Pyxus International, Inc. (PYX) CEO Pieter Sikkel on Q2 2019 Results - Earnings Call Transcript

|
About: Pyxus International, Inc. (PYX)
by: SA Transcripts

Pyxus International, Inc. (NYSE:PYX) Q2 2019 Earnings Conference Call November 8, 2018 8:00 AM ET

Executives

Joel Thomas - CFO

Pieter Sikkel - President & CEO

Analysts

Bryan Hunt - Wells Fargo

Mary Gilbert - Imperial Capital

Alex Kelsey - Wasserstein

Operator

Good day, ladies and gentlemen, and welcome to today's Pyxus International Fiscal Year 2019 Second Quarter Results. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference call, Joel Thomas, Chief Financial Officer. Mr. Thomas, you may begin your conference.

Joel Thomas

Thank you, Chappel [ph]. With me this morning is Pieter Sikkel, our President, Chief Executive Officer and Chairman of the Board of Directors; and Michael Shannon, Vice President and Treasurer.

Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express a belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and uncertainties are referenced in the Safe Harbor statement included in our press release and are described in more detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which these statements are based.

Included in our call today may be discussion of non-GAAP financial measurements, including earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA and adjusted EBITDA, that are not measures of results of operations under generally accepted accounting principles in the United States, and should not be considered as an alternative to U.S. GAAP measurements. A table including a reconciliation of and other disclosures regarding these non-GAAP financial measures is included with our earnings release issued today, which is available on our website at www.pyxusintl.com.

Any replay, rebroadcast, transcript or other reproduction of this conference call, other than the replays provided by Pyxus International has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of it's contents.

Now, I'll hand the call over to Pieter, our CEO.

Pieter Sikkel

Good morning, everyone and thank you for joining us. We're entering the third quarter on the heels of an exciting Investor and Analyst Day, which many of you told us was successful in terms of giving clarity to our strategy and the great potential of our One Tomorrow transformation initiatives. We have embraced our new identity as Pyxus International, and our living our mission to be the trusted provider of responsibly produced, independently verified, sustainable and traceable products, ingredients and services to businesses and consumers.

Our track and trace system, branded SENTRI, along with our agronomy services are proving to be key differentiators as we develop market and partnerships across all aspects of our business. New businesses within our global specialty products group are continuing to gain momentum as we will discuss in more detail in just a bit.

Turning to the company performance for the second quarter; as many of you know, the second fiscal quarter is typically a seasonally lower quarter, this year was additionally impacted by decreased volumes due to shipment timing, the comparison to a larger South American crop in the second quarter of fiscal 2018 and the stronger U.S. dollar in certain markets. In particular, the North American tobacco market was impacted by new and increased tariffs on U.S. Tobacco, adverse weather conditions, and the strong U.S. dollar. As a result of announced foreign tariffs and Hurricane Florence, we anticipate a combined negative impact to operating income for the full fiscal year of approximately $25 million related to the North American tobacco business and the new Argentina export tax, when compared to the prior year. We're working to offset these impacts and we expect a solid back half to this fiscal year depending on shipping, and meeting shifting geographic requirements due to new tariffs.

The delay of legalization in Canada of adult use cannabis from June to October shifted the start of sales to our fiscal third quarter. In addition, we experienced a slower rollout of our Industrial Hemp business due to weather and the impact that had on completing construction of the new facility in the eastern North Carolina. Despite these challenges, we're continuing to execute on our full year plan and are maintaining our previously announced guidance. Joel will go into more detail on the financial results from the second quarter in a few minutes. In the meantime, I'd like to highlight for you some of the milestones in advancing our strategic initiatives.

In our Alliance One leaf business, you may have seen the announcement we made after the close of market yesterday. As we look at the current global trade environment, we find ourselves facing a confluence of significant events including UN increased foreign tariffs on U.S. tobacco, declining export demand, and the strength of the U.S. dollar. In order to ensure we are best positioned to meet the needs of our customers and sustain long-term growth, we made the difficult but necessary decision to repurpose our Farmville, North Carolina facility and consolidate all U.S. processing operations in our state-of-the-art facility in Wilson, North Carolina beginning with the 2019 season.

The Farmville facility will maintain capabilities for storage and special projects, however, the consolidation will unfortunately result in a workforce reduction. Given that there are a number of uncertainties with respect to this transition, we are not yet able to estimate the restructuring charges to be incurred in connection with these actions. We recognize the impact this decision will have on our employees, their families, and the Farmville community, and are committed to helping those impacted as we consolidate our tobacco processing operations. We are focused on the success of the U.S. tobacco industry, our contracted farmers, and driving strategy and long-term sustainability to the U.S. market.

Turning to our GSP businesses; we'll start with industrial hemp. Our industrial hemp joint venture, Criticality, continues to advance in the production of cannabidiol hemp oil or CBD, and related consumer products. Criticality is receiving hemp and will be processing at it's new facility in Wilson, North Carolina starting in December. In addition to producing CBD products for industrial B2B customers, Criticality will also manufacture and distribute a line of consumer products under the proprietary current brand.

