The Brink's Company (BCO) Q2 2018 Earnings Report, Transcript and Summary

Welcome to The Brink's Company's Second Quarter 2018 Earnings Call. Brink's issued a press release on second quarter results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available on the company's website at brinks.com. [Operator Instructions] As a reminder, this conference is being recorded. Now for the company's safe harbor statement, this call and the Q&A session will contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences is available in today's press release and in the company's most recent SEC filings. Information presented and discussed on this call is representative as of today only. Brink's assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's. It is now my pleasure to introduce your host, Ed Cunningham, Vice President of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Thank you, Drew. Good morning, everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported results on both the GAAP and non-GAAP basis. Non-GAAP results exclude our Venezuela operations, reorganization and restructuring costs and items related to acquisitions and dispositions. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance, will focus primarily on non-GAAP results. Reconciliations of non-GAAP to GAAP results are provided in the press release, in the appendix to the slides we're using today and in this morning's 8-K filing, all of which can be found on our website. Finally, Page 3 of the press release provides the details behind our 2018 guidance, including revenue, operating profit, noncontrolling interest, income taxes and adjusted EBITDA. I'll now turn the call over to Doug.

Thanks, Ed, and good morning, everyone. This morning, we reported our ninth consecutive quarter of year-over-year profit growth. We're now at the midpoint of our 3-year strategic plan to drive profit growth organically and through accretive acquisitions. And our results reflect great progress on both fronts, with both revenue and operating growth well above our plan targets. Second quarter reported revenue rose 8% and reported operating profit increased 25%. And that includes a significant unfavorable FX impact of 4% on revenue and 26% on earnings. Furthermore, the 25% reported profit increase this quarter after FX is on top of a tough comp of 52% profit increase in last year's second quarter over 2016. On a constant currency basis, which excludes the impact of FX, revenue and operating profit rose 13% and 52%, respectively. The constant currency profit increase was the same as last year's increase of 52% reported. These results clearly demonstrate increased operating leverage of more than 3x from internal improvement initiatives, which have enabled us to extend our profit momentum even with the recent currency headwinds. Similar to the first quarter, acquisitions added 5% in revenue growth and 14% in profit growth. Our operating profit margin was up 120 basis points over last year and up 360 basis points over the last two years. Adjusted EBITDA grew 25%, and similar to the first quarter, earnings per share rose 12%. In both quarters, first and second, the lower growth rate for earnings compared to operating profit is primarily due to higher interest expense and higher tax rate. These factors caused a drag on EPS in both quarters, which otherwise would have been up 21% this last quarter. We expect the Dunbar acquisition to close early this year, and when it does, the cash on our balance sheet will be fully deployed and is expected to generate nice accretive returns. And as we disclosed in May, the Dunbar acquisition also will enable us to reduce our tax rate significantly. As a result, future earnings growth should be more consistent with growth in operating income. Turning to Slide 4. Reported profits in North America were up 55% on revenue growth of 4%. Constant currency profit growth, which excludes negative currency translation was 60% driven by strong improvement in both the U.S. and Mexico. Profit growth in each of these countries was well over 50%. The margin growth rate of 275 basis points to 8.1% is clear evidence that our breakthrough initiatives are working. In the U.S., we continue to target a full year margin rate approaching 6%, as our breakthrough initiatives gain additional traction and our normal second half seasonality takes hold. Continued growth in CompuSafe services are -- which are on track to exceed our 2018 target of 3,500 new orders should also drive improvement in the U.S. marginally and in our recurring revenue. We're certainly pleased with our progress in the U.S., but the biggest driver of second quarter revenue and profit growth in North America was Mexico, which continues to benefit from growing sales to retail customers, improved profitability, and lower labor cost. Similar to the U.S., we expect productivity initiatives and seasonality to have an increasing impact in the second half of this year as well. We're very proud of the Mexico team and in their 3-year strategic plan, they challenge themselves to more than double their margin rate to 15% by the end of 2019, our strategic plan period. They're well ahead of schedule and have a shot at hitting that 15% this year. Turning to Slide 5. In South America, reported revenue grew 14% and operating profit rose 27% reflecting close to a 200 basis points increase in margin rate to almost 20%. Results were affected by negative currency translation in Argentina, where the peso declined by 32% against the U.S. dollar versus last year's quarter. And in Brazil, where the Brazilian real declined 11%. The total translation impact on revenue was $42 million or 21% and 13% -- excuse me, $13 million or 36% on operating profit. Strong organic and acquisition growth continued in Argentina, Brazil and Chile. On a constant currency basis, operating profit in South America was up 62%, again demonstrating demonstrable proof that our underlying operations, including acquisitions are performing well. And speaking of acquisitions, our pending acquisition of Rodoban in Brazil has been delayed due to still pending government approval. We expected to close the transaction this year, but given the uncertainty of timing, we'll take it out of our 2018 guidance, which we'll cover more in a moment. Slide 6. And Rest-of-the-World segment. Revenue was up 9%, primarily due to favorable currency translation and the acquisition of Temis. Operating profit was relatively flat, but down 6% on an organic basis due to continued price and volume pressure, particularly in France, partially offset by profit growth in most other Rest-of-the-World countries. As we said after the first quarter, the competitive market disruptions in France in 2017, which included pricing pressure and an unusually high number of tender rollovers continued through the first half of this year and are now likely to persist for most or all of 2018. We expect to only partially offset these factors in 2018 with internal cost reductions, and we expect more significant