Good morning, everyone, and welcome to The Hershey Company's Fourth Quarter 2018 Results Conference Call. My name is Aaron, and I'll be your conference operator today. All participants have been placed in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] This call is scheduled to end about 9:30 AM. So please limit yourself to one question, so we can get to as many of you as possible. Please note that this call may be recorded. Thank you. It is now my pleasure to turn the program over to Ms. Poole. You may begin.

Thank you, Aaron. Good morning, everyone. We appreciate you joining us for The Hershey Company's fourth quarter 2018 earnings conference call and webcast. Michele Buck, President and CEO; and Patricia Little, Senior Vice President and CFO, will provide you with an overview of our results, followed by a Q&A session. Before we begin, please remember that during the course of this call, we may make forward-looking statements within the meanings of the Federal Securities Laws. These statements are based on our current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements contained in our 2017 10-K filed with the SEC and today's press release. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, I would like to turn the call over to Michele.

Thanks, Melissa, and good morning to all of you on the phone and webcast. As I reflect on the progress that we've made against our strategic plans and the initiatives we have underway for 2019 and beyond, I'm confident and excited about the future of this company. Before I get into the details of our results, I would like to take a moment to reflect on your 125th anniversary that we are celebrating this year. It's an incredible privilege to lead a company that remains as relevant with consumers today as we were more than a century ago. Everyone here at Hershey has tremendous pride in our incredible portfolio of brands. And it's the care and attention that we put into each of our brands that resonates with our consumers. Our job is to deliver on our consumer's expectations each and every day. We are also entrusted to make the strategic decisions to ensure that Hershey is well-positioned long-term. I would like to thank my Hershey colleagues for their consistent passion and commitment. Now turning to the businesses at hand [ph], we are fortunate to participate in growing categories with amazing brands that consumers love. We have advantage margin, a healthy balance sheet, and differentiated capability. In a dynamic and highly-competitive operating environment, in 2018, we grew our business and delivered on our financial commitment, while strategically investing for the future. In our U.S. core confection business, we invested in new brand positioning and launched new campaigns for our two largest brands, Reese's and Hershey's. We shifted investment to new marketing capabilities that enable us to support more confection brands within our portfolio. By leveraging consumer insights and new capacity, our team drove strong growth and share gains during the Halloween and holiday sales period, while improving our sell-through and…

Thank you, Michele. Good morning everyone. As anticipated, fourth quarter net sales of $1.99 billion increased 2.5% versus the same period last year. Constant currency net sales increased 3.1% with foreign currency exchange, a 60 basis points headwind. The net impact of acquisitions and divestitures was a three-point benefit to net sales growth. Volume was a 90 basis point benefit, which was partially offset by anticipated negative net price realization of 80 basis points. For the full-year 2018, net sales increased 3.7%. The net impact of acquisitions and divestitures was a 3.6 point benefit. Organic constant currency net sales growth of 0.3% was partially offset by unfavorable foreign exchange of 0.2 points. Adjusted earnings per share diluted of $1.26 in the fourth quarter represented an increase of 23.5% versus the same period last year. This was driven by more favorable tax rate as M&A declined acquisition and volume growth. For the full-year 2018 adjusted earnings per share diluted of $5.36 was an increase of 14.3% versus the full-year 2017. This was driven by favorable tax as M&A and acquisitions partially offset by gross margin declines. By segment in the fourth quarter North American net sales increased 4.3% versus the same period last year. The Amplify and Pirate brands acquisitions added 4.8 points and organic volume gains contributed 80 basis points. Net price realization and foreign currency exchange rates were 110 and 20 basis points headwinds respectively. These results were in line with expectations. North America advertising and related consumer marketing spend declined 13.3% in the quarter, this was in line with expectations consistent with what we shared throughout 2018, these declines were driven by optimization of emerging brand spend, as well as media efficiency gains as we leverage new models and channels to reach consumers. Despite the spend declines for…

Thanks, Patricia. I remain confident in our strategies and I am excited about what we here at Hershey have ahead of us in 2019 as we look to drive a year of balanced growth. As we talked about, the marketplace continues to advance at an accelerated pace. I am optimistic that this change creates opportunities for us to engage with our consumers in new and innovative ways to unlock growth. As I mentioned at the top of our call, 2019 is our 125th anniversary, and it's an incredible time to be here at the company. Our remarkable employees are dedicated to delivering the best quality and the best experience for our consumers each and every day. That hasn't changed over the past century, and it will continue into the next. Patricia, Melissa, and I are now available to take your questions.

