Good morning and welcome to the WESCO's Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would like to now turn the conference over to Will Ruthrauff Director of IR. Please go ahead.

Thank you, Jacob. Good morning ladies and gentlemen. Thank you for joining us. Joining me on today's call are John Engel, Chairman President, and CEO; and Dave Schulz, Senior Vice President and Chief Financial Officer. This conference call includes forward-looking statements and therefore actual results may differ materially from expectations. For additional information on WESCO International please refer to the company's SEC filings, including the risk factors described therein. The following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G of the Exchange Act with respect to such non-GAAP financial measures can be obtained via WESCO's website at wesco.com. Means to access this conference call via webcast was disclosed in the press release and was posted on our corporate website. Replays of this conference call will be archived and available for the next seven days. With that, I'll turn the call over to John Engel.

Thank you, Will. Good morning everyone and thanks for joining us for today's call. I'll lead off with a few high-level remarks and Dave will take you through our third quarter results and provide an update to our 2019 outlook. He will also provide our initial view on our 2020 top line sales. We achieved record sales in the third quarter and sales in all of our end markets and geography grew on a year-over-year basis as expected. Importantly, we achieved these results in a more challenging economic and market environment. We were encouraged with our improvement results in the U.S. and strengthen industrial utility and data com. Gross margin was under pressure and declined in the quarter, driven by next and the time lag to pass through the record levels of supplier price increases to customers this year. Dave will take you through the margin drivers in more detail in a few moments. We continue to focus on what we can control and effectively manage operating costs to deliver operating margin within our expected range an EPS growth of 8% versus prior year. Free cash flow was also very strong as we expected driven by inventory reduction and strong collections in the third quarter. As you saw in our release earlier this morning, based on our September year-to-date results and our view of the end markets, we have narrowed the range for our full-year outlook for sales growth operating margin and EPS, while maintaining our outlook for free cash flow generation of at least 90% in net income. Finally, as you know, we recently announced that Nelson Squires was appointed Senior Vice President and Chief Operating Officer. This organizational change is part of a broader streamlining of our operating structure that I will discuss a little bit later in this call. We're also very pleased to welcome a new member to our WESCO Board of Directors earlier this month. Laura Thompson joined our Board and she brings deep financial expertise and global operations experience to our Board. With that, I will now turn the call over to Dave to provide further details on our third quarter results and our updated outlook for 2019, as well as our initial look at sales for 2020. Dave?

Thank you, John and good morning everyone. I'll start with an overview beginning on Page 4. Reported sales in the quarter were up 3.9% within our outlook range of 3% to 5%. U.S. sales were up 4% with growth in all end markets. Construction increased 4%; Industrial up 3%; Utility sales grew at a strong 6%; and CIG sales increased 2% over the prior year. Sales in Canada were up 1% with our industrial and CIG end markets, up 7% and 6% respectively. Construction sales in Canada were up 1% on top of 12% growth in the prior year period. Utility sales were down, due to the contract nonrenewal mentioned in previous quarters. International sales were up more than 5% on an organic basis. SG&A expenses were 2% higher than the prior year driven by the SLS acquisition. Operating profit was $93.7 million or 4.4% of sales within our outlook range for the quarter. The effective tax rate for the quarter was 19.8% lower than our expected rate of 22% and 260 basis points higher than the prior year. Our effective tax rate is typically impacted by the tax effect of intercompany financing foreign tax rate differences nondeductible expenses and state income taxes. The effective tax rate was lower than our outlook for the quarter, primarily due to the full application of the international provisions of U.S. tax reform, partially offset by the discrete effect of accruing taxes attributable to undistributed earnings from operations in China that are expected to be remitted in the foreseeable future. Interest costs were lower than the prior year due to the noncash benefit of settling a Canadian transfer pricing issue. Moving to Slide 5. As John mentioned, gross margin was 18.6% in the quarter, down 60 basis points versus the prior year and 40…

Thanks, Dave. Before we open the call to questions, I wanted to comment on the press release that we issued earlier this month promoting Nelson Squires to our Senior VP and COO. As you know, Nelson has had responsibility for our Canadian operations since 2015 and was given additional responsibility for our Integrated Supply and International operations in early 2018. Nelson has proven to be a highly capable and effective business leader who has delivered results since joining WESCO four years ago. All of our business leaders now report directly to Nelson and the overall U.S. business leader position has been eliminated. These organization changes further streamline our operations and will help WESCO grow as a leaner more agile company. With that, we'll now open it up for questions.

