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Univar Inc (NYSE:UNVR)
Q3 2019 Earnings Call
Nov 5, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

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. [Operator Instruction] 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 -- Vice President of Investor Relations

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 30th, 2019.

The second full quarter that includes Nexeo Solutions chemical distribution business, which we acquired on February 28th 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 and our earnings release, and the supplemental slide presentation.

As referenced on Slide 2, we will 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 these risks and uncertainties inherent in our business and our expectations for the future.

On Slide 3, you will 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 -- President and Chief Executive Officer

Thank you, Heather, and good morning everyone. We had another busy and exciting quarter at Univar Solutions, taking many steps forward and 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 control the controllables well and achieved our forecast of 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 continue to be at/or ahead of our previously disclosed forecasts. First wave of the ERP migration went live successfully. Our working capital efficiency improved. Cash flow is strong and our balance sheet continues to strengthen. The macro global economy, however, continues to be a challenge. Carl will take you through the details in a few moments, but first let me add a little more color to those headlines. The double-digit growth you saw in our revenues, gross profit dollars and EBITDA reflects the addition of Nexeo plus margin improvements from our improved sales force and disciplined cost management as well as net cost synergies from integrating the legacy organizations. Yet, we have opposing forces in our results. The sustained improvements in execution and capture of cost synergies from the Nexeo acquisition, which themselves are sequentially rising and are now at least as large as we estimated last quarter were offset by lower demand for chemicals globally.

Our results reflect the determined, hard work of our global sales force, supply chain managers and many others to control the controllables, win business and satisfy customers in a lackluster demand environment. We said since last October, the demand was off, that our customers are anxious about the future direction of the economy and their business, that trend continued in the third quarter, across many of our end markets, stretching into those feeding into automotive, construction, coatins, energy, agriculture and general industrial industries that's now a pretty wide sways across GDP. We continue to integrate the supply chains of legacy Univar and legacy Nexeo, and as you've heard me say before the eggs are scrambled, meaning we are losing the identity of each legacy business. However, our best estimates, the results include Nexeo in the prior year, indicate that our revenues are down high single-digit reflecting lower price and volume about equally split, and excluding estimated supplier dissynergies from the acquisition, which we anticipated.

This is generally consistent with the results of our key supplier partners and data from other industry sources. However, our estimates on the same basis for Adjusted EBITDA indicate we earned about 3% less than last year, reflecting our sustained focus on margin and cost management along with synergy capture. Those revenues and EBITDA estimates are consistent for our Q3 results, as well as our year-to-date results. While we are intensely focused on managing through the short-term, we're equally focused on the long term and the tremendous growth opportunity we have to grow share and capture more of a huge global addressable market for distributed chemicals and ingredients. We strive to redefine chemical and ingredient distribution by delivering more value that can get more efficient from our customers to buy from us, lower cost for our supplier to sell through us, a more profitable for our shareholders by lowering our total cost to operate, a battle cry remains, streamline, innovate and grow the business.

During the past few months, we successfully delivered on a number of significant integration milestones. I'd like to highlight a few of those to you now. The first wave of business systems migration to a single SAP system in the Americas began in mid-October in the Pacific Northwest. And so far I'm really pleased with the results. I've just returned from there where visited a number of our sites and talked to our team members on the front line to see first hand, are they coping with the change. I'm delighted to report that our Wave 1 sites are operating well and the teams are energized and in great spirits. Customers have suffered no interruption of service, there being no missed deliveries. Our production and transportation schedules are on-time, invoice have being issued accurately and also on time, while our inventory management process is in records -- of records are working well.

[Indecipherable] team business process experts will be in place for as long as they are needed to maintain on the job training in the new systems and ensure continued smooth business operations. But our teams are learning fast and growing accustomed to the new process. We've taken the lessons learned from Wave 1 and incorporating them into the plan for Wave 2, as we move ahead of pace and with confidence. Implementation teams, we've shortly to the Wave 2 region in the Southwest to launch migration in January. As a reminder this system migration is long overdue, the legacy Univar business. It enables us to build agility into our operating model as well as deliver efficiencies by operating on a single system that integrates across the company.

