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Edited Transcript of LBY earnings conference call or presentation 6-Nov-18 4:00pm GMT

Q3 2018 Libbey Inc Earnings Call

TOLEDO Nov 8, 2018 (Thomson StreetEvents) -- Edited Transcript of Libbey Inc earnings conference call or presentation Tuesday, November 6, 2018 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James Charles Burmeister

Libbey Inc. - Senior VP & CFO

* Joe Huhn

Libbey Inc. - VP of IR

* William A. Foley

Libbey Inc. - Chairman of the Board & CEO

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Conference Call Participants

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* Jeremy Scott Hamblin

Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail

* Lee M. Jagoda

CJS Securities, Inc. - Senior MD & Analyst

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Presentation

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Operator [1]

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Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Libbey Inc. Third Quarter 2018 Financial Results. (Operator Instructions)

Joe Huhn, Vice President Investor Relations, you may begin the conference.

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Joe Huhn, Libbey Inc. - VP of IR [2]

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Good morning, everyone, and thank you for joining us. Libbey's press release and supplemental financials were distributed this morning and are available on the company's website in the Investor Relations section.

A replay of this webcast will be available on the company's website. We've also provided a set of slides which will enhance our talking points today, and those may be found on our website at libbey.com.

On the call with me today are Bill Foley, our Chairman and Chief Executive Officer; and Jim Burmeister, our Chief Financial Officer. After our prepared remarks, we will turn the call over to the operator and take your questions.

Before we get under way, I'd like to say that today's call includes financial information which our independent auditors have not yet completed their audit. Although we believe that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, we can give no assurance that these assumptions will prove to be accurate.

Today's conference call will contain non-GAAP financial measures, including adjusted EBITDA; adjusted EBITDA margin; adjusted selling, general and administrative expense; adjusted selling, general and administrative margin; trade working capital; debt net of cash-to-adjusted EBITDA ratio and constant currency.

Reconciliations to the nearest U.S. GAAP measures or definitions are available in our press release and supplemental financials.

The call will contain forward-looking statements under the Securities Act of 1933 and other federal security laws. These statements are based on our current expectations, estimates and projections about the market and the industry in which the company operates in addition to management's beliefs and assumptions.

Forward-looking statements are not guarantees of performance, and actual operating results may be affected by a wide variety of factors. For a list of these factors, please refer to the forward-looking statement notice included within our SEC filings.

I would now like to turn the call over to our Chairman and Chief Executive Officer, Bill Foley, for his opening remarks. Bill?

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [3]

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Thanks, Joe. Good morning, everyone, and thank you for joining us. I'll begin today by providing our customary review of highlights from the third quarter. And then Jim will provide details around the financials and outlook. After that, we'll open the line for questions.

Our third quarter results continue to demonstrate that we're successfully growing the business and improving our price realization. Net sales were up 1.8%, or 2.9% after adjusting for currency impacts. And we continued to benefit from the strong contributions of our new product introductions as well as our e-commerce platforms. New products, which we define as products introduced within the previous 36 months, drove approximately $15.9 million or 8.3% of net sales during the third quarter. Additionally, U.S. and Canada e-commerce sales represented approximately 12% of USC's retail sales, up 46% as compared to the third quarter of last year. These results continue to give us confidence in our ability to meet our long-term objective of driving profitable organic growth.

During the quarter, restaurant traffic in the U.S. market declined 1.3%, while net sales in our USC foodservice business grew 4.7%, a strong indication that despite these challenging conditions, we're continuing to gain market share. We attribute this success to our high level of customer service and the success of our continuous focus on launching a broad range of new products. Throughout this year, we placed an organization-wide focus on making real improvements in our customer service performance to ensure we excel at meeting our customers' expectations. We had work to do to get there, and the efforts we implemented have made a difference with our customers and supported our drive for additional market share.

In our Other segment, which represents operations in Asia Pacific, sales increased 13% while also demonstrating improved margins. Profitability in our Latin America and EMEA regions improved for the fifth consecutive quarter and continues to benefit from our commercial actions to improve margins via pricing and product mix.

