really reduce our opex to gross margin as we continue to grow the business, but really focus on that customer experience. So I think there's real opportunities for us to streamline our processes and as we streamline our processes that reduces our cost, but also makes it easier to buy from so it becomes entirely a virtuous thing to do and that's it.
A key priority for us right now.
Great and then more of a.
One quick modeling question.
Sure.
Can you talk historically, you've seen a strong ramp into year end with your Canadian business.
You still see that.
With the pricing momentum or is it potentially.
Lots of a sequential factor here given the recent divestitures.
Well I think you're relating to cash.
And that was prepayments in the AG business, which we no longer own. So we won't see that so everything now is about our core chemicals and ingredients business and managing that business sequentially better and better every day.
Okay, and then maybe if I could sneak one more in on.
The freight.
Hey, Tom.
Thus far we're way too.
Characterize your lead times are your transit times on time delivery relative to the industry.
Has that.
GAAP.
Sparked conversations for strategic account adds something to someone who may have been a spot buy.
In the past.
So I think on time delivery into us from suppliers has been.
As deteriorating security this year.
But our on time delivery to customers happened.
So I think we've been shop network of operations nationally and internationally that means that we can move product very long distances to keep customers hold them to keep customers.
I am happy our NPS score on customer experience is really important to us and on time delivery is a key metric that we track on time against votes commence as well as one time against last connect so we have.
A lot of investments in assets to improve that.
And to turn on <unk> supply chain into us into a perfect supply chain for our customers. That's part of it that's part of the value proposition of managing the complexity of the chemical ingredient business that I think we do very well.
Thank you I appreciate the time.
Just as a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad.
Our next question is a follow up from Kevin Mccarthy from Vasco Research Partners. Please go ahead, Kevin Your line is now open.
Great. Thanks for taking my follow up I wanted to ask about your inventory balance if I look at the last five years or so what we've typically seen in the third quarter is a sequential decline of between 3% and 8%.
And what happened this time was.
Sequential increase of 7%. So my question is is that just simply the effect of inflation flowing through Nick or were you able to rebuild.
Inventory levels at all on a unit basis to help ease some of the supply constraints that.
Everyone's been talking about.
Yes, a couple of things Kevin one you've got the differential of <unk>, which had a significant seasonal effect in prior years.
And then otherwise versus our expectations for the year, it's the chemical inflation, which has been value reflected in the inventory, we manage our inventory very tightly.
Very close to customer demand, certainly, making sure we can satisfy.
Manned as needed in the marketplace and we don't expect any variability.
<unk>.
The historical levels going forward.
Okay and then.
I had a clarification question on your new repurchase program, which is great to see by the way in the press release references a period of five years.
At the risk of hair splitting is that your intended pace of execution or is that simply a reference.
Vince to the validity of the authorization and your pace of execution.
It would be something different than that.
Well, Kevin it's Nick again, I would say first and foremost this has been a great milestone for the company.
We're very pleased to be in a position with our leverage our cash flow and operating execution to begin a program of returning capital to our shareholders. So I would just take it on its face as represented.
Clearly, we expect to be opportunistic while we also balanced all other capital requirements for the company as David mentioned earlier strategically operationally as well as other considerations, which we'll talk about in a couple of weeks at our virtual Investor day.
Alright, we sell tuna and thank you very much.
Thanks, Kevin.
We currently have no further questions. So I'll hand, the call back to Heather Kos for any closing remarks.
Thank you, ladies and gentlemen for your interest in unified solution, we hope to see many of you at our Victor on Analyst day on November 16th.
Any follow up questions. Please reach out to the Investor Relations paint. This does conclude today's call.
Thank you for joining today's call you may now disconnect your lines.
Okay.
Yeah.
Okay.
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