Q2 2022 Univar Solutions Inc Earnings Call
NPS goals and better on time delivery performance.
We increased sales of ingredients and specialty is driven by strong demand and new supplier authorizations.
We continue to leverage our digital investments with 49% of our U S customers now registered on our e-commerce channels unable to utilize 24, 7% self service capabilities.
We made progress on our inorganic growth objectives, and yesterday announced the acquisition of Viacom a specialty chemical distributor headquartered in Spain.
In addition, we are evaluating other promising acquisition opportunities.
And we returned $81 million of capital to shareholders via share repurchases.
In the second quarter, we continued our trend of outpacing the prior year. Thanks in large part to the lasting customer relationships, we're building through technical differentiation and supply chain solutions as well as the contribution from new supplier authorizations.
We believe our ability to provide customers with security of supply reliably and safely coupled with the sound product stewardship, we provide to our suppliers has allowed us to win new and retained existing market share.
Looking to the end markets.
Across all four of our geographic reporting segments, we demonstrated impressive sales growth.
We believe this is a result of the simple operating metrics, we provide to our commercial teams as well as our flexible sales channels that are designed to accommodate changing customer needs.
In our global consumer solutions channel, which serves life science markets.
We managed through challenging inflationary dynamics with skills pricing discipline.
This kind of execution demonstrates our agility and resilience in difficult macro conditions.
In personal care and pharmaceuticals, a new supplier authorizations, coupled with our technical sales force enables us to help formulate Musa.
New solutions for customers.
Our food ingredients offering which is now known as food allergy recently opened a new innovation kitchen, where we're helping customers create recipes to meet the latest market trends as well as reformulating and responsive supply shortages such as sunflower oil.
Turning to our industrial solutions channel by combining up solvent capabilities without technical formulations, we grew our lubricants and metalworking offering.
Our customers in the coatings industry have come to rely on us for supply in spite of ongoing supply shortages.
And our specialty surfactants and enzymes portfolio has enabled us to grow our household industrial cleaning business as customers turn to us to formulate solutions that meet the demand for more sustainable and clean label products.
Within our chemicals and services channel, we saw strong growth across a variety of industrial end markets with continued strength in chemical manufacturing water and mining chemistries driven by ongoing supply tightness and higher market demand.
Our extensive organic chemistry portfolio and global scale.
Especially strong results in the U S and Canadian segments, while enabling us to provide customers with continuity of supply.
Now a much smaller parts of our business energy still growth as higher oil prices of accelerated production with increased customer demand for more sustainable solutions in this sector.
The ongoing conflict in Ukraine continues to create uncertainty in the marketplace, which is accelerating onshoring local sourcing and just in case inventory trends.
We believe our full line card solutions local availability of stock coupled with our own trucking fleet has never been more valuable all provided a greater advantage.
Add to this our ability to provide full lifecycle chemical product management and we believe we are a differentiated and preferred provider for all of our business partners.
For 2022 at admits amidst growing macroeconomic uncertainties, we remain focused on factors we can control.
We're confident that our chosen strategic priorities, coupled with our operational execution abilities will drive expected market share growth and deliver strong results, even as chemical pricing levels levels stabilized through the year.
Accordingly for Q3, 2022, we estimate an adjusted EBITDA guidance of $240 million to $260 million.
And to increase our guidance for the full year 2022 to a 1 billion and 42 1 billion an $80 million.
The resulting strong cash flows.
Looking further ahead to 2023, we continue to expect to achieve the financial targets inclusive of our targets of $960 million of adjusted EBITDA laid out at last November's analyst study delivering a full year ahead of schedule.
We believe our focus on market share growth through an ever improving customer experience as we leverage our technical expertise our asset base, our extensive private transportation fleet digital capabilities and our long standing commitment to our ESG goals positions us for continued success.
We believe we are perfectly placed to capitalize on the evolving global trends such as local sourcing sustainable solutions and Digitization and believe we have the right people products tools and strategy to grow our delivered gross profits at rates greater than general economic consensus and as such.
