雅保公司 (ALB) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter 2 2015 Albemarle Corporation earnings conference call. My name is Matthew and I will be your operator for today. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. And now I would like to turn the call over to Mr. Matt Juneau, Senior Vice President of Corporate Strategy and Investor Relations. Please proceed, sir.

Thank you and welcome everyone to Albemarle's second-quarter 2015 earnings conference call. Our earnings were released after the close of the market yesterday and you will find our press release, earnings presentation, and non-GAAP reconciliations posted on our website under the investors section at www.albemarle.com.

Joining me on the call today are Luke Kissam, Chief Executive Officer, Scott Tozier, Chief Financial Officer, Silvio Ghyoot, President, Refining Solutions, and Joris Merckx, President, Chemetall Surface Treatment.

As a reminder, some of the statements made during this conference call about the future performance of the Company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about the forward-looking statements contained in our press release. That same language applies to this call.

Please also note that our comments today regarding our financial results exclude all nonoperating or special items. Reconciliations related to any non-GAAP financial measures discussed may be found in our press release or earnings presentation, which are both posted on our website.

With that, I'll turn the call over to Scott to discuss our second-quarter results.

Thanks, Matt, and good morning, everyone. I will start by discussing the quarter at a high level and then cover some P&L and balance sheet details, then close by reviewing the performance of our three GBUs in more detail.

Following that, Luke will discuss progress against our key strategic objectives and close our prepared remarks to updating the outlook for the rest of 2015.

To start, the key takeaway from the second quarter is we delivered on all of the operational commitments we made at the beginning of the year and that were affirmed in our first-quarter call. We are on track to meet our expectations for the year.

The second-quarter performance of all three of our core GBUs was in line or better than our expectations at the beginning of April. On a constant currency basis, with 2Q 2014, these GBUs delivered sales growth of 7% and adjusted EBITDA growth of 10% in the quarter led by performance chemicals which delivered double-digit growth in both sales and adjusted EBITDA.

At a total Company level, including the three businesses targeted for divestiture, net sales in the quarter totaled $931 million, down 3.7% from 2Q 2014 with adjusted EBITDA of $230 million flat with last year. Adjusted EBITDA margins of 25% were up slightly. Excluding the impact of foreign exchange, sales and adjusted EBITDA would have increased by 3% and 5%, respectively.

The second-quarter results demonstrate the strength of our core businesses with three GBUs delivering adjusted EBITDA margins of 30%, up from 29% in 2Q last year. Our synergy program contributed to these improved margins as most of the new synergies achieved in the quarter were in areas directly related to our GBUs.

Performance chemicals adjusted EBITDA increased by over 24% versus 2Q 2014 with our bromine and lithium businesses driving most of the increase. We also benefited from a large bromine-related order moving up to 2Q from 3Q.

Chemetall Surface Treatment results were similar to both 1Q 2015 and 2Q 2014 despite significant FX headwinds. While down versus 2Q 2014, refined solutions performance improved sequentially as Heavy Oil Upgrading or FCC catalyst returned to more typical levels of volume, revenue, and profitability.

However, results in Clean Fuels Technology were again negatively impacted by delayed changeouts, cost-cutting initiatives by refineries due to lower oil prices, weaker product mix compared to 2014, an increase in competition from euro-based competitors and US dollar-denominated markets.

Essentially, as you look at the total Company, the increased earnings in the second quarter over the guidance we gave in early May were due to the shift in the timing of the bromine-related order from the third quarter to the second quarter. The end result is no change for the full year, but a shift in earnings from the third quarter to the second quarter.

Now I will turn to some detail P&L and balance sheet items. As a reminder, all year-over-year financial comparisons are based on pro forma 2014 results as shown in the April 8-K to facilitate a cleaner comparison. Overall, for the second quarter, we reported all in diluted earnings per share of $0.46 or $0.84 per share excluding special items. There were a number of one-time special items during the quarter and the largest of these related to the Rockwood acquisition.

This inventory step-up resulted in a $0.25 loss per share. One-time acquisition and integration costs resulted in a $0.15 loss per share.

A full reconciliation of these items is in the press release.

We now expect our effective tax rate, excluding special items, nonoperating pension, and OPEB items for 2015 to be about 27%, somewhat higher than prior expectations due to changes in the geographic mix of our revenue. The tax rate, along with an estimated increase in depreciation and amortization related to the acquisition, will negatively impact earnings-per-share by $0.03 to $0.05 per share for the full year.

