Q3 2023 Avient Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to AVX Corporation's webcast to discuss the company's third quarter 2023 results. My name is Victor and I'll be your operator for today at this time all participants are in a listen only mode. We will have a question answer session following that.
These prepared remarks as a reminder, this conference is being recorded for replay purposes I would now like.
And ill turn the call over to Joe Depaolo, Vice President Treasurer, and Investor Relations. Please go ahead.
Thank you Victor and good morning to everyone joining us on the call today.
Before beginning I'd like to remind you that statements made during this webcast may be considered forward looking statements.
Forward looking statements will give current expectations or forecast of future events and are not guarantees of future performance.
They're based on management's expectation and involve a number of business risks and uncertainties.
Of which could cause actual results to differ materially from those expressed in or implied by the forward looking statements.
Please refer to the Investor presentation for this webcast for a number of factors that could cause actual results to differ.
During the discussion today, the company will use both GAAP and non-GAAP financial measures.
Please refer to the presentation posted on the Eaton and website, where the company describes the non-GAAP measures and provides a reconciliation to their most directly comparable GAAP financial measures.
Joining me today is our chairman President and Chief Executive Officer, Bob Patterson and senior Vice.
President and Chief Financial Officer, Jamie bags.
Now I'll hand, the call over to Bob to be yes.
Well, thanks, Joe and good morning today, we reported our third quarter results and adjusted EPS was slightly ahead of our guidance despite lower than projected sales.
Also updated our guidance for the full year to reflect our current view of the demand environment and weaker foreign exchange.
Prior guidance assumed we would start to see a modest recovery in the fourth quarter, but based on our current orders that is not the case. So we are lowering our demand expectations as we finish out the year.
While we have adjusted our revenue projections, you'll see that we are expecting to grow fourth quarter earnings by 12% on a year over year basis as margin expansion more than offset lower sales.
Jamie will cover specifics in a moment, but I wanted to start with some general observations about the economy and markets and what we're hearing from our customers.
Stocking appears to be nearing an end in many industries.
With the exception of a couple that I'll touch on first and I'll start with health care. Historically this is an industry, where we see growth nearly every year without fail.
So unusual to be reporting health care sales are down and I would further characterized this year as unprecedented.
Our sales in the quarter to health care was down about 25%.
Our customers are telling us that this is related to their efforts to reduce inventory levels to more normalized pre pandemic levels.
And they simply built up too much over the last couple of years as a result of Covid response, and the supply chain challenges that followed.
In the third quarter, you can see the impact of negative mix for engineered materials. When Jamie covers our results. We expect destocking in health care to continue into next year, but the good news is that ultimate demand for health care services remains positive and we continue to view it as one of our four key long term growth drivers.
The other industries, where we expect.
Weaker demand conditions to continue or those that are sensitive to interest rates like building and construction and infrastructure projects, which slowed down in the second half of the year.
In General I, certainly think there is uncertainty about the impact of higher interest rates.
Whether or not countries like the U S find themselves in a recession that extends beyond manufacturing in industrials.
We also believe we're benefiting from re shoring trends, particularly in Mexico.
We have been able to move production with these based on where our customers ask us to.
And lastly, I believe destocking in packaging, our largest end market is nearing an end.
A recent Wall Street Journal article highlighted that PNG expects a return to volume growth in 2020 for.
That bodes well for us specifically.
For our European businesses, where 30% of our sales are to packaging customers.
I had the chance to meet with our teams in Europe, a couple of weeks ago.
Overall, the sentiment was more positive than it has been in some time.
The work continues in Ukraine.
Much less concerned about energy availability in sharp contrast to a year ago. When the region was worried about having enough natural gas stored to get through the winter.
In total we are expecting to deliver positive EBITDA growth in EMEA for the first time in a year over year in the fourth quarter.
Europe will be contributing significantly to our bottom line results in the 12% increase in adjusted EPS, we are projecting for Q4.
Margin expansion is substantial as we have rationalized our footprint in the region.
Administrative costs, and we are seeing lower raw materials.
And I think this is a positive development and earnings momentum as we look ahead to next year.
I also spent time with the avian protective materials J, while I was in Europe to celebrate the one year anniversary of our acquisition of Dynamo.
Our composites portfolio makes up more than half of our specialty engineered materials segment and is one of our fastest growing areas of our portfolio.