[Operator Instructions] We will take our first question from Ken Goldman with JPMorgan. Your line is open.

Hi, good morning.

Good morning.

Good morning.

I just wanted to poke around a little bit on the de-load [ph], can you frame for us - I don't think you quantified the impact of it, so if you did, forgive me, but I'm just trying to get a little bit of a sense of the number there. And then I also want to get a sense for you know, where retail inventories currently sit as far as you can tell, you know, are they still up year-on-year after the de-load - I really just want to get an idea of further risk as we look ahead, because I know you guys talked about how the de-load was in line with your expectations, but I don't think most people on the street were quite prepared for it as perhaps you guys were?

So let me just start, Ken, and then I'll turn it over to Patricia for more details. The year did close in line with our expectations, and we know that as more data and analytics are available retailers are constantly looking in how they can optimize inventory levels as we all are, and we do expect that to continue into 2019, and those assumptions are built into our guidance, but I'll let Patricia give a little bit more detail around that.

Yes, as we talked about on the third quarter, we have good insight, especially on some of our bigger customers in terms of their inventory. And we knew that there would be some de-load in the fourth quarter, and you saw that play through in the difference between the sales and the retail takeaway. That was absolutely in line with our expectations. We don't have as good an analytic on all of the, you know, many, many customers, but we know that overall we believe that inventory came down through this system. We expect that to continue into 2019 as Michele said, again, really related to broad secular trends in the industry. On any given quarter, that will have a lot of movement based on season, based on timing of pricing, which we think was an impact this year looking at when promo activity is innovation timing. So quarters can be very - have a lot of movement, but this was exactly what we - we ended the year exactly as we expected.

Okay, thanks very much.

And our next question comes from Bryan Spillane with Bank of America. Your line is open.

Hey, good morning everyone.

Good morning.

Good morning, Brian.

Hey, just one clarification and one quick question just on the clarification, Patricia, you talked a little bit about share repurchases, and it just wasn't - I want to make sure clear, the EPS guidance range for this year does not assume a reduction in the share count?

You know, we have a long-term historic average of doing share repurchase on a discretionary basis every year, and we always put that into our plans, because otherwise it would just show us - especially, in the absence of acquisitions, which are hard to - which we don't put in plan which show us building cash. So there is a modest amount of our normal run rate sharing purchase included in the plan.

Okay, but nothing unusual relative to history?

Correct, nothing unusual.

Okay, all right. And then, Michele, you talked a little bit about the, I guess, the gap between - in North America, the takeaway in chocolate versus non-chocolate, you know, so the non-chocolate being a drag, and I guess, that didn't SKUed [ph], can you just give us a little bit more color what the magnitude of that is, and then I know - I guess, it's still going to be a drag in '19, but is it less of a drag in '19 than it was in 2018?

Yes, so the SKU rationalization is probably the bigger impact on the business and that's about a point in 2019 and that's about the same that it was in 2018.

Okay.

And then relative to the non-chocolate portfolio, I would say the impact will be similar in '19 versus '18 as you know the large proportion of our business is chocolate. So from a magnitude perspective, I think, that can give you a little bit of a feel of the size of that.

Okay, great, thank you.

Sure.

We will take our next question from Andrew Lazar with Barclays. Your line is open.

Good morning, everybody.

Good morning.

Good morning, Andrew.

Okay. I know heading into this year, Hershey obviously had worked through a decent chunk of some SKU rationalization as you've talked about, some trade inventory reductions you made capacity investments and divested some businesses that have been a drag. This year you've got, obviously, the benefit of a longer Easter, getting some pricing in place. And then you've still got incremental cost saves as well. So, I guess my question is, maybe why wouldn't we see maybe more of an - like on algorithm type of year with respect to the top and bottom line. Maybe in other words, would you characterize '19 as still a year of incremental investment or perhaps you're being a little bit more cautions on things like volume elasticity in relation to the pricing and things of that nature. Thanks very much.

Well, Andrew, yes, we feel really good about the plans and the activations we have this year. And I think what we feel great about is how balanced - how many different growth levers we think we're really pulling. So, as you know, as we mentioned, we expected to accelerate performance in our important North America market. However, that SKU rationalization is still impacting us at about that point, as I mentioned. And if you add that back in to where growth is, that really puts us smack dab in terms of where the long-term guidance is. So, the price increase, which will have a little bit of an impact. We feel good about the price increase, but we do anticipate a little bit of volume conversion, which as you know, based on history, you get a bigger volume impact, and then it works its way back up throughout the year. And we'll continue to see that little bit of softness as retailers continue to optimize inventory. And we feel great about the plans and the acceleration, but that SKU rat is really the biggest - kind of the biggest offset.