With the commissioning activities underway at our La Negra lithium carbonate expansion in Chile, we now have more certainty on capital expenditures and reaffirm that they will be fractionally over 6% of revenue in 2015.

Working capital was somewhat behind our target at the end of June at 26% of sales partly driven by a strong month of June sales which increased Accounts Receivable at the end of the quarter. However, our full-year expectations are unchanged as we are maintaining gains that Albemarle made in 2014 and increasing focus on working capital management in the former Rockwood businesses.

Putting all these pieces together, free cash flow defined as cash flow from operations, adding back pension contributions, and subtracting capital expenditures was at $217 million through June excluding one-time synergy acquisition attached related costs. While free cash flow may appear slightly behind our full-year targets, this is simply a result of the elevated working capital at the end of 2Q as I already noted and we remain on track to reach January guidance of $450 million to $550 million before those one-time costs.

Free cash flow including these costs is now expected to be between $150 million and $250 million as some of the cash tax payments related to the acquisition are scheduled to be paid in the first quarter of 2016.

At the end of the second quarter, Albemarle's net debt to EBITDA ratio as measured by our bank covenants was 3.6 times. Our year-end projection of 3.7 to 4.0 times prior to any impact from divestitures remains unchanged from the first quarter.

And finally, exchange rates, especially against the euro and the Japanese yen, have continued to have a significant impact on our comparisons to 2014. Based on year-to-date results and updated ranges of $1.07 to $1.11 for the euro and JPY122 to JPY125 per US dollar, we still expect a negative year-over-year adjusted EBITDA impact of $50 million to $60 million for the full year with approximately $26 million of that impact already felt in the first half of the year.

Now, let me turn to the business unit performance in the second quarter. Before I address the three GBUs, note that the three businesses planned for divestiture both mineral and metal sulfides performed in line with expectations from the beginning of the year, but fine chemistry services was down significantly versus 2014.

Refining solutions reported second-quarter net sales of $165 million and adjusted EBITDA of $48 million with margins of 29%. On a constant currency basis, sales and adjusted EBITDA were down 16% and 26% respectively versus 2Q 2014. However, compared to first quarter, adjusted EBITDA increased by 14% with adjusted EBITDA margin improving by 500 basis points.

The year-over-year decline was driven entirely by Clean Fuel Technologies, which continues to struggle with delayed changeouts, cost-cutting initiatives by refineries in the current low oil price environment, and a weaker product mix driven by fewer first fills in 2015. In addition, we are seeing increased competition from euro-based competitors in markets where sales are made in US dollars. Heavy Oil Upgrading or FCC business performance met our expectations with volumes, revenues, and profitability returning to more typical levels after a weak first-quarter due to a number of customer trials.

We ultimately retained all of this trial volume, obtaining multiyear contracts with good pricing reflecting the value of our catalysts.

While these trials impacted first quarter of 2015 profitability, we saw sequential 2Q growth and we continue to forecast growth in Heavy Oil Upgrading for the full year with even stronger year-on-year adjusted EBITDA growth now anticipated, when compared to our first-quarter outlook. With the weakness in Clean Fuels Technologies expected to continue, our forecast for refining solutions GBU is now weaker than at the end of 1Q with full-year EBITDA expected to be down roughly 20% versus 2014.

Performance chemicals had an outstanding second quarter with net sales of $437 million and adjusted EBITDA of $149 million and margins of 34%. Compared to 2Q 2014, net sales were up 10% and adjusted EBITDA was up 24%.

On a constant currency basis, results were even stronger with net sales of 16% and adjusted EBITDA up 30%. All three businesses in performance chemicals contributed significantly to earnings growth in the quarter.

Lithium sales were up 9% with adjusted EBITDA up 26% compared to the second quarter of 2014. EBITDA margins were 43%. The primary performance drivers were volume growth in battery grade products, increased pricing in battery grade and other lithium products, and the impact of the Talison joint venture.

We continue to be bullish on the outlook for battery grade products. The portable electronics market continues to grow at 10% to 12% annual rates and global battery electric vehicle sales have increased by more than 30% year to date.

Our sales growth in battery grade products has been consistent with these trends. Overall, the business continues to meet our expectations and we expect the positive trends to continue.

Underscoring our confidence in the growth of battery grade products, we have begun commissioning the new La Negra battery grade lithium carbonate plant and are moving to the next phase of planning for our world-scale battery grade lithium hydroxide plant based on direct conversion of spodumene from the [Talison] joint venture in Australia.