In the U.S. and Canada segment, net sales increased 2.7% year-over-year. The profitability in the region was negatively impacted by unfavorable manufacturing activity and increased storage and shipping costs. Jim will discuss later in detail at the end of my remarks. These challenges combined with $2.9 million of negative impact from foreign currency resulted in a reduction of adjusted EBITDA performance as compared to the third quarter of last year.

We have discussed pricing actions we've taken across our various regions in recent quarters. And we are continuing to maintain this pricing discipline, which we believe will help us preserve and enhance our margins in the future. Price competition has been a challenge across our industry for the past several years. We've recently seen a return to more normalized behavior, which has allowed us to instill greater pricing discipline across our regions. We believe the tariffs implemented recently could be a positive for our business as we're the largest producer of glass tableware in North America and we have a well-diversified supply chain in our dinnerware and tableware business. We're proactively engaging current and potential customers to understand the potential positive impact on demand for North American-made glassware due to increased tariffs on items such as candle jars, lids and containers.

These trends combined the success -- combined with the success of our new product launches in our e-commerce platform have us well positioned for the future.

Moving to Slide 5, I'd like to spend a few minutes discussing some of the new product highlights from the quarter. During the quarter, we successfully launched the intuitive line of dining ware products into the healthcare segment of the foodservice market. This line includes over 400 items designed to serve the specialized needs required by assisted-living facilities and hospitals. While it's still too early to have much detail and sales patterns, we have seen immediate interest from our customers, and several distributors have already placed orders to put these products into their customer networks. We believe this sales channel can be a major growth opportunity for us long term as more than 10,000 people a day are turning 65. And by the year 2030, over 20% of the population will be 65 years or older, and assisted-living facilities are shifting toward more hospitality and positive experience-oriented venues.

This matches well with Libbey's core capability of providing fully integrated tabletop solutions for differentiated customer segments.

Last month, we attended the annual New York Tabletop Show, and on Slide 6, we've highlighted some of the product launches from that event. We introduced 38 products across a wide variety of categories, several of the products showcased today focus on creating home entertainment solutions for today's consumers. These collections combined Libbey's newest innovation in stemless glassware as well as traditional beverageware combined with color-pairing shapes and handmade pitchers produced in our hand shop located in Monterrey, Mexico. As mentioned earlier, new products contributed $15.9 million of sales during the third quarter, and we expect the contributions from new products to continue to help us outcompete in the marketplace and achieve our long-term objective of driving profitable growth.

Moving to Slide 7, I'll review our progress on performance in our e-commerce platform. To support continued customer interest, we launched 34 new products during the quarter, bringing the total number of new products available on our platform to 452. Our expanding 3PL network provides exceptional Amazon-badged service to all of our customers. It's a strategic capability that we believe is the key differentiator for our digital business model. We're now operating 3 shipping nodes located across the country to support our service requirements. And during the quarter, we delivered at a 98.2% order fill rate with on-time deliveries as expected by digital customers today.

We believe superior service is helping us accelerate our growth, achieve higher-branded price points and brand recognition, and gain stronger placement of product with our brick-and-mortar customers as well as pure-play e-tailers. It is giving us more flexibility in terms of how we package, price and market product assortments. We believe the platform will help us enhance our margins longer term.

E-commerce sales in the third quarter were approximately 12% of our U.S. and Canadian retail sales, which is a 46% improvement compared to last year. We also expect a strong performance from e-commerce in the fourth quarter as the platform expansion achieved so far this year should help us capture greater sales growth as we pursue our long-term strategy and target of 20% of retail sales from the e-commerce channel.

In addition, we're in the planning stages of continued expansion of our digital commerce capabilities into other customer segments and markets around the world.

Now I'll hand the call off to Jim for a detailed review of our third quarter financials. Jim?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [4]

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Thank you, Bill, and good morning, everyone. Turning to Slide 8. We'll begin with a review of our third quarter financial results and our consolidated financial statements of operations.

