GCP - Earnings call transcript Q1 2019 | GCP Applied Technologies Inc

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Operator

Good day, everyone, and welcome to the GCP Applied Technologies First Quarter 2019 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to Mr. Joe DeCristofaro. sir. ahead, go Please

Joseph DeCristofaro

Chief Hello, call. thank call With Executive Financial President Poling, Shannon. Vice Dean us and President are for on Chief Chief and Dearth, Randy today's us Officer; Officer; everyone, you, and you Freeman, and Officer. joining Greg Operating Thank on the

click slides Our To go please download presentation quarter's on Investors are for and tab. the release earnings corresponding available results copies, to this and on website. gcpat.com our

under to U.S. today may comments of of statements Actual those be Some factors. securities will results federal forward-looking differ projected our laws. or a from materially implied due variety

We detail non-GAAP in financial on certain will earnings morning's which release and discuss are more this our described in website. measures,

update, and will our I'll are initiatives currency. turn of both to prepared Q&A. on discussion highlights outlook. in business over EBIT constant Dean's results comparable in margin that, basis, which Greg. or rates Our to the discuss currency release. to the margin, refer for and EBIT refer a impact Randy to margin defined the out today and a statements comments of and to growth measures include revenue financial our on forward-looking All references stated commentary this adjusts With and References will remarks adjusted associated with as commercial adjusted and Greg foreign us to EBIT, the non-GAAP gross to will start press adjusted call apply our financial

Gregory Poling

start construction SCC's benefited market increased our expanding prices gross the exits, Good VERIFI particular margin quarter, progress the from and first reducing season. slower expenses a higher morning. operating our in planned and we significant made sales. earnings despite In to

revenues year-over-year our impact, build expense. having cash flow sales positive XX% EPS grew quarter, X% year. as of remainder a are market lowering reducing exits actions and VERIFI exclude increased of and these the impact improve we adjusted our In to on we The planned year-over-year of interest we our grew Our the the taking debt and we as the a markets. improvements if are SCC's first penetration. throughout to continued result unprofitable adjusted expect from

margins SCC last to compared year. improved Our significantly

are gross segment a improvement this in supply last destocking, and distributor SCC XXX our a performance second basis sales and operating of primarily versus continue in SBM, and in for to markets to margin XXX North due season our across expect sales business declined to and in our on in quarter Building to focus growing off to year. We're margins BCP's residential the better on lines track start construction the points due good the XXXX. In slower April product improved SBM America. start with efficiencies. Envelope pricing We SCC, chain to core

SG&A job SG&A Our XXXX. operation teams our continue declined which on logistics, expenses, for details of give chain, year-over-year. to managing good efforts we on did supply Randy additional focus remainder will a the expenses you as

value. As to company to and shareholder financial alternatives continues announced strategic, we operation the maximize February, evaluate in

update over plans. an and this the like turn for appropriate. to to process I'd on call initiatives restructuring on provide will details when We commercial key more our Randy now

Randall Dearth

good morning, and Greg, everyone. Thanks,

XX%. declines quarter, in sales Pacific. EMEA just X% growth excluding sales Asia Latin and VERIFI increasing North Greg over the planned XX% good and up quarter the our in installed with grew in in truck market As SCC first were offsetting impact mentioned, exits, base America the with of America,

will the growth new healthy pipeline year and existing expect in sales VERIFI and a of progresses. annual in over basis on XXXX. customer VERIFI result This XX% quarterly a opportunities have growth of accelerate as We to

with the restructuring to to construction savings improvement SBM slower America. delivering was and we operating prices lower. season higher that expect VERIFI XXXX SCC, geographies and segment Volumes from for were gross in and program, our margin under a along strong Envelope nonprofitable in the exiting start experienced continue. North resulted which in sales, This we expected are repositioning We program. Building

Asia China in the activity transportation performance with particular has segments. in been However, having Pacific strong, project in infrastructure and healthy commercial

