Core-Mark Holding (CORE) Q3 2019 Earnings Call Transcript

Core-Mark Holding (CORE)
Q3 2019 Earnings Call
Nov 07, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Core-Mark third-quarter 2019 investor call. My name is Sharon. I'll be your operator for today's call. [Operator instructions] Please note that this conference call is being recorded.

I will now turn the call over to David Lawrence. David, you may begin.

David Lawrence -- Vice President of Treasury and Investor Relations

Thank you. Today's call will be led by Scott McPherson, our president and chief executive officer; and Chris Miller, our chief financial officer. Before turning the call over to Scott, I will point out that Core-Mark intends to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act, as noted in the earnings release we filed this morning. Please remember that our comments today may include forward-looking statements, which are subject to risks and uncertainties, and actual results may differ materially from those indicated or implied by such statements.

Some of these risks are described in detail in the company's SEC filings, including our annual report on Form 10-K. The company does not undertake any duty to update such forward-looking statements. Additionally, we will refer to certain non-GAAP financial measures during this call. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure and other related information, including a discussion of why we consider these measures useful to investors, in our earnings release and our quarterly report on Form 10-Q.

I will now turn the call over to Scott.

Scott McPherson -- President and Chief Executive Officer

Thanks everyone, for joining us today, on our 2019 third quarter call. I will start off by providing a few comments on our Q3 results, outline our revisions to 2019 guidance, and wrap up with some thoughts around regulation affecting our industry, and my perspective on our strategic priorities, as we move toward 2020. I will then hand the call over to Chris, to take you through a more detailed view of our financial results and guidance. Third quarter represented another period of solid performance highlighted by EBITDA growth of 16%, adjusted for year-over-year inventory holding gains.

On the sales front, non-cigarettes grew by 10.3% and overall sales by 3.5%, due to relatively flat cigarette sales. Same-store carton decline accelerated to nearly 6%, partially offset by net market share gains and cigarette price inflation. On the non-cigarettes side, same-store sales increased by over 7% led by growth in our food, fresh, and alternative nicotine categories. We're proud to have delivered our third consecutive quarter in 2019, and margin expansion derived from continued to improve...[Audio gap]...pricing initiatives and growth in alternative nicotine sales.

On the expense front, we continued seeing operating expenses drop from 87% of remaining gross profit to 86%. In short, we are pleased with our results for the quarter and continue to benefit from solid execution on our strategic priorities. In this morning's press release, we revised upward, our 2019 full-year EBITDA guidance to a range of $185 million to $188 million, and lowered our sales guidance to a range of $16.5 billion to $16.7 billion. I will let Chris take you through the details of our revised guidance, but I want to provide some brief comments.

Our revised EBITDA outlook reflects an upward shift in guidance, plus the benefit of the previously disclosed candy holding gains of approximately $5.8 million, combined with the impact of the recently announced third cigarette price increase. As a result, we expect full-year holding gains on cigarettes to be at or slightly above our 2019 guidance of approximately $19 million. Our shift downward on our sales outlook primarily reflects the accelerated pace of carton declines; the impact, regulatory uncertainty, is having on alternative nicotine sales; and net market share gains lower than anticipated in our guidance range. Overall, I'm disappointed to have to shift sales guidance downward, but I'm also confident the market will recognize, in our EBITDA performance, the company's ability to meaningfully grow profits, despite carton decline headwinds and no major customer wins, or wholesaler acquisitions, so far, in 2019.

Next, I would like to provide some color around the recent regulatory activities in our channel. The vapor category has come under increased scrutiny causing the FDA to accelerate the pace and level of regulatory action. In the interim we have seen some states, cities and local municipalities put temporary vape restrictions in place, in advance of FDA action. While we cannot be certain what regulations may ultimately be approved, we believe, the ban on the sale of most flavored products is likely.

