Univar Solutions Inc.
Q3 2019 Earnings Call Transcript

Published: 9 Nov 2019

[Operator:]

Good morning, ladies and gentlemen, and welcome to Univar Solutions' Third Quarter 2019 Earnings Conference Call. My name is Julie, and I will be your host operator on this call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. . I will now turn the meeting over to your host for today's call, Heather Kos, Vice President of Investor Relations at Univar Solutions. Heather, please go ahead.

[Heather Kos:]

Thank you, and good morning. Welcome to Univar Solutions' Third Quarter 2019 Conference Call and Webcast. Joining our call today are David Jukes, President and Chief Executive Officer; and Carl Lukach, Executive Vice President and Chief Financial Officer. This morning, we released our financial results for the third quarter ended September 30, 2019, the second full quarter that includes Nexeo Solutions' chemical distribution business, which we acquired on February 28 this year. We have posted to our website a supplemental slide presentation to go with today's call. The slide presentation should be viewed along with the earnings release, both of which have been posted on our website at univarsolutions.com. During this call, as summarized on Slide 2, we will refer to certain non-GAAP financial measures for which you can find the reconciliations from the comparable GAAP financial measures in our earnings release and the supplemental slide presentation. As referenced on Slide 2, we will make statements about our estimates, projections, outlook, forecast or expectations for the future. All such statements are forward-looking and, while they reflect our current estimates, they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more complete listing of these risks and uncertainties inherent in our business and our expectations for the future. On Slide 3, you'll see the agenda for the call. David will start with his perspective on the quarter and our Nexeo integration progress; Carl will walk through our results and outlook; and finally, David will close with some concluding remarks. Following that, we will take your questions. With that, I'll now turn the call over to David for his opening remarks.

[David Jukes:]

Thank you, Heather, and good morning, everyone. We had another busy and exciting quarter at Univar Solutions, taking many steps forward in executing our growth strategy and integrating Nexeo's chemical distribution business. I'd like to highlight several key accomplishments from the quarter, as well as talk to some of the challenges we faced. In summary, though, we controlled the controllables well and achieved our forecasted EBITDA. Our operating performance was excellent, as seen in higher margins and conversion rates. The integration of legacy Univar and Nexeo continues to go well. Synergy cost savings continued to be at or ahead of our previously disclosed forecast. First wave of ERP migration went live successfully.

[Carl Lukach:]

Thanks, David, and good morning, everyone. As David mentioned, we delivered solid third quarter financial results with revenues, gross profit and adjusted EBITDA up double digits. Our operating efficiency and the quality of our total business continued to rise across every metric in the quarter, including gross margin, conversion ratio, adjusted EBITDA margin and per unit measures. This reflects realization in our income statement of targeted cost synergies from the merger of the legacy Univar and Nexeo businesses, as well as continued focus on margin management and disciplined cost control. In the third quarter, we reported GAAP net income of $2.5 million or $0.01 per share compared to $49.6 million or $0.35 per share in the prior year. The current quarter increase from the addition of Nexeo's earnings and better operating performance was offset by the impact of taxes of $0.18, cost to integrate Nexeo of $0.07 and noncash charges of $0.05. Adjusted diluted earnings per share for the quarter was $0.36 compared to $0.40 in the prior year. The modest decline can be attributed to a slightly higher tax rate for adjusted EPS purposes and FX headwind. Let's review the 6 financial metrics that we view as key to evaluating our performance. On a reported basis, gross profit dollars, exclusive of depreciation, grew 17% currency-neutral to $545 million. And we expanded our gross margin by 80 basis points to 23%. When adding legacy Nexeo Chemicals results to last year's financials, we estimate that gross profit dollars, exclusive of depreciation, were down about 4%, driven by 1% of FX, a little over 1% by anticipated supplier dyssynergies and 2% by lower chemical demand from global industrial markets. Our third quarter adjusted EBITDA of $184 million also grew 18%, excluding the impact of currency. Adjusted EBITDA margin expanded 30 basis points to 7.7%. On an estimated basis, adding legacy Nexeo to last year's results, adjusted EBITDA was about 3% lower, with 1% from FX and 2% from lower demand.