improvement in 2018 from additional core business cost savings and the synergies from Temis, hopefully supported by more stable market conditions. This slide, Slide 7, summarizes our revised 2018 guidance, which has been impacted by four key drivers: the recent sale of our French airport guarding business, affecting revenue; the delay in approval of the Rodoban acquisition, which I spoke about just a moment ago; and three, the significant unfavorable currency translation; and improved organic margins and profits that offset the unfavorable translation. First, the French airport guarding business had annual revenue of about $80 million and negligible profitable contribution. The sale, which closed in June, will reduce 2018 revenue by about USD 50 million and 2019 revenue by about $80 million. Second, the approval by the Brazilian government for the acquisition of Rodoban has taken longer than initially forecast. It's now expected to be approved without remedies, but the approval is now expected to be received late in 2018 later this year. As a result, the revenue and profit contribution originally forecast in 2018 has been removed and included in our full year basis in 2019. As we said earlier, significant unfavorable currency translation has already impacted reported results this year, and based on July 23 rates is now forecast to negatively impact the full year 2018 operating profit by about $59 million. These significant unfavorable currency impacts are expected to be largely offset by higher organic growth and margin expansion. As a result of the expected currency impact from the year and based on current rates and our ability to offset most, but not all of this impact, our new full year 2018 non-GAAP operating profit range is between $340 million and $360 million. At the $350 million midpoint, this revised 2018 guidance still represents a 25% increase over 2017. And our revised 2018 guidance also includes organic revenue growth increased to 7%, adjusted EBITDA in a range of $490 million to $510 million and EPS of $3.35 to $3.55 per share. I'd like to emphasize that the FX impact on our business is almost all translational and not transactional. Almost all of our cost of goods heavily driven by labor are in local currency, so our margins and our ability to compete are not negatively impacted by currency fluctuations. In short, our underlying operations are performing well and maybe even better in many cases than expected. Ron will provide more background in his section on FX fluctuations. At the halfway point of our 3-year strategic plan, our Strategy 1.0 plan has resulted in accelerating organic revenue growth above historic levels and above plan targets, as our breakthrough and other supporting initiatives have leveraged operating profit growth and driven margin expansion. Our Strategy 1.5, which is designed to layer in additional growth through accretive core acquisitions is also having its positive planned impact. And with our recent agreement to acquire Dunbar, we expect the impact of acquisitions to grow dramatically next year. In 2017, we paid $365 million to complete the six acquisitions that are expected to add about $60 million in EBITDA in 2018. With the addition of Rodoban and Dunbar in 2019, we have paid a total of $1.05 billion for eight acquisitions that are completed and announced, and that are expected to add an additional, a total of $150 million of EBITDA in 2019, assuming that most, but not all of the synergies will have been achieved. With acquisitions that have been announced in 2018, we'll have invested approximately $685 million or 85% of our $400 million per year target for 2018 and '19 for a total of $800 million target for the two combined years. And we still have a pipeline of acquisition targets that offer opportunities to capture cost synergies and strong returns that we're continuing to pursue. A closer look at Dunbar. On May 31, we announced our agreement to acquire Dunbar, the fourth largest cash management business in the U.S. We remain confident that this acquisition will pass the regulatory review process and expect to close before the end of 2018. We're extremely excited about joining forces with a great company like Dunbar that offers a complementary customer fit with Brink's and significant cost synergies. While we're still awaiting approval and operating as competitors, we're well underway with our integration planning. And the more we learn, the more profit we're regarding achievement of the synergies and for the future of our U.S. operations. We expect Dunbar to add at least $60 million of EBITDA in 2019, which includes about $15 million related to partial capture of initial synergies. When fully integrated, we expect this acquisition to deliver about $40 million to $45 million of cost synergies on top of LTM EBITDA of $43 million. This $80 million to $90 million of EBITDA is expected to result in a postsynergy purchase multiple of about 6.5x. While we've been the global leader in cash management for years, this transformative deal elevates Brink's to the number one position in the U.S. It enables us to deploy $520 million of cash that is currently generating excess interest without a favorable return, that's excess interest expense without a favorable return on our balance sheet. Further, the acquisition will materially reduce our tax rate with a higher proportion of the income generated in the U.S. and through other tax attribute. As I mentioned earlier, the accretive impact of Dunbar's profit and the related tax benefits are expected to add about $0.90 per share to earnings within two years. Turning to Slide 10. When we announced the Dunbar acquisition in May, we raised our 2019 EBITDA target to $685 million based on a $510 million operating income target. This includes organic operating profit growth from $216 million in 2016, or jumping 0.5 point of our 3-year strategic plan, to $390 million in 2019 or margin improvement of about 360 basis points driven by accelerating momentum from our key breakthrough initiatives. The eight closed and announced acquisitions are expected to add another $150 million in 2019 adjusted EBITDA or another 100 basis points of margin improvement growing to a total of 12% operating margin in 2019. Note that 2019 is only the first year of the Dunbar and Rodoban acquisitions being included in our forecast, so our targets included only partial years of synergies. When fully synergized, these acquisitions are expected to add substantially more to our profits in 2020 and beyond. Currency fluctuations have and may continue to affect our reported profits potentially eroding our planned profit contingency, as shown in red on this chart. This contingency of roughly 2 to 2.5 percentage points compliant with inflation-based price increases and additional acquisitions are expected to provide some cushion for that could offset negative currency fluctuations. We'll update our 2019 adjusted EBITDA target when we have more information regarding these factors. Now over to Ron.

