Univar Solutions Inc.
Q2 2018 Earnings Call Transcript

Published: 5 Aug 2018

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Univar Second Quarter 2018 Earnings Conference Call. My name is Carol, and I will be your host operator on this call. [Operator Instructions] I will now turn the meeting over to your host for today's call, David Lim, Vice President of Corporate Development and Investor Relations at Univar. David, please go ahead.

[David Lim:]

Thank you, and good morning. Welcome to Univar's Second Quarter 2018 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 quarter ended June 30, 2018, along with a supplemental slide presentation. The slide presentation should be viewed along with the earnings release, both of which have been posted on our website at univar.com. During this call, we will refer to certain non-GAAP financial measures for which you can find the reconciliation to the comparable GAAP financial measures in our earnings release and the supplemental slide presentation. As referenced on Slide 2, we may make statements about our estimates, projections, outlook, forecasts 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 the risks and uncertainties inherent in our business and our expectations for the future. With that, I'll now turn the call over to David for his opening remarks.

[David Jukes:]

Thank you, David, and good morning, everyone. I'm pleased to report second quarter 2018 earnings that were at the upper end of our prior outlook. More importantly, these strong results demonstrate that our hard work is paying off as we continue to transform our company into one that consistently exceeds our customers' and suppliers' expectations and deliver sustainable, double-digit earnings growth for our shareholders. During the quarter, Univar earned adjusted earnings per share of $0.47, an increase of nearly 18% from a year ago. Our adjusted EBITDA increased over 9% during the quarter to $173 million on a consolidated basis, and our leverage ratio improved from 4.2x in the first quarter to 4x at quarter end as a result of strong EBITDA growth, cash generation and debt pay-down. This performance is a testament to the strength of our strategy, the improving execution by our team and a changing culture that prioritizes profitable growth and value creation. Our performance with the first half of the year, combined with our improving balance sheet, positions us well for continued growth in 2018 and beyond. We are driving Commercial Greatness, operational excellence on our One Univar culture, while continuing to invest in our business to enhance our long-term growth trajectory. We remain in an economic environment that is broadly supportive with strength in the industrial economy and a positive environment for chemical prices. That said, we are seeing inflationary cost pressures, particularly in global freight, but we are successfully managing through. And we continue to feel tremendously excited about our global opportunities. We're a self-help story and an exciting one. One of the biggest components of our transformation remains improving our execution and commercial initiatives across our U.S.A. business. We are still in the early stages, and we're encouraged by signs of improvement in our U.S.A. sales force execution. While we remain focused on driving profitable share growth, we understand that volume growth is a metric that's important to many of you. And I'm delighted to report the first quarter of profitable volume growth in the U.S.A. since 2014, an indication that our strategy is working. As a reminder, last year, we reorganized into 4 dedicated go-to-market lines of business

[Carl Lukach:]

