Horizon Global Corporation
Q1 2017 Earnings Call Transcript

Published: 8 May 2017

[Operator:]

Good morning, ladies and gentlemen. Welcome to the Horizon Global First Quarter 2017 Conference Call. My name is Paula and I will be your operator for today’s call. As a reminder, today’s conference is being recorded for replay purposes. I will now turn the call over to the Vice President of Corporate Development and Investor Relations, Maria Duey. Maria, you may begin.

[Maria Duey:]

Thank you, Paula. Good morning, everyone and welcome to Horizon Global’s first quarter 2017 earnings conference call and webcast. Hopefully, everyone has had a chance to review the press release issued last evening. Our first quarter earnings release and the presentation slides that we will refer to during the call are available on the Investor Relations portion of our website. Turning to Slide 2, I would like to remind you that statements in today’s presentation will include our views about Horizon Global’s future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We have described these risks and uncertainties in our risk factors and other disclosures in the company’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. Today’s presentation also includes non-GAAP financial measures. Any references to operating profit or earnings per share on today’s call will be as adjusted, unless otherwise noted, with a reconciliation of these adjusted measurements to GAAP in our quarterly press release and presentation slides available on the Investor Relations section of our website at www.horizonglobal.com. Joining me on our call today are Mark Zeffiro, President and CEO of Horizon Global and David Rice, our Chief Financial Officer. Following our prepared remarks, the call will be open for analyst questions. If we are unable to take your questions during the call, please feel free to call me directly at 248-593-8810. With that, I will now turn the call over to our President and Chief Executive Officer, Mark Zeffiro. Mark?

[Mark Zeffiro:]