All the effects of Hurricane Florence resulted in facility construction delays, there was little impact on the current hemp crop. One of our competitive differentiators is the quality of our products and traceability of our sources of supply. While the storm may have affected some of the supply of late maturing hemp varieties as well as reduced CBD concentration levels, we have been able to procure the hemp required to meet our plan.

In e-liquids category, we're experiencing continuous growth of our West Coast e-liquids businesses, and as a result, we are moving our production space from a 16,000 square foot facility to a new 45,000 square foot facility; this will combine our Nicotine River, Humble Juice Company and Zip Fulfillment operations into one location which we expect will enhance it's synergies across the lines, allow us to improve customer service, and to realize greater operational efficiency. And as many of you are aware, October 17 was the effective date for legalization of adult use recreational cannabis in Canada.

Over the last few months our indirect Canadian subsidiary, FIGR, has been preparing for the launch of it's branded products. FIGR had the first ever legal recreational cannabis sale on Prince Edward Island. FIGR was also the only company to have cannabis oil available in Prince Edward Island, and one of two companies to have cannabis oil in Nova Scotia on opening day. FIGR East, which is licensed under the name Canada's Island Garden, received it's oil production and sales license at the end of August, and is currently one of only 29 companies to have received that license from Health Canada. As of now, FIGR products are available for legal recreational purchase by adult consumers at all PEIMC retailers across Prince Edward Island with strong initial sell through at retail.

In addition, FIGR Norfolk licensed as Goldleaf Pharm, received it's cultivation license from Health Canada on September 28, and they have begun cultivation at it's Simcoe, Ontario, facility. While it's early to tell trends, for the first two weeks of sales, FIGR has attained 13% of the legal adult use recreational cannabis market in Prince Edward Island, and is growing market share rapidly in Nova Scotia. With this success, FIGR is continuing it's expansion and is well on it's way to attaining more than 1 million square feet of production.

The core of our One Tomorrow transformation is to drive progress towards our strategic goals. Firstly, achieving sustainable profitable growth by investing in opportunities in innovative higher margin products that further diversify our business. Secondly, improving profitability and efficiency, and simplifying our organizational structure. And finally, improving execution and growing market share of our leaf business. We are seeing the success of these three pillars of our strategy every day, and we look forward to keeping you up-to-date as we progress across all our business lines.

Now I'll ask Joel to speak to our performance for our second quarter of fiscal 2019.

Joel Thomas

Thank you, Pieter. With the second quarter of fiscal 2019, total sales and other operating revenues decreased 11.7% to $394.9 million compared to the same period in the prior year; this is primarily due to a 10.8% decrease in volumes, mainly attributable to the timing of shipments, and a larger crop last year in South America.

Additionally, the strength of the U.S. dollar and the impact on sales prices including sales denominated in certain local currencies was partially offset by changes in product mix in North America and Asia, and caused average sales prices to decrease 0.9% compared to the prior year. Lower volumes and stronger U.S. dollar decreased tobacco cost of goods sold at 10.1% but the change in product mix resulted in an increase in average tobacco cost per kilo of 0.8% compared to the prior year.

Third-party processing services decreased 15.1%, primarily due to reduced volume in South America and Africa. Hurricane Florence impacted the second quarter's U.S. flue-cured tobacco crop and foreign tariffs on U.S. tobacco has affected demand. As a result of these factors, factory processing throughput declined for the 2018 U.S. crop, increasing conversion costs. This impact of reduced U.S. volumes will also be seen in the back half of fiscal 2019 in both processing and full-service business. Decreased throughput in South America, Africa and North America increased processing costs by 22.6%.

Gross profit decreased 29% to $49.2 million, and gross profit as a percentage of sales declined to 12.5% this year, compared to 15.5% last year. SG&A increased 13% to $39 million, primarily from the inclusion of new start-up businesses in the current year and increased costs associated with developing and supporting these new ventures as they continue to move through the start-up phase. Tobacco-related SG&A was down versus the prior year. Operating income decreased by $26.9 million to $12.6 million as a result of lower gross profit and higher SG&A costs.

Net loss was $54.6 million, and adjusted EBITDA was $25.9 million. For the six months ended September 30, 2018, total sales and other operating revenues decreased 5.3% to $685.9 million compared to last year due to lower average sales prices as a result of product mix and the strength of the U.S. dollar versus certain foreign currencies. Volumes declined 1% from the prior year due to opportunistic sales in North America last year, and the late shipments from Guatemala this year. U.S. dollar strengthening impacted sales prices including sales denominated in certain local currencies, the change in product mix, the stronger U.S. dollar, increased tobacco cost of goods sold by 5.4%, and average tobacco cost per kilo by 4.4%.

