VRTV - Earnings call transcript Q2 2018

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Operator

Good morning and welcome to the Veritiv Corporation's second quarter 2018 financial results conference call.

As a reminder, today's call is being recorded.

We will begin with opening remarks and introductions. At this time, I would like to turn the call over to Tom Morabito, Director of Investor Relations. Mr. begin. may you Morabito,

Tom Morabito

Steve And Today, everyone. remarks you Chairman your Officer, Laschinger, Leandra. Afterwards, Financial for will we from you joining our take and Executive Chief us. will and our good you, Chief Thank Officer. morning, questions. all Mary Smith, Thank hear prepared

could by some forward-looking. Before intentions, predictions and/or beliefs, that statements in the and/or in are of differ future management company begin, results manner. we note today's material made Actual expectations of the please presentation the a the regarding

in and is section of Additional limited in differ this applicable issued information This At at that from the contained on Relations those could is in financial which not the in to morning, today presentation XX-K I'd Investor comments Relations measures XXXX cause Mary. risk to, results slides. time, and of found end can are to slides of our veritivcorp.com. the in the section in turn to the the presentation Investor our this news included like forward-looking measures the contained is and report in filings. reconciliation call also on are GAAP to release SEC at the company's Non-GAAP posted non-GAAP be the the over factors The includes, but annual statements included measures Form website. our these

Mary Laschinger

for we today expected the thoughts guidance Tom. our thank on Thanks, us our and drivers for quarter as important of performance full-year discuss review And financial Good morning, provide the everyone. second year. joining XXXX results, our some you

strong Publishing again Packaging in in revenue once and achieved segment. were the prior second by Facility quarter, During saw growth improved levels. and than we our smaller revenues Print growth declines positive Solutions line the top driven

reported XXXX, $X.X when to X% compared of billion, quarter prior-year were net period. sales up second the For

our year-over-year Packaging. currency been to prior-year. of comparisons sales the quarterly effect XXXX, have positive foreign investments from the core core improving exchange Since in increased beginning sales our X.X% net of the rates, due Excluding net the

XXXX consolidated core net fourth The quarter quarter year-over-year. the in of consecutive second is sales positive were which our

XXXX, growth volume second For adjusted Containers quarter. across of All and up margins growth performed quarter-over-quarter, to in incremental driven nearly categories. driven increased reported Core we earnings revenues by major quarter were X% the of approximately second revenue the product from from the came price. came The the growth were organic $XX The X% Packaging year-over-year. stable XXXX. and well and segment XX% XX% of due our EBITDA quarter acquisition. X% coming American second organic results. now by Shifting compared to with volume the very Approximately million, the all strength from to of was X% growth consolidated

performance in Packaging, XXXX. of revenue to GDP, solid balance continue more increases, to September. experienced price incremental lap XXXX we we will growth from first modest benefit because For expect XXXX, an the to we in of as what as Overall, Packaging certain in improvement EBITDA less we growth starting strong than we and are the benefit rates and expecting in see customers having adjusted AAC, higher as not but from view see compared when to large half revenue from the

Solutions revenues Facility core Our grew segment year-over-year. X% nearly its

in growth accounts. are some selectively quarter, we mentioned we experiencing slowdown prune this we segment last higher-risk as a As in revenue

impacted Earnings tempered were was and being negatively service with due also by our capability. quarter mix more that Second revenue and operating selective customer both with align expenses. our customers product to

are the partially was driven it by market decline revenues revenue the volumes, of accounts. within segment, several for taking of lowest a changes, continuing quarter year-over-year sequentially result second pressures in portfolio. lower of should debt. somewhat recent to improve significant help which to in second declined to the the rate from may effort segment by For were the earnings as and impact bad be continued Print debt higher-risk been continues positive will partially the the increases quarter. issue quarter, balance Industry the declines to Print Solutions row, rate in Facility a were in volumes, proactive offset result our reduced quality and offset of And Bad a X.X% exposure to believe charges secular revenues price we The ongoing Print's previous impact up near decline has of but our XXXX, business limit the rate improved segment's XX% for Print core customer slight by the in GDP, actions, years. the although due increases. of Print of grow model for we which price