Thank you, Maria and good morning everyone. Thank you for joining us on the call today. We look forward to reviewing our business during the quarter and also ensuring that everyone is on the same page regarding the expected cadence of our business for the year, this being the first calendar year that includes the addition of the Westfalia acquisition into our global business. We are raising our EPS outlook for the year despite the fact that our Americas business got off to a bit of a slow start in 2017. Let's turn to Slide 5 and discuss the trends we're seeing in the business. With the addition of Westfalia OE facing business now represents approximately 45% of our consolidated revenue. We are in an advantageous position as we’ve moved towards common vehicle platforms in the geographies where we do business. Our teams and our global centers of excellence in each of the Americas, Europe and Africa and Asia Pacific regions are working to tailor fit programs that meet our OE’s. OE customer’s regional specification and also the global supplier needs. We’re encouraged by the positive trends we're seeing in several areas of the business and in the European and Australian markets in particular. While there are several compelling reasons for us to acquire the Westfalia business with the cost savings synergies being a major driver. We're encouraged by the overall growth we saw from the businesses in this first quarter. It's been our expectation that creating a strong foundation for our European towing and trailering business would be a future driver of our global business and we're pleased to see these early indicators. Macro factors impacted our ability to capture revenue during the first quarter as retail metrics recently indicated that this will be the softest quarter in the last four years regarding same store sales growth. Multiple factors came into play in the quarter including slower GDP an ongoing shift in the overall retail environment and consumer buying preferences. Retailers holding less inventory and a bit of timing shift attributable to unusual spring weather. For those who have followed our business for a while, you know the spring summer selling season is a big driver in our business both in the industrial and recreational market. And as a result our second and third quarter earnings typically comprise a significant portion of our full year earnings. With positive indicators like job growth during the first quarter, we expect to see a much stronger market for our towing and trailering products during the second and third quarters of 2017, especially giving the higher than normal shipment backlog as we enter the quarter. While steel costs continue to be under pressure and are being closely monitored by the team. As we discussed at the start of the year, we have a natural hedge in place through our purchase relationships with regional distributors. And we have announced or implemented price actions around the globe. A revenue increase of 39% during the quarter is mostly attributable to the addition of Westfalia to our European and African business. Organically in Q1, we experience double-digit sales growth in both Europe, Africa, and the Asia-Pacific regions. Dave Rice will do a deeper dive into the review of our business segments. But I want to underscore that these business segments exceeded our performance expectations during the quarter with much of the growth coming from the industrial market and from new and ongoing programs with our OE customers. When we look at the bottom line, our earnings per share were impacted by revenue shortfalls in the Americas and the timing of integration costs incurred during the quarter which are taxed at a higher rate than our consolidated business and accounted for about $0.08 a share. Because we're establishing a baseline with the integration of Westfalia, we will be providing quarterly revenues and EPS guidance during 2017. We thought that it was important to ensure investors and the street have the best possible view into the expected cadence of our business in this foundation setting year. Given the trends we're seeing in the business, we are raising for your guidance on a per share basis. Let's go to Slide 6, which provides a reminder of the three financial priorities that are guiding the business and remain unchanged. Improve operating margin to 10%, drive leverage ratio to less than two times. Drive consolidated organic sales growth in the range of 3% to 5%. This slide indicates the key drivers needed to achieve each of these financial priorities, but if we turn to the next Slide; Slide 7. We can take a closer look at how we are executing against these financial priorities and the progress we made during the quarter. The Westfalia immigration remains on track to deliver EUR 9 billion and synergies during 2017 and will position us for future margin improvement for our enterprise. We delivered on CASA earlier in the year as we re-sequenced certain program outcomes. Most notably we have made strides in improving inventory quality in the aftermarket business, positioning us for sales opportunities in the season. Europe, Africa's operating profit increased in the quarter to $1.6 million a result we are encouraged by as this segment undergoes a complete transformation in the structure and processes it has. Asia Pacific’s operating margin improved 11.4% and benefited from new products an award growth some productivity initiatives in our business from the team's continuous improvement efforts and lower input costs during the quarter that were affected by currency translation. We made a great deal of progress during the first quarter in improving our capital structure of the business. Bringing our annual interest cost reductions to $6.2 million per year. These actions of strength in the balance sheet and provide us with greater financial flexibility when considering priority for our cash whether it’s investing in the business and product innovation to drive growth, buying back shares of our stock on an opportunistic basis or ensuring that we're in a position to take advantage of the right acquisition opportunities. Our OE business continues to expand signaling the powerful impact this portion of our business can have on our current and future plans for global growth. Our OE business had 10 new wins during the quarter with an approximate $3.2 million run rate. We anticipate continued demand from OE’s in all global markets and its most worthy of noting that during 2016 excluding the any impact from Westfalia we delivered double-digit growth in our OE business during each quarter. Our organizational focus on one team one goal across our operations has the entire Horizon Global team pulling together to drive ongoing progress against these 3 important global financial priorities. Moving on the Slide 8, I’d like to touch on a few highlights regarding our progress against the programs on our margin dashboard. Well, the ERP implementation in North America occurred at the start of the year. During the first quarter, we experienced some growing pains as we fully ramped up the new system. We've gotten over these hurdles and believe that we will recognize meaningful efficiency gains for the full year 2017 and also recognize savings from this implementation. Further, we’re at the final stages of defining our freight and distribution alignment in the Americas. We're evaluating the results of the freight study and its implications on shipping lanes and inventory placement. Our initial indications project potential annual savings in the $5 million to $7 million range. We look forward to updating you on the progress of this initiative later in the year. Westfalia integration is on track. We remain on track to deliver the expected EUR 9 million in synergies for the full year. We’re optimizing the organizational structure with progress already being made during the first quarter and we're also flexing our collective size to leverage our sourcing and supply chain. All while improving the inventory performance level for all of our aftermarket customers. Remember that 2017 is the first year of our integration plans and our team continues to mine expected future synergies. Our sourcing initiatives continue. We progress against our plan to reduce a supply base by 20% by the end of 2018. Our efforts consolidate sourcing continue and we're gaining traction in negotiation of price as we leverage the borrowing power over a larger organization. Just last month we held our inaugural and I'll repeat that inaugural Supplier Summit in Shanghai. Why this is particularly of interest is this is the first time we pulled our Chinese suppliers together in the same room and it was a great success as we launched our foremost supplier performance expectations, new product developments to gain greater significance to our customers. We're increasing the speed to market and reducing our cycle times. Taken as a whole, this focus is afforded as growth from new product launches that support our industrial and OE customers. I’d like to now turn the call over to Dave Rice our CFO who’ll provide additional insight into the company's first quarter performance. After Dave's comments, I’ll be back to share some final thoughts and discuss guidance.

[David Rice:]

