Unifi (UFI) Q3 2019 Earnings Call Transcript

Unifi (UFI 0.34%)
Q3 2019 Earnings Call
May. 01, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone. Welcome to Unifi's third-quarter conference call. Leading today's call is A.J. Eaker, vice president finance and investor relations.

A.J.?

A.J. Eaker -- Vice President, Finance and Investor Relations

Thank you, operator, and good morning, everyone. On the call today is Tom Caudle, president and chief operating officer; Al Carey, executive chairman; and Chris Smosna, vice president, treasurer and interim chief financial officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the third-quarter conference call link. Management advises you that certain statements included in today's call will be forward-looking statements within the meaning of the federal securities laws.

Management cautions that these statements are based on current expectations, estimates and/or projections about the markets in which Unifi operates. These statements are not guarantees of future performance and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecast or implied by these statements. You are directed to the disclosures filed with the SEC on Unifi's forms 10-Q and 10-K regarding various factors that may impact these results.

Also, please be advised that certain non-GAAP financial measures such as adjusted EBITDA and adjusted working capital may be discussed on this call. And non-GAAP reconciliations can be found in the schedules to the webcast presentation. I will now turn the call over to Tom Caudle.

Tom Caudle -- President and Chief Operating Officer

Thanks, A.J. Good morning, everyone, and thank you for joining us today. In our third quarter, we continued to fight against many of the same challenges that we saw during the first half of fiscal 2019, including high-volume, low-priced imports, elevated raw material costs and execution shortfalls in our core polyester and nylon businesses. In this difficult environment, we saw sales growth across all three of our reporting segments, thanks in part to an additional shipping week in our North American operations, but our bottom-line performance was disappointing.

Big picture. We are focused on our partner, innovate and build strategy, and we remain well-positioned to deliver superior service to our customers and to capitalize on our significant market position. That being said, we recognize the need for organizational realignment and have taken swift action to transition to a leaner, more agile structure having deep roots in operational excellence and a proven understanding of our core business. We believe we have made the right strategic decisions that will establish a more profitable structure for the business moving forward.

And we remained excited about our global opportunity due to continued growth of PVA products. I'd like to reiterate our strategy hasn't changed, but we have renewed our focus on controlling costs and solidifying our core business in North and Central America. Both Al Carey, our new executive chairman, and I helped craft the strategy and believe the underlying drivers of our business remain strong. I will go into more detail shortly on the additional cost containments that we're taking to shore up bottom line, but let's first review a few key performance indicators for the quarter.

Revenue for the third-quarter hit $180 million, compared to $165.9 million for the third quarter of fiscal 2018. When excluding the impact of foreign currency translation, net sales increased $19.4 million or 11.7%. These results demonstrate that our product portfolio provides us sustainable path forward for future growth. Third-quarter top-line growth was primarily driven by our operations in the international segment and one extra shipping week in North America.

Much of the growth in Asia continues to be bolstered by our sustainable Repreve platform, a brand that differentiates us from our competitors and which will remain paramount to our go-forward strategy. Despite these sales growth, we experience short-term issues that, again, impacted our bottom-line results. Profitability was impacted by significant pressure from imported yarns, especially in the U.S., while we also experienced raw material cost pressures in certain foreign markets. Shortly after we filed our petitions to impose anti-dumping and countervailing duties on certain imports of polyester-textured yarn, the temporary government shutdown began, which delayed the publication of U.S.

trade data. This hindered our view of the market and made it difficult to see the elevated yarn import levels that were entering the U.S. and depressing our North American volumes. We have since learned that the import levels from China were amplified during that time period, adding further pressures against our domestic pricing and market share.

Against this major headwind, our teams were to remain competitive and drive top-line growth, but we have been forced to sacrifice some margin to compete effectively. Looking at polyester raw material costs, we began the third quarter expecting a take down from the higher levels seen during the second quarter. However, polyester raw material costs remained flat during the third quarter. While a stabilization of these costs was welcomed, our February guidance anticipated step down that did not actually occur.

Given these external pressures, we have and are taking action to better align our cost with realities of the marketplace as it currently exists, particularly in North America. First, we lost and are continuing to execute against the cost-reduction plan, which includes a significant decrease to the run rate of general and administrative expenses. SG&A for the first half of fiscal 2019 was on pace for an annual run rate of around $60 million. That is just too much for our current operating environment.