I believe we are in a strong position to deliver long term sustainable shareholder value.
Now, let me turn the call over to Nick who will walk you through our second quarter results and our outlook before I comment on our key strategies and we get to your questions. Thank.
Thank you David.
Im pleased to share Univar solutions Q2 financial results.
Great you on our business activities and review our revised outlook for 2022 as well as comment on 2023.
Sales were up around 30% on a constant currency basis, and a corresponding gross profit was up 26%.
These growth rates are driven by our pricing discipline in inflationary markets as well as operational execution and market share gains.
Second quarter, adjusted EBITDA of $292 million was up by 52% on a constant currency basis, primarily driven by the higher gross profit.
Gross profit growth was partially offset by higher outbound freight and handling as well as operating expenses, reflecting higher variable compensation, but benefited by $9 million. The final portion of the $120 million next year net synergies.
Per our detailed schedules in the appendix adjusted earnings per diluted share were $1 in the quarter an increase from 57 in.
In the prior year's second quarter.
Cash from operations of $48 million was lower versus the prior year, primarily due to the net working capital use and timing of cash tax payments.
Networking capital was in line with prior quarter at 15, 6% of quarterly sales annualized reflecting the inflationary impact as well as further investment in inventory as needed to ensure security of supply to our customers.
Capital expenditures for the quarter were $32 million, which reflects a good mix of high ROI investments.
Our ROIC.
It was 21, 6% for the quarter driven by our strong performance and efficient asset utilization and net debt leverage now stands at two two times within our stated goal range of two to two five times.
These ratios are net of a further $81 million of cash returned to shareholders. During the second quarter through our share repurchase program totaling just over $155 million since last quarter last year's Q4.
On slide eight we have aggregated the key metrics across our four reporting segments and we provide details in the appendix.
Sales were higher across all geographies, primarily the result of our pricing discipline and inflationary markets and market share gains.
<unk> results benefited from the <unk> acquisition, which is performing ahead of plan.
Gross profit and adjusted EBITDA grew across all the regions gross profit margins were lower throughout the regions due to input cost inflation.
EBITDA margins increased for USA, and Canada due to operating leverage and declines in the other regions from the lower gross profit margins.
Additionally, and as results were impacted by roughly $9 million and currency headwinds.
Our 2022 outlook reflects a stable end market demand through the rest of the year continued market share gains and solid operational execution.
While we anticipate chemical price inflation to stabilize and the related price benefits on margins to moderate in the second half we are continuing to monitor supply chain complexities geopolitical uncertainties and recessionary signals.
In Q2 2022, we realize the upper end of the nonrecurring price benefit we had forecasted resulting in a total benefit of $110 million for the first half reflected in the adjusted EBITDA.
Accounting for all of these factors our guidance for Q3, adjusted EBITDA is a range of $240 million to $260 million and for fiscal year 2022, we've increased our adjusted EBITDA guidance to a $1 billion $40 million to $1 billion $80 million.
We stand by our commitment to reach our 2024 financial goals in 2023, which includes our target of a $960 million adjusted EBITDA.
9%, adjusted EBITDA margins, and 50% free cash flow conversion.
These targets reflect our judgment that in general chemical pricing will be sustained at 2021 levels rather than the lower pre pandemic levels.
We understand the concerns about an impending economic downturn.
However, it is important to note that our 2023 assumptions account for the reversal of the noted 2020 through pricing benefits.
As well as anticipated lower variable compensation.
Additionally, in 2023, we expect to achieve at least half of our planned $80 million value capture from optimization and productivity work streams, which we expect will help moderate and offset downdrafts in the economy.
And as we've demonstrated in previous downturns, most recently, a $40 million cost reductions during the Covid crisis in 2020 that we have the flexibility to rapidly take out further costs if needed.
As mentioned previously we plan to continue utilizing our authorized share repurchase program and in 2022, we expect to return capital to shareholders at the higher end of our 20% to 30% of adjusted net income guidance range.
For 2023 in addition to share repurchases our intention is to begin paying a dividend.