Thank you, Mark. In the commentary to follow, I will be discussing our performance in the quarter on an adjusted basis excluding special items which have been identified in the appendix of today's presentation. Also included in the appendix is the reconciliation of all adjusted non GAAP results to the most compatible US GAAP measure. References to earnings per share in my commentary refer to adjusted diluted earnings per share attributable to Horizon Global excluding special items. Cash flow and balance sheet commentary will be on an as reported US GAAP basis. With that, please turn to Slide 10 for a summary of our first quarter results. Net sales increased nearly 40% compared to the first quarter of 2016, the result of Westfalia which was acquired in Q4 of 2016 being include in our results as well as double-digit organic growth in Europe Africa and Asia Pacific. Offsetting these increases is a $12.8 million net sales decline in the Americas. Adjusted operating profit declined $4.9 million to $3.6 million to $8.5 million in the first quarter of 2016. Operating profit margin declined 400 basis points due to lower sales volume in the Americas and higher corporate expenses and we built out our home office structure throughout 2016. Earnings per share in Q1 reflect a loss of $0.17 as compared to income of $0.15 in 2016. The significant drivers of this result are the sales decline in the Americas and the tax rate differential between our blended corporate rate and the jurisdictional rate at which special items were taxed. Special items include costs related to the Westfalia acquisition, restructuring in Europe and the refinancing of our debt. As these costs were incurred in high tax jurisdictions, the impact on our EPS of reflecting these items net of tax was a headwind of $0.08 as compared to our blended rate. It is important note that a portion of these restructuring costs were advanced in the year versus our original plan as the team worked to achieve committed synergies while maintaining focus on servicing regional demand. Through the first quarter of the year, we used cash of $40.1 million for operating activities an increase of $16.5 million when compared to the $23.6 million used at the same point in 2016. This increase in cash used primarily relates to increased inventory in the Americas resulting from lower sales. Total debt increased to $280.9 compared to $211.8 million, while the net leverage ratio remained flat compared to last year. Total debt and net leverage ratio reflect the acquisition of Westfalia in Q4 2016 as well as the Q1 2017 recapitalization efforts. On Slide 11, I'll go to the performance of Horizon Americas. First quarter net sales in our Americas segment declined $12.8 million. North American business experienced order processing challenges associated with the implementation of the new ERP system, ultimately shifting the timing of orders from certain aftermarket customers to late Q1 early Q2. The retail channel was impacted by our customers reducing inventory of our products on the shelf as they respond to lower POS across all of their product line. The year-over-year automotive OE channel decline is due to a major program launch in the first quarter of 2016 that did not reoccur in 2017. However excluding this customer, sales for the balance of the channel are up over 20%. The decline in e-commerce sales during the quarter is primarily the result of reduced sales to certain customers who did not maintain channel pricing discipline. As a result of the lower sales levels, operating profit decreased to $5.2 million. This decline in operating profit was largely the result of decreased sales within the segment. Operating profit margin declined to 5.3% of net sales compared to 9.7% in the same quarter last year. The decline in operating profit margin is result of an unfavorable sales mix, higher input costs, and higher SG&A expenses which more than offset the benefits of closing [indiscernible]. Fuel cost well up on average approximately 30% from the prior year are still favorable as compared to the forecast underlying our guidance. As Mark mentioned in his comments, the team is managing price in light of increasing input cost. While the results in the Americas were not reflective of our expectations, the fundamentals of our market are strong and the team is committed to achieving our target. The Americas team remains focused on capturing the synergies of operating on a single ERP system and executing on a sale and distribution project. Engineering remains dedicated to delivering our product enhancement and innovation. Performance of Horizon Europe-Africa is highlighted on page 12. Net sales in our Europe-Africa segment, increased $65.8 million due to the acquisition of Westfalia in Q4 of 2016. Evaluated on a customer by customer basis, this segment grew organically by over 13% in constant currency primarily on new OE launches. Operating profit for Europe-Africa increased to $1.6 million as the business recognized EUR 1.5 million in synergies in the quarter or about $1.6 million. These synergies have been reduced for investments made in the business from a leadership and governance perspective and are considered in our guidance synergy achievement amount of EUR 9 million. Operating profit margin for the segment was 2% of net sales and we expect these investments to drive higher margins as we move forward. Europe-Africa team remains focused on the integration of the Westfalia business and realizing the identified synergies that Mark discussed. Focused on OE program launches across the region remain a critical effort for the balance of the year. Performance of Horizon Asia-Pacific is highlighted on Slide 13. Net sales on a constant currency basis increased 13.5% as we grew in all markets in this segment and the exchange rate for the Australian dollar became positive as compared to 2016. The net sales growth was the result of higher demand from automotive OE customers and the launch of a new product with a new customer in the industrial channel. Operating profit increased $840,000 to $3.1 million compared to $2.2 million in the same quarter of 2016. Operating profit margin improved 160 basis points to 11.4% of net sales compared to 9.8% in the first quarter of 2016. The increase in operating profit margin was the result of increased volume, productivity gains in Australia and lower input costs and US dollar denominated purchases as the Australian dollar strengthened compared to last year. The Asia-Pacific team remains focused on launching new OE in industrial programs while continuing to identify productivity opportunities. Slide 14 is the view of our leverage and liquidity. Our total debt at the end of the first quarter was $280.9 million down from year-end reflecting the pay down of the term B loan in issuance of convertible notes. Our leverage ratio reflects the seasonal investment in working capital. We are presenting both secured and unsecured leverage for the first time on this chart, but it's important to note that most of our debt covenants referred to our total net leverage or the sum of the two. For clarity our strategic objective of being less than 2 times levered will measured on a total net leverage basis. The term B loan was re-priced at the end of the first quarter, which provided us 2 main benefits. First the spread of our long term debt was reduced from LIBOR plus 6% to LIBOR plus 4.5% saving us about $2.3 million in interest expense in 2017. Second the amortization which remains at 5% was a reset from the $352 million of debt outstanding as a result of the Westfalia acquisition to the $155 million outstanding at the end of the quarter. This will allow the company to retain approximately $10 million in cash as a result of the re-pricing. This re-pricing in conjunction with the $177 million pay down as a term B loan in the quarter will save us $6.2 million interest expense and nearly $11 million cash interest. With respect to working capital, it's important to note that year-over-year working capital increased only $3.8 million despite the fact that our business is much larger with the addition of Westfalia. Cash on hand increased to $30.2 million from $18.7 million in Q1 of 2016 and borrowing on our ABL is down from $25 million to $20 million. Our overall availability of $97.1 million provides adequate flexibility to execute our capital allocation strategy. In closing, I'd like to leave you with a couple of takeaways from our financial performance. First, while first quarter results did not meet our expectations the performance of 2 of the segments was consistent with plan. The Americas had higher order ready to ship at the end of the quarter as compared to Q1 of 2016 supporting our belief that the majority of its volumes is attributable to timing of orders as opposed to sales. Second, the improvements made in the debt structure of the business during the quarter accelerate our path to less than 2 times leverage and free up significant cash from both interested and amortization payment savings that can be used to drive returns in the business. If you’ll turn to Slide 15, Mark will take over and cover our long term goals, discuss our full year and second quarter guidance as well as wrap up our prepared remarks. Mark?