Third-party processing services decreased 20%, which is primarily due to reduced volume in South America and Africa, and the impact of Hurricane Florence on the U.S. flue-cured crop, diminished factory processing throughput for the 2018 U.S. crop resulting in higher conversion costs. The impact of reduced U.S. volumes will also be seen in the third and fourth quarter in both, processing and full service business. Decreased throughput in South America, Africa and North America partially offset by the impact of a stronger U.S. dollar on costs increased processing costs by 3.3% during the six month period. Gross profit decreased 7.5% to $90.6 million and gross profit as percentage of sales declined to 13.2% this year compared to 13.5% last year.

SG&A increased 13.4%, primarily from the inclusion of new start-up businesses in the current year, and increased costs associated with developing and supporting these new ventures as they continue to move through the start-up phase. Tobacco-related SG&A was down versus the prior year. Restructuring costs are primarily related to employ severance costs in connection with the closure of a redundant foreign processing facility during the first fiscal quarter. Operating income decreased $21.6 million to $17.3 million as a result of lower gross profit and increased SG&A. Interest expense increased by $700,000 from the prior year to $68.2 million, primarily due to higher average interest rates on our seasonal lines of credit.

Net loss was $55.4 million and adjusted EBITDA was $45.3 million. Additionally during the first six months of fiscal 2019 we purchased $17.9 million of our existing senior secured second lien notes at a discount resulting in debt retirement income of $500,000 and remaining phase out of $645.1 million. Looking ahead, we are committed to managing our working capital as we continue to drive efficiency improvements which you can see in our focus on minimizing uncommitted tobacco inventory levels. Our current ending balance is down 16% from the prior year period, the lowest second quarter balance in eight years. As Pieter mentioned, there are challenges this year, however, we are continuing to execute on our full year plan and maintain our prior announced guidance.

Now I'd like to turn the call back to Pieter for some closing remarks.

Pieter Sikkel

Thank you, Joel. Our performance in fiscal 2019 remains promising as momentum builds in each of the disruptive GSP categories across e-liquids industrial hemp legal cannabis. And as a result, we anticipate a stronger second half of our fiscal year.

We never lose sight of our responsibility to our employees, our contracted farmers and their families, and all aspects of our supply chain around the globe as we strive to attain our corporate sustainability targets across the business lines. Through it all, we remain committed to maximizing opportunities to drive enhanced shareholder value and to transforming people's lives so that together we can grow a better world.

On that note, operator, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Bryan Hunt of Wells Fargo.

Bryan Hunt

My first question is, when you look at the 12% sales decline year-over-year, how would you parse that out between that the decline in shipments on a smaller crop, timing of shipments in a stronger U.S. dollar? I'm just trying to understand the magnitude of what maybe more permanent or versus a timing issue.

Pieter Sikkel

I think that the majority of the decline in shipments really relates to the South American shipments more than anything else. The crop and the shipping schedule of the customers that we have for this year are lighter than last year, and we're really expecting those products to ship out in the third and fourth quarters, that's what we've got on the shipping schedules and that's obviously is what we're working very hard to achieve. At the end of the day we still feel we've had a good season in South America, we've had good orders, we have low inventory, low uncommitted inventory and now it's a matter of -- and we finished processing, now it's just a matter of shipping the product out.

For the rest of the globe, I think we're seeing a stronger year in Africa and Europe, pretty much flat across Asia with some opportunities, and of course, North America, particularly on full service as we'll see significant reductions year-on-year due to the Hurricane Florence.

Bryan Hunt

Tariffs and Hurricane Florence have a potential negative impact on EBIT of $25 million and yet you all have maintained your previous guidance of $170 million to $190 million, you didn't carve [ph] $170 million to $190 million explicitly in the press release but you said you're maintaining your previous guidance. Can you talk about what maybe is going better than expected to offset this $25 million hit to earnings?

Pieter Sikkel

I think when you're looking at the situation, clearly it's a big hit and by far the biggest hit of that $25 million is sitting in the United States or out of the United States. And then smaller piece is coming out of the Argentina export tax, and that export tax really increased 12% and export rebate reduced from 2.75% to 0.75%; so that really is affecting the cost of orders already completed but not shipped, so that's a struggle there. On the positive side as I already said, we're seeing a strong year in South America other than the Argentine export tax compared to plan. We're seeing a strong year in Africa with increased crop sizes out of Zimbabwe, Malawi and Uganda. And we're seeing a strong year in Europe as well. So from the tobacco side we're seeing some of those assets coming from the other regions as we go out; obviously, that leaves us with a significant amount of shipping to do from areas that are not always the easiest to ship out off, so we need to -- and we need the vessels to cope and load up those 100-200 containers that we have on them [ph] at a time but that's what we're pushing hard for to do.