[Operator Instructions] The first question comes from David Manthey with Baird. Please go ahead.

Thank you. Good morning, guys

Good morning, Dave.

Since the Analyst Day, you've been talking about transformational M&A and I'm just wondering if you could help us in your thinking of how you define transformational? Are you thinking about just a large deal? Or is it something outside your core business? What do you consider transformational? And for something big and meaningful would you consider using WESCO stock or not?

Yes. So, as you recall at our Investor Day, we did outline our priorities relative to our overall acquisition strategy as part of our overall strategy. And they were first to consolidate large core electrical distributors. Second, to expand into adjacent product and service category. And third, you'll recall that we said we wanted to invest in digital technologies that advance the enterprise strategy. So, they are core elements of our acquisition strategy. And transformational acquisition means it basically fits within those three priorities. It could be a large acquisition to provide that potential because of the synergies that we will be able to extract and then thoughtfully reinvest a portion of, and also investing in digital technology that advance our enterprise strategy in helping lead the digital transformation for our type of company into B2B distribution value chain. Relative to financing Dave, I think that we've always run with leverage. We have excellent free cash flow generation. In fact, if you go back and look at what our cash generation has been since we went public 20 years ago, it's been very strong cash generation through all phases of the economic cycle. Our free cash flow yield is very high. So, we're comfortable running with financial leverage very strong free cash generation, very strong balance sheet, and if you're talking a very large transformational acquisition, we would use the most optimal mix of financing that would get the deal done, a combination of tapping the debt markets, as well as considering equity when appropriate.

Makes sense. Okay. And then maybe one for Dave. Gross margin has been flat to higher year-over-year for the past five quarters and we took a little step back here. Could you give us a bit of a walk from the 19.2% last year to the 18.6% this quarter? And then what changes between here and the fourth quarter to get you back on track?

Certainly. So, as we've highlighted there are two primary factors. And we have talked about this in some of the previous quarters as well, but the first was mix. And as we highlighted during the Investor Day, we saw mix as a headwind across all three of the vectors of our gross margin composition. So, our end market mix was primarily driven by the growth in the Utility business and also with Construction. Additionally, within our Industrial end market the mix of the growth by end market created a mix headwind. And so that's something that we haven't talked about quite a bit publicly, but for example, we highlighted that our OEM business was down versus the prior year. That has a higher gross margin than the balance of the Industrial end market. So that created a headwind even within our Industrial end market. And then clearly the geographic mix was also a key driver. It's relatively straightforward. We've highlighted that our Canadian business has a significantly higher gross margin than the balance of the company and organic sales were only up 1% in the quarter versus the U.S. and International being up in the low single-digit range. So, finally, we also had that higher percentage of sales that were direct ship. So, these are direct ship sales they don't touch our inventory and we have a lower gross margin on these sales, compared to stock sales, which resulted in the margin headwind. And then on price cost. Again, we've seen this cumulative effect significant number of price increases and we're averaging low – or mid-single-digit price increases with our suppliers and we just are continuing to see that lag between being able to pass through those price increases and get the margin rate recovery with our customers. So, that's clearly been providing a drag versus the prior year. Going forward, as we highlighted, we are continuing to work through driving through and getting gross margin rate with our customers. And as we look at it going forward, we've got a series of initiatives in place that we anticipate will drive that expansion of our gross margin rate.

Very good. Thank you.

The next question comes from Deane Dray with RBC Capital Markets. Please go ahead.

Thanks. Good morning, everyone. Wanted to add my congrats to Nelson. He's a great addition to the C suite. Love that. And then also that gross margin slide mix that's really helpful and that was very informative. So, I appreciate that color.

Thanks a lot Deane. Appreciate the real-time feedback on that.

Alright. So, what surprised me most first is that, we're all seeing across the industrial sectors signs of short cycle industrial weakness. And if I look at your results in the Industrial side and on the construction side it doesn't come through this quarter. I mean you just – you just seem to be breezing through it up 5% organic and Industrial and up 3% in Construction. So, when you talk about slowing in the fourth quarter it sounds like you're pointing to the economic data suggesting there is slowing, but are you actually seeing it in your day-to-day business maybe in some of your MRO business? So, maybe we'll start there.