Thanks David, and good morning, everyone. I'll begin on Slide 3. As David highlighted, we are pleased with our performance in the second quarter. Our results show progress against a number of proof points that our strategy is working and that our execution is improving such as our continued trend of higher margins and higher conversion ratios driven by margin management, more disciplined execution and a rising win-loss ratio from our global sales force. Our GAAP earnings per share increased 82% from $0.22 in 2017 to $0.40 in 2018 from higher EBITDA and lower one-time costs. Adjusted earnings per share, which excludes the one-time costs, grew 18% from $0.40 to $0.47. And adjusted EBITDA increased 9.2% to $173 million from $159 million last year or 7.3% on a currency-neutral basis. As we've communicated to you since last May when we presented our long-term growth plan and financial targets, we are not focused on volume growth for volume growth's sake. We see a $250 billion-plus global chemical distribution market, and we aim to own a much larger portion of that value in the low single-digit share we have today. We are globally focused on driving profitable growth. Our actions to enrich our product market and customer mix, to reduce value leakage and to improve our sales force effectiveness are delivering results. Our delivered gross profit per pound continue to increase in the second quarter as we continue to improve our mix. We had strong operating leverage with 75% of our incremental delivery gross profit dollar growth flowing through to adjusted EBITDA. Adjusted operating cash flow was a net cash inflow of $201 million for the quarter. That's adjusted EBITDA less change in net working capital, less CapEx, reflecting our higher EBITDA and a reversal of the adverse impact at the end of the first quarter of the timing of the Easter holidays. Turning then to Slide 4. Net debt at quarter-end was $2.5 billion, a decrease of nearly $150 million from June of 2017 and a decrease of roughly $50 million from the first quarter of 2018. Our leverage ratio at quarter-end on a reported basis was 4x, and it was just under 4x for our important debt covenant calculation. As a result and as agreed with our lenders, the spread over LIBOR on our $1.7 billion outstanding term loan will decrease by 25 basis points for the third quarter. We continue to earn a superior return on investment. Our return on assets deployed increased 340 basis points to 24.4% from 21% a year ago. All other return on capital metrics, like ROIC, ROCE and our internal Univar value-added metric, show similar increases from a year ago as our EBITDA increases. Turning to our consolidated results on Slide 5. Gross profit dollars increased 7% over last year to $500 million, driven by sales force actions to win profitable business, steady demand in our end markets and an inflationary chemical pricing environment. Our execution is improving as our sales force matures and uncovers areas where we can add more value for our customers and solve their problems. Disciplined targeted cost control generated good operating leverage to the bottom line in the second quarter as our adjusted EBITDA margin increased 20 basis points. We also continued to roll out high-return investments to drive long-term growth as we execute our strategic plan. Let me now take you through each of our segments beginning with the U.S.A. on Slide 6. U.S.A. adjusted EBITDA grew 6% to $97 million, our sixth consecutive quarter of EBITDA growth. Our performance in the quarter reflects an improving win-loss ratio and the strong operating leverage in our U.S.A. business. 95% of our incremental growth in delivered gross profit dollars flowed through to adjusted EBITDA during the quarter. And while we remain focused on profitable share growth, we are pleased to report, as David mentioned, that volumes in the U.S.A. grew 2.6%, marking the first quarter of volume growth since 2014. That ends 13 consecutive quarters of year-on-year volume decline in the U.S., reflecting our pullback from the upstream fracking market and our margin management actions. Going forward, with rising win-loss ratios from our sellers and more new supplier partner authorizations in the pipeline, we will increase our share of the value of the fragmented U.S.A. chemical distribution market. Strong industrial market demand in the second quarter increased the proportion of U.S.A. sales coming from our bulk chemical line of business compared to last year's second quarter. This shift in product mix resulted in our U.S.A. margins being slightly below last year. In terms of headwinds in the second quarter, tightness in the transportation market was a challenge for us. We implemented additional transportation surcharges in early May and made changes to improve our execution to ensure that we are fully capturing the higher costs in the marketplace. Since then, we have seen market acceptance of the inflation we are seeing and our execution is improving. Turning to our results in Canada on Slide 7. Adjusted EBITDA for the segment fell 5%. In the industrial markets, our Eastern Canada business was strong with double-digit growth in gross profit and higher margins and continued volume in gross profit growth in the Western Canadian business. These gains, however, were more than offset by weaker-than-expected demand from the agriculture market in the Central Plains. The record drought last year, coupled with minimal precipitation this summer, has produced large ag carryover inventory of crop protection products across the entire value chain. Farmers also held back on purchasing fungicides due to the low moisture levels. What we thought 3 months ago would be a compressed ag season is turning out to be a softer season, and we now expect our ag sales to be less than last year. Despite the significant weather-related challenges in our Canadian ag business, our total Canadian gross margins and adjusted EBITDA margins increased due to mix enrichment, strength in key growth markets such as coatings and personal care and improving sales force execution leading to double-digit EBITDA growth for our industrial chemicals business. We are gaining momentum with our customers and our relationship with our supplier partners remain strong and our pipeline of new opportunities in Canada is robust. In our Europe, Middle East and Africa segment on Slide 8, adjusted EBITDA grew 17% as a result of double-digit growth in our focused industries, favorable mix, improved sales force execution as well as a tailwind in FX rates. Excluding the impact of the favorable FX, adjusted EBITDA grew 11%. Gross profit delivered gross profit, and EBITDA margins all expanded as did our conversion ratio. We continue to see strong acceptance of our go-to-market strategy and are building on our momentum with new supplier authorizations and extensions. On the M&A front, we closed on the acquisition of Earthoil in May and have now fully integrated the Chemetall acquisition we completed in January of this year. Moving then to our Rest of the World segment on Slide 9. We had strong performance in the quarter as adjusted EBITDA nearly doubled to $9 million, driven by higher margins in Mexico and Brazil, improving sales force execution and some help from movements in currency. Despite the May truck drivers' strike, our Brazilian business increased during the quarter and EBITDA nearly doubled, driven by strong demand for specialty personal care products, higher prices in certain products and contributions from our Tagma acquisition. We also saw improved profitability in Mexico as a result of productivity gains and margin management actions. Moving now to cash flow on Slide 10. Change in net working capital was a cash inflow in the second quarter of $57 million. Net working capital as a percentage of sales decreased sequentially from 14.2% in the first quarter to 13.1%, but it's still elevated by normal seasonality in industrial markets and by higher Canadian ag net working capital. We continue to expect a $50 million to $100 million investment in working capital for the full year, and our CapEx guidance of roughly $115 million remains unchanged. Moving on to taxes. We continue to track towards $60 million in cash taxes for the year. Our effective tax rate for adjusted EPS in the quarter of 31% was higher than last year, largely due to change in the geographic mix of pretax income. The higher tax rate was a headwind of $0.08 per share in the quarter. For the full year, we now expect our effective tax rate for adjusted EPS to be near 30%. Let's turn then to our outlook for 2018 on Slide 11. We're pleased with the progress we're making on our transformation plan. Our initiatives are working and our execution is improving. For the full year, we remain on track to deliver low double-digit adjusted EBITDA growth and adjusted earnings per share of $1.65 to $1.85 per share as we absorb the softer-than-expected ag season in Canada. And if current FX rates carry through the second half, what we expect will be negative foreign exchange variances compared to last year. For the third quarter, we expect low double-digit adjusted EBITDA growth. With that, I'll turn it back to you, David.