[David Jukes:]

Thanks, Carl. Before moving to closing comments, I mentioned on our last call that we have started a strategic review of various lines of business within our portfolio to determine whether we are the best home for those businesses, and that this is a high priority for us. We have a number of profitable and attractive businesses that, like the legacy Nexeo Plastics business, may be adjacent to our core chemical ingredients and distribution business. We have advanced our analysis and are close with a decision on one of those businesses. As a reminder, our capital deployment priority continues to be debt reduction, so that any proceeds from a sale will be used to pay down debt with our range to get below 3 times levered by the end of 2020. Now we realize that what may be at the foremost of your mind is what do we think about 2020, and we'll have more to say about that in 3 months' time after we finish the year. But from a macro sense, we are setting up preliminary 2020 planning assumptions to expect about the same level of demand for chemical ingredients from industrial markets that we experienced in the second half of this year. That means we're not counting on a rebound or bounce-back recovery in 2020, nor are we expecting at this point any further downturn. So the average of our actual Q3 results with our expected Q4 results would serve as a good trend line at this time for our expectations of market demand in our earnings run rate in 2020. Although short-term customer demand will become more difficult to predict, as I've outlined earlier, we've operated in these types of constrained, tight markets before and our asset-light model helps us fare better than many others. Now we have multiple levers in our control and in our favor, such as roughly $50 million of incremental integration cost synergies next year; along with a larger, more skilled sales force in the U.S. with greater market coverage and the capacity for growth; as well as disciplined spending and capital deployment. We believe this will all help clearly set us apart from the rest. When we merged Nexeo and Univar, we created a new company, Univar Solutions. And our confidence in the strategic rationale and value creation opportunity has only grown. I'm pleased to say we have clear, tangible evidence that the new culture is taking root and our growth strategy is working. We remain focused on controlling the controllables while simultaneously building for the future. Our execution continues to improve. We're executing at pace with discipline and the confidence in our ability to remain agile and execute effectively, sustainably and responsibly. We believe Univar Solutions is uniquely positioned to continue to improve its profitability, grow market share and grow the size of the distributed chemical and ingredients market. To achieve this, our focus with suppliers is to deliver value with increased transparency, safe and secure handling of all materials and provide clear market expertise through dedicated sales and product teams that allow for industry specialization. Our focus for our customers is to couple up already industry-leading safe and secure handling service levels and product availability with deep industry and product expertise, digital virtual leadership and technical solution centers that will help deliver further value. But in summary, for Q3, we controlled the controllables and achieved our forecasted EBITDA. We improved our operating performance with higher margins and conversion rates. We continued to successfully integrate legacy Univar and Nexeo with synergy cost savings at or ahead of our previously disclosed forecast. We successfully completed the first wave of ERP migration. We improved our working capital efficiency with strong cash flow and strengthened our balance sheet, all while operating in a challenging macro global economic climate. As I said, it's been a busy but exciting quarter for Univar Solutions. Thank you for your attention. And with that, we'll open it up for questions.

[Operator:]

And our first question comes from Michael McGinn with Wells Fargo. Please go ahead. Your line is open.

[Michael McGinn:]

Good morning everybody. I was wondering if we can get a finer point on the EBITDA guidance for Q4. It seems like a little bit of a larger range than what we're accustomed to. I was just trying to figure out what you're baking in from the macro perspective into that range.

[David Jukes:]

Sure. I mean I think firstly, Q4 is always a difficult quarter to call anyway because of the seasonality with all the holidays. And particularly, I think this year what we don't know is what December is going to be like, whether December is going to be a very, very short month, whether people are going to close down over the Christmas period for longer or not. So it's pretty difficult to call exactly what's going to happen across the quarter, hence the larger-than-normal guidance window. And I think what we've seen is our volumes per bill day go down in -- through Q3. Certainly, if we look at September, it was sequentially lower than August. So we've built in lower volumes per day through the quarter. We also look at some of the headwinds that we're getting from energy and some of the margin headwinds we're getting comparatively year-on-year. We're feeding in there some of the benefits from Nexeo integration. And as I think we said on the call, really pleased with the way that's going. I'm really pleased with how we're capturing that. But it's the -- it's helping us really buffer what is a difficult-to-call macro environment. And I honestly -- I've got no idea about December. I honestly don't know. I really don't know. December is always difficult to call, but this year I think especially so because I don't know what people are going to do around some holiday vacation, whether they're going to be longer or short -- I really don't know. So that's why the guidance is a little wider than it would normally be.