The integration of APM continues to go very well culturally APM leaders share our commitment to investing in a sustainable innovation and a strong desire to leverage all of our technologies to best serve customers and translate those into new areas.
And there are a natural cross selling opportunities between the businesses and year two of integration will focus on accelerating those among our commercial and technical teams.
And I'd like to share some examples with you.
Have a dynamic businesses and protective materials, providing lightweight ballistic protection in applications, such as bass and helmets.
But as you can see how much today not only provide important safety and protection. They also serve as a structural foundation for other components.
Adrian Communications audio and visual capabilities and other equipment that assist with emission.
The customer relationships and expertise that APM has in this space represents a great opportunity for the broader avion portfolio to further enhance the value we bring to the customers.
As shown here there are multiple components on an element that can benefit from our portfolio of colorants and additives and engineered materials.
Some examples including high strength lightweight mounting brackets materials for electronics and communication components.
And soft touch thermoplastic elastomers for ease of fit and use.
Defense was not an end market that we've served historically, but with our acquisition of dynamic we find it valuable foothold in the industry upon which we can grow.
And it's also positive that we are a U S. Headquartered company, where we believe we will have further opportunities with the U S military.
The helmet you see here is just one example.
Our portfolio is very well aligned for other applications in law enforcement and military related products.
We also have high durable strike materials currently enabling rugged outdoor equipment like tens packs and portable essentials or.
We not only see growth opportunities in consumer, but the ability to translate those into military grade specified versions.
Slide here illustrates a combination of legacy avian and dynamic applications.
Beauty of cross selling is that it goes both ways consider.
Consider that AVN has long had a strong rep.
Representation and outdoor high performance applications and leveraging these relationships, we see further growth opportunities.
Cross sell and bring dynamic technology to consumer.
We're early in our exploration process, but we're extremely excited about the potential that this presents and look forward to sharing more with you in the future in this regard.
I'll now turn it over to Jamie to provide details on our third quarter results and our fourth quarter outlook.
Sure I'll make some closing remarks.
Thanks, Bob the translation opportunities, we have in composites as well as in the other key growth areas provide a great segway and how the changes in our portfolio will improve margins over time, let's start with the third quarter were continued margin expansion was the highlight.
Third quarter adjusted EBITDA margins were 16, 3% compared to our guidance of 16%. This reflects a 90 basis point improvement over the prior year.
That's been the case all year, we've been able to partially offset weaker demand conditions with favorable mix from sustainable solutions and defense applications, which has proven resilient in the current environment.
Lower raw material prices, along with cost reduction initiatives also factored into the margin improvement.
Our adjusted EPS of <unk>, 57 was slightly better than our guidance of 56% while sales came in lower than projected due to slower demand and the strengthening of the U S. Dollar margin improvement partially offset these impacts.
EBITDA was sort of guidance, but EPS was higher as EPS benefited from lower depreciation expense associated with restructuring actions as well as lower interest expense.
We paid down $100 million of debt during the quarter and refinanced our term loans, which not only reduced the interest rate, but also extended its maturity from 2026 to 2029.
The annualized impact of this refinancing will result in $10 million of interest expense savings.
The third quarter EBITDA bridge reflects the impact of demand price and mix as well as raw material costs.
Over a year basis, starting with demand customers remain cautious and closely manage inventory levels within the quarter as Bob mentioned previously we have started to lap some of the weakness that started in 2022, particularly in Europe and that is reflected in overall demand, which is down less than in the second quarter.
Also highlighted on this bridge is the impact of pricing and deflation. This is the second consecutive quarter, we've seen raw material deflation on a year over year basis, and we continue to hold onto price for a net benefit.
I'll note that <unk> had unfavorable mix during the quarter, which was primarily driven by health care applications as Bob mentioned healthcare demand has been significantly impacted this year by destocking as our customers reduced their inventory levels, which increased following the pandemic and supply chain disruptions.
We recently did an analysis of our health care Oems, who are public and their inventory as a percentage of quarterly sales is running about 80% today versus pre pandemic. These levels were closer to 60%.
Most of these customers have made explicit comments about managing down their inventory level and we expect that destocking to extend into 2024 before it's complete.
Further down in the walk Youll see the impact of certain cost reduction activities taken earlier, this year, including targeted European restructuring and reduced discretionary spend which provided a $13 million benefit in the quarter.
Net price benefit and cost reductions more than covered wage inflation.
When we started the year, we modeled a modest recovery in demand in the second half of 2023.
