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Schweitzer-Mauduit International (SWM) Q1 2020 Earnings Call Transcript

By Motley Fool Transcribing – May 8, 2020 at 11:31PM

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SWM earnings call for the period ending March 31, 2020.

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Schweitzer-Mauduit International (SWM 0.85%)
Q1 2020 Earnings Call
May 07, 2020, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Welcome to the SWM's first-quarter 2020 earnings conference call. Hosting the call today from SWM is Dr. Jeff Kramer, chief executive officer. He is joined by Andrew Wamser, chief financial officer; and Mark Chekanow, director of investor relations.

Today's call is being recorded and will be available for replay later this afternoon. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. [Operator instructions] It is now my pleasure to turn the floor over to Mr. Chekanow.

Sir, you may begin.

Mark Chekanow -- Director of Investor Relations

Thank you, Tamia. Good morning. I'm Mark Chekanow, director of investor relations at SWM. Thank you for joining us to discuss SWM's first-quarter 2020 earnings results.

Before we begin, I'd like to remind you that the comments included in today's call include forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings, including our quarterly reports on Form 10-Q and our annual report on Form 10-K. In particular, the extent to which the COVID-19 pandemic ultimately impacts our business is uncertain and depends on numerous evolving factors which are difficult to predict, including the duration and the scope of the pandemic and the actions taken in response to it. Some financial measures discussed during this call are non-GAAP financial measures.

Reconciliations of these measures to the closest GAAP measures are included in the appendix of this presentation and the earnings release. Unless stated otherwise, financial and operational metric comparisons are to the prior-year period and relate to continuing operations. This presentation and the earnings release are available on the investor relations section of our website, Now, I'll turn the call over to Jeff.

Jeff Kramer -- Chief Executive Officer

Thank you, Mark, and good morning, everyone. Clearly, this is an unusual and challenging time with the entire world dealing with the various impacts of the coronavirus pandemic. So we will spend much of our time today on interpreting impacts to our people, operations, end markets, and financials. I'd like to begin by expressing appreciation on behalf of both the SWM executive team and the board of directors for our employees across the world for their incredible dedication and efforts in recent months.

Operating under extremely difficult circumstances, our organization rose to the challenge and demonstrated a deep commitment to each other, the company and our customers. While we are working hard to mitigate the business impacts of COVID-19, our top priority remains the health and well-being of the SWM family. To that end, we have effectively implemented strict hygiene and distancing protocols at our sites as well as work-from-home requirements for those whose roles allow this. As you can imagine, operating a global supply chain in these times is increasingly challenging, but our teams have truly responded, enhancing safety and ensuring our ability to supply our customers who depend on us to keep their plants operating.

We benefited by using the safety and hygiene practices from our Chinese operations, which were one of the first impacted but are now fully up and running. What we learned from our Chinese operations, in addition to other best practices we observed, allowed us to identify key procedures necessary to keep our employees safe while operating our locations around the globe. As expected, we did experience some inefficiencies as the teams were forced to adjust on the fly by moving some products to other lines or facilities to meet an ever-changing external environment, but these overall impacts were manageable during the quarter. Our team's ability to quickly make these adjustments are a perfect example of why our customers trust us with large portions of their requirements.

As of this time, we are pleased to report that all but one of our 26 worldwide facilities are currently up and running. The only exception is the site in upstate New York, which has been closed due to stringent New York state shelter-in-place guidelines. With the positive trends seen in New York, we are expecting this plant to be allowed to open sometime in May. I also want to share some positive observations about our diversified portfolio, which generally held up well.

The largest variation to expectations was our transportation film business, which tends to have a higher consumer discretionary component. While we have no clear crystal ball given the extraordinary circumstances, we expect the SWM portfolio to demonstrate relative resilience to the macroeconomic challenges still to come. To be clear, we are not indicating that our portfolio will not be impacted overall. Rather, that with more than 40% of our sales to the tobacco industry, our presence in replenishment-driven filtration markets and our growing medical business, we believe that a large portion of our sales should be resilient in the face of continuing economic turbulence and COVID-19-related demand impacts.