Moving to our digitalization efforts, we've consolidated our entire product catalog with products from both legacy Univar and Nexeo, now available on our new e-commerce platform, store.univarsolutions.com. This is an exciting milestone with appropriately in the first month, the customers were able to purchase online from the combined Univar Solutions offering, a mere eight months after we closed on this acquisition. We continue to invest in our suite of digital capabilities. The tools that bring real and differentiated value to customers and suppliers, as we continue to execute on our goal of being the easiest to do business with the customers and suppliers, both large and small. Additionally, we continue to invest in our growing advanced analytics team. We're expanding our artificial intelligence capabilities right across the business and across the world. Although still in its infancy, we're excited by the results so far. And we'll continue to expand this capability on the quest to be even more customer-centric and have a better understanding of their preferences, order patterns and additional requirements.

As I told you last quarter, our US commercial team had redesigned the sales territories of the combined legacy companies, providing greater productivity and opportunity to grow share by giving more selling time and creating an estimated 20% to 25% of additional capacity. This has now been successfully rolled out across the country and since mid October all sellers are in position and operating in a new territory. I have the opportunity to meet with a number of them over the quarter, and I'm pleased to report that they're excited and energized about having more time, more support and more solutions than ever before to grow that business and their paycheck. Our sales force attrition remains at the low levels, we observed since we closed the deal in March.

A market focus line of business setting exclusively specialty chemicals and ingredients into verticals such as food ingredients and beauty and personal care is now fully staffed with technically qualified subject matter experts to help customers identify and solve the most crucial problems, customers can now call on the resources of about bank of dedicated technical experts and application development capabilities. From our flagship solution center in Houston to its newly commission sister in Essen, Germany and through our global network of 46 regional solution centers at 28 locations across the globe.

We have as much capability as anyone and significantly more than most is of a technical and application development excellence to the market. Real opportunity for growth is in the hands of our improved sales force and we continue to invest in having the best equipped and most skilled sales force in the industry. To date over 60% of our USA sellers and managers have been certified in our accounts less sales process, which helps them build long-term win-win customer relationships. The remaining balance of that team will be certified by the end of Q4. During the third quarter we move forward with our site consolidation plan and closed a further three branches, these closures will lower a warehousing and administrative costs, while selling those sites as we said we would will help offset on Nexeo integration costs. We are working to finalize the sale of two of our larger sites in the next several months.

Another positive indicator and Harbinger of future growth is a new or expanded product authorizations we were awarded in the quarter from premier supplier partners such as BASF, Dow, Eastman, [Indecipherable] and Novozymes. These partnerships and the leading chemical ingredient products they bring truly excite us and I'm delighted with the support from our partners. Perhaps most notable among these awards was Dow's decisions to appoint as a distributor in the beauty and personal care markets in Germany, Central Eastern Europe and Turkey. This marks a significant step change for us in markets where we have traditionally been under-represented, and reflects a growing confidence our partners have in our dedicated industry-focus more and will add to our expanding portfolio. Our partners recognize the value that our commitment to invest in our expertise and digital capabilities brings that and supports our mission to streamline, innovate and grow.

Now let me turn the call over to Carl, who will walk you through our third quarter results and explain our full year guidance. Then I will close with some additional comments.

Carl Lukach -- Executive Vice President & Chief Financial Officer

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 continue 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 non-cash 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 six 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 the gross profit dollars, exclusive of depreciation were down about 4%, driven by 1% of FX, a little over 1% by anticipated supplier dis-synergies 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.

Our cash flow year-to-date is significantly ahead of last year, largely due to the release of net working capital from lower sales demonstrating the resilient nature of our business model with counter cyclical cash flow. However, we also had notable improvement in working capital efficiency. Our top priority for use of cash in the short term, continues to be deleveraging. We used our residual cash earnings in the quarter to pay down $165 million of debt. Return on invested capital was down a bit from 11% last year to 10% this year, reflecting the inclusion of legacy Nexeo assets, while we advance toward fully capturing synergies from integration. We measure ROIC by dividing adjusted net income for the last 12 months by net assets deployed.