We're not seeing that and have updated our guidance to reflect lower sales and weaker foreign exchange, partially offset by higher margins.
For the fourth quarter, we project adjusted EBITDA and EPS of $112 million.47 per share, which reflects an increase of 5% and 12% respectively over the prior year.
Margins are expected to improve 230 basis points, which more than offset weaker demand to provide earnings growth for the quarter and for the first time. This year as Bob highlighted Europe is driving a significant portion of this improvement.
This results in full year revenue of $3, one 3 billion and adjusted EBITDA of $500 million two.
2023, adjusted EPS is now projected to be $2 30.
Compared to $2 40.
As lower EBITDA, partially offset by lower interest and depreciation expense.
The negative impact of a stronger U S dollar accounts for three.
The change in adjusted EPS from our prior guidance.
We are maintaining our free cash flow guidance of $180 million as we expect a benefit from working capital efficiency and reduced capital expenditures offset the change in EBITDA.
Through our transformational journey to a specialty company our ability to generate strong free cash flow has remained consistent we are confident in our ability to continue managing through the near term and about our long term growth prospects as outlined in our sustainability day a month ago.
In October we increased our dividend for the 13th consecutive year viewing this as an important element of value for our shareholders.
I'll now hand, the call back over to Bob for some closing remarks.
Well, thanks, Jamie well the year isn't over and we're obviously focused on delivering in the fourth quarter, but as we look ahead I am encouraged to see destocking come to a conclusion in many end markets.
There remains some question marks related to health care and interest rate sensitive industries, but overall, we expect to return to growth in 2024.
I am very pleased to see the EBITDA expansion in Europe in the fourth quarter to see that as a positive heading into next year.
Lastly over the last few years, we have done an exemplary job of managing price initially to overcome significant raw material inflation and now with lower raw material cost, we see that as a potential tailwind.
Formulation expertise to achieve them.
At our sustainability daily summarized our portfolio and the three categories reduce renew and preserve.
And each of our side when a president has talked about the real challenges our customers face.
They incorporate more sustainable solutions.
Well as we showcased several product examples that highlight performance characteristics of our formulations.
We also provided data from independent sources of support the key Megatrends that will drive demand for these applications.
For example, we believe we are well positioned to take advantage of the infrastructure investments such as the broadband equity access and deployment program.
It could take hold in 2024 and increased demand for a composite applications and fiber optic cable and related applications.
And the same is true for the inflation reduction act, which could translate into increased demand for our existing infrastructure as well as building new renewable energy sources.
Other legislation mandates in customer poll are also in play in Europe, driving the increased need for material solutions lightweight reduce carbon footprint and enabled recycling.
If you didn't watch our sustainability day live I encourage you to go back and do so with a replay the feedback has been consistent in that it helps investors game.
<unk> appreciation appreciation for the depth of our materials and the underlying external factors that will continue to create demand for them at a rate of 8% to 12%.
We also reiterated our longterm objected to expand margins, we've come a long way from the 5.4% and 22006 to 16.
16% margins, we have today.
Growth and sustainable solutions composites healthcare will play a meaningful role in further expanding our margins to 20% on a total company basis.
And expanding margins 20 per cent is just one of the strategic objectives that we have is a company, which you can see here and that we shared during our sustainability day.
That we'd be happy to now open the line for any questions.
To ask a question. Please press one one on your telephone and wait for her name to be announced.
To withdraw your question <unk> went again.
<unk> the kunai roster.
One moment for my first question.
[noise]. Our first question comes from the lineup Mike Harrison from Seaport Research Partners. Your line is open.
Hi, Good morning can you hear me okay.
Yes.
Perfect. Thanks wanted to see if you could provide some more detail on what you're seeing in the packaging and market that you acknowledged it's very important market that you, particularly in Europe, and it's very encouraging to hear that you expect the stock into kind of run its course, but what do you see.
In terms of the order pattern <unk> what are you hearing from customers and I'm curious are there differences between what you're seeing in the food and beverage side and personal care and maybe some other parts of that packaging market.
Yeah like I think first of all they do mean customers of all you know told us that they expect the balance of this year to be you know a week, we kind of have that reflected in our guidance, but we are hearing from them that there is less of a focus on just inventory reduction and maybe more of a foe.
As an inventory management.
So maybe not such a specifically stated goal to try to reduce inventory beyond where it's at which I think is a good thing I believe directionally. They are planning for growth I mean, obviously, if I just referred to someone like P and G. As just one of many customers.
