Colfax Corporation (NYSE:CFX) Q2 2019 Results Earnings Conference Call August 6, 2019 8:00 AM ET
Mike Salter - Finance
Matthew Trerotola - President and Chief Executive Officer
Christopher Hix - Senior Vice President, Finance & Chief Financial Officer
Conference Call Participants
Jeff Hammond - KeyBanc Capital
Nathan Jones - Stifel Nicolaus
Joseph Giordano - Cowen
Nicole DeBlase - Deutsche Bank
Andrew Kaplowitz - Citi
Good morning, ladies and gentlemen, and welcome to the Colfax's Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.
I would like to turn the conference over to your host, Mr. Mike Salter.
Thank you, Ditamara [ph]. Good morning, everyone and thank you for joining us. I'm Mike Salter from Colfax's Finance team. Joining me on the call today are Matt Trerotola, President and CEO; and Chris Hix, Senior Vice President and CFO.
Our earnings release was issued this morning and is available on the Investors section of our website, colfaxcorp.com. We will be using a slide presentation to walk you through today's call, which can also be found on our website. Both the audio and the slide presentation of this call will be archived on our website later today and will be available until the next quarterly earnings call.
During this call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from any forward-looking statements that we make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them, except as required by law.
With respect to any non-GAAP financial measures made during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and today's slide presentation.
Now I'd like to turn it over to Matt, who will start on Slide 3.
Thanks, Mike, and good morning. We're pleased to report strong financial performance in the second quarter. Results were at or ahead of expectations in each of our businesses and we made great progress on transforming our company for a very exciting future. We remain on track to achieve our 2019 guidance adjusted for the Air & Gas Handling sale. Chris will walk you through the before and after numbers later.
In our first full quarter, with the Medical Technology business, we accelerated growth through commercial execution, product innovation, and improving customer service levels. We're leaning in hard to complete transformation projects this year to position the business for a healthy growth and margin improvement next year. Our Fabrication Technology business delivered strong margin improvement and the team had a tenth straight quarter of organic growth in modestly softer than expected, but stable end markets.
The Air & Gas Handling business posted its fourth consecutive quarter of double-digit order growth and very strong margin improvements, demonstrating the success of our diversification strategy and our operational execution. We continue to expect to complete the divestiture later this year.
Turning to Slide 4, you can see that we're making good progress on the DJO integration. The business achieved organic growth of 3.4% up nicely from the first quarter growth rate and moving toward our medium term goal of 4% to 5%. The reconstructive product lines again delivered double-digit growth this quarter with high teens growth in shoulders. We also had well above market growth in our knee and hip product line driven in part by positive surgeon response to our EMPOWR knee as we continue to fill out the product line.
Prevention and Rehabilitation product line made healthy sequential growth improvement in the second quarter and finished flat on a year-over-year basis. In addition to the higher number of new product launches this year we made substantial progress addressing customer service issues. We expect cost improvements and seasonally higher Q4 volume to support the second half step-up in margins consistent with original guidance.
Slide 5 provides more details on our progress integrating DJO and creating a CBS fueled continuous improvement path. Our work streams are on track and I've been really pleased with the level of engagement and energy across the DJO team. We continue to have strong momentum in our Reconstructive product lines.
DJO has a track record of implant innovation and have developed great relationships with key opinion leaders in the orthopedic space. We also have a leading position in the higher growth shoulder implant segment and these strong franchise attributes are adding up to consistent double-digit growth this year and we see long run way to continue well above market growth in surgical.
Our focus on supply chain and operations improvement resulted in a more than 60% reduction in paths to revenue in the second quarter. Our sales teams, channel partners and customers are feeling the difference and we now expect Prevention and Rehabilitation product lines to return to organic growth in the second half of the year.
Reimbursement is an area where we see a big opportunity for CBS impact. The processes which are critical to revenue growth and cash flows cycle time are a classic application for lean value stream mapping and transactional process improvement. In recent months, the team, has made process and organizational improvements that reduce commercial waste and accelerate collections. We're gaining traction in this area and see multiyear improvement path that will help both the top and bottom lines.