We, therefore, took aggressive cost-cutting action, which targets a roughly 15% reduction of this $60 million run rate by the time we enter fiscal 2020. These reductions were made strategically, but we are focused on preserving our ability to continue to grow and advance our capabilities across the globe. The commercial work we've done across our product portfolio and especially with Repreve remains key for driving growth moving forward. Next, we will remain focused on measures that increase utilization of our core polyester assets in order to drive improved fixed-cost absorption and increased volume pull-through.

Increasing the volume flowing through our assets is critical to providing manufacturing efficiency at our plants and to support the agility required to handle a complex product mix and remain on the leading edge of textile innovation. We are also targeting savings in cost of sales across major functional areas, including manufacturing, procurement, technology optimization and process improvement. With potentially lower expenses, we can take a more balanced approach to restoring our core America's business, while at the same time, optimizing the supply chain and cost structure to better deliver efficient and effective solutions to meet the demands of our customers. So to conclude, we have and are taking aggressive and decisive action and believe we have got the right structure in place to better handle the challenges that have plagued our business in the last few quarters.

Now let's walk through a high-level overview of quarter 3 2019 versus quarter 3 of 2018. International top-line performance was a bright spot with sales growth, driven primarily by Repreve sales across Asia and Europe. The notable growth was in filament programs, while combined chip and staple fiber sales remained strong. However, international sales expansion was partially offset by unfavorable foreign currency translation impact.

In the North and Central American markets, polyester saw an increase in both revenue and volume, primarily due to the additional shipping week, the dyed acquisition we completed in May 2018 and higher selling prices tied to raw material costs. However, yarn imports placed significant pressure on volumes, selling prices and the profitability for our major polyester product lines, particularly in the U.S. Like polyester, nylon experienced a revenue increase primarily due to the additional shipping week in addition to raw material-related pricing increases, following a global increase in the cost of nylon raw materials for textile applications. However, the consistent category decline that we have discussed in the past muted our sales performance.

Nylon benefited from the favorable timing of the inventory purchases and a successful implementation of selling price increases in the third quarter. Outside of core operations, our equity affiliates provided incremental profitability led by Parkdale with a comparably better raw material cost environment and operating leverage. I'd now like to provide a quick update on the status by trade petitions that we filed in October 2018. As previously discussed, these petitions allege that dumped and subsidized imports of polyester-textured yarn from China and India are causing material injury to U.S.

textile industry. In the months after our petitions were filed, there was a 27% spike in imports from China. We believe this surge in imports was due to efforts to stockpile imported yarn before preliminary duties were imposed. Accordingly, we filed a critical circumstances allegation on April 2, 2019.

In this filing, we asked the Department of Commerce to apply a retroactive duties on imports from China. The Department of Commerce granted this request on April 19, and just recently announced preliminary countervailing duties for Chinese and Indian imports. These duties are affected for future imports in these countries and will also apply retroactively to import from China during 90 days preceding the date that the duties were announced. We expect an announcement of preliminary anti-dumping duties in June 2019, and those duties will also be effective retroactively for imports from China during the 90 days preceding the date of announcement.

Following these preliminary announcements, the investigation process will continue throughout much of calendar 2019. We expect final determinations of dumping, subsidization and injury to be made by the end of calendar 2019. There will always be quarter-specific issues to deal with, but we are confident that our long-term initiatives and our recent cost-reduction measures will help us to stabilize Unifi's position as a leader in this highly competitive market. In terms of our full executive team, we are actively searching for a permanent CFO, and we'll provide an update in due course.

Apart from this search, we are not currently seeking to add to our executive management team. Instead, we believe that our existing team provides the right mix of skills and experience to execute on our strategy. I will now pass the call to our interim CFO, Chris Smosna, to go into more detail on our financial results. Chris?

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Thank you, Tom, and good morning, everyone. As Tom noted, results this period are disappointing, but we have and are taking meaningful action to reduce costs across the business. I will dive into the drivers of our performance in my discussion today and will begin on Slide 3 of the webcast presentation, where you can see a high-level overview of net income. Moving from left to right.