So, your question is – you're right. When we say we're seeing increased headwinds and challenges that is the end markets. So, that is more around commentary from customers. There is a continued uncertainty with the economic outlook. And so, again, all those comments around more challenging economic and end market environment it is the end markets. I have to say, I'm actually very pleased with what we've done in terms of driving the top line results in Q3. I know the comparables are easier year-over-year, but it's against the backdrop that's much tougher. And you cited two of the end markets Industrial and Construction. Remember, we grew in all of them and we grew in all geographies, but I think of particular note is Industrial because when you look at our Industrial end market as you alluded to, we had growth in Canada, U.S., and International, and the overall growth was mid-single-digits and that's with oil and gas sales being flattish in the third quarter as they were in Q2. So, overall – overall growth across the company. So, I think that's a testament to a number of the sales-related initiatives that we have under way and we've talked about those as a part of our commercial excellence strategic at our Investor Day. In terms of construction too, I think what's really notable and this is particularly important to put this in the historical context because we've had periods of – well I've been here 15 years, we've had periods over that time where residential construction was materially stronger than non-resi end markets. End markets, that's what we're seeing now. I would say that most of the end market indicators and what we're hearing from contractor customers again around the uncertainty is there's increased headwinds across nonresidential construction. Nonresidential…

Got it. That's very helpful. And then if we look at your 2020 comments and we're actually pleasantly surprised that you wanted to take a stab at this because a bunch of the companies are holding off on giving their sneak peeks and here you are giving a pretty detailed bottom up. And when I looked at flat to 4% total it just struck me as a bit optimistic, but then I look at the underlying assumptions about your outgrowth that seems in line. So, maybe the Industrial and Construction low-end of the ranges of low single-digit how did you arrive at those? Is this again you're extrapolating what you're seeing on the economic data in some of the – around the end markets? But what's the sensitivity there from a bottom up on the low end of those ranges? And could they actually be lower?

Yes. So, the answer to your question is, yes. In terms of the end market ranges that's – and our view of the end market is a combination of all the different indicators that we look at some of which are in the public domain a number of which are not. So, let me come back to our momentum because I think that's the really important point. And I – let me start with, I said backlog is very healthy as we move Q3 to Q4 that's number one. Number two, the pipeline and we manage a phase gated pipeline of opportunities. Our pipeline has actually increased substantially. This is our opportunity pipeline has increased substantially over the last several quarters as we've move through 2019. To be fair part of that is a direct outcome of some of the additional digital tools and analytics that we've built for the front-end sales and marketing teams as part of our commercial excellence strategic plan, but our pipeline that we're managing again of opportunities is the largest it's ever been by a meaningful measure. And then, what's our momentum thus far in Q4, we said on the slide that we reported, we said sales were up low single digits. With one day to go, our sales growth is between 3% to 4%. So, a little bit stronger than – when we locked down the chart, we want to be comfortable with the low single-digit which for us is 0% to 3%, but I did want to give that point that with one day to go and that's today we're running roughly a 3% to 4% sales growth.

That's helpful. Thank you.

The next question comes from Nigel Coe with Wolfe Research. Please go ahead

Thanks. Good morning, guys.

Good morning.

I echo Deane's comments great information. Just wanted to pick up on that – the gross margin differentials there. I think we were sort of aware of the differences. Can you just remind us how does the operating margin compare? So, the SG&A structures among the different verticals and geographies, is there a big difference in operating margin as well?

Nigel it's Dave Schulz. So, overall at the company level, it's relatively agnostic at the operating margin line. The one thing that we did highlight is that's particularly true when you take a look at our end markets and when you take a look at our shipment type. And remember that the shipment type, the margin differential is because of our cost to serve. And so, for example something that goes direct ship doesn't touch our inventory though gross margins are lower, but the operating costs are lower as well. Therefore, it's relatively agnostic at the shipment type level. Where we have the significant difference from an operating margin perspective is by geography. So, if you take a look at the average for WESCO, Canada is higher. So, again, we've invested heavily in Canada, primarily because we're attracted by the margin composition. The operating margin composition it does tend to be significantly higher than the balance of the business. Conversely based on the mix of our International markets, International tends to be slightly lower than the overall line average from a geographic perspective.

David that was great. And then moving on to 2020, you called out Utility as a sort of tailwind to growth next year. And I'm just curious we have obviously seen very nice trends right now in T&D. What kind of visibility do you have into next year at this point? And then I know that generation isn't a big driver for WESCO, but so maybe just touch on what you're seeing in generation as well. That would be helpful.

