VRTV - Earnings call transcript Q2 2019

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Operator

Good morning and welcome to Veritiv Corporation's second quarter 2019 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

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

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

information that results cause SEC in could in the to those Additional the differ forward-looking filings. contained from statements is company's

was includes, XXXX in section Relations veritivcorp.com. limited annual This in the to, our Form at on contained which XX-K and in issued not posted is report release the Investor risk but news factors morning, this

of comments measures are financial presentation applicable A Investor reconciliation measures Non-GAAP to found our in included these in are Relations US can at presentation slides. the section website. included the and the of measures end slides non-GAAP and the of also GAAP be in today our the

like I'd to the to Mary. call time, this At over turn

Mary Laschinger

Thanks, quarter Good financial our today review as morning, second joining thank everyone. we for Tom. you us results. XXXX And

thoughts some will also drivers expected of our XXXX the We provide performance. on important full-year

Our EBITDA second cash improvements quarter four free results adjusted were highlighted in and our flow by strong segments. three of

and and segments declined due the to publishing decline market packaging. and our largely below year-over-year, consolidated expectations print were However, revenues ongoing structural softness in general in

planned print portfolio in solutions the facility loss customer Some choices of quarter. and the the as we was strategic made revenue in derisked

the sales at down the $X for also about our core sales net were net decline billion, reported with about to XX% compared period, quarter prior-year XX%. Consolidated second

print, year over revenues all core declines. facility experienced were our packaging Our publishing and segments solutions while year, flat

of the replaced lease leases was negative and leases. impact quarter costs will by on second negative the impact This is the a was certain to earnings EBITDA. due quarter financing year-over-year. being in in about for X% have million, incremental $XX declines EBITDA these adjusted adjusted in the last volume The reduction down earnings Consolidated print year-over-year operating which

margin offsetting costs. pressures and improvements earnings Somewhat on these were lower

Shifting second expected core year-over-year, performance margins. with our Packaging's revenues in the but in review now adjusted by as quarter, with came flat EBITDA to improved segment.

packaging US softness. Our We our the experiencing market. in business are line believe is roughly some overall results with

sales has market XXXX from US down to into XXXX, second of slightly flat products weakened of half year-to-date. The and the half of the with box first resin-based shipments

growth is rigid in However, our year-over-year and has digits over prior-year up the both strong sales high-single and packaging experienced earnings product line quarter.

Packaging's adjusted margins was partially offset lower to X% about increased improved increase by costs. quarter. and in second earnings our in US due costs EBITDA storage delivery business, the increased The

to revenue we For last for improve and to margins adjusted year year full be of EBITDA growth packaging the around GDP. expect XXXX, from

and continued packaging, XXXX Rigid balance more but a certain not less large US growth, parts growth softness price digit our increases, as to be from high-single supplier customers due benefit robust modest the likely of product business packaging of as expecting our will line, with is business. of in the

a saw segment of decline was by strategic principally decrease solutions the second facility year-over-year. choices. X% Our quarter This core revenues driven in

driven expenses. Facility in selling by about solutions second well and operating X% the as adjusted EBITDA quarter, margins, increased lower improved as

particularly make align in United order better strategic on as to the customer our of well the distribution, as States. repositioning and with choices customer success focus strengths in by segment dynamics, market, channels and product are We for to continuing

these a have are business. said we As being before, resulting in more profitable facility but choices solutions smaller,

the first XXXX choices similar that solutions just of trends revenue due to be to mentioned. facility For full-year XXXX, we of the half expect to

during experienced a core by improvement private to focus well expect label. key an of offerings, further the product year, first the in continuation on half year-over-year adjusted led we EBITDA of including However, as drivers see as the a

industry pressures by the partially segment, continuing throughout with in affect market inventories for secular by print declines our offset revenues. driven nearly our to continue volumes, prices. Switching Print to unfavorable coupled declined quarter, core the excessive second revenues channels, increased XX%

to In reduced portfolio previous on we credit negative bad the improved and of calls, debt have our addition, our which in to risk we choices they impact mentioned our choices are as have These volumes. our accounts and receivable on making have manage has, charges. segment, print a quality continue have,

The expenses. XX% pressure, lower partially EBITDA print due margin revenue and was down approximately adjusted segment's decline by offset year-over-year to the

