Avient Corp (AVNT) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation second-quarter 2014 conference call. My name is Erica and I'll be your operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

At this time, I would like to turn the call over to Isaac DeLuca, Vice President, Investor Relations. Please proceed.

Thank you, Erica. Good morning and welcome to everyone joining us on the call today.

Before beginning, we would like to remind you that statements made during this conference call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance.

They're based on management's expectation and involve a number of business risks and uncertainties, any of which could cause the actual results to differ materially from those expressed in or implied by the forward-looking statement. Some of these risks and uncertainties can be found in the Company's filings with Securities and Exchange Commission, as well as in yesterday's press release.

During the discussion today, the Company will use both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the PolyOne website, where the Company describes the non-GAAP measures and provides a reconciliation of them to the most comparable GAAP financial measures.

Operating results referenced during today's call will be comparing the second quarter of 2014 to the second quarter of 2013, unless otherwise stated.

Joining me on the call today is our President and Chief Executive Officer, Bob Patterson, and Executive Vice President and Chief Financial and Officer, Brad Richardson.

I will now turn the call over to Bob Patterson.

Thanks, Isaac and good morning. It is a privilege to host my first earnings call as President and CEO, and report that our second quarter was yet another exceptionally strong performance for PolyOne.

We delivered $0.51 in adjusted earnings per share, a 38% increase over the prior year and an all-time record for us. This represents the 19th consecutive quarter of double-digit adjusted earnings per share growth; an impressive achievement and a streak I don't plan to see come to an end. Not on my watch.

Our consistent and strong earnings expansion has become a hallmark of our transformation. And I am pleased that all of our segments delivered year-over-year operating income growth.

Our Specialty Platform led the way with impressive gains from global color, additives and inks, global specialty engineered materials, and the most recent addition to our portfolio, design, structures and solutions. And as you have come to expect, mix improvement and the resulting expansion of margins, underpin this growth, as each of our businesses achieved new record levels of operating income and profitability.

Our underlying mix of earnings has never been stronger and we have great momentum. I'm excited to be in my new role and to lead this great Company to new record levels of achievement.

In my first two months, I've visited with customers, associates around the world, and many other stakeholders. In a few moments, I will share with you my initial observations as CEO. But first, Brad will give us more details about our second-quarter performance.

Thank you, Bob and good morning, everyone. A true pleasure to share our second-quarter results this morning, as our team once again delivered another strong quarter of performance.

As expected, we continue to exit unprofitable business acquired from Spartech, and accordingly, our second-quarter revenue of $1.01 billion was down slightly from the prior year. However, these actions, coupled with other ongoing initiatives to prove mix and expand margins, led to a 38% increase in adjusted EPS of $0.51 per share.

As Bob said, our specialty platform led the way. All three of our specialty businesses generated record operating income and collectively expended return on sales by 310 basis points for the quarter. Our steadfast focus on innovation and improvement in mix drove a 27% increase in specialty operating income to $69.5 million, a second-quarter record. Specialty now accounts for 66% of our total year to date segment income. Inside the range of our 2015 target.

Global color, additives and inks once again generated another excellent performance and continued the momentum from the first quarter. Global color continued to upgrade its portfolio. And coupled with accelerated synergies from the former Spartech business, improved operating income by 22% over the prior year to $38 million.

Growth in healthcare, transportation, and electronics drove double-digit operating income expansion in all regions. And I would highlight continued strength in Europe as a key driver of our second-quarter results, leading to an all-time record return on sales of 16.5%. This is a 300 basis point improvement over the prior year and exceeds the high-end of the 2015 target range.

Some of our most profitable additives business in Europe and we have been pleased to see growing demand in the region for these products. Not to be outdone, global specialty engineering materials delivered an even larger increase in operating income. Expanding operating income an impressive 26% for the quarter to $19 million. This resulted in a record return on sales of 12%, a 260 basis point improvement over the prior year.

Mix improvement drove the expansion as growth from soft touch TPEs and composites, to the consumer, transportation, and electrical end markets offset weakness in North America wire and cable sales. As it was for color, Europe was also a highlight for engineering materials, where earnings expanded 33%.

As we focus on providing our customers with value-based solutions, mix improvement was also the underlying driver performance for design, structured and solutions. While revenue declined 18% to $164 million for the quarter, operating income grew 43%. At $12.9 million, return on sales reached 7.9%, up from just 2.2% in 2012, before we acquired this business.