[Michael McGinn:]

Okay. That's fair enough. And then if I could just follow up on Canada. If this turns out to be more of a U-shaped recovery versus like a V-shape we've been accustomed to the last couple of industrial recessions, what do you guys have in your back pocket? Maybe additional cost-out actions or growing in a different -- in different verticals than what you're accustomed to? Can you just add a little color there? That would be great.

[David Jukes:]

Well, I think we're very focused on -- I think we said -- well, controlling the controllables and a lot of things that we can control. And we do have a great opportunity to restructure our business and redefine how we go to market through the legacy Nexeo, legacy Univar integration. And that will feed into the Canadian business as well. The Canada business and the core industrial and chemical ingredient business is doing really rather well. And it's kind of -- it's masked by a weak energy market and another bad ag season, but the core business there is doing really rather well. But -- and we'd want to replay out -- play out our playbook, which is our integration playbook, which is around the SAP integration, which is around building shared service centers, which is around continuing to take costs out of the business, take more costs out of the back end so we can invest more in the front end. We think there is more growth for us in some of those key verticals which we've identified, food ingredients, for instance, beauty and personal care, CASE, pharma ingredients, home and industrial cleaning. We think there's some good growth that we can get in those as well, which were a bit more countercyclical. So there are a number of things that we can flavor. We have a game plan, and we're going to stick to our game plan. Now is not the time to run around and get excited. Now is the time to play the game that you know you can play and you've rehearsed for and you've trained for and you execute on the plan that we have. Sorry, far too much sporting analogy in that. Sorry.

[Michael McGinn:]

It's okay. I appreciate the color. Good quarter. I'll pass it along.

[David Jukes:]

Thank you. Next question?

[Operator:]

Our next question comes from Laurent Favre with Exane. Please go ahead. Your line is open.

[Laurent Favre:]

Yes, good morning all.

[David Jukes:]

Good morning, Laurent. Hello.

[Laurent Favre:]

Hi. I've got a question on the synergies for Carl. I think you had guided that you would have more dyssynergies of scale in Q3 than in Q2. And it sounds like you had the same amount, about 1% on GP. So I'm just wondering, are you factoring in that there's a spillover of those dyssynergies of scale into Q4 that you didn't have in mind before? Is that one of the reasons why the Q4 guide is a bit weaker than, I guess, we had assumed? That's the first question. And then the second question is on the disposal of excess real estate. David, when you say that the 2 largest sites are to be disposed of in the coming months, is that the bulk of what you had in mind in terms of disposals? Or is there more to come?

[David Jukes:]

Okay. Well, let me answer the second one first, if I may, Laurent. I think that what we said is we have a number of sites to close. Not all of them are equal in value, and we will prioritize. We are able to prioritize a couple of the more valuable sites ahead of the other sales though, so we're doing that. And we think that we'll be able to dispose of those within the next several months, and we'll use that. We'll use that cash to pay down debt. But as I said, not every site is equal. And so it'll not -- it's not the bulk of the number of sites that we have, but it's a -- it will be a significantly bigger proportion of the total amount of cash that we'll get from the disposal of assets.

[Carl Lukach:]

Okay. And Laurent, on the dyssynergies. Let me just recap the third quarter. Our volumes we estimate on a pro forma basis, including Nexeo in the prior year, were down about 6%, with about a little more than 1%, maybe 1.5% we attribute to synergies. And I'd say that was a little larger than what we expected coming out of energy. And it's very hard to parse dysynergy in that energy space versus the reduced drilling rates that are going on in fracking right now. So that's a tough math to separate those two. But as far as the width of the range in the fourth quarter, we really do look at volume per bill day. That's a key metric to us, and we have very extensive data on that. So our -- the width of that rate is really -- comes down to what David said earlier about how many good bill days we're going to get in this third quarter. There's only 8 weeks left. We have heard from some customers that they may have year-end early this year and start focusing on 2020. So we're just going to have to see how November goes and into December. And that's really the basis for the width.

[Laurent Favre:]

Okay. Thank you.

[David Jukes:]

Thanks.

[Operator:]

Our next question comes from Kevin McCarthy with Vertical Research. Please go ahead. Your line is open.

[Kevin McCarthy:]

Yes. Good morning. David, I was wondering if you could provide a little bit more color on Wave 1 of the IT integration in terms of pace and future sequencing. And related to that, does it allow you to begin the process of facility closures? Perhaps you could update us on kind of the cadence of the 40 locations that you plan to reduce in coming quarters?