It also seems likely that a national 21 age limit will be in place on the sale of all nicotine products. The anticipated regulatory actions may cost a near-term headwinds for the alternate nicotine category. However, we believe that these same regulatory actions will likely funnel more customers into the C-Store channel. Several major retailers, including Walmart, Walgreens, Rite-Aid, and Kroger have already elected to stop selling vapor products.

The ban on flavors would likely result in a significant reduction in sales through vape shops and online retailers, whose sales are dominated by flavor products. We believe the C-Store industry is well-positioned to be the dominant retail channel, with the growing alternative nicotine category, with a history of strong compliance and enforcement of age restrictions. Shifting to our strategic outlook, our executive leadership team met in September to critically evaluate our direction as we wrap up 2019 and prepare for 2020 and beyond. Our work session strongly reinforced our commitment to our strategic priorities; to go faster and more profitably than the industry.

To be the industry leader in category management solutions and drive cost leverage throughout the organization. We continue to see tremendous opportunity ahead of us to execute on these priorities. From a profit perspective, we have only seen the initial benefit of our strategic pricing initiative in 2019. And we see continued opportunity, ahead of us, to drive incremental margin expansion.

We also made great progress this year in leveraging costs through technology, but are still in the early stages of adoption and see significant runway ahead. Technology will remain a critical strategic lever as we head into 2020 and beyond. Both in terms of leveraging costs, but also, attracting, retaining and growing our customers. From a sales perspective, while we've seen increases in store count this year, accelerating our pace of store acquisition and reducing churn represent a tremendous growth opportunity.

We spent time in our strategic session addressing how we can accelerate our market share gains. We are currently realigning our salesforce to create a national sales team dedicated to pursuing and servicing chain stores, thus enabling our division sales resources to focus solely on growing and servicing independent customers. From a category management standpoint, our plans for 2020 include customer facing technology investments, providing our customers with access to real time data analytics through online and mobile platforms. We see this as an evolution of our FMI initiatives that will enable us to provide meaningful business insights to our customers, on a real-time basis, driving growth in sales, and profitability.

Additionally, we are on track to complete the construction of our Center of Excellence by year's end, in preparation for a grand opening in early 2020. The Center of Excellence is designed to be the most dynamic collaboration space in the convenience retail industry. Customers who visit the COE will have access to store innovation, where next generation categories come to life. Data and insights designed to meet the needs of the evolving consumer.

A culinary test kitchen, where the next level of food service is created. And our collaboration hub, where the future -- the convenience channel is being developed. We're excited to add this asset to our category management arsenal. On the cost leverage front, we continue to deploy technologies that will provide long-term and meaningful cost reduction opportunities.

Robotic process automation has made major contributions in driving efficiencies and enabling us to centralize certain key financial processes. Our driver handheld evolution brings our customers a frictionless credit environment and allows us to bring efficiency to the returns process. And from a warehouse perspective, we are currently running a beta test on state-of-the-art voice selection technologies that we believe will make meaningful improvements in the future of our warehouse cost leverage. These, among other technologies we are deploying or evaluating, give us confidence in our ability to leverage cost over the long-run.

To recap, I'm pleased with the progress we have made, so far, in 2019. I'm confident that we have the ability to accelerate our growth curve via market share gains and acquisitions, expand our margins and drive cost leverage in 2020 and beyond. One final note, we're finalizing the renewal of one of our top customers and look forward to issuing a press release soon. We continue to view the competitive environment as rational, and we believe that we're well-positioned to profitably retain and grow our customer base.

I will now hand the call over to Chris to provide more details on our financial results.

Chris Miller -- Chief Financial Officer

Thank you, Scott. And good morning, everyone. I will start off with a brief review of our key profitability metrics, then provide some additional details and insights on our strong financial results for the quarter and wrap up with an update on our outlook for the remainder of the year. First, it's important to point out that the comparability of our earnings and profitability metrics for the quarter, were impacted by significantly higher inventory holding gains in Q3 last year, due primarily to the timing of cigarette price increases.