We the will XXXX. revenue negatively of continue expect to industry impact in print's secular trends second half

also could product and the adjustments will partially as implemented volume model business base to our the experience in continue worsened declines offerings. earnings XXXX. customer XXXX make only we of we market in volume We print offset changes effect declines The to

factors XXXX level. these of significantly XXXX into account, adjusted than lower the all Taking print EBITDA be to we expect in

second core XX% Similar to impacted the the by declines The continued approximately was quarter. decreased publishing publishing revenues in volumes. the in segment's secular print, market

XX% cost EBITDA to this stabilization from of management. the segment actually improved increased prices margins due Adjusted year-over-year in nearly and effective

we remainder environment a industry more stable XXXX, the with consistent are for and moderating. declines volume declines prices expecting For publishing, of with

the at as We level to same XXXX. expect earnings be roughly

can past, order impacted As patterns. this changes we the customer be by have noted in in business

Turning now XXXX to consolidated guidance. our

million in this about in of be declines of million quarter segment the and X% XXXX. performance. for a second EBITDA similar growth for include $XXX to range $XXX rate the print to adjusted revenue assumptions our expect Key to GDP We reaching range

volume to which resulted accounts receivables XXXX. in free increase cash post-integration the In compared was quarter The of due we improvements, inventory. process generated declines XXXX, a in quarter second of million to and of million lowering the second and $XXX approximately $XX in flow

on working of by first $XX the at and to process of are results can strong seasonality Due improvement, million we somewhat achieve in free flow cash half, focus we in flow cash offset post-integration least the in the a the capital continued second half confident XXXX.

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

Stephen Smith

Thank you, And everyone. good Mary. morning,

We results ending quarter the for overall first will the June review second XXXX.

sales, when reported the that net day for of those speak adjusting we any As results, count impact excluding net the and core we to note differences. foreign performance sales exchange referencing we please are review

As it days same number the of second quarter count, the as had of day we quarter shipping to relates in XXXX in second the had XXXX. we of

with shipping shipping the As a in less quarter additional one as reminder, same fourth third we've have having number the had one of quarter and in first in we'll day quarter, day the days XXXX. the

will seasonal more earnings in XXXX shipping Consequently, second into we half. same pattern our during days as but day in had shift the will already slightly count have of XXXX, number we the the difference

down were X.X% net billion, small from Consolidated adjusting sales period, net the foreign X.X% for $X.X from the impact currency. core a for with after down quarter prior-year sales

Our cost cost sold, less of of sales, of was Net largely sold million. a points Net up basis products period, the as mix. about in products sales sales, and sold, quarter improvements due prior-year from XXX was XX.X%, for less net percentage $XXX the approximately $X.X products was billion. pricing cost of to

XX versus for million down period. points Consolidated the quarter $X percentage $XX.X net as up the a sales quarter or second million, Adjusted the X.X%, was EBITDA versus adjusted prior-year basis for was second period. EBITDA X.X% of the prior-year about

packaging by million the Consolidated earnings While about declined a print in $X adjusted accounting the treated was consolidated EBITDA negatively absorbed incremental approximately from result quarter. affected was $X declined expense million million prior-year our million by how EBITDA of Most about of adjusted $X year-over-year, segment. that segment's leases as versus an are the perspective. $X

million Offsetting these the pressures million improvements margin earnings of lease Said on from reduced adjusted and management, approximately headwinds print costs earnings and sold $XX margin lower mix and costs. products the were accounting in changes, our with year-over-year operating these even helped segment headwinds. EBITDA offset only $X as differently, declined the

sales Let's quarter. for now by in roughly are core market. business. and were segment second We line parts flat our impacted into both performing net were in results we with the negatively slowdown revenues US and the a move believe the of Packaging's

contributed portion million points prior-year $X products million the from period. quarter. percentage Packaging X.X%, of up nearly a over in as approximately our was Offsetting EBITDA revenue a the basis revenue sales this year-over-year. adjusted achieved up prior-year Adjusted of line rigid X% slowdown, or EBITDA, $XX.X XX gains net

costs $X million. approximately increase improved to and earnings due business, of margins was US our partially costs delivery in lower The increased storage by offset