[Mark Zeffiro:]

Thank you, Dave. If everyone would please turn to Slide 16, I would like to take a moment to remind you our Horizon Global strategic company goals. Every leader in our business is committed to developing the company -- every leader in our business is committed to helping the company to achieve these important goals. Our one team-one goal philosophy has just focused on meeting our external and internal business objectives. Something we discussed at great length during our most recent executive leadership team meeting a few weeks ago. These ratings bring together the business leaders and influencers across our global operations and keep our team focused on delivering outstanding financial performance for the company providing our global employees opportunities for growth. If you now turn to Slide 17, I would like to review the guidance we are providing for the second quarter first half and full year of 2017. With the addition of Westfalia we're providing greater clarity of our business cadence and expectations. This is our -- it is our intention that by providing this additional guidance during 2017 investors and analysts will have an informed view into the expected cadence of our business in this foundation setting year. As such we expect second quarter 2017 consolidated revenue to range from $235 million to $245 million. Second quarter 2017 adjusted earnings per share to range from $0.67 to $0.72 per share. First half 2017 adjusted earnings per share to range from $0.52 to $0.57 per share. If we look at the right side of Slide 17, you'll see our full year guidance components with all guidance reflecting the exclusion of any special items. The elements of our full year guidance remain unchanged except for earnings per share guidance which we are increasing. We're raising our earnings per share guidance for the full year 2017 by $0.04 taking guidance up to $0.94 to a dollar and for. This does not include or consider any impact as a result of the share buyback program. Clearly, we’re disappointed in the slower than anticipated start to the year. Results from the Americas fell short and as such our consolidated revenue EPS performance in the first quarter were not in line with our overall expectation. As we move through the second quarter, the fundamentals of the business remains strong and sound. We’re poised to execute and deliver on our plan for the year and the team is fully dedicated to drive performance across our global operations. We believe in our plans for the business and global opportunities we see, even more so than we did six months ago. We feel more confident in our short and long term opportunities for success. Please turn to Slide 18, they out performance in Europe Africa and Asia Pacific demonstrates how this business can grow as we leverage our cost structure in Europe and see expansive margins from all of our internal efforts. We are very eager and yet very early into the year and remain confident. That will deliver a strong second quarter and that will result in a first half that is in line with our expectations. Our expected synergies remain on track Westfalia. And our integration team is working hard to initiate elements of the 2017 portion of the plan. We're pleased with our efforts in the first quarter as they had hoped to enhance our balance sheet and provide us with financial flexibility. Importantly today’s share buyback plan announcement is a clear indication that we are committed to long term success of the company. We intend to purchase our company shares in the open market on an opportunistic basis. And at times when we believe that the market is not appropriately recognizing the value of our business. We are confident the global teams ability to deliver on the performance expectations for the full year. Our teams’ passion for products and customers is as strong as ever. We're focused on continuing to optimize the business and capitalize on the synergies and opportunities from the Westfalia acquisition. We’re steadfast in our belief that we will execute our 2017 initiatives as we also make progress against our key financial priorities. Our team is aligned and dedicated to drive our company's long term growth and success, as we also deliver value to our shareholders. I'll now turn it back over to the operator Paula as we will gladly take your questions.

