Q3 2022 Univar Solutions Inc Earnings Call
[music].
Hello, everyone and thank you for joining the universe solutions third quarter 2022 earnings conference call. My name is <unk> that is and I'll be the operator for today before I hand, you over to your host have a cold I would like to remind you die who would like to ask a question during the Q&A session at the end of the call. Please press star.
Although London the telephone keypad.
No I have the pleasure of Hanmi over to your host Evercore. Please go ahead. Your line is now open. Thank you and good morning, welcome to unify solutions third quarter earnings call and webcast.
Joining our call today are David Jukes, President and Chief Executive Officer, and Nick <unk>, Executive Vice President and Chief Financial Officer.
Last night, we released our financial results for the third quarter ended September 32022, and posted to our corporate web site at Univar solutions Dot Com a supplemental slide presentation to go with today's call. The 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 measures in our earnings release and the supplemental slide presentation.
As referenced on slide two we 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 they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more detailed summary of the risks and.
Inherent in our business and our expectations for the future with that I'll now turn the call over to David for his opening remarks.
Thank you Heather good morning, good afternoon, and good evening to everyone and thanks for joining our call.
This quarter, we are going to take a slightly different approach to our earnings call and there are four messages I want to leave you with.
Over the last three years, we have fundamentally transformed our company.
Second we're well on track to deliver record results in 2022.
Third we are a high performing critically important chemistry agnostic service provider. So then get diverse range of life Sciences, consumer and industrial end markets.
Chemical producers.
And fourth we're confident in our future for 2023 and beyond.
But first let me hand, it over to Nick who will talk you through our third quarter results and will also affirm our guidance for the full year Nick.
Thank you David.
I'm pleased to share Univar solutions strong Q3 financial results.
For our detailed schedules in the appendix adjusted earnings per diluted share was 84 in the quarter and increased from 62 in.
In the prior year's third quarter.
Cash from operations of $257 million was higher than the prior year period, primarily due to net working capital and higher net income.
Networking capital was in line with the prior quarter at 15, 6% of quarterly sales annualized reflecting the inflationary impact as well as further investment in inventory as needed to ensure reliability of supply to our customers capital expenditures for the quarter were $39 million, which reflect a good mix.
Hi, ROI investments.
Our ROIC was 22, 1% for the quarter driven by a strong performance and efficient asset utilization and net debt leverage now stands at two one times within our goal of two <unk> to two five times.
These ratios are net of a further $100 million of cash returned to shareholders during the quarter through our share repurchase program totaling just over $255 million since last year Q4.
Sales were up around 25% on a constant currency basis, and the corresponding gross profit was up 19%.
Across all geographies higher sales and gross profit on a constant currency basis were primarily the result of our price pricing discipline and volatile markets.
<unk> results benefited from the <unk> acquisition, which is also performing better than planned.
As anticipated gross profit margins were lowered throughout most regions as nonrecurring stock profits abate.
EBITDA margins increased for the U S due to operating leverage and declined in Canada from lower gross profit margins.
Latam margins were lower due to higher <unk>.
EMEA is EBITDA margins were flat, despite being impacted by roughly $9 million and currency headwinds.
Adjusted EBITDA of $260 million was up by 28% 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 higher W estimate.
During the quarter, we benefited from the last remnants of price inflation, partially offset by the adverse currency effects of a strong U S dollar.
Moving on to sales trends in our four geographic segments, we saw resilient financial performance. Despite concerns of a recession in the U S and the ongoing conflict in Ukraine.
Our ingredients and specialty channel continues to gain new exclusive authorizations and our teams are focused technical sellers are helping customers formulate and designed products in the future.
In life Sciences farmers saw robust share gains as we focus on formulations and of high quality ingredients for our customers as well as for the medicines of today and tomorrow.
Food and personal care grew despite dampening sentiment as new supplier partnerships and a focused technical sales force are driving value for our customers and suppliers.
And household and industrial cleaning, we saw strong growth in Canada, and Latin America as our supplier partnerships have helped us expand our market presence.
And lubricants and metalworking fluids, we saw sustained growth due to improving demand within both automotive and heavy duty equipment, along with solvent pricing discipline.
Within our chemical and services channel, we're seeing resilient growth and inorganic.
Energy mining and water treatment.
We're also seeing growth in services as automotive manufacturing returns after an extended period of microchip shortages.
Finally, our core local distribution business in the U S is seeing strong share gain as we leverage our scale provide our customers with reliability of supply and capitalize on our ability to offer a reduced carbon footprint.
