Q3 2022 Americold Realty Trust Inc Earnings Call
Greetings and welcome to the Americold Realty Trust third quarter 2022 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please.
Just press Star zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Scott Henderson. Please go ahead.
Good afternoon. Thank you for joining us today for Americold Realty Trust third quarter 2022 earnings conference call and.
In addition to the press release distributed this afternoon.
<unk> filed a supplemental package with additional detail on our results, which is available in the Investor Relations section on our website at Www Dot Americold Dot com.
Afternoon's Conference call is hosted by <unk>, Chief Executive Officer, George <unk>, Chief Commercial Officer, Rob Chambers, Chief Financial Officer, Mark Smirnoff.
Management will make some prepared comments after which we will open up the call to your questions.
On today's call management's prepared remarks may contain forward looking statements.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
A number of factors could cause actual results to differ materially from those anticipated.
Forward looking statements are based on current expectations assumptions and beliefs as well as information available to us at this time.
Only as of the date they are made and management undertakes no obligation to update publicly any of them in light of new information or future events.
During this call, we will discuss certain non-GAAP financial measures, including core EBITDA and <unk>.
Full definitions of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.
And in the supplemental information package available on the company's website.
Now I will turn the call over to George.
Thank you Scott and welcome to our third quarter 2022 earnings Conference call.
This afternoon, I will provide an update on our four near term priorities and summarize our financial and operating results I will then comment on our outlook for the remainder of the year.
Rob will provide an update on our recent customer initiatives and Mark will provide an update on our investment and capital markets activity.
Along with a detailed walk through of our guidance for the remainder of the year.
Turning to our four near term priorities.
First we continue to demonstrate we can reprice, our warehouse business to offset inflationary pressures on our cost structure and protect margin dollars.
For the third quarter rent and storage revenue per economic occupied pallet and our same store on a constant currency basis increased by eight 1% versus the prior year's quarter.
Service revenue per throughput pallet increased by seven 7%.
As a reminder, some of these price increases were implemented during the third quarter, meaning the full run rate will not be seen until fourth quarter results.
During the third quarter, the majority of the inflationary pressures we're in power costs.
Pretty taxes and warehouse supply stops we have implemented additional targeted pricing in power surcharge initiatives to address this known inflation and we will exit the fourth quarter at a run rate covering all known inflation incurred through the third quarter.
Moving through the fourth quarter, we expect the majority of the inflationary pressures to continue to be primarily in power costs, particularly in our international markets and then warehouse supply stuff.
As such we will continue to revisit our pricing in power surcharge initiatives. Please note that at this time and based on current market conditions, we do not anticipate significant moves in our labor costs going forward as a result of our pricing initiatives. We are pleased to see progress in the recovery of our global same store warehouse.
NOI margin, which for the quarter was 29, 4%.
This was an increase of 125 basis points driven by an improvement in services NOI margin, which increased 116 basis points from the prior year on a constant currency basis.
Second we are focused on differentiating our platform by providing best in class customer service we.
We are beginning to see a positive shift in our customer service levels with the increase in our perm to temporary shiao, which I will discuss momentarily as we expected our service levels are improving as our newer associates get more familiar with the Americold operating system and our workforce ratio improves we expect.
This trend to continue with our efforts to reduce turnover I firmly believe that servicing our customer that best in class levels will ultimately lead to increased market share and has meaningfully contributed to our recent increase in occupancy.
Third we continue to focus on labor management with the goal of optimizing our mix of permanent and temporary associates in our facilities, while also reducing our turnover rate.
As we have mentioned in previous calls temporary associates cost and worker labor hour and are less productive than permanent Americold associates.
Higher turnover, it's also costly and drive inefficiencies in our business.
During the third quarter, we are very pleased to have achieved the perm to temp hours ratio of 70 228.
This is 10 points higher than our third quarter 2021 levels and slightly better than our pre COVID-19 levels of 70, <unk>, we are making progress toward our longer term goal of achieving a consistent 80 20 ratio our turnover rate is still significantly elevated when compared to both last year and pre COVID-19 level.
We ended September this year at an annualized turnover trend approximately 21 percentage points higher than that of September 2021.
Compared to 2019, our pre Covid year, we were approximately 33 percentage points higher or stable well trained workforce is critical to operating efficiently and returning to pre COVID-19 margins in our warehouse services business.
Our final focus area is ensuring that our development projects are delivered on time and on budget and then deliver the underwritten returns.
This quarter, we are pleased to announce that we have completed our projects in Dublin, Ireland in Barcelona, Spain, and we are currently inbound being our customers' product into both of these facilities. We expect these projects to stabilize during the timeframe and FTE return levels disclosed.
Turning to our third quarter results <unk> <unk> per share was 29.