Thanks, Doug, and good day, everyone. Before I cover results, I want to highlight two accounting items: the first impact is Venezuela. Brink's is one of the few U.S. companies still operating in Venezuela, and our team on the ground is [indiscernible] economic deterioration led us to exclude Venezuela from our non-GAAP results. In the second quarter 2018, we deconsolidated Venezuela from our GAAP results as we determined that we no longer met the U.S. GAAP definition of control for our Venezuelan operations. The deconsolidation resulted in a noncash charge to second quarter GAAP earnings of $127 million or $2.47 per share, which is in line with our disclosures and previous filings. The GAAP deconsolidation did not impact our non-GAAP earnings. If conditions in Venezuela sufficiently improve and we can reestablish technical control, we would reconsolidate our Venezuelan operations in the future. The second accounting item impacts Argentina. Consensus has been reached that Argentina meets the criteria as highly inflationary economy. U.S. company doing business in Argentina, including Brink's will account for those operations using highly inflationary accounting rules and this change effective for us is commencing on July 21, 2018 It will make the U.S. dollar the functional currency for our Argentine GAAP results. There will be no significant impact on our non-GAAP results, as we will continue to evaluate the results using the Argentine peso as if it were the functional currency for reporting, which is consistent with our historical reporting and how we report results for our other international operations. You will find more details about the accounting for Venezuela and Argentina in the appendix of this presentation and in our second quarter 10-Q. Before reviewing our 2018 second quarter results, I want to reflect on our 2017 second quarter that included operating profit of 52%, EPS of 65% versus 2016. Very tough comps indeed. Now let's turn to our 2018 second quarter revenue and operating profit. As you can see below the bars on the left side of this chart, total second quarter revenue growth was 8% or $65 million. Excluding the impact of currency, revenue increased 13% or $96 million reflecting organic growth of $60 million or 8% and $36 million of growth from acquisitions net of dispositions. Of the $60 million organic revenue increase, South America improved by 20% organically and delivered 2/3 of the growth. North America revenue grew organically by $16 million or 5% and the Rest-of-the-World segment grew organically by 1%. The six acquisitions we completed in 2017 added $43 million in revenue growth, that was partly offset by $7 million decrease from the second quarter disposition of our French aviation guarding business. ForEx reduced revenue by $31 million, reflecting the strengthening of the U.S. dollar against currencies in South America and Mexico, partly offset by a stronger euro. On the right side of this chart, you can see that second quarter 2018 non-GAAP operating profit was up 25%. This was on top of 2017 strong second quarter growth of 52%. Cumulative growth versus 2016 was approximately 90%. Excluding the impact, [technical difficulty] or $32 million reflecting organic growth of $23 million and $8 million from acquisitions, mostly from Maco and Temis. The organic profit growth was driven by increases throughout most of South America, the U.S. and Mexico. And unfavorable ForEx impact of $16 million was almost due entirely to weakness in the Argentine peso with some minor negative impact from the Brazilian real and the Mexican peso. Corporate expenses were down $8 million sequentially from the first quarter, but up $4 million versus the second quarter 2017. Increases of $3 million each for currency and security costs were partly offset by $2 million in lower incentive-based compensation. We expect our corporate security cost to decline in the third and fourth quarters. Let's go to Slide 13. This slide bridges operating profit to income from continuing operations and then to adjusted EBITDA. The variance from the prior year is shown at the bottom of the slide. Second quarter operating profit of $76 million was reduced by $12 million of net interest expense. This was about $6 million higher than last year, due primarily to our debt refinancing and senior note issuance last October. On June 30, 2018, we had approximately $400 million in excess cash, that increased net interest expense in the second quarter by approximately $2 million. By the end of 2018, we expect this excess cash to be deployed for the Dunbar acquisition. Versus prior year, taxes increased about $5 million to $24 million, primarily due to higher income. We continue to expect our non-GAAP effective tax rate to come in around 37% for 2018. Looking forward, when we fully integrate the Dunbar acquisition, we expect our effective tax rate to decline by 400 to 600 basis points to a range of 31% to 33%. Additional details on our income tax evolution are included in the appendix. Noncontrolling interest reduced profits by $2 million, that will be cut in half when we complete the buyout of our Colombian partners that we mentioned on our first quarter call. Income from continuing operations was $39 million or $0.74 per share, up 12% from $0.66 per share in the second quarter of 2017. Over the two years, 2016 to 2018, second