Q2 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the Lawson products second quarter 2019 earnings call.
This call will be hosted by Michael Decata Lawson products, President and Chief Executive Officer, and Ron Knutson Lawson products Chief Financial Officer.
They will open the call with an overview of the second quarter results.
There will be.
There will then be time for question and answers.
This call is being audio simulcast on the Internet by his Lawson products Investor Relations page on the Companys website Lawson products Dot com.
A replay of the webcast will be available on the website through August Thirtyth 2019.
During this call the company will be providing an update on the business as well as covering relevant financial and operational information.
I would like to point out that statements on this call and in the press release contain forward looking statements concerning goals beliefs expectations strategies plans future operating results and underlying assumptions that are subject to risks and uncertainties that could cause actual results to differ material materially from those described.
In addition statements made during this call are based on the company's views as of today.
The company anticipates that future developments may cause those views to change.
Please consider the information presented in that light.
The company May at some point elect to update the forward looking statements made today, but specifically disclaims any obligation to do so.
I will now turn the call over to wasn't products CEO , Mike Decata.
Good morning, and thank you for joining the call.
This morning, I will comment on the second quarter results and our continued progress.
Ron Knutson, our CFO will provide more detailed review of our financial results followed by your question.
We are thrilled to communicate that for the first time since the second quarter of 2010, we have surpassed our previously stated milestone of 10% adjusted EBITDA.
As a team we've continued to make significant progress towards this milestone over the past few years.
And without transforming the company a process that started before I arrived this would not have been possible.
We're a much stronger company, both financially and operationally than we've been in here.
This puts us in a great position going forward.
In the second quarter sales were strong increasing 6.3%, including 4.4% increase.
In the Lawson MRO segment.
In addition, operating leverage and profitability trends were very favorable.
Our adjusted operating income improved by 31% versus a year ago water.
As Lee efficiently manage.
Expenses and leveraged our infrastructure.
We continue to deliver strong operating leverage and profitability.
The 10.1% adjusted EBITDA achieved this quarter, which takes into account stock based compensation severance and a new lease accounting rule compares to 8.6% during the second quarter of 2000 or 18.
Awesome MRO segment gross margin was 60.5% for the quarter before incorporating the new revenue recognition standard as compared to 60.4% for the second quarter of 2018.
Our gross profit per se.
Has been maintained in a very narrow range for over six years.
Our ability to maintain this gross profit percent over that waste of time, especially considering the competitive environment.
Significant growth in our strategic accounts and recent inflationary pressures reflects our value proposition and the extraordinary service that our sales team provides to our customers.
Customer retention also continued to improve during the quarter.
What our sales growth and continued focus on cost management.
We continue to exceed our previously stated guidance of 25% to 30% operating leverage having achieved nearly 34% this quarter within our MRO business. This is on top of the 45% leverage achieved in the first quarter and over 51% last year.
Oh, it rod dig into the financial details, but I'd like to highlight a couple of areas that we're especially pleased with for the water.
[laughter] government accounts growth accelerated sequentially to 38% compared to the second quarter of 2018 on top of 24% increase in the first quarter.
In 2019 government straight.
Has been broad based including state municipal federal non deal D as well as our DSD business.
To put this into context during 2018, we had one month breaking $3 million in government sales.
During 2017, and 2016, we had zero, what's breaking $3 million year to date, we've exceeded $3 million in five of six months.
Our government business is benefiting from dedicated process improvement efforts. For example, we improved the order fulfillment process for a large deal de order, resulting in a 40% reduction in the cash.
Quote to cash cycle.
We also added regular presence to several additional army bases as well as adding a sales manager dedicated to state and local government business.
Second we continued with our conversion process for strategic accounts, which we've discussed in previous calls.
During the second quarter, we added 74, new locations within existing strategic accounts, bringing the total year to date to 144 new locations.
We also added eight new strategic account customers.
From a sales perspective.
Our strategic accounts were essentially flat versus the second quarter of 2018.
However, this was driven down by two oil and gas customers, who experienced unusual operational slowdown.
Excluding these two Oh strategic account grew 17% versus a year ago.
They're both supply had a strong second quarter with sales growth of nearly 18% in Canadian dollars.
We continue to be pleased with the bolt acquisition.
Finally, we implemented a restructuring of our product management marketing and wed be areas of the company.