Our outlook for the rest of the year assumes our normal seasonal trends with destocking, reflecting an economic slowdown.
A continuation of the current level of FX rates and continued chemical price inflation stabilization.
Although we are planning for our margins to moderate because of these factors, we expect to continue to grow market share and otherwise execute well as we have for the last several periods.
As a result, our guidance for adjusted EBITDA for Q4 is a range of 180 to 200 million, which implies a full year performance in line with the midpoint of previous guidance, which is one <unk> 6 billion.
Let's review some of the cash flow highlights of our 2022 outlook.
By year end 2022, we are targeting networking capital of 14% to 14, 5% of annualized quarterly sales.
Based on the typical seasonal patterns net working capital is expected to be a source of cash in the fourth quarter. However, the full year it will be a use due to the year over year business growth.
Our tax guidance for the full year remains unchanged, which is higher versus last year due to 2020 to taxable earnings level and a run off 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're expecting approximately $145 billion of capital expenditures for the full year 2022.
Consequently, our estimated net free cash flow for 2022 is $400 million, which is approximately a 38% conversion from adjusted EBITDA.
As mentioned earlier this quarter, we completed share repurchases totaling $100 million, bringing us to more than 50% of our initial 500 million authorization.
Along with our announcements to expand our share buyback authorization. Our board continues to plan to implement a dividend early next year as part of our capital allocation strategy.
We are confident in our execution and outlook for the full year 2022, and are preparing yourselves to deliver in 2023 and beyond.
David.
Thanks, Nick.
Over the past three years, we have fundamentally transformed the company, which provides us with a stronger foundation for long term growth as well as the ability to successfully navigate the dynamic macro microeconomic environment.
As a reminder of just what we've done in that time.
We solidified market leadership in North America, and reduced our exposure to highly cyclical end markets like agriculture and energy.
We provided visibility and delivered growth in ingredients and specialties and we've proven resilient through downturns and during COVID-19.
We successfully integrated the largest acquisition ever completed in our space.
Delivered the promised synergies on time under the established digital leadership to our site migration and suites, a customer centric digital tools.
We have deleveraged, our balance sheet, while still completing tuck in M&A and improved our margin profile.
And in 2022, we'll deliver over $1 billion in adjusted EBITDA with sustained positive net free cash flow, which we've used to opportunistically buy back shares.
Today, we are a value added services and solutions company, serving a diverse range of suppliers and customers and markets from clean water to clean label foods.
Distribution is a deceptively complex business it can make it hard to isolate a perfect growth metric.
Because of the diversity of products and geographies, we serve volume alone is not a good proxy for our overall performance.
In addition to growth in our markets, we focus on services and metrics that customers tell us they value.
Order accuracy on time delivery safety customer satisfaction, and ESG metrics, our objective measurable and can serve as growth indicators.
The intrinsic value of our business is independence of chemical prices and is largely derived from the full things customers tell us they want most reliability.
Safety technical support competitive pricing.
In these key areas, we continue to make sustained improvements using technology based innovative solutions. This is what gives us confidence in our future performance.
A transformed business positions us well to continue to navigate the dynamic macroeconomic environment and more specifically provides installation against some of the effects of an economic downturn.
Looking to the industry broadly the essential nature of the chemicals ingredients, we provide positions us well in times of economic uncertainty.
Whatever the macroeconomic circumstances, all communities will need us to help them stay healthy.
<unk> insight.
In addition, our advantage position and footprint in North America helps us capitalize on U S. Reindustrialization of near shoring trends on buffers us from a severe downturn in Europe .
As a scaled distributor we have lowered our variability in a recessionary environment, given the breadth and diversity of our products and end markets and one of our core competencies is successfully navigating price volatility, which we have proven time and again.
And as a solution provider, we connect suppliers and customers through our value added services, providing reliability as well as the opportunity for cost engineering.
These attributes enable us to manage through recessions and today, we can do so by than ever before.
During our Investor day in late 2021, we laid out financial goals through 2024, and while it's not giving full guidance. We stated our intention to deliver on those financial goals full year ahead of schedule, including the 2023, adjusted EBITDA of $960 million and 50.
Net free cash flow conversion.
This perspective assumed FX rates broadly at 2000 22021 rates.
Modest recession in Europe , and a flat U S economy.
Since that time, some things have changed although our belief and our improved ability to win profitable share and protect our intrinsic value is not but I do want to provide today's perspective.