choices Facility segment sales competitive core X%. decreased decreased solutions was due to net service customer and capabilities. product align the increasingly while our dynamics that The X.X%, revenues we revenue making this are in channel fact that and to decline

as lower EBITDA, was period. by EBITDA year-over-year. contributed X.X% and sales percentage expenses. The basis driven selling points solutions a up million increase XX $X.X as of in as margins, improved well Facility primarily net from the prior-year adjusted increased earnings operating Adjusted

were market volumes, sales The manage revenues prices. XX.X% revenue offset with market in XX.X%. by down decline choices well The driven to credit we're print was and in increased segment were decrease a as declines These the experienced risk. by throughout making partially net secular core declines channel, inventories as excessive coupled

supply For million by margin reduction EBITDA, year-over-year. the partially second quarter, and selling down earnings sales of offset adjusted only in impact was chain XX% print pressure $XX.X a contributed in The expenses. and the decline

industry. decline revenues The continued decline driven volumes, decreased quarter. in a Publishing's XX.X% reduction due both net from core secular prior-year sales was and primarily to the revenue by the in

EBITDA can EBITDA, up The be year-over-year. stabilization to from improved nearly Publishing adjusted contributed the $X.X adjusted attributed effective million prices in XX% of increase in cost management. and margins

second million the entire experienced expense of $X.X company, down the debt we quarter $X.X bad second of million For from quarter, XXXX. in in the

segment For expense. the the reduction print in three in year-over-year debt first experienced a time years, bad

we approximately against capacity Shifting cash sheet available facility now of borrowed approximately had $XXX million. and $XXX end borrowing and At lending June, asset-based to the million our of the flow. balance had

receivables reminder, a business. is by backed and inventory the the the of facility ABL As

was At at our the period from times end of XXXX. ratio down end and times X.X X.X in EBITDA leverage prior-year the times, net June, the March of X.X debt-to-adjusted

to continues about goal strategic times. leverage X net be long-term Our ratio a of

approximately second Cash of for cash of $XXX generated flow $XXX $X was Subtracting million. expenditures approximately million from the about flow million. from operations, flow we capital from operations free quarter cash

have add integration cash the to cash restructuring activity, million. quarter and million $XXX would back due roughly If we free approximately been acquisition, $XX of for flow the items adjusted

free quarter and the was second lowering of due strong Our accounts both receivable flow inventory. to cash

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

now That are concludes Jody, we our remarks. ready questions. to take prepared

Operator

of Merrill from [Operator Instructions]. Lynch. John ahead. And of line go of comes Please question Babcock first the your Bank America

is Your open. line

John Babcock

good Hey, morning.

Mary Laschinger

John. morning, Good

John Babcock

couple of Good morning. A How you? questions. are

EBITDA an across those sense, did in company? churn, during First that customers managing on first and – of a of get to quarter drag So, of words, customer EBITDA some all, your wanted about during the couple just a that were businesses of you and quarter? were help talked churn kind some the they credit the other risk

Mary Laschinger

The credit because different customer context. about topics churn, within specific business, our of of couple let's we this risk. In around bad made talk choices a customers so print exiting

it heard us they our from the standpoint that impacted volume. So,

And losing a lag so, And correspondingly. how to we to to there's much respond out. and that always getting volume have take never is the precisely sure out costs that, costs we're between and the

regard, flip that on side in debt quarter we of adjusted that, we did what expense the But it So, hurt prior bad than our year. EBITDA. for lower did the had

So, it's combination impact. and both of negative positive a

or customers, pressure structure, our pressure as we customers supply but least we've match making support chain customer customer around and on at types that had business, volumes, we channels certain supply or costs capabilities we've we on needs our choices. we facility which chain as we're of been as our have had, out also made alluded those fast forward, again, be able in that specific service where We revenues put our don't exiting or move as more capabilities does want to to, take to cost our solutions to negative that those necessarily what want choices

So, margins, improved adjusted EBITDA. which improved our it actually our

John Babcock

tariffs a might I Veritiv. to Thanks first Okay. into X how sense, trade guess, impact of the wanted to kind And of incremental obviously, get And for there set for any And then us read there that. September on all, impact new about of is effect of dispute. set lot I then, go a also, US-China have to the guidance?