Customers that we have and that might.
Could be in the areas of personal care as well as a consumer food and beverage packaging.
I think all of those are actually gonna start to show a positive trend those are historically very resistant.
The food and beverage packaging historically, a recession resistant and I think that will be proved the case when we get into the beginning of 2024.
Alright, and then just in terms of the the healthcare Destocking that you're seeing obviously, a very unusual dynamic and your your analysis suggests that that's gonna continue is this a <unk> Ah consumables issue is it and equipment.
Issue is it both.
I guess, just just maybe give us a sense of what keeps you confident that health care should continue to be one of your your strategic growth areas.
I mean look for the most part you know what we do can be viewed as probably part of the consumable are disposable space in terms of minimally invasive catheter tubing drugged.
Drug drug delivery devices and related packaging we.
We do some medical equipment, but.
Prior descriptions of what we were doing it really makes up most of what we're doing in health care and let me look I just think overall the system just add too much inventory of all those things on hand largely.
Largely in response to Covid and then of course, the supply chain challenges that followed.
I've had some conversations in in the health care industry, where.
We're encouraged we know that people are still actually seeking medical care I think with employment numbers being strong that's going to continue to be the case as long as people have access to insurance and so on.
So I think the real demand is actually there and the system's hospitals themselves as well as Oems are just trying to work done other inventory.
Alright, thanks very much.
Yep.
Thank you one moment for our next question.
Our next question comes from the line Frank Mitch from from Me and research. Your line is open.
Thank you and good morning, I appreciate the the the the level of details I was wondering if I could drill down a little bit more into the cells Miss for three Q and the 10% down guide for four Q you know the last conference call. Bob You you indicated that you thought.
Pricing would be flat.
Back half of the year and in fact, that's how it looked like the third quarter came in so that so that five per cent delta.
<unk> on the sales line can you talk.
A little bit more about how much of that might've been volume versus ethics, because I know I I think that fixed was also.
An issue there and then on the 10% down I I assume you're still calling for flat pricing in the in the fourth quarter. So then so then how much of that is also you know kind of volume and and effects in terms of a decline.
You want to say something about ethics, and the ethics by the corner at about.
About $5 million Patel at all.
Look at that for the fourth quarter I think that was a total of three seconds hold off from an atheist perspective, and that combined with back half and half.
35 million.
On the fourth corner for bringing down.
Okay. Okay. So alright, so so more sizable in in Fork you Sir.
And in terms of again on this 10 per cent down sales 444, Q how is your visibility.
On orders for the quarter I mean, what what sort of expectations are are baked in in terms of you know, let's say when Europe shuts down or when are any any sort of color that you can provide on how you built up into that 10% down.
It would be helpful.
Yeah, I mean look we.
First of all of this whole year Ah visibility has been even shorter than normal and we're not a backlog business, but typically we've got good visibility 30 to.
40 days out let's call it 30.
When I look at where October orders are for November it's a line with our expectations. The guidance that we just gave today.
With some of what you just said you know Frank acknowledging that there will be some plant shutdowns at the end of this year Europe, and so on and holidays.
That's really all included in the the numbers that we provided today.
Oh, Okay, and then in terms of the plant shutdowns I know you were talking about your customers, which is what I was asking about but in terms of your own plant shutdowns. There was a three per cent sequential decline M. P. Penny I assume that that's a result of of plant restructuring in Europe.
Where do you stand on on those shutdowns.
Yeah. So those are really all related to the timing of previously announced a facility closures that finally came to a conclusion and I are seeing the benefit of less depreciation expense, we're really through that there's one last a facility that we continue to work on his part of the legacy Clariant in Hollywood.
Combination that could come in to next year.
And then I'm, sorry, I want her to come back to one of the very first thing you said about price because that assumptions correct.
We basically have got that assumed to be you know flat as we go through the end of this year. We did have some unfavorable mix that we highlighted for engineered materials that'll probably be the case for a Q4 as well.
The pricing should be should be about it Ah Bush.
Great. Thanks, so much.
[noise] one moment for our next question.
And our next question comes from the line of Michael Tyson from Wells Fargo. Your line is open.
Michael Your line is open.
Like what if you could please disconnect and tried <unk> using the U S phone number or used to call me feature that would be great. Thank you.
I'll go ahead and move onto our next question one moment.
