Univar's (UNVR) CEO Steve Newlin on Q3 2017 Results - Earnings Call Transcript

Univar (NYSE:UNVR) Q3 2017 Earnings Conference Call November 3, 2017 9:00 AM ET

Executives

David Lim - VP, Corporate Development & IR

Steve Newlin - Chairman & CEO

David Jukes - President & COO

Carl Lukach - EVP & CFO

Analysts

Gavin Parsons - Goldman Sachs

Allison Poliniak - Wells Fargo

Laurent Favre - Evercore

Andrew Buscaglia - Credit Suisse

Ian Bennett - Bank of America Merrill Lynch

Dan Rizzo - Jefferies

Mike Leithead - Barclays

Jim Sheehan - SunTrust

Operator

Good morning, ladies and gentlemen, and welcome to the Univar Third Quarter 2017 Earnings Conference Call. My name is Jessa, and I will be your host operator on this call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions].

I will now turn the meeting over to your host for today's call, David Lim, Vice President of Corporate Development and Investor Relations at Univar. David, please go ahead.

David Lim

Thank you, and good morning. Welcome to Univar's third quarter 2017 conference call and webcast. Joining our call today are Steve Newlin, Chairman and Chief Executive Officer; David Jukes, President and Chief Operating Officer; and Carl Lukach, Executive Vice President and Chief Financial Officer.

This morning, we released our financial results for the quarter ended September 30, 2017, along with a supplemental slide presentation. The slide presentation should be viewed along with the earnings release, both of which have been posted on our website at univar.com.

During this call, we will refer to certain non-GAAP financial measures for which you can find the reconciliation to the comparable GAAP financial measures in our earnings release and our supplemental slide presentation.

As referenced on Slide 2, we may make statements about our estimates, projection, outlook, forecast, or expectations for the future. All such statements are forward-looking, and while they reflect our current estimates, they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more complete listing of the risks and uncertainties inherent in our business and our expectations for the future.

With that, I'll now turn the call over to Steve for his opening remarks.

Steve Newlin

Thank you, David, and welcome to Univar's third quarter 2017 earnings call.

During the quarter, Univar earned adjusted EBITDA of $152 million, an increase of about 4% over the third quarter of last year, our fourth consecutive quarter of adjusted EBITDA growth.

Adjusted earnings per share, which Carl will describe in more detail, grew to $0.36 a share, an increase of 38%.

You're all aware of the significant events that impacted the third quarter, including Hurricanes Harvey and Irma, as well as the earthquakes in Mexico. Excluding our estimate of the transitory negative impacts these external events had on our third quarter results, we estimate adjusted EBITDA would have grown approximately 8%. Outside the U.S., our adjusted EBITDA grew 11%, as EMEA and the rest of the world grew 20% in aggregate, offsetting softness in our Canadian Ag business.

Our USA adjusted EBITDA was about even with last year, reflecting the negative impacts of the hurricanes.

With regard to the hurricanes and earthquakes, first and foremost, I'm very pleased to report that we had no loss of life. Our thoughts continue to be with the people who are affected by and are recovering from these natural disasters. I'm extremely proud of our employees and the work they did to protect our people and assets and the exceptional work they did managing a highly disrupted supply chain in meeting our customers' needs.

Our business operations were suspended in the days surrounding these hurricanes in the affected areas. In advance of the storms, our facilities implemented storm preparation actions, moved mobile assets to secure locations, safeguarded and relocated inventory to prevent flood damage and made provisions to redirect calls to order centers outside the impacted regions. As a result, our facilities sustained a minimal damage and quickly reopened for business.

However, business conditions were negatively impacted. Many of our customers were unable to operate for interim periods, and there were shutdowns at our Gulf Coast suppliers, some of whom are still shutdown, creating shortages. We have seen some spillover into the fourth quarter that we estimate could negatively impact our adjusted EBITDA by approximately $6 million. I'm very proud of the successful efforts our commercial and supply chain teams made to overcome this adversity.

We worked with our supplier partners to mitigate shortages and we kept our customers up and running. The events last quarter highlight the real value that a leading global distributor with scale advantages like Univar can bring. Our customers value on-time delivery, based on responsible handling, and security of supply. Our on-time delivery rates and safety records are among the industry's best, and during a time of crisis, when some of our suppliers declared force majeure, putting us and customers on allocation, we were able to leverage our nationwide footprint of warehouses and inventory, and our ability to source product from alternative suppliers to meet our customers' needs.

We also gained new business from customers whose requirements could not be met by other distributors. I think this is a great example of one of the advantages of working with Univar and our network.

Dealing with the aftermath of these disasters has required us to consume much energy and resources accommodating related effects. And there are some lingering impacts that we continue to work through, particularly in the logistics field. Carl will provide more details on the hurricane impacts later, but this will give you a feel for the challenges and related distractions our teams successfully worked through.

We're becoming more accountable, and we don't like to use transitory exogenous events as an excuse. As we build momentum, and we become a strong consistent double-digit growth company, we expect to have the ability to overcome unexpected disruptions and still deliver on our growth expectations. But we're just not there yet.

At our Investor Day, we shared with you our vision for the future of Univar: to be the most valued chemical and ingredient distributor in the world through commercial greatness, operational excellence, and One Univar. For the past year-and-a-half we've been working to change our culture and improve our commercial and operational execution so we can create and capture value.

Our commercial greatness initiatives move us to consultative, value-added sales model. We're moving from a focus on transactional high-volume commodity products and treating our suppliers as vendors to a commercially savvy organization, providing differentiated specialty products, services, and commodity chemicals in a way that creates incremental value for our customers and supplier partners as well as ourselves.