We reported net income of $22.5 million and EPS of $0.49 per share, compared to net income of $23.7 million and EPS of $0.52 per share in last year's third quarter. Adjusting for inventory holding gains and LIFO expense, net income in Q3 increased 22.5% to $23.4 million and EPS increased approximately, 24% to $0.51 per share. And as Scott mentioned, adjusted EBITDA, which was $59.2 million, increased 16.2% over the prior-year quarter, excluding the impact of inventory holding gains. Although cigarette inventory holding gains were higher through September last year, we do expect them to be comparable for the full year, given the third cigarette price increase, announced in mid October.

Total sales increased 3.5% for the third quarter, driven primarily by a 10.3% increase in food/non-food sales. Same-store food/non-food sales increased approximately 7%, reflecting continued strong growth in our food, fresh, beverage, candy and health, beauty & general categories. The health, beauty & general category increased 28% year over year, accounting for less than half of the overall food/non-food same-store sales increase. We also saw an acceleration in same-store sales growth in the food and fresh categories, as the quarter progressed.

Gross profit increased 5.5% to $246.6 million, while remaining gross profit increased 8.8% to $247.8 million for the quarter. Remaining gross profit margin expanded 27 basis points to 5.6%, reflecting the benefit of the favorable mix shift toward higher margin food/non-food products, and the success of our strategic pricing initiatives. Remaining gross profit margin in our food/non-food category expanded 19 basis points to 12.33%, on continued growth in higher margin alternative nicotine products, margin expansion in our food categories, and the benefits of our strategic pricing initiatives. Total operating expenses increased to $212.7 million in Q3 this year, compared to $198.9 million last year.

The majority of the increase in opex was driven by warehouse and delivery expenses, which were impacted by the increase in food/non-food volume and one extra work day in the third quarter this year. Warehouse and delivery expenses, as a percentage of remaining gross profit, improved 40 basis points to 60%. SG&A expenses, which increased $3 million, were 5.1% in the third quarter, and included incremental stock comp expense of $1.1 million, related to our year-to-date performance. Adjusting for this, SG&A increased approximately 3% in the quarter.

Turning to our balance sheet. The amount drawn on our revolver increased approximately $177 million on a sequential quarter basis to $488 million. The increase reflects our normal seasonal bills and working capital and a more significant increase in our cigarette inventory in anticipation of the third cigarette price increase, which was announced in mid October. Due to the uncertainty regarding the timing of the third price increase, we began to build our cigarette inventory prior to September, causing our inventory levels to be higher than anticipated at the end of the quarter.

Following the announcement of the price increase, we began selling through our excess inventory, and we've already reduced our AVL balance to $369 million as of November 1st. Based on our preliminary assessment of our year-end inventory requirements for LIFO purposes, and our other key working capital trends, we still expect to generate approximately $100 million in free cash flow for 2019. And we expect our debt leverage to be approximately 1.5 times EBITDA at the end of the year. Turning to our guidance.

I want to provide a few additional comments, with regard to the revised ranges for sales and earnings. The lower end of our revised guidance range anticipates continued elevated declines in same-store carton sales through the end of the year and a slow down in alternative nicotine sales growth rates due to the temporary regulatory uncertainty. The upper end of the guidance range assumes a modestly lower rate of decline in same-store carton sales, consistent with the trend we've seen in October, and more modest declines in alternative nicotine sales. Despite our disappointment to have to adjust revenues down slightly, we are proud to close out the third quarter, with EBITDA improvement of 13.3% year to date over 2018, which is consistent with our full-year EBITDA guidance range at the midpoint.

Also, you may have noticed in our press release, that we've increased our expected full-year tax rate to 27% from 25%, driven primarily by higher taxes in Canada as a result of stronger earnings performance. And LIFO expense is now expected to be $30 million for 2019, an increase of $5 million, due primarily to higher cigarette inflation than previously anticipated. To wrap up our prepared remarks, we are pleased with our ability to execute on our core strategies this year. We're very optimistic about our future, and we remain highly focused on executing on our strategic priorities.