Our next question comes from a line of Vincent Andrews for Morgan Stanley. Your line is open.
Thank you and good morning, raw materials have been a good news story in the back half of this year in particular.
Helping drive drive some some nice margin improvement.
Is it fair to say that that Roswell, probably continue to be a benefit through the first half of next year, and then probably flattening out maybe we just start there.
Yeah, I mean look I think a lot of that of course depends on ultimately what happens with with demand but.
If we're still at a relatively low demand type environment than I would expect the level of benefits that we are seeing right. Now does continue into the first half of next year and obviously when you just look at the British schedule that Jamie presented that's a pretty significant pretty significant benefit and tailwind.
So hopefully that is the case, but I mean, obviously with the we do expect growth in 2024.
Which could take that down a little bit.
Okay.
Just you know as we think it's it's a little early to talk about the full year of 24, but you know as we think about four Q the way that it's gonna come in you know do you think that's the sort of starting point for 24 that one too maybe it's just a bit better than four Q or do you think once you could actually have a nicer step up from from the four two exit right.
I mean look typically our first quarter.
Second quarter are the strongest of the years.
Europe is typically the strongest in the first quarter and I'm expecting a good first quarter. So you would see a step up from the queue for a Q1 simply because of of seasonality and demand patterns that we see there.
You know as I was set on my prepared remarks, you know I'm really.
Pleased with what we're seeing right now.
Everybody else is saying that our thinking that but a lot of it has been because of what we can control with the facility closures with the cost reductions and doing what we're doing with price margins are overcoming the lower sales so I see that as a positive.
[noise] great. Thank you very much.
Yep.
One moment for our next question.
Great. Thank you so much for taking the questions wanted to follow up on that last one and just sort of outline some of the pet can take for the margin coming into 2024 and I'm looking at the the adjusted EBITDA, Montana branch that you provided sustainability day can find 19 and.
Thinking about that I can take 420, 20th four sort of those items within your control on the margins.
Yeah, I mean, so there one is I mean kind of just do the math right and maybe as a follow up on my previous.
Bonds I mean, if you just look at where we are on the EBITDA bridge in Q3 and assume flat raw materials going into next year. You know you should see some similar comparisons until you get to really you know.
In the middle of next year, which I think is true there's a little bit of cost action that has yet to.
That will come into 24, because those actions you know came into fruition. This year either part way through the year later in the year and then lastly, just one additional facility that we're looking at that was always part of the original Clarion Hollywood one sort of Cinergy plan. Those are things that you know I look at.
Right now.
Say that's in our control I'd also say look so is so.
So as pricing and I think we've done a really good job of that over the last.
Few years I view that as a strength I think that's a great sign in our portfolio and that's in our control for next year as well.
Fantastic that that was part of my follow up question. So I'll ask a different one than we spent a lot of time talking about Europe.
I recall, you mentioning San potential green shoots out of Asia earlier in the year I'm just wondering if he can provide an update on that region. Thank you.
Yeah, I mean look I think you know.
The beginning of this year, everybody was really optimistic that.
When Asia it sort of came out of the Covid protocols, specifically China.
That we would see a return to growth.
A little bit of that we did see at the beginning of the year. We saw an uptick in requests for color design color match, and so on which is usually a pretty good Lee indicators additional businesses coming but.
But China is really kind of add some fits and starts this uranus largely.
Not reached what we thought would happen. So I kind of knew that is sort of flatter unchanged probably to where we were just a few months ago. So not much to report there at this point.
I know there was some discussion around you know government stimulus ultimately that could always take place would be should be a positive I would think of that that happens, but until it does we will see.
Sure.
Thank you one moment for our next question.
Yeah.
And our next question comes from the line I'm Lawrence Alexander from Jeffries. Your line is open.
Good morning, So wanted to touch on the longer term growth targets. He laid out at the sustainability day and you've been talking about for several quarters.
How has the destocking affected your confidence in that maybe another way to put it is.
How much of the sales lost the Destocking. This year do you expect to get back in 24 25.
Yeah.
Ultimately I see this playing out over a cycle, where the growth rates that we presented inclusive of two.
23 will be achievable going forward so.
And some of those cases, obviously were down in 23, just to give you some perspective on that Lawrence obviously with our guidance you can see what total sales are down and third quarters dump 15%.
So far this year sustainable solutions have been down around five or six it's kind of hard to get excited about a negative, but obviously holding up well. So I do think that that helps to support the longterm growth rate that is really not so much in 23.