Our by business quarter. impacted was the in distributor residential underlayment destocking first

expect We of second normal to to year. inventory the recover levels this half in

destocking, offer not and promotion. we While did customers are discounted maintained sales discipline a price

sales margins For were operating SBM's due declined flat lower gross and quarter, this segment volumes. margins to

underway. Our XXXX well restructuring program is

some me this on initiative. provide details Let

we reorganization First, American new strategic we which accounts. large pursuing North integrates into and admixtures timely with admixture a implemented as are number sales structure, of existing VERIFI have is This a VERIFI opportunities concrete organization. redesigned our and

business Second, we covers strategy, processes have program warehousing and our and purchasing, sales with chain support our supply GCP's execution. functions. The restructuring manufacturing, other global moved logistics, forward

have our We to function. improvements installed process are a and logistics strategic a implementing of number sourcing

a Our goal effective processes and more is create to simplify examine key model organization. our to our to efficient, current business

XXXX with $X estimate million remains the approximately XXXX. program associated with Our benefiting savings $XX million for

on XXXX. costs our combined call as Dean? in XXXX look to progress initiative I'd continues. turn this programs XXXX financial providing expect like guidance. annualized million We and on I over forward remove to through our now And $XX for about to our the and Dean to further performance details updates

Dean Freeman

and Randy, everybody. morning, good Thanks,

first gross to a the million down by $XXX to America expenses. and in double the exits. SCC in quarter -- at Latin X% a were margin margins X% increase to operating and offset EMEA quarter, when revenue first down revenue growth a countries. the million, in are comments Sales exit rates and you exclude were sales sales revenues gross Adjusted to basis. the million. decline in digits consolidated my XXX when were the in points $XXX about of countries. the market including basis on GCP's you exclude a were Just In the $XX currency were exit Sales the declined up and reduction all exit constant increased EBIT lower XX.X%, associated as reminder, X.X% year-over-year from unchanged our margins X% adjusted due

the that of gross and XXX SCC's products place. with the sales saw. were residential with were in in down restructuring me, inflation gross material down offsetting million principally result The we of a prices the strategy the of XXXX excuse volumes expenses unprofitable margins Randy margins, Adjusted put down a XX% fully unfavorable or impact Greg with consistent positive operating overcame the free Segment as income quarter. price raw operating costs increases of cash points. favorable versus on use up XX%, cash X% a we Higher a sales $XX costs. to $XX million quarter income cash of compared operating million markets margins of with lower XX% year's year-over-year. raw volume. the -- revenue more grew first volumes larger due SCC Building last as our was flow interest expenses we specialty the payments were was respectively. lower is improvement lower while to residential declined the use of decline market programs in geographic of as the SBM's SBM's Our X% a pointed as in $X Envelope and year. by due to material the SBM lower the offset operating of cash logistics and than as impact exiting were core out. focusing remain having year-over-year decline improved and the on quarter last the offset mix basis higher result of segment by product first

year. for have is largest the our quarter cash use the first As quarter noted, we

our the previous forward project to lower Looking We The expect to be rest change of now X% guidance flat. and approximately timing. to XXXX first volumes guidance in primarily the approximately of sales versus quarter is XXXX. down the due

basis guidance to maintaining to EBIT XX% adjusted improving expect to growth and $XXX XXX continue margin continued and management. pricing, our or to productivity X% earnings $XXX points on adjusted EBIT improved million expense are the We million XXX with of

Our continues plan of XXXX our savings that in adjusted price million will EBIT restructuring P&L assume the to impacting offset inflation. and impact forecast $XX in

second The increases economy. compensation, normal weaker takes of into partially well investments annual low guidance construction salary higher-than-expected VERIFI in certain a to as a these range of EBIT Just inflation slowdown by guidance, increases offset in are end be stronger top The variable from savings and our clear, as and reflect would program. the activity account in our inflation incentive our a end project result trends. expected moderation of activity could half that growth

about But X% For SCC, growth to exits. for to were when as due adjusted exits, the that's to forecasted, to expect exits. X% X% market X% for be sales to market X% market we down adjusted X%

gross program a margin XXX margin We expect XXX savings. of continue of segment to operating result to restructuring and higher basis points as improvement

compared flat approximately SBM, lower now expect year be to sales due For prior to volumes. we to

resulting to of gross XXXX points. productivity, higher in margins XXX improvement expect in margin segment due We and basis to operating XXX price

tax adjusted of an XXXX forecasting are rate XX%. and We between for XX%

Our adjusted working modest of made due now With to timing, our year. the guidance $XX shifting $XX flow the $X.XX. to free remains EPS second and destocking to half million expect million have range adjusted last forecast. $X.XX to to capital of million sales adjustment compared $XX we a We cash project in year

over Given timing, turn project that, now And second quarter. stronger the the we slower than be quarter third and it the to season construction start with Greg. to the expect I'll to