First the U S. Dollar has appreciated significantly if it stays at current levels, we would see a negative impact of around $30 million.
Of course, if the dollar moves the other way.
FX impacts will be reduced.
Second the probability of a recession in the U S. While still uncertain has gone up.
If there is a moderate recession in the U S. But we have some historical perspective during the last three major recessions outperformance as dates by around 10%.
<unk> stated, we're a much multiples resilient and robust business than we used to be.
Equally important in an economic downturn on net free cash flow conversion target of 50% would increase generating more cash for either debt reduction or capital allocation to investors.
We expect to provide formal guidance for 2023 on our Q4 earnings call.
Beyond 2023, we're confident in our future and continue to believe in our ability to deliver growth above GDP adjusted EBITDA margins of 9% on a revised our adjusted ROIC targets to be better than 20%.
In addition, based on our projected organic growth our share buyback program plans on our expectations for opportunistic M&A with <unk> adjusted EPS greater than $4 50 in 2025.
And we continue to target leverage in the two point so to two five times range.
Our capital allocation strategy through 2025 reflects our confidence in our cash generation capabilities as well as a long term value of our company.
Net of capital expenditures, which we expect to be around $150 million per annum from 2023 to 2025, we continue to believe our business will generate approximately $1 5 billion in net free cash flow.
As a result, we have executed a $200 million accelerated share repurchase on our board has approved a further $1 billion share buyback authorization to run over the next four years.
This along with anticipated dividend payments in 2023, not only demonstrates our confidence in our business, but a serious commitment to returning capital to shareholders.
We also expect to talk to an average of $200 million a year for accretive bolt on size acquisitions in regions and markets, where we believe they will.
Synergistic opportunities for growth cross selling and cost rationalization.
Our recent acquisitions are already proving to be accretive on a realizing higher planned benefits as we get new authorizations from suppliers ahead of schedule on more extensive than anticipated.
So before we come to your questions and to summarize.
Over the last three years, we have transformed the company puts the customer at the center of all we do and expect to deliver remarkable 2022 results.
We're not a chemical producer.
Rather we are a high functioning chemistry agnostic service and solution provide provided highly confidence in our operating agility and ability to execute regardless of the macro environment.
Through 2025, we continue to believe in our ability to deliver an adjusted EBITDA margin greater than 9% with 50% net free cash flow conversion.
<unk> of greater than 20% and expect to deliver greater than $4 50 of adjusted EPS in 2025.
We plan to use on net free cash flow to fund growth initiatives through a combination of high ROI capital investments and selective opportunistic acquisitions.
With our new authorization, we have one suite full $5 billion of.
Of share repurchase authorization available and have launched a $200 million ASR.
We believe we're in a strong position to deliver long term shareholder value, while fulfilling our purpose and commitment to our people and communities.
Thank you your attention and your interest in Univar solutions, please stay healthy and safe and with that we will open it up for questions.
Thank you see if you would like to ask a question. Please press star followed by one it is helpful to keep that.
Have you changed your mind piece best thoughtful let's see when people ask you question. Please ensure your forms of mid to low.
So Ross Goldfarb I wanted to touch on that.
Our first question comes from Lauren <unk> from BNP Paribas. Please go ahead.
Yes. Good morning. My first question is regarding the Q3 to Q4 expected proceeds drug.
I was wondering if you could talk a little bit the bounce how much.
You had that in Q3 compared to the $110 million in Q call Downs for each one.
And if you could talk about the Destocking in price no monetization trends between the ingredients and specialty areas and I'm always central area. Thank you.
Good morning, Lauren and thanks for the question.
First of all we're really proud of what we've done over the last three years to put this company in the position it is in <unk>.
We've transformed this company into a real high performing service provider on which gives us the resilience of robustness to survive through whatever the macro we think.
In terms of.
Margins I think as Nick mentioned, we had.
The last remnants of nonrecurring unstopped profits and.
Q3, we don't expect any of those in Q4 in Q4.
<unk> seen the usual seasonality that we see in Q4.
A degree of Destocking, we have three days less trading in the quarter than we had in Q3, which also contributes but there is an element of destocking going on at the moment, which we think will last through the quarter and that covers both sides of the business. It covers the chemicals and services business and ingredients and specialties business.
Thank you and maybe if I can ask two.
1023.
From a geographical standpoint, it's opioids that xerox as much risk, but at the same time <unk> got some more exposure to the ingredients and specialty side.
Would you say that in terms of the the downside to your 9% EBITDA margin targets.