Net income declined from $0.2 million in the third quarter of fiscal 2018 to a net loss of $1.5 million in the third quarter of fiscal 2019. For this bridge, we've applied a 30% tax rate to the items noted to increase the relevance of this analysis and presented separately the impact of the significant change in the effective tax rate, which I will explain in a few moments. A material increase in net sales was driven by the fact, as described by Tom earlier, notably the additional shipping week due to the timing of our holiday shut down period having a favorable impact on the number of shipping days in the third quarter of fiscal 2019 along with continued growth of our PVA product sales mostly in Asia. However, the pressures that we experienced across our business units drove a meaningful decrease in our gross margins, and we are unable to maintain the level of gross profit that we have hoped to achieve.

I'll discuss the margin bridge on the following slide. Next, operating expenses decreased by approximately $1.3 million on an after-tax basis. This decrease primarily reflects bonus and equity compensation forfeitures in connection with recently announced executive departures along with the benefit of foreign currency changes. Stronger earnings, more equity affiliates provided an improvement to net income of approximately $900,000 on an after-tax basis.

This was primarily due to improved operating leverage for our nylon joint ventures in Parkdale along with an improved conversion margin environment for Parkdale. The benefits we saw from reducing operating expenses and improved equity affiliate earnings were offset by a significant and unfavorable tax rate. Let me take a moment to explain. First, the general decline in domestic earnings created an unfavorable mix of foreign earnings taxed at higher rates.

This, combined with our inability to take advantage of specific tax credit offsetting the U.S. taxation of certain income earned overseas, had an unfavorable impact on our effective tax rate. Second, the third quarter was unfavorably impacted by nonrecurring adjustments related to the enactment of U.S. tax reform.

Due to our lower pre-tax income in the third quarter, the amount of tax expense recognized significantly impacted the effective tax rate. Looking forward, increase in our domestic earnings has the potential to meaningfully improve our effective tax rate. We will provide additional tax updates in the future. Beyond the tax rate, it was a quarter full of headwinds throughout the P&L, but we are pleased with the steps that we are taking, which are squarely focused on restoring future profitability.

Moving to Slide 4. We have provided a bridge for gross margin. Consolidated gross margin was 7.7% for the third quarter of fiscal 2019, compared to 10% for the third quarter of fiscal 2018. The decrease in gross margin was primarily driven by competitive pressures across our product portfolio and contributed to lower fixed-cost absorption and a weaker sales mix.

The polyester segment was adversely impacted by competitive pressures from yarn imports into the U.S., contributing to a weaker sales mix and lower fixed-cost absorption. While we continue efforts to restrengthen our market position, import data reaffirmed the importance of the trade petitions that Tom mentioned earlier. The nylon segment benefited from an increase in selling prices in connection with global market pricing for nylon products. We were able to successfully anticipate a dramatic increase in nylon raw material costs, which allowed us to raise prices quickly and effectively to protect the margin profile.

The international segment was adversely impacted by competitive pressures, driving softness in certain market segments, raw material pressures and portfolio growth of certain lower-priced products. These segment dynamics combined to generate a decline in overall gross margin, causing the significant underperformance seen in the third quarter. Slide 5 shows the sales and gross profit highlights for the third quarter. Total segment net sales were up $14 million or 8.6% after approximately $5.3 million of foreign exchange pressure in comparison to the third quarter of fiscal 2018.

Sales results in our international segment continued to be a bright spot and were up nearly 11%, despite raw material cost pressure in a competitive landscape. Sales of the pre-products led the way in Asia as we continued to attract quality-brand programs and maintained a leading position in the recycled market. The international PVA portfolio remains strong as our strategy continues to be validated. However, this growth was negatively impacted by both unfavorable foreign currency translation and softness in our Brazilian market.

Our polyester segment benefited from the additional shipping week, raw material-related price increases and incremental sales from our 2018 dyed acquisition. However, the previously discussed surge of Chinese yarn imports into the U.S. placed significant pressure on our textured yarn portfolio and negatively impacted our sales mix. Overall, polyester revenues were up 7.9%.

Nylon sales were up 6.4% and also reflects the impact of the additional shipping week and higher raw material-related pricing, partially offset by an ongoing decline in the overall demand for nylon products. The market and competition remain difficult, but we are pleased with our commercial efforts and our ability to manage cost-based pricing in this segment. For gross margin performance, we covered the significant items on the previous slide. Overall, total company gross margins came in at 7.7% for Q3 2019, compared to 10% for Q3 2018.