Got it. Thank you.

Our next question comes from Robert Moskow with Credit Suisse. Your line is open.

When I try to add up the big building blocks for 2019, it does shape up to be a very different year in terms of what's driving the profit growth. In 2018, as far as I can tell, International segment profits grew a lot. And I think that was largely due to overhead reductions. You had a big advertising cut, like an 11% cut. And then when you think about 2019, those kinds of benefits kind of go away. And what's driving '19, it looks like, is more gross margin expansion, which is fueled a little bit by the pricing, and maybe some other factors. And then maybe the tax rate is a benefit too, although I'm a little unclear. So, is that a more difficult task in '19 given the competitive intensity that you brought up, and also the pressure from retailers that's pushing inventory down? Thanks.

Now, I feel confident that we've done a very solid job building this plan, and that we have all the right building blocks to deliver that growth and profit algorithm in the way that we've laid out. So I wouldn't say that it is a - I wouldn't say it's a more difficult task. I think we're excited about what we have to deliver that. I think our pricing is on track, so some of the levers that are going to deliver that are already in place. The Easter season which benefits us, pricing, we feel really good about the innovation that we have. So, we feel great about it.

And just to comment on the taxes, that will be a benefit, the slightly lower tax rate, but that will be basically offset by the fact that, as I mentioned, our non-service related pension costs will be higher in 2019 due to just outset performance at the end of the year. So, that's not a big net overall change to our EPS.

Yes, Rob, what I would say is I just think we've taken into account a lot of the varying factors going on in the marketplace in a better way than we ever have in the past, and have a strong plan.

I appreciate that. But can you comment on the pricing in North America in fourth quarter, it was more negative than I thought it would be. Did some of your price increase get implemented in fourth quarter or did any of it get implemented?

As we've seen over history, it really takes a period of time for our pricing to hit the marketplace because of the seasons which are sold in so far in advance, and then protecting promotional programs which are usually also about six months out commitments. So, that really would not normally hit till '19, that's when we're anticipating to hit. We've seen a little tiny bit of it show up already, but it'll build as we go throughout the year. So it's totally in line with expectations.

Got it. Thank you.

Our next question comes from David Driscoll with Citi. Your line is open.

Great. Thank you, and good morning.

Hi, David.

I wanted to ask about your price-volume elasticity expectations. You made a couple of references, Michele, but specifically would volumes be negative in North America in 2019? You've got the longer Easter, but it is a price increase, and so just curious if you actually would guide negative volume growth in North America for 2019?

I would say closer to flattish on volume.

Okay.

Given that we've seen historically and what our elasticity data would show.

And Patricia, you mentioned, and I think you reiterated in your script, the margin for growth the total program achieving $175 million. You've been at this level for a little while. It sounds like the program is going very well. Is there a possibility of upside to this program? And just give us some cadence here as to how you guys are thinking about that. It's been a while since this program is out, just curious about your revision process. And then specifically, what is the savings expected in 2019? And then I just would love an update on your CFO search, Michele, just to see how that's going? I don't think you mentioned that, but curious how that's going as well. Thank you.

So, I'll start on the Margin for Growth program, we've been really pleased with how it's done. In really two senses, I just want to say clearly in one sense, and we've talked probably a lot about this, is in terms of the savings that we've had in a lot of function. And I just want to thank all my colleagues on work on, I think, a very effective program. But I also want to say I just never want to forget this, we also use this as an opportunity to invest in more of our commercial capabilities, so is really a change in that, and that's gone very well also. So, we pulled ahead a fair amount into 2018, as I mentioned, that primarily comes out of 2019. There's a small piece that, given just some of the timings as we get into the details of the program, got pushed into 2020, and that relates around some of the - honestly a lot of it is in the finance function gated by our ERP transformation. That'll leave us, I think, pretty much where we expected to be earlier in the year, which is the high end of the program, closer to the $175 million range. And I would expect, if you sort of do that math that puts us in the $30 million to $40 million range for 2019.

And then, David, to follow-up on the second part of your question regarding the CFO search, it's on track. I have nothing to report at this time, but well, we'll know as soon as we make our announcement.

Thank you so much.

Thanks.