[David Jukes:]

Thanks Carl. Our second quarter results, the seventh consecutive quarter of growth, continued a positive momentum we've created and further strengthens our confidence in successfully executing our multiyear transformation plan. We have an exciting and unique opportunity to grow both the profitability and the size of Univar in a market that is large and growing and an industry that is fundamentally strong. We're still in the early innings of our transformation plan with much work ahead of us. Outside the weather-related impacts in our Canadian ag business, our segments outside the U.S. are performing really well, and we're seeing demonstrable signs of improvement in the U.S. We're showing accelerating growth in many metrics and KPIs, and our supplier relationships are better than they've been in a very long time and we're building momentum. We're excited about the opportunity in front of us and energized to capitalize on it. And before we open the call up to questions, let me address a couple of topics I know were at the forefront of your minds. There is currently a lot of talk in the marketplace about tariffs. Let me remind you that the vast majority of the products we distribute are produced in their respective local geographies, which we have long seen as a competitive advantage for us. In the U.S., specifically, only around 1% of the products we distribute are imported from China, and we do not anticipate any meaningful impacts on our business. Finally, we are seeing some inflationary pressures in our business. We are hiring better people and paying them well. Fuel and transportation is also elevated and chemical prices are pushing higher. Whilst our own improvement productivity can mitigate some of this, prices and costs are increasing. Customers don't like it, but they understand, and they're not hearing it just from us. We are well positioned in the marketplace. And in the U.S., we handle over half our freight with our internal fleet, which gives us a clear cost and service advantage, and we continue to invest in ways to increase our productivity. We are and fully intend to continue taking the steps we need to protect and grow our margins and improve our execution in the current environment while delivering unrivaled value to our customers and supplier partners. Thanks for your attention. And with that, we'll open it up for questions.

[Operator:]

[Operator Instructions] And our first question today comes from Bob Koort from Goldman Sachs. Please go ahead.