Look in terms of how Destocking comes to an end and what that means for demand really has yet to be seen in play out yet and I really can't put a specific numbers to 2024, yet I know I think that plays out.
But I am look I'm optimistic and positive about.
Composites and about sustainable solutions.
Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Vincent Anderson from Stifle your.
Of your line is open.
Yeah. Thanks, good morning, so not to belabor the price vs raw material conversation too much more but you know as I'm working through expectations on your mix on a mix that you know now includes significantly more pigment then historically.
Curious if you're able to.
Springs around maybe a lower cost pigment mix in a way, where you know intrinsic physical properties on our resident input wouldn't allow that kind of flexibility on your part.
Not sure I completely got that question, but make from what I've read I would say.
Look what I would say is that I mean first and foremost.
Say our customers are very much focused on and I were just talking about the color space. So they're very much focused on sustainable solutions being able to use more recycled content in making things more easily recyclable, that's certainly the brand owner focus.
But they also focus on cost so you know to the extent that they want to look at alternative materials that could result in some cost savings I mean, we've always been agnostic candidly with the underlying based resin they wanna use or the formulation, it's really just ultimately up to <unk>.
Respect to what Formula works for down to achieve the performance characteristics are looking for I don't really see that as a meaningful.
Headwind at all really a price I think that's still fine as long as we're delivering what they need is to specifically again, you know around those two areas of sustainability.
Okay Alright helpful. Thank you and then this one will be a little bit simpler when I think about your cross selling opportunities and die NEMA you.
Would you expect to focus really around expanding sales, where you've already commercialized I NEVA into a specific application or would these be.
Potentially more novel and if so just kind of curious what kind of prototyping capabilities, you have or would consider investing in to to <unk>.
Drive adoption and a new application.
I mean look Fortunately, we I do think there is a lot of opportunity there or maybe specific later, if you're just looking at pulling dining Amanda more consumer space. It really starts with customer introduction and increasing awareness of the material in his capabilities, we have a great design team.
And that just really looks at how to use different materials.
For customer needs and so that is getting increasingly to save more incorporated into that analysis.
In terms of what the material can do and how it can benefit down, particularly as it relates to increasing strength or reducing weight.
Alright excellent. Thank you.
Thank you one moment for our next question.
And our last question comes from the line My Exciseman from Wells Fargo. Your line is open.
[noise] Hey, good morning.
<unk> I I apologize.
What was the volume down in the third and implied volume for the fourth.
Yeah. So it's down about 15% in Q3 applied is about 10 in queue for.
Really that kind of got sales reduction principally.
Demand is a little bit of an F X. Good Guy I think they are getting about 19 Q got it and then for the fourth corner.
If I take your outlook and analyze it you're running.
Currently below.
2023 levels, but I <unk> I I yeah. It did seem like you felt you can grow EBITDA in 24.
Yeah.
How do we think about.
Yeah, I'm improving on that run right as we head into the first half of the year and then is there anything else that you have.
To generate growth into 24.
Yeah, I mean, it's all like well I'll look at the fourth quarter is obviously the first quarter of this year, where we are showing year over year EBITDA growth.
I, just really can't emphasize enough again like sort of feeling.
Feeling positive about Europe, and what we've been able to do a margins there and so I see that probably is the first thing just going into next year as a as a positive. So we've got good momentum and at.
In that regard.
It might be.
Redundant here, but raw materials stay where they're at is also positive going into.
The first part of next year and then there is a little bit all the way on the cost side really if it just comes down to what we can control, but anecdotally you know customers are giving us feedback they do things that Ah.
Destocking is coming to an end and I think that bodes well for the.
Sales I'd pick it up in the first quarter.
Right, Okay, and then do you have.
Deflation that kind of helps you in in the first half of the year that just sort of flows through.
Yeah, I mean, that's what I'm, saying like raw materials sort of stay flat, where they are more just looking at your over your comps I mean, you could take the EBIT coverage that we had for the quarter and kind of look at that and know that second quarter was the first time I've really had any deflation. This year third quarters, obviously, a bigger number so you can kind of March.
Got it okay. Thank you.
[noise]. Thank you now asked me what that is.
Alright.
We appreciate everybody's time and attention. This morning, and we'll look forward to updating all of you with our year end results. When we get there will be in a few conferences or there's also maybe get the chance to see some of you in person at that time. Thank you.
[music].