We continue to be excited about the opportunities for innovation driven growth in DJO. The parts of the business with fresh product lines have strong growth and share gain. In other products, the new products are flowing again and we see healthy pipelines that we can accelerate with CBS and with little bit of targeted investment.
Moving to Slide 6, fabrication technology continues to drive higher margins and above market growth. Margins were up 90 basis points from the prior year period from price, productivity, and cost reductions. The ESAB team is executing well, both commercially and operationally. With steel prices easing, the benefits of the tedious [ph] important in cost reduction projects are reading through.
The second quarter is seasonally the highest margin quarter of the year and we continue to expect meaningful year-over-year margin improvements in the second half. We had second quarter organic growth in most global regions, including the U.S. Volume was flat with global growth offset by softening in the U.S. We expect low single digit organic growth in the second half from price with a soft, but stable global market picture continuing to point to roughly flat volume.
GCE, Sandvik, and our other recent bolt-on acquisitions are on track and on Slide 7, you can see the benefits from this important part of our value creation strategy. Our disciplined acquisition and integration process is enabling us to quickly generate attractive returns from these complementary acquisitions. Starting in 2016 we paid an average multiple of about 9.5. We focus on strategic acquisitions that make the businesses better and our M&A playbook focuses our teams on key value drivers and support rapid but thoughtful integration.
With this approach, we are on track to reduce the overall acquisition multiple on these deals by more than a third in the first two full years of ownership. An outstanding example of the value created with bolt-on M&A is the GCE acquisition that we completed last year in our Fabrication Technology business. We expect GCE to grow high single digits this year due to a combination of exposure to faster growing markets and applications such as healthcare and science research, and leveraging ESAB's global channels to grow faster outside of its traditional geographic markets. It is also accretive to gross margin.
We're also delivering on cost synergies by consolidating existing ESAB and GCE facilities, functions and product lines. Looking forward, GCE opens up new growth opportunities organically and through additional M&A in the higher growth, higher margin applications, like specialty gas control and related adjacencies.
Slide 8, shows another strong quarter in Air & Gas Handling. We've had four consecutive quarters of double-digit order growth, a reflection of improve long cycle market conditions and the strategic repositioning of the business into faster growth markets. The substantial margin improvement reflects improvements in commercial processes, a shift to more profitable projects and cost reductions as we improve the business for long term success. This successful trajectory enabled us to divest the business for an attractive value and we expect to complete the sale later this year.
Before handing off to Chris, I'll wrap up on Slide 9 as we look ahead to the strength of our newly reshaped portfolio. Colfax will head into 2020 with a stronger reshaped portfolio. We've improved our growth potential. DJO and ESAB have strong brands and market leading positions on which to build and grow. You can see on the pie charts that we will be nicely balanced globally with China well under 10% of our total revenues, and we'll also have nice balance across industries with a significant amount of MedTech through our Orthopedic Solutions business.
Innovation matters in these businesses. With plenty of opportunity to drive differentiation and extend or even redefine the solution set for customers. Acquisitions can improve our scale and reach and accelerate technology development. DJO gives us a number of exciting new directions in which to pursue M&A. We've also created a higher margin, less cyclical company with better cash flow.
Over 90% of our revenue is now from tens of thousands of recurring customers across the world buying hundreds of run rate product and services with average purchase prices measured in hundreds or in thousands of dollars. This diversification, along with the non cyclical MedTech demand and CBS driven margin improvements position us to generate higher and much more stable free cash flow. Stronger cash flow lets us invest faster in innovation and acquisitions to compound returns for our shareholders.
Before I hand of to Chris to take you through our results and outlook, let me finish by saying that we're on track for which I expect will be a very successful transformative year for Colfax in 2019 and we're positioned for strong performance in 2020.