Looking at this from a segment perspective, we see that polyester was primarily impacted by lower fixed-cost absorption and weaker sales mix resulting from the competitive pressures described earlier. As a result, polyester gross margin fell from 5.4% to 3.7%. Nylon benefited from responsive pricing actions and was accretive to gross margin in the third quarter. As a result, margins more than doubled to 9%, compared to the 4.2% from Q3 2018.

And the international segment faced raw material cost pressures along with a slightly weaker sales mix in addition to considerable gross profit pressure from the effect of currency translation, which had a negative impact of approximately $1 million when comparing to the third quarter of fiscal 2018. As a result, margin declined to 13.7%. Slide 6 shows equity affiliates. Pretax earnings increased approximately $1.3 million.

Parkdale's results reflect comparably better operating leverage and a more favorable raw material and pricing environment, while the nylon joint ventures benefited from better operating leverage. Distributions in the quarter totaled $750,000, while the year-to-date amount is $1.4 million. Slide 7 covers balance sheet highlights. Working capital was $195 million, and adjusted working capital was $178 million.

Adjusted working capital as a percentage of sales was 24.2%, driven primarily by higher inventory stocks. We ended the period at $137 million in debt principal. Net debt was at $109 million while revolver availability remained above $62 million and total liquidity remained above $90 million. I'll remind you that we amended the credit facility in December 2018, and we were able to expand the maturity date to 2023 and generated an average stepdown in interest of 25 basis points.

Additionally, using swaps that terminate in May 2022, we have effectively fixed LIBOR at approximately 1.9% on $75 million of our debt principal. At March 2019, our weighted average interest rate was 3.4%. Consistent with our October 2018 announcement, $50 million remains available for share repurchases. Before leaving the financial discussion, I would like to provide an update on our fiscal 2019 outlook shown on Slide 8.

We have experienced considerable headwinds and execution shortfalls this year. And while our progress in growing revenues remain solid, bottom-line performance has come up short. With our third-quarter performance and the current competitive pressures from yarn imports into the U.S., recent profitability guidance is out of reach. Therefore, we remain on track to achieve net sales growth in the mid single-digit percentage range and to allocate approximately $25 million for capital expenditures.

Our operating income is expected to total between $10 million and $12 million, and adjusted EBITDA is now expected to reach the $33 million to $35 million range. Fiscal 2019 underperformance is expected to drive an unfavorable effective tax rate and cash-based tax rate in the 70% to 80% range. And lastly, specific to the fourth quarter P&L, cost-reduction actions taken in April are currently estimated to result in a severance charge in the range of $1 million to $2 million. Now I'd like to turn the call over to Al Carey briefly before opening up for Q&A.

Al Carey -- Executive Chairman

Thanks, Chris. I wanted to take a moment to discuss what I have seen in the short time that I've been part of the Unifi organization in the executive chairman position. As a board, we recognized that several changes needed to be made to get our performance moving in the right direction, and several important changes have now been made, and we expect that those moves will allow us to see a sequential improvement in our business in the upcoming quarters. First, we've made several new executive assignments, which should be very good for our performance and for the morale of the organization as well.

The new management structure, I believe, is streamlined and simpler. We have tremendous confidence in Tom Caudle, who is a seasoned Unifi veteran over several decades. He and our team have the know-how to put us on good performance track. Second, our organization is now focused on both important priorities, driving our exciting Repreve business to new heights and also driving our important core business, which is required for the overall company performance, and I think innovation on both will be extremely important priority for us.

And then finally, we have taken cost reductions mostly in SG&A, and I think this is going to give us some flexibility in our P&L and give us a more appropriate-sized SG&A for the size of a company that we are. So I'd say that we're optimistic. We're optimistic that with these changes, we're going to see a gradual improvement in our operating income, EBITDA and EPS in the months to come. So now I'd like to turn this over to the operator to open it up for questions.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from the line of Chris McGinnis with Sidoti & Co.

Chris McGinnis -- Sidoti and Company -- Analyst

It's something to start off with just on the trade petitions. And can you maybe just talk a little bit about when do you expect the timing to come through, given the language that you released today? Will that be later in the year? Or are they retroactive now? And if we can start there and then maybe move into once those duties are implied, how competitive is UFI versus those prices?

Tom Caudle -- President and Chief Operating Officer

Chris, we filed our original petition in October of '18. And since that time, we've experienced significant increase in imports coming into the country. Based on those increased levels of the imports coming into the U.S., we filed a critical circumstance case which was possibly ruled on by the Department of Commerce. And then effective on the 29th of this week, they also gave a positive ruling on countervailing duties on China and India as well.