At the same time when we're looking in Canada at the FIGR business, we certainly see the opportunity with the yields being produced with the pricing that's being achieved in the market that we potentially can do a little bit better than we had predicted for the year based on both, the production and the initial look at the sales numbers. And then we've also got to see how well the e-liquids business, certain parts of it are actually looking pretty strong, seeing improvements there, particularly I would say from [indiscernible] and we'll see how the rest does for the remainder of the year.

And Criticality, although we've got a delay in the opening of the facility, the initial products will be launched in very short order and we'll see how well the sell-through of those goes. But there are offsets, it's by no means easy, you don't take a $25 million hit that you didn't expect and suddenly leave your year as an easy target to achieve, there is a lot of things that we have to get the whole team to work on very hard, but we see those opportunities, that's what we're saying, that's what we talked with the whole team about. And really those are -- you know, not equated with the long summary of the different opportunities there are out there.

Bryan Hunt

And when you look at your share that you called out for the first two weeks in the cannabis market and in the areas what you play, PEI. Where did you get this measurement from and what does that imply in terms of sales?

Pieter Sikkel

We got that data from the individual selling organizations in the individual jurisdictions. And that allows us to see where we are, both in terms of price per unit, price per gram share, SKU share and all of that. And obviously, that also allows FIGR candidates to make adjustments in terms of package size pricing and everything else. And the good news here is that what we're saying is, we're a little bit above the average selling price per gram for cannabis in the market, we're a little bit below in terms of package size, so that gives us opportunities to increase package size, to increase revenue. FIGR did not have it's premium line on the market yet due to late arrival of packaging from the supplier, so that will -- when that's being packaged up and delivered to stores, so that allows the potential for increasing average pricing of product as you're putting more premium into the marketplace.

And for us, it's a good start. Our ambition obviously is to grow our capacity, grow the volume, and we should have the next stage of the expansion ready to grow in April of next year, and I've been pushing very hard despite heavy rain up there to get the they expansion in PEI enclosed before the full winter hits in so that the interior can be completed. And that will obviously allow expansion into more provinces, but we're seeing good shelf space, good reports back on the product, good reports back on the product quality, and the SENTRI system that we've talked about is working extremely well and giving consumers unique transparency into the product that other products are not giving. So you can -- if you purchase a FIGR product with the code on the back, you can go onto the app on your phone and you can see the mother, everything from the mother of the plant of the product that you're consuming to the pesticide test to when it was harvested and produced and everything else; and we believe that's a unique differentiator in the marketplace as well.

Bryan Hunt

I know you can't quantify the restructuring charges or at least you call out you can't at Farmville. But from a magnitude perspective, is there any way this puts at risk the company's potential for free cash flow generation for the fiscal year?

Joel Thomas

No, Bryan. And we are still finishing the work around -- quantifying the cost associated with the repurposing of the Farmville facility but it should be relatively diminimus, and any way we'll be providing that with our next set of -- next quarter disclosures but again should be relatively diminimus.

Operator

The next question will come from Mary Gilbert of Imperial Capital.

Mary Gilbert

I just wanted to follow-up on Bryan's question regarding the $25 million and how you're going to make up for it. Could you give us some idea of the different components, how it makes up the $25 million? And what are the risks to those components? So for example, with the other markets it sounds like those are strong but you could have them shipping issues and getting the product shipped to customers; so what is the risk associated with that? And then -- yes, if you can just go through each component including the opportunities with FIGR; we're just trying to get an idea of how easily -- well, I shouldn't say easily, but how you're able to sort of deliver on the guidance given the $25 million hit? Thank you.

Joel Thomas

Mary, just to kind of follow-on with what Pieter had outlined a minute ago and that was pretty good detail there. So we're seeing good markets in South America, also in Europe, and some opportunities in Africa as well with crop sizes that have come up there in a number of markets; and so they are very good opportunities across our footprint. And as we've talked about before, in any given year we can have challenges in a particular part of the world, and this year North America is a little more challenging, that's the majority of where the challenge is. We have made some changes here in North America that we announced yesterday with the repurposing of the Farmville factory, that will reposition our operations in North America on a go-forward basis in a very good light. But anyway, we've taken -- I think very quick action related to the impact of tariffs, and also the strong dollar. And -- so we're working closer -- very closely with our customer base across those three regions that Pieter outlined, and are seeing good incremental opportunity.

And as we've talked about before also, third and fourth quarter we typically see the shipping volume in those quarters much higher associated with southern hemisphere, and then also some of North America. And so the key is to make sure that we are looking as far forward as possible and trying to make sure that we're coordinated with our customers related to the timing of shipments, understanding that in certain parts of the world you can have container issues, you can have boat availability issues, those are all things that are challenges; and when you have big quarters from a shipping perspective, you really have to be paying attention to that. So our logistics group is way out in front of the timing of all the vessels that we're targeting to be on, and coordinating with the customers to make sure we make those.