Throughout our organization, we've implemented new processes to drive accountability and rigor within our sales management. And we've reset expectations for profitability. We're making ongoing investments in our sales force globally finding and developing the right people and giving them the tools to sell our value. We're changing the mindset and the expectations of our organization to drive sustainable profitability growth.

Let me be very clear about this. We are focused on creating and capturing value for our customers and supplier partners and winning new profitable business to drive growth. Our plan is to liberate our sales force, freeing them from less value-added activities as well as demanding low-margin accounts so they can spend more time with our many great customers and new business prospects that appreciate our value proposition. We are reducing our value leakage and successfully moving customers to appropriate levels of pricing that reflect the value we create.

At 60% of our global EBITDA, the USA business is our greatest improvement opportunity.

Our specialized approach aligns sellers and technical product experts with customers and end markets. It creates focus and accountability for our sellers and provides our customers with knowledge and industry expertise along with market insights, which our customers value and trust. This drives deeper customer engagement and improves our mix of differentiated products. We're already seeing the benefits of our specialized approach.

Growth in our focused industries of food, pharma, personal care, and coatings is strong double-digits and has accelerated each quarter, reflecting our higher resource commitment and improved execution in specialty products and ingredients.

We're advancing our efforts to find and develop the right sales talent to drive future growth. We held 40 training sessions focused on improving growth and reducing churn. We're teaching our sellers how to sell the value we create for our customers, how to build a robust pipeline of potential new business and how to nurture, satisfy, and protect our existing accounts. We see a noticeable improvement in performance by those who participated in these training sessions.

We've implemented processes to improve our sales force effectiveness. Pricing was moved to product management, reducing variability and moving it in line with the market and the value we bring. And we added a rigorous process to manage our new business opportunity pipeline and sales force productivity, and rolled out technology tools to assist our sales managers.

Last quarter, we said, we saw our win-loss ratio improve in EMEA and Canada. In the third quarter, we also saw improvement in Latin America and the early signs of improvement in our USA segment. Since the start of our year, our pipeline of new customer opportunities in the U.S. has more than doubled. And we now have a robust pipeline of potential new supplier authorizations, which we didn't have a year ago.

Our churn, our lost business has declined steadily in August and September after increasing in the first half of the year, as we reorganized our commercial organization.

Our pipelines are up, our losses are down, and our confidence is growing. We are encouraged by our progress, yet we are still in the very early innings of improving our sales force execution.

As we improve our sales force execution, we're becoming more focused and strategic in our approach. In October, we shared with our board our detailed global strategic marketing plan. Led by our new Chief Marketing Officer, Ian Gresham, it's the first time we developed a data-rich evaluation of our end markets. And as you might expect, there's quite an array of growth rates and profitability deltas affording incredible opportunities, many of which we'd overlooked in the past. With this visibility, we can now make fact-based decisions on resource allocation to target the highest value growth opportunities. And we see an abundance of them, more than we can resource in the near-term.

In April, we test launched our new e-commerce platform, myunivar.com, to a select group of customers. And I'm pleased to share that last month; we upgraded the platform and rolled it out to all myunivar USA customers. We're seeing an increasing number of customers registering on our platform, and have over $300 million of annualized sales going through our digital channel. Myunivar.com provides customers our full product catalogue and features such as 2-click orders, instant access to documents such as safety data sheets, order and shipment tracking and 24X7 access from any device.

Our digital investments will help us reduce costs and improve the customer experience. And we're encouraged by the strong reception we've received.

In parallel with our efforts to build commercial greatness, we're driving operational excellence. Our redesigned USA supply chain aligns to our lines of business and better serves our customers.

Our site optimization efforts, which improve the efficiency and effectiveness of our branches and warehouses, are seeing success, and we're providing greater visibility into network optimization opportunities.

We're advancing our initiatives to leverage scale in our indirect procurement activities to generate cost savings. And our transportation initiatives, which increase our flexibility and competitiveness, are on track. However, we do face lingering logistical challenges caused by the hurricanes, which are likely to continue for some time.

Rates and fuel costs have increased in the aftermath of the hurricanes, and increased demand related to hurricane recovery efforts have further reduced capacity in what was an already tight market. Our supply chain teams are working closely with our carrier partners to mitigate these challenges.

Moving beyond our transformation efforts, we closed our first acquisition in 17 months during the quarter. Tagma is a leading Brazilian provider of customized formulation and packaging services for crop-protection chemicals that include herbicides, insecticides, fungicides, and surfactants.

As you may recall, we recalibrated our acquisition strategy to focus on opportunities that extend our product portfolio and service capabilities, broaden our geographic reach, and help bring added value to our customers and supplier partners. Tagma is an excellent fit with our strategy.

The company generates roughly $4 million in EBITDA and has been growing double-digits. It's a natural extension of our strong agriculture business and our growing position in Latin America.

The acquisition expands Univar's presence in the Brazilian Ag market, which has agriculture and agri-food exports of over $89 billion and serves nearly 210 million people. It's one of the fastest-growing Ag markets in the world. And we are encouraged by our supplier partners to make this acquisition. It extends their reach into this attractive market and does so with a trusted global partner like Univar.

Our pipeline of acquisition targets is strong, and we will stay focused, strategic, and disciplined with our process.

In sum, there's still much work ahead of us in order to reach our potential and drive sustainable, double-digit profitability growth. However, we are confident that we have the right plan and the right team in place to execute and build on our recent gains.

And on that note, I'll now turn the call over to our CFO, Carl Lukach, who will walk you through our third quarter results. Carl?

Carl Lukach

Thank you, Steve, and thanks, everyone, for joining. I'll begin this morning on Slide 3.