quarter EPS was up 85% cumulatively. Depreciation and amortization of $35 million was up around 7% versus the year ago quarter. EBITDA for the quarter increased $23 million or 25% to $118 million. I will now discuss how currency impacts our results and our 2018 outlook. Turning to Slide 14. As Doug mentioned, our in-country growth and profitability is not significantly impacted by exchange rate fluctuations as almost all revenue and expenses are transacted in local currency. Currency rates do impact our U.S. dollar results when we translate our local currency financials into U.S. dollars. Consolidated results are, therefore, lower when the U.S. dollar appreciates, which is the case this year. On this chart, you can see the exchange rate devaluation through July 23, 2018 of the currencies of four of our largest international operations. Now let's move to Slide 15 where I will focus on Argentina. When we reported first quarter results, the Argentine peso to the U.S. dollar exchange rate was about 20.2. On July 23, that rate had devalued by about 25% to around 27.6, which is significantly worse than we contemplated when we provided guidance earlier this year. The good news is that over time Argentine revenue growth from inflation-driven price increases, ad valorem and volume has historically exceeded devaluation and resulted in U.S. dollar growth. This recovery can take several quarters, as illustrated by the U.S. dollar revenue and currency devaluation data on this slide. The red circles highlight the drop in quarterly U.S. dollar revenue when significant devaluations occurred. These devaluations occurred in the first quarter of 2014, and again, in the first quarter of 2016. The green circles show that in these cases, U.S. dollar revenue exceeded predevaluation levels three quarters later. If the past is any indication of the future, we would expect U.S. dollar revenue in Argentina to return to predevaluation levels in the first half of 2019. Let's turn to Slide 16 where I will cover our revised 2018 operating profit outlook. In 2017, we generated $281 million in operating profit. At 2017 average exchange rates for constant currency, we expected organic growth of our existing operations combined with the full year impact of our 2017 completed acquisitions to add between $103 million and $123 million of additional operating profit. This produced 2018 operating profit guidance of $384 million to $404 million on a constant currency basis, an increase of about 40%. The difference in the 2017 year-end exchange rates versus the 2017 average exchange rates was negative $19 million. So our 2018 operating profit guidance at year-end 2017 exchange rates was $365 million to $385 million, an absolute increase of approximately 33% versus 2017. Based on developments in the first half of 2018, we've increased our expectation for organic growth by about $20 million, but we also experienced a delay in the regulatory approval in Brazil for the Rodoban acquisition. That delay is expected to reduce our prior 2018 guidance by approximately $5 million. Due to the strong expected organic improvement, in constant currency our revised guidance would be $399 million to $419 million. However, in addition to the $19 million in unfavorable ForEx from the 2017 average rates versus the 2017 year-end rates, the currency headwinds I explained on the previous two charts are expected to generate an additional $40 million in negative translation for a total ForEx impact versus the 2017 average of about $59 million. This reduced our 2018 non-GAAP operating profit outlook to a range between $340 million and $360 million. On to Slide 17 and free cash flow. Excluding the impact of the Dunbar acquisition, our cash flow target for 2018 has been lowered to $185 million from $200 million, reflecting the lower EBITDA outlook, offset partially by expected lower taxes. Our 2019 target remains unchanged at $300 million. Our 2018 and 2019 targets reflect significant improvement versus the $58 million generated in 2017 and are expected to be achieved by improving EBITDA and managing working capital to more than offset higher interest payments. To improve working capital, we are striving to overcome the commercial challenges we face from customers looking to extend payment terms. We expect capital expenditures, excluding those related to CompuSafe to remain relatively consistent through 2018 and 2019 at around $200 million per year. As noted before, these targets do not include the impact of the Dunbar acquisition. Turning to Slide 18. My last slide illustrates our net debt and leverage position, both historically and assuming additional acquisitions. As of June 30, 2018, our net debt was $687 million, up $75 million from year-end 2017. This is an increase in line with historical seasonality, driven by factors such as insurance premiums, annual bonus payments and payroll taxes. If we achieve our 2018 and 2019 cash flow targets and complete $685 million of acquisitions in 2018, including Dunbar and Rodoban and another $115 million in 2019, our net debt would increase to around $1.2 billion at the end of 2018 and be approximately $1.1 billion at the end of 2019. The bank defined leverage that includes trailing 12-month fully synergized EBITDA would be around 2.0x at the end of 2018 and 1.5x at the end of 2019. I'll now turn it back over to Doug.