We project an improvement in ROIC in 2020 as well as continued rise thereafter as we successfully execute our integration and synergy capture plans and continue to be prudent in deployment of capital. Our leverage ratio was 3.9 times at the end of the quarter, down from 4.1 times in the second quarter and flat with the third quarter last year, which was a period before acquiring Nexeo. We will continue to use our residual cash earnings for debt pay down as well as fund high return investments in our business and expect to end this year, lower than the third quarter from a leverage ratio standpoint excluding any pay down of debt that might result from portfolio divestitures. Given the low interest rate environment, we continue to evaluate opportunistic refinancing options based on current market rates as we always do.

And finally synergy capture, we reaffirm our forecast to capture at least $20 million in net synergies this year and achieve a $120 million run rate of net synergies by the end of the third year from closing. Our estimate of integration costs remains at approximately $225 million over those same three years and we continue to expect that monetizing excess assets will provide not all, but substantial funding of these integration costs.

Let me now share highlights from each of our geographic segments. When adding legacy Nexeo Chemicals results to last year's financials on an estimated basis, adjusted EBITDA in the US was down about 3% as demand for chemicals and ingredients in most end markets during the quarter was lower than the third quarter last year and was down further from the first half of this year. Gross margins were higher, up 80 basis points to 23.4% reflecting our margin management focus and favorable product and end market mix, but estimated volume was down about 6%, while many of our industrial end markets were lower than last year, we felt the impact of anticipated dis-synergies including much lower volume from the US upstream oil and gas fracking market. With the Nexeo acquisition, we brought back into our portfolio [Indecipherable] business, we had previously withdrawn from in prior years and are now seeing a decline in business in that end market. On the cost front, we managed our discretionary spending well and are starting to realize the flow-through of net cost synergies from Nexeo. As a result, our US conversion ratio increased 70 basis points to just under 35%.

In our Canada segment adjusted EBITDA increased 15% on a currency neutral basis. We shared with you in prior quarters that putting the energy in ag markets aside our core industrial, chemical business was growing nicely, particularly in Eastern Canada. This continue to be the case in the third quarter, especially in our focused industries line of business, which includes food ingredients, personal care, pharmaceutical and case markets. On the other hand, demand for our products from the Canadian energy market and the ag market continued their trend line at well below historical levels.

In our EMEA segment adjusted EBITDA declined 7%, excluding the impact of currency in a challenging and progressively weakening macroeconomic environment, as we observed broad based weakness across most end markets. As we've done so before, we will continue to be disciplined with our spending as we navigate this challenging market environment across our EMEA segment.

In our LATAM segment, adjusted EBITDA grew 14% on a currency neutral basis, benefiting from improved operating performance in Mexico and the Brazilian agriculture sector along with contribution from the legacy Nexeo business and strong cost control. Our Mexico team performance was excellent as they improved market share and won new business in the energy sector. While our Brazil team dealt with low demand in a soft industrial economy, they had a strong month in September in beauty and personal care markets. We also are internally celebrating our first sales order in our new subsidiary company in Colombia.

Moving now to cash flow, you can see in our GAAP financial statements that net cash provided by operating activities of $215 million in the quarter was 4.5 times higher than last year's third quarter of $46 million. This reflects release of working capital from the lower demand, but also reflects delivered meaningful improvement in our net working capital efficiency. We are benefiting from harmonizing payment terms between legacy Nexeo and legacy Univar and have been carefully scrutinizing our inventory levels and tightening our controls on slow payments and selling terms. Capital expenditures were $27 million in the quarter. We continue to expect around $100 million of capital expenditures for the year, the largest part of which represents discretionary digital investments.

Turning now to our updated outlook for 2019 in the fourth quarter. As you can see in our results, our revenues, gross profit and adjusted EBITDA are growing as we benefit from the addition of Nexeo and our sustained improved operating performance. We are confident in achieving the $120 million or more projected net synergies from the Nexeo acquisition. These gains though are in the short-term being, partially offset by the macroeconomic slowdown, which many of our supplier partners and other industry players are also dealing with. At the beginning of the year, we issued guidance with the assumption that industrial production globally will be about equal to 2018 , lower than its historical projection of 1% to 2% growth. However, this year's market demand from industrial and energy end markets has been running below last year and has progressively contracted. We saw that in the third quarter and again in our October sales.