Today, we reported GAAP earnings per share of $0.28 for the third quarter compared to a loss of $0.46 in the prior year third quarter.

As you can see from our earnings news release and in response to requests from investors, we are introducing adjusted earnings per share. Adjusted earnings per share increased 38% to $0.36 for the third quarter. Adjusted earnings per share excludes from GAAP earnings per share the same items excluded from adjusted EBITDA, as defined by our debt covenants, except for stock-based compensation expense. We have included a reconciliation of adjusted earnings per share to GAAP earnings per share in our earnings news release as well as in our slide presentation today.

In addition, we will post on our Investor Relations website a schedule for quarterly adjusted earnings per share for fiscal years 2016 and 2017.

In the quarter, adjusted EBITDA of $152 million increased $6 million or approximately 4% from $146 million last year. We generated double-digit adjusted EBITDA growth outside the U.S. as strong performance in our EMEA and Rest of World segments along with a $2.6 million FX tailwind more than offset softness in Canada. Our USA business, which was negatively impacted by the transitory effects of Hurricanes Harvey and Irma, was about even with last year.

On a consolidated basis, our gross margins, adjusted EBITDA margins, and conversion ratio all increased versus the prior year.

Adjusted operating cash flow was $101 million, that's adjusted EBITDA less change in net working capital, less CapEx.

Turning now to our consolidated results on Slide 4. Gross profit dollars increased $17 million from last year or 4%, as higher average selling prices and improved profitability more than offset lower volumes. Our gross profit percentage in the quarter increased 30 basis points to 22.2%.

Higher average selling prices this quarter resulted from focused initiatives to improve our sales force effectiveness from mix improvement and from increases in certain chemical prices in the aftermath of Hurricane Harvey. As Steve called out earlier, our primary objective is to increase the profitability of our business through better selling and by capturing more high-value opportunities.

Third quarter sales increased 3%, of which 2% was from currency. Lower volumes in the quarter can be attributed to our continued focus on improving our profitability, upgrading our mix of business to higher value opportunities, as well as the negative impact of one less billing day in the quarter and lost business from the hurricanes.

Operating expenses, which include outbound delivery costs, warehousing, and selling and administrative expenses, increased $11 million from last year, as higher incentive compensation and investments in sales force, digital tools, and training costs were partially offset by productivity gains.

Our adjusted EBITDA margin increased 10 basis points to 7.4% as a result of improved gross margin and strong operating expense management. Taking all of this into account, our conversion ratio increased 10 basis points to 33.4%.

Let me take you through each of our segments then beginning with the USA on Slide 5. As Steve mentioned, our USA business was negatively impacted by Hurricanes Harvey and Irma and I'd like to share with you some of those details. Throughout the period of each hurricane and aftermath, Univar kept a crisis management team operating around-the-clock to safeguard our people, assets, and operations, and continually adjust to the inability to obtain product from suppliers while attending to urgent customer needs for product, both in the impact zone and across North America.

While it's difficult to precisely dissect the data and identify all of the impacts, we estimate that all-in, we lost about $12 million in anticipated EBITDA in the third quarter from Hurricanes Harvey and Irma. But we were able to offset about half of that loss by leveraging our inventory, securing product from alternative sources, and being able to meet increased demand from some customers who we believe were pre-buying. Our total net impact in the quarter was approximately $6 million of lost EBITDA.

In Hurricane Harvey, our branch warehouse and terminal locations in the Gulf were closed or in cleanup mode for about a week. We lost sales to hundreds of customers who are unable to operate, some for a few days, and others who were still recovering. And just as importantly, we lost supply of chemicals from over 200 supplier ship points in the Gulf for approximately two weeks. This challenged our supply teams across North America to find alternative sources of product from our global network to meet customer needs. Throughout September, both customers and supplier operations gradually restarted, but many at reduced rates of production.

In Hurricane Irma, our customers across Florida shutdown for several days, and business was temporarily disrupted at our Jacksonville, Tampa, and Atlanta locations. But overall, the impact was to a lesser magnitude in Hurricane Harvey in the Gulf. We were fortunate to have incurred only minor physical damage from the storms. Our incremental costs for storm preparation, asset safeguarding, cleanup and restoration, were fortunately low compared to those who were flooded.

In addition, post-hurricane, spot market freight costs increased, reflecting higher fuel costs and driver and truck shortages. We estimate that our September freight costs were about $1 million higher than they would have been at pre-hurricane rates.

As for the fourth quarter impacts, we did see in October lower sales to certain Gulf Coast customers, who pre-bought products before or shortly after Harvey. And we are seeing higher freight costs in the fourth quarter, reflecting the shortage of drivers and trucks. And we expect that will persist.

There are high demands on our logistics teams to maintain our industry-leading on-time delivery metrics. And considerable energy is needed to meet our customers' and supplier partners' needs.

While we did not see much impact in the third quarter from Hurricane Maria, we do expect some lost sales into Puerto Rico in the fourth quarter. All-in, we expect the fourth quarter impact to be about the same as the net $6 million of lost EBITDA that we felt in the third quarter.

Turning back to USA results. Gross profit increased $4 million or 2%. Our gross profit margin improved 110 basis points to 23.1%; average selling prices increased 6%, driven by our sales force execution initiatives, mix improvement, and certain chemical price increases as a result of the hurricanes. Our focus on higher value sales of specialty products and ingredients is reflected in our margin improvement as we improve our mix of business.

Adjusted EBITDA increased roughly $1 million to $91 million. EBITDA margin increased 30 basis points to 7.7%, reflecting the higher gross margin.

Excluding the net impact of the hurricanes, we estimate USA adjusted EBITDA would have grown roughly 7%. USA sales decreased 3%, as higher average selling prices and favorable mix were offset by lower volumes.