Thank you, Matt. Slide 10 shows our adjusted results on a fully consolidated basis, which assumes we did not [indiscernible] and gives investors one last view of our performance for portraying the page to the continuing operations view. The continuing operations basis excludes the Air & Gas Handling business and assumed interest expense savings from the $1.6 billion of approximate cash proceeds from the divestiture.
We are recasting our quarterly results from the first half of 2018 and 2019 into this new continuing operations presentation and we expect to have the second half of 2018 available to investors this quarter. On a fully consolidated basis, Colfax earned $0.64 in the quarter compared with $0.61 last year, a bit stronger than we expected due to good operating performance and lower interest costs.
On a continuing operations basis, year-over-year results are up sharply due to the DJO acquisition and the strong performance of our FabTech business as Matt outlined earlier. Gross margins are significantly higher based on FabTech progress and DJO's high 50s performance. Adjust EBITA and EBITDA margins landed in a healthy zone and are consistent with our plans for the full-year. Continuing ops EPS was $0.54 in the quarter up sharply from $0.37 in the prior year and included $0.02 of FX headwind. We were getting the expected contribution from DJO net of financing costs and FabTech's growth and margin read through to the bottom line.
Let me walk you through our view for the full year on Slide 11, which includes the original outlook our continuing operations guidance and the pro forma view. On an operating basis there is little that has changed in our continuing operations guidance. We continue to expect each of our businesses to deliver the EBITDA and EBITA as originally planned for the year and discussed in previous investor call.
Our MedTech business is forecasted to achieve the high side of our revenue growth guidance based on accelerating growth currently being realized. We are making incremental investments to ensure operational transformation projects are completed this year creating a clear path for margin expansion in the second half and serving as a strong jumping off point for 2020.
Our FabTech business is capturing expected price benefits this year. The business remains on track to deliver its profit plans with the benefits of cost and productivity projects offsetting flattish volume growth that is now expected for the year. Interest costs have been lowered to reflect the new rate environment and we moved about $60 million to discontinued operations. This $60 million represents interest expense savings from the $1.6 billion of approximate proceeds from the Air & Gas Handling sale. Because these proceeds will be used to repay borrowings related to the DJO acquisition, the assumed interest savings are carried back to February 22nd.
We've updated the tax rate to 22% to 23%. The NCI headwind has been reduced to about $5 million per year and we are assuming approximately $137 million shares outstanding. Adding all of this out, we're targeting $1.90 to $2 per share of adjusted earnings for the year and $0.45 to $0.50 in the third quarter.
The more detailed pro forma view is included on Slide 12. The top chart walks from the original EPS guidance of $2.55 to $2.65 to the pro forma view of $1.90 to $2. The key changes are inclusion of DJO for a full year rather than 10 months, the sale of the Air & Gas Handling business and finance cost and NCI savings as described a moment ago. Also embedded in the finance cost number on the chart is $12 million for two additional months of interest cost for DJO. The continuing ops and pro forma guidance ranges are the same because the incremental EBITA from DJO for the first two months of the year is offset by the additional interest cost.
The middle chart shows the pro forma EBITDA from seeling the Air & Gas Handling business and from getting a full year benefit from DJO. The $590 million to $610 million of forecasted pro forma EBITDA is 30% higher than our results before we started transforming our company into 2017 to be less cyclical, faster growing, higher margin, and to generate cash more consistently.
The last chart on the page walks from the pro forma EBITDA to free cash flow. We're netting out one, pro forma interest cost; two, expected cash taxes with the rate below 20; three, restructuring cost unrelated to DJO's transformation projects that are expected to be completed this year; four, capital expenditures; and five, working capital use of cash unrelated to the 40 million of one-time investment in DJO that was used to stabilize the supply chain and unwind inefficient factoring.
This $50 million to $60 million working capital drag on free cash flow includes items that we expect to wind down this year including steel price pass-throughs, FabTech acquisition integration that have temporarily driven up working capital as facilities and functions are consolidated and elevated inventory to support DJO operational transformation. We've mapped out a path to significant reduction in working capital cash requirements in 2020 and expect free cash flow of $250 million or more next year and conversion from adjusted net income of 90% or more.