Thanks, Ron. In summary, we had another very strong quarter and expect continued strong growth through 2019, the remainder of our strategic plan period and beyond. As mentioned earlier, in the 2 years or 8 quarters that Ron and I have been with the company, our management team has consistently increased year-over-year operating earnings every quarter, with a compound annual growth rate approaching 40%, which is well ahead of our strategic plan targets. The operating income and EBITDA improvements that we've achieved to date are driven by both increased revenue growth and by strong earnings leverage. And I want to emphasize that our global management team is highly focused on continuing to build on this base of consistent strong earnings growth, with increasing free cash flow and a further emphasis on higher recurring margin and recurring revenues. I also want to emphasize that the EPS growth in 2019 and beyond should be much more in line with our operating income growth as well, with no longer having excess cash on the balance sheet after funding the Dunbar acquisition. In addition, with increased U.S.-based income and other tax attributes that are gained by the Dunbar acquisition, our tax rate is expected to be reduced. These realignments of both tax and interest components should substantially improve our EPS growth beginning in the first quarter of 2019. In summary, we're confident that we have a strong base for continued earnings growth through the 2019 plan period, a strong platform and momentum to continue this growth beyond the plan period, and we're developing additional strategic plans to drive shareholder value in 2020 and beyond. We'll share more of these strategies early next year. Drew, now let's open it up for questions.