An increase of seven 4% compared to prior year. This performance was principally driven by our global warehouse same store pool, which generated total revenue growth of nine 6% and NOI growth of 14, 4% both on a constant currency basis.
This same store revenue and NOI growth was a result of our pricing initiatives combined with a 437 basis point increase in economic occupancy over the third quarter 2021, partially offset by declining throughput volumes of one 3%.
On the cost side, the majority of inflation continues to be on our powered warehouse supplies costs.
In certain markets. We have also seen larger increases in property taxes. Additionally.
Additionally, while our associate turnover ratio remains significantly elevated which negatively impacts our productivity and efficiency inefficiency. We did see improvement in our same store warehouse services NOI margin.
Merrily driven by our pricing initiatives.
On the whole in the same store pool, we were able to drive NOI growth higher through a combination of first higher pricing across our warehouse business to overcome increasing cost and second increased economic occupancy, which is very accretive to our bottom line.
Now, let me comment on a specific customer agreement within our third party managed segment.
As a reminder is a segment that generates approximately 2% of <unk> total company NOI.
After a strategic review of this part of our business. We have made the decision to exit our relationship with a national retailer for whom we manage four facilities and have no ownership in the land buildings equipment or any other asset.
This management agreement generates approximately 1% of Americold total company NOI.
The operations for this retailer consume a vast amount of time and energy for little economic benefit of Americold 16000, plus associates. Approximately 2500 was 16% of our company's associate base is dedicated to this retailer's business to.
To put this in context, 16% of our associate support 1% of our total company NOI.
On or around December one we are ending our management agreement with this retailer and are in the process of transitioning the business and associates to New third party service providers. This will enable us to focus our attention on labor management in our core warehouse business, where we own operate and utilize our app.
It's to create value for our customers and shareholders and where we generate approximately 92% of America total company NOI.
On an annual basis. This agreement with this retailer <unk>.
Contributes approximately $300 million in revenue and $8 million in NOI to Americold. This equates to a two 7% NOI margin the lowest margin business, we have in our company and in fact, the total company NOI margin increases by 235 basis points when we exit this business.
This $8 million in annual NOI translates to approximately <unk> <unk> per share in annual <unk>, we do not expect any material impact in this fiscal year. The remaining businesses in the manage segment add value to our company and shareholders and we have no plans at this time to exit what remains.
As a result of the progress we have made in our operations combined with the recovering global food supply chain, we are increasing our full year 2022, <unk> per share guidance to the range of $1 eight to $1 12, and Mark will provide commentary commentary around the individual components.
Despite no shortage of macro headwinds high inflation challenging labor market continued disruption in the global supply chain and increasing base interest rates to name. A few we are very pleased with our progress year to date and expect continued operational improvement for the rest of the year, we are deeply committed to providing.
Best in class customer service and the results show up in our incremental occupancy improvement throughout the year, we continue to be laser focused on our pricing initiatives to cover known inflation as it relates to our cost structure. We have added tighter controls created more robust processes and strengthened our team to ensure.
Sure that we have an accurate timely view of each cost component in short we are a better operating company today than we were one year ago.
Lastly, before I hand, it over to Rob Let me comment on our ESG initiatives, which is a key priority for us here at Americold I am happy to report. We recently received our 2020 to grasp the score of 75, which is an improvement of 12 points versus last year's score <unk>.
Additionally against our peer set we also improved our ranked second versus third last year. We are very pleased with this outcome and look forward to continued progress in our ESG journey. One example of this continued progress as our recently completed refinancing of our senior unsecured credit facility in this refinance.
We incorporated a sustainability linked pricing component tied to our annual growth to be ready with that I will turn it over to Rob. Thank you George for.
For the third quarter. We are pleased to report total company revenue and NOI growth of 7% and 16% respectively, driven by our warehouse business. We are seeing positive results in the top line fundamentals in our warehouse business across both food manufacturers and retailers. These improved fundamentals combined with an intense.
Focus on customer service are leading to an enhanced win rate on our new business development opportunities and driving higher occupancy.
Cannot underscore enough the importance of our customer service initiatives, which are helping drive our incremental occupancy gains.
As we have discussed on previous calls we will continue our pricing initiatives within our global warehouse business in order to address known cost increases from inflation we.
We have taken multiple pricing actions over the past 12, plus months and these actions are protecting our margin dollars as George mentioned, we successfully exited in the third quarter with price increases in place in order to cover known inflation from the second quarter.
Some of these increases were implemented during the third quarter, meaning the full run rate will not be seen until fourth quarter results.
Conversations with our customers continue to be productive around our pricing initiatives, we are being very targeted and data driven in our approach as a result, we continue to demonstrate americold ability to protect margin dollars through pricing initiatives to offset inflationary pressures.