Concluding on Slide 13, we're already seeing the benefits of the new Colfax. The MedTech business is getting traction on operating improvements to support healthier growth and expected margin expansion. Our FabTech business continues to grow and to grow profitability to new levels. Our company now has higher margins, is less cyclical, and we have an improved line of sight to hire more stable cash flow.
Now Ditamara [ph] we'll take questions now from the callers.
[Operator Instructions] The first response is from Jeff Hammond of KeyBanc Capital. Please go ahead.
Hey, good morning guys.
Good morning Jeff.
So just on - just to be clear on MedTech margins, just - I mean they seemed a little lower in the quarter, maybe you expected that, and then what's kind of the guidance implied for second half for kind of an EBITDA margin run rate for the MedTech margins 3Q, 4Q?
Yes, the margins that we had for MedTech in the second quarter were consistent with what our view was for the, you know, when we set up our plans for the year. We talked in the previous call about the Q1 having very high margins because it only included one 5-week month of the year - of the quarter and that was March. We described the second quarter margins would be lower and then you’d see this improvement in margins in the back half of the year as we got more traction from the operating improvements and then you saw sequential improvement in revenue in the fourth quarter.
So all of that’s consistent with the original plans that we had and I think we’d laid out originally the expectation of EBITDA margins being in the 19% to 20% range on a 10-month basis which would imply that we’ll be in the high-end of that or even slightly higher in the third and fourth quarter.
Okay, that’s great. And then FabTech, you know very good resilience here, where do you think you’re moving share or do you think it’s just geographic mix? And then your margins into the second half, maybe give us a sense of what degree of margin improvement you get in that more flattish volume environment? I think you’re up 90 basis points and you have an easy comp in the second half? Thanks.
Yes, thanks Jeff. You know I’ve said a number of times through the years, we’ve got a strong team around the world in FabTech and we've built a great leadership team there and you know, that team has strong service levels from the plans, has brought a lot of innovation into the marketplace, that’s continuing through this year and has done a lot of work on improving the commercial process in the business using CBS and that’s paying off with some good strong relative performance and share gains in that business.
And yes, for sure, a part of what we’re getting there is some share gain in multiple places in the world, certainly in Europe and maybe a little bit in North America here recently. But also a part of it is our healthy global footprint and our ability to adjust a little to where the growth is over time, and we think that's a real strength of the business, and for sure that’s something that’s helping us on a relative growth basis as well.
As far as where the margins go in the second half of the year, I think the factors that are driving our margins up on a year-over-year basis are real improvements that the team has made to the business there in terms of the hard work to get the price through in the inflationary environment and get on the right side of that, ongoing productivity in the business, as well as restructuring projects that we've been rolling through there. Those are contributing to healthy margin expansion and we expect that healthy margin expansion of more than 100 basis points to be able to continue through the back half of the year.
As I said in my comments, Q3 is always a bit of a dip from Q2. Q2 is always the healthiest, but we do expect to stick with strong year-over-year margin expansion and exit the year in a place that is on track with that 15% AOP, long-term challenge that we put out there we think we'll exit this year within sight of hitting that in the next year too.
Okay, if I could stick one in just on the interest expense, can you just explain how you are coming up with that? I think you said you're assuming that you're taking the proceeds for a longer period of time or you know just help me understand what the real run rate of interest expense is going to be in the second half? Thanks.
Right. Jeff, the adjustment that we make is simply to take the $1.6 billion of proceeds and then back date that back to February 22nd and then apply the interest rate that we had though that period. And then attribute that to the discontinued ops. So it’s a fairly straightforward calculation there and that’s what generated that roughly $60 million number for the full year that we mentioned there.
And then I think in our -- we indicated the interest savings that the interest cost that we would have on a pro forma basis is in that sort of $130 million to $135 million range as well. Now some this, there is some variability there just depending on the close date of the transaction, how soon we get the proceeds and for what period of time do we continue to get the cash flow from Air & Gas Handling business.