Our bromine-based business had a very strong 2Q with sales up 15% and adjusted EBITDA up 31% compared to 2Q 2014. Adjusted EBITDA margin improved to 31% compared to 27% in 2Q 2014 and 28% in 1Q this year. These numbers clearly highlight the incremental earnings power of our bromine business.

We saw both sequential volume and price movement in our flame retardants business, improved pricing in our industrial bromides products, and benefited from a large sale of methyl bromide for an agricultural synthesis application. This order was similar in size and profitability to an order we supplied in the third quarter of 2014. In fact, we had forecasted this order in the third quarter this year as well, but the customer needed earlier delivery.

Finally, our clear completion volumes in the quarter held up okay driven by demand in the Gulf of Mexico as the rest of the world continues to be weak. Given the strong 2Q, we now expect modest year-on-year adjusted EBITDA growth in bromine, a significant change from the beginning of 2015.

We continue to gain pricing traction and are pleased with the modest flame retardants volume growth, but the 2Q timing of the methyl bromide sale in 2015 and a weaker outlook for clear completion fluids in the Gulf of Mexico compared to the first half of the year will result in more difficult sequential comparisons in the second half.

Still, the stabilization of the business and overall improvement versus 2014 is very encouraging.

Finally, performance catalyst solutions, which also includes curatives for reporting purposes, had another strong quarter with both our catalysts and our curatives businesses performing well. Adjusted [EBITDA] was up 9% compared to 2Q 2014 driven by strong curatives volumes and pricing.

Order timing, some one-time business, and seasonality in curatives will likely lead to a somewhat weaker second half in this business but we now expect double-digit year-over-year growth, which is markedly improved from our initial flat outlook for 2015.

Chemetall surface treatment net sales were $213 million with adjusted EBITDA of $48 million, resulting in margins of 23%. On a constant currency basis, sales and adjusted EBITDA were up 14% and 9%, respectively, compared to 2Q 2014.

All key end markets are showing solid growth compared to 2014 with automotive, coil, aerospace, and aluminum finishing leading the way. We're seeing growth in all regions with Asia-Pacific where we benefited from the buyout of our Shanghai joint venture, and North America particularly strong. Growth was modest in the European region as weakness in Eastern Europe and Russia, along with foreign-exchange impact, reduced overall growth.

Based on our current outlook and the order book for the business, we expect an even better second half of the year in line with prior expectations.

Now, I will turn the call over to Luke to discuss progress against our key strategic objectives and to update our full-year guidance.

Thanks, Scott, and good morning, everybody.

Let me start by noting how pleased I am with the first half of 2015. Our team is executing well and we are on track to deliver our previously forecasted earnings for the full year. All of our businesses, with the exception of Clean Fuels Technologies and Fine Chemistry Services, are meeting or exceeding our expectations for January.

We're overcoming significant headwinds related to lower-than-expected oil prices and the strength of the US dollar.

Finally, we are making great progress against our strategic and organizational objectives for 2015 and positioning Albemarle to be even more successful in the future.

First, our integration team has now executed projects that will deliver at least the targeted $50 million in savings for 2015. This represents an increase of over $10 million from the $40 million or so that we discussed in our first-quarter earnings call.

On a full-year basis, actions already taken will deliver savings of roughly $66 million in 2016, meaning we are already two thirds of our way to our $100 -- two thirds of the way to our $100 million 2016 targeted savings. The team continues to uncover new opportunities and we are confident in our ability to meet this commitment.

Second, the consultation process with the various works councils is continuing with much progress made in the second quarter. As a result, our global business unit realignment is substantially complete. Our first half results highlight the progress we're making in our new reporting and operating structure. Commissioning of the La Negra expansion and the announced rationalization of the butyl lithium capacity in New Johnsonville are two additional examples of this progress.

Third, as Scott highlighted, in the second quarter we again demonstrated the cash generation power of Albemarle with adjusted free cash flow before one-time items, reaching $217 million through June, in line with our forecast at the beginning of the year.

Finally, the planned divestitures of minerals, metal sulfides, and fine chemistry services are progressing in line with our expectations. While confidentiality obligations prevent any detailed comments, our goal remains to complete these by the end of the year.

In short, year to date, the team had delivered on our commitments and we expect that to continue for the rest of the year.

Looking ahead, we expect continued solid results from the three businesses -- bromine, lithium, and performance catalyst solutions -- that make up performance chemicals. However, sequential comparisons could prove challenging for bromine due to the second-quarter methyl bromide order that Scott highlighted and the expected weakening in clear completion fluids demand for the rest of the year.