Volume declines of 9.4% were negatively impacted by about 150 basis points for one less billing day, and we estimate the net hurricane impact to have reduced volumes by roughly 50 to 100 basis points.

Our USA conversion ratio decreased 30 basis points to 33.2% as a result of higher expenses and hurricane impacts and the decrease in billing days.

Turning then to our results in Canada on Slide 6. Canada net sales increased 15% to $300 million due to higher average selling prices and a 4% increase in volumes. Volumes in Canada benefited from recovery in the Canadian energy and mining sectors, which resulted in higher volumes, but for lower margin products.

We are encouraged by our Canadian segment's continued improvement in its win-loss ratio, particularly in our industrial east business. And we continue to drive for improvement in this important metric.

These gains, however, were more than offset by continued softness in our Ag business as a result of drought conditions in sections of the Canadian Prairies. Our gross profit per bill day from our Ag business during the quarter dropped significantly, reflecting reduced grower need for fungicides and herbicides.

As a result, for total Canada, gross profit dollars were roughly flat with the prior year, and EBITDA declined slightly. With the Ag season behind us, we expect our Canadian segment to return to growth in the fourth quarter.

In our Europe, Middle East, and Africa segment on Slide 7, gross profit dollars increased 11%, reflecting continued improvements in our win-loss ratio, particularly in focused industries and industrial specialties.

Adjusted EBITDA grew $5 million or 16% due to growth of our focused industries line of business and specialty products and ingredients along with strong operating expense management.

Adjusted EBITDA margin improved 40 basis points to 7.3%, and our conversion ratio improved 160 basis points to over 32%. Higher average selling prices resulted from our focus on improving our product and customer profitability, along with chemical price inflation for certain products. Our volumes were impacted by one less bill day as well as lower sales of high volume, low margin product that we had in the third quarter of last year.

Moving then to Slide 8 and our rest of the world segment. We had strong EBITDA growth in our rest of the world segment driven by improved sales force execution and cost productivity gains in Latin America and, while small, increased profitability in Asia-Pacific.

I mentioned earlier that we had product shortages in Mexico as a result of Hurricane Harvey. Chemical prices increased, reflecting the product shortages, and offset lower business volumes. The severe and tragic earthquakes in Mexico also caused short-term disruptions to our business. However, operations recovered relatively quickly in September. Supply and market conditions continue, however, to recover into the fourth quarter.

We took additional actions to reduce our cost base particularly in Mexico, which contributed to our EBITDA growth.

In Brazil, business grew moderately in the quarter, benefiting from the high mix of specialty personal care products in our portfolio and from contributions from our most recent acquisition, Tagma Brazil. We are also encouraged by our rising win-loss ratio in Latin America, as our teams execute successfully against their commercial greatness initiatives.

Moving now to Slide 9, where you can see an overview of our cash flow in the third quarter. Adjusted operating cash flow was $101 million, that's adjusted EBITDA, less net working capital less CapEx.

Change in net working capital was a cash outflow in the third quarter of $32 million compared to a cash inflow in last year's third quarter of $31 million.

While our year-to-date change in net working capital outflow is higher, we continue to forecast significant cash inflow in the fourth quarter from our typical seasonal reduction in net working capital.

Our net working capital productivity significantly improved. 13-month average net working capital as a percentage of sales improved to 12.2%, a decrease of 50 basis points from 12.7% a year ago which equates to a bit more than a quarter turn improvement in working capital turnover to just under 8 times.

CapEx was $19 million in the quarter, $1 million less than last year. Year-to-date, we've spent $58 million in CapEx, which is $8 million less than last year. We are lowering our guidance for full-year CapEx from $110 million to about $90 million.

With regards to taxes, cash taxes in the quarter were $3 million, about equal with last year. Our effective tax rate for the quarter on a GAAP basis was 14%, lower than our guidance of 20% to 25%, due to geographical mix of our earnings. But for the full-year 2017, we now expect our effective tax rate to be just below 20% compared to our prior guidance of 20% to 25%.

Before leaving taxes, I would like to highlight that on October 13, we received a favorable ruling from the Canadian Federal Court of Appeals regarding our tax dispute with the Ministry of Finance. We have not recorded a potential liability for this issue as we felt confident that last year's ruling of the Tax Court against us would be reversed on appeal and that our position would be sustained. At current exchange rates, the amount of the Ministry's proposed tax and interest assessment was approximately $93 million. Of course, the Ministry could appeal the ruling to the Supreme Court of Canada, but we are confident in our position.

Moving on in our cash flow statement, we spent $24 million on acquisitions in the third quarter compared to zero in last year's third quarter.

Our priorities for deploying capital continue to be a balanced approach to self-funding reinvestments in our core business to drive growth, self-funding accretive acquisitions and paying down debt.

Slide 10 details our debt profile. Net debt at quarter end was $2.7 billion, a decrease of $184 million from this time last year. Our leverage ratio decreased to 4.5 times from 5.1 times last year.

Our total liquidity improved to just under $1 billion, a significant improvement from $805 million last year. And our cash interest coverage is at a strong 4.3 times trailing 12-month cash interest, up from 3.6 times a year ago. We likewise expect interest coverage at year-end to show improvement versus last year.

Interest rate swaps are in place, which economically convert the majority of our debt to a fixed rate. At quarter end, our debt was effectively 82% fixed rate, and our weighted average interest rate on debt was 4.62% pre-tax. These swap contracts expire in three years with an annual declining balance.

Our return on assets deployed in the quarter was 22.4%, well above our cost of capital and up from 19.5% a year ago.

