Stanley Black & Decker, Inc.
Q3 2019 Earnings Call Transcript

Published: 24 Oct 2019

[Operator:]

Welcome to the Third Quarter 2019 Stanley Black & Decker Earnings Conference Call. My name is Shannon and I will be the operator for today's call. At this time, all participants are in a listen-only mode, later we will conduct the question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations Dennis Lange. Mr. Lange, you may begin.

[Dennis Lange:]

Thank you, Shannon and good morning everyone and thanks for joining us for Stanley Black & Decker's third Quarter 2019 Conference Call. On the call, in addition to myself is Jim Loree President and CEO, Don Allan, Executive Vice President and CFO, and Jeff Ansell Executive Vice President and President of Global Tools & Storage. Our earnings release, which was issued earlier this morning and a supplemental presentation, which we will refer to during the call are available on the IR section of our website. A replay of this morning's call will also be available beginning at 11

[Jim Loree:]

Okay. Thanks, Dennis, and good morning everyone. Thank you for joining us. As you saw from this morning's release, we delivered a strong third quarter successfully overcoming $90 million of currency and tariff related pressures as well as weak end markets conditions in some industrial and emerging markets. Fortunately, the US construction in DIY markets continue to be supportive. With the help of our growth catalyst we once again achieved above market organic revenue growth and at the same time protected our earnings base. Revenues were $3.6 billion, up 4% with organic growth of 4% and acquisitions, adding three points. That solid organic and inorganic growth was partially offset by a 2% decline from currency and a point from divestitures. Tools and storage achieved strong 5% organic growth with craftsman, new product introductions and e-commerce contributing. North American retail POS continued at strong double-digit levels with the second week of October, marking the 22nd consecutive week in double-digit territory. Industrial total revenues grew 13% with a 16.0 contribution from the IES attachments acquisition. The IES integration and targeted cost synergies remain on track, segment organic volume was down modestly 2% as global light vehicle production continues to be in deep contraction and general industrial markets are on a slowing trend across the globe. Currency also shaved a point off the Industrial revenue line. Security made progress on its value creation plan reaching an important milestone in 3Q with the generation of positive organic growth. Our investment in digital talent, the rapid commercialization of new technology-based solutions and our activities in the small and medium business segment are starting to gain momentum.

[Don Allan:]

Thank you, Jim and good morning everyone. I will now take a deeper dive into our business segment results for the third quarter. Tools & Storage delivered 4% revenue growth with a strong 5% organic growth, offset by one point currency. Volume growth contributed four points and price delivered one point of growth. The operating margin rate was 16.6% flat versus the third quarter of 2018 as benefits of volume leverage, pricing and cost control for offset by the impacts from currency and tariffs, which totaled approximately $90 million of the entire company. However, 95% of that impact was in Tools & Storage. Share gains were experienced across each Tools & Storage region and SBU . Looking at the geographies, North America was up 7% organically. US retail has strong momentum and delivered low double-digit growth in the quarter. The US commercial channels posted low single-digit growth while the industrial tools & Storage business was down mid-single digits due to the ongoing customer inventory corrections we've been experiencing . And then the automotive repair channel had growth of low single digits. The strong quarter in North America was fueled by our growth catalyst, namely the craftsman brand roll out and an ongoing stream of Nucor and breakthrough innovations such as DeWalt, FlexVolt, Atomic and Xtreme. The shipments were supported by continued strong sell-through, as evidenced by the double-digit POS growth in North American retail. The growth catalysts have been a steady source of outperformance, which has helped us to navigate slower growth and in the industrial and emerging markets. Now moving on to Europe. Europe delivered 4% organic growth in the quarter. This was led by the UK, the Nordics, Central Europe, Greece and Iberia more than offsetting some softer markets including Germany and France. Overall, the team continues to gain share leveraging new product innovations and commercial actions to produce above market organic growth. This will be the sixth year in a row that our European team has demonstrated mid-single or high-digit organic growth. A truly outstanding performance by that team. Finally, emerging markets declined 1%, the ongoing benefits from price, new product launches and e-commerce expansion were more than offset by market contractions in Mexico, Turkey and China. We continue to see share gains across the region with Brazil, Chile, India, Taiwan and Korea posting mid to high single-digit growth. And then Russia, delivering double-digit growth in the quarter. The emerging markets team continues to contend with currency volatility and is delivering pricing actions to protect our margins and leveraging our growth catalyst to deliver share gains.