This action was taken to provide better alignment within our supply chain and sales functions.
We believe that this structure will enable us to more efficiently and effectively service our customers.
[noise] beyond sales EBITDA and leverage we continue to make progress in achieving operational excellence.
In all aspects of our business.
Over the past several years.
I've commented on a broad range of process improvements.
Which had been facilitated by lean six Sigma and our teammates across the company.
Our supply chain team has continued to improve the inventory process line service levels back orders inventory turns and single shipment order complete metrics have all achieved record levels during this quarter.
This results in lower freight costs and improve customer service.
I've mentioned in the past that one of our goals and embracing lean six Sigma was to improve quality of work life for our teammates.
An example of this can be found in our inventory planning department.
In 2015, our inventory forecasters managed 40000 forecast exceptions.
This required for full time people to manage exceptions today, two people manage 13000 forecast acceptance, enabling us to redeploy resources to other initiatives and achieving an all time high and forecast accuracy.
This is one of many examples of reducing non value added work improving the quality of work for our teenage and reducing our total expenses as a percent of sales.
Our three point well strategy continues to deliver.
First.
Growing our sales team.
Including both supply we finished the second quarter with a thousand 10 sales reps and plan to incrementally higher for the foreseeable future.
Sales Rep retention has also continued to improve.
Second.
Increasing productivity this quarter, Washington core sales reps achieved 3% improvement in sales rep productivity versus the second quarter of 2018.
Our average daily sales also grew by 4.4% for the second quarter of 2018.
Third growth through acquisition.
We have an active acquisition pipeline. However, we remain selective.
We remain committed to growth through acquisitions. We are also in the process of adequate adding dedicated resources to our acquisition process.
In conclusion, we are extremely well positioned to further drive business to our compelling value proposition commitment to continuous improvement in all aspects of our business.
And a disciplined approach to capital allocation, including executing accretive acquisitions.
We feel confident in our previously communicated range of 25% to 30% MRO operating leverage for 2019.
As we come up on challenging sales comps.
Lastly, there's been a discussion in the market about the softening industrial economy.
As demonstrated by our average daily sales, we achieved a sequential increase in ABS well be I asked Sam has come off its highs from a year ago. It is still showing growth, but at a slower rate.
We believe the actions that we've taken to improve sales growth manage operating costs and achieve process improvements will go a long way toward driving growth in the current environment.
Now I'll turn the call over to Rod.
For more insight into the second quarter financial results.
Thank you, Mike and good morning, everyone as Mike mentioned in the second quarter of 2019 reflects a continuation of our strong results with solid execution favorable operating leverage and continued improvement in adjusted EBITDA congratulations to the entire loss nimble team for their efforts as we continue to drive additional profitability and value to our shareholders.
Let me now share some of the second quarter highlights.
First sales were 96.1 million for the quarter consolidated average daily sales were up 6.3% versus the year ago quarter or 7.1% before the foreign currency impact.
Second our adjusted EBITDA for the quarter was 9.4 million compared to 7.7 million a year ago, an increase of over 21%.
Importantly, our adjusted EBITDA margin for the second quarter of 2019, excluding the impact of the new lease accounting standard adopted earlier this year.
Exceeded our stated 10% goal.
Third consolidated gross margin of 53.1% was in line with our expectations the organic loss and MRO business segment gross margin percentage was 60.5%.
Effectively consistent with the year ago quarter prior to allocating service related costs into gross margin.
And fourth we reported diluted EPS of 14 cents for the quarter compared to 35 cents in the second quarter of 2018.
On an adjusted basis diluted EPS increased nearly 59% to 62 cents for the quarter.
I'll now discuss some of the drivers of the quarter and provide some additional commentary.
We generated sales of 96.1 million in the quarter on 64 selling days. This was the same number of selling days as in the second quarter of 2018 in one additional day.
Then the first quarter of 2019.
As compared to a year ago, our second quarter sales benefited from the following.
First boat supply generates sales of 11.1 million in us dollars for the quarter, an increase of 14% in U.S.D. driven primarily by favorable broad based demand across its product categories promotional events in newly stocked items.
Second is Mike mentioned MRO sales grew 4.4%.
Emrose sales rep per day productivity, continuing to continue to improve with an increase of 3% over the year ago quarter and sequentially up 2.7% over the first quarter of 2019.