Okay. Thanks, guys.
Thank you. Your next response is from Nathan Jones of Stifel. Please go ahead.
Good morning, everyone.
Matt, I'd just like to start off looking for a bit more detail on one the comments you made about innovation, you talked about the positive portfolio and this is in DJO, that have new products showing good growth. Can you talk a little bit more about the pots that have maybe been a little neglected over the last couple of years that you're investing in, what kinds of things you are doing there, what the timeline is for getting those things to market, just some details on that kind of stuff?
Yes, sure. I mean, first on the positive side of the comment that there are parts of the business like surgical implants, like the French business as a different example more on the Prevention and Relocation side, where the innovation investment has continued and there is strong above market growth that we talked about surgical implants, but I think the French business is a great example where there has been a lot of localized innovation by a small team over there that's kept the products fresh in that market and it's remarkable how strong their performance has been based on that freshness.
The areas of the portfolio that had some gas in the investment really on that prevention and rehabilitation side, particularly in North America, but also affecting some of the other countries around the world and those are the areas that the team got -- turn this quickly back on, a year or two ago starting to put some focus back on investment in innovation in those areas and some of those products started to come through this year and have some positive benefit on the business, but that's going to keep ramping in the back half of this year and into next year and beyond, and that's really how we'll get the business up to sustainably above market growth rates on the prevention and rehabilitation side of business.
Yes, Matt, you've had the business here for six odd months, can you talk a little bit about whether or not that the ramp-up in innovation there is proceeding as you expected, have you been able to accelerate it, have you met with any problems in that?
I would say that it’s fully on track. I think we've been able to find more opportunities to build a pipeline around than we could see before we acquired the business, I think we have a richer pipeline of ideas together today and the execution against those ideas is fully on track. I think we were very clear with the team even in the time between sign and close that that we wanted to support the focus that have been put back into innovation and even turned the dial up a little bit therein and so, I think things are coming through just fine.
In any company you got some products that come exactly when you expect it and some that take few more months to get to market and we've certainly got those kinds of dynamics and we see opportunities to improve the velocity of the innovation process and the strength of the launch process with CBS and we're working with that on the team, that I think we see things as on track to continue to ramp the freshness of the business in a way that will to contribute to better growth.
And then for my follow-up I want to ask about one of the four areas you listed as a focus for CBS in the first year, Prevention and Rehabilitation supply chain pivot to continuous improvement, can you talk about what kind of benefits you think you can generate from supply chain, if this just embedding CBS processes into a business that there was perhaps not as sophisticated in that area and as any details you can give us on the kinds of benefits you think that you'll be able to generate form that?
Yes, sure, Nathan. I mean so our first focus with the team has been on getting the transformation project that has started last year getting them through to the finish line and getting the supply chain fully stabilized. And as I talked about in my comments, there's been really significant progress in the second quarter on that front with a big drop in past dues and improvement in service levels and some clear improvement in growth from that and positive feedback from the marketplace.
Now that’s been about transformation execution, but it's also been about bringing CBS to bear in helping I think, Brady [ph] had already put in place some talent and or changes, early this year that are helping and then we've brought some extra resourcing to bear as well as tools and we really made a lot of progress together there in Q2.
The opportunity that we see really as a moved to Q3 and beyond is to finish up the transformation projects, but then embed this ongoing continuous improvement culture. And what that will enable is to hold the high service levels, allow over time getting inventory improvements and productivity improvements that support both the 50 basis points or better of margin improvement that we've talked about as well as some of the working capital improvements that Chris talked about in his comments.
Thanks very much for taking my questions.
Thank you. Your next response is from Joe Giordano from Cowen.
Hey, guys. Good morning.
Good morning, Joe.