And [indiscernible], it is definitely -- requires a lot of focus to make sure that we hit our marks but we've had timing issues before from quarter-to-quarter, and this year is -- this is no different and related to shifts that you see compared to our prior year; and we've just got to our marks during the third and fourth quarter.

Mary Gilbert

So I guess it's hard to quantify by market, you know, what -- FIGR to take the $25 million and say, okay, so the -- the opportunity in Africa is $10 million or something like that, it's hard to -- it sounds like you're saying it's hard to quantify each opportunity…

Joel Thomas

Yes, there is a big portion of it, that is South America; you probably then go to Africa, and then Europe helps to round out the opportunity; and there may be a little bit from Asia as well. But that is the vast majority of the $25 million.

Mary Gilbert

So none of it is including any opportunities out of FIGR or e-liquids?

Joel Thomas

FIGR will definitely provide some opportunities, remember that FIGR is a brand didn't exist, call it six months ago; so -- I mean, it's gone from a very small beginning to where we are today, and it has got good market share out of the box and it's growing quickly. And as Peter mentioned, we are seeing additional opportunities, we're having reverse enquiries from various cannabis boards asking us to help with additional product beyond the shelf space that we've agreed to take. So we're pushing very hard to help meet those increased requirements and see opportunity as a result of that.

Mary Gilbert

And do we -- is there a way to quantify that opportunity? So it sounds like it could be incremental.

Joel Thomas

I think it's still early, and we'll be talking more about it as we get into the third quarter disclosures and have better visibility.

Mary Gilbert

And then one other question is; with regard -- you talked about doing a refinancing in 2019 after you report your full year results. Will that be contingent upon being able to kind of meet this guidance; than what are your thoughts around that? And I know it's kind of faraway given other issues that you've got to contend with but just curious. Thank you.

Joel Thomas

I think first and foremost, we're focused on the fiscal year and hitting our marks and achieving the results we believe we're capable of. And on the back of that, we will be evaluating the market and working with the various financial institutions that advise us to look at opportunities to go-to-market. And so the exact timing of that has not been laid out yet but -- look, I think based off of the year that we're having right now and the direction that we see opportunities related to the new business presenting, we'll be in a good position as we go-to-market after we get through this fiscal year.

Operator

Our next question comes from [indiscernible].

Unidentified Analyst

My apologies, all my questions have been answered.

Operator

The next question comes from Steven Shapiro [ph] who is a private investor.

Unidentified Analyst

Could you tell us when you think the new facility might be ready in Canada?

Joel Thomas

The announced increase in square footage for CIG in Prince Edward Island, we're hoping to have of the additional 300,000 -- just over 300,000 square feet, we're hoping to have that -- a big portion of that enclosed by the end of December, we'll be working on the interior that through the winter months. And sometime probably around April we're hopeful that about two-thirds of that space will be ready for production. And then as we're finishing the spring and into the summer, we'll have the last; call it 25% to 30% that we'll be completing.

Unidentified Analyst

So do you think -- so what would your timing be you think for the first crop to come out of that facility?

Joel Thomas

Well, it should hopefully be late spring, early summer as we're gearing up that facility. We will have some sign-offs that will be required once the facility is complete from Health Canada. But the team there has been through that process on a series of occasion; so we think that that should hopefully run relatively smoothly and we should be up and running pretty quickly.

Unidentified Analyst

And that will be the first 300,000 feet?

Joel Thomas

That will be an additional -- just over 300,000 square feet -- from the 25,000 square feet that they're currently producing in. And then we also have another 700,000 square feet of increased space that we're looking at Goldleaf; Goldleaf has -- which is in Simcoe has a new 200,000 square foot facility that it's producing in today. And it will again be looking to increase at about 700,000 square feet; and we don't know the timing exactly yet on breaking ground but we're pushing to have that occur soon as possible, it could be as early as this coming summer.

Operator

The next question comes from [indiscernible].

Unidentified Analyst

I wanted to return to North America leaf; can you comment on market share trends, are you gaining share or are there opportunities still to pick up some additional business, can you update me on that? Actually, globally – sorry, globally.

Pieter Sikkel

Global, not just North America?

Unidentified Analyst

Yes, sorry.

Pieter Sikkel

I think that very much varies market by market; we've certainly seen share gains in certain markets from certain customers, and this is always a little bit dynamic as we move through the different cycles. And also -- I think we see quite a bit of customers shifting their purchasing from one origin to another origin as we go forward, and clearly, in this situation North America has lost more competitiveness to other markets as we go out, and particularly, on the landed cost when you're looking at the additional tariffs that are in place into China, into Europe, into Turkey, and that's part of the reason that we're seeing this shifting requirements going around on a global basis. But, yes, I think in general I think we're very solid on market share with the majority of customers. I think the vast amount of our portfolio, we're seeing actually increases, most of our customer base is consolidating both origins in which they purchased and the number of suppliers that they purchased from, and through that we are seeing those market share gains.