Our integration efforts continue to focus on commercial and operational excellence initiatives. Our Lean Six Sigma program has been fully deployed, which, along with our manufacturing realignment activities, will continue to drive profitable -- profitability improvement across the former Spartech business.

Moving forward, we still expect a certain level of pruning activity to continue, albeit at a lower rate. Rest assured, our focus on mix improvement will continue to enhance the profitability of the business and deliver higher operating income as we move forward.

The same playbook that is driving profitability improvement in DSS, is also being used to do the same in PP&S, which absorbed a significant piece of the former Spartech business. As a result of the elimination of low or negative margin business, sales of $211 million were up only slightly versus the prior year. However, operating income expanded 15% to $17.6 million.

From an end market perspective, gains in transportation helped to offset a tepid building and construction market. Lastly, distribution sales improved 4% to $287 million versus the prior year on growth in appliance, consumer and transportation end markets. This resulted in a 2% increase in operating income to $17.3 million, as margins were slightly compressed due to higher raw material cost.

Shifting to our balance sheet, we made solid progress towards further strengthening our balance sheet and improving free cash flow, a key focus area of mine. In fact, during the quarter, we aggressively converted our earnings into cash and generated $100 million in free cash flow for the quarter.

We continue to see progress in working capital management as it improves sequentially to 10.7% of sales on a trailing 12-month basis, from 10.9% of sales last year.

These trends contributed to our strong liquidity for the quarter. We ended June with $262 million in cash and total liquidity of nearly $600 million. Our net debt to EBITDA ratio is currently at 1.8 times, well within our comfort zone. We remain confident in our ability to invest in innovation, aggressively pursue M&A opportunities, and return cash to our shareholders.

During the quarter, we repurchased 1.8 million shares at an average price of $38.15 per share. We have now repurchased over 8 million shares issued in conjunction with the Spartech acquisition and remain on pace to repurchase all 10 million shares by the first quarter of 2015.

Reinvestment in our speciality platform remains a core part of our strategy. During the quarter, we made targeted investments in CapEx totaling $20 million, largely driven by our manufacturing realignment efforts. We expect CapEx spending of around $85 million for the full year, as we continue to invest in growth of our business.

Our initiatives to improve our pre-special tax rate also made progress during the quarter. Through proactive tax planning, as well as a slight benefit of our mix of earnings, our effective tax rate for the quarter was 33.8%, down from 36.9% in the prior year. We expect small but measurable progress in our overall effective tax rate for the balance of year and anticipate a full-year rate of around 35%.

Finally, special items in the quarter resulted in a net after-tax charge of $23 million or $0.24 per share, principally driven by our recent announcement to align our assets in Brazil, as well as continued expenses related to our Spartech manufacturing realignment.

So in summary, the business had another exceptional quarter. Our teams reached new milestones in a number of profitability metrics and we did this by executing our strategy, living our values, and keeping our customers first.

That concludes my remarks, I will now hand the call back to Bob.

Thanks, Brad.

Indeed it was another great quarter from many perspectives and we continue to build upon our momentum in all of our businesses. It's been a little over 60 days now since I became CEO. And as I've done since day one, I am continuing to reaffirm some central themes for our Company going forward.

First, our four pillar strategy of specialization, globalization, commercial and operational excellence is proven, fully endorsed by our management team and our Board, and will continue to underpin everything we do.

Second, while strategy is important, execution is even more critical. An excellence in execution, will continue to be a key differentiator for PolyOne. And third, our 2015 targets remain unchanged and we are laser focused on them.

During these first 60 days, I've been doing a lot of listening and learning as I've met with customers, associates, the investment community, suppliers, and other stakeholders. During recent trips to Europe and Asia, I was energized by the level of enthusiasm and engagement shown by our global associates. And by engagement, I mean a clear focus and a strong desire to win and especially having a relentless focus on our customers and innovation.

Our customers have validated this. And [in this year] PolyOne has been nominated and selected three times for supplier of the year awards by our customers. And just like our sellers do every day in the field, I use each customer interaction to listen, learn, and then use that feedback to improve our business relationships and help innovate.

And just like my time with my employees, I left these customer meetings very motivated and encouraged to do more for them. All of these interactions, whether internal or external, have consistently reinforced something I have always been passionate about and viewed as a significant factor in our success.