[Operator:]

[Operator Instructions] Your first question comes from Robert Majek of CJS Securities.

[Robert Majek:]

Good morning.

[Mark Zeffiro:]

Good morning, Robert.

[Robert Majek:]

I was hoping if you could just give us a little more color on the ship that some words and Q2 as in why they shifted, what types of orders were those and what was the magnitude in dollars and then perhaps why the -- what seemed like a disproportionate impact on March.

[Mark Zeffiro:]

Dave you want to cover the financial impact and then I’ll circle back on the process?

[David Rice:]

Yes. The estimate that we have right now of that 12.8 as probably 9 of it represents a shift between quarters, somewhere between two and three. Probably -- sales to smaller sellers that had to go out to elsewhere products. It really was driven at the beginning of the period by orders that came over from our old legacy system into the new system and that created a challenge with the way they're listed discount system supplied and invoices so that slowed down some of the order pattern at the beginning of the quarter pushing them later in the quarter.

[Mark Zeffiro:]

Then Robert I'd add the following that we enter the quarter with in excess of $20 million worth a shipment backlog entering April. What's important to note there and to address your question around margins, as we continue to reduce the cost of manufacturing our product and as such you should see the continued improvements in our relative not only just material but also gross margin. So as such the expectation here is that we will do a better fulfillment job for our customers. Also be able to react to our customers need for us to be quicker and develop a free delivery of the product because quite frankly they're expecting in excess of 95% on time deliveries within a very short period of. So we're seeing that shift as well in the market as we want customers to hold us accountable to delivering things quickly and on time.

[David Rice:]

Robert, the only thing I’d add to that is the specific question around margin is that the impact of the shift disproportionately affected the aftermarket business. So that’s when we talk about an unstable salesman that's what behind that comment.

[Robert Majek:]

Thank you that's helpful and then can you also just break out the contribution from Westfalia in terms of both cost sales and EBIT?

[David Rice:]

We actually can't and this gets back to what we talked about the end of the year. We've began shifting volume between Westfalia and the rest of our legacy European business right away in Q4. So we're doing that and I alluded to a little bit in my comments to make sure that not only are we getting the synergies but we are satisfying market demand.

[Mark Zeffiro:]

Let me address that one. Robert the question is the right to ask and the reality of it is that we have historical legacy rising global plants now producing Westfalia product.

[David Rice:]

Right.

[Mark Zeffiro:]

So the ability to compare and contrast the two pieces is a bit muddled at this point and frankly should be muddled because what we're doing is we've taken our inventory, a serviceable inventory level back in thirties. And in terms of 30% quality to our customers in excess of 60% in the first 4.5 months of actually operating this business, that's a reason why you see some of those synergies change time periods because we elected not to act on plant termination in the first quarter as we entered the season but instead acted on organizational efficiencies first. As such we've improved our ability to deliver to enter independent aftermarket customers. That's a huge step forward for the Westfalia business, but it's really predicated on the Horizon historical plants quite honestly.

[Robert Majek:]

And on the offer our share repurchase program are there any restrictions on repurchases in terms of debt covenants?

[David Rice:]

Yes, what we've done is we've sized the share buyback to be in concert with what we expect to see availability to us under the covenants to tickle buy back. Its leverage constrained as you'd expect. So as such if that'll vary through the year as the value of what's available to us to buyback is also changes as our leverage changes through the year.

[Robert Majek:]

Got it, and just lastly from me. Can you break out how much margin pressure - from rising cost?

[David Rice:]

Yes. Across the business we thought it was on a year-on-year basis probably about $1 million, we talked about that being trapped on the balance sheet at year-end from a forecast that underpin our guidance perspective. We’re actually still at the end of Q3 or Q1 favorable to those expectations. So year-on-year about $1 million relative to guidance were positive.

[Robert Majek:]

Thank you.

[Operator:]

Your next question comes from Matt Koranda of ROTH Capital.