secular made on our adapt shared more changes declines date, these industry. we the first model As well by and Print be to received changes significant have our employees. the customers, flexible to call, quarter in been we to suppliers To to business

business and the During in the expenses. second model benefits administrative the see quarter, we the began form primarily Print change, of financial to of lower selling

see positive half in benefits We the further of second XXXX. into to XXXX expect and

impact we the For of industry trends our the to Print balance segment's XXXX, continue secular negatively expect to revenue.

a stable The X.X%. result increased model segment's be expect our this somewhat the Publishing segment change. earnings of revenues core Print business do we as However, in to

volumes the increase certain earnings in nature volume. in improvements continued due decline, slight industry within mix the in segment a Although in increase the favorable customers the benefited were year-over-year shift and industry. revenue, competitive Despite we of prices, to an down a to from

continue to during trend multi-state as conversions, quarter, second this conversion was completed Shifting system expect planned. the operating year. our another for now the to significant of half the second We

conversion, system Overall, systems warehouse by of XXXX, the year will that remainder the complex of remind two additional the like For warehouse and to complete conversions system We consolidation you we management XXXX of large-scale is to conversions scheduled. have be end substantially XXXX. our would due a combination operating installations.

major strategy. optimization the integration of quarter element by second three The short-term on first is business our previously these during improvements mentioned but long-term processes with putting the pressures wrap-up the and to we we see in programs our to expected benefits As the our continue as and are costs, quarter. as earnings underway call, realized Print being proceed company and already model the from change mentioned our optimization

to expectations Now, XXXX. the for to I'd like turn our balance of

million. in year All For the American driven is debt earnings on be we to adjusted in negative the of year by becoming expectation Containers, and $XXX leases by XXXX, being operating full with to continued of for offset full-year EBITDA. somewhat This range million impact Packaging, earnings range our we of of a remainder to EBITDA full remain continue the adjusted the in decline Based $XXX as in leases. Publishing, risk financing a year, of first-half guidance bad expect results our well growth expectations our confident of along the of our

are flow in XXXX free offset receivable, also Packaging by We higher this working reiterating partially support guidance our will to least require capital at of improvement cash Achieving $XX accounts target million. growth.

it can quarter our turn over second Steve, of you the performance. through details take I'll Now, financial so he to

Steve Smith

you, Good Thank morning, Mary. everyone.

overall June XXXX. the at ending results quarter the look for first Let's

in sales core shipping you days of As reported of number quarter exchange impact when net had We adjusting referencing the of days compared note the the in have to foreign performance XXXX, for XXXX XXXX, count any of one differences. Mary same quarters in number the the we day that, excluding we are to resulting additional as XXXX. walked same in day net and sales, quarter quarter third one speak second having the shipping I through with would second day of earlier, the we XXXX. shipping more than in will XXXX three the in other

up from net of of sales the prior-year $X.X XXXX, net X.X%. billion, second the increased X% core period, had For quarter sales we while

This of of As Mary quarter at net are trajectory as revenue the we being in trendline our Publishing recent in as core by making row driven Print a a and investments segments. see improvement improvements we're pleased is fourth packaging well the positive mentioned, sales. to

percentage sold, prior-year period. was the the incremental points Net versus for sales $XXX cost Our by quarter period. revenue X.X% approximately the down EBITDA was prior-year less up for second versus a margin a sold Adjusted basis EBITDA debt. including prior-year bad our cost mix incremental was billion. percentage offset growth from the sales XX.X%, Net and period. as million. sales from quarter cost products net customer the products flat a the of earnings of net $X.X to $XX.X less compression as of number million, for The sold factors, sales, was X.X%, quarter partially Adjusted of due products were XX of was of second

sales net XXXX. XX, for quarter, Let's grew quarter second now its results segment XX.X% June Core the move the quarter-over-quarter. the into segment the revenues increased Packaging In ended XX.X%.