Let me now address our outlook for 2017 on Slide 11. We are encouraged by the progress we are making on our strategic initiatives of commercial greatness, operational excellence, and One Univar. Our third quarter results mark the fourth consecutive quarter of EBITDA growth after ending seven quarters of decline.

Our margins continue to increase. Our working capital management remains strong, and we are making prudent investments to transform Univar into a sustainable double-digit growth company.

The hurricane impact hampered our growth in the third quarter by about $6 million, and we expect that transitory effects to continue in the fourth quarter and have a similar magnitude effect. As a result, we expect adjusted EBITDA for the fourth quarter to grow mid-single-digits versus last year's $135 million adjusted EBITDA.

With that, I'll turn it back to Steve.

Steve Newlin

Our third quarter results continue the positive growth momentum we've created and further strengthen our confidence in successfully executing our multi-year transformation plan. We have an exciting and unique opportunity to grow the profitability and size of Univar. We're in a large and growing market in an industry that is fundamentally strong. Historically, our own execution has held us back. And our absolute priority is to continue making the changes needed to drive sustainable, double-digit profitability growth.

The good news is that our initiatives are beginning to bear fruit. We see it internally, and our customers and supplier partners have taken note. Univar is transforming into a growth company, developing the infrastructure, culture, and execution skills to deliver superior growth for years to come.

Through our One Univar initiatives, we're going from a collection of individuals making independent decisions that aren't scalable to a collaborative, cohesive organization with a culture that holds people accountable and recognizes and rewards superior performance. This is the basis for strong execution and how we consistently drive double-digit profitability growth.

Now before we open the call for Q&A, let me say a few words about our decision to add adjusted earnings per share as a performance metric. A number of our investors suggested this to us, and we thank them for their feedback. We feel it would be a useful complementary metric to help understand and measure all aspects of our company's performance and growth, including the impact of equity compensation. It is our intention to incorporate adjusted EPS as a compensation element for senior management in the near future and better align management interests with shareholders.

Finally, I'd like to particularly thank David Jukes, our President and Chief Operating Officer, for successfully leading our team through the extreme challenges of the third quarter. Under David's leadership, there are a lot of heroic efforts at Univar to satisfy our customers and supplier partners. David is with us on the call today and available to field questions you may have.

Thank you for your attention. And with that, we will open it up for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions].

Your first question comes from the line of Robert Koort from Goldman Sachs. Your line is open.

Gavin Parsons

Hi, guys. This is Gavin on for Bob. I'm just real curious, if you could kind of give us kind of a quick update on what's gone on with the sales force turnover. I know, last quarter that was around the 20% range. I'm just kind of curious on how that's shaped up.

Steve Newlin

Sure. First of all, hi, Gavin. And to all of you, we apologize that the planned comments ran a little long this time. We had an awful lot of news and activity in the quarter and we wanted you to hear about it, so our apologies. It's our intention to try and keep that to at least no more than half the call.

So with regard to the sales force, I think the best person to really answer that in depth is David Jukes. So David, do you want to get back to Gavin on it.

David Jukes

Sure. Yes. Thanks and good morning. Well I've been really been impressed by the quality of the sales professionals that we have and we continue to attract. We're hiring hungry hunters and losing some of the more traditional pharmas we've had before. And the sales incentive plan that we put in place this year is attracting a different breed of sales professional that's eager to join a growth company. And we added 40 -- 46 sellers in the quarter, 46 additional sellers in the quarter. Some of those allow us to performance manage some people. Some of those allow us to fill new territories. And so we're now ahead of where we started the year in terms of the thoughts on the number of sellers that we want to try and get. We had 40 training sessions in July, August, September. So we're continuing to invest in this market and continuing to grow.

Gavin Parsons

Great. And then just as a quick follow-up. I'm just kind of curious on what kind of trends you've seeing in the North America region for oil and gas sales. I know now oil's stabilized around $50 a barrel, are you seeing any potential upside from kind of recoveries from those lost sales previously?

Steve Newlin

Yes, Gavin, we're still kind of working through the process of positioning ourselves where we're strongest in that space. And so we haven't seen any significant upticks in energy. We've seen -- I would say we've stabilized; we haven't fully lapped some of the pruning that was done. We'll see that happen by Q1. But we're pretty well stabilized in there. And I think really now it's up to us to execute better in the chosen path that we're going to follow in the energy space.

Operator

You next question comes from the line of Allison Poliniak from Wells Fargo. Your line is open.

Allison Poliniak

Carl, could you help us understand a little bit. I know you talked about a $6 million adjusted EBITDA headwind in Q4. But are the components in terms of may be loss of revenue or increased cost to cover the sales different than Q3? Or are they very similar?

Carl Lukach

It's pretty similar, Allison. I mean the first -- maybe the largest component is selling less to those who stocked up at the storm time or right after the storms. Puerto Rico is more of a fourth quarter event. And the higher freight costs, normally we don't talk about that, but the bigger impact on transportation right now is shortage of drivers. Drivers in the Gulf are still being offered attractive alternative work to help with the cleanup. So we've got some supply chain challenges there.

So I think when you look at it and zoom out, we've got about a $12 million bubble in the hose that straddled the third quarter and the fourth quarter and will primarily be a September, October event, and we'll be rid of that by the end of the year.

Steve Newlin

Allison, let me just hitchhike on that. So -- I mean, we don't like talking about these things because to me, we're -- those of you who've known me over the years, we're not excuse makers. But we had some bad luck in the quarter, and it's going to carry over to this quarter. And we're dealing with it. And I couldn't be more pleased with the way our folks have dealt with it. But there's a lot of strain in the system.