[David Jukes:]

Sure, Kevin. So we went live on Wave 1 mid-October on schedule. And as I said on the call, I was up there at the end of the month to meet with the teams on all the key sites and to see how it's going. I mean it's gone very well. I mean these things can go really badly. And I've led through the ones that go really badly in the past. This one has gone really rather well. So we said when we made the acquisition of Nexeo that one of the attractions was to move the legacy Univar business onto a modern ERP platform and that we felt that this deal derisked it by having a system which works. It wasn't about the bits and bytes. We've narrowed it down to be a master data transfer and then a change management program, and that's what it's turned out to be. So the master data, I think, has been transferred pretty well. That -- you have to really scroll through the master data in some detail. It takes a lot of tribal knowledge to spot some of the mistakes in there. The team has done a great, great job on that. And then the change management people have to learn to work in a different way than they have worked for the last however long they worked in the business, and that's gone really well. So the spirit, the engagement of the team, the business process experts we have on site, the super users we have on-site, it's all gone very well. Are there glitches? Of course there are. Day to day, there'll be this issue or that issue, but that's what the business process experts are there and super users are there to help them through. So it's gone pretty well. And we're closing the months right now. It's going seamlessly. So we're very encouraged by that. We've taken some lessons learned from that because clearly, that's what you do. You look at it and say what went really well, what could go better next time. We've taken that, we've run through those through a workshop with the whole team. And we now think about the Wave 2, which will happen in January in the Southwest. It gives us some confidence that we can stick to our schedule. And then clearly, once we have a site stable or site stable on a single ERP platform, then we can think about rationalizing the site. So the site closures follow sequentially behind the SAP program. So all of that is on track. All of that is working well. I think it's far too -- I'm too old and I've been around too long right now to declare victory. We certainly can't declare victory, but we certainly could have lost the game by now. And we certainly -- we haven't done that. And I'm very encouraged by where we are.

[Carl Lukach:]

Let me add to that, Kevin. On the cadence of the sale of the up to 40 properties, first of all, they're not all the same size. I think we've -- you know that. And we're very encouraged that the 2 largest ones, we have that -- those 2 in our sites.

[David Jukes:]

Well, 2 most valuable ones.

[Carl Lukach:]

Two most valuable ones. And so this could be lumpy. It won't be a straight line over the next 3 or 4 years. I mean basically, you're asking for a prediction on when we close on these sites, which you can imagine is pretty difficult to predict. But the good news is that we expect a large amount of value to be created, cash to be created from the sale of these sites over the next 3-plus years that will make a substantial payment against the onetime integration costs.

[Kevin McCarthy:]

That's helpful. Thank you. And then secondly, I wanted to ask about your monthly sales experience. I appreciate the uncertainty looking out to December, David. But I was wondering if you could comment on what you did see in October. I think you mentioned in the prepared remarks, September was weaker than August. Did that extend into October? Or was October a different trajectory for you? Perhaps you could elaborate on that?

[David Jukes:]

No. No, it was the same. It's just -- October is in the same vein.

[Kevin McCarthy:]

Okay. Thank you very much.

[David Jukes:]

Thanks Kevin.

[Operator:]

Our next question comes from Steve Byrne with Bank of America. Please go ahead. Your line is open.

[Steve Byrne:]

Yes. Thank you. David, your U.S. sales force has certainly gone through a lot of changes in recent years. You got a lot of new blood in there and new territories and new areas of expertise and so forth. What metrics do you look at to judge the level of productivity of the redesigned sales force? And where would you say they are at in terms of the level of productivity that you'd like them to be able to achieve?