And it is our core values of collaboration, innovation and excellence. These values define who we are and how we conduct business. Collaborating across businesses, functional areas and most importantly with our customers, is a key to our success. But we can do better. In collaboration that drives innovation, represents the next frontier of growth for PolyOne.

We showcased dozens of examples of this at our innovation day in May. We introduced how customer specific new applications, or singles and doubles as we call them, can add up to $1 billion to $2 billion of opportunity in design and services, sustainable solutions and a light-weighting technologies just to name a few.

And during the second quarter, we had some more of these singles and doubles. For example, we recently collaborated with a large municipal power Company to install bullet resistant panels from our glass forms business, on their electrical substation. Our solution provides the protection that power companies and municipalities are seeking as securing our power grids emerges as a critically important issue.

And in a great example of cross business unit collaboration, our specialty engineered materials and design structures and solutions segments, joined together with a premier manufacturer of dental cabinetry to develop a material for their cabinets, that protects delicate electronics from x-rays.

For those of you who know us, I know you've heard us talk about Gravi-Tech before. And it's a thermoplastic replacement for lead that can serve to shield people or equipment from harmful x-rays. And consumers are continually looking for opportunities to shift away from lead to a more environmentally friendly solution.

And I know you've heard us say this before, but I'm highlighting this specific win today because this was our first cross business unit collaboration with the sheet extrusion capabilities from DSS. And ultimately, we delivered a lead-free solution that achieved our customers performance and aesthetic objectives.

As you know, DSS is also working with our ColorMatrix business to incorporate additives into our packaging and sheet applications. We look forward to reporting our first win with this customization soon.

Collaborative successes like these don't just happen by chance. They take time, hard work, and sometimes even a little facilitation with novel new tools and resources. And one that we're using a PolyOne is called Idea Architect. It's an interactive, online community, exclusively for PolyOne associates around the world, where we can collaborate, brainstorm, and generate new ideas specific to industries and applications.

Idea Architect harnesses the collective creativity and acumen of our 7,300 global associates. You know investments in innovation and growth don't always need to come in the form of equipment, brick and mortar, or new hires. I believe some of the best return on investment can come from investing in the exceptional resources we already have. And Idea Architect is one way that we're doing that.

And when we collaborate and innovate and demonstrate excellence in service, quality, and delivery to our customers, we add a true value. And that is the PolyOne difference.

You can see that difference manifest itself in yet another quarter of strong double-digit adjusted EPS expansion. That's 19 straight quarters if you're counting. We are. But we also study and manage what's behind the scoreboard. And in the second quarter, specialty is what drove our performance yet again.

As I said, our underlying mix of earnings has never been stronger and now two thirds of our segment income is derived from specialty. And further, the underlying mix of earnings within our specialty businesses continues to improve. With return on sales in global color at 16.5% and global specialty engineered materials at 12%, and DSS at 7.9%, we are doing exactly what we said we would do; expanding margins and driving growth in delivering double-digit adjusted EPS expansion.

You know, to keep performing and growing just as we have, I've stated that now I'm in the CEO role, there are a lot of things that won't change going forward, like our strategy, excellence and execution, our 2015 goals, and certainly our core values.

Yet as we look ahead, not everything can stay the same. And when change is needed, rest assured, we will take action. And during the second quarter we did just that. And we took action that will improve our performance in Brazil.

We're closing two of our facilities and exiting unprofitable product lines. Our asset realignment will streamline our operations, lower our fixed cost structure, and improve our focus on the specific types of specialty solutions, where we can add the most value for our customers. That is where our offerings are best aligned with current demand, as well as future market trends specific to South America.

To be clear, we are not exiting Brazil, as we believe it can and will remain an important market for us and our customers. We are simply honing and shaping our focus on the specific end markets and products where we can add the most value. And this is the latest step in an ongoing plan to move to profitability in Brazil, where we expect low- to mid-single digit operating margins in 2015, up from a loss this year.

Another recent action was our leadership changes to drive growth in global key accounts, Asia, and distribution. These are all internal moves and realigned roles and responsibilities to best utilize our internal talent.

Paring our strengths and expertise to our current goals and objectives and I am pleased to see these leaders off and running in their new roles. These are the types of decisions that we have to make and will make to succeed and grow now and in the future, as we pursue our goals for 2015 and shape a Platinum vision for 2020.

In closing, I want to recognize and thank our management team, as well as our entire extended PolyOne team of global associates. It was a fantastic quarter and they really delivered once again.