Operator, you can now open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Bobby Griffin from Raymond James. Your line is now open.

Bobby Griffin -- Raymond James -- Analyst

Good morning, everybody. I appreciate you taking my questions.

Scott McPherson -- President and Chief Executive Officer

Hi, Bobby.

Bobby Griffin -- Raymond James -- Analyst

Hey, good morning. Thank you. I first want to follow up, I guess, on the comments around the guidance reduction for sales. In the prepared remarks, if I heard you correctly, you mentioned things got a little better in October on the cigarettes side and that's part of the high end range.

Did the same thing happen for the alternate nicotine products and e-cigarettes, did they improve a little in October, or those trends continue to kind of soften on a year-over-year basis?

Scott McPherson -- President and Chief Executive Officer

Yes, we've seen both cigarette carton decline and the alternative nicotine trends kind of soften. I mean, alternative nicotine has softened and carton decline has accelerated a little bit as we got into the latter part of the quarter. And that's really the driver behind the adjustment in guidance.

Bobby Griffin -- Raymond James -- Analyst

OK. And then if I try to connect, or just put the parts together on the EBITDA guidance, the $5 or so million -- $5.8 million of candy gain wasn't in there when we spoke last at the end of the second quarter. So should I think about the midpoint moving up about $2 million, is that fair?

Scott McPherson -- President and Chief Executive Officer

Yeah. No, I think that's generally fair. Yes, excluding the candy, the midpoint moved up a couple of million dollars. Correct.

Bobby Griffin -- Raymond James -- Analyst

OK. And that'd be kind of on the Core -- the Core operations still going on versus the Core, when we spoke last, since we didn't have the candy in there. OK. That's helpful.

Scott McPherson -- President and Chief Executive Officer

That's exactly right.

Bobby Griffin -- Raymond James -- Analyst

OK. And then, I guess lastly from me, it was called out in the remarks, some strength moving through the quarter in the food and fresh categories. Just wanted to see if we can get any expanded color on that, maybe what's driving it new independent customers, the larger customers, certain items, pricing initiatives, anything to help us flesh out some of the success that we continue to see in that category?

Scott McPherson -- President and Chief Executive Officer

Yeah, sure, Bobby. I think food and fresh has obviously been a focus of the company for a number of years. And I think the initiatives that we have in place around fresh sandwiches, fresh fruit produce, as well as we've launched a pizza program and some sandwich line programs that have done really well. But I think the other kind of macro factor in that is, it's kind of becoming the price of entry in a convenience store.

If you don't have some form of healthier, fresh offer, you're really -- you're not in the game. And so, we've -- I think it's a combination of us just having a better product offer, doing a better job of working with retailers. But also, on the retail acceptance side, I think a number of retailers are realizing that they've got to be in that business to really be a viable retailer in the long run.

Bobby Griffin -- Raymond James -- Analyst

I appreciate the detail on my questions. Best of luck in the fourth quarter.

Scott McPherson -- President and Chief Executive Officer

Thank you very much.

Operator

Our next question comes from Chris Mandeville from Jefferies. Your line is now open.

Chris Mandeville -- Jefferies -- Analyst

Hey, good morning. Scott, I appreciate your proactive commentary on the vaping front, but maybe you could elaborate on that just a little bit seeing how it's getting a lot of attention, if you will, on your profitability and what that could mean? Can you maybe size up for us just what that looks like in terms of overall sales contribution? I apologize, I missed what that contributed to non-cigarette comps in the quarter. And can help us understand maybe what you're seeing on sell-in, sell-through for the likes of Juul versus NJOY and seems to be highly promotional today?