Yes. So, our Utility business we've got an interesting portal in the utility industry in terms of we serve the investor on utilities and that grew in the third quarter. We serve public power municipals and co-ops and that grew in the third quarter. And then we also serve specialty utility contractors. I would say it's those contractors that are uniquely geared from a business mix and capability standpoint to serve utility and that grew in the third quarter. So, this was a – we feel really good about foundationally the strength of the growth in the third quarter and the U.S. growing at 6% was a really good number we think. Canada again is that contract that we walked away from. We'll have a little bit of sales that we still have in Q4 of 2018 last year, but it's much smaller than the rate of sales we had in Q1, 2, 3. And then when we move through Q4 into 2020 we expect again strong results in Utility across our Canadian business. So, I just wanted to set the stage with that a bit. And it's through those relationships that we have insight into the capital spending plans. And what's driving our growth isn't just – I wouldn't call it fundamentally [indiscernible]. We've been consistently outperforming the market. And now – well and when we finish this year, we'll have eight years of sales growth in a row in utility organically that's despite exiting these large contracts that we walked away from. So, we're getting the sales growth from increasing our scope of supply with current customers, expanding our product categories, there's additional spend on grid hardening project win, sales growth, etcetera. But as you think about the drivers going forward, it's grid automation renewables storm hardening initiatives, as well as continued growth in resi. This contributing growth in resi add meters to the ground, which is a direct – a first derivative growth driver for utility. And then non-resi typically follows. So, and finally I would say that the contractor business remains strong because structurally utilities continue to outsource their capital project work. So, when you integrate all these, I'll call them dynamics, we just see with our value proposition the end market with the ability to outperform the end market with our capabilities we've got great confidence in that. And we've got a long and strong track record.

Okay, John, thanks. I’ll leave it there.

The next question comes from Steve Tusa with JPMorgan. Please go ahead.

Hi, guys, good morning. Can you just talk about what you're seeing in the machine builder vertical? There's – it's kind of a small vertical in the grand scheme of things, but there has just been a little more chatter around weakness there given cross-border concerns?

Yes, yes. It's a really good question. Yes, we're seeing challenges. So, we've got – part of we'll call them OEM-type customers that Dave alluded to in his earlier comments that would include that. And then, we have some specialized businesses around industrial automation and control and we're seeing some headwinds with customers that we would categorize as the machine builder. It's a very good...

How much – how – what is the – is it down like mid-singles? Or what would you say...

It's interesting. For us it's in the single-digit range. Yes.

Down – down – down...

It's not down double digits but it's – yes, no mid-high-single-digit range. Not double-digit though.

Okay. And then I know I try and ask a question almost like every quarter just to kind of reinforce the dynamics, but there's kind of a view out there that there is like an inventory correction that's going on here. I mean, you guys in particular are very good about managing your inventories and you never really get too bloated or too lean is that correct? So, if like somebody's selling into you you're managing that pretty tightly they have a lot of visibility into that right? So, there wouldn't be like a correction at your point in the channel?

Correct. And then for us specifically, we didn't end up having our – we increased our inventories in the first half and we spoke about that in the Q2 conference call. And that was one of the drivers of our first [half] cash flow, as well as a significant growth in the AR balance, given the shape of the sales in the first half and the increasing sales growth in May into June. So, when we gave our Q2 earnings call, we were very clear to make some comments around Q3, and said, we do expect very strong free cash flow generation in Q3. And we did specifically talk about two contributors, which was strong collections, which we have executed now and have seen and have benefited from the quarter, as well as inventory reduction. And we reduced inventories over – approximately about $40 million.

About $40 million.

$40 million sequentially in the quarter.

Yes. Yes, that's a good performance. And then just lastly on price – on the kind of pricing side, are you seeing any of your major suppliers get – I wouldn't say aggressive, but in targeted areas try and bring in some business either kind of late in the quarter or as we go forward here in kind of a weaker environment? Is anybody – I wouldn't use the term breaking ranks it's probably too strong, but anybody kind of backing off their aggressive pricing and pulling back on price increases to book deals? Are you seeing that at any of your major suppliers?