In terms of financials, I think that in times such as these, it is important to assure the investment community as well as our employees and customers that SWM is on sound footing. Andy will elaborate in a few minutes, but we have spent significant effort pressure testing a series of economic scenarios. Given our portfolio, our global operating capabilities and cost reduction activities, our models currently show that we have sufficient cash flows and ready-access to additional funds if needed to provide the liquidity needed to execute our operating plans and maintain our capital allocation strategies, including our dividends. With that said, these are unprecedented times, and prudence dictates that the future is still uncertain enough that we have decided to withdraw our annual guidance.

I'll now move to our quarterly results. All things considered, 2020 got off to a solid start with adjusted EPS increasing 25%, which exceeded our expectations. Profit growth was anchored by a strong quarter for our paper business as sales grew and margins increased versus last year. In AMS, we had broad strength across most of the portfolio, though our transportation film segment was impacted by the wide stay-at-home orders that disrupted the global auto market.

Across the business, raw material costs were favorable, and we would expect them to remain that way as global economic weakness should limit upside movements of our input costs. We also closed on our previously announced Tekra and Trient acquisition which, for simplicity, I'll be referring to as Tekra going forward. I cannot imagine a more unusual circumstance under which to welcome this new business to SWM, and I want to commend the Tekra team on managing this transition and maintaining operations with minimal disruption. We remain excited about this acquisition and the long-term value we can create together.

For AMS, sales increased 2%, driven by growth across most end markets and the Tekra acquisition, which closed in mid-March. In the core AMS portfolio, organic revenues declined a modest 3% as the drop-off in transportation sales more than offset solid performance in filtration, infrastructure and construction, medical, and industrial sales, which is also a positive organic growth. Overall, segment adjusted operating profit contracted slightly, with favorable resin costs offering a partial offset to the lower sales of higher-margin transportation films. As noted, our overall AMS portfolio did well.

Medical was our fastest-growing end market during the quarter and is particularly relevant in this environment. This is an area where we produce many products which are helping to serve the healthcare industry in its battle against the coronavirus. For example, we produce melt-blown materials for N95 face masks. And even after debottlenecking our lines by over 20% and running 24/7, we are still constrained versus the number of orders we have on the books.

We also produce a variety of hospital netting products which are in high demand, such as films and nettings used in making traditional medical masks, bedding, gowns, instrument packaging, etc. I'll also note that while demand perked up in March due to the coronavirus, we were otherwise off to a strong start prior to that uptick, with gains in several niche product areas. In short, we expect our medical business to remain healthy for the remainder of the year. Filtration sales grew, and we anticipate continued gains in 2020 as demand remains intact across many of the subsegments that make up this category.

For infrastructure and construction, we had solid first-quarter growth, but this area is likely to experience softer near-term demand as the slowing economy wrestles with increased levels of potential stimulus. Our transportation film business was the most impacted part of our portfolio. The disruption of the global auto end market, combined with increasing shelter-in-place orders as well as some manufacturing interruptions like glass laminators have had a significant effect. After a strong start, we started to see impact in late March, where the early effects in China started to show.

Our expectation is the continued near-term pressure with a greater profit impact in the second quarter as the virus impacts customers in Europe and North America. With that said, our long-term expectations for transportation films remains positive. And although preliminary, we are already starting to see some positive signs return in China. We expect this to remain a highly strategic part of our portfolio that can drive organic growth and margin expansion, giving the potential to steadily increase the low global consumer penetration rates of paint protection films.

Given Tekra is new to our portfolio, here are some additional color on expectations in the current environment. About a quarter of its business is in the medical space, which we view as highly attractive, particularly in this environment. Tekra does also have a transportation business, which is likely to be soft in the near term, but again, with a positive long-term outlook. The remainder of the business goes into digital printing, electronics and other industrial end markets.