Similarly, PCS faces tough sequential comps for the rest of the year related to the benefits from order timing in the first half of 2015. Nevertheless, we expect performance chemicals adjusted EBITDA to be up by double digits year on year excluding currency impacts.

Given the increased pressure on the Clean Fuels Technologies, our HPC business, our outlook for refining solutions has weakened since the end of the first quarter. However, Heavy Oil Upgrading or FCC continues to deliver outstanding results with strong year-over-year growth expected, based on strong demand and a favorable price environment.

Chemetall Surface Treatment continues to perform very well, and as Scott noted, we expect even better results in the second half of 2015.

Based on the second-quarter results and our expectations for the rest of 2015, we now project full-year EBITDA between $940 million and $1 billion. On an earnings per share basis, we are affirming our annual guidance of $3.65 to $4.05 per share in spite of the $0.03 to $0.05 earnings-per-share headwind due to the higher tax rate and depreciation that Scott discussed.

In closing, through the first half of 2015, Albemarle and its employees are meeting our commitments. Our businesses are overcoming significant headwinds and delivering outstanding results. Both our total adjusted EBITDA and our margins underscore the strength of our three GBUs.

We are operating in a disciplined, consistent fashion with a focus on managing what is within our control. We are effectively managing cost, capital spending, and working capital, and creating new savings through synergies. We are creating new platforms for growth as evidenced by the commissioning of the new battery grade lithium carbonate plan in La Negra, the performance of our Talison JV and acquisition of our partners shares in the Chemetall JV in Shanghai.

Finally the divestitures of our non-core businesses are on track.

Overall, we expect more of the same from our organization and our businesses in the second half of the year as we build on our industry-leading specialty chemicals platform to deliver superior terms to our shareholders over time.

Operator, we are ready to open the lines for Q&A.

But before you do so, I would remind everyone to please limit your questions to two per person at one time so that everyone has a chance to ask questions. And then feel free to get back into queue for follow-ons if time allows. Please proceed.

(Operator Instructions) Bob Koort, Goldman Sachs.

I think it's probably human nature to pick on the businesses that's not doing as well since you seemed to do pretty well in some of those other businesses where there were concerns. But the HPC business appears to be struggling, I think.

Scott mentioned low oil prices causing challenges. I guess I was -- I was thinking maybe crack spreads were more important to the health of the refining industry.

So can you talk a little bit about why you haven't seen a better response given that refinery margins are actually reasonably healthy right now?

I think it's a couple of things and Silvio may have some more details. Let me just talk at a high level, Bob.

I think crack spreads are more important. But I think if you look at the announcements that you've seen from the big integrateds like Exxon, Chevron, BP, they are really looking to cut their costs any way that they can. In addition, -- so they are looking for costs everywhere. Maybe that's a cheaper catalyst, maybe that's running the catalyst that they have a little bit longer.

The second thing is they are not having to run as hard because there's a big supply out there of the refined product that greatly exceeds demand. So when you look at the cost-cutting initiatives that they are seeing and when you look at how the operating conditions are lighter, the catalysts are just lasting longer, and when they are switching out, sometimes they are switching out to a cheaper catalyst.

Silvio?

I agree with that, Luke. And like you said, it's overall the demand of HPC volume that is lower than we had expected. And that driven by the fact that the refiners see opportunities to delay any change outs, to use weaker mix, or even going to the extent of not using fresh catalysts and using recycled.

And all that adds up that the overall demands is lower than expected.

And then if I could follow-up, my second question on the Heavy Oil Upgrading part, you mentioned retention of all your customers that had trialed.

Should we expect that might require, given the same characterization of your refinery customers looking for cost savings that it required a cost concession, and then you and Grace don't want to ever say the word Takreer, but it appears there's some progress there. Is that going to tighten up the markets enough to get some -- a resumption of the pricing that you guys had started implementing a couple years ago? Thanks.

I think I can be firm on that. I'm not expecting that trend on the HOU side. The business is strong, the fuels' demands is high. There is a global increase in gasoline demand which is favoring the HOU or the FCC operations, so I'm not expecting any impact there from the oil price.

And just to add on that -- on all those refills that we had -- not refills but on those contracts we got, we were not giving away price on any of that. That was one on performance trials, so it -- you shouldn't view that in any respect. The market is tight, the capacity is tight, so we're looking -- it's a great pricing environment right now. And our product performance is what's winning those.