Scott McPherson -- President and Chief Executive Officer

Yeah. So, we haven't called out specifically the number. Chris, as you know, we've got a couple of analysts, I think Bobby that we just talked to, would -- put out his estimations on what that represented. I'd say the best way to approach that is, if you look at our general merchandise category growth over the last three years, it's going to give you a good indication of the overall impact.

Definitely significant, I think, the positive trend we saw for the company on the same-store sales comp, because we've, kind of, called out the first two quarters, it was about half of our growth. This quarter it was definitely less than that. And we saw food and fresh really drive our same-store sales comp for quarter. And then as far as your question around other items other than Juul.

Definitely, we've seen some of the other manufacturers out there grow considerably, because a lot of them are still selling flavors and Juul is not. So that has definitely contributed to their growth, but at the end of the day Juul is still 80% plus of the category. And so as Juul goes the category goes, right now. And the regulatory environment that we've seen, as I mentioned in the comments, is, we've definitely seen -- started to see a little bit of a softening as we got to the end of third quarter and started the first of fourth quarter.

Just because I think, there's a lot of uncertainty with retailers. You've seen some of these state and local bans or restrictions. And so, I think, clarity from the FDA is going to be really important in the long run.

Chris Mandeville -- Jefferies -- Analyst

OK. And then on the cigarette front, is there anything you can attribute the accelerated slowdown in volumes to -- is it -- well, I guess, I'm just, kind of, curious in general, what your thoughts are, as it relates to that and how much that really is influencing the actual guide down in sales? And can you give us a sense of what the extra selling day provided in the quarter for just overall sales in EBITDA?

Scott McPherson -- President and Chief Executive Officer

Yeah. From an overall sales standpoint, it's -- we were at 3.5%, if you adjust for the day, we're just over 2%. And from -- what was the first part of the question again, Chris?

Chris Mandeville -- Jefferies -- Analyst

Just the cigarette volume decline, decelerating -- throughout the quarter and into October. I guess I'm curious, what you think that might be related to?

Scott McPherson -- President and Chief Executive Officer

Yeah. I mean, I think a lot of that, Chris, is just every day, you open the newspaper you're seeing actions on regulatory around combustibles and alternative nicotine. But we definitely still had a really strong alternate nicotine quarter. Our total tobacco sales for the quarter were still up in total or total nicotine sales were still up over 1% for the quarter.

But from a revenue standpoint, as you know, when we see an acceleration up to 6% in carton decline. The unit sales in cartons are really high. And that's definitely going to impact the revenues. And it definitely was the primary driver between the driver of the downgrade in Q4 of revenues.

Chris Mandeville -- Jefferies -- Analyst

Sorry, Chris, do you want to say something?

Scott McPherson -- President and Chief Executive Officer

Did you catch that?

Chris Mandeville -- Jefferies -- Analyst

I did, yes. Yes. I thought Chris was going to say something after the fact. But if not...

Chris Miller -- Chief Financial Officer

Oh, no. Definitely no.

Chris Mandeville -- Jefferies -- Analyst

Just a last question from me before I hop back into the queue. You referenced to being disappointed on net market share gains. Can you give us a little bit of color on that as well? I mean, is that a function of just the salesforce seeing a bit of a low end performance or is that a reflection of competition? And maybe touch, a little bit more broadly, on overall -- the competitive dynamic, as well?

Scott McPherson -- President and Chief Executive Officer

Sure. Yes. I said that I was disappointed in -- we came in through third quarter at about 620 some odd stores. We want to be over 1,000 for the year.

So, it looks like we're probably going to be a little shy of that at our current run rate. And I thought we would perform a little better in that chain arena and that's what I mentioned in my prepared remarks. So, we've made some adjustments in the selling organization to really do a better job aligning to that mid-sized chain, which is the 50 to, call it 300 or 400 stores. There are 700 chains in the marketplace that we don't have that are in that range.