[Dylan Campbell:]

This is Dylan Campbell on for Bob. A couple of clarification questions on guidance provided in the slide deck. The 3Q growth profile and the full year guidance seem to imply a fourth quarter EBITDA growth guidance of kind of in the mid-to high single digits level. Just want to confirm if that's correct. And separately, just to confirm that this growth is off the lower restated EBITDA, correct?

[Carl Lukach:]

You're right, Dylan, that's correct. I think you have it sized right in terms of the sequence of the quarters.

[Dylan Campbell:]

And then you talked about higher mix exposure for the U.S.A. segment in bulk chemicals, which may have impacted margins for the quarter. Can you talk a little bit about how your volume growth was specifically for specialty chemicals and how that trended year-over-year?

[David Jukes:]

Sure. Let me try and help you a little bit on that. I mean, I think that - what we really are focusing on is our sales force execution and having a better organized sales force, having people who are hungry sellers looking to grow their business and their careers with Univar. And we churned a large number of our sellers last year. Their churn rate is much more normalized now. So people are building experience and building relationships to their customers. It's natural then that what they're going to do is sell the more fungible products first because they are quicker and easier to sell than the more specialized products and more differentiated chemistries, which are about formulated into a new product for next season - over the next season that it may come. So we are seeing growth across all our - on all our segments, but our improving sales force execution is really driving growth in the non - sorry, in the fungible products much more quickly right now than in the differentiated chemistries. But that's a function of the effectiveness of the sales organization and its growing maturity. You'll see that balance out over the coming months.

[Operator:]

Our next question comes from Allison Poliniak from Wells Fargo. Please go ahead.

[Allison Poliniak:]

Can we talk a little bit about the authorizations? You've had a number of successes there. Obviously, it's not like sort of late switches turned on. But how - and we probably can't quantify, but how can we expect the benefits to start to flow through? Is this more of a '19 event that we're going to start to see more of a benefit from these authorizations? Could you walk us through how that works?

[David Jukes:]

Sure, Allison. And apology, I'm a bit croaky this morning. So if I break up, it's not I'm in tears, I'm just struggling with my voice this morning. Yes, I mean, the authorizations, they're really important to drive future growth. Often, when we are selected, someone else is deselected or a number of someone else's are deselected. Generally, we're finding at some regionals, they were being deselected and we are being chosen as the national player or a country player in Europe is being deselected as we move to be more a pan-European player. And so we have to do a couple of things. We have to let the notice period work through. We have to have an effective transition and turnover, and we have to let the supply chain empty as well. So if there's normally a, I don't know, 6-, 9-, even 12-month lag between being assigned a new authorization and then really seeing it come through in the numbers. So we'll start to be selling and growing some of these products immediately, but it'll be '19 before you really see the impacts and the benefits of these come through.

[Allison Poliniak:]

And then on growth path that pulled through, very high this quarter, just given some of your cost challenges. How should we think about of a sustainable rate there, just given that you are reinvesting back into the business now?

[Carl Lukach:]

I think what you're also seeing in there, Allison, is results of productivity initiatives that we've been driving for a number of quarters really over the last 5 quarters. And there's work improvements despite the rate increases in transportation. Our warehouse efficiency is improving. Our indirect spend has been improving as well. And so that's in the mix, along with increased spending in digital. That's a prime focus for us, and we have increased our spending there in OpEx. But as you call out, we had very strong operating leverage to the bottom line, especially in the U.S. at 95% of the growth in delivered gross profit dollars to the bottom line, 70% overall for the company. And we - I think you're going to expect to see that same sort of visible high operating leverage as we move forward.

[Operator:]

Our next question comes from Steve Byrne from Bank of America. Please go ahead.

[Steve Byrne:]

So you got EBITDA margins that are now creeping up above 7%. Do you think they can get into the double-digit range at some point? And what would give you that conviction? For example, are there particular products or paths to market such as your digital platform that inherently have a much higher margin structure than what is in the average?