And we will take our next question from Jonathan Feeney with Consumer Edge. Your line is now open.

Good morning. Thanks very much.

Hi, Jonathan.

Hi. I wanted to dig into the gross profit a little bit. And forgive me if this isn't - just tell me what you feel like you can. But I'm trying to understand this, and I know there's some moving parts, but what an organic rate of gross profit looked like for the fourth quarter broadly. Was that particularly in line with your expectations, because it was a little bit behind mine? And maybe what role costs played, where they a headwind, is there a tailwind there, and what does that mean on the cost piece for 2019? I believe you already commented on gross profit for - gross margin for 2019. Thanks so much.

So, as I mentioned, we had the - we did have a small write-off in the fourth quarter related to some - we disposed of some underutilized assets. Absent that, we would have been closer to a positive 20 basis points for the quarter. In terms of the underlying cost structure, I would say that what we've really seen, clearly, we as well as everybody else have been hit by inflationary pressures as well as some of the negative price realization. And what you see is that stabilizing in the fourth quarter, especially things like freight, logistics, costs like that they remain high but stable. Going into 2019, we don't see a real reduction in those. We think we're doing a good job of optimizing freight and logistics, but there's still a base level of inflation in that, as well as packaging. We're also starting to see some of the wage inflation related to some of the high employment rates that you especially in some of - like our distribution centers, so that's also a bit of a pressure on us. Opposite that, so we will have some good news in our commodities based on where some of the commodities pricing or hedging program puts us. So, all of those puts and takes puts us at a modest improvement for 2019 growth margin.

That's really helpful, Patricia. But I guess and again if you don't want to comment fine but I was just thinking you brought private brands to gross profit and you've got a certain amount of the amplify gross profit and I know that some of that got divested but net of that it looks like that seems to be a bigger number than the $15 million in adjusted gross profit year-over-year and I know you have a divestiture, I mean you've got rid of the divestiture that you just talked about, when you net all of that stuff out, I'm trying to understand what the trend is in your organic greater gross profit, so when all this stuff goes comparable, we kind of understand what's going on, is that clear?

Yes, it is. I would have to think it through that way and I think what we're saying though is those were to get impact what we said all along, we didn't get negative growth margin and we see that goes up to base up the fourth quarter building play there is reaction from amplify is really hardly anything in the fourth quarter. I mean we have to take a little bit further detail offline.

Yes, we can take it further offline later, thanks so much, appreciate it.

And our next question is from David Palmer with RBC Capital Markets. Your line is open.

Thanks, good morning. Question on your U.S. organic growth as we head into 2019, it feels like it's one way to organize the outlook is to think about the big three things going on you have the confectionery innovation that you're doing, you have that SKU rationalization and then you have the build out broader snacking in the distributions you might get there, Could you touch on the big buckets that as you see them and perhaps compare that to 2018 and help us understand where you see an acceleration in organic growth coming from? Thanks.

Yes, absolutely, so I think at the kind of highest level there will be an acceleration in North American growth driven by price, there will be acceleration driven by season both Easter as well as Halloween and holiday and certainly there will be a contribution from snacking that will be incremental as well and I think I mean I think those are the real biggest buckets to focus on as the biggest change from a year-on-year perspective.

I guess just a follow up, if I were to concentrate on the core confectionery side of things, I guess one thing I wonder about is you've had a few different new products, some of them are combinations of research pieces in your core trademarks, you've kind of gotten two and half years it feels like into some of these call mega extensions and I wonder about the incrementality of the new stuff you're doing versus perhaps the fate of some of the 2017, and 2018 vintages of these extensions, is that something you're managing and do you think you can still manage that on a net positive basis? Thanks.

Yes, so as you think about 2019, what I'm really excited about in our innovation plan is that our two big innovation are the chocolate packaged candy packaging reinvention which is really a better package but the same product with drive Shelton packed in usability et cetera and then re-spent and we've got a great track record of innovations on this and also any time we innovate close to the core. So I think the innovations we have in 2019 have a lot of the levers to that are tend to be correlated with some of our bigger successes and then I think you're right as we look at SKU rationalization, we include in that some of the past innovation that has had a couple good years of growth but maybe has dwindled down a bit to the point where we have more productive uses of the shelf space and so that's kind of included in that.

Thank you.

And our next question comes from Jason English with Goldman Sachs. Your line is open.