organic in approximately X% market which revenue and the the year-over-year performance. growth the growth AAC price. of than benefit our organic from Excluding much about of revenues was volume came our from XX%, X% better quarter, Approximately is

quarter, period. was prior-year was second safety as The sales customer sales increased as prior-year the the about In of X.X%, EBITDA the Adjusted were second adjusted protection EBITDA personal and percentage quarter, earnings a higher the million the service, while core were flat supplies. to with increased higher quarter, $XX.X net Packaging can revenues from categories adjusted For quarter from mix in prior-year Facility X.X%, combination and margin X.X%. of EBITDA, XX% contributed period. net up liners, Solutions increased offset a consistent food by costs. second resin growth In this revenues

the offset reductions sales chain quarter-over-quarter, second were partially selling net market this X.X% revenue $X.X about sales primarily pricing. The million the increases growth expenses period. points additional while decline as both These the principally was declines driven also Solutions customer supply adjusted Canada Facility quarter. mix saw approximately strength large a offset prior-year fixed secular well as select We were margin higher X%. quarter, by pricing net increased roughly and Adjusted EBITDA the decline EBITDA, variable by a market driven partially Print Print quarter by performance down by by in accounts. core as basis in slight in in revenues EBITDA decreased X% was In in X.X%. had declined corporate was contributed segment XX% in XX volumes in of and from adjusted driven the costs. which in shift The percentage volumes, costs. down in

For changes. In primarily driven was the business by core and sales X.X% Publishing Print revenues. prices. the net increase earnings as and adjusted expenses Print more was impact sales in largely prior-year the second reduction by the offset EBITDA, decline contributed from than had of million X.X% increase in second quarter, from up an a recent selling revenue in quarter, in XX.X% the a increase increase in stemming model period the $XX.X segment administrative This in

second sold, the Publishing by period. our operating the a against can For expenses. in prior-year had of to million. slightly reduction sheet the had borrowing available increase XX% Shifting from cash lending EBITDA, offset million The $X.X June, down the of quarter, attributed to in contributed in balance in approximately decrease earnings flow. drawn now adjusted and be our facility capacity products and end asset-based approximately $XXX million we At $XXX cost

times. receivables we ratio As and of leverage the long-term our expect was and to net debt By inventory times times. reminder, adjusted facility EBITDA X ABL of a net year-end ratio goal approximately June, end strategic is At leverage ratio the X XXXX, net around a be leverage our to business. is the by the our backed of X.X

just from approximately activities, For we the free million $XX approximately restructuring of from quarter and If million. acquisition, cash for from about June operations, flow cash million. million. add cash free second integration $XX flow $XX flow from our approximately over items operations XXXX, would've capital been generated ended Subtracting $XX the of cash cash of back expenditures quarter adjusted our flow we $XX million was

Our free year's million approximately cash lower flow than second $XX second was quarter. last quarter

that also generally similar as XXXX, working As usually usually seasonal. be can our a to first adjusted XX% $XX occurring adjusted the with in plays could But performance half we a for are reminder, with quarter of in We the lowest $XX year million second second million expect approximately bad Bad our $XX results pattern our to was our of note debt expense full-year expense quarterly last that about earnings XXXX. seasonality. overall this quarter and role EBITDA year's be EBITDA the that capital can Seasonality about an impact million, the fourth the our distort highest. debt half. have in

by expenditures. Mary As metrics Part of from as of expectation $XX XXXX, for our our capital the expect cash to least driven mentioned, receivable the free year. million is this we plans flow, at cash less of accounts operations flow for remainder improve defined

experiencing anticipated in growth improvements. we offset these some of the Packaging could are However,

of We capital the income through integration those are integration restructuring have million statement and that through run XXXX, and those run are within expected types between statement two $XX costs There be costs. that costs, for the One-time income directly and expenditures. $XX million. will

capital which in beyond. related $XX to efficiencies years, will projects and the principally be is spending information million, range We expenditures capital expect prior in and systems restructuring of incremental $XX XXXX this million Similar to enable to to help integration. integration for

to ordinary to course $XX be our XXXX, million expected approximately million. For $XX expenditures capital are

of the there about For quarter. comparison integration second purposes, totaled million $XX capital that spending, And projects. million expenditures for to related the was $X

questions. that our So, Leandra, prepared are we take remarks. to ready concludes now