<unk> is still the European region or is it also in the U S.
So I think we're very conference on 9% target and we're very confident in all of the targets, we set out the better than 20% ROIC.
$4 50, EPS by <unk>.
2025.
You're right that our business in Europe , it's much more it's a high proportion of the life Sciences area, which makes up more robust through a downturn.
<unk> still needs clean food clean water clean medicines through a downturn. So we feel good about that.
So we do see.
A lot of strength in the <unk>.
U S market with Reindustrialization in the U S energy transition near shoring.
<unk>.
I'm very fortunate to have it.
It really an unrivaled asset footprint in that market to help us buffers.
Buffers against any any downturn in the U S.
Europe .
Thank you and just to squeeze one last thing on the 9% margin.
I'm cognizant that in Q3, you went below the 9% Im wondering if you can talk about what is in your control to improve from that level of Q3 2022.
It was below 90%.
Can you talk about those measures yes.
Sure I mean really Q4 is not a good proxy as margins are compressed by that seasonality and destocking.
The relatively higher bonus payments in the quarter.
I think that the at the 2023, we think that we can still support our margins we have a value capture program, which we expect to deliver $40 million in the year, we still have a positive mix trends between our ILS business CNS business, but.
But I think most of all Q4 is not a great proxy for looking at where Q3 is because of the seasonality and.
The destocking.
Thank you.
Our next question comes from John Roberts from Credit Suisse. Please go ahead Jim.
Thanks, and congrats on a nice quarter.
2025 is a long ways out, but that $4 50, plus EPS target is well above consensus could you help us build a bridge from current to they're just in big buckets. How much is share repurchase how much will be bolt ons, how much do you think will be organic growth.
Good morning, gentlemen, and thanks for the question, Yes, 2025 is a way out but I mean look we are incredibly confident about our ability to deliver and also the cash generation of this business just bridging from where we are today to that full 50 about half of that is in share repurchases.
The other piece then is in the organic and inorganic growth so.
In those two kind of buckets.
And then in the past recessions, you talked about the 10% kind of peak to trough decline in EBITDA.
Maybe just give us some metrics on the biggest changes in the mix between.
Im thinking about AG is not there anymore energy is much smaller.
Can you just like parameters on how much they have gone down as a percent of your business.
Or maybe something like caustic and so forth.
Sure.
Look we are a much more resilient robust business today than we were during the last.
123, downturns, if you think about energy energy was probably something like 15, 18% of our business way back now it's less than 8%.
AG was five 6% of our business today is zero.
So we are now.
Over a third of our business is in that life Sciences industrial solution space.
Products like caustic are required to keep us clean keep Bob Walter clean.
Not necessarily the chemistry, that's why we say what chemistry agnostic. It's the end markets that we serve which are much more robust and resilient in whatever the macro environment. What we've learned from recent downturns is the products, we supply help keep our communities healthy five clean site and that's a really important thing to take us through the next period.
Thank you.
Yes.
Okay.
Our next question comes from Joshua Spector from UBS. Please go ahead tissue.
Yes, hi.
And your comments on 'twenty, three you talked about additional value capture opportunity in a downside scenario.
Curious what levers you have to pull and how meaningful those could be relative to what you view as potentially earnings downside.
Okay.
Good morning, Josh Thanks, Thanks for the question.
Look I think we already have.
Programs in place too.
To look at how we value capture a large part of those are in transportation there in the back office arena as we really start to.
Drive the benefits from the digital investments that we've made over the last couple of years.
So we feel pretty confident about our ability to achieve those without doing anything.
After the old and we'd like to refer or anything of that nature.
A lot of our costs are very variable, we don't have a big fixed asset base, we are relatively asset light.
Which means that we can variable is our cost in a downturn pretty quickly that's been our experience through the last several and you have a management team that I've lived through several downturns. So it's not a new thing for us.
Okay.
Okay, I guess, I mean, without I guess explicitly get into guidance for next year.
If we annualize the second half here, you're close to $900 million, obviously has FX in there of Destocking in there I guess what are some of the puts and takes I mean, you talked about share gains in the other businesses. The mix effect like what are the positive that are in the negative risks there that we should be looking at.
Well, you're right, we're not giving guidance at the moment and we will do that in February I think that if you look at what we said at our Investor day, and the targets we set out there.
It is about share gain and we are seeing share gain across our business. It is about new supplier authorizations driving.