Hey, good morning everyone. Thanks for spotting me in. I was hoping you could comment on the amount of pricing that you expect to be realized in the P&L this year, I heard you say you're on track for the 250 bps contribution but it sounds like the timing of the new bags is going to happen a bit later than we expected and obviously what we're entering the year with what looks to be a fair amount of year-on-year increase in trade spend at least, so we're closing last year which is clearly net price drag, as we contemplate the puts and takes of all that, what do you expecting the growth of the P&L?

Approximately about 1.5 for the year, as we talked on the last call, it does build throughout the course of the years of the full 3.5 doesn't get realized in the overall P&L, you have built up to that 2.5 by the time you get to the third quarter, so all in that's about all about 0.5 for the year.

Okay. Thanks and sorry if you guys had previously given that clarity and then I want to come back on this derationalization drag, I think hearing to your prepared remarks, I mentioned this derationalisations is affording the ability to swap out on productive SKUs with more production SKUs, if that's the case shouldn't this be an acceleration and you're putting higher productive SKUs on shelves, shouldn't be adding to growth net, net and if I know I know you're sitting the drag, what am I missing there?

Well, there are inventories that get pulled back associated with some of those SKUs, and that's what drives part of that drag, so there's a transition timing, there's the inventory piece and that really creates that.

Got it and last question, just these are sort of rapid fire ones, I know in the last call you flagged retail takeaway was tracking about 2.5% you are gaining share, your takeaway has slowed your shares kind of slipped negative despite the strength in Halloween, can you give us some context in color of what drove that sequential consumption deceleration?

I think I believe we stated we expected our retail takeaway to be about 1% in the fourth quarter and that's exactly where we came in and the key drivers were as we expected, we had some really strong seasonal strength that was the biggest driver. And our share decline decelerated as well, which was expected.

Okay, all right, thank you.

Our next question comes from Alexia Howard with Bernstein. Your line is open.

Good morning everyone.

Good morning.

Hi, I'm trying to have a little poke into the drivers of gross margin, I know there's been a couple of questions on this, but I'm thinking particularly around the outlook for 2019 over the last 18 months, I think you had some headwinds from packaging things like the shelf ready packaging being along with gross margin products maybe some extra packaging costs because of online different format and maybe having to go out to per manufacturers a bit more often to get those different pack types, if that is still a headwind or is it becoming a bit easy and what do you think on the ingredients side of the outlook for 2019? Thank you and I will pass it on.

Alexia, this is Patricia. Clearly we do expect gross margin expansion, pricing will be a piece of this although I do want do remind everyone that a part of it relates to our new packaging that we're bringing on shelves after Easter and that has a cost implication too, so that pricing is really designed to cover the costs of that. So that doesn't - that's not a net drop down to gross margin. In terms of ingredients, we do expect commodity cost to benefit us this year because when we look at the price of the underlying commodities and then the timing that we get from hedging, so that should be a help to us but we do continue to expect inflation on things like packaging which is both core inflation just pure inflation on packaging which we definitely see as well as continuing to build out things like our retail ready packaging in some of those programs, freight is well it's stabilized, if it's not stabilized at a better number stabilized at where it is and then as I mentioned I think earlier today we are starting to see some wage inflation related to low unemployment rates. So you can really tell from that that there are a number of puts and takes but overall we definitely expect modest gross margin improvement.

Thank you very much. I will pass it on.

We will take our next question from John Baumgartner with Wells Fargo. Your line is open.

Good morning, thanks for the question. Patricia, I wanted to come back to your thoughts on reinvestment, it sounds as though there won't be any real robust uptick in advertising spending in 2019, we haven't really seen trade spending increase for about four or five years now, and I can't recall the last time you heard of any real material uptick in feet on the street sales force presence. So as you think about you know the CMG category sticking below the long-term growth rate. The competition from adjacent categories ratcheting up, how do you think about those buckets of investment, I mean is there any area where you're seeing incremental needs being larger or how do you think about the ROI on those buckets devolving just any clarity there will be helpful?