[David Jukes:]

Yes, Steve. Thanks for the question. I think we look at -- firstly, I think -- and I'm happy with the way the sales force is developing. I'm happy with the way we brought the 2 legacy organizations together into 1 organization. And I'm thrilled that, with the team's work, to be able to put those sales charges together. And now I couldn't be more excited that we have one single sales team with one single roster of accounts into the market. And that really only happened in the second half of October. But it does mean we have more capacity, more people, more time to go call on customers. And I think that will feed into share growth in the coming years. I mean, I think in terms of measuring the health and well-being of our sales organization, the churn rate of our sellers is one thing, and that's gone down significantly. So we've kept at those low levels that we've seen since the close of the acquisition. It means when we train people, they're staying and they're enjoying their experience, which is a good one. I mean we look at the core rates, we look at the close rates, look at the win-loss ratio. And we look at the delivered gross profit growth that they have as well as the pipeline and pipeline closes that they're doing. And I think that they're important metrics that we see. In terms of productivity, I think that we get a level of productivity by having smaller sales territories, a more focused sales territory. So that gives us a level of productivity. I think the second level of productivity we get by having better trained, better skilled, better planned account rosters and better skilled and trained salespeople. And I think that's what we're seeing right now. I think there's a third level of productivity which gets built in, particularly for the legacy Univar sellers, as we move through the systems migration because the systems migration means that we're essentially becoming easier to buy from because we have more automated systems through the organization. Therefore, sellers should not need to get themselves involved in putting an order through our system. And that's probably one of the biggest drains of sales capacity, is that they get involved in processing an order through the system. And so we're having now to help them learn to trust the system, to love the system and trust the system and just go out and sell. So that's another level of sales capacity which we'll get. I don't think we're anywhere near getting that right now, but we'll get that through 2020, really into 2021. But I think we have a good sales organization right now. I think it's good that, in our key verticals, they're fully staffed. I think we've got some great technical capabilities in those. I think they're supported by great application development. This counts for the sales process that we have. I was with one sales group that's being trained here in Chicago yesterday, brand-new people into -- going through the program, going through the process. We've got over 60% of our sellers engaged in that process right now. They find that really, really beneficial for them. We'll have everybody certified in that by the end of the year. I'm very comfortable with what I'm seeing from our sales organization. But there's a lot, lot more to come.

[Steve Byrne:]

And I was curious what products that you distribute that you provide some level of formulation service to it. And does that provide you any opportunity to create your own private label products?

[David Jukes:]

So I mean private label is not something we're really about. We do have some of our own private blends in surfactants, but that's a really small part of our business and is -- we've had that for probably 40 years or more. But our application development labs are there for beauty and personal care, for CASE. They're there for lubes and metalworking fluids. They're there for -- we have food ingredient kitchens. So they're there to look at -- we're there to be brand advocates for the supplies that we represent, and that's what they value in us. And what they value in us and what customers value in us is that we sell some products that go well with other people's chemistries. So we can add one supplier, start with another supplier then add another supplier to multiply it to get a great formulation. Our customers appreciate that. Our suppliers appreciate that. So that formulation capability is something our customers are reaching out to us more and more for and brings real value for them, particularly as we get into tougher markets. I mean we have more solutions and more capability than anybody else to help them stay competitive in tougher markets. So we'll continue to invest in that because we think it's a differentiator for us and we have great capabilities there. But I don't want to be -- I don't want to own label. I mean we do dilutions in our caustic and HCL and sell-through. But that's adding water to stuff. We have our own diluted -- we have our own brand in surfactant, but we're not into home. We're not into our own label. We represent some of the best brands in the world and the best manufacturers in the world. And we're proud of those brands, and we're delighted to do it.

[Steve Byrne:]

Thank you.

[Operator:]

Our next question comes from Bob Koort with Goldman Sachs. Please go ahead. Your line is open.

[Robert Koort:]

Thank you. Good morning. David, I wanted to explore a little more of this notion of the sales force effectiveness and intensity. And I think it was a major pillar over the last couple of years of improving efficiency. And I guess it's been a little less obvious externally where the traction has picked up there. You just mentioned harder sales, harder times are better for you. Maybe you can add more value. Is there also a counter that, maybe in harder times, the incumbent suppliers there are more willing to concede anything they can to keep the business? Or maybe give us some sense of why we haven't seen as much obvious traction on winning volumes or winning share? Or maybe you have, and you could give us some validation of that, as well?