[Jeff Ansell:]

Well, thank you, Don. Our Global Tools & Storage delivered strong performance in Q3 led by strength across North American retail in Europe, we've just completed the rollout of our impressive craftsman range across hardware, wholesale, home center and e-commerce channels. The tremendous growth and share gain we are experiencing with craftsman is accretive to our growth, which is accretive to the market. The end-user reviewed an endorsement of our more than 2,500 craftsman products is unprecedented. We have extraordinarily high confidence in our ability to deliver 1 billion by 2021. We also see the opportunity to expand across industrial and automotive channels into the future. Our DEWALT business continues to be robust, delivering double-digit growth led by strength across our flexible franchise as we continue to advance across commercial applications as well as outdoor solutions. New product launches across DEWALT, Atomic and Extreme ranges in 20 volt and 12 volt applications respectively offer the user best in world power to weight performance and has been immediately endorsed by users across the globe. Finally, our expansion of Stanley and Stanley FatMax will exceed 100 products this year and continues to serve as a share gain enabler consistent with our ambitious expectations. In summary, tremendous new product development across craftsman, DEWALT and Stanley has enabled growth and share gain throughout 2019 along with momentum carrying into 2020. Now I will turn it back to Jim to wrap today's presentation.

[Jim Loree:]

Thanks, Jeff and great product story. In summary for the company, we delivered a solid 3Q with 4% organic growth, $2.13 earnings per share overcoming $90 million in currency and tariff headwinds. This continues to require execution of price optimization, cost control and margin resiliency in response to the external cost pressures, which for 2019 are now $125 million higher than our January guidance. Nonetheless, we will deliver in 2019 a respectable financial performance with 3.5% to 4% organic growth and year-over-year EPS expansion. As we close out the year we remain focused on day-to-day execution and operational excellence. This includes continuing to leverage our organic growth catalysts realizing the initial benefits from our margin resiliency program successfully integrating our recent acquisitions and generating strong free cash flow, our proactive $200 million cost reduction program announced today will supplement these activities, providing us with the capability to perform and whatever environment we encounter in 2020. Dennis , we are now ready for Q&A.

[Dennis Lange:]

Great. Thanks, Jim. Shannon we can now open the call to Q&A, please. Thank you.

[Operator:]

Thank you. Our first question comes from Nigel Coe with Wolfe Research. Your line is open.

[Nigel Coe:]

Thanks, good morning. As always, I just wanted to kind of dig into the $20 million cost reduction program, a bit deeper than we maybe expected and I know you've been so dancing around this your preserving growth investments and making sure you don't harm growth potential, but equally wanted to reduce cost as well. I'm just wondering what this tells us about how you view the world in 2020, how you preserving the growth investments and maybe addressing the any overlap between the margin resiliency program and what you're forecasting for 2020?