Gregory Poling

gross improved operating expenses. making is GCP Dean. margins Thanks, with and progress

with penetration technologies, including We also in continued market VERIFI. new see increase

expect margins we our continue your the questions. for our the our enter improve from to thank We look as we and to and you We construction peak and sales programs. call, to forward benefit earnings season to restructuring joining

Operator

first Global take [Operator Harrison our Securities. at we'll Instructions]. question And Mike from Seaport

Michael Harrison

a sense season was you the that a specific you the the North of how America. slower can to or the sense segment, can of you to magnitude a also much magnitude attribute I'm maybe SBM wondering of I of and the provide just you wondering start give impact have saw destocking the a if the weakness of that magnitude to us of if weather QX. of And construction bit in could maybe sense just in little

Gregory Poling

out some Mike, on inventory of in destocking, and our in especially we guess checks, I have move best on North done is we Yes. the that customers' good say mean SBM, to the our I did about America. residential I look, half warehouses. starting and question. decline. half have that market weather we're business, mean would see is rainy the

rain and had So an impact out. of they've a the inventory that moved on that bit

destocking. on res, So was that

weather little running, well, sort that bit of of admixture On and America of weather. due as the business BE We the up impact impacted due to business, get the picking had the same been projects to the to of the there the start. That's a on that decline up so half was about ability some as volume in North well. decline slow

Michael Harrison

also strategic wondering on was then quiet just with And the also any of the kind All if us you regards process, been front. can fairly -- And wondering right. just give M&A to alternatives update on you've that.

activity going Just to to to some hold complete alternatives wondering expect the of active we and deals kind pipeline in you're be if until process. the should you bolt-on Or there there? are strategic continue be on

Gregory Poling

spending company value. and create terms the are of the a going Board time look both through in that and of shareholder We the alternatives lot to management the at

come. We bolt-ons. as going the have frankly, not we're come looking disciplined stopped as and stay we'll they to up, But take those at bolt-ons

and to focused company fair So focus it's opportunities quite out there, bigger at energy significant stage, a the on say strategic to but at the the improving picture on are There's going to there bolt-on we've of of the fair, looking the side and look nice been we that. with think the last going I at been in this But the quarter. a the through do and the managing expenses. operational it's think be alternatives the operating activities issues, amount And to we're pipeline we're spending very margins here for us. think to I say, be fair has

Michael Harrison

earnings makes sense. And That cadence. then on the just me last is for question

the QX to at end than there that expect stronger QX. would mentioned be you You

QX about appreciated. additional any provide we of would thinking be can how on kind Just QX there should the and into earnings cadence you color be

Gregory Poling

let on tell on you, some the of I'll quarter. Dean some to ground, projects Mike, I Sure. come take earnings pushed the cadence. of third the that the project, But as the will start into larger they

third And product, it. up see see quarter, the up little activity also that the starting a business, in have that's bit res to some destocking historically, So that might especially pick but the of showing we'll of come earlier. which in we

a inventory out to I say we Dean, little think going really it bit disciplined do on any his Randy allow pointed have move that that? so in discounting. of to you shifted more out We're around were comments to any revenue.