Net sales came in at $190.8 million compared to $187.3 million for the third quarter of last year, an increase of 1.8% year-over-year. Excluding $2 million of currency impacts, net sales were up 2.9%. Gross profit during the quarter declined by $800,000 year-over-year, with Q3 coming in at $37.2 million compared to $38 million in the prior year.

Gross profit margin was 19.5% in the third quarter of 2018 compared to 20.3% last year. The primary drivers for the year-over-year difference in gross margin were higher storage and shipping costs, manufacturing downtime and unfavorable currency impacts. The increased costs were partially offset by a favorable price and product mix, and higher sales volume.

Third quarter selling, general and administrative expense increased to $33.3 million as compared to $29.5 million in the prior year. This increase was driven primarily by $2.3 million of onetime legal and professional fees attributable to a strategic initiative. These costs were treated as a special item in our third quarter results. We are also -- experienced higher benefit-related costs during the quarter.

Interest expense for the quarter was $5.7 million compared to $5.1 million last year. During the quarter, we successfully executed forward starting swaps on $200 million of our debt. The 5-year swaps commence in January 2020, when our current swap is set to expire and if equity converts the LIBOR component of that portion of our debt to a fixed rate of 3.19%. The company recorded income tax expense of $1.8 million in the third quarter compared to $2.7 million in 2017. The company's effective tax rate was a negative 54.9% for the third quarter of 2018 compared to a negative 3.6% in the prior year. The decrease in the effective tax rate was driven by differing levels of pretax income, significantly higher nondeductible expenses in third quarter for the prior year, which included a $79.7 million impairment of goodwill in our Mexico reporting unit and the timing and mix of pretax income earned from tax jurisdictions with varying tax rates differing from that previously forecasted for the full year.

For 2018, we expect cash taxes to be between $8 million and $9 million compared to $3.4 million in 2017. For the quarter, we recorded a net loss of $5 million compared to a net loss of approximately $78.8 million in the third quarter of 2017. As previously mentioned, our results in 2017 were affected by a $79.7 million noncash goodwill impairment associated with the Mexico reporting unit. Third quarter adjusted EBITDA, as detailed in Table 1 of today's press release, was $16.1 million compared to $20 million in the third quarter of 2017. Our adjusted EBITDA margin for the quarter was 8.4% compared to 10.7% in the third quarter last year.

Trade working capital, which we define as inventories and accounts receivable less accounts payable, was $228.7 million at the end of the quarter, an increase of $13.1 million from the same point last year, though similar to the same period 2 years ago. The increase was the result of higher inventories, higher accounts receivable and lower accounts payable.

As mentioned in our press release this morning, in addition to our seasonal drawdown of inventory in the fourth quarter, we are planning to take some downtime in the quarter and expect to see a meaningful reduction in trade working capital by year-end. We believe that a measured approach to reducing inventory should allow us to maintain the higher levels of service that we had delivered this year for our customers.

During the quarter, we had $13.8 million in capital expenditures compared to $12.8 million in the third quarter of 2017. Depreciation and amortization amounted to $11.3 million in the quarter, roughly flat compared to the third quarter last year. We had availability -- available capacity of $59.6 million under our ABL credit facility and $32 million in loans outstanding as of September 30, 2018.

And we had cash on hand of $19.1 million at the end of the quarter.

Slides 9 and 10 provide a more detailed review of the third quarter and year-to-date sales within each of our reporting segments, which are the U.S. and Canada; Latin America; Europe, Middle East and Africa; and Other. I will walk through only the third quarter information at this time.

In the U.S. and Canada segment, third quarter net sales were $115.3 million compared to $112.3 million in the third quarter of 2017, an increase of 2.7%. Unit volumes in the segment increased year-over-year, and sales were further driven by a favorable price and product mix sold in the foodservice and business-to-business channels as well as improved channel mix.

Third quarter net sales in Latin America were $35.4 million compared to $35.3 million in the third quarter of 2017. Excluding the $1.4 million negative currency impact, net sales increased 4.3%. Volume and favorable pricing were the primary drivers of growth in the quarter, partially offset by unfavorable product mix.