[Operation Instructions] The first question comes from Tobey Sommer of SunTrust Robinson Humphrey.

This is Kwan Kim on for Tobey. First, how should we think about the long-term risks of continuing volatile FX fluctuations on the core business? I understand the short-term risks are all translational, but could a prolonged period of FX volatility impacts your CapEx and maybe M&A strategy?

As we said repeatedly, we are almost exclusively translational. So the only impact we would have with acquisitions in CapEx internationally would, if the dollar continues to appreciate, we would expect that our absolute amount of capital expenditures would go down and we would be able to have the same types of returns in excess of 15% to 20% that we have on our existing capital expenditures. But again, the tariffs that we're seeing in the news would have almost no impact on Brink's. We're able to produce armored vehicles in multiple countries and not have that as an issue. So we see no future prolonged impact from ForEx differentials other than perhaps a reduction in our capital expenditures and maybe a slight reduction in the amount that we have to pay for international acquisitions.

Okay. And on the Dunbar acquisition, as of today, what are the most significant factors that could accelerate the transaction and the factors that could slow it down the most?

Slow down the acquisition. The first is the closing date. And again, we're subject to HSR review. So the sooner we're able to begin the integration process, the sooner we'll be able to capture those synergy. I will tell you that both teams are cooperating now to try to understand the potential without crossing over any lines. We're very careful to stay within the strict compliance with the laws, but we are looking to move swiftly once we have approval to close the acquisition. I think the teams are identifying versus our preliminary estimates of synergies, opportunities to execute those quicker than we had originally thought. So we're looking forward to that, but again, everything is contingent on the actual closing date.

The next question comes from Jamie Clement of Buckingham.

So North American margins up a lot year-over-year. Could you give us a little bit more color on, how much might have come from Mexico, how much might have come from the U.S.?

I think we've made a statement that overall margins in both U.S. and Mexico were up more than 50-plus percent. We tried to give you a little bit color without giving specifics around that. And what's that suggesting is, in the U.S. our margin is more than 50 plus percent up over the prior year. So we continue to see the strong results of our breakthrough initiatives. And as, I think, has been the question in the past, we see this as not just picking up low-hanging fruit in the first 4 quarters of our 12-quarter strategic plan. This is continuing to see the benefits associated with adding additional trucks, the other CapEx expenditures, high-speed money processing equipment, the implementation of one-person vehicles and the other things associated with that. And we're starting to see additional benefits that we'll continue to see ramping up even further on the CompuSafe sales and other sales initiatives as well. So continue to see the build up, the ramp-up of that. And this is right on track to do that.

All right. Doug, on the trucks, approximately what percentage of the way are you down the road of hitting your goal on the truck number? I know that late last year and early this year, you were looking potentially to find additional suppliers of those trucks. So has that process accelerated, on track or cannot accelerate? Any specific color you can give?

Yes, we're on track. We were behind a little bit at the end of last year too. So we didn't hit our number, I think, if we laid it out in terms of equal ramp-up or even ramp-up in truck additions. We've certainly gotten deliveries in the first half of this year. Obviously that would've delayed some of our benefits if we would've had those at the beginning of this year, but we started to see a ramp-up this year of additional truck deliveries. We are working with alternate suppliers on that, but have not finalized anything beyond that. I would suggest in general, we are on track with our truck ramp-up and we'll see the benefits accruing greater in the second half of this year versus the first half.

I appreciate it. And Ron, if I could just ask you one question. It seems like investors sometimes lose sight of this. You just alluded to it, if the dollar is relatively strong sure, that hurts reported results, but if you've got money to spend on acquisitions, that can actually be a potentially big bonus for you. So if -- would you guys be willing to go beyond that approximate $400 million per year spending target that you laid out a year or so ago, if there are more acquisition opportunities out before [indiscernible].

Let me answer that one in particular, but Ron can answer the rest of it. That's a target that we've laid out. I think if you know as by now we're going to do what makes the most sense for getting returns on the business and where we could be taking this to maximize value. We have a strong balance sheet. Let me give you an example. The Rodoban acquisition has been delayed. The Brazilian real has decreased in value. Our actual cost of that transaction the cost of buying that has gone down. As a result of that, I'm just using that as an example in terms of suggesting all the transactional -- translational FX impact that we have can also help us in some other places, both in terms of local CapEx spend that was well within country as well as potential acquisitions and our competitiveness related to that. But getting back to the general question, we're going to do what's right for the business. We're going to continue to do aggressively new acquisitions, and I think the purpose of the target we laid out there is to give us any -- The Street some modeling capability as well as some method to judge our performance by, if you will, and hence, that's what we suggested. To date, we announced acquisitions. So far in '18, we're 85% along that 2-year measurement 2 quarters into the 2 years. But we'll continue to do what makes great sense for returning shareholder value and doing the appropriate acquisitions within the constraints of our financial capabilities.

The next question comes from Jeff Kessler of Imperial Capital.

First, with regard to your estimates with regard to where the Argentine peso is going to go, it fell 8% in the first quarter and then it fell another 30% in the second quarter. And the econometric surveys that most -- it's recovered a little bit, but the econometric surveys are all talking about another somewhere between 10% and 15% for the remainder of the year. You seem to be, let's call it, more conservative in that. You look like you're guiding for a steeper fall in the peso than what is being predicted. I'm assuming that as a safety net you're giving yourself.

That's exactly right, Jeff. Number one, we don't consider ourselves experts in forecasting currency movements. So what we choose to do instead is to be conservative on our translation, and if the things are better than that, then great. The other side of that same coin, Jeff, is that our price increases in inflationary and highly inflationary countries are driven in part by devaluation as that translates back into inflation and we have that ability to recover it over time. So that, in essence, the absolute level of devaluation really is not as important to us because we're able to recover that and more over that essentially 3-quarter lag that we showed on the slide in the presentation. So while devaluations have short-term shocks to our consolidated results in U.S. dollars, from an operational standpoint, it's something we know how to function very well in and we already have the price increase process underway in Argentina, and it looks like, again, that we will be able to repeat the past patterns of recovering significant devaluations through higher pricing, ad valorem and additional volume. So the absolute level of the currency is not as important as our ability to manage future prices.