Operator

Instructions]. [Operator

Mary Laschinger

I to meant reaffirming adjusted that $XXX questions. million confirm adjusted million for waiting, I EBITDA of EBITDA. $XXX while to reaffirming wanted made. guidance say And Leandra, are And, to to guidance, about I confirm is a I statement ready what we're we we're of want

Operator

Thank you.

comes Your John the question Bank America of first from Merrill line Babcock Lynch. with of

is Your open. line

John Babcock

good Hey, morning.

start topic want to debt expense. out on of Just bad the

XXXX year, million the can in year. it $XX lay you what of wondering half half. million the in expectations that have that and second You the first last it was including just this second Was you for out was if of mentioned $XX half

Steve Smith

Sure, John.

Mary Laschinger

Go ahead.

we on are million The third in last million, closing and in versus with our be half year the the quarter year half first the our about of second million because, that in the of this was quarter. million first $X just XXXX, in the fourth we million second gap $XX.X XXXX half and the second quarter. had And of will $X.X quarter-over-quarter expectations $X delta quarter the $X.X in over in

should half the be first while of to than the second delta year. prior-year half So, elevated, the less this

John Babcock

on next the I have then, And question was helpful. That's Okay. just pricing.

Packaging a You think segment much and and mentioned, that to about it wanted I in Print was how was get in for X% the Publishing. sense

Mary Laschinger

base about So, in not business, it In core revenues. in We about in X% our it Print John, Publishing about it yes, business, X%. was our our Facility on And Solutions did any price business. Packaging our was X%. have was

John Babcock

and changed materially, I those certain next, have the how inflation or how not then, And transportation about versus helpful. heard were cost now of increases it at That's end like was thinking ongoing about we of on wondering Okay. you're you that areas XQ and in there. whether thinking where have particularly

Mary Laschinger

Yeah.

So, just market look things. it we I'd inflation guess business. where that continue couple to of do appropriate. a see, opportunities the manage like is, impacting We say the seems to rest of I the for

up costs level, the the with if have And in less we're it to of less also in freight. factors surcharges. more of a a using have an – third-party example, of terms second half go We're triggers aggressively inflation on to our third-party fuel freight. that. For dealing of It's us in going year business impact result as our we certain

And business. to to in for manage opportunities are so, the inflation – look continue and we

John Babcock

out other And ordinary areas Okay. nothing in the labor? like of

Mary Laschinger

that in stable over the couple in see the been percent, of the range of course of of what that's been are what few We currently we and experiencing. last has terms fairly it's a years,

John Babcock

whole, And the then, there. sales solutions if we part And of anything the I this logistics down a I was Realizing were is the but of should relatively small had wondering like Okay. take looks business. next there's question on note year-over-year. it was

Mary Laschinger

we've we're we correct. is portfolio. the working That down I there, doing printed are first is think, What the are It's, that. Yes. quarter Revenues year-over-year. John,

to balance it becomes is find business, freight, money. right make supply/demand a the brokerage to with and Given challenging opportunities this more the

we've selective gotten on earnings that that but lanes supporting, year-over-year. a as up so, actually result of we're more And our are

earnings our are revenues are up. down although So, for our quarter, the actually

John Babcock

Okay. ongoing see whether just from risk Appreciate business. get on question you your sense I then, greatest or wanted the between And and the US, just – direct that. for China the was tensions the indirect to really a trade last

Mary Laschinger

that limited is product And Yeah. with like exposure importing this point, into the With is what of at have the China, pricing US business. from with our along primary into increases pass those to categories we the a plans customers. doing size Canada, we're cost The our glass. to relative we're China

And so, of expectation that's as our now. and plan

overall where limited on it's But customers. exposure. cost our to an So, along pass it, do we to occur, depending have does actually intentions what are those increases

John Babcock

turn I'll Okay, over. it thank you.