Third screw products added 720000 in sales for the quarter.
We ended the quarter with a thousand and 10 sales reps, including 28 territory managers in the bolt supply business.
Our focus remains on profitably growing our sales force improving sales rep productivity and retaining our talent.
On a loss and MRO organic Ats basis us sales were up 5.3%, while our Canadian adss.
Excluding both supply.
Were up nearly 2% in local currency.
From a sequential average daily sales basis. The Lawson segment April sales were 1.298 million.
May was 1.307 million in June finished strong at 1.347 million.
From a lost in segment standpoint strategic accounts sales were flat for the quarter, primarily related to lower sales from two large customers in the oil and gas sector, who experience operational related slowdowns.
Excluding these two accounts strategic accounts grew 17%.
We also realized ROE of approximately 38% in our government segment, 2.3% growth in our loss in core business in 2.9% growth in Kent automotive.
In line with our expectations reported gross margin for the quarter was 53.1%.
Similar to prior quarters. This year gross margin was impacted by $4.5 million of service related expenses that were classified into cost of goods sold in addition to gross margin profiles at both supply and screw products that are lower than our loss and segment.
Prior to the service related expense classification, both supply and screw products the organic Boston MRO gross margin was 60.5% compared to 60.4% in the year ago quarter.
Through effective pricing and operational efficiency initiatives in our product fulfillment process, we continue to drive MRO margins in excess of 60% against the backdrop of a challenging inflationary environment.
We continue to efficiently manage our total operating expenses as a percent of sales and further leverage our existing infrastructure as evidenced by this quarter's results.
Selling general and administrative expenses were $49.4 million for the second quarter compared to 43.6 million a year ago quarter.
The increase was solely driven by additional stock based compensation of 4.8 million.
Due to an increase in our stock price and $1.4 million of additional severance expense as we further align some of our supply chain and sales functions within the company.
Lawson MRO adjusted EBITDA operating leverage was nearly 34% for the quarter, reflecting a combination of sales grow and operating expense leverage.
Our reported operating income was $1.6 million for the second quarter compared to $5.6 million a year ago.
The year over year decrease was solely driven by additional stock based comp and severance on an adjusted basis non-GAAP EBITDA was 9.4 million compared to adjusted EBITDA of $7.7 million in the year ago quarter, a 21.3% increase.
Net income for the quarter was 1.3 million or 14 cents per diluted share.
On an adjusted basis diluted EPS was 62 cents for the quarter versus 39 cents a year ago quarter.
This puts our year to date adjusted EPS per share at one dollar and 10 cents compared to 64 cents in 2018, a 72% increase.
Our net borrowings decreased in the quarter by 7.6 million, primarily driven by $8.2 million of cash flow generated from operating activities.
Capital expenditures for the quarter were approximately 700000.
We expect our Capex in 2019 to be in the range of two to 3 million compared to our prior expectation of two and a half to 3 million.
Let me now provide some thoughts for the remainder of 2018.
We are optimistic regarding demand given the trends over the past few quarters and our internal initiatives to drive sales growth and earnings.
Current economic indicators in our sector indicate grow but at a slower rate.
However, we continue to build momentum in certain segments of our business such as government.
We also expect to remain disciplined in our acquisition activity.
Second our expectation remains for 25% to 30% MRO operating leverage in 2019.
And third we continue to monitor inflation in tariff trends.
We will take the necessary actions to ensure that we stay ahead of potential increasing product costs.
I'll now turn it over to the operator for questions.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
[noise].
Thank you. Our first question comes from the line of Ryan Mills with Keybanc. Please proceed with your question.
Good morning, guys and congrats on the quarter.
Good morning, Ryan.
Hi, Yes, just wanted to start with the free cash flow, it's down year to date.
How should we think about the performance in the back half considering the growth you're seeing in both supply and the screw products acquisition and then similarly.
Working capital has been ticking up how do you feel about working capital at this point in the cycle and should we expect that to be a user or source of cash in the back half of 2019.
Sure. So Ryan this is Ron Knutson I'll take that question. So on the on the free cash flow is is we highlighted in our prepared remarks.
The second quarter, we created about 8.2 million of cash flows from operating activities.
We had about $700000 of Capex in the quarter. So real positive move in this in the second quarter, allowing us to pay down.
A big portion of our debt that was outstanding at the end of the first quarter. So when we think about the remainder of the year.