Let us review some of the cash flow highlights of our 2022 outlook.
By year ended 2020, Q, we're targeting net working capital of 13, five to 14, 5% of annualized quarterly sales.
Based on the typical seasonal patterns and as the supply chain disruption start to normalize through the end of 2022 net working capital is expected to be a source of cash in the second half.
Cash taxes were higher in the second quarter due to the timing of payments. However, our guidance for the full year remains unchanged, which is higher versus last year due to 2020 to taxable earnings levels and the runoff of Nols.
Given the geographic mix of earnings we continue to expect our effective tax rate to be in the 26% to 28% range.
And we are expecting approximately $135 million to $145 million of capital expenditures for 2022.
Consequently, we are targeting net free cash flow of $400 million to $450 million for 2022, which is approximately a 40% conversion from adjusted EBITDA.
Our strong results for the second quarter reflect the successful execution of our strategies throughout the company as we seek take full advantage of our leadership positions in the market build on our momentum and remain focused on growth.
We are confident in our outlook for the full year 2022, and our expectations for 2023 and beyond.
David.
Thank you Nick.
We're making good progress on our strategic plans continued to expand our portfolio of ingredients in specialties through new supplier authorizations, and a growing share by attracting new customers enhancing our loyalty of existing ones and the retention of both.
I'd like to spend a few moments to highlight some of the programs we have.
Not only support but also deliver real cost efficiencies.
In June we held our most recent innovation day, providing our customers and suppliers of the Pic inside a global network of solution centers.
During the day and on demand since then our chemists food scientists and application development specialists presented the latest trends and technical developments across 15 different topics as diverse as the latest in the ethos of the factor to growing trends and plant based protein.
More than 1000 people have so far through the content and the feedback has been overwhelmingly positive and we're already planning on next innovation day later this year.
We recently announced a new name for our food ingredients business Pseudology by Univar solutions to reinforce our commitment to being a dedicated and differentiated solutions provider to the field of nutrition industry.
Three food allergy, we're looking to help shape the future of food through customized services for the industry as well as innovation support through our global development kitchens, the latest of which locates the hatcheries and Chicago had a grand opening as part of the international fee Tradeshow in July .
It was an ideal opportunity to show off our capabilities to a large and inquisitive crowd of customers and suppliers. While also supporting the great community based mission of the hatchery.
We continue measuring net promoter scores, which in Q2 reached the highest monthly score since initiating our voice of the customer program in 2021.
Although 2600 responses received in Q2, and we continue to leverage these insights in real time with our functional and sales teams to drive an effortless experience, while delivering what customers tell us matters most.
Additionally, I am proud to share that our CX efforts received three gold and one Silver award at the first ever U S customer experience awards for 2022.
Sponsored by the customer experience professionals Association and hosted by Awards International The awards celebrate America's most outstanding customer experience initiatives and honest companies, who has demonstrated exemplary service and customer centricity.
This recognition validates univar solutions ongoing dedication to putting the customer at the center of all we did.
As Nick touched upon earlier as we Sunset Our X 22 program, having hit and exceeded the targets we laid out over two years ago, we've launched the new value capture work streams aimed at delivering optimization and productivity improvements that will reduce our outbound freight handling and WSI.
Hey.
Additionally, we acquired Viacom a specialty chemical distributor headquartered in Spain, which will further expand our already robust specialty portfolio. So the case market and enable more sustainable solutions for customers.
With our strong earnings and our net leverage at two two times, our board is continuing to evaluate making good dividend parts of our capital allocation strategy for.
For US the question has been one of timing.
After due consideration on planning our present intention is to begin paying dividends early next year.
It's important to note that this does not change our determined commitment to pursuing inorganic growth opportunities high ROI capital projects and opportunistic share buybacks with our total return of capital to shareholders falling within the range previously given.
Our overall commitment to our capital return program demonstrates our strong belief in the future of the company.
As we've said in prior calls digital capabilities enabled profitable sales growth reduced our operating costs and creates a competitive advantage for our business.
