Cabot Corp (CBT) 2015 Q1 法說會逐字稿

Good day, Ladies and Gentlemen, and welcome to the First-Quarter 2015 Cabot earnings Conference Call.

My name is Ketina, and I'll be your coordinator for today.

At this time all participants are in listen-only mode.

Later we will facilitate a question-and-answer session.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Ms. Erica McLaughlin, Vice President, Investor Relations.

Please proceed.

Thank you.

Good afternoon.

I'd like to welcome you to the Cabot Corporation earnings teleconference.

Last night, we released results for our First Quarter of FY15, copies of which are posted in the Investor Relations section of our website.

For those of you on our mailing list, you received the Press Release by e-mail.

If you are not on our mailing list and are interested in receiving this information in the future, please contact Investor Relations.

The slide deck that accompanies this call is also available on the Investor Relations portion of our website and will be available in conjunction with the replay of the call.

I remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties.

And Cabot's actual results may differ materially from those expressed in the forward-looking statements.

A list of factors that could affect Cabot's actual results can be found in the Press Release we issued last night and are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly in our last Annual Report on form 10k.

These filings can also be found in the Investor Relations portion of our website.

I will now turn the call over to Patrick Prevost who will discuss the key highlights of the Companies performance.

Eddie Cordeiro will review the business segment and corporate financial details.

And following this, Patrick will provide closing comments and open the floor to questions.

Patrick?

Thank you, Erica, and good afternoon, Ladies and Gentlemen.

We had a solid First Quarter as high margins and lower costs helped to offset a weak demand environment.

As expected, our volumes were under pressure particularly in the reinforcements material segment from a weak demand environment in Europe and South America and some customer inventory destocking.

We were, however, able to largely offset the volume pressure with the benefit from higher margins, corporate-wide cost controls, and a favorable LIFO adjustment.

In addition, Purification Solutions earnings improved as compared to last year.

And this came from high volumes, favorable pricing and product mix, and improved operational performance.

Finally, we used our solid cash flow generation during the quarter to repurchase close to 1 million shares.

Following this repurchase in the First Quarter, we increased our share repurchase authorization in January to 5 million shares.

During the quarter, we also continued to work in a number of areas to improve our global competitiveness and strengthen our leadership positions.

First, we opened a new mine in Texas that will produce lignite coal and supply Cabot's adjacent activated carbon manufacturing facility in Marshall, Texas and this, for an expected 50 years.

The mine is part of our strategic plan to assure long-term supply of high quality activated carbon.

Second, we completed the transition of our Europe, Middle East, and Africa business service center from Belgium to Latvia.

This move will enable us to reduce our costs and improve our effectiveness to serve our customers in that region.

Thirdly, we opened the new Purification Solutions sales office and R&D center in the Netherlands to facilitate the development of our activated carbon business in the Europe, Middle East, and Africa region.

Our new site will help improve our customer support and is the primary location for sales, technical service, and applications development.

And then finally, we launched a new product, a product called PURIT activated carbon for sweetener applications.

Our PURIT products allow better filtration.

And this enables customers to achieve significantly lower operating cost, and that, with less environmental impact during the air purification process.

During the quarter we also announced the realignment of our global business segments.

It is designed to improve efficiency and resource prioritization and enable stronger customer focus.

The new segment structure better aligns with the recently announced organizational structure and is how Management reviews results internally.

With Sean Keohane leading our reinforcement material segment, Nick Cross leading our Performance Chemicals and speciality fluids segment, and Fred von Gottberg leading our Purification Solutions segment, I believe we have proven and capable leaders that are ready to take Cabot to the next level of performance.

Our objective as a Company remains the same.

We will deliver earnings growth through superior customer relationships, manufacturing excellence, and outstanding technology development and engagement.

As you can see we continue to be highly focused on actions to improve the short and long-term performance of the Company.

I will now turn it over to Eddie to discuss the financial results in more detail.

Eddie?

Okay, thank you, Patrick.