[Matt Koranda:]

Good morning guys. Let me try to approach this maybe a different way. In North America, if I take that $9 million Dave of shortfall that you say spills in the Q2 that essentially means that if I apply that to my Q2 estimate, I’d arrive at something like $140 million in revenues. I mean I know that's an oversimplification but is that directionally the right way to think about North America in Q2?

[David Rice:]

Yes, you're a little bit high but you are definitely are in ballpark.

[Matt Koranda:]

Okay, got it. And then just would like maybe some more color on the ERP implementation kind of the change over and how that impacted order flow could you just dig into that a little bit more so we understand what happened there and how the issue has been fixed so that we have confidence on a go forward basis that it's not going to be impacting order flow in North America?

[Mark Zeffiro:]

That's a great question Matt. I would like to back up just half a step and say it's not just the ERP. This business recognized that where we started this company was two separate companies in North America running to separate ERP’s. And what we've done is we've stretched the ERP that was supporting our retail oriented customers over what I will consider the aftermarket and OE customers. The implication is that we also had this ERP that was 30 years plus or minus in use and obviously optimized and had special customization associated with it in the aftermarket business if you will. So what happened was the team recognized what the order patterns were and the retail team had always dealt with how they will transactionally conduct business and process orders and actually a lot shipments and that transactional activity. That was new effort to some of the aftermarket and OE related customer shipments simply because they were used to having an old system that would require less intervention on their part to actually process orders. Now those are the beginnings of where you start to say in my prepared remarks about efficiency gains. Those efficiency gains are about order processing, they are about inventory allotment, they are about the efforts around supply chain management et cetera and all of the things are being optimized but the transactional side of it is behind this. Namely we’re in a good spot to be able to process orders timely for our customers.

[Matt Koranda:]

Okay, got it. In terms of the by channel in North America, I know that you guys give a little bit of granularity in the slide in North America but I think the decreases only add up to about $5.5 million where you guys were almost about $13 million down year-over-year could just help us understand kind of remaining portion in north American and why the shortfall?

[Mark Zeffiro:]

Well, year-on-year there was a couple pieces. For example, the e-commerce business we elected to dispend activities associated with customers. A specific customer that didn't have quite frankly the pricing discipline in the markets that otherwise should be expected of a good customer. And secondly when you think about the year-on-year comp you also had a launch of a new OE customer in Q1 of 2016 that did not repeat in 2017. But if you’ll reflect a little bit on Dave’s comments, you see that the remaining customer set in the OE business was up 20%.

[Matt Koranda:]

Got it. Okay and then in the retail channel could you just come on essentially where you may have seen I guess the most weakness was at automotive aftermarket was at home improvement guys, I mean or was it just across the board?

[Mark Zeffiro:]

Across the board and Matt that’s a good question, so let’s spend a few more moments on that. What we saw was obviously I hate to use the work world weather for an explanation base, I think it's just squishy. But we saw were you know performance levels of inventory at retailers not our inventory levels but their performance levels as they exited the winter season they had more inventory than they otherwise needed, wanted or otherwise cared to have. And as such they went through the effort of reducing inventories at large in seasonal related goods. That impacted us in some cases, as high as 20% reduction in inventories within the period. The good news side of that equation is that, I think they're depending on our ability to actually ship more rapidly and be able to respond to their business needs which frankly we should. And as such we've seen over the Easter weekend we're seeing if all POS levels rebound quite nicely. As in frankly double-digit rates in certain of our customers so it feels like the pickup level is there and the timing associated with it seems to be on track.

[Matt Koranda:]

Okay, that's helpful. Maybe just one more guys on next. I know you had alluded to it in response to one of the questions earlier, but it sounded like it was more of a channel driven sort of mix issue in North America that drove margins down but could you maybe talk about product as well and sort of how that may have impacted the quarter needed if at all.

[David Rice:]

Yes the product mix within the channels that was lower this year versus last are primarily around brake controls and heavy duty telling products. Again disproportionately filter our aftermarket channel which was the channel that drove the margin mix.

[Matt Koranda:]

Okay, got it. That's helpful. I’ll get back in queue guys. Thanks.

[Operator:]

Your next question comes from David Lim at Wells Fargo.

[David Lim:]

Hi, good morning everyone just a couple of questions. On the guidance, it looks like the operating income hasn't changed. Can you sort of walk us down and below the operating line items that we need to consider for the guidance update please.

[David Rice:]

Sure. Yes, the guidance change is primarily driven by two things one is the clarification of share count and the replacing of the term loan which obviously doesn't affect the operating income. So about half of that $0.04 increase at the top and bottom side relates to the re-price and the other half is the change in share count from 26.1 to 25.7.

[David Lim:]

And then anything, any updates on the non-controlling side?