As we have discussed previously the path to achieving pre COVID-19 same store NOI margin levels consist of the following five prerequisites.
First we need to continue our pricing initiatives to offset inflation.
Second we need to continue to integrate and fully commercialized at recently acquired facilities.
Third we must achieve and stabilize the proper mix of firm to Tampa hours ratio and reduce our turnover to normalized levels fourth we need occupancy to continue to recover and stabilize at pre COVID-19 levels and finally, we need throughput volume to recover.
We are at various stages of progress across these five prerequisites and are working diligently to improve in these areas.
Onto our commercialization efforts at quarter end within our global warehouse segment rent and storage revenue from fixed commitment contracts increase on an absolute dollar basis to $396 million compared to $346 million at the end of the third quarter of 2021.
On a combined pro forma basis, we derived 49% of rent and storage revenue from fixed commitment storage contracts.
Enhanced commercialization, which includes our fixed commitment initiatives is a critical component of our strategy. We look forward to continuing to improve this metric within our global warehouse segment, we had no material changes to the composition of our top 25 customers, who account for approximately 48% of our global warehouse revenue on.
A pro forma basis. Additionally.
Additionally, our churn rate remained low at approximately three 2% of total warehouse revenues consistent with historical churn rates.
Turning to development.
We are very pleased to announce that we recently opened two new facilities, one in Dublin, Ireland and one in Barcelona, Spain, the Dublin facility of the Greenfield build that is $6 3 million cubic feet and 20000 pallet positions.
This building brings much needed capacity to a key market for Americold and was designed with features and technology to support the demand in this market, including blast freezing mobile racking and conveyor systems with.
The facility is approximately 50% pre sold and is expected to ramp to full occupancy by the second half of next year supporting customers in our retail and dairy sectors.
Our Barcelona facility has an expansion project on land already owned by Americold.
Add $3 3 million cubic feet and 12000 pallet positions into a critical distribution market.
The expansion is conventional in nature and will offer storage capacity across multiple temperature zones. This expansion is part of a campus optimization project that also included adding glass capacity to our existing Barcelona site to further support growth in the protein market.
We look forward to multiple development deliveries in the coming quarters as outlined in our financial supplement it should be noted however that we continue to experience disruption within our global supply chain as it relates to automation components in other parts.
Please note that in addition to these disruptions the elevated cost of construction is pressuring the business case for potential new development starts.
Spite these challenges Americold is committed to adding best in class capacity around the globe support our customers' growth and our pipeline for new potential projects remains robust.
Lastly, I want to thank all of our Americold associates, who are working hard every day during this quarter, our busiest time of the year to ensure that we are playing our part in getting food through the supply chain and available for families as we gathered for the holiday season.
We are encouraged by the growth we've experienced in our occupancy across our portfolio and it is a direct reflection of the great work of our associates the innovation of our solutions and the criticality of our infrastructure, we thank our customers for their partnership and the opportunity to fulfill our mission of helping our customers feed the world.
Now I'll turn it over to Mark.
Thank you Rob.
Today, I will discuss our investment and capital markets activity, and then turn to full year guidance.
Regarding our recent investment activity.
We closed on our Australian acquisition for approximately 25 million Australian dollars on July one and closed on our New Zealand lease buyout and renovation or approximately 18 million New Zealand dollars.
On August one.
Both of these investments were funded using a combination of cash and our multi currency revolver. Additionally.
Additionally in September .
To 20% at the end of the third quarter of 2022.
And incorporate and ESG component, which results in a one basis point interest rate reduction if our grasp score improves by 5% or more next year.
At quarter end total debt outstanding was $3.2 billion we.
We had total liquidity of $700 million, consisting of cash on hand and revolver availability.
Our net debt to pro forma Corey, but I was approximately $6 five times.
At this point, we have invested approximately $480 million on development projects in process, which reflects almost one turn of leverage.
We have approximately $111 million remaining to invest and announced in process development projects over the next 15 months.
Now, let me discuss our outlook for the remainder of 2022.
As George mentioned, we are increasing our guidance for full year 2022, <unk> per share to be in the range of one dollar $821 12.
Please see page 44 of the IRS supplemental for the individual components.
At this point I will comment on the primary building blocks to get to <unk> per share and provide a fridge for each as it relates to the full year.
Please note the comparisons described represent comparisons to a corresponding prior year results.
For the full year, we are now expecting constant currency revenue growth in the same store to be in the range of 7.5% to 8%.
Year to date through the third quarter, we are at seven 9% growth.
Let me provide more detail around the key revenue components.
For occupancy and throughput volumes.
For the full year, we expect economic occupancy to increase by approximately 275 to 300 basis points.
Year to date, it increased by 249 basis points. This.