Dean Freeman

the as so impact accelerate a actions the well. third mean further an you some I have the on and shifting on fourth mix that then project earnings activity restructuring of that I get impact as there's result of and think Yes. will will and the benefit quarter

Gregory Poling

other a that one points see We go margin little the bit on a we'll SCC hundred through continue SCC the thing improvement in inflation probably the see we'll We'll move to improve the see start inflation. to and through of against had we as Mike, XXX on basis points some year that couple of probably price. basis system. of of

for the a VERIFI in that the -- the the with pop working little way system that's through get quarter, So by you quarter bit third sales, third you. of a its

Operator

Alexander of our Laurence next Jefferies. come question from And will

Daniel Rizzo

for on Laurence. Rizzo Dan

Gregory Poling

Laurence, we you. can't hear

Daniel Rizzo

now? hear Can you me

Gregory Poling

sir. Yes,

Daniel Rizzo

you now? me Can hear

Gregory Poling

yes. Yes,

Daniel Rizzo

Sorry Laurence. Could quarter material on costs are Dan just your color and that. of having what the This I'm issues. provide forward? effect for phone Rizzo in expectations you on about is raw the going

Gregory Poling

we piece, Yes. in Sure. price. let negative of I'll starts or had basis the got the Oil that we a bounced number of up We Randy with prices, first We something are where first about speak about chain inflation you overset but on total what well. We price add? supply a expected it. certainly estimates, about with to XXX to a quarter. did But of it that general our inflation quite that at saw expect points catch as Randy, to in relative to plus level, bit say was It's quarter. minus. the And inflation. the

Randall Dearth

supply just chain can are I No. initiative. add that, two to the

year. that as well. of are seeing We rest around we're a and and to the our the through of purchasing will helps of in already Greg's benefits discipline continue in good lot point, But the bringing and pricing that best putting really practices strategies

Daniel Rizzo

-- the in Has have is it of givebacks? you been of deflation ever cause part a a kind is then prices there oil and How the large if recapture you does sticks price is once process where price, point it it past it that forever? can or Or there that work?

Gregory Poling

as that price that hold it you is -- some then pricing to we're and I Last we while -- as takes half. it exacerbated have, And really initiatives significant through. second couple seeing in a takes back, the customers for now, better a And will the Historically, well. of the what some of is, probably happens but it expect us ask year It'll inflation. on frankly, through we're Right inflation that a about where quarters the on get that the price confident. get we come said, it, other was relatively end if certainly little we'll deflation. on price the

In fact, they're continuing to improve.

the So pricing good I that think year, the for is shape. really from standpoint in

Operator

Research. And will Morbelli come question Rosemarie from our G. with next

Rosemarie Morbelli

this terms on you inflation, material you half second say on of the in to the expect the expect in you be half? up just basket last deflation wondering, actually raw your following was better question, growth when do I second question,

Dean Freeman

there. will expect and moderation capture No. as more more we third We and the through in and well. the second as We more quarter inflation out feel a offset of that saw first inflection just that's coming fourth we the of last the the inflation as price quarter year of than

Gregory Poling

have we Well, some last we year, did quarter which third lap. significant ramp-up

So a that on of from improvement it's sort hurry to standpoint, an ran up -- going there. everything us to optic on in show an corridor, just

improvement. in that So we'll see from just quarter, some that perspective,

Rosemarie Morbelli

how away of done? your where Are stand? of you you exit think you Okay. you about terms do to more do in Or certain going just are from And at walk much geographies, looking revenue?

Gregory Poling

Randy let I'll answer that.

Randall Dearth

No. program we outlined with that We're our in the done remarks.

and that to part these the much So and certain now we're that look making do -- few pretty culture I actions say program there need need to going mean company do businesses exit was business we XX%, will how are we're we certain I, be make forward so as Phase XX% with accordingly. business countries would There's where decisions looking at complete constantly strategy. at of more is country things I about we that do our smaller that. in our be done. -- and we if a

Gregory Poling

standpoint, said, $XX run million a from million. was But lower a which rate we quarter, is to $XX what, it On $XX million the about exits. first on quarter, a revenue

exits for we are we So projected pretty much what the on done in that. of with SCC, terms

Rosemarie Morbelli

strong that in any if so year kind Okay. of the said the wars expect from slow for we tariffs, forward Pacific, And you Asia quarter, business of you, at then trade the the settled? was to which going impacts down looking for nothing particular is balance should