[Jim Loree:]

Okay. It's Jim. I'll tackle this one Nigel. I have done comment on the overlap, as it relates to the numbers. First of all, the size of the program is a compromise between what the art of the possible and how much growth we want, or how much cost, we wanted to take out like any cost reduction program and we were fortunate for a couple of reasons. Number one, we've had a few structural ideas percolating for a while here that have enabled us to combine a few organizations and drive more enterprise efficiencies. So in areas, for instance like emerging markets and the Global Tools & Storage business we segregated them about six years ago in order for us to focus more on the emerging markets provide more focused effort on the emerging markets, especially in the growth area. Now a couple of things have happened. First of all, the emerging markets have become more volatile and there's less growth in the near term there and so we have also established an infrastructure in the emerging markets, which is really solid now and the focus has produced that and so now we can combine that with the other assets of the Global Tools & Storage business leveraging those assets across the entire globe. So I think that's a, that's a big one. The other one is in the industrial segment we ran those three different enterprises separately and now we're going to run them on a combined basis. So those two structural changes have created a pretty significant opportunity for cost reduction. And then there's just several functions that we are taking a more enterprise approach too, so for instance, just pick one communications and also marketing. Those two are now being done on a much more of an enterprise basis and that has resulted in pretty significant cost reduction. So those are a couple of the elements. Another one is that for a long time we haven't really looked at spans and layers across the organization and we had been doing that in connection with the margin resiliency initiative and as it turned out, there were a couple of pockets in the organization where we had grown more layers and the spans were lower than optimal. And so we've been able to take action in those areas and I think that's a very positive change because it creates agility, even more agility for the organization. So. with that, I'll turn it over to Don to talk about how much of the margin resiliency is overlap and how much of the 300 to 500 is consumed by the 200.

[Don Allan:]

Yes. So we expected that many of you folks would have this question. And when you think about some of the things that Jim was describing, several of them are actually new concepts that we had within the organizational efficiency pillar of margin resiliency. So if you think about the $200 million, I think probably the simplest way to think about it, it is probably about a third of $60 million to $70 million is really things that we pulled forward that we were contemplating as part of margin resiliency. And then the remainder of it is really just looking across the entire enterprise and for areas of efficiency, plant rationalization decisions, etcetera. So the way I step back from it and look at this is the $300 million to $500 million as Jim reviewed earlier in the presentation as we think about that going forward into 2020 and beyond. I still feel very confident that we can achieve the $300 million to $500 million above and beyond what we're talking about even with maybe 60 million to 70 million of that being consumed because I just think the opportunity is very significant and we've dedicated a full-time team of people we're putting one of our senior leaders in charge of it, full-time, starting at the beginning of January. Steve Roderick who presented at the Investor Day on the topic. And so we are dedicating resources in the sense of people, resources in the sense of technology investments, and then we also brought in certain consulting resources on a minimal basis as well to ensure that we hit this objective over the next three to four years . But my confidence level actually goes up as each month goes by, given the amount of effort and focus we have on in the opportunity that we see.

[Operator:]

Thank you. Our next question comes from Tim Wojs with Baird. Your line is open.

[Tim Wojs:]

I guess maybe just thinking about Craftsman $600 million kind of ending the year and the target for $1 billion in 2021, I guess, how should we think about the phasing of that incremental $400 million over the next couple of years and then you know what's the opportunity if the crossing is beyond the $1 billion as you look out even further beyond '21?

[Don Allan:]

Yes, I will take the question. It's planned at this point. So as Jim indicated, we've added $500 million of organic growth since acquiring the craftsman brands putting us at about $600 million this year, we have high level of confidence that we can grow that to about $800 million by the close of next year to a $1 billion to close the following year to put us very much on track to the billion dollars objective we set. And we still have opportunity beyond that, from new product development and category expansion within the existing base, but then also as I intimated earlier, opportunities for that craftsman brand in the industrial and automotive space, which is placed that it had a kind of builders reputation over the last 90 years. So we have very high confidence on that attainment plan of $200 million of over a year for the next two years to reach $1 billion and growth beyond that clearly so, high level of confidence and endorsement of the craftsman growth plan.

[Operator:]

Thank you. Our next question comes from Deepa Raghavan with Wells Fargo Securities. Your line is open.