This implies economic occupancy increases in the fourth quarter by approximately 350 to 450 basis points as we expect food manufacturers to continue to ramp up production.
For the full year, we expect throughput volumes to decreased by one 3% to 1.5%.
Year to date decreased by 1.1%.
This implies throughput volume decreases in the fourth quarter by approximately 1.9% to 7%.
For pricing.
For the full year, we expect constant currency rent and storage revenue for economic occupied palette growth in the low seventies to mid 70%.
Year to date it increased by 6.8%.
This implies growth in the fourth quarter to be in the low eighties to mid 80% as we continue our pricing and power surcharge initiatives to cover known inflation, which.
Which is being driven primarily by power costs within the rent and storage business of our same store.
For the full year, we expect constant currency service revenue per throughput palette growth and the high sixes to low 70% year.
Here to date it increased by seven 3%.
This implies growth in the fourth quarter to be in the high forced to low 6% as you may recall last year in the fourth quarter of 2021, we started taking additional pricing in our services business due to inflationary pressures, mostly in labor costs.
This creates a tougher year over year comp in the fourth quarter for our services revenue pricing metrics.
As George mentioned earlier, while we are not seeing significant moves in our labor costs. At this time, we continued to see inflationary pressures and warehouse supplies cause.
We continue to implement our pricing initiatives accordingly.
For the full year, we are now expecting same-store constant currency NOI growth to be in the range of 6% to 7%.
To date, we were at $4, 4% growth.
This implies growth in the fourth quarter to be in the range of low double digit percent to mid teens percent.
This implied fourthquarter increase is being driven by our expectation of continued increases in pricing and occupancy.
Onto other line items that I'll be describing actual dollars not on a constant currency basis.
Turning to the non Same-store pool.
At this time, we are pushing back the completion date by one quarter to the first quarter of 2023 of our customer dedicated automated site in Pennsylvania the.
The facility is complete and we have received a certificate of occupancy how.
However, in consultation with heart customer given the high level of volume. This particular customer experiences during the holiday season, we felt it was prudent to take this approach.
We did not wants to begin the onboarding process. During this crucial time.
We look forward to starting the process with this customer early next year. Please.
Please note while this does impact the performance of our non same store pool in the fourth quarter. We still expect this project to ramp and stabilized during the timeframe and asked to return level disclose.
For the full year, we expect the non same-store pool to generate approximately 34% to $38 million of NOI, which is net of approximately $14 million of startup cost related to our development projects.
Year to date the startup costs.
Been approximately $8.5 million.
The startup cost number has increased primarily due to the change in the completion date for this Pennsylvania project.
Turning to our managed and transportation segments NOI.
For the full year, we expect these segments combined to generate approximately 57% to $60 million.
Year to date these segments combined have generated $44 million of NOI.
This range incorporates the exit of the manage business of the national retailers for facilities that George covered earlier.
Turning to our core SG&A expense.
Adding back stock compensation expense to our total SG&A expense arrived at what we call a core SG&A expense.
Which is what truly impact <unk>.
For the full year, we expect core SG&A expense to be approximately 200 204 million year.
Year to date, it was $149 million.
Turning to interest expense.
For the full year, we expect interest expense to be approximately 114 to 115 million year.
Year to date interest expense was $83 million.
This range implies interest expense of approximately 31% to $32 million for the fourth quarter.
The slight increase versus $30 million in the third quarter of 2022 is being driven by the increase in base rates for our credit facilities, partially offset by the actions we took during the quarter to convert floating rate debt to fix and paying off <unk> that with less expensive fixed rate unsecured term loan debt.
Onto our cash tax expense.
Which is the number that impacts AFL for the full year, we expect this expense to be approximately $4 million to $6 million.
The data was $3 million.
As a reminder, most of the corporate income taxes, we pay it a miracle our from our international operations.
Turning to our maintenance Capex for the full year, we expect the investments to be approximately $84 million to $86 million year.
Year to date, it was $59 million.
This implies maintenance capital expenditures of approximately 2500 $27 million in the fourth quarter.
Please note this implies and meaningfully higher number in the fourth quarter of 2022 versus last year's fourth quarter, which was $21 million.
At the SFO per share level.
Year to date or <unk> per share with negatively impacted by approximately one.
And for the third quarter, approximately a quarter of assent due to the impact of unfavorable foreign currency exchange rates broadly speaking as our guidance page if they IR supplemental shows we expect continued currency translation headwinds due to the strengthening of the U S. Dollar for the remainder of the year.
Turning to the full year <unk> per share.
For the full year, we are increasing our <unk> per share guidance range to $1.80 $2 12, we are providing detail around the building blocks, but let me comment on this implied fourthquarter range as it relates to the fourth quarter of 2021 <unk> per share of 31.