The duty rates or the countervailing duty rates were substantial. They were 32% on most of the Chinese producers, and some of the ones that did not comply or cooperate were very, very high rates, some exceeding 450%. Also, India was included in the ruling, which came out somewhere between 7% and 20%, depending on the supplier. The ultimate ruling on the anti-dumping will not take place until the end of June.

So we won't know the exact impact, but we do feel like that the impact will have a positive impact on our ability to compete with those imports on a more level-playing field going forward. And they also will be retroactive for 90 days from those preliminary rulings.

Chris McGinnis -- Sidoti and Company -- Analyst

Right. So that'll go back into the end of January?

Tom Caudle -- President and Chief Operating Officer

That's correct.

Chris McGinnis -- Sidoti and Company -- Analyst

I know it's obviously recent, but has there been any change in the rate from the latest data that you have? More in your favor of the imports coming in or it's really --

Tom Caudle -- President and Chief Operating Officer

You mean as part of the imports?

Chris McGinnis -- Sidoti and Company -- Analyst

Yes.

Tom Caudle -- President and Chief Operating Officer

It's too early to tell. We don't anticipate a lot of the impact in our fourth quarter. We would expect to have a bigger influence going into fiscal '20 and then going forward.

Chris McGinnis -- Sidoti and Company -- Analyst

That's very helpful. And then just quickly one last question, and I'll jump back in the queue. But can you talked about maybe the growth of PVA year over year and then also Repreve year over year?

Tom Caudle -- President and Chief Operating Officer

We normally don't talk about Repreve specifically but our growth of PVA quarter 3, as a percent of sales, our PVA portfolio was about 47%. The year-to-date numbers were about 45%. And then we are still on track at achieving the growth goals in those categories that we've set forth.

Operator

And our next question comes from the line of Daniel Moore with CJS Securities.

Daniel Moore -- CJS Securities -- Analyst

Tom, I wanted to start with the focused drill down on the international side, specifically gross margins. Understand that the FX was maybe a 200 basis point or so, plus or minus, impact on gross margins, but help us kind of bridge the debt -- the rest of the delta. I understand the import pressures, obviously, importing impacting North America, and it's central to some extent, but help us understand what's going on with international and where do you expect those margins to be as we get out into fiscal '20?

Tom Caudle -- President and Chief Operating Officer

Dan, I appreciate the question. I'll let Chris go into the details. And if you have a further question about the business, then we'll jump in after he finishes.

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Dan, this is Chris. International margins declined about 680 basis points from 20.5% to 13.7%. I'd say about two-thirds of that was from lower conversion margin, driven primarily by raw material cost pressure. Specifically, inventory costs were moderately impacted by the October costs like that we've spoken about on previous calls, and competitive pressures impacted the lower price portions of the portfolio as well.

The remaining one-third came primarily from a weaker sales mix in the competitive pressures that we've come up against. So we do continue to see volume growth in Asia with strong filament sales, and we'll continue to work on improving our raw material costs sourcing and our cost management efforts. So that's the international segment for margins.

Daniel Moore -- CJS Securities -- Analyst

OK. And maybe update us on ability to pass through raw material price increases. Obviously, it's been a sustained march higher for a long period of time. So it makes a little harder and a little longer to catch up, but are you still putting through price increases? And over what time frame do you think it'll take to get some of those back if you don't get input cost relief?

Tom Caudle -- President and Chief Operating Officer

Dan, as you've been involved in this business seeing the effect of raw material increases, there is a lag effect. And as of the end of quarter 3, we feel like that we are pretty even with raw material with our pricing. Although, we've had a continual price increase scenario all the way into October, November when we had a very steep decline. And it just -- that lag effect has taken place.

We've been behind the eight ball. But if raw material will stabilize in the range where they are today, we feel like we are in a good place going -- moving forward.

Daniel Moore -- CJS Securities -- Analyst

Got it. And then shifting gears to the cost savings and G&A reduction initiatives, thank you for the color and quantification there. Can you talk maybe about the major buckets or areas of cost reduction? Are you taking a different approach to marketing as it relates to that at all? And are there any other offsets or investments that are planned that might offset some of that savings?