All of this through our digital channels grew 92% and the number of purchasing customers increased 19, 9% in Q2 'twenty two versus the prior year.
Our nimble approach to launching new digital capabilities allow us to learn quickly and uniquely leverage on network footprint expertise customer service and diverse product portfolio, while retaining and winning new market share.
Providing relevant experiences and content tied to industry, leading e-commerce capabilities drives traffic to our site extends our reach and helps us acquire new transacting customers.
For example, visitors to our new food allergy experience see a global menu food and beverage ingredients supported by the formulation expertise about digital solution Center services.
Meanwhile, our self service capabilities are helping us be easy to buy from and create stickiness with our customers, while reducing our transaction costs.
On November Analyst day, we shared the example of our online invoice payment feature that makes it easier if a check writing customers to pay us instantly 24, 7%.
The number of users utilizing this customer requested feature has grown 8% to 9% quarter over quarter.
Last quarter, we also extended our track order tracking capabilities for our private fleet deliveries, giving customers additional insights into delivery and tracking status.
And in a program that will improve the customer experience reduce cost and support our ESG commitments by eliminating paper.
We have just completed the pilot of our paperless delivery program, which allows us to capture delivery signatures digitally and ensign instantly deliver key documents such as proof of delivery weight tickets invoices and blood lighting, along with photos of products to customers electronically at the time of <unk>.
Delivery.
This is a hugely exciting development and we are rapidly getting to this pilot in the coming quarters.
Our advanced analytics capabilities, and AI have enabled us to extend our <unk>.
Customer 360 tool across the Americas, providing real time visibility of key performance indicators across several touch points throughout the customer journey that allow us to better understand the customer's experience and show where our areas of opportunity lie.
All this leads to greater customer loyalty and retention.
Our digital vision is clear.
Meeting customers wherever whenever and however, they want to engage with us and delivering them value added solutions that keep them coming back.
We believe these are just some of the competitive moat, we have that will deliver sustained growth and competitive advantage.
Moving to ESG.
We release, our annual report for 2021 in June which is our 13th edition.
We've made strides with our agenda as demonstrated by successfully accomplishing our 2021 global sustainability goals, which was set back in 2017.
Additionally, we announced a long term global sustainability goals for 2025, and reaffirmed our carbon neutrality commitments by 2050 with scope three reduction goals and progress.
Additional progress includes the following.
Continued investments in energy efficient technologies, and hybrid and electric vehicles to reduce our carbon footprint in line with our net zero commitments.
We launched paid time off for volunteering in North America.
Being awarded with new supplier authorizations for a variety of more environmentally friendly ingredients and solutions.
Continuing to put safety first which is evidenced by our world class safety record.
And continuing to advance diversity equity and inclusion goals.
ESG is a priority for us understanding that its our home our responsibility.
It's such as 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 of Earth's resources.
So before we come to your questions and to summarize we delivered strong Q2 results.
Although the second half of the year Poe these uncertainties with confidence in our strategy execution and operating agility and have increased our op expected 2022 full year adjusted EBITDA guidance in the range of $1 billion, and 42 1 billion an $80 million.
The resulting net free cash flow between $400 million to $450 million.
Additionally, we expect to deliver our 2024 financial targets in 2023.
Year ahead of schedule include delivering an adjusted EBITDA margin greater than 9% and 50% net free cash flow conversion.
We plan to use that cash to fund growth initiatives through a combination of high ROI capital investments selective opportunistic acquisitions and return of capital to shareholders.
We believe we are perfectly positioned to deliver enhanced shareholder value, while fulfilling our purpose and commitments to our people and communities.
Thank you for your attention and your interest in Univar solutions, Please stay healthy and safe and with that we'll open it up for your questions.
Thank you.
If you would like to ask a question today. Please press star followed by one on your telephone keypad.
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As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question today comes from the line of Kevin Mccarthy from vertical Research partners. Please go ahead. Your line is now open.
Yes, good morning.
Relative to your sales growth of 30% would you comment on underlying volume and how that may have trended and varied by region of the world.
Good morning, Kevin Thanks for the question.