Which is a challenging come juices below NOI in line items, even though we are increasing full year 2022 guidance.
Comparing the implied the fourth quarter SFO per share range to fourth quarter of 2021. Please note the following.
Operating performance is expected to be up meaningfully at the total company NOI level for the fourth quarter of 2022 versus last year's fourth quarter. However.
Or SG&A interest cash taxes, and maintenance capital expenditures are all expected to be higher which are offsetting this operating performance improvement and weighing on <unk> per share.
Additionally, FX headwinds are weighing on <unk> per share in this comparison.
Please keep in mind that our guidance does not include the impact of acquisitions dispositions are capital markets activity beyond which has been previously announced lastly, please refer to our IR supplemental.
More detail on the additional assumptions embedded in this guidance.
Now, let me turn the call back to Georgia for some closing remarks.
Thanks, Mark overall, I'm very pleased with our performance this quarter in our path forward, we continue to enhance our internal capabilities around controlling would we can control. We have made good progress on our forward mutual priorities are core same store pool is recovering nicely as we see economic occupancy.
Meaningfully improve and we continue to reprice, our business to offset known inflation.
Within the same store pool, we can expect to see service NOI margins continued to improve as we move towards our optimal perm to 10 ratio and stabilize our turnover rate.
I would like to thank the Americold team for their hard work and contributions to our performance. These positive improvements are a result of the combined efforts of all of our associates around the world and I'm extremely proud of all they've accomplished so far this year. Thank you again for joining us today and we will now open the call for your questions.
We will now be kept asking a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, Hey, confirmation total indicate your line isn't the question queue. You May press start to you. If you would like to remove your question from the queue.
Ask that you limit your questions to one and one follow up for participants using speaker equipment that may be necessary to pick up your handset before pressing the snarky.
Your first question comes from severe cut off with Evercore. Please go ahead.
Yeah. Good afternoon, everybody Uhm I'm George can you maybe comment on.
We should think about throughput volumes you know, let me considering that next year, probably will have a sort of the economic slowdown I know you're down sort of 1.3% in the corner you said, but how do you how should we think about that.
So that falling level, it's sort of 23 and 24.
Remains challenge from an economic perspective.
Well I think it will remain challenged.
If I, if I listened to a retail customers, citing smaller basket sizes, and and less foot traffic through the stores. So I think it will remain down as you know there is some fixed costs in there. So that's why when it is we.
We can successfully take off the variable costs, but we can't really deal with the fixed costs.
Which which isn't which impacts us to a degree, but I don't expect it to improve and I don't expect that expected to materially decline.
Okay, and I guess my my second question.
<unk> is on labor turnover remaining elevated maybe talk generally about sort of the initiatives.
You're sort of implementing it americold and you know it's been retained to workers.
Yeah, well, we're making progress I mean, we added about 150 permanent positions in Q3. So if you recall, we quoted that we were down about 2000 open positions at the start of the year, we'd reduce that to about 1500 by the middle of the year and now we're down around 1400, we've got a ton of different activities and.
Terms of.
Increase recruitment and Buddy system.
Compensation based on performance.
We've got an surrounded as best we can it's just a very challenging market and very difficult to to retain people easier to attract people and it wasn't in the past much more difficult to retain them.
Next question comes from Michael Carole with RBC capital markets. Please go ahead.
Yeah. Thanks, George I kind of wanted to talk about how awkward to use old today compared to pre COVID-19 levels. It looks like economic occupancy in the third quarter is over 80% means that's well above where it was pre COVID-19. So you mean is it fair to say that the occupancy is all the way back to where it was pretty.
Covid.
I don't think is well above I I think it's if I remember correctly, just a little short I think we're at 81 versus 80, but to your point it come back very well in the U S. It never really changed in Europe to be honest I mean, we've held our occupancy they're very well and we've had a little bit of change in Australia, New Zealand, but I would say.
95% of the way back in the challenge for US now is to operate efficiently with brand New associates and one thing Mike. This is Rob and I would I would add is.
Are fixed commitments have increased pretty significantly since even pre COVID-19 and that's that's definitely helping us even an environment, where you know.
There's still a gap between economic and physical occupancy.
Okay, and then what is the difference and I guess I know margins are lower today, just given the issues that you're having with labor and all is inflationary costs I mean, I guess, how much more I guess you said this in your prepared remarks, but how much more do can rates are going to go on the run rate basis between what you reported the third quarter and what you're going to realize.
The fourth quarter and.
And then how far are you way from like pre Covid margins based off of that.
I'll take the first one I would expect that there's typically one or 200 basis points the pricing that does not impact the quarter, where we're in and kind of rolls into the.
The next quarter I think in the last quarter, we said we were at 7%.