With that I would like to open it up for questions.

(Operator Instructions)

Frank Mitsch, Wells Fargo Securities.

Good morning, gentleman and good morning Bob and congrats for getting the first quarter successfully under your belt.

Thanks, Frank. Good morning to you.

Thank you. I was surprised to hear you pull out the G word, and by that I mean Gravi-Tech, but I certainly wish you well there.

As you talked about maintaining your $2.50 2015 number, I also heard you talk -- you actually I believe it was Brad, on aggressively pursuing acquisitions. Do you believe that you need to do more in that regard to achieve that number or will innovation and cost savings get you there organically from this point?

No, as we've always said there multiple levers that can get us to our objectives in 2015. Certainly completing an acquisition would help get us there.

We've made great progress in margin expansion, highlighted by our second-quarter results. So I feel very good about that. And we've got a number of things in the pipeline from an innovation standpoint to help us. So I believe it's a combination.

Okay, great. And clearly margin expansion was terrific and Q2, a lot of that done via pruning, I'm guessing.

Where do we stand on that effort? Is the bulk of that behind us? Are we in the midst of it? Are we -- where do you think we stand on that, particularly as it pertains to the Spartech portfolio?

First of all, you do see some level of impact from exiting unprofitable business in each of our segments, as they all, with the exception of POD have some Spartech business that they inherited. And that's largely where these actions were contained to. So you do see that across the board.

But most predominately in the DSS segment, which of course was entirely Spartech. So I believe that we are always going to see some ongoing mix improvement in exiting unprofitable businesses. But for the balance of this year and going forward and a much slower pace.

Okay. Obviously very impressive here in Q2 or for the Q2 results.

Then one of the hallmarks of PolyOne obviously is the double-digit growth that you alluded to or highlighted I should say, as well as hitting the numbers that are out there. I was surprised just taking a look at the third quarter that the Street is essentially flat with Q2, we're a little bit below that. But I would imagine that you typically see some seasonality in the third quarter particularly as it relates to Europe.

Do you have comment -- how's the third quarter starting out? And what might be your expectations particularly since Europe was such an eye-popping positive here in Q2?

Yes, we absolutely see seasonality in this business and the second quarter is seasonally our strongest. Which means that sequentially we often see a lower EPS in the third quarter than what we see in the second quarter. And that would be our expectation.

However, that's still going to be a significant year-over-year, double-digit expansion over last year. So, you're right on with respect to the seasonality of the business and what to expect for the second half of the year.

Thanks so much.

Thanks, Frank.

Bob Koort, Goldman Sachs.

Thanks, good morning.

Hi, Bob.

I was wondering on the $40 million restructuring charge, can you give us a sense of what component of that was Brazilian activity and what share was the rest of the integration efforts?

Yes, we took in the quarter, $14 million of restructuring charges related to Brazil. And the balance really is associated with our Spartech realignment, which is primarily North America.

Are you able to forecast what that number might be looking forward? Are we going to start to see it dial down considerably or is it going to be an ongoing issue for a few more quarters?

Yes, if you look Bob, at our Q, which we've just filed, I mean we've talked about the ongoing restructuring charges for the former Spartech business, that there's probably another $10 million to go. And related to Brazil, there's probably another call it $2.5 million to $2.8 million to go in Brazil.

Got it, thank you. And then on PP&S, I think you had mentioned a tepid building market, what would you attribute that to? I guess I sort of feel like, at least in the US, the housing market seems to have had some recovery. But maybe you're selling in a different area that aren't doing as well or can you give us some help there?

There's a couple things. One is, I think that while the estimates on starts continue to be above where they were last year, certainly not at the pace of growth we've seen in previous years. And in addition we haven't seen the same level of correlation to our vinyl specific products, which are in the PP&S platform that we have in the past.

And also, which we think is to some extent related to what we're seeing in the wire and cable space where that's a soft market. And that's what we're seeing. Some of that may have been weather related to the industry in the early part of this year, I'm not sure that's a valid explanation any longer. But all we can say is that we know that from a vinyl standpoint we just haven't seen the growth that we thought we would related to housing.

And my last one if I might on the specialty side you guys had it looks like a $37 million reduction in sales year-on-year and I know you've talked about the pruning. Can you talk about maybe specifically what kind of products were pruned and was there underlying organic growth outside of that pruning? Thanks.