We are seeing increased demand from the medical side, and the Tekra team is working diligently to reallocate converting and coating resources so we can supply these emerging pockets of strength. Bottom line, many AMS end markets are performing well given the economic uncertainty, though being offset by meaningful headwinds for our higher-margin transportation films. Switching now to engineered papers. We had a strong first quarter, with sales up 1%, or 3% ex-currency and good margin performance.

Volume was down 4%, reflecting only the typical contraction of the tobacco industry as it demonstrates its relative resilience to the COVID-19 environment. We continually, effectively offset that pressure with a focus on our higher-value products as price mix combined for a 7% benefit in the quarter and also with our ongoing cost reduction efforts. Specialty recon products, like heat-not-burn and wrapper and binder were the primary positive mix factors. We are also seeing continued favorability in pulp cost which, combined with the above factors, drove double-digit segment profit growth.

As noted, we believe our EP business is relatively insulated from the COVID-19 backdrop and currently are optimistic that our full-year results will not be overly impacted. Given the demand and general concerns about global supply chains, our customers may have pulled some additional orders into the first quarter, and we'll need to monitor fluctuations as inventories balance throughout the year. In addition, the consumer pantry stocking may be another factor that creates some variations in our quarterly results. All told, we don't believe there will be a fundamental change in typical market demand dynamics.

Lastly, I would note that EP generates strong cash flows, giving us increased confidence about overall liquidity. With that, I'll turn the call over to Andy.

Andy Wamser -- SWM International -- Analyst

Thank you, Jeff. Beginning with our segments, AMS sales increased 2% but were down 3%, excluding the Tekra acquisition. Tekra only added $5.5 million of sales in the quarter as we closed on the acquisition on March 13. As mentioned, while organic sales declined 3%, this result was skewed by the decline in aftermarket transportation films, which offset growth in the rest of the portfolio.

The decline in these higher-margin products were responsible for the decline in segment-adjusted operating profit of $0.7 million or 4% as the associated loss in transportation film profits exceeded the benefits of growth in other end markets and lower resin costs. EP segment sales increased 1%, or 3% ex-currency, with positive price/mix of 7% more than compensating for the anticipated lower volumes. While we did have some COVID-19-related disruptions, those excess costs were more than offset by our improved mix, other cost reduction activities, and lower wood pulp costs, which together drove 330 basis points of margin expansion. First-quarter paper segment results were above plan, though we believe some future orders were pulled forward as certain customers planned for potential supply chain disruptions.

As referenced, the first-quarter impact of the production and efficiencies was not material. We were forced to incur some downtime while we moved some products to other lines and locations, adjusted our supply chain, and modified processes while we implemented additional hygiene and safety protocols. However, given the current environment, we would caveat that any prolonged or additional production disruptions at our key sites could result in a more material impact. Unallocated costs were flat with prior year.

Stock market volatility created a benefit in deferred compensation expenses, but these were partially offset by $1.5 million of transaction costs associated with the Tekra acquisition and the timing of other administrative costs. We still expect unallocated costs to trend toward the mid-$40 million level for the full year, including the Tekra transaction expenses. On a consolidated basis, sales increased 1%, and adjusted operating profit and EBITDA increased 12% and 10%, respectively. First-quarter 2020 GAAP EPS increased 29% to $0.72, and adjusted EPS increased 25% to $0.85.

Operating profit growth from the EP segment drove the increase. We note that while interest expense was lower versus prior year, most of the first quarter did not reflect the higher debt outstanding due to the closing of the Tekra acquisition. Thus, future quarters are projected to be higher than the first-quarter run rate. Our tax rate embedded in adjusted EPS was 21.3%, down nominally versus prior year.

Although our first-quarter results were strong and exceeded our internal expectations, we have limited visibility on the remainder of 2020 and have accordingly withdrawn our annual guidance. As we've discussed, our portfolio is diversified, and we expect the majority of our sales to be relatively insulated from COVID-19-related economic challenges. However, as Jeff discussed, some of our products are expected to be more significantly impacted in the coming quarters. We've conducted thorough financial analyses and based on what we believe are the most likely scenarios, we still expect to deliver solid profitability and cash flow and currently have no intention to alter our capital allocation strategy, including our dividend.