And certainly without the -- we've seen in our presentation and as we published the numbers on full service business, we've retained a very solid and slightly increasing volumes over the last four years, and that clearly already is a market share gain, and that despite the fact that we restructured or moved operations out of several countries and consolidated operations in the larger origins that we believe will carry us forward. So we're feeling in a good place in terms of market share.

Unidentified Analyst

And then I had kilo volumes up low single-digits in fiscal '19 but given the shortfall in the North American crop; do I need to tamper that expectation?

Joel Thomas

What we're seeing right now is we're seeing shifts into other markets. And so the question becomes related to those shifts; do you get it all this year? Right, that's really the big question. So we're pushing to try to get those shifts into other markets for this year or maybe some of it pushes into next year but then it kind of sets sort of the new base if you will for going forward. So we're very focused on the geographic shifts that are occurring as a response to the lack of competitiveness of North American tobacco from a price perspective.

Unidentified Analyst

And then in terms of -- you touched on this a little bit but the 13% share for FIGR and Canada looks stronger than I would have thought. So I was just curious, kind of your insight and the sustainability of that number, and how I should maybe think about that. For the full year, I don't know, it seems like a very strong start and I'm just curious of your insights?

Joel Thomas

And that was in Prince Edward Island which is one of the markets that we were very focused on. And so -- we came out of the blocks very strong there, and good market share increases in Nova Scotia since opening as well, and there will be continued expansion as we move forward into other markets; so a good start and we've got a lot of work to do in ways to go still.

Unidentified Analyst

And then you talked about restructuring or repurposing your facility in Farmville; have you put out projected savings numbers? I know you said you're not talking about restructuring costs.

Joel Thomas

Yes, we're still finishing some of that work now, and -- while it has to do with the shifts that will be occurring into the Wilson Factory [ph] as it's taking on additional volume and some of the personnel that will be shifting out of Farmville and into Wilson; so we're still working through some of that now but it is definitely positive, put it that way.

Unidentified Analyst

Is that more of a fiscal '20 positive impact?

Joel Thomas

Yes. I mean it will be a fiscal '20 impact or maybe a little bit here in '19 still but -- yes, '20 should -- should help us greatly in '20.

Unidentified Analyst

And then, I'm sorry if I missed this. But you all had targeted adjusted EBITDA for the year of $170 million to $190 million. Can you hit the bottom-end of that range still?

Joel Thomas

We believe that we can still make it into the range, and that's what we're focused on.

Unidentified Analyst

And targeted debt reduction I think was in the range of $20 million to $50 million; is that still a reasonable range?

Joel Thomas

$25 million to $50 million, and yes, we're on-track.

Unidentified Analyst

And then my final question just with the mid-term election; so you had Michigan approved recreational use of marijuana, and Utah and Missouri approved medicinal, and then you had the resignation of Jeff Sessions yesterday. Really changing some of the key -- I think factors in the U.S. for recreational medicinal marijuana uses or cannabis use. So I was just wondering if you'll care to comment on those recent developments and how that kind of feeds into your outlook if you don't mind?

Joel Thomas

I think one of the -- the first share is a focus for the U.S. on the alternative products would be related to hemp. And I think now that the elections are over, we've heard that there is stirrings of the new Farm Bill potentially coming through over the next couple of months, and so that's a real positive, and so we're looking forward to that. I think sort of longer term, we're hearing a lot of the same things that you're hearing are related to legalization of medicinal and even recreational in and U.S. Obviously for the U.S. market to open up for us, it would require federal legalization for cannabis; and so we're watching that very carefully, and believe that if and when that occurs that we are very well positioned to take a look at opportunities. So at anyway we'll continue to watch it very closely and we'll be connected to folks in Washington as they're evaluating what is the right course of action at federal level, and maybe potentially helping in that discourse.

I think there is one other point that we ought to make is, we kind of talk about the remainder of the year, and we talked a little bit about it in our prepared remarks, and that is that -- our inventory levels have come in, especially our uncommitted inventory, and we're going to continue to work aggressively on inventory -- and non-committed inventory as we go through the back half of the year. And we think that that's again a real good opportunity for improvements in the balance sheet year-over-year.

Pieter Sikkel

I was just going to give one more add-on to Joel because obviously there is a lot of focus on what may or may not happen in the U.S. market but one of the strong premises of our thesis as far as our positioning in these next-generation products was our global footprint. And we are not just looking -- the friendlier potential outside of the U.S. in markets that are changing regulations very rapidly as we go forward; so whether it be for CBD, whether it be for certain branded products, whether it be for cannabis in the future, there is a lot of exploration going on and we're seeing significant opportunity where we would be able to scale out of the U.S. in terms of CBD products, and potentially out of Canada in terms of cannabis products into markets other than the U.S. around the globe. So that I think is a potentially exciting development for us, that is relatively short-term in nature as well.