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Dan, this is Chris again. Yes, as we spoke about on the call, the SG&A for the first half of fiscal 2019 was on that $60 million run rate when you normalize for certain items. And we are targeting about a 15% reduction of that $60 million run rate by the time we enter fiscal 2020. And the process really began in March with the recently announced departure of two executives, which benefited our Q3, due primarily to the forfeitures of share-based compensation and variable-based compensation.

So that was one piece of it. We also made a small reduction to our general and administrative workforce which was -- that took place in Q4, and we're continuing to work on cutting noncritical expenses, certain professional fees, consulting fees, T&E, etc., those types of items. So we believe this will all lead to a leaner and more agile expense structure, which will better position us for the future and benefit our bottom line. But we are being careful not to inhibit our ability to grow or service our customers and make sure that our marketing efforts are where they need to be.

Tom Caudle -- President and Chief Operating Officer

And then I would add to that. I mean, we are going to continue our strategy of partner, innovate and build strategy. We certainly are going to be more aggressive competing on our -- and trying to gain share on our regional base business, which will improve our cost leverage on our regional assets. Our PVA and innovation efforts are paramount to our success going forward, so we're not going to let up there and we're not -- although we've reduced our spend, we are not going to let up on our marketing efforts either.

So I mean, we just were outspending what we could afford, and we've taken the appropriate action to be more competitive, and we're ready to move forward in a competitive environment.

Daniel Moore -- CJS Securities -- Analyst

Helpful. And then I'll speak one more, if I may. And it's piggybacking of the last question, and obviously, it's challenging. But given the level of spikes in imports, is it possible to put a range or quantify the impact on your margin? If we look at the March quarter that -- and the decline in in polyester, primarily North American margins, how much of that relates to -- would you guestimate relates to import pressure and just try to get a feel for what ultimately the impact of relief could look like?

Tom Caudle -- President and Chief Operating Officer

Dan, I think you would be very premature to making guestimates in that regard. I mean, the file for our preliminary ruling on the anti-dumpings has not even come down yet. So I would much rather wait and see once we see some results to making any projections going forward.

Operator

And our next question comes from the line of Marco Rodriguez with Stonegate Capital.

Marco Rodriguez -- Stonegate Capital -- Analyst

I was wondering if you could talk a little bit more on the management structure here. You guys are talking about having a leaner, meaner, more agile structure. It sounds like you're looking for a new CFO, but not a new CEO. If you can just talk a little bit about the thought process behind that? And then just also kind of want to follow up on the prior question on the cost savings.

Were there additional mid-level management changes? Or it sounded like it was kind of all other just rank and file individuals that kind of helped with the 15% reduction down the plans.

Tom Caudle -- President and Chief Operating Officer

Marco, I will --

Al Carey -- Executive Chairman

This is -- go ahead, Tom. I'll take the first --

Tom Caudle -- President and Chief Operating Officer

Yes. I was going to say I'll defer to you to answer the first part of the question anyway.

Al Carey -- Executive Chairman

OK. So Marco, this is Al. This is my first time on the calls. Nice to hear from you.

So I would tell you that I think there was a real opportunity to take out some high-level executive pay and then SG&A, I think that was a good opportunity for us, given the size of the company we are. I also think there was an opportunity to balance out the management team. In other words, have a few more players that have a long-range understanding of the business, the base and the core business, not just the Repreve business. So I think we have that balanced approach, and I'm very impressed with some of the young executives that we've just put in place and promoted into positions.

I just had a board meeting yesterday, and I feel like they did an exceptional job of laying out the future in the next several quarters. I think on the CFO search, we're going to continue that. We're getting close. And as far as the CEO search, we're going to put that on hold and probably put it off.

I think that between myself and Tom, we can run the business at -- I was on the board before, but I was still in my role as the head in North America for PepsiCo, but I've now officially tomorrow retired from that. So I've a great deal of time to spend on this business. But I have an optimistic feel for how we're going. But I'd say it's mostly at the top level and then in the middle, I'd just say pruning is not a big deep cut into the organization.

Marco Rodriguez -- Stonegate Capital -- Analyst

Gotcha, and I apologize I kind of missed this. What was the actual aspects for the asset utilization to try and improve that there for the company? And then also kind of in the same vein, if you can talk a little bit about any sort of supply chain improvements that you can make? Any sort of specifics would be helpful.

Tom Caudle -- President and Chief Operating Officer

Marco, clarify that -- if you would clarify that question one more time?