[Carl Lukach:]

Steve, this is Carl. Thanks for that question. I'll start it off and give David a chance here. But what you're seeing is very much the same track that we just explained a year ago in our inaugural Investor Day. We do see that as the outcome of our growth plans, the 5-year plan that we have underway and the output of that plan, lands us in double-digit territory in EBITDA. The drivers of that are

[David Jukes:]

Yes, Steve. I think that's - Carl is absolutely right. So we see this as - we do see double-digit territory as entirely achievable. It's not a hope, it's a plan. So it's consistent with the plans that we laid out last year. We do think it's part of becoming a more efficient company. Part of that efficiency is driven from our digital initiatives. Also value creation is driven by digital initiatives, which will help our GP line, but also help us grow our total GP. So I think it is about becoming a much more effective and efficient company all around. And the net outcome of that is double-digit territory. As I said it's not a hope, it's a plan. It's consistent with the plans that we laid out last year.

[Steve Byrne:]

And just a follow-up on your comments, Carl, about the Canadian operations. You mentioned high-channel inventory levels of crop chemicals. Is that a headwind going into next year? And just a follow-up on those digital comments, are you seeing any risks of being disintermediated in ag from the online distributor, FPN?

[Carl Lukach:]

On the first question, Steve, what we are seeing, and it's not universal across of the plane, is farmer behavior that is investing less in this year's crop because of low soil - moisture levels, after the drought last year, the heavy late spring and now the dry condition in many of the areas, but not all. So overall, we see a buildup of inventory and it could carry into the next season. We'll see how the remaining months, weeks of the season go here and how fire receptivity develops. But it's hard to make the call right now. But right now, the farmers are investing less in this year's crop in those particular areas in Canada that we sell into. As for digital, it's an evolving science. We're certainly very focused on digitizing our operations more, both on the customer front and the supplier front, and as well as in on our own back shop and lowering the transaction costs. So hard to make that call.

[David Jukes:]

Yes, I mean, I don't see any - so the FPN is an interesting marketplace, it's an interesting concept. It's not a new or unique one. We do - we don't see any impacts on our business from that at the moment. So I think it's a tangential or complementary business model as the one we have. But we are investing in our own digital efforts. And actually, that's really going to help us transform our business overall. MyUnivar launched in Canada today, and that's because now we've taken that platform, made it multilingual, multicurrency and so it can roll right across the world. We can even leverage that investment to bring digital leadership throughout all our businesses and operations. And then I think some of the other investments we're making in AI and smart asset technology, to name just a couple, are going to really help us transform our operations. And I think we're going to bring unrivaled value to customers and suppliers long into the future.

[Operator:]

Our next question comes from Jim Sheehan from SunTrust. Please go ahead.

[Jim Sheehan:]

You talked about increasing your market share, the $250 billion market. You have a target market share in mind?

[David Jukes:]

I'm not sure we have, Jim, in particular. I think we - our aim or our vision is to be the most valued chemicals and ingredients distributor on the planet through Commercial Greatness, operational excellence and One Univar. Valued is an important word. It means being valued by our customers, valued by our suppliers, valued by our people and valued by our shareholders. That's our ambition. We want to improve on both the size and the profitability of our business in a large and growing marketplace. So I don't have a number in mind. I just want to see us be the most valued chemical and ingredients distributor on the planet. That's what the drive is. That's what the focus is.

[Carl Lukach:]

And low single-digit share of that market. I mean, if you look at our strategic plans, the way we look at it, we break it down by segment and then by end-user market. And our plans there comprehend our participation in those market spaces today and how we can increase it. If you added it all up, I guess, we could get to a number. But we disaggregate that down to the actual end markets.

[Jim Sheehan:]

And can you talk about what factors have driven your increase in supplier authorizations? so far this year, it looks like this is really accelerating. What has changed from, let's say, a year ago?

[David Jukes:]

Well, I think what we did was we organized our business a year ago into those 4 lines of business

[Operator:]

Our next question comes from Laurence Alexander from Jefferies. Please go ahead.

[Dan Rizzo:]

It's Dan Rizzo on for Laurence. You mentioned - I think you said something about being completely out of upstream fracking. Is that what you intend to - where you intend to stay? I mean, given the fluctuations in energy prices or as they potentially trend higher, is it an area that could be profitable at a different, I guess, just a different price level? How should we think about that?