The number we can't give you, because we can't get our arms around it, is sort of the cost of dealing with all this, the distractions, the energy the organization is using to muscle through some of the shipments to find alternative sources to make sure that our customers are generally kept whole and to keep our delivery rates among the best in the industry. So there is a price for that too, but we haven't put a metric around that.

Allison Poliniak

Okay, that's helpful. And then Steve, just going back to a comment you made about share wins, just given the size and scale of your business through these challenges. How would you view the sales? I mean, what's the stickiness level of those customers? I mean are they now Univar customers going forward? How should we think about those wins?

Steve Newlin

That's a really good question. And I wish, I could say, they're going to be with us as lifers but it usually doesn't work that way. I guess we've had a chance to prove ourselves in some new arenas. And it's up to us to be effective enough of sellers to demonstrate that we're worth it to the customers. And some will say, we really appreciate that your skill gives assurance of supply. And others will probably go back to their old way of doing things. But if we do our job right, we'll get more than our fair share of retention from those accounts.

Operator

Your next question comes from the line of Laurent Favre from Evercore. Please go ahead.

Laurent Favre

Two questions from me please. The first one is on the acquisition of Tagma. Could you talk about the opportunity there? Is it about top-line synergies with the rest of the crop protection business or is it about cost? So any color on basically what you can do with the $4 million of acquired EBITDA would be really helpful. And a second question, probably for Carl, the CapEx shift $110 million to $90 million, is it that you've revised the overall plan or is it that we should just add another $20 million to what was going to be maybe $100 million or so next year? Thank you.

Steve Newlin

Okay, great. Good questions. I think Tagma is not a cost synergy play. Tagma's an opportunity to have a platform for growth that we think can be accelerated. We have really good knowledge in the space. The industry in Brazil -- the Ag market in Brazil is strong and growing, lots of people, lots of food opportunities, lots of Ag opportunities. So we're excited about the growth that's going to come out of that not the cost takeout. And leveraging our knowledge in -- especially the strengths that we have in Canada there. So I would answer that part of the question and let Carl go after your second.

Carl Lukach

Sure. Laurent, on the CapEx. I don't think you should think of it the way you said. The number's running lower than what we estimated at the beginning of the year primarily for two reasons: some lower operating maintenance CapEx in some of the facilities, particularly in the U.S.; and also the timing of when we book certain IT projects. Those projects are still in the plan very much so, so they will carry into next year.

Our CapEx has a relevant range of plus or minus $10 million, $15 million from our estimates, and we have a lot of flexibility there. So I would think of it that way.

Operator

Your next question comes from the line of Andrew Buscaglia from Credit Suisse. Please go ahead.

Andrew Buscaglia

Hey, guys. Congrats on a good quarter managing those hurricanes.

Steve Newlin

Thanks.

Carl Lukach

Thanks, Andrew.

Andrew Buscaglia

Can you just talk a little bit about -- sorry, I mean your long-term guidance that you laid out at the Analyst Day? It implies double-digit EBITDA growth. But you had a little bit of a setback this year with those hurricanes. So you're going to have to make up for that probably in 2018 or 2019 with maybe a little bit higher-than-expected growth to get to those targets. Is that something you think you can manage or you still stand by that trajectory of growth?

Steve Newlin

So, yes, I mean good comment and question, Andrew. Look, this doesn't change our long-term view of the world at all. If anything, it's given us confidence that we can manage through adversity and crisis, and that should give some of our customers and suppliers additional confidence. We expect to be a double-digit grower beginning next year, that hasn't changed. This is temporary. I think we've done a heck of a job to get through it. But nothing changes in our long-term outlook.

If anything, we just feel like things inside the house here are building momentum. Our sales force is calming down after an organizational change the 1st of the year. We're getting better people. We're getting our existing sellers better skilled. So we're really confident in our growth in the future. And we will stand by the end point of that number for sure.

Andrew Buscaglia

Okay, great.

Steve Newlin

David, do you want to make any comments on that?

David Jukes

No. I mean, I absolutely stand by the numbers. We'll be a double-digit growth company. It's fantastic to see what we achieved through difficult circumstances in Q3, but what's more exciting is, if you think of our pipeline of opportunities for sellers, we've doubled that over the year.

If I look at the pipeline of opportunities we have for new supplier authorizations that's very exciting. I think we've put a value proposition together which is really exciting a lot of customers and suppliers, and I stand by the growth.

Andrew Buscaglia

Okay, great. And then, if we can switch to Canada, some issues there with the Ag -- in the Ag market. I'm not too familiar with the Ag chemicals market. But can you give us an idea of how long you expect those issues to linger going forward?

Steve Newlin

So it was really for the quarter. It was really a result of Mother Nature and a drought, and it was some bad luck. We haven't lost share there. We have a really strong business. We're a good leader in the space. We just simply had conditions that weren't conducive to the application of our products.

Could it happen again next year? It always could. But it's in our base now. So I don't think -- we won't see a downturn again and hopefully, we'll see a more normalized year and have higher than normal growth next year on that base. So it just -- there's no worries with the Ag position in Canada whatsoever.

David Jukes

The drought was the worst in 160 years. We sell products that just couldn't be sold because of the droughts. We haven't lost -- as Steve said, we haven't lost share, we haven't lost customers, and hopefully, we don't have the worst drought in 161 years next year.

Andrew Buscaglia

Okay. And then on your free cash flow, was that -- did the quarter come in line with your expectations? Because I think seasonally you should get a tick-up in Q4 too. But is that kind of how to think about your free cash flow to the end of the year?

Carl Lukach

Yes, that's exactly right. And it ties to your first question, Andrew. The drought, what David said, inventories that we couldn't sell. So we have a bit of an off-plan net working capital position in Canada that we're working through. And we definitely expect a strong fourth quarter of cash inflow, our typical seasonal fourth quarter cash inflow, as we reduce working capital around the world.