Ideally, we'd be in position to offer some financial guidance on our second-quarter call in early August, but the situation remains fluid, and our ability to work with customers to accurately forecast and plan is hindered due to COVID-19. In the meantime, we want to assure all of our stakeholders that we are in a solid financial position. While we typically do not review our debt structure and liquidity in detail during these calls, we want to provide a breakdown of our debt structure and liquidity, given increased investor interest in this area. First, we finished the quarter with $127 million of cash on hand.

In addition, we have $284 million of availability on our $500 million revolving credit facility. Thus, we have total liquidity of approximately $411 million. Based on our current sensitivity analysis around likely scenarios, we believe our cash generation from operations, along with cash on hand, coupled with availability on our revolver, puts us on a strong financial position to fund our operations, investments, and dividends. Our net debt at the end of the first quarter was $628 million and reflected year-end level of $440 million and the March 2020 draw on our credit facility to fund the Tekra acquisition.

Our total debt consists of mainly three components: First, a $500 million revolving credit facility with $212 million outstanding, which is due in 2023 and represents our nearest debt maturity. Second, we have $197 million outstanding under our term loan due in 2025. And lastly, we have $350 million of senior notes due in 2026. The late 2018 bond issuance and renewal of our credit facility proved to be a timely move as the added liquidity and extended debt maturity schedule has created significant flexibility in this unusual time.

Our leverage at the end of first quarter was 2.7 times net debt to adjusted EBITDA, in line with where we communicated we would be when we first announced the Tekra deal in February. Our 2020 max leverage covenant is 5 times net debt to adjusted EBITDA. Thus, we have ample covenant cushion. We currently do not foresee any covenant compliance issues.

Lastly, on capital spending, our capex in the first quarter of $8 million annualizes below our initial guided range of $35 million to $40 million, albeit mostly due to timing. We consider certain growth projects as discretionary capex ,and coupled with additional cost actions, provide levers to pull, should we deem more conservative actions are required in the event of changing circumstances. Now back to Jeff.

Jeff Kramer -- Chief Executive Officer

To wrap up, I want to reiterate a few key points before taking your questions. We know this is a challenging time with uncertainty across our stakeholder groups. First, as an organization, we remain fully committed to ensuring our employee safety. We have shown that we can comply with local government guidelines where we operate and are maintaining best practices in terms of health and safety measures while minimizing disruptions to our customers.

We have done a good job to date, and I thank our worldwide teams for their professional dedication, demonstrating to the marketplace that SWM is a flexible, innovative, and reliable supplier of choice. Lastly, as Andy mentioned, our balance sheet and liquidity position are healthy. And while we have chosen to withdraw guidance due to the lack of near-term visibility, we are confident we will remain solidly profitable with strong cash flow. Looking beyond the tough sledding ahead in the near term, we also remain focused on strategically positioning ourselves for success in the long run.

During these unusual times, there may be opportunities to distinguish SWM versus competitors who might not prove as nimble, financially secure, or have as flexible global supply chains. Furthermore, we have the capability to advance several strategic initiatives during this time, including new product developments that could serve to accelerate our growth once the global economy stabilizes. We firmly believe that SWM is well-positioned to successfully weather this storm. And while we will not be unaffected, our diversified portfolio should offer some protection from sharp demand declines in many areas of the economy.

We appreciate your continued support and interest. That concludes our remarks. Tamia, please open the line for questions.

Questions & Answers:


[Operator instructions] And your first question comes from the line of Steven Chercover with D.A. Davidson.

Steven Chercover -- D.A. Davidson -- Analyst

Well, I win. Good morning, everyone.

Jeff Kramer -- Chief Executive Officer

Good morning.

Steven Chercover -- D.A. Davidson -- Analyst

So, let's start first with a couple of questions on AMS. Everything seems really solid except for the transportation films. I was just wondering, are the margins there substantially higher than elsewhere in that segment, perhaps in excess of 20%?