[Carl Lukach:]

Let me clarify. What I said was our - commenting on the decline, the 13 quarters of decline in volume in the U.S., which was reflective of our pullback from upstream fracking. And you could argue that, really, the through pulled back, but the market demand drastically decreased as did our business. We're not out of that market space. In fact, it's growing quite nicely now. But in much more selective end-market users and customer base that - versus our path, we're very conscious of the investment that we made in the past there and we're getting increased utilization of that. So we look at it as a - we're not out of the market. I'm going to make sure that we're clear on that, and we're just very careful at how we deploy our resources and have our efforts into that space compared to all the other market opportunities we have.

[David Jukes:]

I think that's absolutely true. I mean, we are interested in profitable share growth that we can find ways to compete in a certain marketplace that give us profitable share growth and give us a good return on capital. And then we're going to go into those markets. We're going to invest in those markets, but we're not going to rush in and invest in markets where we don't get a good return on capital or we don't make money on the product. We're not really in the selling chemicals for volumes' sake. We're in the making money business. And so to the degree that we can sell and build relationships with our customers in any of the chosen markets that we have where we can share profitable growth together and bring value to them, then I'm happy to do it.

[Dan Rizzo:]

With that in mind, is the volume slicing done? Are you done shedding out - like some volumes were up in the quarter as you said. Have we got us in the business we wanted to and now we're kind of focused on moving from here if you ever reach inflection point, I guess, at this point?

[David Jukes:]

Yes. I mean, if Mr. Newlin was here, he'd tell you that he had never done pruning and he'd be right. And so you've never done pruning, you're always - the beauty of average is it's always going up. So the way I described it a few weeks ago to someone is, don't think of pruning. What we did last year was deforestation. The deforestation is finished. The pruning will continue as we look to improve the quality of our business overall. But we are absolutely laser focused on profitable share growth.

[Operator:]

Our next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.

[Kevin McCarthy:]

Question on your U.S.A. segment margins on Slide 6. You referenced a product mix impact. And obviously, given the inflation in freight costs, you've talked also about implementing the surcharges there. I imagine the latter could have an effect on your margins as well. Can you speak to those two things, the freight cost pass-through and the mix? And what impact do you think each of those had on the segment margins?

[David Jukes:]

Sure. Let me take a stab at it and I'll let Carl dive in. So you're right to reflect the 2 things. Let's look at the product mix, firstly. As I said into an earlier question, if you think about our improving sales force effectiveness, and we've been talking about that now for over a year, and changing out that sales organization, having a relatively immature sales organization, building its pipeline of opportunities, building its relationship with customers, it is understandable that the more fungible products are going to the ones that they are able to sell quickly, that customers were able to transfer quickly, run the more differentiated kind of products that need formulating into throughout the next season's soup or next season's skincare or whatever it may be. So you're seeing a piece of that mix. You're seeing a piece of that. You're seeing our sales force really picking up more share in fungible products that really we maybe haven't had in the last 12, 18 months, 2 years, 3 years even. So that's affecting the mix. And that's just kind of depressed the margin slightly. On freight headwind, we did move in May. We then pushed through a price increase in June. And if I look at our numbers towards the end of the quarter, they are much better than they are in the start of the quarter in terms of probably pushing the freight through. So I think we probably were maybe a month late into the party, but we're now well on board. We have freight well under control. We're successfully managing both the costs and the service elements. So our service to our customers is now in a way up in the high 90%, where we want it to be. So I think we now have that managed. And we're thinking about freight in a very different way, much more as a product than as a cost center. And so we are preparing ourselves if the trends continue to push freight further in, in the autumn or the fall, depending on where you're listening to this. And so we think we're really on top of that now and have that well, well under control.

[Kevin McCarthy:]

And then the second question, if I may, on your ROW segment. What was the impact of the strike in Brazil, if any? And more broadly, you've done very well there, especially on a year-over-year basis. You talked about the acquisitions, some personal care comments, et cetera. But I guess, my simple question would be, is this sort of EBTIDA run rate sustainable, in your view, in the high single-digit range?