In our Europe, Middle East and Africa segment, net sales were $33.3 million in the quarter compared to $33.7 million in the third quarter of 2017, a decrease of 1.3%. The decrease was primarily due to lower volume offset by favorable price and product mix.

In Other, which primarily represents our operations in Asia Pacific, net sales were up $771,000 in the quarter or 12.8% compared to the prior year as a result of higher sales volume in China.

Turning back to the consolidated company results. Slide 11 walks through adjusted EBITDA performance impacts in the third quarter of 2018 as well as year-to-date. I will talk to the third quarter results at this time.

In the third quarter, adjusted EBITDA was $16.1 million compared to $20 million in the same quarter of last year. We experienced higher sales volumes and product margins as we continued to drive improvements in both price and mix. However, results in the quarter were lower, primarily due to unfavorable operating activity. This includes $2.4 million of increased storage and shipping costs and $1.4 million of downtime. Also contributing to the decrease was $2.9 million of unfavorable currency impacts, along with higher utility cost.

As previously mentioned, we are taking actions to reduce inventory, including some manufacturing downtime in the fourth quarter. We expect the resulting inventory reduction to begin to decrease storage cost. With our large furnace rebuilds in United States complete, we will see a lower volume of shipments from China from our China factory, hoping to drive down -- an improvement in our transportation cost.

On Slide 12, I'll review the outlook for the full year, which has a couple of notable changes compared to the update we provided last quarter. We still expect to see low single-digit growth in net sales compared to last year. And based on year-to-date performance, we believe adjusted EBITDA margins will be toward the lower end of our previously estimated target of 10% to 11%. We remain responsive to margin challenges and have improved our outlook for full year adjusted SG&A margin for a second consecutive quarter as we continue to aggressively manage cost.

Adjusted SG&A margin is now expected to be in the range of 15.5% to 16% compared to our previous guidance of 16% to 16.5% and the original expectations for the year of 17%. Capital expenditures are now expected to be near $50 million, which is at the low end of our previously communicated range of $50 million to $55 million, helping to offset increased inventory. That concludes my prepared remarks for this morning. And I will turn it over to Bill for concluding remarks. Bill?

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [5]

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Thank you, Jim. In summary, we'll continue to see underlying improvement in the fundamental performance across our business, which gives us confidence in the strategies we're pursuing -- we've been pursuing to drive profitable growth. We made considerable progress as an organization this year, and we're going to work -- continue working to improve the strength of our operating performance moving forward.

We're entering the upcoming holiday season with great momentum behind our products in the marketplace. And we expect to enter fiscal year 2019 well positioned to stay on track with our long-term financial goals.

With that, we'll open the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from Lee Jagoda with CJS Securities.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [2]

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So first, just looking at the downtime you took to pare back the inventory. Is there a way to break out the fixed cost under-absorption impact on gross margins this quarter? And to the extent the furnaces are going to stay down as you pare back inventory in Q4, can you give us a sense for the magnitude of gross margin impact there as well?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [3]

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The way I would suggest you think about it, Lee, is -- we did break out the downtime number which is the charge we took during the third quarter. We have factored in the planned downtime we have into our full year guidance, which can kind of triangulates you into what you should see in the fourth quarter.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [4]

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Sorry, and what was the downtime number you broke out in the quarter?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [5]

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In the quarter, we had $1.4 million.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [6]

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Got it, okay. So that's just the -- that's the fixed cost issue on gross margins. So if I take -- if I just -- if I were to add that back to gross margin, it gets to a more normalized range?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [7]

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Correct.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [8]

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Okay. And I guess, Bill, maybe for you. Was there something you saw out there in the market that caused you to decide that now was the time to reduce your inventory?