I would say that typically the third quarter is stronger for us in both terms of earnings where I would say more similar.
As it is with the second quarter in terms of both earnings as well as free cash flow generation typically the first and fourth quarters are generally not quite as strong force primarily due to.
Either.
Items, such as payroll taxes, which hit us in the first quarter or fewer selling days, which is the case this year as well in the fourth quarter.
61, selling days in Q4, so so so we'd certainly expect to continue to to create positive momentum.
Throughout the remainder of the year to throw off additional cash flows.
Okay, and then a 14% growth for both supply that's pretty impressive considering some of your larger peers continue to experience declines in Canada. So you could could you talk a little bit about what's driving the performance there.
Sure. This is Ron again, so I'll I'll take that one it's.
They they really hit a nice strides here over the last I would say three quarters. When you look at their overall topline results and more specifically on this quarter I would say it's attributable to some promotional events that we ran they currently operate with 14 branches.
As well as some additional skews that we that we put into inventory.
And really just solid execution all around so we were really pleased with with the acquisition. We made and were extremely extremely pleased with the level of confidence that we have and the team at bolt supply really to drive overall results. There. So it's been a great quarter for them.
We'd love to see that 14% or 18% in local currency on a go forward basis as well.
But.
They are they are really on a nice stride right now we don't we don't see any indicators that would cause any dramatic shifts one way or another but again fuel feel really good about about the team's performance there.
Yeah really nice performance, there and then I'm going to ask DNA cost.
Really solid control right cost control there are actions being taken internally or is it just reflecting two consecutive quarters of sequential sales rep declines and then how should we think about sales rep additions or or.
Reductions for the back half of 2019.
I can take the first part lines like Takeda. So you know we will continue to incrementally add sales reps for the foreseeable future.
But as we've mentioned in previous calls we now have a very sharp focus on sales rep performance and we want to make sure that sales reps are tracking on the trajectory not only relative to sales, but new accounts and all the other sort of precursors to revenue growth.
And territory expansion. So that's what you're seeing a little bit of is our focus on sales rep initial sales rep productivity.
So that will continue to creep up indefinitely.
And that's what you're seeing also the more successful we get their sales reps to be initially.
The better the attrition and lower the attrition and the better the overall retention.
And that enables more and more sales reps to mark further down that path and we still have the situation, where it's a kind of a bimiodal distribution, where there's higher initial turnover and very very low longer term turnover. When it went to sales rep has been with us.
You know call it three or four years, the turnover goes to like 10% or less whereas initially it's a challenging job to work your way into.
John you want to.
Sure. So right really I mean, we're really pleased with the overall performance for the quarter and I would say, it's a combination of both the sales increase but also.
Really never taking the eye off of our operating expenses and if you look at the quarter.
Excluding the stock based comp and the severance we were basically flat in opex versus a year ago on a 6.3% sales increase so again, we you know we continue to focus on both sides of that equation.
Certainly getting that additional leverage in driving down our expense to sales ratios.
It's certainly a goal of ours. So yes, so we're real pleased that on both sides of.
The equation. This this quarter on sales as well as.
Controlling our operating expenses.
Ryan This is Mike again, let me close it off with a comment on lean six Sigma and that is that since 2013, we've worked hard to examine and we will continue indefinitely to examine every process in sub process of the company and as a result, our G.N.A. headcount is actually down from 2012 or 13 through today and.
After the initial benefits that were larger our longer term benefits beyond the quality of work life, which is important for our team.
The ability to hold cost DNA costs, while we grow top line and the example, I gave two examples.
Around lean six Sigma being the process reengineering associated with large department of defense orders and then secondly forecast accuracy freeing up people to work on other things those are sort of the long term grinded out incremental improvements that you can count on every day and over a long time, they add up to real dollars.
Very helpful. And then last one for me and I'll hop back in the queue.
The balance sheet is pretty solid at this point following some debt reduction. So just an update on your M&A strategy will be helpful. Do you feel comfortable making more meaningful acquisitions at this point in the cycle with moderating growth.
We absolutely do for several reasons you mentioned the balance sheet being one of the reasons also our confidence based on our track record of the previous six acquisitions that we've done and how well we've integrated those and tested our paradigms around what what the integrate whatnot to integrate and how to do it and at what rate to integrate all of that has given us confidence in our own team mates.