So we've done some things structurally in the organization to better align to that group to accelerate that. But, yes, I think from a market share standpoint I expected to pick up another $100 million to $200 million in revenue from market share gains that we didn't get this year.

Chris Mandeville -- Jefferies -- Analyst

OK. Thanks, guys.

Operator

Our next question comes from Ben Bienvenu from Stephens. Your line is now open.

Ben Bienvenu -- Stephens Inc. -- Analyst

Hey, thanks. Good morning. Given that we've seen an accelerated rate of decline in cigarette carton consumption this year, do you think we continue to see that trend in the next year? I know it's premature to maybe make a call like that. But do you think -- at what point do you think we'll see an equilibrium reached around, kind of, a more steady state of declines, around 45%? And if we see tighter restrictions on vape products, do you think that's a significant contributing factor to a normalization of carton declines?

Scott McPherson -- President and Chief Executive Officer

Yeah. It's a good question, Ben. I think, we've seen an acceleration clearly, but I think, if you look at our previous guidance they're kind of guiding to 4% to 6% in the next two or three years. I think clearly the expansion of alternative nicotine and the growth of that area has contributed to the accelerated decline.

So as we see what happens with the restrictions, I think in the short run, as I said in my remarks, I think there's definitely some headwinds. I think all of the regulatory uncertainty has provided some headwinds for the industry and in the short run. I think for the convenience channel, as you see the restriction of flavors, that's going to have a huge impact on the e-commerce or online retailers and also, on vape shops, which the last time I saw the vape shops was over 83% of their sales were in flavors. So I think, from a long-term regulatory standpoint's reduction in flavors, is really going to push the vape industry to the convenience channel, which has clearly been the most, I think, responsible channel around age verification.

And so, I think in the long run, we'll see benefits from the regulation but in the short run, we'll see some headwind.

Ben Bienvenu -- Stephens Inc. -- Analyst

OK. And then I have a follow-up question on regulation. In your experience in the past, if there is a precedent that you can point to, if flavors are banned, how would you expect inventory either in your warehouses or in the channel to be treated? Would you expect it to be sold-through or just have to write down? What would you expect that to look like?

Scott McPherson -- President and Chief Executive Officer

So, we've been very vigilant on managing flavored inventory. Obviously, we don't have -- we have very little flavored inventory on Juul, other than just the mint and menthol. And that's still, I guess, up in the air, whether that's going to get caught up in regulation or not. But any other flavors that we carry, we have managed that inventory down.

I think all of the other manufacturer -- I mean, the wholesalers are doing something very similar. And then I think, we're hopeful. And I think it would be the right thing for the regulators to have some level of sell-through period, or they're going to potentially cause some harm to manufacturers and other people. So I think historically, we've seen a sell-through period.

But either way, we also have our manufacturer partners, some of them are prepared to take products back and exchange them for the products that are legal, if there is regulation. So I think, we've got a pretty clear path to not have any impact to our business.

Ben Bienvenu -- Stephens Inc. -- Analyst

OK. That's helpful. Thank you.

Operator

Our next question comes from Kelly Bania from BMO Capital Markets. Your line is now open.

Kelly Bania -- BMO Capital Markets -- Analyst

Hi, good morning. Kelly Bania here. Just maybe -- I know there's a lot of questions on the nicotine category, but maybe I'll just ask this question in another way. Because I guess, the thought process was maybe that as vape and alternative nicotine maybe come -- came under a little pressure given what's going on in that category that the cigarette carton declines would moderate, but it almost seems like they've gotten worse at the same time.

So, do you think that just the overall attention to the total category is pressuring the total sales there? And maybe you can just clarify, what is in your guidance at this point for carton declines for the full year?

Scott McPherson -- President and Chief Executive Officer

Sure. So, Kelly, I think it's a little -- that correlation you're talking about, I believe that to be true. I think that, if we see a significant shift down in alternate nicotine sales I think that carton decline will moderate. But third quarter was still a really strong quarter for alternative nicotine.