Expected it to be closer to eight on a run rate basis. So there is a basis 0.22 in there when when we price during the quarter. So that's the first step we're still I would say significantly off historic margins in the handling business.
And that gets back to the retention the turn over the fact that we have so many associates new to their job at one point, we calculated close to 40% of our associates, where in the job less than 12 months, that's not unusual in the industry right now and you know until they become <unk>.
Well trained and skilled at what they're doing we're going to have efficiency issues. So.
Until we get that under control retention gets back to pre Covid levels. Then I think we get back to our margins that are pre COVID-19 levels.
Next question comes from Dave Rogers with their to please go ahead.
Yeah getting good evening, George I wanted to follow up maybe on what you were just touching on I think you said in your prepared them. It's no more pressure on labor costs and I don't know if that was just net of your pass through or you think you've actually solves kind of gross organization of that problem.
And then you had said I think previously you had anticipated kind of stabilization of the business from a top line. The second half of 2003 and six months later getting to that margin recovery.
A move that up today do you feel like you are just much closer to full stabilization today.
Well I feel like occupancy is recovering nicely, obviously I gave I still think we've got a real challenge on labor I mean retention you know the loss of 77% of people. So seven out of 10 people don't stay with us.
Long enough to become productive.
We will never be efficient with those numbers those retention numbers have to get better and they have to get to pre COVID-19 levels before we can get our services margins to pre COVID-19 levels. So I'd say that that's the challenge and at the rate we're going we certainly will not achieve the.
The retention rates, we need this year and probably will struggle next year to get it all the way back to pre COVID-19 levels.
So top line coming back faster, maybe margin coming back a little slower net net maybe equal to where you were last quarter a little better.
I think I think that's a fair way to say a top line coming back faster and driven by price right, mostly and occupancy and margins coming back slower due to the dragon the services business with labor.
That's helpful. And then you're just as a follow maybe on Europe I wanted to ask about your ability to kind of pass through the utility cost. There clearly has been a concern at an overhanging are there any differences between what you're experiencing in Europe .
Maybe from a cost pass through perspective versus the U S.
Not from a cause fast food perspective, we can price surcharge in Europe , just as we did in the U S and we can pass through the labor cost just as we did in the U S.
The power increases came very fast and and big percentages right. We've got markets that have two X.
Power pricing and three X power pricing.
They're big numbers and with passing them along but the the lag as 30 days on that and you know on our normal pricing. It's 60 to 90. So it's just it's just getting the pricing caught up with inflation and the difference being it's really come on fast in Europe .
Next question like me alert with J P. Morgan. Please go ahead.
Yeah, Hi.
Noticeable differences.
The activity levels.
You can say retail versus food services.
We don't really measure the business that way, we measure it more on a site basis.
Rob you can comment I don't know of any of the loss of velocity differences I would point out between manufacturing and retail I don't know if you've no not not not a lot between between those I mean, certainly we're pleased with some of the recovery that's happened in our food manufacturing business, but I wouldn't say anything to speak up there.
Between foodservice in retail.
Thanks.
Next question.
With Green Street. Please go ahead.
Hi, Good afternoon, how do you think the Kroger albertson's merger full impact your business assuming the deal is completed.
I don't know that it will we don't we don't have any business with Kroger at the moment.
And.
Shortly we will not an albertsons is not a huge customer of ours.
So you might want to comment.
There, there's a facility that we have.
That has a long term agreement in place fixed commitment with with with Albertson's, Safeway and and I think we feel very confident that that business will continue.
Side of that we don't we don't see any real significant impact of that merger on our business.
Great. That's all he just quantify the albertson's in terms of the percentage of ramps are in Hawaii just to help frame it.
Yeah, I'm almost the material.
Okay. Thanks, and then maybe one more for me I mean, you mentioned the challenges you are experiencing on the development front do you discuss the current apply landscape or the cold the cold storage industry more broadly in the U S. In any notable changes in recent months.
So I didn't really I didn't get the question Vince can you repeat the question Oh, Oh, sorry about that just my final question was was on the supply landscape broadly in the U S. Any notable changes you're seeing.
In recent months.
No I can't point to anything noticeable in our in our in our landscape and certainly impacting our business you know there's been some some announcements, but I tell you. We haven't seen you know there's a lot of those come to fruition to be honest with you and and there's been no.
Noticeable impact on on any of our business is a resolve the potential new capacity, we quoted our churn rate in our our our prepared remarks and has remained very consistent so.
No no material impact and obviously, our occupancy is rising so.
Feel like to a physician pretty well in the landscape really hasn't changed.
Next question keep it can with true Securities. Please go ahead.
Thank you good good evening.
So.
Taking a step back and looking at the labor situation that we've gone to for the past couple of years.