Driving more productivity and we're seeing those come through so there's a lot of positives that we're seeing in the business just because we are executing incredibly well add on top of that some very selective M&A.
And you can get to a reasonable number.
Yeah.
Okay. Thank you.
Okay.
The next question comes from Kevin Mccarthy from vertical Research partners. Please go ahead Kevin.
Hi, Good morning. This is Cory Murphy on for Kevin.
I was just curious as it relates to the capital allocation.
After the ASR is completed what should we expect for the pace of share repurchases.
And.
Okay I'll leave it there for now.
Sure.
Good morning, Corey and thanks for the question.
I think you shouldn't be this $1 billion.
Share buyback authorization the board has now approved.
You should see that really ratable across the four years.
Yeah.
Okay.
And as a follow up as you are buying back shares.
Annual Capex spend of $150 million in M&A of $200 million.
Is that all are you expecting to be able to do all of that at the same time or if.
Something comes up and you're able to acquire.
Would you put off share repurchases or of.
Maybe not grow the dividend going forward.
Yes, I would say Corey it's Nick good morning.
The free cash flow conversion that we talked to about 50% is net of capex. So the capex is already deducted from that so whatever EBITDA you use we have 50% free cash flow.
That affords our ability to do a share buyback ratably as David mentioned as well as we've spoken about a dividend.
In addition, M&A, we would have availability under our bank financing or existing cash flow as we would end up at the end of the year. So all of that can be done as we've outlined with the expected free cash flow of the business and the availability of our credit lines.
Got it thank you.
Okay.
Next question is from David Begleiter from Deutsche Bank. Please go ahead David.
Thank you good morning, David some companies have begun to announce cost actions or permanent asset footprint changes in Europe given the.
New dynamic in that region.
I know the costs are very variable, but are you thinking about pushing forth less resources in that region going forward.
Good morning, David Thanks for the question.
We rationalized our assets in Europe , some years ago, something I did when I was when I was there and its something thats carried on since then we have a pretty good tight.
Tight efficient network of assets, it's a very high performing business our European business.
More than half of our business there are about half of our business. There is in that kind of life Sciences specialty space.
So that 10.
Thats pretty asset light. So I don't think we're thinking about major restructuring in our European footprint, we continue to manage that footprints over several years and we'll continue to do so.
Very good and this thing in Q4 is destocking worse than typical this season it sounds like from other companies that is pretty severe.
Yes. It is yes. It is I mean, I think that what we're seeing.
And we I think we talked about this the last quarter of what we're seeing is.
Visualize it down to certain segments more customers buying from us more transactions, but lower volumes.
And we're also seeing people buying on a much shorter timeline. So people are ordering today for tomorrow. So people are really managing the stock's down that's driven by the uncertainty in the marketplace. So it is it is a little more severe than you would expect for the normal Q4 dividend for the type.
Thank you very much.
The next question comes from Steve Byrne from Bank of America. Please go ahead Steve.
Yeah.
Hi, This is Rob Hoffman on for Steve Byrne. My first question is how to EBITDA margins compare between the two businesses and is it reasonable to assume the IMS has higher gross margins than our CNS, but more development and commercial costs would be.
The items of business.
Yes, Ralph hedges go ahead sorry.
As you know we report regionally that's how we built our business is out so we don't separate them disclose what those margins alike and separately. We did gave some indications generically at our Investor day last year, but we report by regional geographical segment, that's how we view the business.
Understood.
Just a quick follow up.
What fraction of your commercial organization is business line specific versus having a regional focus in selling all of our products and how has that changed in the last few years and affected sales growth.
Well again I think we've signaled.
Explain a number of occasions, we built these dedicated industry verticals out we've done that over the last several years I'm not sure exactly what the number is but I would imagine it's something like 60, 40, 60% chemicals and services business, 40% today.
Greetings and specialties business, certainly having a dedicated focus on food ingredients III food allergy or through pharma off through beauty care.
<unk> has delivered on growth because we have.
Tremendous expertise in those markets and that allows us to help customers.
Now when they are looking for lower cost formulations do the cost engineering to keep them competitive so having that dedicated organization commercial organization technical support organization is key to driving growth.
In those specialty verticals.
Great. Thank you.
Okay.
The next question comes from Michael <unk> from Barclays. Please go ahead Michael.
Great. Thanks, good morning, and congrats on another good quarter.
First I just wanted to follow up on 'twenty, three and I appreciate you're not giving formal guidance, yet, but I figured I'd try to ask anyway.