Andy Wamser -- SWM International -- Analyst

So, I would say that that is one of our higher-margin products within the AMS portfolio, so I think that's fair to say. And, you know, -- but the one thing I would echo though as it relates to that business is that while we do foresee some challenges in the transportation film products area, we are very bullish on that product portfolio over the longer term. The other thing I would just would highlight is, you know, the drop that we've seen in the automotive industry here over the past couple of months, we saw it in China in the first quarter. We're starting to see a little bit here in North America.

Is that, you know, -- our expectation is that this business will outperform whatever we're seeing on -- in terms of global sales. This is an aftermarket product, so it's not, you know, just tied to OEMs. And so that -- if you look at historically, we've grown this business high single digits, you know, even double digits in a flat SAAR environment. So, you know, we are very comfortable that we will outperform, you know, what we're seeing.

I think, from the headline numbers you'll see in the automotive environment.

Steven Chercover -- D.A. Davidson -- Analyst

Sure. And sticking with AMS, I wanted to ask a little bit about filtration. Can you help us think of the split between water and then process and air? And is it fair to assume that, you know, water is stable, that things that are levered to process might be a bit more cyclical?

Jeff Kramer -- Chief Executive Officer

Yeah. So, this is Jeff, Steve. Water is probably about 50% of the portfolio, and the remainder is split between process, automotive filtration and then air filtration. So, we have a broad diversity of markets.

We're seeing water filtration pretty stable. We're watching. It's a lot of that business is replenishment, and that needs to happen no matter what. We're watching closely to see if any of the big new projects gets delayed.

We haven't heard much in, you know, pro or con around that, but we're watching that. On the process filtration side, that seems real solid. We have seen some weakness in the automotive side. And air filtration remains strong.

Steven Chercover -- D.A. Davidson -- Analyst

OK. And while you're not providing guidance, there is pretty substantial seasonality to AMS. And can you still expect the second and third quarters to be seasonally better?

Andy Wamser -- SWM International -- Analyst

Well, we do expect the second quarter to be probably the most impacted. So historically, I would say the second and third quarter are the best quarters within AMS. You know, second quarter, I think, you know, could be relatively in line with maybe the first quarter, so I don't think you're going to see a big bump. But, you know, the third quarter and fourth quarter remain to be seen.

Jeff Kramer -- Chief Executive Officer

Yeah. I mean it's -- Steve, it's going to be hard for us to really give you some guidance around that because I don't -- I – you know, this is not a typical world. And so, I think anybody that shares that they really have a good complete feel of how, you know, normal cyclicality would show. I think it's going to be stretching it a little bit.

Second and third quarter tend to be our strongest. We also, though, think the transportation will be hit a little harder in the second quarter, so that might offset that typical strength. But I do want to highlight that we continue to believe that the majority of the portfolio in AMS is very resistant to a lot of the trends that we're seeing.

Andy Wamser -- SWM International -- Analyst

And just to reiterate, I mean, you know, four of the five segments did see growth in the first quarter. So again, it's a diversified portfolio.

Steven Chercover -- D.A. Davidson -- Analyst

Great. Well, fair enough. This is a very unusual time. OK, switching to engineered paper, do you think the price/mix benefits that you enjoyed in Q1 can be maintained and that you can maintain, you know, that price that you captured?

Andy Wamser -- SWM International -- Analyst

Yes, we do. I mean, as we talked about even going into this year. You know, we do expect volumes to be down in line with typical attrition, but we did expect price/mix to offset that. So, we're seeing good mix and continue to see good mix.

The one thing, though, I would caveat is that we do have one facility that is closed in New York. And they are responsible for, you know, part of our wrapper and binder products. So, the expectation is that that would be up and running here at some point in May. But you know, clearly April will have some impacts to that, you know,to the second quarter.

But once that facility is up and running, we expect that can sort be sprinting, so – and, you know, to make up for some lost volumes. So, it remains to be seen what we can make up for the year, but it's a great facility and a great team there, and I know they're anxious to get back to work.