Turning to Q1 operating results.

Adjusted EPS for the First Quarter of FY15 was $0.80, and total segment EBIT from continuing operations was $97 million.

We experienced lower volumes during the quarter as compared to the prior year and sequentially.

The benefits from higher margins in inventory build and corporate-wide cost controls partially offset the impact of the volume decline.

I will now discuss the details at the segment level beginning with the Reinforcement Material segment.

During the First Quarter of 2015, EBIT for Reinforcement Materials decreased by $20 million, as compared to the First Quarter of 2014.

The decrease was due to 3% lower volumes driven by weaker demand in Europe and South America and customer inventory destocking, most notably in China.

In addition, $3 million in one-time benefits that we experienced last year did not repeat.

Also, our elastomer composites results declined by $6 million driven by lower volume and a technology milestone payment received last year that did not reoccur this year.

Sequentially, EBIT was $6 million lower than our Fourth Quarter of FY14, primarily due to 6% lower volumes.

The volume decline was driven by customer inventory destocking, primarily in China, and seasonally weaker demand in Europe and the Americas.

The lower volumes were partially offset by lower fixed costs and a favorable product mix.

Our utilization was in the 75% to 80% range in the First Quarter, which is a decline from the 80% to 85% rates we had been operating at last year.

These utilization rates combined with a tepid global demand outlook for 2015 resulted in a more challenging customer contract negotiation for calendar year 2015.

These discussions resulted in somewhat lower pricing in Europe and South America, as well as a reduction in contracted volumes in North America.

In the case of North America, we held firm on our value pricing and put value above volumes, which will result in a reduction of our North American contractual volume of about 15% as compared to the prior year.

We believe that this is the right long term decision and that the North American demand will continue to grow in the coming years.

Our decision positions us well to ensure we will serve that growing demand at an appropriate margin level.

As we look ahead, we expect relatively flat volumes for FY15 with growth anticipated in the second half of the year.

In our first fiscal quarter, as oil prices were declining, we saw many of our customers managing their inventories down leading into the calendar year end.

We believe the destocking is largely complete with the exception of China, which is likely to continue through the second fiscal quarter.

As such, we are looking at Second Quarter volumes comparable to the First Quarter with volume growth expected in the second half of the year.

In addition, we also expect to see headwinds related to the decline in oil prices.

As discussed last quarter, these include lower raw material purchasing savings, as compared to the prior year, and the temporary impact of some high-cost inventory that will move through our Supply Chain in the second quarter.

The high cost inventory is related to the combination of the steep decline in oil and weaker European volumes than expected in our first fiscal quarter.

The combination of these two factors has left us with higher inventory levels in Europe that will cause a temporary margin squeeze of $5 million to $10 million in our second fiscal quarter.

Overall, we expect a challenging and somewhat uncertain year ahead.

But we will continue to focus on offsetting measures such as cost controls, growth in Asia, and benefits from our commercial excellence initiatives.

Now turning to performance chemicals, EBIT increased by $2 million compared to the First Quarter of 2014 due to 4% higher volumes in metal oxides and improved margins from the combination of price increases and lower raw materials costs.

This was partially offset by 1% lower volumes in specialty carbons and formulations, largely due to inventory destocking at our specialty carbons' customers as a result of declining raw materials prices.

Sequentially, performance chemicals EBIT decreased by $2 million primarily due to 10% lower volumes in Specialty Carbons and formulations from a combination of seasonal trends and customer inventory destocking, particularly in the plastics industry.

Volumes in metal oxides were also 8% lower sequentially, mainly due to seasonal order patterns.

These lower volumes were partially offset by improved margins from the combination of price increases and lower raw materials costs and a $5 million benefit from building inventory.

Looking ahead, we expect to see some continued customer destocking in the Second Quarter.

However, growth in automotive, construction, and consumer Markets is expected in the second half of our FY15 as oil prices stabilize.

We will continue to manage pricing based on the value that our products provide while maintaining volumes.