Let me just chime in that I can't talk anything more technical on that, but I think the best indication, as Ron suggests, what's going to happen in the future is what we've done in the past. And we don't know, we can't forecast where things are going to go. But I think Slide 15 gives a good indication of what has happened in the past over numerous similar falls like this and this isn't something new and how the structure in Argentina and our team has been able to respond to that. So I think that's what really suggests where we think the future will go.

Okay. Second question, can you parse out a little bit what is helping the operating margin in North America, particularly -- as you split it out between the U.S. and Mexico, is it the addition of CompuSafe as a recurring revenue item as opposed to a sale item that is helping the margin up? Or have there just not been enough of those sales yet? And in Mexico, is it more than just labor -- the labor rates in [indiscernible] -- is there something else that is driving the margin in Mexico? Are there anything that is -- and connected to that question, is there anything that is common between the U.S. and Mexico in driving the North American margin up?

Interesting questions. Let me parse it through that in the U.S., I would suggest you that CompuSafe is on track or better than on track. We're very pleased with that year-to-date, but that is not really what's driving the margin improvement in the U.S. That's something that will continue to have more of an impact in the second half of the plan period because it is a strong recurring revenue stream base. These are long-term contracts. These are higher margin than the rest of our other business. These are better solutions for our customers, which overall are great things for both us and the business. So those things will provide more growth and ramping up of both organic sales as well as margin improvements in the second half of this year. In the U.S. it's been heavily driven by the key breakthrough initiatives and other core blocking and tackling in the U.S. operations. So the addition of trucks leading to the reduction in repair and maintenance costs, the addition of trucks leading to one-person vehicles and the labor savings around that. As we get more trucks in place, we'll see the benefits ramp-up of those labor savings. Second half of this year will be higher than the first half of this year because of higher tracks and more utilization on the route. Same thing going forward next year. The money processing equipment and the network optimization will have more benefits going forward this year and next year as well. So those are the things that are continuing to drive the U.S. operations and the continued ramp-up and the improvements there. It'll only be hastened and improved by the additional ramp-up of recurring revenue streams from both the CompuSafe services as well as other customer solutions that we'll be continuing to roll out in more detail in the future, which will be, and I would love to add this, which will be supported by and driven as well by our customer-facing technologies that we're rolling out with our new Brink's app, our track-and-trace applications and other technologies. And I'm pretty excited, frankly, to be talking about those -- I will be talking about those later in the next couple of quarters and next year. And I think that will continue to not only help with recurring revenue and higher margins in the future in the U.S. and on a global basis. So that's the U.S. In Mexico, it's the raft of all the things that were laid out in the strategic plan, obviously the headline of that is the improved relationships -- the improved relationship and relationships across the board with our unions in Mexico that continue to strengthen, to be beneficial for both our company, the unions and we think with our customers. So it's an improved relationship there that has reduced our overall labor cost that has reduced -- or over time, that has increased our ability to optimize routes, optimize the way that we run and drive our business, the implementation of handheld and other technologies that we were not able to implement before that has helped that as well. And on top of that, we've materially increased our top line, so our organic growth in Mexico has materially accelerated heavily through the ramp-up of sales to the retail sector. So a combination of top line growth with significant multiple drivers on the cost side that we have a lot more room to continue to build on that. So they're different, but in many cases, driven by the overall unique drivers but key breakthrough initiatives on -- in both countries. And as I said before, both of them are seeing the continued as planned or more improvements. Mexico has just been a great story of working with the union and getting a team that laid out some fairly significant objectives and targets and are very turned on to achieve those and more.

[Operator Instructions] The next question comes from Ashish Sinha of Gabelli & Company.

I had a couple of questions. First on France, where you talked about the 2018 improvement delay, could you please remind us in terms of what are the various...

Excuse me, Mr. Sinha, could you kindly move the voice too closer to your mouth, sir, and repeat your question kindly?

Is this better now?

Much better.