[David Jukes:]

Well, I don't - I think our business in Brazil in particular has been a consistently good performer. We have a great team down there. They have a very clear value proposition. They understand the differentiated chemistries incredibly well and have continued to grow their business down there successfully whatever the market conditions. So I think we have a great team with a great knowledge of the customer base, a great feel for the marketplace and some fabulous technical development assets. We've got really good labs down there. So we've got phase of people don't have down there to be able to sell differentiated chemistries in a way that few of our rivals can compete with. And I think that's really delivered. It is showing in the numbers that they deliver. They - the strike was a pain. It was nationwide. It was everybody, and it lasted a week. But we managed our way through that very, very successfully. Now, our customers weren't hurt. So our team down there did a fantastic job. I have every confidence, every confidence in our business in Latin America.

[Carl Lukach:]

I'd just add, in Mexico, we also had a lot of positive news there that contributed to the good results of this quarter, improvements in margin managements, very specific actions that we took with certain product lines and continued productivity initiatives around our warehousing. So great news out of Mexico as well that both came together in the quarter and it gave us a great result. In terms of continued run rate, we have high expectations for continued growth and success in both markets, Mexico and Brazil.

[Operator:]

[Operator Instructions] Our next question comes from Duffy Fischer from Barclays. Please go ahead.

[Duffy Fischer:]

So a question around the 40% that's the new part of your sales force. I know you said it takes 12 to 18 months to kind of get to a base level. But when you look across your average salesperson, how long does it take for them to get to a peak level? And then what's the delta between that base level and peak level? And that - does that 40% outperform significantly, the 60% that's already there and established over the next 2 or 3 years?

[David Jukes:]

That's a granular question, Duffy. Let me think about that one for a second. I mean, we've been very clear that it would take 12 to 18 months for our sellers to really - they need to learn 2 things. They need to learn our company and they need to learn their customer base. And then it takes a while to build their pipeline and to close on that, and that's the kind of 12 to 18 months. Once they have that, once they build credibility with their customers, once they build the really successful closure of their pipeline opportunities and continue to bring value, that business will continue to grow. When it grows to a certain size, and that may take 2 years, 3 years, then typically, we'll split the territories and they'll start again. And so seeing the sales force development, seeing the sales force grow, there isn't a magic number they can and turn into some state sellers, some go into sales managers, and some progress their careers through Univar. We just bring in some great talents here at the moment. We're bringing some absolutely super talents, and they are delivering for us, learning quickly, building relationships, bringing energy to the organization. It is an energy - it's a company now with a spring in its step and getting a bit of a swagger back, which is great to see.

[Duffy Fischer:]

But I guess, can you guys analyze on a granular basis, say, the 2.8% volume you talked about in the U.S., how much of that came from the 60% that was established? And how much of that is from kind of the new 40% sales folks that were churned over next term? And do you have that kind of granularity that you can monitor that?

[David Jukes:]

So of course, we do. We have a granularity down by individual seller, by individual inside seller, by customer service reps. So we have that absolute granularity. They have it as well because they see it in their commission check, they see it in their SIP performance, and they see how they're performing against all their peers as well. So yes, on a sales management basis, we know exactly how every individual is performing. That's how we performance management our people and develop them through our organization.

[Duffy Fischer:]

So again. So the question - I mean, are those progressing at the rates you would have assumed a year ago with the new folks versus the old folks?

[David Jukes:]

I think about the more established, then the old folks, being an old folk myself. Look, I think that we - I'm really pleased with the quality of the people we have. I'm really pleased with how they're progressing. I'm pleased to see our churn rate is reduced significantly, which means we are hiring good people. We're always going to upgrade our talents and we're going to continue to upgrade our talents. That's part of performance management. But I'm really pleased with the quality and the energy that those new sellers are bringing into the organization. And I'm pleased to see an organized sales organization, backed with a spring in its step, and within the marketplace and really, having - getting its swagger back in a way that this performance deserves to do. We've been having great response from our customers. Our customers are really starting to recognize Univar is back, starting to recognize the value that we're bringing. So I couldn't to be more excited about the opportunities that lie in front of us.

[Operator:]

We have no further questions in queue at this time. And this does conclude our conference call. Please disconnect. Thank you very much.

[David Jukes:]

Well, thanks, everybody.