We haven't heard any -- the question is have you heard anything on Takreer. We haven't heard anything on Takreer.

Our catalyst is in there, it's performing as per expectations in the unit and we are, just like everybody else, waiting to see what's going to happen.

Great, thanks Luke.

Vincent Andrews, Morgan Stanley.

Hi, good morning. This is Matt Andrejkovics calling in for Vincent. Thanks for taking the call.

Last quarter, you guys had a nice table that broke out equity income contributions by the different segments, I didn't see that this time. Are you going to go back to that at all? Because it's difficult to parse out how -- for example, how lithium progressed during the quarter as you have Talison coming in.

So just maybe if you could help us parse out like what drove the growth -- the new order and then Talison and how we can think about that.

Yeah, so as you think about that -- the details will be in the Q, which should be out today, latest tomorrow. As you look at lithium specifically with Talison, of course that was purchased in the end of May 2014. So we had one month and a couple of days of performance in 2014. Of course a full quarter of performance this year.

On a year-over-year basis, it's contributing roughly $6 million to $6.5 million incremental performance versus last year. It is performing better than expectations so we are very happy with what's going on down in Australia.

Okay great, and then just on to follow up, the free cash flow number, it looks like the range increased by $50 million to $150 million to $250 million, but I didn't see anything else moving in the outlook. Can you just maybe help reconcile how that would have moved?

Yes, the one item that moved in outlook -- so if you look at our normalized outlook, so that's without the acquisition costs and the one-time tax costs related to the acquisition, that did not change. So $450 million to $550 million, we're feeling very good about that range, given the performance and our current outlook in the second half.

On an all in basis -- a reported basis, that free cash flow number, it did move up to $150 million to $250 million and it's related to the tax payments for the acquisition. Part of those tax payments -- so about $50 million of those tax payments -- are being pushed into the first quarter of 2016 and so it's really just related to the timing of those payments.

Got it. Okay, thanks very much.

David Begleiter, Deutsche Bank.

Luke, nice strong Q2 results but you maintain the full-year guidance. Can you talk about what it would take to hit the low end or the high end of the 2015 guidance in the back half of the year?

Well to hit the low-end of the guidance, we've got to see completion fluids really fall off more than what we've anticipated for the year. I think that we've got -- we could see additional foreign exchange. You've got bromine pricing, so if we see some more bromine volume and the pricing continues to stick more than we have, we can see more upside there.

The Clean Fuels Technologies that go along there -- as you know, it always comes to order time and if we have an order slip one way or the other in the fourth quarter, that could have an impact on our earnings. And really it comes down to one of the non-core businesses that we have that we are looking to divest in Custom Services, they've got a big second half.

So that could move the needle there. And there's some upside if we can get some synergies earlier.

But I think really lithium is pretty solid for what we've got in the estimate at the midpoint. A lot of those contracts are baked in at the beginning of the year on price and volume and at the capacity we are running there. Not a whole lot of potential for major upside there.

And on Heavy Oil Upgrading, we've just got to deliver what we said were going to deliver and feel very, very confident about our ability to do so there. So some upside in the bromine area if we can just get pricing in a broader area than we have today and then some watchouts on HPC and on the Fine Chemistry Services.

Very good. And Luke, just on the bromine price increase you announced in late March, can you discuss how that's progressing and what you are seeing from other competitors including the Chinese?

Yes, this is Matt, David, I'll take that. So overall, we continue to be very encouraged by what we're seeing in price. If you remember, our original view is that we would not really see any net price versus volume this year and that's changed a little bit with this update, but we are seeing some net benefit.

There has been -- your point about China, there's been some movement in China of the price heading down a little bit that I know a lot of people have commented on. We don't view that is anything to be too concerned about at this time. There's always some movement in price to the downside in the summer in China because their production rates go up.

The price increase is kind of -- it's something we've got to deal with over the long haul and we're feeling good about where we are right now. And the modest demand improvement that we are continuing to see should underpin the basis for the pricing as well.

Great. And last thing, Scott, was the methyl bromine order about a $5 million EBITDA impact into Q2?

Yes, so if you look at it -- at the end of the day, it's probably $0.07 to $0.08 of EPS.

Thank you.

Chris Kapsch, BB&T Capital Markets.

My questions are focused on the lithium business. I think you said that, based on contracts, that pricing is generally understood or fixed for the balance of 2015. Just wondering if you could talk about -- given the strength in demand for EDVs, how do you view the pricing entitlement for that business maybe looking beyond 2015 into 2016?