Gregory Poling

things. question. Yes. say I Good two would

good market, we in On local had the growth. China, pretty

Asia Our infrastructure, the nice we business, China we high double-digit in where especially in in Pacific had BE China. growth, growth on very have products

we in they the China SBM piece. it's raw tariffs choice pipeline, would the standpoint, import, as a than versus the build good on of -- a and U.S. in from most is I it in on in it less that pretty U.S., seen cost chemicals out XX% our you what that is So lower the having and haven't impact we infrastructure material tell

see the some materials it's those raw lot impacted. the aren't So one few we the of us volatility don't import in that obviously in off rest U.S. impacting materials of issues those We world of China, a just buy supply because locally. manufacturing the we do but chain

Rosemarie Morbelli

versus balanced you if about destocking sites. own touch lastly, you distributor's your destocking? then Can may, your the I expectations? the you at And talked Are on

Randall Dearth

minutes and procuring we're totally part revamping at inventory. our material raw comments actually is made Yes. back to looking And and purchasing of how a my ago I materials, that that processes we're few just is I our go

the indeed, processes hope months, we see the that. to So an over coming over implementing, through we're improvement

Gregory Poling

the construction a up quarter season stock in as goes. usually bit the We fourth little

So business, our and those products inventory frankly. We Again you to don't SCC in move of be the know, is as quickly. where have an we terms through want carrying. issue it relatively in

shape So we think we're our on in inventory. good

Operator

next will our King. come of from Godfrey CL George And question

George Godfrey

on is the slide first The from deck question X. Page

strategic options? the going the we're operating that "Okay, say, I'm February announced initiative where specifically normal outlined delivering time are on just of line evaluating initiatives you long of all back XX. you to to thinking under and long-term the path You a value, strategic you How What business"? is mandate everyday

Gregory Poling

terms haven't that on time we robust some supply George, looking relatively taking are raw not process given looking we're just the line in fact a across put But We're our and materials, strategies at chain, a business, costs, G&A actions on in all of that's that those for opportunities we of that. of through. operating We're a part at time the what frame we're activity. through total expenses. But had activities. us, going and

date we frankly, that. for So haven't given a

George Godfrey

Okay.

Let would one of be expect say me this at you should now, put process anniversary the -- from to that year? way. the or I completed year full it A

Gregory Poling

Directors, robust I but too Yes. just on a of time get get the an But don't we'll we answer. I want put the to as not Board be And time, frame we're to we're running obstinate, question. a you proper a to process. -- give we're it, going

George Godfrey

would million, the it of flow million GAAP it was range basis, free guidance, then in basis a $XX to million $XX Okay. On cash quarter, million adjusted on GAAP cash adjusted And about $XX the flow, outflow. -- was a was about $XX -- cash a full going free for this the Fair enough. delta it annualize and against and GAAP If around that say year. that that sound free free adjusted apply to your on with flat flow, cash flow is be Does I of this $XX reasonable? basis it so I million. the year

Gregory Poling

our slightly adjustments down for flow the of the should of half it our quarter extrapolating the be you to we I sort and restructuring programs but programs. repositioning of balance as cash mean -- come moderate adjusted of year, expect first adjust year execution It -- free flat the we the yes, to at complete the it's the the back to when at

GAAP would I So to operating expect positive have flow. cash

Operator

And our next of Sison KeyBanc. Mike question will come from

Michael Sison

the thoughts talked terms and of second your shapes with have and better you [indiscernible]. the just needing lot the up year? half of the versus of kind tends a for half backlogs because A on it that be of seasonality second the But companies to project in the of of how case first about year, any half

Gregory Poling

SCC, Yes. volumes. Mike, me a the On about shot that. take rate let run at it's

And did in SCC looks have so we that and picking are North to like -- a volumes the those actually tends America little business. up slower

the are We back visibility But that a SBM. matter the fact pipeline have got it is specifications a of is bit loaded. on good there. good We've due project half to

of a work a One some that first the good and was we projects on we're bit great the us quarter, specs It big did had project. little airport frankly, in got starting that canceled. hurt -- was that Mexico

got took first a sales bit But So quarter. around good pretty in out our that we've world. little wind the of of visibility the

business, Asia in there. good some is China work growing. our We're Middle doing the Our project East business

be Of this paid America the a projects course, to last get end projects and North cognizant got and bigger the lot making we've tends be that of at there. sure of some we midsized had hard year on of we work very the year. And we delay collections to where

the So good. of pretty projects number looks

half. quarter good look, second the that the in So that's think I guide destocking, a the and had will end