Mary Laschinger

incremental of anticipate buying that with costs the resell, Asia, our And impact obviously. So, date. date to had those we're have to we we is biggest minimal a to able We impact to that. that had been our unto business The situation in to specifically products we've continuing do tariff that we've on pass customers.

volumes choices make that We had customers with in had customers also and regions, other impact in of geography products our into Vietnam. short-term they move parts markets to we support specifically a Indonesia world into Mexico, the to the where business, and have of on as particular some going China, other had to outside-US have that out as in such move Asian that those and impact manufacturing has

impact there's or this on relates any so, to some cash to for on our tariff terms do with We been that. And regards flow. impact our outlook us short-term EBITDA in it anticipate not adjusted of as situation guidance

John Babcock

in China, been like that moved Okay. – our contacts heard part in been some that from of what's have that, uncertainty initially the kind of And guess, on this going sounds in – been it we've of shipments between might with shipments the XQ. topic, have into some market US some years this XQ e-commerce, on because put I hadn't in and and prior

a side, on get versa. half you're the seeing And from to change in shipments so, year I whether of vice in want particularly XQ of the second any XQ sense, to the packaging I the or the guess, trajectory

Mary Laschinger

half space, global the demand the at on parts that paper happening has and related change the packaging shipments and Middle issues the have would US business. of I that not as first year actually moved in has of in packaging In seen in East the somewhat it Coast. it's the the all that particular But tariffs Asia and we world imports world that impact to saw more related the other – of in the of paper imports between on date. a supply Middle also and seen But are side we say not the demand is to we front, other pushed but our have in East. into is tariffs, to an the West on What

because US segment. packaging anticipate are the forward having could the demand pressure in falloff balance Having that and anticipating of in on particular, in the linerboard, impact we on it's just which going in and on linerboard, Asia what said that, pricing is would pricing the of supply/demand and, boxes impact in and

John Babcock

on that, kind the if talk containerboard kind declining and that your And – me would prices next of of to be kind was actually impacts about us flow-through Okay. it really can question, that great. there, to of how remind results of you the just leads

Mary Laschinger

business try less that's percentage a price and our Sure. declines, with We tied to effort generally do – increases lag margins. it's price than – an indices. behind We and both stabilize have to XX% of our

so, small would posted, And move indices with the our we that are of percentage when but it's relatively business. a

because might the them a of off, And course they then level would over expect, you improving Generally, back for time. be we we to so, the down. to time margins stable and have come target try period could of lag, time

John Babcock

turn it Then thanks. Okay, question last I over. before

down some Just quarter. it paid you looked debt like the during

that in of if be Just more whether but just thinking guess, and working that you wanted debt, that, XQ, capital that usage by to for in get expect some given pickup you're during I can also a particularly time, the typically kind talk you year-end through how great. would we sense about leverage have should

Stephen Smith

the outflow use, in very we'll we expect flow Yeah. down we're mentioned, to cash bringing to seasonality, times. excess to first-half cash have and debt, the you in with John, and as pleased it leverage fourth. free cash do quarter because our we down free Due flow X.X possibly increase third to our that pay did

averages. to reduce capital And would so, half leverage in we would components, we're continue hard historical the typically see increase should that in year, and us versus this our and for to working expect an help although that working second we

John Babcock

Okay. Stephen. Thanks,

Operator

Mary questions. remarks. and Officer, Laschinger, Executive There Chairman no call back further turn the over closing Chief for I to will are

Mary Laschinger

Well, Thank today. summarize quarter just everyone, for like comments. would you questions few a your you. to I thank our with

margins, Our in meaningful are leading reductions working general, to efforts optimization significant capital. our in improvements and, cost improved

EBITDA out reduce had the has improvements headwinds in flow significantly second strong we us cash by adjusted which Despite our to three four debt. were print free revenue enabled the quarter in segments and our our highlighted industry, of very results

as the year. feel the So, the again, well of balance as quarter, good we about

the Have you talk to join you as Thank taking look November about in third And for quarter a day. great we us we forward with results. speaking today. time our to

Operator

This concludes conference today's call.

disconnect. now may You

Veritiv (VRTV) 11 Aug 192019 Q2 Earnings call transcript