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [9]

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Yes. I mean, it's a couple of pieces. First of all, we've intentionally let it build because we really needed to get our arms around -- wrapped around our customer service performance. As you know, we're in the beginning stages of implementing an ERP system. I mean, in all candor, and I think we've talked about before, our planning tools are as strong as we like. So it's a little bit cruder effort at guiding the ship perhaps than we like. So we got the -- the inventory is up. It's made a huge difference in our service performance. Our service performance is up dramatically over last year. We think it's -- helping us take share. So now as we've got a new team in supply chain working to improve planning, we've implemented the sales and operating planning as a global system within the company, we didn't have that before, so we're at a point where we think we can break it down. And so it's a combination of what we buy, what we buy in the outside, what we produce, plus also us working even more aggressively to get rid of products that we're discontinuing, getting them out of our system. So it's -- we're headed down significantly by the end of the year. We've reviewed it in this morning, we're on our plan and it's just a natural reaction as we get better at planning, we think we can operate on less inventory. Long -- long answer, but this is the sort of an intentional plan. But we needed to get it up while we improved our OTIF, our on-time and in-full performance, so that we could ultimately take the share we needed and do that strategically. And now we can begin to bring it down a little bit.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [10]

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Got it. That makes sense. One more from me. Just on the charge you took for the strategic initiative that was terminated. Any other detail you can provide on that would be really helpful, just given the magnitude of that charge.

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [11]

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Yes. Unfortunately, we're bound by confidentiality agreements. And we can't.

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Operator [12]

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Your next question is from Jeremy Hamblin with Dougherty & Co.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [13]

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I wanted to ask about your storage and shipping costs because that really was a significant change from the run rate you've been seeing in the first half of the year. Can you give me a sense, though, are you just feeling that -- we're hearing, obviously, a lot of transportation and shipping cost issues across industries. Is that something where you feel like it's accelerating still into Q4? Do you feel like that leveled off? In terms of that $2.4 million impact you cited for Q3, are you expecting something similar or more in Q4?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [14]

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Jeremy, this is Jim. So a couple of things. I think aside from the broader story in the market, I think what we're seeing is really driven by a couple of main things. One, we are having higher logistics costs because we are managing a high level of inventory, so a little bit extra storage cost, a little bit extra internal transfers. And I think also you're seeing us pick up a little bit in our storage and -- in our shipping cost related to our 3PL associated with our e-commerce efforts. That's being offset by higher margins from a pricing standpoint. So we're seeing both price and logistics costs go up as we ramp up in that space. So it's not as much as us trying to find drivers, for example. I mean, that's the undertone in the industry, I understand that. But really for us it's been about those key -- 2 key drivers about managing the inventories we've intentionally brought on and as we pivot it into a more of a shipping on behalf of our customers, both as an Amazon seller and providing that same level of service to our other retailers as we ship on behalf of them through their websites, that cost is going up.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [15]

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And so in terms of the impact that we should expect for Q4, is that going to be similar in terms of dollar magnitude to Q3 or even potentially more?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [16]

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As we bring down inventories, I'd expect it to soften a bit, offset by higher shipping in the e-commerce space. So about the same place.

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [17]

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Yes, I think I'd add to that, Jeremy, I think the difference is by we've shifted our business from Amazon vendor to Amazon seller. So along with that, we're getting higher gross margins. But it's a higher cost to serve. We think that ultimately that part of the business is where we can differentiate our performance on e-commerce, particularly in Amazon. And we're seeing a significant shift in demand there. But it's also about the strategy. So as we -- as that business moves, we'll have some costs with it. But we've also added a third node to shipping, and that's brought the shipping cost down. And -- because the shipments were going too far a distance, so we're looking at adding a fourth node to try to dilute it even further. And that work's being done now.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [18]

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Okay. And then I wanted to shift to foreign currency impact, which was a little bit greater than we expected. In terms of -- there's obviously been a lot of turmoil even in the past 4 or 5 weeks related to the foreign currency. In terms of your best guess at this point, Jim, on foreign currency impact in Q4, what is that looking like? Again, is that something that's maybe going to be even a little bit more than we saw in Q3?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [19]