Operator

Your next question comes from the line of Steve Byrne from Bank of America Merrill Lynch. Please go ahead.

Ian Bennett

This is Ian Bennett on for Steve. You mentioned an improving win-loss ratio in a number of regions. Could you comment a little bit about what Univar's historical win-loss ratio was? Where that went to, as you walked away from low-margin business. And where you expect that to go on a normalized basis?

Steve Newlin

Let me take first crack at that. And then I'd really like David to weigh in. I mean, historically, we didn't measure this to the degree I think a company that's in -- commercially savvy does. But I will say this, we've sort of had a mass balance, and you don't grow if your losses are about equal to your wins. So that's been historical, in many parts of the world for us, certainly in the U.S. And so we're shifting that. And our ideal algorithm for this is, you get at least two times your losses and wins, at least. And that's what great sales companies do. And that's how you grow double-digit.

So that's what we're heading toward. We are far away from that, but the trend is improving. And you have two levers here, capturing more new business and reducing your losses. And we're working on both of those. We've pruned some business. I wouldn't say walk away. There was very little walk away. There was poise and effort to try and convince the customer of our value proposition but in some cases we may not be differentiated enough; we may not have done an effective job of selling. And so in the end you make a choice, do you want to consume a lot of resources in places that don't help the company or do you want to move on to pastures that have better opportunities where we're positioned better, and have a better customer relationship. So that's kind of what this is all about. And it is -- we don't want this to be a mass balance. We want a big net in the end. So David maybe you want to comment.

David Jukes

You know, Steve, I think you said it -- you've covered it all. I mean, we'd win as much as we'd lose, which is not acceptable. And so we need, as Steve said, two to three times more new business in the hopper. We've seen very positive results in Europe, in EMEA. We've seeing positive results in Canada. And we've seen the green shoots of good performance in the U.S. as well. We're losing significantly less in the U.S. and our pipeline of new opportunities has more than doubled since the start of the year. So I mean we have a robust pipeline. We're losing less business. Our confidence is growing.

Steve Newlin

What David is doing now that's also different is, we have a lot of early indicators, precursors to the outcomes of these. In the past -- and we use salesforce.com very effectively to understand and manage the pipeline. So instead of just measuring this after the loss has occurred or after new sales occurred, you've got to measure the activities that generate the flow of new business. And I think our team is doing a heck of a job to understand all of the elements of what causes success in the commercial organization by managing the activities around creating new business or preventing losses.

Ian Bennett

Okay. And then one follow-up, if I could. You mentioned as well that having some early success with the digital rollout, I think now at $300 million of annualized sales. What's the right percentage of sales through digital for Univar longer-term? And how's the profitability compared to existing margins?

David Jukes

I don't know what the right number is. I think the most important thing about our digital capabilities is it's make us easier to buy from, and if we're easier to buy from, it's making us stickier for customers. So right now we're focused on being easier to buy from the customers that we deal with rather than reaching into new markets that will come later. We're also looking at how we can get frictionless transactions with our supplier base as well.

So I don't know what the right number is. Certainly, we'll continue to invest in our external sales force. We want to have an omnichannel approach, but really the focus around digital capabilities is to be easy to buy from. And if we're easy to buy from, customers will do it.

Operator

Your next question comes from the line of Laurence Alexander from Jefferies. Please go ahead.

Dan Rizzo

Hi, guys. This is Dan Rizzo on for Laurence. So if we just look at -- you mentioned the e-commerce platform that you're rolling out in the Americas. And forgive me if I missed this bit. So is that being rolled out in other regions as well or is it something that doesn't fit as well there or you do later? How does that fit in?

David Jukes

So the logic is, let's build up a functionality for the USA, and which we've done. We have a really robust portfolio functionality there. Then let's think about how we take it multilingual, multicurrency, to roll it into other territories early next year. So we'll see it into Canada, and we'll see it into EMEA. And then into last, America through next year. We have to expand the capability though in multilingual, multicurrency.

Dan Rizzo

Okay. Thank you. That's helpful. And then you mentioned one other good thing that's happening is you're getting new supplier agreements. I was wondering how long that takes. Is it like a -- is that a multi-month process or a multi-year process? Just any color on how that works?

David Jukes

It's a long process. You have to firstly decide what chemicals and ingredients fit your market strategy and then which suppliers you want to would like to work with and put a value proposition together to try and get them. So we've dedicated people to looking at that. We've started that this year. We've built out a robust pipeline. And we're very, very happy with the progress so far and very confident of our prospects to drive growth into the future with that.

Dan Rizzo

Last question. Do you reject suppliers like the same way you would reject low-margin, high problematic -- or problematic customers? Is it the same scenario that kind of unfolds with people supplying you?

David Jukes

I'm not sure I like the word reject. I think we're selective about who we want to partner with. We want to partner with the world's best. We want the world's best brands; we want to deliver value to the world's best brands. And that's really what we want to try and do.

Steve Newlin

I'd just add a little color here. Look, we really value these relationships. And we are demonstrating to our supplier partners that we mean it. We think they are the most important partners we compete with. And in many cases, you have to make a choice because you can't have an antagonistic relationship, where you've got two partners that have similar lines. So we make the choice, and I am extremely proud of our stable of supplier partners. We have the best brands in the business. It's expanding, it's growing. And if we do our job right, it will get even bigger and better with time.

Operator

Your next question comes from the line of Duffy Fischer from Barclays. Please go ahead.

Mike Leithead

Hey guys. This is actually Mike Leithead on for Duffy.

Steve Newlin

Hi, Mike.

Carl Lukach

Hi, Mike.