So we would like to be doing larger acquisitions more meaningful ones and of course, you saw the results, we're getting from bolt, which was meaningful and continues to be a real contributor.
In a meaningful way so yes, we are very committed.
We are in the process of adding resources there.
End up feeling good about the pipeline, but I have to say we are very disciplined we're committed to growing through acquisition.
But they have to be the right acquisitions.
You may be just talk real quick about the multiples you're seeing out there they still elevated at this point.
All over the spectrum.
Depending upon the size of the company or the the sophistication of the company.
For the ones that are very close match one of the metrics. We look at is the revenue each of the sales reps that were acquiring generates its little interesting side note that between bolt in the other acquisitions. We've made we've acquired about 50 sales reps and retained.
Practically speaking all of them, which is an incredible incredibly effective way of acquiring and hiring sales reps.
But as well.
The multiples for those small small companies are far lower than it is for.
Broad based with tremendous infrastructure companies.
We're seeing again, a broad spectrum of multiples.
Thanks for taking my questions and again congratulations on the quarter.
Thank you Ryan Thanks, Ryan.
As a reminder, if you would like to ask a question Press Star then one on your telephone keypad.
Our next question comes from the line of Kevin Saggy with Barrington Research. Please proceed with your question.
Good morning, Mike and Ron.
Morning, Kevin.
Hey, Ron you commented that.
June finished strong so.
Yeah, Yeah. The quarter ended up on a strong note can you just talk a little bit more about what you've seen thus far.
In July in terms of Ah growth in demand trends.
Sure. So so I think you Kevin you know that we don't go out and formally publish our our monthly numbers until the end of the quarter, but what I would say is through you know the first call. It three weeks here in July we've continued to see growth both in the MRO business.
Or I should say the loss and tomorrow side as well as the ER on the boat side. So.
Again, it's it's a we're three weeks into the month year.
And you're right June ended on a on a pretty high node for us.
But we've continued to see growth here in the first few weeks as well.
Okay and.
On the flat strategic account sales, obviously, you attributed that to slow down in to oil and gas customers. I guess is this related to slower activity in drilling and you know I know that space can be a little unpredictable, but those are accounts kind of given you any sense of what they might be expecting a in the back half of the year.
Yeah Kevin.
You know they are not market related there are project related and one of them. You know I guess, you can tie to the Permian basin takeaway capacity being one of those.
Sort of gating items.
The other one is literally.
Our metal permitting and stuff that is short term project based.
And we're already beginning to see a little uptick from from the one in particular.
But it's also interesting you know I mentioned in my comments that we picked up eight new strategic accounts one of them was in oil and gas as well. So again this is not market related.
It's a it's our strategic accounts team is actually growing pretty nicely both in adding strategic accounts.
But also the conversion process picking up.
Up 144 year to date is really nice progress again, we believe that because we are the best there is and our little narrow space well from the customer's perspective, we ought to have 100% share and we keep communicating that.
If you're not doing business with us and you're dealing with a you know you're dealing with lesser service and less frequent and less intense serviced and we're giving you. So we really want 100% share of everything we can get Kevin I would I would just add to that that that both of these customers had really really strong.
Second quarter 2018 numbers that we're up against and so.
It's Mike indicated we've already seen these customers come back a little bit from a you know as you look at the sequential trend, but we were up against really tough numbers specifically on these costs on these two customers from a year ago.
Okay. That's helpful and obviously, the 17% growth and strategic account sales excluding those customers is an indicator of.
The success you continue to have in that space. I guess, you know just driven by a conversion of existing account locations and the addition of new accounts is that fair to say.
That's correct.
Okay and they are.
No were across the spectrum manufacturing.
Created supply environmental you know broad based.
Great.
You commented that customer retention continued to improve.
I don't know if you could give us a sense of the magnitude of improvement there and maybe how much more room. You think you have to continue improving customer retention.
Yeah that is to be in the increase has been a slow consistent increase we've added resource we put a lot of work into it.
But it will become harder and harder and harder you know were nearly 92% retention and you know there's just normal churn some of that customers go out of business and you know there are a lot of reasons for it so incrementally it will get harder and harder and harder to go from 92 to 93 to 94.
For many reasons completely out of our control, but we will continue to work at it and we see tremendous growth.