I think David you originally talked about $960 million EBITDA 24, you brought that forward to 'twenty three now if I look at your slides, you're saying FX is negative 30, and the macro is probably slightly worse, which is all fair. So it feels like somewhere in the low 900. The good starting point for 2023 EBITDA is that.
Logical.
Good morning, Mike and thanks for the question and thanks for trying to get me to confirm guidance, which I'm not going to do.
I mean <unk> makes sense.
But as I said.
We're very confident about is our ability to execute what we're very confident about is we have a high functioning service provider chemistry agnostic, serving a diverse range of.
Marketplace, which makes us resilient and robust I can't control the macro and I have no clearer crystal ball than you have but we're very well positioned to manage whatever the macro delivers.
Got it makes sense fair enough and then Nick just on working capital I think this year, it's going to end up to be about $190 million headwind.
Do you think you can roughly back next year.
Yes.
A lot of it depends on where you think pricing could end up being but we would expect that if pricing stays stable or cash flow number next year would be positive on a working capital basis.
Versus where we ended up this year.
Positive year over year next year.
Great. Thank you guys.
Yes.
The next question comes from Duffy Fischer from Goldman Sachs. Please go ahead.
Yes, good morning.
First question is just around the impact of the allocation that big suppliers are giving you. So on one hand, you could argue is their salespeople are less busy now than they were a year ago. They may try to claw back some business.
Farmed out to you on the other hand, there sales are low so if you can sell stuff for them that helps their operating rates.
In times of distress like this or down volumes, how does that play out generally do you pick up allocation or do you generally lose allocation when things get slow like this.
Good morning, Duffy, Thanks for the question and welcome back.
<unk>.
I mean, we have really really strong supply relationships.
And our suppliers of really worked incredibly well with us and through the last few years when product have been tight and we really appreciate the support and value the support.
Typically when the markets seize up a little bit.
They.
They look to address their own cost base.
And I would never say that sellers are not busy I'm sure. They are very busy the ones I know I'm certainly very busy.
But people think about what the channel strategy or to be and what proportion of that business all to go through.
Different channel than the direct sales channel and also as I mentioned, a few moments ago.
Customers buying patterns at the moment have changed people are buying today for tomorrow and that buying less than they did and that really means the distribution is a very important channel because that kind of service level is not something that produces and typically easily manage.
So we feel very confident in our supply relationships. The number of new supplier authorizations. We have continues to rise through that specialties and create some specialties a vertical.
But we have really good relationships really strong relationships with our suppliers, we are a valued channel partner for them.
And they value what we can bring to the marketplace for them.
Thank you and then maybe just take one more shot at trying to understand the Q3 Q4. So if I look back the last six years. The worst dropped Q3 to Q4 was about $25 million. The average drop is about $12 million and more of this as kind of the bridge into two.
<unk> three.
When you look at the abnormal drop that you're forecasting your midpoint do you think that cleans up all of the abnormalities in Q4 or when you look out in the January February is that stuff that is going to kind of bleed into 'twenty. Three just trying to understand kind of the discrete pieces that made Q4 significantly worse.
Quarter over quarter than it's been in the last six years and then what that means for the early part of next year.
Sure So couple.
A couple of things Firstly, we're very confident about our ability to execute in 2023.
That's why we're committed so much too to share buybacks and so other return of capital to shareholders.
Over the last six years Duffy as you remember, we had an AG business and there was a seasonal spike in Q4, <unk> and so it's not a great comparison to look back over six years. If you look at this year, we have a couple of things going on we have destocking inevitable destocking as well as that seasonality plus.
We have an elevated level of variable compensation, which we will have ratably across the year, which will be abnormally large in Q4 versus previous in Q4. So you really have to look at the granularity of it to see it but when comparing those over the last six years isn't great. Because we don't have an AG business anymore.
We don't have that big of an energy business any mobile remember, we divested that AG business and there was always a spike in Q4 with pre sales for the following year, which did we just don't have any more.
Fair enough. Thank you guys.
As a reminder, Todd for any further questions. Thus thoughtful way one on your telephone keypad.
Followed by one on your telephone.
It appears we have no questions.
So I'm going to hand, it back to Heather Kos, VP Investor Relations and communications. Please go ahead.
Thank you, ladies and gentlemen for your interest in Univar solution. If you have any follow up questions. Please reach out to the Investor Relations team. This does conclude today's call.
Yeah.
This concludes today's call. Thank you for everyone for joining US you may now disconnect your lines.
Okay.
Yes.