Yes, I think if you look at 2016, there's obviously opportunity for pricing. It's a good pricing environment. People are pretty much sold out of battery grade lithium carbonate and battery grade lithium hydroxide.

If you look at the cost today of lithium in a battery it's probably around 2%. So it's very critical for the use of the battery. Yet at the same time, it's a small cost of that overall battery and we're sold out. So we feel good about the opportunities for lithium pricing in 2016 and have already started having early conversations making sure the markets understand what those expectations are.

Okay and could you just maybe qualify little bit more on the demand strength in EDV. Where was it geographically pronounced and the plant that you're building to directly convert spodumene-based lithium to battery grade hydroxide, is that intended to supply just Asian battery customers or is that intended to really supply customers globally? If you could talk about the timeline on that, thanks.

It will be a world scale plant. So it will supply globally. We will be able to do that not just for Asia customers. Really doesn't make sense just to do it just for Asia customers because the size and scale that you need to build out world scale plant to meet the needs of the markets.

And the timing on that is, as we said, we have started the work on that so it will come online in a 2019, 2020 kind of time frame. And in the interim, we are making arrangements to ensure that we are able to meet the market demand of that lithium hydroxide as it grows. And we're not concerned at all about our ability to do that.

We have great plans in place for 2016. Can expand those so, we're going to meet the market demand. We're going to have the hydroxide available to meet market demand, and we feel great about our process there and are extremely excited about the growth of battery grade and what it's going to do for this business.

And Chris, if you want, I will touch maybe just a second on the first question around the battery vehicle growth and where it's coming from and where really the battery grade growth is coming from.

One, you ought to think -- remember that consumer and portable batteries continue to be a very big driver. And while a lot of that may ultimately be consumed in Asia, it's for global markets. And then if you think about battery electric vehicles, what has continued to really hold up are the true pure battery electrics. So people think about Tesla but it's more than just Tesla, it's the other true battery electrics as well that are also growing. They are holding up very well and continuing to grow. Those are the two combinations that are the biggest drivers for the business and in a way, I would say you ought to think of it as a global -- where we supply is somewhat irrelevant. It's really global demand that's driving this.

Got you. Thanks, guys.

Mike Ritzenthaler, Piper Jaffray.

Just on refinery solutions, I guess with the outlook looking a little softer than three months ago, can you remind us of the magnitude of CFT versus HOU and the revenue mix? And then could you walk us through some of your assumptions for pricing mix and volume over the next couple of quarters? That would be helpful. Thanks.

Okay, well, I think as we report before, both businesses have always been important in contributing both good cash, cash flow, and margin. Obviously with the strength of the FCC today and the weaknesses of the HPC today and for seen from the rest of the year, there is an imbalance between the two businesses now and the FCC is the bigger contributor today than the HPC.

Okay. Any thoughts on pricing mix and volume or is that just -- that's just not something you're willing to comment on at this time?

If you look at the second -- if you look at the 2015 versus 2014 in HPC, volume will be down and will have a much worse mix than we had in 2014. 2014 was a pretty high watermark, but it's really all volume and mix. We hadn't seen much degradation in price at all when you're looking at catalyst per catalyst, so it's really been a mix issue and a volume issue in HPC.

And on the FCC, volume is strong. We will see volumes up and we will see earnings up and a really good pricing environment for FCC catalysts, Mike.

Okay, fair enough. I'm curious too about the sales process of the three businesses. Has it impacted the year to date -- has the sales process itself impacted the year to date results? I guess especially within fine chemistry solutions. Has it been more difficult to win new business? And have those assets at all been sort of impaired because maybe it's harder to sign up new customers?

Mike, this is Matt, I will take that. In reality, two of the businesses -- I want to say minerals and metals sulfides or what they call Tribotecc. Those businesses are doing just in line with what we expected. No impact at all but really having solid years.

If you talk about our fine chemistry services, we knew going into the year we had some tough business comparisons with contracts that were rolling off. We were counting quite a bit on getting some benefit in the electronics material space to help cover the year-on-year change. We've seen some supply chain issues and some delays in our electronics area. That's really been a big driver for the negative year-on-year in fine chemistry services. Don't think it has anything to do with the sales process.

Okay, fair enough, thank you very much.

Laurence Alexander, Jefferies.