Operator

with Barclays. line Your of the Gaffner next Scott question from comes

Your line open. is

John Dunigan

is sitting This John doing, Steve? Hi. actually on Scott. you How Dunigan for are Mary,

Mary Laschinger

John. Hi,

Steve Smith

John. morning, Good

John Dunigan

Mary, on morning. I based this So, question, the had release your earnings comment in first a

had see have margins that year? XQ targeted still had better more or that toward improvement. the half do for consolidated results the second the You going of Was sequentially, you margins for expectations improved noted into but room the you

Mary Laschinger

some improvement of on So, a of a by modest, balance would expect factors. we number slight consolidated to being margin continued see over the basis. the driven That's year

With we – the positive continue to portfolio as of higher-margin benefits continue the from modestly shift well within mix Print see change, the as continue of as a all margins through to the acquisition shift impacting well see business as the as benefit AAC our we year. we'll model Packaging

John Dunigan

moving topic these the quarter these this been business, is that that making in evident the margins already year-over-year And changes, going will you for you've continue the and was business as just improve Print Okay. forward? optimization expectation that in to That making to had continue Print the investments? on of been

Mary Laschinger

result as result momentum, lower business expect administrative a to model the and well the as changes. price margins improve We costs selling John. of as of would a as Yeah, continued positive

continued the quarter. second we to similar would in experienced half challenges out, need expect to we However, latter In we of the the in bad the spite to of what something of that, year have I debt. see do also point

John Dunigan

moving Okay. Facility And then, to Solutions.

called throughout benefits still You a see see kind there bit and more in had going pruning some this of percentage the continue Is that start lapped a there you time and expected the to can an the year on. out of you could customer was going end to is or to that be coming margin forward?

Mary Laschinger

Yeah.

So, clear the we're how pruning about let about business. and what be we're thinking here me

quality the of the lot accounts So, into at credit we're a higher-risk space. time retail looking that fall

the challenges are on You in retail. recognize that going

what of supply-chain also we're so, selective on limit in making business new alignment on. our We're more taking being with some And choices that capabilities. we're more That those to is risk.

we last we'll percentage expenses growth pressure was to year are see also From So, probably we X% course the did a have than balance accounts, anticipating some we've of That the changes result that's the margin. as still customer had We'll a pressure continued margin something larger in mix – what that growth higher although some putting but the where we we're the less And we over on pressures this of year, in of having X% business are standpoint, that have integration. margin growth. the due accounts, the year. to it better range. anticipating hitting that quality but are with where lower those accounts got for in operating

year, would into similar we balance expect to would business But some point. see of at So, be we the the maybe type modest some look to with improvement. we beyond, and turning a expect that XXXX for performance as

John Dunigan

that Is that there anything and that haven't that conversions met gone consolidations earnings could seen Steve, have the relatively – release well. you've better And expectations? the in the you system warehouse had mentioned Okay. gone also then, your or have

Mary Laschinger

Yeah.

a time period. those doing the three first the all, within given time time recognize at complexity at a of of of period, given So, things – all same

as better billing, and where area have seen sure our caused billing of into have that making is special conversions we slightly us packaging in it on larger our gotten particular impacted liked the that to – we've some we had think just accounts around in receivable. execution customers, I space, would've maybe collections requirements delays

only accounts. where some area be high risk not things that an changes process a these called that with about – of we accounts, were that out They're it's but I larger wish that So, would but also of same – we're cost part the But was too there. of going changes conversions, and complexity through were systems not stronger the the price managing little at we time.

a a environment to should more So, in we – it's that created than and has how challenging data more few say, a has pause I non-stable challenges would've caused us been liked.

of of increases, we're price conversions. like increases, a doing lot of it's cost lot So, storm the perfect while a

John Dunigan

cash those for me And in needs to Packaging. an the that last had receivable, working flow requires to by Okay. free of but brings question, you mentioned, my kind that's the hit partially as $XX offset capital being also accounts target million improvement

with is the capital? full range in still is will that For still year left I of for conversions expectation expectation there's thus that that working X $XX a half far? year, the the happen, total to get lot still million but a

Mary Laschinger

Steve?