Yes, look the preponderance of that really came from our design structures and solutions segment. We do have asset realignment actions underway there, which support those actions.

If you were to peel back what we've seen in the other segments, I'd say that yes, there has been organic growth. And that's the led by different industries, but notably transportation and the packaging and electrical or electronics end markets.

Great, thank you.

Thanks, Bob.

Kevin Hocevar, Northcoast Research.

Hey. Good morning, everybody.

A question on the -- so global color you guys mentioned obviously put up margins this quarter above the high end of your target for 2015. And I know you've talked in the past that this is a segment with the most potential to either come in -- at least at the high end and maybe even top these targets in 2015.

So just wondering how your confidence is progressing in that particularly on whether or not this can top that number in 2015, kind of seeing the progress that it's making so far in 2014?

Kevin, this is Bob. As a follow-on to Frank's comment or question about seasonality, I would point that -- point out that does have a positive influence on margins for the second quarter as well. So just to shape your view for the balance of the year, the margins are tend to be the strongest in the second quarter.

That being said, we absolutely feel confident about our ability to get inside of those targets next year. And as we said at our innovation day, believe that our color segment has the best opportunity to exceed the high end of the range.

Certainly with the second-quarter performance behind us we feel even better about that. But I just want to calibrate everyone's expectations with respect to Qs three and four.

Sure, and then Bob, you mentioned with Brazil, that turning from a loss and expecting it is turn to low- to mid-single digit operating income margins in 2015.

Just wondering what type of sales you have in Brazil today and what you would expect after some of this realignment in 2015 and beyond?

Yes, we have in total I'd say about $40 million to $45 million of revenue in Brazil. And with respect to the product lines that we believe would be impacted by this would probably be about $20 million in revenue. So it remains to be seen whether or not ultimately all of that's exited, but I think that's a conservative number.

Okay. Then finally it seems like the distributions sales have been growing pretty nicely in the first half, but margins have been relatively flat. Just wondering why hasn't there been a little more leverage here? Has it just been raw materials are going up just as much is price or just wondering why the margins have been relatively flat there?

We continue to see pressure on the raw materials side, I'd say that's the single largest impact. If you just looked at markets statistics on polyethylene, polypropylene are up 10% over I think a year ago period.

And that's really the single largest driver in why we've seen some of the margin compression and some of the challenges there. But the business continues to do well, delivering near 50% return on invested capital. So good by all other measures.

Okay, thank you guys very much.

Laurence Alexander, Jefferies.

Good morning.

Good morning.

Two questions, one granular. As you look across the niches that you are selling into and I know you sort of think about a more in terms of product by product, are there any where you are seeing your penetration rates point or your overall volumes accelerating sharply enough to call out?

And then I guess secondly, just from a very high level as you think about the growth algorithm for the Company now that Spartech is largely digested, is there a minimum organic sales growth number that you think you need to have to be able to maintain the 10% plus earnings CAGR? Or is there -- or do you think there's just so much room on the mix -- on the bottom slicing that that's just the wrong way to frame it?

Well with respect to your first question, I think that we made great progress on the packaging end market with respect to our liquid color and additives business, as well as masterbatch. So it was kind of across the board from a product line standpoint in global color.

And would just highlight that Europe was a good guy for us this quarter as it was in the first quarter. So I don't know that I'd call anything else out beyond that other again to highlight that Europe continues to be a help in the specialty platform.

With respect to your second question, which I think was DSS specific, if I'm not than you can correct me. But I believe we've got the opportunity to get to 10% return on sales in that business with the level of revenue that we have today. There's still a lot of ongoing work with respect to asset realignment and managing the business better. If I didn't get your second question right you can ask again.

Okay, I'll circle back. Thank you.

Rosemarie Morbelli, Gabelli and Co.

Thank you and good morning all. I was wondering if you could talk about the trends -- the underlying trends you have seen during the quarter has -- I know there's seasonality, but taking that into consideration did you see continuing momentum? Did you see a slowdown? And if you could touch on the markets in Europe that you see improving?

Where we saw the most significant impact from a market standpoint in Europe was related to packaging, as well as some level in transportation and electronics. Packaging happens to be where we service that end market primarily from our color business, which happens to be some of our higher margin products. And that's a big driver in what you saw in terms of margin expansion for the quarter.

Inside of North America, we continue to see I think a very healthy level of growth. With the exception of maybe housing not meeting our expectations, but nevertheless I think still going. In transportation certainly doing very well. So above all else I would highlight transportation in North America.