And even before this period labor has always been a big part of the business and.
Even like worker's comp issues have come up time and time isn't.
<unk> isn't the past two years, the biggest case to make for more automation.
In this business and.
How do you think about that and have you started.
Have you what kind of ideas have you come across.
Maybe thinking outside the box I'm not sure if.
Partnering with some technology companies might make sense I'm just curious.
On your.
Overall it officer.
Well automation is you know when we when we came out of Covid automation was what everybody wanted our largest customers I should say wanted.
We constructed several automated facilities one right here in Atlanta to coming on <unk> next year for us a large retailer and then building supplies and inflation hit and that's really put a damper on.
Large scale automated facilities, we price one recently identical to one of the buildings I've just mentioned and costs were up almost 40%.
So that makes the business case, toughed, a pencil out and it it also makes customers.
Nervous about that type of investment in terms of how they get a return on it. So it's it's slowed down the automation bills pretty significantly we do have programs to semi automate conventional facilities, we run those through our supply chain solutions group we.
We use consultation with customers to demonstrate how we can semi automated facilities, but there's no substitute for a building that's built specifically to be highly automated. So there are some things we can do on a hybrid basis, but but beyond that it's either conventional or wrong of you know.
A large scale automation billing, that's right now difficult to pencil out.
Okay and turning to your development pipeline you obviously have several projects that are slated to contribute cash flow in the coming year.
Can you provide some guidance on that <unk>.
Part of the puzzle for 2023 like how much NOI contribution should we expect from the development projects that are currently not going to run right there.
Yeah, well, we will be providing full year guidance as we normally do in February for next year, I think where you can see as detailed and supplement there is a number of developments starch plan for next year.
Many of those especially the the larger more complicated types that will be coming on as a high automated sites. So typically have a ramp period that will span out beyond that first year period I think the one difference as we've noted on prior calls as well keeping is that many of these sites are dedicated buildings to specific.
Customer so as they start to onboard we get the full benefit of the rent and storage as soon as they start embalming product.
So we will be providing further guidance for the full year on that cool.
As it relates to our guidance for next year, but I would look to this up we haven't moved off of any of the timing to full stabilization is detailed so.
We're really excited about the three delivery that we had in the back half of this year or Dunkirk facility and the two that we announced today with the other one in Barcelona, both those facilities are in bounding product as we speak and so they'll have a nice kind of wrap around impact as we go into next year.
Next question comes from Anthony Powell with Barclays. Please go ahead.
Hi, good evening when did they give you some of the market share comments, you made and I'm prepared remarks.
Who did gaming chair from is it from me to watch the competitors are from smaller more players and where can market share do you think as you continue to kind of improve service levels.
Yeah, I mean, I I think we're saying that we're winning you know more than our fair share of new business development opportunities I do I do think some of those come from.
Smaller competitors as as we have the opportunity to deploy more capital and then others also we're seeing customers that may have done some of this business themselves more interested in outsourcing.
Business to somebody like also the environment has gotten more challenging were taken advantage of that opportunity as well.
Got it so a pre COVID-19 actually was 81% annual gaming share like where to sneak out and top out could you could you go much higher than 81 is you can gain market share.
Look I think we're focused on getting recovery back to pre COVID-19 levels, and we are making very good progress as you saw this quarter, where we saw in our same store overall occupancy improved 437 basis points on that economic basis.
We are still well below pre COVID-19 levels, especially when you look on the on the full year basis. So as I said in prior prior commentary our manufacturing clients from particular people and how are retailers are very focused on adding some resiliency and their supply chain and efficiency and we think.
Overtime that should benefit outlooks around.
Yeah, I just wanted to add also with growing with existing companies as well as they solve their staffing issues and they ramp up their manufacturing capability.
We're growing with with them and they were all put increases so.
Wow, that's not technically market share that's not business that we didn't have to win back everybody has to win back business in this environment and we've been successful in recapturing what we owned in the past as well as taking what Rob mentioned.
Next question comes from Bill crowd with Raymond James. Please go ahead.
Good evening thanks.
We're a long way away from from this but what happens when we get to disinflation, what happens when energy prices go back down assuming they do at some point how quickly this.
To your tenant's come back to you and look for for regular jobs summers.
Yeah and in particular around power, that's why we use a surcharge mechanism because it's designed to move up and down so as rates rise. The surcharge comes on when rates fall you take the surcharge off it follows the same lag effect on the way up as it does in the White House.
So that's that's a fewer pass through there's no. There's no accretive margin there it's strictly cost recovery on the Labour inflation side, I don't think anybody expects a labor rates to go back to where they were so those increases would be permanent.
On the basis that you know.
Again, the labor rates are here to stay we don't do those as transitory at all.