Taking all of this into account, we now expect full-year adjusted EBITDA to be within a range of $700 million to $725 million compared to our prior forecast of $725 million to $740 million, that compares to $640 million earned last year. That means that for the fourth quarter, we expect adjusted EBITDA to be between $155 million and $180 million, up from the $144 million we earned in the fourth quarter of 2018. We are not however adjusting our free cash flow outlook. Our resilient business model means we are cushioned from the impact of lower revenues during the slowdown by a release of investment in net working capital. Our company is performing very well through this short-term transitory slowdown and we are pleased with the rising net cost synergies from our successful acquisition of Nexeo earlier this year. We are confident in our plan and know that our strategy is creating long-term value for all of our stakeholders.

With that, I'll turn it back to you, David.

David Jukes -- President and Chief Executive Officer

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, 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 to a decision on one of those businesses. As a reminder, our capital deployment priority continues to be debt reduction, so that any proceeds from the sale will be used to pay down debt with our range to get below three times levered by the end of 2020.

Now, we realize that what maybe at the foremost of mind is what do we think about 2020. I'm going to have more to say about that in three months time after we finish the year. But from a macro sense, we are setting our 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 ant 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 expectation with market demand in our earnings run rate in 2020.

Although short term customer demand 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 fair better than many others. Now we have multiple levers in our control, within our favor, such as roughly $50 million of incremental integration cost synergies next year, along with a larger, more skilled sales force in the US with greater market coverage and the capacity for growth, as well as disciplined spending, better deployments. We believe this will all help clearly set us apart from the rents. When we merged Nexeo and Univar, we created a new company Univar Solutions and ar econfidence in the strategic rationale and value creation opportunity has only grown. I'm pleased to say we have clear tangible evidence for 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 get pace with discipline and are 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 grows the size of the distributed chemicals and ingredients market. To achieve this, our focus with suppliers, it's the value with increase transparency, safe and secure handling of all materials and provide clear market expertise through dedicated sales and product teams that allows industry specialization. Our focus for our customers is to couple up already industry-leading safe and secure handling service levels and product availability with a deep industry and product expertise, digital leadership and technical solution centers that will help to deliver further value.

In summary, the Q3 we controlled controllables and achieved our forecasted EBITDA. We improved our operating performance with higher margins and conversion rates. We continue to successfully integrate legacy Univar and Nexeo with synergy cost savings at/or ahead of our previously disclosed forecasts. We successfully completed the first wave of the ERP migration. We improved our working capital efficiency with strong cash flow and strengthen 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.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Michael McGinn with Wells Fargo . Please go ahead, your line is open.

Michael McGinn -- Wells Fargo Securities -- Analyst

Good morning, everybody.

Carl Lukach -- Executive Vice President & Chief Financial Officer

Hey good morning.

David Jukes -- President and Chief Executive Officer

Good morning.

Michael McGinn -- Wells Fargo Securities -- Analyst

Good morning. 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 -- President and Chief Executive Officer

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 with people going to close down over the -- that the Christmas period the longer or not. So it's pretty difficult to call exactly what's going to happen across the quarter, hence the larger -- normal guidance window. And I think what we've seen is our volumes per build day -- go down in -- through Q3. Certainly if we look at September, it is sequentially lower than August, so we 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 are getting comparatively year-on-year, for feeding in some of the benefits from Nexeo integration. And, as I think we said on the call, really pleased the way that's going. We're really pleased that 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 holiday vacation, whether it'd be longer or short, I really don't know. So that's why this guidance is a little wider than it would normally be.

Michael McGinn -- Wells Fargo Securities -- Analyst

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-shaped, 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 verticals than what you're accustomed to? Can you just add a little color there, that'd be great?