Hi, this is Dan Rizzo in for Laurence. With -- just with the changing or the unfavorable MATS ruling for the Supreme Court for less (inaudible) the quarter, how does that affect bromine demand or does it have any significant negative effect at all or is it not something you are really counting on? Just a little color please.

Sure. If you look at MATS, there's a lot of uncertainty about how MATS will ultimately play out and I won't comment in detail because there's been plenty of that in the last few days on various earnings calls, but in reality our business related to mercury has improved year-over-year as anticipated up to now and the uncertainty comes in with what will happen post the Supreme Court ruling.

We're just going to have to see how that plays out, what the DC appellate court does. MATS has not yet been stayed or vacated. We are still within our guidelines clearly for this year of what we expect from mercury control. I don't think it will have any impact on this year's numbers and then depending on what happens in the appellate court, we'll see what happens longer term.

All right, thank you.

Mike Sison, KeyBanc.

Good morning, guys, nice quarter. If you think -- I just wanted to run through the cadence of earnings in the second half. You had a $0.07/$0.08 headwind in methyl bromide it looks like. Sequentially, third quarter looks a little bit tougher, so you think about third-quarter EPS, does it come down from the second in the fourth quarter? Is it a lot better or are they are things that like cost savings, integration that gets your third quarter maybe up or flat from the second quarter?

I would say, Mike, as you look at the third to fourth quarter, that we would expect that the third quarter would be at or above the third quarter slightly. And then we would see sequential improvement going into the fourth quarter. So if you think about that second half, roughly 45% to 47% in the third quarter and the rest in the fourth quarter.

Great. And then Greg talked about their FCC capacity largely being full heading into 2016 and -- based on their wins. Can you talk about how your wins are heading into 2016 and where you are going to be in capacity and are you feeling better about price potentially as we think about FCC catalysts heading into 2016?

Yes so -- go ahead, Silvio.

Okay, thanks, Luke. On the capacity, I think it has been said before with the growth and the demands -- the strong demands and the additions of new units. Capacity utilization is increasing and obviously that situation would be tight supply, the dynamics of the market are creating an atmosphere where there is room for price improvements.

So Mike, this is Luke. As you remember, we have a debottlenecking process going on right now at our Amsterdam site, and we needed that to be able to supply customers in 2016 based on the business that we have even when that comes online in early 2016 and again, it is a debottleneck, it's not significant capacity. We're still going to be operating at plus 90% in our FCC production units when you look at Amsterdam and Bayport, in total.

All right, thank you.

Jim Sheehan, SunTrust Robinson Humphrey.

On your surface treatment business, it looks like you're performing quite well there and some of the macro trends are getting a little bit better. As you talk about your outlook for the second half, are you seeing increasing order patterns and acceleration in your business?

Yes, Joris, can you take that please?

Yes, sure, Luke. Well, we expect a better second half in 2015 first of all. We will have carryover effect of market share gains we've done in 2014 and in the first half of 2015. We also have a favorable pricing impact and the impact of our acquisition in Shanghai.

So we are operating on a global scale, and we see a very positive demand in automotive globally and also from aerospace.

Great and just on bromine pricing, can you talk about what impact the strike in Israel had on the tightening of that market and as that strike has ended, do you think that the pricing environment is moving towards value-based pricing in the industry or do you see any drop off in pricing power as a result of increased production in Israel?

So Jim, this is Matt, I will take that one.

We've said all along that the impact of ICL strike was much less on supply then you might have expected. They clearly did a good job in preparing for the strike, having inventory available for the strike, and serving their customers during the strike. So I would really say that the strike had a lot less impact than a lot of people seem to think.

And we are much more comfortable with where price is going based on the trends we've seen overall and demand and based on -- yes, that the push to value is one way to describe that. Obviously reflected in our adjusted EBITDA margins this quarter and our outlook is for that to continue right now.

Thank you.

Mike Harrison, Global Hunter Securities.

Within the surface treatment business, you noted higher SG&A costs related to that Shanghai joint venture. Is that just structurally a lower margin business or are we going to be able to rationalize some of the SG&A costs over time?

Well yes, we will see synergies and savings impacting our P&L going forward. The acquired business is pretty much automotive driven and it is our strategy to diversify also our sales in China towards other segments with traditionally higher profitability as well.

But it's more or less in line with what we see in other regions. So there is no big impact there.

All right and then you announced a butyl lithium capacity rationalization. Obviously you had a key application go away there. Do you envision other applications coming back over time on the synthesis side? And can you also maybe speak to the butyl lithium demand more broadly, particularly as we look at some potential weakness in China? I know that's a key polymerization market for you.