So sort of back on fabrication internationally, can you kind of talk, I mean the margin there are very good on no volume and were talking about no volume probably for the back half of the year. Can you kind of, maybe put a finer point on some of the other regional breakdowns on that margin and what you guys - and then maybe some of the -- some of the specific things you’re doing internally to kind of drive that when you're essentially just cost savings at this point, right?
Yes, so I mean, our margin improvements have been consistent across most of the business, so this is not isolated to one region. And we've said all along and we've been asked a lot of times what it would take to get to the 15% AOP level or 16.5 EBITA and I think we've consistently said that we could get most of the way there with price, price and productivity and restructuring efforts and then we need just a little bit of volume to get all the way there.
And so, what you're seeing this year is strong improvements in our margins without the benefit of volume and we are confident that can continue through the back half of the year and we do expect the industry should in the next year or so get back to some volume growth and that should enable us to have a complementary effect on margins. But we’re definitely focused on making sure that we've got enough price productivity and restructuring lined up to make sure that that we can continue to expand the margins even in a flat volume environment.
On that point on the restructuring, how do you guys think about restructuring across your enterprise now into second half and into 2020 as well at least on a comparative basis?
Yes, so first on DJO side we’ve made some very large structural restructuring if you’re out of the gate these transformation projects that were started before we acquired the business and so there is a lot of restructuring dollars going into fishing those projects and even leaning in to finish them as fast as possible and do them the right way. This is going to pass and the level of DJO restructuring as we roll into the second half of this year and in particular into next year should go to kind of a very, very low level.
On the FabTech side, we’ve had a combination this year of restructuring that's some normal structural work on the organization and supply chain, but also restructuring that’s come on the backside of some of the acquisitions that we've made in capturing some of the opportunities there. And so, we've been a bit of an elevated level there in FabTech that it will continue through the back half of the year.
And as we look to next year, we’re going to definitely be mindful of doing the right things to keep the business getting leaner and expanding margins, but also being very conscious of the need to drive cash flow and cash conversion and so we'll be prioritizing the FabTech restructuring efforts to make sure that we’re keeping the level of restructuring at a manageable level related to our cash commitments and conversion.
And maybe one last from me just on, you mentioned a couple of times the path to improvement in DJO, I'm just curious as you look at your customer base there and having history of past too and kind of supply chain issues before the acquisition, can you talk about like the impact on your customers and retentions rates there and how you've had to manage that situation?
Yes, so I mean one of the things we like about the industry is that there are strong brands that matter a lot. We confirm that DJO has a very strong brand and even with some of the challenge over the last few years still have a very strong brand. There is a channel in a lot of parts of the business that is pretty powerful as well in terms of being able to represent the leader and strengthen that position.
And these clinical position where we've got workflow solutions that entrench us in the clinical workflow. So there were things that we like about this industry that we knew would enable stickiness and that’s the case here. Yes, we had some frustrated customers from the service level interruptions and we missed some revenue for a number of quarters there and lost a little bit share here and there. But the vast majority of the customers and channels have stayed with the business and continued to give feedback about disappointment a quarter or two ago and now feedback about kind of positive feelings about where we've gotten to quickly together now.
Okay, thanks guys.
Thank you. Your next response is from Nicole DeBlase of Deutsche Bank.
Yes thanks, good morning guys.
Hey there, so I guess I want to start with free cash flow from a longer-term perspective. I know you guys are saying 90% plus kind of on a pro forma basis from here, but is it possible to get to a 100% plus conversion and not polaritize [ph] back to some of the working capital work that you're doing, but would love to hear a little bit of color there?
Sure Nicole, I think we’re really pleased to see the strong trajectory that we have right now going into 2020 that gets us into that 90% plus, the $250 million or more of free cash flow. And to your point the biggest areas of that that we're managing are working capital and the restructuring. As Matt mentioned just a moment ago, we’ll make sure that we are prioritizing that to ensure that we get the sort of cash flow delivery that we know the enterprise is capable of and at the same time manage working capital to be more efficient.