[Deepa Raghavan:]

Good morning, Jim And Don. I have a margin question, I apologize it has a couple of parts to it, but I guess I could use some clarity. First, how the 2/3 of the $200 million in new cost action different from the margin resiliency measures, i.e. do those do those costs come back once the environment improves, that's one part of it. The second part is, can you talk about your updated thoughts on that $300 million to $500 million in cost actions, is that range so sufficient given weakening backdrop or a kind of majority of those cost actions that are saved be pulled forward well before 2022 if macros weaken further here or should we think about that, as you know, there is a gestation period or staggering period to these cost actions and they just cannot be pulled forward before 2022? Thanks.

[Jim Loree:]

Yes, I will. As I mentioned, in response to Nigel's question, of the $200 million. Yes, about a third of it, we basically what we've done is we've, we've accelerated some margin resiliency initiatives and Jim gave some good examples of what those were when he responded to a portion of that question, such as emerging markets and core tools coming back together, combining our three industrial businesses and running them as one platform, et cetera. So those were pulled forward as an acceleration. But what I also said was that I felt confident even with that pull forward that we still can achieve $300 million to $500 million of margin resiliency starting next year and beyond in addition to that and so we don't feel like we've done anything here that significantly changes our view on that $300 million to $500 million and that will commence in a significant way starting next year, as a way for us to build contingency against new potential headwinds. And I've said publicly before that we think that's about $100 million , $150 million per year, starting next year and then we'll have a subsequent a few years after that to achieve the number that I just or the range that I've just described. I think that's the best way to think about it. We have not done anything to minimize the potential impact of that $300 million to $500 million, which means if you add those two things together, we think the opportunity is a little bit bigger now.'

[Operator:]

Thank you. Our next question comes from Julian Mitchell with Barclays. Your line is open

[Julian Mitchell:]

Hi, good morning. Maybe just a clarification around if we think about the overall external headwinds into next year. Was that the 150 million or is that at the slightly different numbers you see it today versus the full five this year and when we're thinking about the total scale of the cost reduction plans, the stuff in May and what you've announced today are those scaled with a view to still being able to hit maybe the low end of the medium-term EPS growth guidance that had laid out back in May, or is that very much still a question and we'll revisit when you guide formally for next year?

[Jeff Ansell:]

Yes. So as it relates to the headwinds as we go into next year, if you just look at what the headwinds that are in place today, which would be list one through three and then list four A, the carryover effect of that is about $100 million and then if the second list for it happens in December, which is list four B, which would be the remainder of items that come from China, they have not, do not have a tariff on it today that would be another $25 million of carryover impact, so the total of those two would $125 million assuming that second list four happens. FX carryover right now looks to be about $30 million to $40 million of an impact next year so in total, we're somewhere in the 155 to 165 carryover impact of all those items. It does not, that does not encompass if there is an increase to any of the tariffs going like there was things being discussed of going from 25% to 30%, if that occurred on list one through three that would be another $55 million so you're getting to a number of around 210 to 215 roughly at that point in time. And so we think we've taken enough actions at this stage related to the $200 million to offset what is known but we've also put a little bit of cushioning there for the likely or possible increase in some of these tariffs as we think about that going into 2020. On the second part of the question , I think at this stage, we feel like we position ourselves to grow our EPS and as we close out in the fourth quarter and we give guidance in January, we'll give more specifics and details but with these headwinds I just described and a tax headwind year-over-year as I mentioned in the presentation, we still see a path to demonstrate as Jim said solid EPS growth.

[Jim Loree:]

I would also note that this is a little bit different than in the past, because in the past we've historically, last couple of years anyway we've averaged about 40% price recovery on these tariffs. What we've done here is we've covered the entirety of the tariffs with cost actions and the question would be, what's the market outlook next year, is it going to trend negatively or is it not. So what we're really trying to do with margin resiliency plus also covering 100% of the of the tariff exposure with cost actions is to make sure that we have a very significant cushion in the event that the economy takes a turn for the worse, we're not predicting that, we don't see it. We see it in industrial and we see it in some of the emerging markets and so on, but we don't see it in the core of our business, which is the North American retail and with Europe, we see a little slower, but still not terribly negative on the construction in DIY side. So I think it's a very prudent way to go into the year. I think we're set up really nicely and we'll see where we go from here

[Operator:]

Thank you. Our next question comes from Michael Rehaut with JP Morgan. Your line is open.