I mean really I think our strategic priorities have been putting the customer at the center of all we do and working to take.
Full advantage of every opportunity we have.
To drive growth our core value proposition that is offering customers security of supply and I think during Q2, we were able to do that in some very challenging markets.
It's a difficult supply chain there are shortages of some products.
And we were able to keep our customers whole.
So our volume sequentially or flat.
Which I think is an absolutely great performance given the given the challenges.
Okay. Thank you for that and then.
Just a question on capital allocation.
You seem to be looking overseas through bolt on deals such as the Viacom deal you announced yesterday.
Can you just comment on on the private market as you see it.
Why are you hunting more overseas apparently than domestically is it the case that multiples are more attractive there and how do you expect that to evolve in coming quarters.
Well I mean, we're an international business.
So we have a great business in Spain already.
And so for them this is our home business.
We're looking for attractive <unk>.
<unk> added opportunities.
To expand our protocol folio and expand our footprint, we have a robust pipeline of opportunities.
And we're able to do some very attractive deals. This is one of them. The suite mix deal that we did in Brazil last year is performing incredibly well well ahead of our plan and so we have a good track record now of integration.
Leveraging that nex integration muscle that reflects so successfully over the last few years.
Okay, and then lastly, if I may for for Nick It sounds like you're anticipating higher cash conversion in 2023 versus 22 I'm not sure if that's related to your commentary on.
An initial dividend or not but perhaps you could frame that out for us in terms of moving parts as you forecasted in the cash flow equation.
Yes, Kevin Thanks.
Free cash flow conversion that we quote is creating capital allocation, whether it's stock buyback or dividends.
And we have targeted a 50% free cash flow conversion as one of our key goals pulling.
Pulling that into 2023.
This year that number is lower just because of the inflationary elements in working capital and our commitment to have inventory available to serve our customers, but our long term target is 50% plus net net free cash flow conversion after interest taxes, all other items, but pre capital.
<unk> of M&A or returning capital to shareholders.
Okay. So less of a working capital drag next year kind of gets you back to a more normal glide path.
Certainly.
Okay.
Okay. Thank you guys. Good luck.
Thank you Kevin.
Thank you.
The next question today comes from the line of Laurent <unk> from Exane BNP Paribas. Please go ahead. Your line is now open.
Good morning on.
My question is related to whats getting us on volumes and it's more about customer behavior in particular into Q3 I was wondering if you have any evidence of Destocking is.
<unk> pre tax for the rich.
Session on weather.
<unk> pre buy kitchen as potential disruptions in particular in Europe . That's my first question.
Thanks for the questions are on good morning.
We're not seeing really any evidence of customers Destocking I think theres a great degree of uncertainty in the marketplace. So what we are seeing as customers buy less more often.
I'm quite sure where the prices are going to go up or go down. So so they are being careful about what they what they buy for the moment, but there is no evidence of destocking that we can see or.
Or really ability to.
Restock.
Okay.
Thank you and my second question is related to Europe . I was wondering if you could talk about the two sides of the business between <unk> and <unk>.
I guess to what extent you elaborate on that.
Either of them, but also as a thank you.
And the way in.
And the index in Germany, and I was wondering when we think about I guess the risk of gas curtailments in Europe are you think about your own supply base in Western Europe . Thank you.
Okay, well I mean, firstly, our European business performed really well again in the quarter on a currency neutral basis. It grew in.
27% increase in specialties business grew nearly 30% and so that business has continued to grow even through the current situation.
I think something like 40% of our business is in England, and some specialties business.
We've got a big piece of that business in life sciences that tends to be a bit more robust through.
Through the cycle, so I think.
Optimistic about our prospects in Europe .
Think that clearly, yes, Germany is not a big position for us in a position we have in Germany is all in life.
Our life Sciences.
And so we're not quite as exposed as others might be to the gas shortages in Germany, having said that there couldn't be a knock on effect to other suppliers, we have very very strong supply relationships.