It was really just at the end of the quarter, and as we enter into Q4, where all of the regulatory noise is starting to have an impact, and the state bans that you've seen have had some impact. So really, I wouldn't use Q3 as a benchmark on that thought process. I think, our anticipation in Q4 from a guidance standpoint, is -- one of the reasons we lowered is we think, the carton decline is probably likely to continue somewhere around 6%. If it moderates, then we should perform a little better from a revenue standpoint.

And the other reason for the reduction is just -- was alternative nicotine. Obviously, that represents pretty good revenue number. And depending on how quickly the FDA reacts and how they react, I think there's definitely going to be some choppiness in sales over the next 90 days.

Kelly Bania -- BMO Capital Markets -- Analyst

OK, that's helpful. And then I guess, as we just think about your operating expenses for the quarter, I guess, there was the extra day, but maybe just can you explain how those compared to your forecasts? And was there any kind of change in the underlying trend or costs that impacted the quarter's trend?

Scott McPherson -- President and Chief Executive Officer

No. I think, operating expense wise, I'd say, for the most part, we're kind of consistent with our trending and consistent with, where we thought we would be, from an opex standpoint. We had a little bit of pick up in SG&A, because we increased -- just because of our performance, we increased our bonus accruals and stock accruals there. So that's really a positive, rewarding some of the people that really contributed to the performance of the company.

But overall, I think our operating expenses came in about where we expected and about where we've been trending.

Kelly Bania -- BMO Capital Markets -- Analyst

OK. And then just another one on the 7.1% same-store non-cigarette sales increase. Can you just help us think about how much of that is price versus volume? And how that compares to the recent trends?

Scott McPherson -- President and Chief Executive Officer

I would say the bulk of it is clearly volume. We've had a little bit of inflation this year, but most of it -- the inflation we've seen has been in candy. So I would say that, 1% would be a fair benchmark on inflationary gain. And then, food and fresh have been the other driver, and the, obviously, alternative nicotine.

Kelly Bania -- BMO Capital Markets -- Analyst

OK. And then maybe I'll squeeze one more in, just on the salesforce reorganization, maybe. Can you just expand a little bit on what's changing and when that was implemented? And just some more color on that.

Scott McPherson -- President and Chief Executive Officer

Sure. I wouldn't call it a total salesforce reorganization. We really just have identified, I mentioned the 700 chains. And we just felt like we needed a more centralized approach to calling on those chains, partnering with those chains.

So really, what we've done is gone out to our field and really kind of rounded up the top, what I call, solicitors and business partners we have out there. There's a group of probably 10 to 12 of those that are going to be working solely on that group of 700 chain organizations. We think that will give us much better alignment to work with those folks and partner with them. And so, like I said, it's not a complete sales reorganization.

It's a kind of a modification to realign our salesforce with the customer opportunity.

Kelly Bania -- BMO Capital Markets -- Analyst

Thank you.

Operator

[Operator instructions] And we do have a follow-up question from Chris Mandeville from Jefferies. Your line is now open.

Chris Mandeville -- Jefferies -- Analyst

Hey, guys. Thanks again. Scott, on the strategic pricing, you mentioned only seeing the initial benefits, as opposed, I'm just curious, what earning are we in really? And how do we think about that going into 2020 as a driver to sales versus margin capture? And for the quarter, just recently, how much of the remaining gross profit margin expansion, would you call it as this initiative, is typically versus just mixed share?

Scott McPherson -- President and Chief Executive Officer

Yeah. Chris, strategic pricing is, I mean, obviously, it's been in play over the course of this year. So clearly, on this kind of first phase of approach, we're going to have some carryover into next year. And then, we also have a number of initiatives that will kick off over the next 90 days to kind of roll into 2020, as well.

And I'm going to -- not going to get deep into the numbers, because we clearly have competitors on the call. And so, I don't want to get too explicit with how that contributes. But I would say that, it's been a meaningful contribution to our -- in this quarter, we were up 19 basis points in non-cig growth. And I'd say, it's definitely a meaningful contribution to that number.