Operator

The next question comes from Alex Kelsey of Wasserstein.

Alex Kelsey

Can you just give us a sense for your go-to-market strategy? What distribution agreements do you have in place and when should we expect to see hemp or CBD revenue in the financials?

Joel Thomas

Alex, our new facility here in North Carolina; due to the hurricane action we got slowed down a little bit, one from turn-offs by permitting folks, as well as some transformers that were required that were in a facility that -- our third-party facility that ended up getting flooded, so that slowed us down a little bit; but we're back on-track and that facility should be open very soon. And as it relates to Corinth [ph], the rollout is very, very close to that right now; our sales team on the CBD side has done a good job of pre-positioning products into the big store chains, and we'll be looking in more -- looking at other go-to-market opportunities as well, there will also be online as well, and a big rollout of the online capability.

And so -- at any rate we think it should be well received by the market as we bring it out, the team has developed some really good flavors, both for the vapor inhalables [ph], as well as for the dentures [ph], and then of course, as we've talked about before there will be other creams and lotions, as well as gel caps that will be coming out with additional product rollouts as we move forward. So we're very close to getting corn [ph] out there, and we're real excited about it.

Alex Kelsey

And then in addition to the -- I think it is 200-odd acres at Criticality; are you working with your U.S. farmers to convert their own fields into hemp versus tobacco -- some of the capacity from that method?

Pieter Sikkel

Well, I mean there is quite a portion of the production this year was with parent or former tobacco farmers as well. Each one of them had generally between one and five acres, and that's actually was part of the strategy, it was to have it with multiple farmers in case of a weather event which allowed the labor to come in and early harvest some of the product, pre the hurricane which saved the crop, it was a very manual process, and put that into existing carrying infrastructure to either dry it or secure it. And of course, using our SENTRI GMS soil analysis system to ensure that the crop is being grown on land that has either been used for organic or low pesticide production in the past because this crop is -- it absorbs everything in the soil and you've got to have product that does not have issues with pesticides and everything else. Yes, we're using that network and clearly, that network is large, your average flue-cured tobacco farm is growing 100 plus acres of tobacco. So there is clearly significant potential to expand.

The other thing that was done with the Criticality also contracted some product in Kentucky and in South Carolina, as well to look at the -- and diversify the geographic profile as well. So there is plenty of opportunities for expansion in terms of acreage. As we go forward, there is plenty of opportunities in terms of the capacity that's been built, and then there will be some upgrades to the facilities in the middle of next year that will allow additional products to be extracted; not just CBD but CBN, CBC [ph] and various other products that have significant value in the marketplace as well.

Alex Kelsey

And then I guess going back to [indiscernible] question; just -- maybe addressing it a different way. Can you just give us a sense like what's the current utilization of the Wilson facility today? And if you're to move all the crop to that facility, then what would that kind of pro forma utilization be? I'm just trying to get a sense of like what is the potential margin upside as you better utilize the current processing capacity?

Pieter Sikkel

I think if you look at the combined capacity with the hurricane effects this year, we're probably below 50% utilization of each facility. When we look at increasing volumes going forward, compared to this year, and we're going to move some of the equipment from Farmville into the Wilson line to increase capacity of that facility; on one line Wilson has got three lines, and Farmville had two. We'll be running at a very high percentage utilization of that facility which is clearly much better. And then it depends a little bit on what -- in terms of what orders and indication is to going forward, how quickly trade issues are resolved, and so on and so forth; but we'll be running that facility at very high utilization as we go forward.

Joel Thomas

And Alex, we'll also still have one line in Farmville that's a big line, that is available for special projects and other things as we might require it, and can be turned on and off relatively easily. So this change in repurposing gives us really good flexibility and definitely helps to improve the profitability of the combined North American operation.

Alex Kelsey

And then just to ask little bit more direct on the cost savings; I mean even just directionally speaking magnitude, I mean $5 million $10 million, is that's something we could expect from the consolidation?

Joel Thomas

That's probably not that far off the mark.

Alex Kelsey

And is there -- do you think there is -- are we closer to the high range of that or the low range?

Joel Thomas

We're still working on it but potentially more towards the higher end.

Alex Kelsey

And then my last question is; I mean, all the industry reports suggest the crop is up significantly this year; from a timing perspective when does the majority of that crop ship -- like, when we see that potential tailwind in kilo volumes from your business perspective?

Pieter Sikkel

Quarter three and quarter four.

Alex Kelsey

And could you give us a sense of just year-over-year what you guys are seeing in terms of shipments, again on forward basis?

Joel Thomas

I would say it's similar to the market increases in volumes.

Operator

Next question is a follow-up question from Bryan Hunt of Wells Fargo.

Bryan Hunt

I just wanted to explore your JVs and the [indiscernible] partner's a little bit. You know that you've got some that have been up and operating for a while, and others that you've just entered and are expanding. When I think about your JVs and minority interest; net-net, are you all going to have to increase investments [indiscernible]?