Steve Smith

half working outperformance It is. year's $XX first And up million this the net million. is Year-to-date, last dollars. of of couple the versus about first capital year's is half

flow. you If be year, cash full-year And $XX million. as that'd about that, double $X free million to we last were printed our clearly,

$X plus $XX the metric some of achieve of outperformance, do we're in capital. right put million improvement So, assuming anticipating $XX by accounts roughly last us that working around will receivable, million the with provided million, the year, we

John Dunigan

Thank great. much. Okay, very you

Operator

from Keith comes question the Hughes of with SunTrust. next Your line

is open. line Your

Keith Hughes

questions. Two you. thank Yeah,

going it be Print the of just customer going is in discussed, base like? down in consistent this I were there. to But get probably lower or declines, declines you there's too in is kind know look you less. future a future as predict think, the you what First, core – hard the pricing to some the to to is

Mary Laschinger

Well, around too I – admit, unpredictable. you've and the be Keith that one it long to been a will business for is – time first

X% on consistent of range last X% in strengthening about years to declines categories. of historical, front. the the of most see And are volumes couple pricing with been have in we However, continuing to the

for it's categories, now a get the in pricing in you will product starting is slightly decline has hit continuing up, if that is that that it reason what which pricing look so, impact we're just And bottom The where we point of the volume makeup but it's getting range, to to positive uncoated freesheet continue but because, going ago. see a better. that what's think above been year slightly those at of at from we're

more has And but the on prior-year it pricing And – above and supply/demand so, balance tight. lows, companies there. front, against been on there's remains upside then, do And we been up, has have believe allocation. going coated quite mills but

So, decline. momentum. think positive there's continued volume We price continued

Keith Hughes

So, grow stay to Is saw in that you still say? able scenario, as margins this place. like quarter be in we this would fair to variables long as in those that

Mary Laschinger

able in our would We grow have to anticipating. the again, as But, arms have around quite is issue debt like managing don't have aggressive long sometimes, with that do we been feel we unpredictable, we but portfolio. we're be we it. bad significant margins it that as And not

Keith Hughes

some Okay. for you customer decline in quarter? primary in the Is rationalization. then, And Facility in EBITDA that discussed EBITDA Solutions, reason the what happened –

Mary Laschinger

They're a business operating mix, growing this hub is plus combination in We're We by stable supply still as products we've that the into I around. customer slightly capabilities higher with of a the moving this some we're but don't our of mix still challenge to customer rolling and that. it's integration. spoke. – around that, have chain margin, expenses. result lower we hit with of the got continue particular And also change Well, have think customers volume

So, it's of a combination factors. those

Keith Hughes

you. thank Okay,

Operator

this call I remarks. at over for will time. questions closing Laschinger back Mary now There the to are turn further no

Mary Laschinger

Overall, we pleased second everyone, with are questions. for Well, your thank quarter you, our results.

you great EBITDA speaking to financial to We substantially And of share initiatives to we you achieving year, be in to – November complete these, end free results. the quarter the forward we look a activities expected third by we these cash adjusted with for optimization $XXX integration guidance between at when operational element and Thank and flow. least complicated on underway year. even end Thank the to still have million and XXXX, Have set of in targets again for of you. committed million us $XX million even today of the with now we a joining our the moving complex are of are now With long-term our $XXX strategy. the our day. of with

Operator

concludes this conference today's And call.

now may You disconnect.

Veritiv (VRTV) 12 Aug 182018 Q2 Earnings call transcript