[David Rice:]

No that's going to be a fixed number every quarter.

[David Lim:]

Got you. And then can you give us some color on how you're thinking about the OE side of the business, I know that there was a little bit of a slowdown in April. And would that impact your business going forward at all?

[Mark Zeffiro:]

Yes, David what’s interesting is if you look at the growth that we experienced in Q1 as an example of the European business it was largely predicated and delivered by double-digit growth and OE related awards and programs for us in that theater. What's interesting here is our relative share continues to increase in the OE segment. So as we're gaining new awards, these are new, new awards to us. Right, so when you think about it our share of a big market is increasing. So we've got a lot of runway here in terms of continued growth as we continue to earn new programs and see the execution of the programs that we otherwise just earned. The April SAR we haven't seen any slowdown in terms of forecast from our OE friends at this point, so to that end I can see nothing that really changes our views immediately. So and quite frankly one of the things that is misleading about SAR is need to think about the mix in that context. The fewer number of sedans and cars that are purchased is good news for us as a relative mix of overall market as well as it's at least stable. So what we're seeing is continued growth in CUV’s crossovers, small SUV’s, as well as the SUV and light truck market all that is good tailwind for us in terms of that context. And also the Australian business is also seeing this is a business that has pretty high level of market share as it was the foundation of business in Australia for towing a trailer. Now I am still seeing yet expanded activity with yet new and different customers in that market space as well. So I hope that is as clear as you need with respect to how is SAR going to affect us.

[David Lim:]

Got you.

[Mark Zeffiro:]

It was growing -- we’re growing into a big market.

[David Lim:]

And finally, and I know that you’ve probably touched on this but I apologize if I missed it. Can you give us like a walk or a bridge on an operating margin standpoint this year versus last year I mean if you can sort of quantify what was the impact of certain items that got you to where you are -- what you posted for the quarter?

[David Rice:]

Well, I mean if you think about it from a big picture perspective. We saw margin expansion in both Europe and Africa and Asia-Pacific. So the drag is primarily in the Americas and that is largely driven by buying. So there was no significant steel impact across the organization in the quarter as I mentioned we are ahead of the projections that we had for steel in the current year. So there wasn’t anything unusual other than continued growth and productivity and the other 2 segments and then the volume shortfall in the Americas.

[David Lim:]

So - contribution impact or detrimental margin impact?

[Mark Zeffiro:]

Exactly right.

[David Lim:]

Great. Thank you.

[Mark Zeffiro:]

You bet.

[Operator:]

Your next question comes from Rudy Hokanson of Barrington Research.

[Rudy Hokanson:]

Good morning. If some of this has been asked that I would just want to make sure I am clear on your transition with the ERP, is that complete now?

[Mark Zeffiro:]

You are never done, right Rudy? The implications and the issues we had in terms of order processing and fulfillment in Q1 are rectified. What the team is going to continue to work on throughout 2017 and frankly beyond is continue to drive things that improve relative process and workflow for the teams. So that's what's happening as we speak as we go into Q2 and Q3. As we expect yet not just hold serve in terms of what the old system did versus what the new system does for us, we want to see actual material changes and improvements in our processes on the total business as a result of this. And that’s what [indiscernible] is facing right now. He has really got an integration effort of two separate companies and integrating processes that were different in the two different businesses. So hats off to him, his is changing the wheels on a moving car and the team has done a nice job in terms of recovery from those issues in Q1. Now we’re not happy with the performance in Q1 by any stretch. But at least I think they fixed the transactional problems that they have had.

[Rudy Hokanson:]

Okay. And then on the issue of plant closings that you said you had pushed out. Where are you on that schedule, one; should we expect you to basically have the footprint that you're aiming for given the business right now?

[Mark Zeffiro:]

Yes that's a great question Rudy. Obviously, we're not going to comment on the specific plant closings and events of obviously talking to employees and like. So let's put that aside, but let's talk structural for a moment. The reason why we push it out was because as we got to know the business a bit better, we saw that the independent aftermarket customers were being underserved by the Westfalia Company. With inventory levels that frankly were deplorable. And that was limited by their productive capacity. So what we elected to do is to fulfillment in other facilities as we ramp up production in Romania. So what we'll do is we're going to continue to add productive capacity in Romania to basically take on the independent aftermarket business. That's the intent and that's what's already happening. We've installed machinery here in the first quarter. We're going to continue to install yet more capacity in that business and ultimately have to put painting capabilities in Romania over the next 12 to 15 months. So what we'll see is we’ll see a ramp down in certain other activities across the region, but it's directionally towards the end of the year.