When we look at housing, the reason that you are behind let's call it a the lack of a better word, is it because when we deal with siding, vinyl siding, when we deal with wire and cable, this is small for new constructions and you are the end of the project, I am guessing.

Can you give us a feel as to what you see going forward in that particular area assuming that housing starts remain flat? Do see a pickup because of the projects being completed?

There's certainly some lag effect because I do believe that our products enter the construction phase later in the cycle. We don't do any straight siding per se, but we do window profiles and other return bends from a piping standpoint that have a higher degree of engineering complexity.

But what I think we've seen this year and similar to last year is that there's a higher percentage of multi family homes being built, which ultimately drives less windows and that has some impact. Plus just an overall lower consumption of vinyl. When you look at what the vinyl industry has done in the last couple of years, the pace of growth hasn't of the same as it has been with housing starts.

So it is unfortunate, it's a multifaceted sort of response to your question. Fortunately for us we continue to find ways to win. We're focused on end market diversification and driving margin expansion and we continue to be successful in that regard.

Thanks, and if I may ask one last question. On the distribution side, I mean by definition distribution pushes through raw material cost increases immediately, right? It is kind of a pass-through type of business, so why the lower margin?

Well we certainly do get prices through as fast as we can. Mathematically, as costs go up it makes it more challenging to report a higher return on sales, just simply because of a higher dollar value on the sale side. But nevertheless it is our objective to improve margins.

My only observation I'd have about that is that it's been difficult for us to get there this year, similar to what we experienced in the second half of last year. It's incumbent upon us to fix that and to get better at it and that's what we are focused on.

Okay, thank you. Good luck.

Thanks.

Mike Harrison, First Analysis.

Good morning.

Hello, Mike.

Had a question maybe looking for an up date on the globalization strategies that relates to South America by way of asking about the Brazil restructuring. Presumably you had a choice whether to expand growth efforts there, maybe do an acquisition in order to better leverage the infrastructure or to right size the business for the current market. So how are you thinking about Brazil and South America going forward?

My answer to that is actually very similar to how I view the transformation of PolyOne overall. If you go back in time PolyOne initially during its formation phase and I know I'm dating this observation here, but really struggled with its identity, who the Company was going to be, what types of products they were going to sell, and who they were going to serve.

Ultimately, we cannot be everything for everyone. We need to focus on specialty niche applications where we can truly add value. And from a globalization standpoint, our primary objective is to service our multinational OEMs wherever they do business. And do so in those same specialty markets.

So it's not an exit of Brazil but rather just a focus on where we believe we can add the most value from a specialty standpoint. Some of the products that we had there were candidly just more commodity in nature than we believe that we could sustainably maintain. That's really what it comes down to. When need to focus on what we are good at and grow that business.

We've talk a little bit about seasonality on this call. Are any of the mix changes that we've seen over the last several quarters leading you toward having less seasonality in the business? Or does it really have more to do with the geographic mix and Europe taking much of the third quarter off for holiday?

It's possible that mix change is having some impact on seasonality. I'm not sure to what extent I would say that that's flattening out our results given that in this year we saw strong performance from Europe in first and second quarter. And we'd expect it sequentially to be down in the third.

So that's keeping with historic trends. The construction cycle typically strongest in the second quarter as well. From a margin standpoint mix, it's certainly impacted us. From a seasonality standpoint it's probably aligned with what we've seen in historic periods.

Then the last question I have is the DSS segment and seeing 25% lower volumes there. Obviously you're offsetting that at the bottom line, but can you just give us any better detail of what specific product lines or markets you're steering away from right now? And what are some of the higher-margin product lines or markets where you're seeing the growth opportunities?

Well, I can't get into specific product lines and I'd say that we have a lot of opportunity to improve our cost position, which is what we're doing with respect to the manufacturing re-alignment. And along the way we'll improve quality and ultimately that will improve the service that we deliver to our customers and really allow was to advance our specialty initiatives with them.

So I can't make any specific comments more than I have about product lines or customers. But it's sort of a broad range of areas where we had operations that just weren't profitable and we're taking the actions to reverse that.

Alright, thanks very much.

Certainly. Well, thanks, everybody for joining us on the call today. We had a great second quarter, look forward to delivering similar news for the balance of 2014 and beyond. Take care.

This concludes PolyOne's conference call. You all may now disconnect and everyone have a great day.