Hey, John, it's Michele. So I'm going to kick off with some thoughts and Patricia will probably jump in as well. I think. Let me start with advertising. As you think about advertising, while we definitely look at a rate of spend as a percent of net sales, we are also very focused on our delivery of media impressions to the consumer. So if we look at the past year, our consumer impressions or media impressions on our chocolate brands were actually up over 3% for the full-year. So what we're constantly trying to do is optimize how we approach each of these line items to get even more efficient, sometimes we will increase the spending to get impact and other times we will go for efficiency. So, some of the ways we were able to do that we've continued to advance our media capabilities and gotten smarter about how we are targeting some of that media that's driven some of that we've increased the earned impression using that as a lever, which has helped us optimize the portfolio spend. And then also, we created this in-house content studio, which really let us take production costs down, which enables us to put more of that spend into media. So I would say for media, if you think about that, that's a good analogy to how we think about every item every one of our line items. As we look at trade promotion, we mentioned previously that one of our ERP application is a new trade promotion module that we think gives us better insight. Frankly, industry leading insight and that will enable us to get more both more effectiveness, more impact, but also hopefully more efficiency that helps to drive net price realization as well. And so, we are constantly looking at how we build those differentiated capabilities, e-commerce, and other place that we're looking to build those that. As the world has evolved, even though we value very much our retail force in bricks-and-mortar, and we constantly upgrade the skills there. We look at e-commerce as a new channel. And we've certainly invested a lot to build capability in that area, invested in new distribution capacity that we think we're bet we're investing in a balanced way while also trying to optimize within.

Yes, and I don't - that sounds great. I agree with everything you said.

Great. Thanks for your time.

And we will take our next question from Steve Strycula with UBS. Your line is open.

Hi, good morning. So just to circle back - circle back on a question that you had touched on a little bit earlier. So I apologize, if there's any redundancy here. But on the SKU rationalization Michele, can you just help us understand and unpack that was the key catalyst when you kind of embarked on this mission, maybe last year, was it more just better intelligence as you kind of looked across the portfolio or maybe you weren't optimizing certain space or is it more focused on some of the smaller brands such as Crave and why not, so that will be the first part my question then I have a follow-up?

Okay. Sure. So the real impetus was complexity that we were starting to see the complexity creating some challenges in gross margin, frankly. And so, it was really about simplification to drive that productivity through reducing merchants - merge units, assortments, some of our innovation et cetera.

Okay. And then, question for your full-year guidance. Just wanted to understand a little bit more, so we think about the benefit of the longer Easter season being about half of a point for your old sales growth over the full-year, is that pretty fair and then on the input costs assumptions the way you build out your gross margin expectations, have you factor that in based off kind of the current spot rates or you build in a little anticipated inflation just so we can kind of gauge the conservatism? Thank you.

So relative to Easter, yes, about a half a point is how you should think about it. And Patricia, do you want to handle the…

Yes, on our key commodities because we hedge one of the things that gives us is a lot of good cost visibility. So definitely include in our plan, we have those pretty, since we hedged three - 24 months out, we have good visibility into that. We also, stay in very close touch with the market on things like packaging, freight, wages that allow us to, I think do very good at estimating the impact of those.

Okay. Thank you.

And we will take our final question from Rob Dickerson with Deutsche Bank. Your line is open.

Great. Thank you so much. So Michele I just have a broader question with respect to the - I guess the 22% to 23% margin, operating margin targets you put out two years ago. So I think you know I hear you for 19 gross margin to be up modestly or its sadly some of that's more commodity driven honestly off of restructuring spend or ERP efficiency et cetera. And you said also that on the operating margin side that that sounds like that would be up a little bit more than what we've seen historically but frankly over the past call it three years we haven't seen that much. So I'm just wondering like if we think about what this implied margin, expectation with a need to be for 2020, is that still rational, given what I'm hearing is the increased efficiency, increased velocity probability, a few rationalizations and more targeted spend. But I'm also hearing that maybe there's some need given the competitive environment that if you're more efficient, you might need to reinvest more, which therefore could, maybe increase the probability of accelerated top line growth but not as much margin expansion at the company which might not be a bad thing. So I'm just curious to updated thoughts around kind of the top line growth relative for profitability expression platform. Thanks.

So our target when we set the target it was really set to ensure that we will be in the top core tile amongst our sector and that's really the goal and the intent of that EBIT margin target. We will always take a balanced approach to expanding margins and growing the top line, and we know that sometimes we will shift in one direction versus the other. But we think that balanced approach is critically important. 2018 overall was a pretty tough year for the industry from a margin perspective. But we're confident in our plans to make that progress in 2019 that you referenced both in terms of on the gross margin line and a little bit below. So we think there's always opportunity there and we need to continue to evolve and attack each line item in the P&L to go after margin improvement and will continue to do that going forward.

Okay, great. Thank you.

And this concludes our Q&A session. I'd like to turn the program back over to our presenters for any additional remarks.

Thank you for joining us this morning. We will be around today for any follow-up questions you may have.

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