Steven Chercover -- D.A. Davidson -- Analyst

Great. OK, and I'm almost done. So, considering that COVID appears to be particularly hard on those with preexisting conditions, do you think that the attrition in smoking might accelerate?

Jeff Kramer -- Chief Executive Officer

No. I mean, we haven't seen any indication about that. It's an interesting point, but we've actually seen very strong sales overall in some of our markets around that. So that will be an interesting thing to watch, but we haven't seen that.

And I haven't seen any of our customers report that they're sensing that either.

Steven Chercover -- D.A. Davidson -- Analyst

Oh, we admire their dedication. OK. Finally, last one. Glad you got the Tekra deal done.

And I should think that integrating it in this COVID environment is pretty challenging since you can't or shouldn't be physically together. So how is that going, and how are you dealing with it?

Jeff Kramer -- Chief Executive Officer

Yeah. You know, interestingly, it's going really well. I've been incredibly impressed how our teams have really been able to modify and work by video conferencing tele-calls. We're using some augmented reality technology in locations to help our engineers be able to consult.

We also didn't have a lot of physical integration that we needed to achieve with the Tekra acquisition, so there wasn't a need to have as much of that, you know, that you might see in cost reductions, etc., happening. And so, the Tekra team has really stepped up. They're doing a great job, and actually I haven't seen us miss a beat on it, to be honest.

Steven Chercover -- D.A. Davidson -- Analyst

OK. Well, thanks, guys. Stay safe.

Jeff Kramer -- Chief Executive Officer

Thank you.

Andy Wamser -- SWM International -- Analyst

Thanks, Steve.


Your next question comes from the line of Chris McGinnis with Sidoti & Company.

Chris McGinnis -- Sidoti and Company -- Analyst

Good morning. Thanks for taking my questions, and nice quarter. I was just wondering if maybe you can -- I know it's obviously a very difficult environment, but maybe just talk about, I don't know, if it's maybe conversations that maybe changed across end markets during the quarter, and how that maybe started in April, if there was any major changes. It just sounds like maybe you had a much stronger beginning.

Did you see a slowdown going into Q3 -- or Q -- or into the April month? And then maybe just a little bit of highlight or in color. Obviously, it seems like medical will do fine, but, you know, just on the other end markets and demand trends?

Jeff Kramer -- Chief Executive Officer

Yeah. I think if you look at our quarter, the first two months were strong across all the segments. And to be honest, I think the only segment that really saw a material change was our transportations film, and only some of the subsegments in there because that's a broad category that includes optical films, etc. And it really was more around the surface protection parts of that marketplace.

We had big sales in China. So, you can imagine as, you know, China was wrestling through this and had gone through their shutdown. They're now reopening, so that started to show up. And it was really only in March that we saw that show up.

As I indicated, we're actually seeing encouraging activities in China. You know, we just installed our brand-new surface protection line there, so we now can manufacture these materials worldwide. Again, some evidence of the kind of supply chain investments that we continue to make. And the qualification since this has -- impact has been accelerating there, so we're watching that closely.

But as you can imagine, this is a penetration market. And so the markets in Europe, which have been severely impacted in the United States, we expect some weakness to continue certainly in the second quarter. And then as now you're starting to see some of these openings happen again. We're going to have to watch cautiously to see if we see the same kind of evidence that we're seeing in China happen throughout, you know, Europe and North America.

Andy Wamser -- SWM International -- Analyst

And maybe just to add to that, we kind of just -- if you look at the portfolio in general, you know, all of it, we would say that as Jeff mentioned, about two-thirds of our sales are coming from tobacco, filtration, and medical. So, we do view those as relatively insulated, sowe really didn't see much change there, say, similar trends that we saw in the first quarter. Industrial, we have some pockets maybe that are a little bit up, some that are a little bit down. We generally view that in more of a GDP-type of portfolio.

But given where GDP is in Q2, I think it may exceed. You know...

Jeff Kramer -- Chief Executive Officer

Yeah, let's hope it doesn't track complete.