Marco Rodriguez -- Stonegate Capital -- Analyst

Sure. You guys have talked about -- and I missed it on your commentary, about something in terms of marketing or push and pull to try and improve the asset utilization of your overall company. I didn't quite catch exactly what that strategy was. And then you've also mentioned here numerous times in terms of the cost-reduction aspects.

Obviously, you've got pressures that some of them you can't control, but you talked about, if I'm not mistaking, improving your supply chain so that you can improve some of the costs that are associated with that.

Tom Caudle -- President and Chief Operating Officer

Well, we certainly talked about through these cost-cutting initiatives that we would be more competitive to move forward in a very competitive environment, which we operate. Process improvement is going to become a way of life. We are going to scrutinize all of the raw material supply chains, our internal efficiencies, and we're going to be focusing on and improving all aspects of our business. One of the significant things that we anticipate having a positive effect on all of that is increased volume of our base business based on these trade petitions and the positive rulings.

We really don't have any specific numbers to throw out there yet. But as they evolve, we will certainly share the information when we feel comfortable sharing it.

Marco Rodriguez -- Stonegate Capital -- Analyst

Gotcha. And last quick question, just kind of want to confirm cash flow from operations for fiscal '19 kind of looks like, perhaps the expectation is a loss there or a usage?

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

It's been a usage through first nine months. As we go into the fourth quarter, we're hopeful to generate that -- make that into a positive position, but it is hovering around zero. We're going to have efforts on adjusted working capital. At the end of the quarter, we ended working capital about $178 million, which was a slight increase from December.

So we're going to be actively working on that to try to drive that down, and we'll continue the efforts to bring in cash when we can. And our Q4 is typically a stronger quarter for us. So that stronger performance should also help drive, hopefully, positive cash flow through the end of the year.

Operator

And it looks like we have a follow-up question from the line of Daniel Moore with CJS Securities.

Daniel Moore -- CJS Securities -- Analyst

A couple at least I'll give just a crack at. Give us a sense for gross margins of the PVA portfolio versus the non-PVA. And I know you haven't necessarily broken those down in the past, but if not, at least maybe the delta or the change in PVA margins year over year versus non-PVA?

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Yes. Dan, this is Chris. We don't typically disclose that kind of information. We pretty much limit the discussion to our PVA as a percentage of net sales, which through the -- before the quarter was 47% of consolidated net sales then year to date, it was 45%.

I know that's not the answer you're looking for, but we typically keep that pretty tight to the vest.

Daniel Moore -- CJS Securities -- Analyst

Understood. I guess what I was mostly trying to get --

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

For competitive reasons.

Daniel Moore -- CJS Securities -- Analyst

Yes, indeed. I gotcha. And then the guidance for Q4 $10 million EBITDA in the June quarter, I know it's seasonally a little stronger quarter, but that is -- is that a reasonable sort of baseline or run rate to build off those as you think about 20 -- fiscal '20, given the cost-reduction efforts and maybe some of the favorable rulings?

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Yes. We believe that we can achieve that guidance in Q4, but we would hope that we could do better than that as we roll into fiscal-year '20. As we get to the next earnings call, we'll provide more guidance on that topic. But we do believe the guidance is achievable.

Daniel Moore -- CJS Securities -- Analyst

Got it. And then lastly, and I know this is a little early, but just yet an extra week this quarter, do you have a sense for how fiscal '20 shapes up for modeling purposes?

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Fiscal-year '20 is a 52-week fiscal year. So you can model that, and there will not be an extra week in that fiscal year.

Daniel Moore -- CJS Securities -- Analyst

So there will be one less in fiscal Q3 likely relative to this year?

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Actually, we had the additional week in Q1. So it will be one less additional week in Q1 of fiscal '20.

Daniel Moore -- CJS Securities -- Analyst

OK. Thank you.

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

You're welcome.

Duration: 45 minutes

Call participants:

A.J. Eaker -- Vice President, Finance and Investor Relations

Tom Caudle -- President and Chief Operating Officer

Chris Smosna -- Vice President, Treasurer and Interim Chief Financial Officer

Al Carey -- Executive Chairman

Chris McGinnis -- Sidoti and Company -- Analyst

Daniel Moore -- CJS Securities -- Analyst

Marco Rodriguez -- Stonegate Capital -- Analyst

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