[David Jukes:]

Yes. Sure, Bob. I mean I think a couple of things. Let me address the kind of traction in the sales organization first. I mean you know, you know better than anybody, we've done a huge amount of work with that sales organization to train them, to develop them, to change the kind of sellers that we have and also to change the kind of products that we have, to change the kind of materials that we sell, to have more differentiated chemistries, less of the big-volume, low-margin products and to come away from the -- from some of the big energy markets or some of those very low-priced products. So it's difficult to see in the top line. I would suggest to you, though, that if you look at our ability to be able to manage margin and deliver value through the business, that's done by a very good group of product managers and a very good group of sellers finding value with customers and being able to extract that value. And I think if you look at our margin improvements and our DGP improvement, that's testament to the kind of sales organization, professional sales organization that we have today. I think as we go into tougher times, I encourage our sellers to walk through the door of a customer and to say, Hello, I'm John Doe or Jane Doe from Univar Solutions. I'm here to save you money. I mean we -- that saving money won't be by dropping the price. We have more solutions than anybody else to help customers stay in business through tough times. That might be change the chemistry. It might be change the package type. It might be a different dilution. It might be a different supply chain offering. It might be using some of our digital capability to take some costs out. We can find ways to bring value to customers with a suite of offerings bigger than anybody else that should allow our people to be able to hold their head high and to go bring real valuable solutions to customers in the toughest of times. I would argue when times are good, customers haven't got time to change out one chemistry for another because they're busy hanging on to try and grow demand. When times get bad, then people have to find ways of staying in business and have to find ways of getting value. And I think we have more solutions than anybody else, and it's not just price. By the way, we actually -- we have some great supply partners. And they're supporting us tremendously well. So we can be as competitive as anybody. But I'm here, I'm from Univar Solutions and I'm here to save your money. We can do that, and we can do that better than anybody else.

[Robert Koort:]

Got you. You also mentioned something in your bullet points there early in the presentation about advanced analytics. Can you give us a little more granularity on what you're doing there, maybe an anecdote or 2 that explains how that's driving value or what's to come there?

[David Jukes:]

Sure. I mean we employ people that I would never thought we'd employ in the distribution business. We've brought in data scientists. We have a great group of people who are trying -- who are using AI to help us draw intelligence out of all the data that we have. Now that -- what that does is that allows us to give better insights into our sellers and our sales organization to go and sell things. Now that could be looking at order patterns so we can call customers and say, We think you're about to run out, or, We think you're about to order. We've had a couple of comments from customers coming back to us saying, Hang on. You're reading our minds right now. Yes, we are. So rather than wait for that order to come in, it's prompting our inside sellers to be able to call at the right time to be able to capture orders and capture demand. That's just one way that we can do that. It also helps us, looking at pricing and looking at pricing at a micro market level, to help us understand that pricing -- and then maybe suggest where we can capture more value and move on. So there's a range of places where we are deploying that. I mean the other area then is also on cross-selling. The simple kind of customers who bought this also bought that. Well, our analytics are helping us do that as well. So again, it feeds information into our sellers. So it helps them ask the right questions at the right time and gives them a greater probability of capturing the order.

[Robert Koort:]

And you think that's a competitive advantage at least to the smaller competitors you deal with out there? Or is everyone adopting this in the industry, do you think?

[David Jukes:]

I don't know. I haven't heard anybody else doing it. It's not easy to do. And we've invested quite a bit of money at it. What we are able to do, though, is invest that money and scale it across all our business. So we're now using these tools in Europe and in LatAm and everywhere. We can use this. It's write once, read many kind of mentality to this. So we can invest and scale it across what anybody else is doing. I haven't heard anybody else, I haven't heard any of the other major competitors talk about digital tools and digital offering in quite the comprehensive way that we are investing.

[Robert Koort:]

Got it. Thanks so much.

[Operator:]

Our next question comes from Jim Sheehan with SunTrust. Please go ahead. Your line is open.

[James Sheehan:]

Good morning. Thanks for taking my question. David, can you comment on the competitive environment? Are you seeing any increase in competitive intensity during the Nexeo integration?

[David Jukes:]

Well, look, I mean it's a competitive environment anytime. And I think there were many people who thought that we would mess up the Nexeo integration. And so far, we haven't. We had a lot of competitors chasing after our sellers when the deal was first announced, and our sales force attrition remains low. There's been a number of competitors who said that we would stumble and fall by bringing the 2 cultures together, and we haven't. There's been a number of competitors who said we're going to screw up the SAP integration, and we haven't. There's a number of competitors that say we're going to -- they'll capitalize then when we start to close sites, and we haven't. So I really focus on what we do and how we can serve customers and our suppliers better and play our game and then let the competitors worry about how they deal with that. So it's a very competitive marketplace. It always will be a very competitive marketplace. Yes. I mean I think we were in the crosshairs for a while from the second that we announced the deal. And clearly, we're in the crosshairs right now because we're in many markets with the big guys, so there will be. But we've disappointed most of our competitors by not stumbling in the way they predicted.