In new customer share of wallet within existing customers, but once we have a customer again short of them going out of business, we're working hard to retain all of it.
But it will become harder and harder to go further.
Sure of course, yeah, it makes sense.
So the the restructuring actions around product management marketing could you just give us a little more detail on what a you hope to accomplish there and.
You know, how that's going to help drive growth going forward.
Yes. The short answer is alignment just I mean, it's really a positive for the teams feel great about it and it really is about alignment. That's it's just as simple as there is and we're already seeing a communication alignment and just you know it's as simple as that really.
Got it okay.
Yeah. So you mentioned.
In the process of adding dedicated resources to evaluate acquisitions I mean, you just talk about maybe.
Head count you're heading there and you know what you hope to accomplish through that's a addition of dedicated resources.
You know, that's a little bit premature at the moment.
You know would have been a news to come there at some point, but I don't want to go into too much detail there, but <unk> acquisitions M&A is a very real component of our strategy. It has been for a while three part growth strategy and as we become more and more confidence.
Both in the success of the acquisitions, we've done in the integration and our own support infrastructure internally I'm talking about we are ever more committed to growing through acquisitions and we feel like we've got the balance sheet to do it. So that really is our focus but again it is our intention to bring in dedicated resource to do that.
Okay. I guess lastly for me you know a lot of momentum in the in the government sector for you.
You've talked about adding some resources and military bases and so forth. So I mean.
How much more momentum or growth opportunity do you see in the government space and will you.
We continue.
Looking to maybe add resources dedicated to that particular market.
Sure. Kevin This is Ron so I'll take that one so is both Mike and I highlighted really really positive results within our government business and it's not just this quarter, it's really been glass three or four quarters.
Yeah, and you know when we look at the trend there as Mike highlighted we've seen.
You know five out of six months this year, where we were really that exceed the exceeded $3 million in sales on a monthly basis. So you know I would say, we're we are up against tougher comps as we enter into the second half of the year on government, but I'm looking at the trends that we've seen here in the first couple of quarters as well as the additional resources that we put into that area. We certainly still expect to see nice growth.
In that area not only for the second half of this year, but also moving into 2020, it's a it's a real opportunity for US then and.
You know we made some.
Some some good changes on the supply chain side of the business to make sure that we're feeling that the customers needs as well there so.
I don't Mike If you look at like the only thing I would add is we look at that across multiple dimensions I've mentioned on a handful of occasions that we want to make sure that our growth is broad based and not narrowly focused on one sub segments.
What we're seeing is a good state local and educational growth. We're seeing good military growth. So we're seeing a broad based growth and the process reengineering that I alluded to talks about quote to cash but it also enables us to win more business because of that cycle time compression and let me just say that as was classic lean six Sigma cross functional teamwork and you know our admiration to the military team and all of the adjacent departments that came together and work to hugely reduced cycle time in all aspects of that customer service activity. So all of these little things make us more competitive.
And winning more business and more broadly, but it also makes it a lot more profitable.
Okay, great well, thanks for taking the questions.
Thanks, Kevin Thanks, Kevin.
A final reminder, if he would like to ask a question press star one on your telephone keypad. One moment. Please while we report for additional questions.
Thank you. Our next question is a follow up question from Ryan Mills with Keybanc. Please proceed with your question.
Hi, I just have a couple of more can you maybe talk about then integration and performance of screw products. I believe you said it added about 700000 or so to to the topline this quarter, but can maybe talk about the year over year growth for that business.
Yeah, Let me take the first part screw products for us a first albeit small step in understanding a very near adjacent C and think about screw products as a project based small production OEM related work again very unique very value added a lot of service going on there and.
For us food products as a way of sort of extending our service proposition.
But it was about us testing, our own paradigms and understanding the value proposition and let me say the elasticity of what we do into a you know a baby step outside of that was the reason for doing screw products.
Overtime will determine whether we want to do more of those or just grow it organically or bolt on more similar stuff and those questions are yet to be answered.
Okay. Okay, then could you talk about the year over year performance for that business.
Right, Yes, Ryan. So this is Ron so when you look at the second quarter I would say, it's relatively flat versus kind of where they were before we made the acquisition. So.
To Mike's point, we're still looking at the right way to integrate screw products into the organization.
What I would say is that the earnings.
EBITDA, which is really was a I know we talked about this on the call we made the acquisition.