David Jukes -- President and Chief Executive Officer

I think we're very focused on -- I think we said both 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 in the core industrial and chemical ingredient business is doing really 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 -- we want to really play 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 continue to take cost out of the business, take more cost 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 [Indecipherable] we think there is some good growth that we can get in those as well, which were a bit more counter cyclical, so that there are a number of things that we can play over. We have -- we have a game plan and we're going to stick to our game plan. Now is not the time to to run around and get excited. Now is the time to play the game that you know you can -- you can play and you rehearse for and you've train for and you execute on the -- on the plan that we have. Very far too much sport analogy in that. Sorry.

Michael McGinn -- Wells Fargo Securities -- Analyst

That's OK. I appreciate the color. Good quarter. I'll pass it along.

David Jukes -- President and Chief Executive Officer

Thank you.

Carl Lukach -- Executive Vice President & Chief Financial Officer

Thanks Michael.

Operator

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

Laurent Favre -- Exane BNP Paribas -- Analyst

Yes, good morning all.

David Jukes -- President and Chief Executive Officer

Good morning Laurent.

Carl Lukach -- Executive Vice President & Chief Financial Officer

Hello.

Laurent Favre -- Exane BNP Paribas -- Analyst

Hey. Hi, I've got a question on dis synergies for Carl. I think you had guided that you would have more dis synergies of scale in Q3 than in Q2, and it sounds like you have the same amount, about 1% on GP. So I'm just wondering are you factoring in, that there is spillover of those dis synergies of scale into Q4 that you didn't have in mind before, is that one of the reasons why the Q4 again is a bit weaker than I guess we have 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 two largest sites are to be disposed coming months, is that the bulk of what you had in mind in terms of disposals or is there more to come?

David Jukes -- President and Chief Executive Officer

Okay. Well let me answer the second one first, if I may, Laurent. And I think that what we said is we have a number of sites to close, not all 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. So we are -- we're doing that and we think that we be able to dispose of those within the next several months. We will use that -- we'll use that cash to pay down debt. But as I said, not every site is equal. And so it will 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 -- Executive Vice President & Chief Financial Officer

Okay. And right on the dis synergies. Let me just recap the third quarter in our volumes. We estimate on a pro forma basis including Nexeo in the prior year, we're 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 at dis synergy in that energy space versus the reduced drilling rates that are going on in fracking right now. So that's tough math to separate those two. As far as the width of the range in the fourth quarter, we really do look at volume for bill date, that's a key metric to us and we have very extensive data on that.

So our -- width of that rate is -- it 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 eight 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 into December and that's really the basis for the West.

Laurent Favre -- Exane BNP Paribas -- Analyst

Okay, thank you.

Carl Lukach -- Executive Vice President & Chief Financial Officer

Thanks.

Operator

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

Kevin McCarthy -- Vertical Research -- Analyst

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 in 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 -- President and Chief Executive Officer

Sure. Kevin. 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 was going. I mean it's gone -- it's gone very well. These things can go pretty badly. I've led through the ones that go really badly in the past. This one has gone really, 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 -- 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, have a long 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.

Other glitches, poser off [Phonetic] day to day there will 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 -- 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. Clearly, that's what you do. You look at it and say went really well. What could go back the next time we've taken that, we run through those 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 sites stable on a single ERP platform, then we can think about rationalizing the site. So the sites 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 said, we haven't done that. I'm very encouraged by where we are.

Carl Lukach -- Executive Vice President & Chief Financial Officer

Let me add to that, Kevin, on the cadence of the sale of 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 two largest ones we have that, those two in our sites much too much valuable one. And so this could be lumpy. It won't be a straight line over the next three years or four years. I mean, basically when you're asking for a prediction of 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 three plus years that will make a substantial payment against the one-time integration costs.

Kevin McCarthy -- Vertical Research -- Analyst

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 different a trajectory for you perhaps you could elaborate on that?

David Jukes -- President and Chief Executive Officer

No, no it was the same. It's -- October is in the same way.

Kevin McCarthy -- Vertical Research -- Analyst

Okay, thank you very much.