[Michael Rehaut:]

Thanks, good morning everyone. First question I just wanted to get appreciate all the detail. And I guess just a couple of the remaining pieces of the puzzle, at least, people are trying to do some of the math around 2020, you hit on the carryover from tariffs, the difference there as in FX. I was just curious, at this point in time, if you had a sense about raw materials and we've had other companies starting to talk about it being a slight tailwind next year, how 2019 is shaping up from a raw material standpoint and if we just froze today in time how that might flow into 2020 and also on the margin, I'm sorry, on the cost-cutting initiatives the cost reduction initiatives into the $200 million, should we be expecting that to fully be realized in 2020 or maybe even partially be realized in the fourth quarter and the bulk remaining in 2020 just a sense of timing on that ?

[Don Allan:]

Yes, sure. So as it relates to commodity inflation as we sent back in the July earnings call, we expected a little bit of moderation of that in the fourth quarter of this year, we're still expecting that is still baked into our guidance assumption as it was in July, not a significant number, but we are seeing a little bit of positive trend there. We're still trying to finalize expectations for next year related to commodity inflation, but at this stage trends are good in certain areas, other areas are not as positive. But overall, we think we still would see some level of deflation probably modest deflation at this stage, but we still have a lot of work to do over the next two to three months, to really nail that down, because we also do see it as an opportunity as we go into 2020 to see if we can achieve some deflation in that particular area, which is just another area that allows us to build contingency, as we think about some of the any new headwinds or as Jim mentioned, the more difficult to market that might evolve. At the end, the second part of the question, which was related to what Dennis, what was the second part -- much cost savings have been in the next, low cost savings. Yes, the vast majority of the $200 million is next year. It's a very small impact here in the fourth quarter. And so I would factor in the $200 million hitting in 2020.

[Operator:]

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

[Joe Ritchie:]

Thanks, good morning guys. Can I just get a, just a clarification on the tariff so the impact to this year it doesn't seem like it's really changed much from what you guys said intra-quarter, but then if I look at the List 1 to 3 tariff that were supposed to increase on October 15 that seemed to have gotten delayed and so is that, is the increase embedded in your 4Q guide or is the delay embedded in your 4Q guides, just some clarification around that would be helpful?

[Dennis Lange:]

Well, the increase that happened in the third quarter is embedded in our guide related to List 4A, the change from not going to 30%, which was kind of the relief that was given a few weeks ago where List 1 through 3 was going to go from 25% to 30% that is not factored into our guidance.

[Operator:]

Thank you. Our next question comes from Josh Pokrzywinski with Morgan Stanley, your line is open.

[Josh Pokrzywinski:]

Hi, good morning guys. Just on the cost saving side. Don. Is there anything else besides the initiatives you guys have announced today that blends into next year. Obviously there's a lot going on in 2019 that you've been working on all year but any carryover from that?

[Don Allan:]

From the cost actions, specifically I guess you're referring to other cost actions we've done Josh is probably . So I assume that's where you're talking about other cost actions that we've taken throughout the year. Yes, there's a little bit of carryover effect related to some of the margin resiliency initiatives we've done, but I wouldn't say that's anything significant. It's probably in the $10 to $15 million range. It's not something very significant.

[Operator:]

Thank you. Our next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.

[Nicole DeBlase:]

Yes, thanks, good morning guys. So I guess maybe just one clarification on restructurings, of the 200 million savings. Just thinking about how the cadence spreads over 2020 since some of this is like plant rationalization, which to me seems to take a little bit longer than the more basic headcount reduction stuff and then one question that isn't around tariffs so restructuring you guys still have conviction in Tools & Storage margins returning to positive territory in 4Q. If you could talk about like the drivers of that conviction since we just haven't seen that play out. So far year-to-date.?