Sure. Mike, I will take it.

If you look at butyl lithium, originally we thought we would see enough growth in butyl lithium and other applications to fully cover the loss of that synthesis application from last year in 2015. We've covered a part of it but not all of it but other -- if you will, other specialty lithiums that continue to grow and that's reflected in some of the numbers.

So I think while we might not have covered it fully in butyl lithium, we covered in other ways at this point. And if you look at the outlooks for the growth of elastomers over time, which is the key polymer application for butyl lithium or synthesis application, it will grow, it will grow over time, there's going to be -- it's going to get covered, it's more a question of will it be 2016 now then 2015.

All right, thanks very much.

Maybe I should say one more thing though that -- you think about that rationalization, there was always a fair amount of redundant capacity in the butyl lithium supply chain that Rockwood had and, given our set up with organometallics in the way we've looked at things, it's given us some freedom.

So I don't think you should view that we are reducing our capacity to serve the butyl lithium market by this rationalization. We're still in good shape from a supply point of view. It's more just using our assets in a better way.

Tyler Frank, Robert Baird.

I was wondering if you could just -- provide a little bit more color on what you are seeing for the drilling completion fluids. Do you think that this will continue to decline over time if low oil prices stay where they are heading into 2015?

I think -- remember that we are strongest where our applications are in deep water drilling so I believe that if they continue to come low, it depends totally what happens with the capital dollars related to drilling and where they go to drill. There's a lot of data out -- I forget who put it out, but I read it earlier this week that to keep their production flowing of the oil that they are pulling out, some of them are moving to quicker paybacks on some of the drilling which takes them into the shallow waters.

So if oil stays low, I think next year you could -- we expect the second half to be weaker than the first in 2015 and if oil stays where they are, you just have to see what they're going to do from a capital standpoint, but it could certainly stay -- we could see the second half of 2015 longer.

And historically, the longer oil prices have stayed down during a period of time, the longer it takes from an E&P standpoint for it to pick backup and then we are the tail of the E&P. So the longer it stays down, the longer drought I think you would expect to see. But again we are going to control what we can control from a cost standpoint, from a technology standpoint, from servicing our customers, and meeting the demand where it's there.

Got it. And then it sounds like demand for bromine remains strong. Could you just talk about how you guys look at the overall market demand and price stability in terms of potential future price increases and when we should expect the original 30% price increase to be fully baked into numbers and the model and then how you guys look at potentially increasing prices again?

So Tyler, clearly, we're still in the implementation process of the initial price increase. I think we will defer that, the next price increase until we fully implement this one but we feel good about the trends. What we've said all along is the demand question long-term around bromine is centered on flame retardants and it's good now to see that we've seen growth in 2014 over 2013, and we've seen that growth continue in the first half of 2015, and we continue to feel good about that.

If you look at all the other applications for bromine outside of FR, really the only one that's kind of a watch out right now is the one we've been talking about just a second ago which is what's going on with clear brine fluids. Long term, that's still an area we feel very good about. Shorter term or medium term with low oil prices, we've got to deal with that. So the trends are headed the right way in our view for overall bromine demand with the exception of clear brines which is more of a short- to medium-term issue related to oil prices.

Great, thank you.

Thank you very much indeed for your questions. I would now like to turn the call over to Matt Juneau for closing remarks.

Yes, this is Luke. We've got a number of questions probably that I want to go ahead and address about Michael Wilson.

When I talked to Michael about joining Albemarle a few years ago, I knew he had career aspirations to be CEO of a publicly traded company, but the kind of guy he was -- I knew it was work bringing him in and he came in and he has done an absolute fantastic job for Albemarle over the last two years, driving the business and more importantly, putting in a leadership team in place they can run that business for him.

Now Michael's got -- received a great opportunity with Ingevity to become a CEO, to put together a brand-new Board of Directors, to build his management team and do it all in a great place like Charleston, South Carolina. So we are very, very happy for Michael and wish him all the best.

But that team that he put together in performance chemicals is clearly one of the top teams in the specialty chemical area in those businesses and I am absolutely confident in their capability to continue to drive this business and we don't expect our performance chemicals business to skip a beat.

Okay. Thanks, everyone, for joining the call. We appreciate your time and attention and everybody have a great day. Thanks.

Thank you for joining today's conference, ladies and gentlemen. This concludes the presentation. You may now disconnect.