Adjusted EBITDA in the Purification Solutions for the First Quarter of 2015 was $11 million, which compares to $5 million for the similar period last year.

The adjusted EBITDA increase of $6 million was driven by higher volumes, primarily in the gas and air sector, higher pricing, and improved operational performance that lowered costs.

We also built inventory in anticipation of the implementation of the MATS regulation, which resulted in a benefit of $3 million this quarter.

Sequentially, purification solutions adjusted EBITDA decreased $3 million due to the non-reoccurrence of a one-time $9 million insurance payment received in the Fourth Quarter of FY14.

Excluding the one-time insurance payment adjusted EBITDA improved by $6 million.

The benefits from price increases, a favorable product mix, and improved operational performance more than offset a decline in water volumes.

In November the US Supreme Court agreed to hear a challenge to the MATS rule on the question of whether the EPA failed to properly consider costs in the course of regulating power plant emissions.

While we cannot predict the outcome of the Supreme Court's review, we have not seen any change in the behavior of our utility customers who are planning to implement mercury controls in April.

In addition, we have been awarded another two Supply Agreements for our mercury removal products.

And we are maintaining our 50% share of awarded supply volumes.

As such, we continue to anticipate a stronger second half of 2015 from increased demand from our coal-fired utilities customers.

And we remain confident in the long term outlook of the business.

Specialty Fluids EBIT decreased by $7 million from the First Quarter of FY14 and declined $1 million as compared to the Fourth Quarter of FY14.

The declines in both comparative periods were due to lower sales and rental volumes as we experienced lower project activity this quarter.

As we look ahead, the oil price decline has introduced some near-term uncertainty to our business.

This has lead to project delays, and we expect Q2 to be weaker than Q1.

Over the long term, however, the biggest impacts from lower oil prices will be in exploration wells where cesium formate is not used at all.

Our product is primarily used in well developments where infrastructure is already in place and the impact is likely to be to a lesser extent.

The value proposition for cesium formate is complex, but the key drivers are reducing costs and rig time and increasing reservoir recoveries for the oil companies.

And these things are more important than ever in today's environment.

As such, we will continue to stay close to customers regarding their investment plans and the use of our products.

I will now turn to corporate items.

We ended the quarter with a cash balance of $88 million, and our liquidity position remains strong at $691 million.

During the First Quarter, we generated $133 million of adjusted EBITDA.

Uses of cash during the First Quarter included $41 million for CapEx and $42 million for share repurchases.

We recorded a net tax provision of $3 million for the First Quarter, which included $19 million of benefits from tax-related certain items.

Excluding the impact of certain items, our operating tax rate on continuing operations for the First Quarter was 28%.

We also recorded a $5 million benefit related to our LIFO accounting reserve principally driven by the decline in oil prices.

Based on the current outlook for oil and our anticipated inventory levels, we expect a $20 million benefit for the year recorded ratably each quarter.

If oil prices move up or down from where they are forecasted to end the Fiscal Year, this estimate could change.

As we look towards 2015, in light of the current environment, we have reduced our expected Capital Expenditures for the year to be between $150 million and $200 million.

We anticipate our operating tax rate for FY15 will be between 27% and 29%.

And I will now turn the call back over to Patrick.

Thank you, Eddie.

As we look ahead, we remain cautious about the near term and this is due to the uncertainty related to the global economy, exchange rate fluctuations, declining oil prices, and mixed consumer confidence around the world.

Specifically, we expect soft demand and margin pressure next quarter in the Reinforcement Materials segment.

Lower oil prices could also affect the level of project activity in the Specialty Fluids segment.

We have, over the years, improved our Management of feedstock volatility and are well prepared to deal with this environment.

On the positive side, we expect to see stronger volumes in the second half of our Fiscal Year in Purification Solutions as coal-fire utilities are scheduled to begin to comply with mercury removal regulations in the US.

In addition, both in the construction and automotive sectors is projected to drive higher volumes in the Performance Chemicals segment, most notably in the second half of our fiscal year.