[Don Allan:]

Yes. So and if you start with your first question, I would say that the cadence by quarter next year, but it's $200 million benefits will be pretty even. About $50 million per quarter because of the vast majority, a large part of that will be completed by the end of we're going into the beginning of the first quarter. There will be some planned things that are a little bit delayed, but frankly, the magnitude of that is not going to change that cadence dramatically. As far as the Tools margin rates. I mean actually we had a great second quarter where our margin rate was up 80 basis points versus the prior year, the third quarter was flat versus the prior year and now we expect the fourth quarter to be up, as I mentioned and so, actually we did turn the corner on that in the second quarter, the first quarter was down significantly, because that was really the biggest quarter of headwinds, just looking at an individual quarter for this year but that trend has changed in the second quarter in a big way. We saw some new headwinds emerge in the third quarter that didn't allow us to grow the rate, but it was flat year-over-year and then the fourth quarter we will able to grow as because now we're able to take some, some more actions in response to the new headwinds that allow us to do that and then you combine it with the fact that the rate was pretty low last year given the 4th quarter would was say with some pretty significant headwinds as they started in the third, fourth quarter of last year as they went into the first quarter.

[Jeff Ansell:]

Yes, my remarks, I mentioned that from our January guidance through presence. We've had $125 million of evolving growing headwinds during the year. I think for us to drive that margin story and most of those were in Tools. So for us to be able to perform at that margin rates that we have under the circumstances I think there has been a fairly impressive story in the face of pretty significant adversity.

[Operator:]

Thank you. Our next question comes from Justin Speer with Zelman & Associates. Your line is open.

[Justin Speer:]

Thank you, guys, I appreciate your time. Just a couple of questions rolled up and one is just where in the P&L will these initiatives, the $200 million initiative show both on the consolidated basis, but also the segment basis. And you had I think a $250 million of cost cuts last year, another $200 million that rolled into this year and another $200 million next year and then you also talk about the $300 million to $500 million, I'd like to kind of maybe parse out where that falls, where you think that's going to shine in the margin structure. And then lastly if tariffs are removed, how do you think your margins respond in that scenario and a good case scenario that we find resolution? Thank you.

[Don Allan:]

Yes, I would say that the cost actions are across the entire company every business has participated the corporate functions that participated. So the impact of them will be spread across all those different categories based on the magnitude of spend, so you can probably easily do the math, given the level of SG&A that we have in each business and at corporate and just kind of apply that percentage against the total SG&A for the company and that's pretty much what it's going to do for next year, as we think about the $300 million to $500 million going forward that again will benefit every business, I mean I think the magnitude from a dollar perspective will be larger in Tools & Storage just because it's a much bigger business and the opportunities around NextGen procurement industry and those types of things will definitely hit that business in a bigger way. And so at the end of the day, there could be a little bit more heavy weighting to Tools given that some of those things are really more specific to our Tools business in the manufacturing footprint that they have or the procurement processes and organization they have, but now I don't think it's a dramatic shift. I think you can look at that and probably recognize that every piece of the company is going to feel the benefits of that over the next three to four years, and I want to answer the best part of your question which is, what if they go away. While the reality is we don't expect them to go away and -- that's you love to talk about . I don't often get is an opportunity to discuss so really enjoy it, but the total tariff impact I think built in at this point is $425 million annualized and as I mentioned earlier, we've been recovering there's through price about 40% of historically anyway of the tariff impact. So I think the really good news is, if the tariffs are removed, yes, the customers are going to want some money back and we probably want to give it back at least some of it, because the price elasticity of the end products and end markets but in reality there's a pretty significant chunk of tariff impact headwind that would not be given back or at least we have the flexibility to do what we want with it, and frankly, it would be nice to see that drop through to the margin line. So, yes, thank you for the questions. In the fourth just to clarify, the 425 would assume all of this four happens and List 1 to 3 gets another 5% on it, so that we're going to be that the scenario that I laid out, were all these things went in a negative way it would be 425 on an annualized basis; based on what we know today, the number would be 345.