I'll answer it with two different – I'll break it into a two-part answer. The short answer is no. And for I'll call it, the pricing that they said that kind of worked its way through the channel and impacts our stock and flow business that's the area where they try to move the price increases through. And we've 'got to try to obviously get that moved through the customers. And in some cases, we've got multiyear contract on a global account customer and that's the time lag, right? But the short answer to your question is no. On that, I have not seen any change in behavior. And Dave's earlier commentary speaks to the record level in terms of number of price increases and magnitude of those increases. On the direct ship business, which in many cases will get special pricing and supplier costing to support that business that always works in a very, I'll call it, it works in a real time way. So, as projects are being bid, we're simultaneously – with customers and contractor customers we're working with supplier partners on what the appropriate level of cost – what cost they're willing to go forward with that project on. And we work that as a team. That dynamic hasn't changed. That's always a very I'll call it aggressive real-time process. I would say that because contractors have record backlogs and there is a labor shortage for the skilled trades as they continue to work – the number one priority for them is to execute the backlogs. Number two is, they try to take on new business to increase their record backlogs they have to have confidence in the skill and trades. And the uncertainty around pricing is just another dynamic there. So, that kind of sorts itself out in real time. The way we look at that in good measure is what's our backlog now and we said it was flat sequentially, but the margin rate in our backlog is up a little bit, which really speaks to the WESCO value proposition with contractors. And we're very focused on supply chain services, including prefab and material management capabilities with our contractor customers. We're focused on job site productivity and improving that for our contractor customers. Does that help?

Yes. Alright. That's helpful. I appreciate it. Thanks.

Thanks

The next question comes from Michael McGinn with Wells Fargo. Please go ahead.

Thank you, If I could just follow up on the acquisition line of questioning discussed earlier, is this something transformational on the digital side where you would entertain a dual-brand strategy kind of like a high touch low touch model? Or is that something – or is it something more that you would integrate it under the WESCO brand?

So, that's an excellent question. As I recall, I probably haven’t gotten that question before. Terrific. I will say that in terms of branding strategy, we already run a dual brand in Canada with customers. So, I'll just take you back and summarize history a little bit. We had a very strong Canadian business. We had the opportunity we start, which was a unique opportunity in our career as a 100-year-old public – private company. We were able – after working that deal for over five years we’re able to make that happen that was acquiring EECOL and that was done seven years ago. And so, we went to market with a dual brand post acquisition close in Canada and that was expressly the strategy. One, the WESCO brand is lined up with a very large global leading electrical supplier for core electrical. And EECOL is lined up with us as different large leading global leader – electrical supplier leader. So, we've already had that model working within WESCO at a very – on a large-scale basis. And also, other acquisitions that we've done over the years. We've done over 45 since WESCO spun out of Westinghouse 25 years ago. And there's still a handful of brands that we use where they add value in the value chain and with customers. So, I think that that would be – we would do the right thing from a branding perspective. And we would also – it would be a function of what we're acquiring what the business model is and what we think would make most sense in serving customers.

And since we're on the topic of deals and branding there's been some meaningful shifts in your supply chain [Lighting Cooper] with – and as well on the data center side. Can you just comment on those big changes and what you're seeing structurally from a just customer win standpoint going forward?

Yes. So, I ...

I'm sorry supplier win standpoint.

No, no. Yes. I understand. That's how I interpreted your question. It's early days on the latest lighting combination that being the announcement of Signify acquiring Eaton's Cooper Lighting business. We've got very strong relationship obviously with all the Cooper divisions that are part of Eaton and Eaton overall. Eaton is our largest supplier partnership. And we have very strong and long-standing relationships with Signify that is the prior Philips. In both cases those relationships go back well into the Westinghouse days when we were classed as a distribution arm. So, from my perspective and I've been very clear about this with respect to lighting and I know we've had a number of questions and comments around that at our recent Investor Day earlier this year. And – there's a lot of changes occurring fast and I think the manufacturer supplier partners are – they have particular challenges given additional entrants and new entrants in terms of manufacturers of lighting products globally. As a supply chain solutions provider, we're able to provide good better and best solutions for lighting applications and we can work with our supplier partners to bring the best brands together. Where it turns out to be the differentiator is the control solution and our ability to wrap services around that. And we've got a turnkey retrofit renovation and upgrade set of capabilities that we acquired a number of years ago with Aelux/Lumigent that we have been investing in. And our SLS acquisition earlier this year is supportive of strengthening that.

Alright, thank you very much. I'll pass it along.

The next question comes from Robert Barry with Buckingham Research. Please go ahead.

Hi, guys. Good morning

Morning, Robin.

I want to ask you about SG&A, but since it keeps coming up the M&A question just curious your thoughts about doing a transformational acquisition at this what some think is a late stage in the cycle.