Carl Lukach -- Executive Vice President & Chief Financial Officer

Thanks, Kevin.

Operator

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

Steve Byrne -- Bank of America -- Analyst

Yes. Thank you, David, your US sales force is certainly going through a lot of changes in recent years. You've 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 -- President and Chief Executive Officer

Yeah Steve, thanks. Thanks for the question. I think we look at -- now firstly, I think and I'm happy to the way the sales force is developing. I'm happy with the way we've brought the two legacy organizations together into one organization and I'm thrilled 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'll 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, I mean the churn rate of our sellers is one thing and that's gone down significantly. So we kept of those low levels that we've seen since the close of the acquisition. I mean when we train people, they're staying and they are enjoying their experience, which is a good one. I mean, we look at the call rates, we look at close rates, we look at win loss ratio and we look at the delivered gross profit growth that they have. As well as the pipeline and pipeline closes it they are 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, more focused sales territories. So that gives us a level of productivity. I think the second level of product we get by having better trained, better skilled, better planned account rosters and better skilled and trained salespeople. I think that's what we seeing right now. I think this 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 system through the organization. Therefore sellers should not need to get themselves involved in putting in order through our system, and that's probably one of the biggest drains of a sales capacity as they come, they get involved in processing and order through the system.

And so we are having now to help them learn to trust the system, to love system and trust the system, and just go out and sell. 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 could depend on our key verticals that are fully fast. I mean, we've got some great technical capabilities in those. I think that's supported by great application development, accounts with sales process that we have. I was with one sales group that's being trained here in Chicago yesterday, brand new people who are going through the program, going through the process and we 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 more to come.

Steve Byrne -- Bank of America -- Analyst

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 -- President and Chief Executive Officer

So, private label is not something we're really about. We do have some of our own private blends and [Indecipherable] we have food ingredient kitchens, so that adds to look at, we've actually brand advocates for the suppliers that we represent and that's what they value in us. And what the value in us is what customers value in us is that we sell some products that go well within the peoples chemistries, so we can add one suppliers that starts with an other suppliers ends [Technical Issue] other supplier is emulsifier to get a great formulation. Our customers appreciate that, our suppliers appreciate that. So that formulation capability is something our customers are reaching out, so it was more and more 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 capacity in supply market. 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 cost taken HCL and so if you, that's just [Indecipherable] waters as well. We have our own solid [Phonetic]. We have our own brands in [Indecipherable], but we're not into own -- we're not of 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 -- Bank of America -- Analyst

Thank you.

Operator

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

Robert Koort -- Goldman Sachs -- Analyst

Thank you and good morning. Hey 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. 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 may be 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 -- President and Chief Executive Officer

Yeah. Sure, Bob. I think -- a couple of things. And 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 our 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 come away 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 -- I would suggest to you though that if you look at our ability to pre-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 -- 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 Dow or Jane Dow from Univar Solutions. I'm here to save you money. I mean, we -- that's saving money won't be by drop in the price. We have more solutions that anybody else to help customers stay in business through tough times. That might be change the chemistry, it might be changed 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 cost out. We can find ways to bring value to customers. It is with a suite of offerings bigger than anybody else that should allow our people to be able to hold ahead 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 to another, so they're busy hanging on to try and grow demand. When times get bad then people have to find ways of stay in new 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 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 and we can do that and we can do that better than anybody else.

Robert Koort -- Goldman Sachs -- Analyst

Got you. You also mentioned something in your bullet points early in the presentation about advanced analytics?

David Jukes -- President and Chief Executive Officer

Yeah.

Robert Koort -- Goldman Sachs -- Analyst

Can you give us a little more granularity on what you're doing there, maybe an anecdote or two that explains how that's driving value or what's to come there?