As we get into next year we look to be 90% or more. I think as you look longer down the road, we have the opportunity to continue to drive that up. The biggest variable, I think longer-term will just be level of the growth that we have in the enterprise, and whether that growth is so strong in MedTech for example over time that it does require a little bit of investment of working capital, so that’s our view.
Okay got it, thanks. And then for my follow-up, if we could just talk a little bit about FabTech, pricing was clearly so pretty strong this quarter although decelerating from really, really strong result in 1Q. If you could talk a little bit about the price cost impact on margin this quarter and I guess how that trends as we move into the second half along with just like the absolute level of pricing?
Yes sure. We’ve continued to work hard to get price and we've got some price cost benefit in the quarter now. In fact while we have had some reductions in the cost of steel, some modest reductions in the cost of steel, there's some other inflation in the business in some of the other products that came through late last year and early this year. And so, we still have important reasons to keep holding price over time and kind of getting some of the price cost benefit that catches up from some of the ramp up over the last year or so.
Going forward - certainly as steel prices come down which people do kind of expected they should come down in the back half of this year and into next year. For sure that will result in some downward pricing, some of that is contractual and some of it is just the normal way the industry has worked over time, but obviously we will be focusing on and demonstrating the value to the customers that enables us to keep improving our margins in the business and keep getting value-based price advantages in new products and applications where we’ve got kind of demonstrated differential value.
Thanks, I’ll pass it on.
Thank you. Your next response is from Andrew Kaplowitz. Please go ahead.
Good morning, guys.
Matt, can you talk about the cadence of orders you've been getting in FabTech, as you know many industrial companies have talked about a bit of drop off in June. But you did seem to mention relative stability. So is there anything that you are seeing sort of where you and any of the particular regions you talked about that U.S. being a little bit slower, but do you still think that volume growth there could be flattish for the rest of the year?
Yes, well we definitely saw in the end of the quarter some slowing in the U.S. and there is a lot of -- we had a lot of discussion with end-users and with channel partners to try to understand that and openly there is some views that the U.S. market has slowed down some and is in a little bit of a negative volume range. And some views that there's some inventory trimming that's been done that resulted in some of the negative volume and that that might pass in Q3 or as we move into Q4.
In the meantime, we've had kind of a more positive volume picture in some other parts of the world that’s left us a little above flat in the quarter. And so, our plan for the second half of the year is to plan on flat with the U.S. continuing to be down a little bit in and some growth in some other parts of the world and to make sure that we were doing the right things to deliver our commitments in a flat volume growth environment.
That’s helpful Matt. And then just stepping back, can you give some color on how you guys think about the cyclicality of DJO? Obviously it’s not very cyclical, but would you expect to see some cyclicality in prevention and rehabilitation if the U.S. economy does mutually slow?
Yes the analysis we’ve done on the past show that there is kind of a very limited impact on the business from downturns back in the 2009 to 2010 period the business was flat or better. So our expectation is that it has a significant amount of insulation from downturns based on that.
And then, one quick one for Chris, the guidance you gave on free cash flow for this year before you announced the Air & Gas sale, I think was $190 million to $210 million. Is it possible to sort of mark-to-market for us how the current business looks versus that guidance? I understand the improvement in 2020. Are you investing more in DJO this year than you expected or is it same around?
As we mentioned in some of our prepared remarks that we wanted to make sure that we cleared 2019 with the DJO operational transformation projects completed. So really leaning into that with a combination of Colfax resources and there have been some additional investment. Our view is that we’ll put an additional sort of $15 million to $20 million into the restructuring this year to make sure that we clear it and then it doesn't to turn on into 2020. And so to Matt's point we expect these sort of restructuring charges in DJO to be very light next year as we clear the projects, make sure we've got the operational tempo where it needs to be and get our fair share of the customers’ wallet.
I appreciate it guys.
Thank you. I am showing no further question in the queue at this time. I’d like to turn the call back over Mike Salter.
Great, thank you for joining us today everyone and we look forward to updating you on our next call.
Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a great day. You may all disconnect.