And a good asset footprint in northern Europe . So we feel that we'll be able to continue to offer customers that security of supply to date come to rely on them as a key part of our value proposition.
Thanks, David.
<unk>.
Thank you.
The next question today comes from the line of David Begleiter from Deutsche Bank. Please go ahead. Your line is now open.
Good morning.
Nick do you have any chemical price deflation embedded in your second half guidance.
Yeah.
Good morning, David and thanks for the question no. We don't we think that prices are going to stabilize I think we said on a couple of occasions, we expect prices to be more of the 2021 levels in the 2019 levels that we assumed.
Analyst day last year. So we think there will be a.
<unk>.
Settling our prices, but no rapid deflation.
And twice III, how confident are you that it will reverse completely next year or could it be in an environment where chemical.
Chemical price deflation of roads over or it comes back over a couple of years.
But again I think the underlying supply demand trends.
As well as the ongoing supply disruptions as well as the kind of global trends that we're seeing around.
Local sourcing.
Would suggest to me that we're going to see.
Alright.
A robust pricing environment through 323, I don't think its going to.
Crash I don't see any any any way that you can get rapid deflation given just how tight the balances and outside the balance.
It looks like it's going to be.
We are really in a very very balanced supply demand situation in any.
Stone puts to change that.
I'll bet.
So to be clear are you are you.
Guiding for the entirety of the chemical price inflation for this year to reverse next year.
While we said that we made some.
A nonrecurring profits, we said around $110 million, we expect that to not to be able to do that next year.
Thank you.
Thank you.
The next question today comes from the line of Laurence Alexander from Jefferies. Please go ahead. Your line is now open.
Good morning, everyone. It's Dan Rizzo on for Laurence Thank you for taking my questions.
I understand you have strong supply agreements, but I was wondering if theres any raw materials or products that you were unable to secure that led to a delay or possible cancellation of orders from your customers.
Okay.
Thanks, Dan Good morning, and thanks for the question.
Look we're really solely focused on growth and putting the customer at the center of all we do and as such making sure that we have adequate supplies to be able to keep that security of supply to customers reliably and safely is a core part of the value proposition.
Certain products have been tight.
And we've been able to eke out products to keep customers going on I'm not aware of any orders that have been canceled.
Clothes, we haven't.
To supply but between.
Prototype Mrs between force matures between.
The rail infrastructure between the California kind of situation I mean that there are a number of obstacles that are putting out this way.
Really focusing on that customer centricity and providing them with the reliability that we can get productivity them, which are owned asset fleet really gives us.
A high degree of control over is a really important part of our value proposition.
Alright. Thank you and then I think you mentioned, possibly starting or starting a dividend in 2023 I was wondering if there's if I, maybe I missed it but if there's any color on the dividend policy, if theres, what youre thinking about in terms of payout ratio or what kind of.
Dynamics, we should think about when it comes to that.
Well look firstly I'm delighted that we can start to talk about a dividend is a very positive thing. It demonstrates I think our confidence in our company and it demonstrates the progress that we've made.
Really on the next guidance over the last couple of years to be able to generate.
50% of free cash flow before the dividend and the board and the management of SaaS as we get closer to the end of the year. What the level is that a dividend will be so we'll talk more about that.
Towards the end of the year.
Great. Thank you very much.
Thank you.
The next question today comes from the line of Josh Spector from UBS. Please go ahead. Your line is now open.
Yes, hi, So I was wondering if you could.
Talk about any major volume differences, the chemical services versus the ingredients and specialties and I think we all appreciate the improved disclosures over the past couple of quarters, but the numbers have generally been close enough that it's kind of hard to differentiate so any added color there would be appreciated. Thanks.
Well I think Josh one of the things that we have I mean, thanks. Thanks for the question one of the things that we have is is a full line card of opportunities right across the portfolio.
That we have so we have really strong increase in specialties business now that's growing very well and we are adding new supplier authorizations supplies are coming to us.
And we're building new supplier authorizations about customers stickier in that area. So it gives us confidence for our future.
And that confidence leads into was bringing our 2024 targets into 2023.