[James Sheehan:]

Great. And you mentioned a data point, volume per bill day and you've got extensive data on that. It sounds like an interesting metric. And I'm just wondering, is that a better metric by which outsiders can see the progress you're making? And would you consider disclosing any metrics like that?

[David Jukes:]

Look, volume per bill day helps us look at trends. DGP the bill day is much more important because volume is not really the driver for us. I mean, it is about the gross profit. I don't know whether we want to share that far and wide, but it is something which we use to try and understand for our business what's happening and what's going on.

[James Sheehan:]

Thank you.

[Operator:]

Our next question comes from David Begleiter with Deutsche Bank. Please go ahead. Your line is open.

[David Begleiter:]

Thank you. David, just to your comments on 2020, how you think about 2020. Were you suggesting to annualize second half EBITDA as a run rate for next year and then perhaps add in the incremental synergies? Or did I misunderstand that?

[David Jukes:]

Hi, David, no, I don't think that. I think that's kind of how we're thinking about life. We think -- we don't expect any particular material bounce-back in 2020 in the economy. So from a macro point of view, we look at the second half and think about that as probably a reasonable run rate for 2020. That's what we're looking in our internal thinking. And then you add in the incremental synergies to that. And that kind of gives you a guideline to where we're thinking. But we're not -- the macro is always the macro. We're controlling the controllables. We know what we control. We're confident about that. But the macro is the macro. We don't expect it to materially deteriorate from where it is in Q4. But we don't anticipate a bounce-back. We're not banking on a bounce-back or a recovery next year. If it comes, great, but we're not banking on it.

[David Begleiter:]

And we might reference September being below August. Where -- what end markets did you see slowing occur or by region?

[David Jukes:]

Well, I think that if we look at our -- I mean our European business just came off 23 quarters of growth. It's down 7% currency neutral. And if anything, it had a bump for quarter 3 last year. It was ultimately a difficult comparative. But the European economy is slowing down, and it's getting better -- it's getting gradually worse. But our business is doing very well and managing through that. I think the -- we saw a wide range of industry slowdown. We said that. The industrial markets in the U.S.A. are slowing down, and we saw that guide down. I mean energy, energy in North America really is the one which has probably shown the most marked slowdown in the last quarter or two. The situation in Canada, in Alberta, is kind of well-publicized. Fracking is slowing down in the U.S. So that's probably the biggest one. Now energy is clearly nowhere near as important to us as it was 5 years ago, 4 years ago, when we were very much an energy-focused company. But it's still something like 8% of our North American sales. So that's one which has really disappointed us.

[David Begleiter:]

Thank you.

[Operator:]

Our next question comes from Laurence Alexander with Jefferies. Please go ahead. Your line is open.

[Daniel Rizzo:]

Good morning guys. It's Dan Rizzo on for Laurence. You mentioned that next year, business in oil and gas is -- the option at oil and gas business is obviously -- is showing some weakness. As I recall, a few years ago, I think you guys kind of exited that business or significantly deemphasized it. Are you looking to do the same thing again, just walking away from there again? Or are they better positioned or if -- than you were back then?

[David Jukes:]

No. And thanks for the question. No, I mean I think as I just said, I mean North American energy is about 8% of our business. It's about 5% of our business globally. And as you referenced a number of years ago, I mean Univar -- legacy Univar was very big into the energy market, very big into the energy market and wasn't always very profitable. And we moved away from a lot of that over the last few years. Some of the accounts that we moved away from went to Nexeo. And so when Nexeo and Univar come together, those accounts are probably gone to someone else now. And so it's not us looking to come out of energy completely. We're very happy to be in energy, where we can support the business profitably. So it is about profitable business for us. It's not about shipping volume and shipping railcars. So that's the kind of Nexeo angle on it.

[Daniel Rizzo:]

Thank you very much.

[Operator:]

We have no further questions at this time. I will now turn the call back to Heather.

[Heather Kos:]

Thank you, ladies and gentlemen, for your interest in Univar Solutions. If you have any follow-up questions, please reach out to the Investor Relations team. This does conclude today's call.

[Operator:]

Ladies and gentlemen, thank you for participating. You may now disconnect.