Do you get more pushed back on these increases.
Geographic areas.
I mean, I know they have to have to take it to do business with <unk>.
Different attitude different geographic locations.
No because we are really data driven and targeted in the approach. So that this is not like a peanut butter approach, where it's at the same rate increase across every site or every geography.
[noise] using indices were using real data were using an actual invoice level of detail from our facilities to share with customers and that that allows the conversations would be extraordinarily rational.
You know I think it's appreciated that we we take that approach versus the peanut butter spread.
Next question, Craig Mailman, which city. Please go ahead.
George I, just Wanna go back to your commentary on the improvement here in West Temp Labor I'm, just kind of curious you know.
<unk> the call last quarter clearly this was still a pressure I mean does that end of quarter metric that 10 per cent improvement was at average and how are you guys managing that given the term that you're having would I guess the employee base, even though you're bringing in people faster.
That's an end of quarter metric, Craig we snap the line at the end of the quarter and we essentially do a tally.
So we know where we are on a on a like for like basis in which we're managing it through a number of programs. We've got in place whether it's Buddy system. So that an individual can learn from a pier versus a supervisor or boss.
Introducing people to one another trying to create an environment, where where people essentially make friends at work cause you know.
The data shows that when you like coming to work in your life. The people that you work with you show up more often than you stay with your job I mean.
There are all kinds of techniques.
We've got a ton of effort focused on in our human resource roofing and our ops group. It's just a very challenging environment I think people liked the pay rates and they liked the benefits and that's why we're seeing a lot of people show up at the door, but.
But they underestimate what it takes to work in a in a cold environment.
And I think that's contributing to the churn.
I'm less concerned about the churn as long as we keep adding permanent people as we have been because I view it as a process you have to go through and that's why I believe that the rates were paying where appropriate now if people stopped showing up we would have to take a different action, but right now we're getting plenty of applicants and the churn is just trying to find the few applicants that.
Can work in our environment and then enjoy the the pay and benefits we have.
Right, Yeah, I I guess my my point is it that was a pretty positive statements in the beginning of the call. This appointment time I'm, just kind of trying to get a sense of how that trend.
Sustainable and you know do you.
Does the third quarter just.
Where there are a couple of things it just came together.
That drove.
The beep and then the decision to raise here. After you know the whole discussion last quarter about not raising great. There's been just a little bit of a whipsaw on the message in here almost since <unk>.
<unk> when the teams I think you'll get better then we pulled back and now it seems like things are getting better again.
It's just it's hard to calibrate.
Calibrate I guess since we're heading into 23, you say is this the bottom from the answer for standpoint, we're gonna bounce off of here or is this you know.
Gonna be kind of a slower wind off the bottom or heavily upon them if that makes sense.
No I haven't seen the question look if you go back to June we cited the headwinds that we had.
Which were largely unknown in terms of scope and magnitude we didn't have our refinanced on there were a lot of issues. There at the core business performed very well in the second quarter.
Third quarter got real a lot better due to occupancy that was the main driver. We did make progress on labor, we did make progress on pricing and handling we didn't make tremendous project progress on productivity and handling and that gets back to the labor issue. We just discussed but I would say the main driver between Q2 and Q3 is occupancy.
And we don't expect that could go backwards.
So hopefully that helps.
Is it just one quick fry the one the.
<unk>, what kind of someone hit on her earlier just the the price increases in the tenant response to that I mean.
If we are going into sort of a weaker environment and what what's the pushback outside of the Emory sure charges been from tenants regarding just to continue kind of adjustment in right. Here is they're worried about kind of weakness people have smaller baskets at the grocery stores their significant food in place.
Right are <unk> are they guarding for a pullback here in terms of head counts and kind of how does that fit in with you guys continue to try to kind of keep pushing through the the cost and improve your margins attempt to at the expense of windows.
Well I I don't think.
You know if you go back to our script, we said, we do not expect labour inflation going forward we.
We seem to have found the equilibrium on what we need to pay people to show up and at least.
Join us and see if they can work in our environment.
So again with all the African showing up that tells me that our rates and probably stable and we don't see inflation going further.
Our customers understand that we have to pay people to work on their behalf and they.
Any realistic in terms of what it takes to hire somebody today, both in terms of pay rates and benefits and.
And when is Rob mentioned, when we lay out that data specific to a location in our customer location.
They're not contentious discussions that might be around timing when we take the prize typically taken one one chunk for two chunks or you know those type of discussions we always have but there's nobody who has come to us. Instead, we just don't believe the numbers that we think we're trying to margin up because this has been all about trying to get back to pre Covid margin. That's all we've been <unk>.
Do through pricing and customers understand that because they're trying to do the same thing quite frankly.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Mmm.
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