David Jukes -- President and Chief Executive Officer

Sure. I mean we employ people that I would never thought we'd employ in a distribution business in a way we are approaching data sciences. We have a great group of people, who are trying -- who are using AI to help us for all intelligence out of all the data that we have. Now, that -- what that does is, that allows us to give -- that's a insight 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. So we think you about to order. We've had a couple of comments from customers coming back to us and saying, hang on, you're reading our minds right now. Yes we are. So rather than wait for the order to come in, it's prompting our inside sell us 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 of it 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 and is also on cross-selling, the simple kind of customers who bought this also bought that. While 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 -- Goldman Sachs -- Analyst

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 -- President and Chief Executive Officer

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

Robert Koort -- Goldman Sachs -- Analyst

Got it. Thanks so much.

Operator

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

James Sheehan -- SunTrust Robinson Humphrey, Inc. -- Analyst

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

David Jukes -- President and Chief Executive Officer

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 lot of competitors chasing after our sellers, when the deal was first announced, and our sales force attrition remains low. And a number of competitors who said that we would stumble and fall by bringing the two 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. As the number of competitors say, we're going to -- they'll capitalize them when we start to close sites and we haven't. So I really focus on what we do and how we -- 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 -- 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 in many markets with the big guys, so they will be, but we disappointed most of our competitors by not stumbling in the way they predicted.

James Sheehan -- SunTrust Robinson Humphrey, Inc. -- Analyst

Great. And you mentioned a data point volume per bill day [Phonetic] 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 -- President and Chief Executive Officer

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

James Sheehan -- SunTrust Robinson Humphrey, Inc. -- Analyst

Thank you.

Operator

[Operator Instructions] Our next question comes from David Begleiter with Deutsche Bank. Please go ahead, your line is open.

David Begleiter -- Deutsche Bank Securities, Inc. -- Analyst

Thank you. David, just on your comments on 2020, I 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 -- President and Chief Executive Officer

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 is probably a reasonable run rate for 2020, that's 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 -- where we are thinking, but we're not. The macro is always a macro. We are controlling the controllables. We know what we control. We're confident about that, but the macro is a 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 -- Deutsche Bank Securities, Inc. -- Analyst

And we made reference September being below August, what end markets did you see slowing occur or by region?

David Jukes -- President and Chief Executive Officer

Well, I think that if we look at -- I mean our European business just come at 23 quarters of growth, it's down 7% currency neutral, and in fact it did had a bumper quarter three, last year. I also will give you the comparative, but the European economy is slowing down and it's getting -- 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 industries slow down, we said that. The industrial markets in the USA are slowing down.

And we saw that guide down, I mean energy -- energy in North America really is -- it is the one, which is probably showing the most marked slowdown in the last quarter or two. I mean, the situation in Canada and Alberta is kind of well-publicized and fracking is slowing down in the US. So that's probably the biggest one. Now energy is clearly nowhere near as important to us as it was five years ago, four 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 is really disappointed.

David Begleiter -- Deutsche Bank Securities, Inc. -- Analyst

Thank you.

Operator

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

Daniel Rizzo -- Jefferies & Company, Inc. -- Analyst

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

David Jukes -- President and Chief Executive Officer

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, as you referenced a number of years ago Univar legacy, Univar was a 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 next year. And so when Nexeo and Univar comes together, those accounts are probably gone to someone else now, and so it's not as looking to come out of energy completely. We're very happy to be in energy, where we can support the business profitably. But it is about profitable business for us, it's not about shipping volume, shipping rail costs. So that's -- that's kind of Nexeo angle on it.

Daniel Rizzo -- Jefferies & Company, Inc. -- Analyst

Thank you very much.

Operator

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

Heather Kos -- Vice President of Investor Relations

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

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Heather Kos -- Vice President of Investor Relations

David Jukes -- President and Chief Executive Officer

Carl Lukach -- Executive Vice President & Chief Financial Officer

Michael McGinn -- Wells Fargo Securities -- Analyst

Laurent Favre -- Exane BNP Paribas -- Analyst

Kevin McCarthy -- Vertical Research -- Analyst

Steve Byrne -- Bank of America -- Analyst

Robert Koort -- Goldman Sachs -- Analyst

James Sheehan -- SunTrust Robinson Humphrey, Inc. -- Analyst

David Begleiter -- Deutsche Bank Securities, Inc. -- Analyst

Daniel Rizzo -- Jefferies & Company, Inc. -- Analyst

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