But we also have a great chemicals and services business.
And we have our own trucking fleets and some of the best contiguous assets across.
Across the Americas.
And there was great value, we can drive from that as well so I think that the.
But buyers managing those two businesses separately and focusing on the customers in those both those markets very separately means that we can actually grow and succeed.
Successfully across all of the portfolio and so I am very pleased with our industrial our increase in specialties business I think it is.
It's going incredibly well and making some big strides pseudology is a big step forward for us in that area suppliers are seeing them in supporting goes we've got great opportunities, we've got a great chemicals and services business and we're taking share there and what <unk> does.
There is a real growth story across both sides of the business.
Okay, alright, thanks for that.
Curious on the $80 million in value capture that you guys called out for 2023 can you remind us is that incremental versus 2022, and I guess given inflation expectations are probably higher across the board versus what you guys expected at your Investor day, a while back.
Are there any other moving pieces that are different than what you thought about versus nine months ago.
Okay.
Yes, I mean look I think firstly.
We launched our X 22 program two years ago with some targets and we've meet.
And beat all of those so I think we have a track record.
Not only in F 'twenty, two but a range of targets, whether it's <unk>, whether it's a growth whatever it may be of meeting or beating our estimates. So we feel very comfortable about the value capture program that we now have now that copper sprite management process optimization technology investments you heard in our prepared remarks, a number of areas, where we're making.
Investments to not only increase customer stickiness, and but but reduce costs and reduce transaction costs.
So I think the our confidence overall.
Higher today.
Then.
And then maybe nine months ago because of the quality of the execution that we're getting.
And add to that pricing being more of a 2021 levels to 2019, we think the $80 million is very achievable.
And we don't think that the benefits are going to be eroded by.
Inflation, we can manage that I think reasonably well.
Thank you.
The next question today comes from the line of Steve Byrne from Bank of America. Please go ahead. Your line is now open.
Yes. Thank you.
David I wanted to ask you whether you thought hi.
Fuel costs were a net benefit to you.
More specifically does it incense your your suppliers to allocate more supply to you because you can move it and thus it is not a carbon footprint for them, but maybe more specifically it just cost less.
<unk>, our key to you and you can.
Pass that on in price and whether you think any shifts that are caused by the cost of transportation are likely to be sticky.
Hi, Steve Thanks for the question quite a lot in that one so.
So let me try and pass that one out I mean, firstly I think the owning.
Owning our own transportation fleet has a distinct advantage to us because it means that we can control our supply chain and we can manage our cost better than if we were only open marketplace and it provides a degree of security and reliability to our customers, which I think is core to keeping customers happy and keep them coming back.
<unk>.
I think in terms of ESG I think our supply chain.
The.
Integrated nature of our supply chain from railcars through two tankers through too.
Last mile delivery trucks means that we can offer improved.
Improved.
ESG.
Solutions for our suppliers and we're already having those conversations.
Thank you know in.
And that mix is again, a much more attractive channel.
For our suppliers, because we can help them reduce their carbon footprint through utilizing the network that we have so I'm not sure no rising fuel prices per se is an advantage to us other than managing our own supply chain I think we can control that much back so it will be much more competitive and reliable in the marketplace with.
Certainly owning that transportation fleet, because we do allows us to take part in and conversations with our supply partners, particularly around ESG, particularly about reducing carbon footprint, which many others count.
And I think Thats, a real a real become a real source of competitive advantage and a competitive moat for us.
No.
Thank you.
On the nine 7% EBITDA margin that you recorded in the quarter can you can you split that between the two the two businesses ingredients and specialty use versus chemicals and services.
And how would that split of Ben.
A year ago.
50 basis points lower margin.
Yes, I mean, we.
We can't.
Dave I mean, I think as you realize we reports across four geographic reporting segments. That's how we see the business as customers behave locally that's how we see it and we view them locally.
So so we don't disclose.
That kind of number what I will say.
Is that we've seen improvements across all areas of the business.
We we reiterate what we said.
Analyst day that we think it's it's kind of probably 400.