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I think based on the -- the biggest driver for us is dollar-peso. And in the last 3 or 4 days, that's traded as high as over MXN 20, which should be helpful for us. So we're keeping an eye on that because -- remember, a large portion of that is a remeasurement of our Mexican pension liability on a U.S. dollar-functional business. So because that is always mark-to-market on that lability sitting down there but not really a cash loss, we don't hedge it. So we try to make sure we understand it and explain it to you. But with the current look at the peso, for now, I don't expect it to be a negative impact in the fourth quarter.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [20]

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Okay. And then the other question was on -- your performance in Latin America and EMEA have been pretty strong the prior 3 quarters. You took quite a few steps backwards here on those 2 segments. I wanted to just get a sense of is that something underlying in the fundamentals of those business that you see have changed? Was this, again, just we're rightsizing our inventories in LatinAm and EMEA as well? Can you just speak to those 2 segments and how we should be thinking about those here moving forward?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [21]

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I think, in general, starting with EMEA, I think we continued it to work in shifting our product mix. We still have some lower-margin business there in retail that we're working our way out of. And we've seen a little bit of softening in the last few months in Europe as a whole. Not dramatic, but we're keeping an eye on it. In Latin America, there's obviously a big driver there from the currency. And sales is good, doing well. We are seeing some -- a little more elevated utility costs in Latin America, which means we're looking at us setting up with pricing actions here going forward. So all-in all, it's not turning dramatically against us. It's just not a -- it's a -- it's been a great year of progress in both those regions.

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [22]

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Yes. I would add to that. I think given the market conditions, it's still our intention to be -- to raise prices around the world for 2019. Our price increases for Europe are already in place. We're already planning for our increases in the U.S. And price increases are already planned for Latin America. So we wouldn't be taking these steps if we didn't think that there was the opportunity to make that happen.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [23]

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Okay. So last kind of encapsulating question here. So in terms of time to cure some of the problems that have creeped in here in the last several months, is this something where you're feeling like we get to the end of Q4, and we've moved past these issues in terms of inventory and maybe a couple of the other items are a little less controlled both with certainly downtime and maybe lower storage costs as well, should we have moved past those by the time we exit Q4?

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [24]

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Yes, I've been -- we did a review of the business this morning. And we talked specifically with the supply chain guys about whether or not they're on plan. And they're telling us that they believe that they'll have our inventories down dramatically by end of Q4. That will release some storage and shipping costs that we've struggled with a bit. I think we're still trying to figure out what happened to utility costs in Mexico because that was not something we'd really planned on. But I think the majority of the operating issues, I mean, the plants are running well. They had some manufacturing issue -- we had some manufacturing issues in Mexico in the July time frame. But we talked this morning. The plants are running very well there. The sales forecast looks solid. The digital business is doing really well. So I think most of this stuff, we believe, we've got behind us now. But we still got another 8 weeks to work and things to be done. But I feel pretty good about where we are, because we've been pretty much all over it the last -- as you can imagine.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [25]

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All right. I lied. I had one other quick one. Just could you -- Jim, could you clarify, again, what you did here with the swaps on your debt?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [26]

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Sure. As you may recall, we had a swap on our Term Loan B, which expires in 2020. Looking at the interest rate environment, we put on a forward starting swap, which begins when that one ends and takes $200 million of that notional amount from variable to fixed. So we haven't enrolled the Term Loan B yet. So you'll see that credit spreads change a little bit when we redo that debt sometime in late '19, early '20. We'll be taking a LIBOR component of that. And we swapped it to a fixed rate of 3.19%. So it takes some of that variability off the table.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [27]

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So roughly half your debt you have covered with the fixed rate swap?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [28]

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Exactly.

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Operator [29]

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(Operator Instructions) And there are no more questions in queue at this time. I'll turn it back over to the presenters.

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William A. Foley, Libbey Inc. - Chairman of the Board & CEO [30]

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Okay. Thanks everybody for your time and questions. And we wish you all a good day. Thanks very much.

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Operator [31]

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This concludes today's conference call. You may now disconnect.