Andy Wamser -- SWM International -- Analyst

And then infrastructure and construction, you know, did have a really solid start, I'd say, to Q1. I think it's fair to say, as Jeff said in the comments, you know, that there could be -- it could get softer as we go throughout the year. But in general, just kind of taking a step back, I'd just sort of reiterate the point that two-thirds of our portfolio is, you know, pretty insulated from this. But it's not to say that we're not watching everything like a hawk.

And you know, we are doing regular sales channel checks, I mean, on a weekly basis to make sure that we're on top of this.

Chris McGinnis -- Sidoti and Company -- Analyst

Great. That sounds great. Can you maybe just talk about any profit profile changes due to maybe supply chain changes or, you know, the impact of safety measures around COVID? You know, how does that change kind of the manufacturing process, if you don't mind?

Jeff Kramer -- Chief Executive Officer

Yeah. You know, we had -- I'm really proud of our operations team. I have to tell you. So, you can imagine early on in this epidemic as it started to roll across, we had different impacts in different regions around the world.

But the team has actually been able to move products, you know, start up all the lines, move lines, et cetera. And so, as Andy had said in his section, we had some interruptions as early on in the phase, and we wanted to make sure we were doing the right hygiene and social distancing to be able to maintain and remove some of these. But they are -- There haven't been material disruptions in terms of cost and profitability, etc. And so I think we're well-positioned.

And I would say that across all our product lines. We haven't seen a material change in the things that we've had to do in our cost structure.

Chris McGinnis -- Sidoti and Company -- Analyst

That's great. And I think you may have touched on it, or you did touch on it at the end of your opening, but how does this change business going forward and maybe present some greater opportunities that maybe you didn't see before? And how are you changing, you know, the -- how are you changing to kind of take advantage of the environment, whether it's market share gains or other opportunities you see to expand? Thanks.

Jeff Kramer -- Chief Executive Officer

Yeah. You know, so this is something that we spend a lot of time on at SWM and we've been talking about it with our leadership team. We believe strongly that we just need to be able to do two things. You need to be able to act on the short term and continually to look at the long term.

And we talked a little bit. It's always about the balance between the two of those, if you're doing those simultaneously. So, you can imagine early on in this activity, just about 80% to 90% of the focus was on making sure that our people were safe and that we're able to continue to supply our customers. Even with that, we continued to explore R&D products, innovation, M&A, etc.

because we think we are in the right position to be able to continue to take advantage of, you know, market trends, etc. So we haven't stopped all that. We're actually now -- we fit in a more stable environment, so maybe that balance is actually increasing more around the growth aspect of the business. But we think there are going to be opportunities for us to continue to grow.

We like that we're well-positioned. This is like a nice pressure test of our portfolio because we've been building this portfolio over the last several years. And people have questions about its cyclicality, how it would do in a downturn, and it's been a well-performing portfolio overall.

Chris McGinnis -- Sidoti and Company -- Analyst

Sure. The numbers certainly appear that way. Well, thank you very much for the time, and good luck in Q2, and stay safe.

Andy Wamser -- SWM International -- Analyst

Thanks, Chris.

Jeff Kramer -- Chief Executive Officer

Thank you, Chris.


[Operator instructions] And at this time, there are no further questions. I would like to turn it back over to management for closing remarks.

Jeff Kramer -- Chief Executive Officer

OK. Well, thank you, everybody, for joining us on this call. I want to close with just a hearty thank you to my global team. You have done a tremendous job.

I know the stress is high for all of us, both personally and professionally. And I'm incredibly impressed by how you have all responded. We're going to do our best to continue to support you. And to our customers, hopefully, you've seen the efforts that our teams have made, and we will continue to work hard to continue to supply you as well.

So, thank you, everyone.


[Operator signoff]

Duration: 44 minutes

Call participants:

Mark Chekanow -- Director of Investor Relations

Jeff Kramer -- Chief Executive Officer

Andy Wamser -- SWM International -- Analyst

Steven Chercover -- D.A. Davidson -- Analyst

Chris McGinnis -- Sidoti and Company -- Analyst

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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

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