Basis points better for the ingredient specialties business and the chemical services business.
That's kind of how we how we look at it but the drivers are.
Share growth the drivers of margin expansion have been equally spread across all areas of the business.
Thank you.
Thank you.
The next question today comes from the line of Frank Mitsch from premium Research. Please go ahead. Your line is now open.
Thank you and good morning.
For what it's worth I liked the Pseudology name.
Got you.
I want to come back to the comment about volumes being flat sequentially in the release.
And on the call. There was a few comments regarding market share gains that the company was able to realize in the second quarter. So I'm trying to reconcile how you're gaining market share and your overall volumes were flat sequentially.
Offer some comments there.
Sure. Good morning, Frank Thanks for the question and I'm glad you liked pseudology.
I think if you look at all if you look at our win loss ratios. So the number of of buying customers and skus per customer. If you look at our retention rates. We look at on new customers. All of those are increasing which says that we are selling more things to more people than we were that to me is a growth in market share.
Now if we haven't got as much to sell to everybody. If people are buying a little less.
If we are selling more of a specialty ingredients and less of a high volume commodity that's going to affect the overall volume numbers, which is why we never get turned on about volume. It is about gross margin growth and gross profit growth, but if I look at the underlying details.
Are more people buying more things from us month on month. The answer is absolutely yes that to me is we're growing our market share.
Very helpful makes sense. Thank you.
You mentioned the cost inflation benefit year to date $110 million.
I'm wondering if there is any.
There is any.
Now that you've embedded into the.
The third quarter guide of $240 million to $260 million, what's your expectations there.
No I mean, it's very small it's de Minimis I mean, we think that the prices have now largely peaked.
<unk> of any other extraordinary events.
That happens, maybe gas supplies or a hurricane or something else book, we don't predict those things.
But no we think that any any.
Nonrecurring price benefit in the second half I think we think it's kind of done now so we don't build any of that in.
Thank you so much.
Yes.
Okay.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from the line of Mike <unk> from Barclays. Please go ahead. Your line is now open.
Great. Thanks, Good morning, guys.
First question just as we've now kind of gone through July has there been any meaningful changes in your customers' underlying order patterns or changes in where you think inventory levels currently stance.
Sure.
Good morning, Mike and thanks for the question.
I think as I said earlier, what we're starting to see is customers buying a little less but buying more often there is a degree of uncertainty in the marketplace about what's going to.
Transpire.
We're seeing still strong demand.
But I think people are being cautious about what's going to happen on pricing has a pay to really slow down will it go up and therefore, we're seeing people buy.
By a little less but come back and buy more often we've observed that now for the last probably.
Probably six weeks or so on so that's really.
The change in buying patterns that we see now we are seeing some customers and we're helping some customers reformulate into maybe lower cost solutions. So we're looking at some of the premium products.
Some of the premium men's brands.
We'd be switched off with some of the more value brands.
That plays into our solution center in technical differentiation, because we are helping customers reformulating those but that's that's what we're really seeing in the and the buying patterns.
Makes sense. Thank you and then just a quick follow up for Nick on working capital.
Hum.
Early to think about 2023.
Can we assume chemical prices.
I don't know relatively flat from here.
Working capital.
Likely be a source of cash next year or relatively flat.
Yes.
Thanks, Mike the.
Our working capital if we stayed relatively stable prices through next year would always be a slight use because you do grow the business right and so that proportionately increases, but it's not significant.
Yet, we obviously would expect some run off of the working capital through the end of this year to be a benefit.
Certainly we intend to continue to improve our metrics through the end of this year, but our view is that in a stable environment working capital is not a significant use of cash as we grow.
Got it thank you.
Thank you.
No additional questions waiting at this time, so I'd like to pass the conference back to Heather Kos for closing remarks.
Thank you, ladies and gentlemen for your interest in Universal leasing if you have any follow up questions. Please reach out to the Investor Relations team. This does conclude today's call.
This concludes today's conference. Thank you all for your participation you may now disconnect your lines.
Okay.
Yeah.
Yeah.