[Rudy Hokanson:]

Okay. You didn't mention e-commerce specifically. At least I didn’t hear it. Can you comment on how your e-commerce business is doing?

[Mark Zeffiro:]

Yes, we had a customer that was a bit off the rails with us in Q1 with respect to pricing discipline out in the market. I mean that creates conflict across all the customer base and frankly is untenable. So we stopped doing business with a customer in Q1 that really affected the overall sales being basically when the Americas down year-on-year. The reality of it is, is that pricing discipline is obviously being afforded to us by other e-commerce related customers and we're growing with other new e-commerce related customers including the Wal-Mart acquisition of Jet in the like. So we still are very very focused on making sure that we satisfy which they have certain indifferent customer expectations being e-commerce oriented customers than other customers have that we want to make sure that we’re being a supportive in that segment as we can be. So Europe is that’s the Americas side of it, the Europe side of it is actually progressing reasonably well. We’re not going to talk about sub segments within segments, it's progressing reasonably well with director consumer as well as engagement of direct e-commerce customers as well and I would tell you in terms of Asia Pacific e-commerce is really just at the beginning phase of evolution there.

[Rudy Hokanson:]

Okay. Thank you. And then could you just remind us with various changes going on what you're expecting for and adjusted effective tax rate for the year?

[David Rice:]

Yes. All in we talked about it when we originally issued our guidance is being around 11%. That did not contemplate the re-pricing and the debt issuance cost that wrote off in Q1 that’s identified as a special item. So at this point now we are looking at 0% and 5% for the year on a full year basis.

[Rudy Hokanson:]

Okay. Thank you. Those were my questions.

[Mark Zeffiro:]

Thank you, Rudy.

[Operator:]

We have time for one more question. Your final question comes from Steven Friedberg of Seaport Global.

[Steven Friedberg:]

Good morning. Hi guys can you hear me?

[Mark Zeffiro:]

Yes, we can hear you fine.

[Steven Friedberg:]

Yes. You guys alluded to pricing actions. Can you guys provide more detail on pricing or specifically the US and Europe. What I'm really trying to get a look for it is when do the prices - when do the price increase going to affect, how much did you get increase prices and --.

[Mark Zeffiro:]

Let's talk about global implementation for a moment. Asia-Pacific and Europe have already implemented price increases we’re not going to talk about specific price increases because it would have depended based upon the effect with the channel and obviously the implication is customer level. So I would tell you that it is sticky and it's most notable probably in the aftermarket business. The Americas organization announced price increases not across the board but targeted price increases on specific products within the Americas segment and those will go on place in terms of going effective during the summer. So that's kind of where we are what we’ll do is we’re not going to comment specifically on the price increase by geography. We’ll tell you that we have moved prices and obviously in MD&A we’ll provide to you implications as to how much price was affected in those period.

[David Rice:]

Well, and I would add one thing. The price increase in the Americans that becomes effective in the summer is really time to coincide with when the next round of steel contracts come in from a cost site. So as I mentioned in my comments, we’re covered relative to our expectations right now given the fact that we buy ahead. So the price increase really needs to come in and around mid-summer or so to offset that increase that we’ll see then, if the current trend continues obviously which will assuming at the moment.

[Mark Zeffiro:]

But a good question.

[Steven Friedberg:]

Okay, thanks. And then with the share buyback repurchase, what’s the cadence on that?

[Mark Zeffiro:]

It’s optimistic and we will otherwise assess the market trends and market performance of the shares. The total is 1.5 million shares. To that end it'll depend on how the stock performs and the opportunities that we have to be able to act on that. So that it, we don't have a specific plan by quarter by month by day at certain. The intent is to otherwise be reactive to market cadence and take advantage for our shareholders in that context.

[Steven Friedberg:]

Okay. Thanks.

[Mark Zeffiro:]

You bet.

[Operator:]

This concludes the question and answer session of today's conference. I will now turn the floor back over to Mr. Mark Zeffiro for any additional or closing remarks.

[Mark Zeffiro:]

Well, I want to thank everybody for their attention. The team is focused on a couple things, obviously the financial priorities that we continue to talk about and that are relevant to creating real shareholder value. The important thing to note here is that, we've seen double digit growth increases in basically Europe-Africa as well as the Asia-Pacific businesses. We're seeing underlying demand levels that are going to show us growth in the Americas here on a full year basis. So we remain on track and positive in that context and hence why we've increased our guidance and remain focused on delivering that value. So we appreciate all of your support at Horizon Global and look forward to having conversations in the future. Thank you.

[Operator:]

Thank you ladies and gentlemen. This concludes today's program. You may now disconnect.