Okay. So yes, I had two questions. Firstly, on France. Could you maybe talk about the structure of the market? And in terms of, you said the price pressure is going on -- and you expect it throughout 2018, so I just wanted to understand the improvement you're talking about 2019, how much of that would be internal, i.e. from synergies with Temis and how much do you -- would you need the market to improve? That's my first question. My second question is on South America, where organic growth was 20%, I think, improving from the 18% you said year-on-year in the first quarter. Now within the second quarter, we, obviously, had the truckers' strike in Brazil, which obviously impacted probably the retail environment. So I just wanted to get a sense of this significant disruption in the economy, yet you still had pretty impressive growth. So just wanted to understand where that strength is coming from and how sustainable that is?

So Ashish, the first question regarding France, I think we've laid this out in the last 2 quarters at least, the earnings call for the fourth quarter last year as well as the first quarter of this year earnings call. But as a result of pressures from a heightened number of tender rollovers last year and the pricing pressure that we saw on those tenders, and therefore, the potential reduction in volume as well as the prices of those tenders in the marketplace that put pressure on the marketplace and continue to put pressure on the marketplace and that pressure of volume and pricing -- in market pricing, we're seeing continue and will probably continue as we're projecting now potentially for the rest of this year. That doesn't change...

So if I could just stop you there. In terms of the pricing pressure, you're talking about additional pricing pressure in contracts, new contracts coming up for renewal or...

No, nothing different than there was before. But pricing -- but it hasn't come back up on new contracts like we would've probably hoped that it would have. So the real answer is, no further down -- downward pricing pressure of consequence like what we saw a year ago. But not the recovery that we are hoping in terms of the general market. So that's one piece of it. The second piece and the third pieces of it, I guess, as important is, we laid out prior to the 2017 moves in the marketplace, in other words, in the early part of '17, a strategic plan, it was a 3-year strategic plan that included significant cost reductions in our core business in France. And we are implementing those cost reductions now and will continue to do that in concert with -- [indiscernible], both the rest of this year and seeing the full year impact and a little bit more next year as well. So those are part of the significant actions that are being taken to offset and were already in place to offset some of the downturn in the marketplace to the changing market conditions in the marketplace. So that's helping this year, and we'll see the benefits of that associated with next year as well. And then synergies related to the Temis acquisition, which we're just starting to be implemented in the latter part of this quarter, last quarter we just reported and we'll see the benefits for the rest part of this year and the first part of next year. So it's those things that are offsetting the market conditions that we have a confidence and we have control over being able to really drive those that will offset the pricing. Then on top of it, we do see growth and better margins in selling of solutions. And we're clearly the leader in the French market with our solution selling in France, that, again, has been very positive and is offering a better solution and alternative for our customers and is gaining significant traction. So that will help offset the pure competitive pricing position in the marketplace as well.

I can jump into your South American question. The results are up for several reasons: number one, the synergy that we're achieving in our Maco acquisition in Argentina, the LGS acquisition in Chile, the PagBrasil acquisition in Brazil are all adding to the growth in both revenue and earnings. Generally, throughout the region, you're seeing a growth in retail, which through the rest of our business has a higher margin than our financial institution business. We are able to get price increases, some of those are driven by riskier environments, such as Brazil, some of them are driven by inflation, such as Argentina, but overall, those price increases are sticking. We are getting customer wins. We had a significant one in Colombia. And then throughout the region in the quarter, knock on wood, we had lower losses, which has helped to facilitate that as well.

And to that point, you're correct. There was some impact, although probably not as significant as maybe other companies saw, as a result of the trucker's strike in the second quarter, which I think actually bodes well for where we see things going forward in the future in Brazil.

And we have a follow-up from Jamie Clement of Buckingham.

Doug, Dunbar, I think it's always had a very good reputation among retailers. What have the conversations been like? I'm particularly curious about maybe some retail customers that you share with them? After you've announced the deal, what -- have those conversations been particularly encouraging?

I think, Jamie, it's a very astute question. I'm a little bit concerned where you get your information from, but in general, what we've seen is that it's a very strong position, reputation with retail space in particular, but also with the advisers they deal with. But heavily on the retail side where we think it's very complementary with our business, Dunbar has a very strong reputation of being closer to customer, being customer-focused and well liked, and we think that will be something that we can learn from as well as, hopefully, be able to assure that we maintain that stickiness, that customer focus both with their customers as well as get some more of that into our business. So yes, we've heard that. That's been very positive, and we certainly want to build on that, both in terms of the people from the Dunbar organization that we think will help picking the best of the best and assuring that we continue to provide that to their customers, but also other customers as well in the future.

The question-and-answer session and the conference have now concluded. Thank you for attending today's presentation. You may now disconnect.