Mike Leithead

Hi. I know it's maybe early to talk about 2018, but is philosophically 2017 EBITDA going to be a fair baseline to build earnings off of say high single-digit, double-digits? Or is a better way to look at it kind of adding back the hurricane impact and building off that baseline?

Steve Newlin

I mean, look, we haven't forecast next year yet. We have good ideas. And so we're not going to go too far down that path. We have said all along that we expect next year to be a double-digit grower. Nothing has changed. Okay, so maybe the base is little bit different, but we'll see how this all plays out as we build our plans together.

We just presented our strategic plans to our board earlier this week. And of course, they have growth plans; they have investment plans within them. It was an outstanding -- it was really a wonderful process. We -- I think we learned an awful lot about our markets, our industry, and frankly, ourselves.

So as we build those plans out, we'll share them with you. But I would say for now, it's our goal to next year to be a double-digit grower. And probably on the low-end of double-digits, it could be 99%, it could be 10%, it's not going to be 99%. So that's where you can account on us to be, is to get into the double-digit range. And our drive beyond that is to consistently be there and be far enough eventually into that zone of double-digit so that if something hits us, like a hurricane or something unexpected, we still have enough freeboard to make sure that net-net, we end up in double-digits almost regardless of any potential adverse situation.

Mike Leithead

Makes sense. And then looking at acquisitions, so far this year you've spent about $25 million. Last year, call it $50 million. I guess when you look at your pipeline today, is the $200 million a year target you laid out at your Investor Day kind of still feel a good bogey or you're going to kind of need change in market multiples or conditions to get there?

Steve Newlin

I think it's more about the selectivity and the thoughtful process that we use now to be more strategic in what we go after. Honestly, the multiples, I always like them low, but they don't really bother us. If you're buying beachfront property and you have to pay up, it's okay. You'll make it work.

For us it's, what's out there and available and fits with our strategy. And after going through this strategic planning process, we really understand where the holes exist and where the opportunities are the greatest. So it's a wonderful road map for us, and it just is a matter of continuing to build our funnel, our pyramid, of investment opportunities. So I'd love to spend the $200 million, but we're not going to fritter it away.

Operator

Your next question comes from the line of Jim Sheehan from SunTrust. Please go ahead.

Jim Sheehan

Thanks. Could you give us a little more color on the higher freight costs you're expecting and the higher carrier rates? What is the expected duration of that phenomenon, and how long do you think it would take to pass along those higher costs to your customers?

Carl Lukach

Hi, Jim, good question. We really don't have a sense yet for the duration. I mean, what's happened from the hurricane is that we see the market for transportation services going from slight to having slight extra capacity to flipping and now, being very tight. So the cost per mile and -- is one factor, but the availability of drivers. And the availability of services is just as much a concern maybe even more so, to try to meet -- continue to meet our industry-leading on-time delivery rates. So that's I think the way to think about it.

We're in a different situation now than we were before. I think you know how to scale, how much of our OpEx, outbound delivery is. And that's the way to think of it.

Steve Newlin

David, you got a comment?

David Jukes

Yes, I think that -- we are -- we have our extensive fleet of our own carriers anyway, and which has really been able to carry us through -- a lot of our customers through the hurricanes. But Irma and Harvey took 15% of the carrier capacity out of the marketplace. Market -- Intel suggests that contract increases could be 10% in the tightest carrier markets. We've delivered transportation savings anyway. We've become more effective in our own market and through our own continuous improvement work. And we are able to pass the freight rates to our customers pretty quickly. So it doesn't impact us -- we don't take too much costs that way.

But spot prices are up. Diesel is up. And we have to reflect that in our prices to our customers.

Jim Sheehan

Perfect. And with respect to the hurricane-related price inflation you're seeing, do you think that's just a temporary lift that will -- to pricing that drops off late in the fourth quarter or early in the first quarter? Or do you see price inflation as more sustainable than that?

David Jukes

Well I think raw material price inflation certainly was exacerbated by the hurricanes. Some products still remain very tight. Something like caustic soda, for instance, has been increasing all year, gone up 25% in the year and is now in short supply due to the hurricane. We'd expect prices to stay high for the rest of the fourth quarter. I imagine they'll come down sometime next year because they always do, but they'll go back up again. The important thing is that we stay alert to them and we remain agile enough to make sure that we've got the right pricing in the market at the right time.

Carl Lukach

Yes, and as you know, Jim, this all came against a backdrop of a rising inflationary period in chemicals. So we -- it exacerbates the deltas.

Jim Sheehan

Great. And one quick last question on digital investments. When do you expect to see those investments start to payoff in higher EBITDA margins?

Steve Newlin

Well, I think they're going to pay off on many fronts and depending on how you triangulate and get to EBITDA margins.

I think first of all, we are already seeing a reduction in those customers that converted in errors, in invoicing errors, in shipping errors, et cetera. So that will start to go to the bottom-line. It's just a matter of scaling up.

The other thing is, and David alluded to this earlier, is we believe that this will create an additional amount of stickiness and adhesive around our customer relationships. We need to be easier to do business with, and that's what's driving a lot of this. So those will show up down the road in fewer loss accounts. Hopefully we'll get a little bit more -- an opportunity to be more on offense with this where we begin to capture new business as a result of utilizing this platform in a little different manner. But it will just keep inching up and inching up and at some point you will be able to further identify the degree of impact on EBITDA. But right now we're really focused on making sure it works well. And it is so far.

Operator

This concludes the question-and-answer session for today. I will now turn the call back over to David Lim.

David Lim

Thank you, ladies and gentlemen, for your interest in Univar. This does conclude today's call. If you have any follow-up questions, please reach out to the Investor Relations team, and have a great day.

Operator

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