Was close to 30% the earnings continue to be at that high level. So they are throwing off some additional profitability.
But I think where we will be focusing on going forward is how do we how do we integrate them into the organization and.
Leverage what they do.
With our existing sales force to drive the topline so I'm still a little bit yet to come there as we work our way through that but we're still seeing some nice results on on that acquisition. Yeah. We're in the process of integrating some aspects into our Mccook distribution center, which will extend their capability more broadly integrating them more fully into Sep, which again will extend their ability to do analysis and integrate from an IP perspective. So you know the slow systematic and deliberate approach, it's kind of the way we do everything around here and feel very confident in the future of that unit, but also very confident and what we're learning out of it.
Good to know and then.
Yeah, you had really strong operating leverage year to date, so far are running at a 30% plus on a consolidated level. I know you you stated the 25% to 30% MRO operating leverage target.
Just kind of curious how should we think about consolidated incrementals of moderating growth continues sounds like you should get a little bit of a benefit for the remainder of the year with the the margin profile of screw products, but do you think you can maintain that the 30% plus consolidated incrementals and continued moderating growth.
Yeah, I think for the quarter on a consolidated basis, we were we were sitting at about 29% and.
Certainly.
The MRO side of that being being north of 30%, which is really what we've commented on in the past. So we don't we don't see anything that would take us off of that previous guidance of 25% to 30% certainly it's always our goal to exceed it.
Which we've done for the last couple of quarters, but.
Given the given the current model and given what we're looking at from a sales forecast on a go forward basis.
That that 25% to 30% range steel feels like it's a very achievable.
Okay. Then last one for me can you just talk about your performance by end markets or sounds like oil and gas or maybe took a step back with those two customers larger reported peers, who already reported I indicated heavy manufacturing somewhat taken a step back I just kind of curious to know how your end markets are performing and a and then what you're experiencing.
So you know when we typically look at our business, we really break it down into.
The strategic the governments the.
The core business as well as our Kent automotive business and as you said Ryan you know putting those two customers. Aside we saw we saw nice growth within all those segments of the business and then bolt certainly on top of that.
You know and we've we've talked about this yeah, we service in excess of 70000 customers. So our our end market is very diverse very diverse customer base and.
And for Us.
We've not seen any what I would call.
Setbacks in really any of those end markets.
But again servicing 70000, plus customers, we continue to see growth within the segments as the as to how we measure.
Our business and in the end markets are always a little bit more challenging to get it locked down exactly for oil and gas or for for for construction and so forth but.
Relative to how we're managing we're seeing some some nice growth within all of our segments.
Yeah, Ryan I would just add that you know.
The market does what the market does but we are especially proud.
I feel great about the actions, we're taking things we control that are enabling us to win share customer retention, you know really very very strong and has been for a while things like cross functional team work enable us surface customers better and hold costs down while we're doing that you know our commitment to process, but candidly our strong and open minded culture and our people really make the difference here and all of those are things, we control and all of those are things that are differentiating us in the market place and then when you start thinking about labor demographics, and how hard it is to find maintenance mechanics, and shop, supervisors and welders and truck drivers.
Our customers don't want those people sitting around waiting a day or even a couple of hours to repair a piece of equipment, that's down because that labor shortage for our customers as a huge issue and our ability to keep their labor and their machines productive.
Is differentiating us in the marketplace and we're seeing that play out in the form of share gain share of wallet and all the other things weve been alluding to whether its conversion are picking up new accounts or retaining existing accounts all of that or are all those are things, we control and that's where we're focused.
Yeah, I agree I think it's pretty evident you're taking share gains in that thanks again for taking my follow up.
Thank you Ryan.
This concludes our question and answer session.
I would like to turn the conference back over to Mike to cater for any closing remarks.
Thank you very much and thank you for joining the call Lawson products had another great quarter sales EBITDA gross margin and leverage all continue the positive trend that began in 2016.
The company is performing better than it has been a very long time.
We're confident that losses will continue to thrive in the coming months and years.
Our operational excellence continues to differentiate us in the marketplace.
Enabling us to win share and fully support our customers.
I would like to extend special thanks, and appreciation to our teammates their hard work and commitment to customer service has enabled awesome products to grow and service over 70000 customers. Thank you again for joining the call today and we look forward to speaking with you again in October have a great day.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.