Pieter Sikkel

Yes, so the primary -- go ahead Bryan.

Bryan Hunt

The dividend…

Pieter Sikkel

So the primary place where there are additional investments required that would be outside of cash flow from operations, as in Canada as we've outlined before; and that's -- we believe largely going to be financed with structured finance type products. And at any rate we're working through that now, and have a lot of positive feedback from financing sources and so we're -- we believe well positioned related to everything we need to do in that market. As it relates to expansion opportunities and increases in working capital requirements but generally speaking, these business are very cash flow generative.

Bryan Hunt

And when you say very cash flow generative; are you implying that, again, they get capital on their capital needs this year as opposed to being able to also cover capital needs and distribute some money?

Joel Thomas

There shouldn't be any need for additional invested capital from us, per se. And we definitely will be looking for dividends and distributions as we move forward understanding that as you're building businesses, you want to make sure that you've got the appropriate amount of capital in each one of the businesses to pull out to grow as you wanted to grow.

Bryan Hunt

You all thought and you positioned yourself in the recreational market up in Canada; you thought there would be stock outs, in certain areas you wanted to be conservative and roll out in a more paced manner to capture share where others may have failed. How is that strategy playing out?

Joel Thomas

There are definitely challenges in almost every market in Canada, today; and if you look at a lot of the online capabilities and online offerings, you definitely are seeing challenges for a number of companies meeting what the requirements that they've agreed to. And as we've talked about earlier in the call, we are seeing opportunities with a couple of the cannabis ports where we're operating to supply the addition product, and so we're aggressively going after that business as it's available to us. I mean, obviously, there are other players in the markets that can react as well; and we're just trying to make sure we get our fair share of that additional businesses as it presents itself. So we'll kind of have to wait and see exactly what happens but we think we have a good balance related to our current inventory position, and then taking into account our production schedule right now and making sure that we have what we need in order to meet our requirements as we've contractually agreed and still have room for a little bit of opportunity as well.

Operator

The next question comes from Mary Gilbert of Imperial Capital.

Mary Gilbert

What's the amount of uncommitted inventories currently and where do you expect those to be by the end of the year? And is the average effort [ph] going to be kind of around $100 million. Sorry.

Joel Thomas

No. Mary, our is unchanged, the $50 million to $150 million in and we do have a good opportunity to get underneath the midpoint by the end of the year; so we're very focused on it and we'll just have to wait and see how the opportunities play out related to moving more that inventory between now and the end of the year.

Mary Gilbert

Also I just wondered if what we can anticipate in terms of net generation from working capital this year? As a result to that, and I know sometimes that's kind of moves, just given the timing of accounts receivables and I guess it depends ultimately.

Joel Thomas

The account -- when we look at accounts receivable, a lot of it will come down through the timing of shipments in the fourth quarter, and how much we can get moved before we get into the sort of that last 1.5 week to 2 weeks the key there is to have the documents that we need to be able to sell receivables into our securitization program to monetize us. And so we're working very hard with our teams globally, our logistics group in particular, trying to get as much of that move as early as possible to try and reduce our AR balances and increase our cash balances. As we look at the year-end.

So a lot of workers into that and you have pretty much, every you have every origin across the globe that is helping us to achieve our goal level. And then, as we look inventory, we think we've got a very opportunity to get total inventory down to very low levels, we'll see whether or not we can reach lowest levels, reach fast but we've got a good chance to really bring out in some. So we're working for that as well. Okay, and then one follow-up question with regard to the $25 million impact and the timing of shipments to component; given that were -- I know we're kind of early in the third quarter but you might have a good idea of how much of that $25 is coming through in the third quarter? Is it somewhere around that sort of $10 million, is that the associated with the timing and shipments component?

Pieter Sikkel

There is a good chunk of it that was -- third quarter, a good chunk that was fourth quarter. And as we've mentioned before, we've got this shift occurring related to where customers that have been affected by the tariffs are looking to get product from. And so the question is, is that sort of a temporary shift or will it be a longer term shift if they're modifying one components and another thing. So we're working very closely with the customer base to understand how they're thinking about it, and then trying to make sure that we're there to help meet their requirements. And so the timing element related to where volumes shift to; the question is how much of that are we able to pick up this year? How much shifts into the next year? And then how much is permanent in the nature going forward? So those are all questions that we're working hard on and create opportunity.

Operator

There are no further questions at this time. Mr. Thomas, I'd like to turn the conference back to you for any additional or closing remarks.

Joel Thomas

Thank you for joining our call this morning. The call will remain available for playback for any interested persons for five days. Our financial results on Form 10-Q, as well as other information can be accessed on our website www.pyxusintl.com. Additionally, I'm available by phone should anyone have any further questions. Thank you for participating in our conference call this morning.

Operator

And this concludes today's call. Thank you for your participation. You may now disconnect.