[Operator:]

Thank you. Our next question comes from Ken Zener with KeyBanc. Your line is open.

[Ken Zener:]

Good morning, everybody. I understand your actions are attempting to address all of the inflation through your own actions not through the market pricing. I'm wondering could you, obviously it's a more conservative approach, but what does it, tell us perhaps about consumer elasticity or the retailers' willingness so far to accept more price increases and/or how your competitors are getting impacted as these tariffs impact product that's fully assembled. Thank you.

[Don Allan:]

Yes, I mean obviously we can't get into a detailed discussion of competitive dynamics we have our General Counsel is sitting at the end of the table here looking at us, but we would never do that; however, I will say that that 40% that we've recovered, we were unfairly, in my opinion, hit with tariffs on componentry for products that we made in the United States, which is pretty significant for us relative to competition and up until List 4 our competitors were not feeling that same impact. So we were in a position for a while until List 4 came about, that we were competitively disadvantaged now with List 4, it changes the playing field and at least levels that you could even argue, it's somewhat in our favor now, so I think what happened over time was that the competitors did some pricing actions, probably not to the extent that we did. And so it's interesting when you look at the volume performance of Stanley Black & Decker vis-a-vis the competitors were doing pretty well. So I haven't studied economics since college but I would say that we have, I think through our value propositions in some of the products that Jeff Ansell talked about whether it's Craftsman, whether it's Xtreme, FlexVolt, Atomic or Stanley FatMax. I mean, I think all of these product actions in addition to a lot of our commercial excellence activities and our scale and our global reach, et cetera, have enabled us to gain share and to avoid the elasticity trap of some of the, what we otherwise would have experience. So it's a real testament to the strength of our value proposition and our commercial execution that we've been able to put numbers on the board in organic growth at the level we have been.

[Operator:]

Thank you. Our last question comes from . Your line is open.

[Unidentified Analyst:]

Hey, good morning and thank you. It's -- just on the faster side, obviously the entire industrial economy has a little bit of excess inventory probably trade war-related. Is that sort of excess inventory correction done in next year, you get a chance to ride up and down with the markets or is there a little bit more and then relatedly I don't suppose there is excess inventory in the big box channel but just a sort of checking on that question if that's any kind of a risk? Thanks.

[Don Allan:]

Let me take the industrial piece now then will hand over to Jeff on the big box side. So on the industrial side. I wouldn't call it excess inventory. I would call it a combination of the manufacturing markets are slowing. And so, you're seeing a little bit of an impact of that and then you're just seeing what I would call more normal inventory corrections that occur at this stage of a slowdown and so we've seen a slowdown start in the second quarter and continue to the third quarter, likely will continue for at least a portion of the fourth quarter. And so what we're just seeing is our customers really just focused on tightening their inventory levels, but I wouldn't have described it as excess inventory before. Jeff?

[Jeff Ansell:]

Regarding the second part of the question, the POS that Jim and Don had referenced, it has been incredibly positive all year and accelerated over the last 22 weeks, but it's the, the double digit POS that we have achieved year-to-date and continues as we speak, has been in balance with inventory, so we don't see any excess inventory and aggregate across the home center channel and POS continues to be a really robust story for us across all the brands we've referenced. So all in all things are already getting really well and share gain continues to be in our favor.

[Operator:]

Thank you, this concludes the question-and-answer session. I would now like to turn the call back over to Dennis Lange for closing remarks.

[Dennis Lange:]

Shannon, thanks. We'd like to thank everyone for calling in this morning and for your participation on the call. Obviously, please contact me if you have any further questions. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.