Chris Mandeville -- Jefferies -- Analyst

OK. And then, just the final one from you -- from me anyways was, the last time we had spoke, you've referenced that there might be some new business coming up for a bit earlier than you'd expected. I just want to make sure that, that is different than your comment about finalizing a pretty notable contract in short order. So maybe, you can clarify that?

Scott McPherson -- President and Chief Executive Officer

Yes.

Chris Mandeville -- Jefferies -- Analyst

And then, if it is, in fact different, is there any news on -- or timing that we should be thinking about surrounding this potential new business? And then finally, on the RFP pipeline itself, how does that look? And if I recall correctly, you might have two notable contracts coming up in '20, and then two more in 2021. Is one of those in '20? In fact, the one that you referenced earlier in the call.

Scott McPherson -- President and Chief Executive Officer

So, the answer to all those questions is pretty much yes, a good recollection. So, the one that we expect to kind of finalize here in the near term is one that was early 2020. The couple opportunities that I said that kind of brought themselves to the forefront earlier than expected. We're still kind of in process and I would say that there's two or three solid opportunities that are meaningful to our growth for next year that we're engaged in, that would all take place in the -- we'll call it the first half of 2020.

That are pretty solid chain opportunities. And then, you're right, from a pipeline standpoint or a bid standpoint, over the next couple of years, we have a couple of sizable customers that come up, really each over the next three years. I think, we've done a good job of servicing those customers and building that partnership. And like I said, I think incumbency in this industry is very powerful.

And I think that the market has gotten back to what I call a very rational approach to pricing. And so, I feel really solid about our partners that we have that will come up for bid over the next few years.

Chris Mandeville -- Jefferies -- Analyst

Great. And actually, I might as well stick one more in, seeing how it feels obligatory. With free cash flow, seemingly bouncing back in Q4 and you still realizing about $100 million in the full year and with where the balance sheet lies today. Can you just give us some color on the M&A front, what valuations look like in terms of the sellers' asking price? And if there's anything out there that might in fact be available that you're interested in?

Scott McPherson -- President and Chief Executive Officer

Yeah. Chris, I would say that in the M&A landscape, I would say there's a lot of conversations right now, across the landscape. I think, there's a lot of pressure on the smaller wholesalers in the industry right now, especially, as you've seen the dynamics of carton decline, and how well are they able to adjust and sell food and fresh and build out that infrastructure. So definitely, a lot of pressure on some of the smaller wholesalers.

But I feel really good about our dialogue pipeline. I think, we've got a number of constructive dialogues that we're working on. And clearly, we have the balance sheet to go approach and be active in that space. I don't think you're going to see any crazy multiples in our space.

I think, not like you see in the convenience retail space. But I think, we've talked about multiples in the 6% to 8% range, historically. And I think that's probably the range you'll see them in the future.

Chris Mandeville -- Jefferies -- Analyst

Great. Thanks again, and best of luck for the rest of the year.

Scott McPherson -- President and Chief Executive Officer

Thanks, Chris.

Operator

And, presenters, at this time I show no further questions in queue.

David Lawrence -- Vice President of Treasury and Investor Relations

Great. Well, thank you, all, for joining the call this morning. We appreciate your interest. If you have any follow-up questions, feel free to reach out to me directly.

This is David Lawrence, and my contact information is available on the earnings release and on our website. Thanks so much.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

David Lawrence -- Vice President of Treasury and Investor Relations

Scott McPherson -- President and Chief Executive Officer

Chris Miller -- Chief Financial Officer

Bobby Griffin -- Raymond James -- Analyst

Chris Mandeville -- Jefferies -- Analyst

Ben Bienvenu -- Stephens Inc. -- Analyst

Kelly Bania -- BMO Capital Markets -- Analyst

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