Michael Sison

on then it's the question And a Okay. and business sounds like up. VERIFI ramping

an a XXXX, I terms plan was If type a be hit the that platform? does can admixtures in business? to Or you size business, it of construct can of in, have be of of and growth XXXX stand-alone your within think, it

Gregory Poling

putting allows with real between at bit and interaction truck, data that quite the terms It's with cost access the mix of on and of the savings business the the is there. opportunity our a the value that transit admixture there Look, the And as model the are, are, in the for our where we there's chemistry where look us to the integration relationships the admixtures designs. play customers growth. that ability that's That's in equation.

we're So admixtures VERIFI About the admixtures it's who from not of buying force, you we're our are half stayed have admixtures, that that, getting us with are sales clearly buying an And gives talked the historically, forward. about and said people very the penetration. from are that us and been -- the concrete nice which our some an relatively integrated as opportunity consistent. side through signing I've word are customers buying business also but -- up Randy on this, Randy. admixture on has business, in accounts want going The to a us Maybe totally integrated. numbers say

Randall Dearth

customers. couple to would going a a I consolidated very be No. of able have team of and of seeing sales ago want out say, as started the that. and the pleased well. integrating admixtures, both it's benefits We're to I quite that. working the organization VERIFI to to with add to the already sell months our sales to just We We're

Gregory Poling

just If you VERIFI probably first it XX, take quarter, that add to -- the XX points, points SCC basis bit margin about gross basis added in to number. XXX improved to a little

it's that's integration there. improvement So driving the

Michael Sison

other big you're markets talk can weren't that maybe markets you to then reason a the make markets? think you you of was about if you the in I stayed difference. a that -- where enough about you bit SCC, for those maybe you or in think exited a dominant And it. the can Got lot positioned little

how positioned compete you're the in helps markets in how describe size you term? you just technology maybe and much longer So in those and that stayed

Gregory Poling

question. great a It's Yes.

countries. Kong, VERIFI, very market country Brazil, U.K., we strategy think about Australia, America, and with the the chemistry admixtures, well Malaysia, the we're of in integration in deliverables selling strength these of selling a As other the number we on Singapore, that organization, Australia, U.K., out have allow we're countries. positions North our frankly, we sell-through in that these we're contract there's the markets, we're in the appreciate are they on markets Hong to nice and the of is the the data, the number really going that these in of to selling. products our bring And into We a intersection to do be markets. VERIFI now it us Asia to ability of selling Pacific technology happen and with Singapore, equation in number a in these of working The VERIFI customers new value

is the have the on term, good admixtures, It's VERIFI strategy. that and our relationships, position, focus of admixtures add market technology strong that basis with now long sold an with the new we where infrastructure VERIFI. some integrated So then and over to

So strategy. that's the

Operator

Instructions]. [Operator

Alexander Our from Jefferies. Laurence next of will question come

Daniel Rizzo

It's Dan again.

Just want to follow-up.

it's in simply or past China doing of I was past things small very recall, China You part how I'm if grown I few mentioned fairly your terms well years a I the important of in was just thought demand. if the know I is. in misremembering. China wondering just of in kind that portfolio. want to

Gregory Poling

No.

You've right. got it

do magnitude. on airports, it's down infrastructure. total, -- businesses, in a We've of the subways, bought Where were on some the digits that's insignificant, investments we we X% use markets for products. of ago. mean the very the specialty in sort great. X% years than We've growth. high nicely where the you're projects the it's some manufacturing. part I you that. company a mean there. the got our in to a that That's actually of got relative in not But in base, right, rest end I if If nice there a we're China, of that cement We got nice -- we've getting total in value. But think was I not that and the the projects products single Hong we're SBM high of number fit position. the revenue, And little China made on That the so but higher-end break growth But Kong is the have broad our it's admixture some business, is is do nice we to about better quarter.

Operator

conclude does we further appear does teleconference. time. your it no That today's all questions for have And this Thank participation. you at

GCP Applied (GCP) 8 May 192019 Q1 Earnings call transcript