So, again, I think we were very clear about what our plans and strategies were at Investor Day and I'll reinforce them. Remember what we did at Investor Day. We took a – I tried to provide a very forward-looking view of the state of evolution, the state of disruption i.e. transformation being required in the B2B value chain. I think the opportunities are significant, particularly for the largest and those companies that are well capitalized. So, which we are clearly in that class. And we were very clear about our overall enterprise strategy and our acquisition strategy as part of that, which again we can consolidate large core electrical distributors expand in their adjacent products and service categories and invest in digital to help lead the digital transformation. So, that's our ambition. I think that we will be very thoughtful. You can't always control the timing of deals. And so, we will be very thoughtful and take advantage of opportunities when they arise appropriately. And we've got a very strong balance sheet as I commented on earlier. And have shown strong and consistent free cash flows across all phases of the economic cycle. So, the thing with acquisitions is, you can't always – they're just – you can't time them, right? I mean it would be great to say, we could strategically time them, but you can't. You've got to be prepared to when it makes sense to take action. And that's – the great example again is EECOL because we worked that for many, many years and we had our chance to get a century-old company there was a very strong operator. And we did that right? So, I think again we look at the opportunities. Obviously, the numbers have to work, but this is the – our strategic view is, there's an excellent opportunity to lead the consolidation and digital transformation of B2B distribution for our served end markets in the value chains that we operate in.

Got it. Got it. Okay. Thank you. I did want to just touch on the SG&A. Performance there continues to be very good very low SG&A growth. I'm assuming there's maybe about $5 million from SLS in that number, but give or take how long do you think you can sustain growing the SG&A at what looks like less than 1% kind of adjusted for the M&A?

Rob, it's Dave Schulz. So, again, what we see right now in our third quarter SG&A is the increase year-over-year is primarily driven by the SLS acquisition. As a company, we have a long track record of carefully managing our costs. One of the other things that has impacted our SG&A in the current quarter, the third quarter is obviously we're not performing to our internal expectations across the entire business and therefore some of our incentive compensation accruals are lower than they were in the prior year. So, that's also having an impact on the SG&A in the third quarter. Going forward, obviously that's something that we want to make sure that we're able to restore. So, again, we'll provide more details about our 2020 on our January earnings call.

Got it. And just maybe a quick housekeeping item. It looks like the share count keeps coming down I know you've been doing a fair amount of repose. What now is the share count assumed in this guidance update?

Yes. So, again, the driver of the share count reduction in the third quarter was really just a carryover of what we saw from the $150 million share repurchase that was initiated in the second quarter. In terms of the share count for the full-year, I think if you took a weighted average of the four quarters, you'd get somewhere in the range of 43.3 to 43.5. I think that would be the right expectation to think about as you're looking at your model.

Alright, thank you.

The next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning. I wanted to follow up on the transformational deal comment. So, it takes two to tango, just wondering if there is any signs here, kind of, parallel players in the large electrical distributor space here thinking similarly about the industry structure as you are.

You'd have to ask them Chris. I would be speculating.

Okay. And then another housekeeping. Does interest expense revert to kind of the first half run rates after the adjustment in the third quarter?

That's correct, Chris. So, again the – we did have the benefit – a noncash benefit in the third quarter. That was reversing on an accrual that was made years ago related to this Canadian transfer pricing issue. You should expect that that's going to revert back to the trend in the first two quarters of the year.

Okay. And then if I can get one on gross margin. It – noted mix differences, but the rates weren't worlds apart so maybe the supplier price increases were the bigger piece there. I'm curious if you're seeing good visibility to reclaiming that? Or if kind of mid-18 is a good place to reside for now?

So, the price cost issue from the supplier increases is the larger of the two drivers that we called out so that's fair. Again, we're continuing to monitor what comes through from the supplier price increases and we're focused on catching up and driving to not only the dollar per dollar price increases, but also the gross margin rate benefit that we would get typically in an inflationary environment. Quite frankly, the rate and pace of the supplier price increases has considerably hampered our ability to get that done. We normally have a lag, but obviously in the third quarter, we saw more of an impact than we have historically seen.

Great, thanks for that.

This concludes our question-and-answer session. I would like to turn the conference back over to John Engel for any closing remarks.

Thank you all for your time this morning. Brian Begg and Will are available as always to take your questions. And we look forward to seeing many of you at one of our investor marketing events. We will be participating in during the fourth quarter, including the Baird 2019 Global Industrial Conference next week. Thanks again and have a great day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.