We will continue to apply cost reduction measures, drive operational improvements, and we're taking a more prudent approach on Capital Expenditures in FY15.

We anticipate strong cash flows due to the benefit of lower oil prices on our networking capital, and that will allow us to remain flexible with regard to share repurchases, given the increased authorization that was put in place this month.

In spite of the headwinds we're facing, we will continue to strengthen our industry leading positions.

And we remain focused on delivering value to our shareholders in 2015 and beyond.

Thank you very much for joining us today, and I'll now turn the call back over for our question-and-answer session.

Thank you.

(Operator Instructions)

Your first question comes from the line of James Sheehan representing SunTrust Robinson Humphrey.

Please proceed.

Thank you.

Patrick, could you update us on environmental surcharge for carbon black in terms of what the EPA has done with other players in the industry, your competitors namely?

Are they charging the same surcharge today?

Hi, Jim.

With regard to the environmental surcharge, first and foremost as a reminder, we have developed an agreement with the EPA last year and have now decided as of January 1 to implement an environmental surcharge to our customers in North America.

The current situation is that we believe the EPA regulations and rules will apply to all carbon black manufacturers in the US.

But from what we understand none of the other players have yet come to an agreement with the EPA, which puts us in a situation that most likely we're the only player applying and implementing a surcharge.

We believe this is a necessity.

We want to provide secure supply of high quality carbon black to our customers in North America in the long run.

And we believe that this is going to be a necessity for the industry.

How long would you anticipate before the surcharges would equalize across the industry?

We, of course, are not privy to the details of the negotiations.

However, from what we understand, we believe the EPA is in fairly advanced negotiations with all of the players at this stage.

Okay, thank you.

And also on currency headwinds, could you quantify for us basically what you see as the total impact of FX current exchange rates for 2015?

Yes, Jim, so in Q1 the impact was actually relatively minimal on the Company.

The biggest impact was on the Performance Chemical segment, and it was only about $2 million.

As I look forward to the rest of the year, I would expect relatively minimal impact.

But it's a bit difficult to forecast.

It really depends on what happens with rates and, very specifically, the key rates that we would be looking at around the world.

Okay, thank you.

Your next question comes from the line of Ivan Marcuse representing KeyBanc.

Please proceed.

Hi, thanks for taking my questions.

The first one I have is if you look at how competitive the environment in terms of pricing was in Europe and South America and how you're holding the line in North America, what would you say global, on average, pricing should look like in calendar 2015?

So as we said, the contract negotiations were affected by low utilization rates.

This has been a tougher environment than we expected.

We're seeing utilization rates, I believe, currently in the 75% to 80%.

And this has been mostly in the regions of the world where we're seeing the weaker demand.

And this has been mostly in Europe and South America.

So with regard to the pricing pressure we have incurred, that's been in those regions that we see the strongest part.

Eddie, would you like to add something with regard to the --

Yes, Ivan, so without addressing the percentage, what I would say is that our expectation as to the magnitude of the contract pricing impacts globally would be in the range of $5 million to $10 million per quarter.

Got you.

And then, I think you gave some detail, and I missed it.

So I apologize if I'm re-asking this question.

If you look at your cash flow, you had a very strong cash flow, like if you look back in 2009 where volumes fell quite a bit.

And even though we have a weaker demand environment, you have huge raw material.

How much of it -- what's your expectation for cash flow looking out for the next year?

I guess I would say in Q2 and Q3 in particular, we would expect to see stronger cash flows, improved from Q1.

Q1, we typically see a little bit of a working capital impact, particularly as it relates to payables and accruals.

And the fact that we finish our year-end in September, which is usually a strong cash-flow period for us and our customers usually have a year-end in December.

But I think we would be looking at something on the order of $100 million to $150 million throughout the year would be a reasonable number to look at, if everything stays the way it is right now.

Coming out of working capital?

Yes.

Got you.

And then last question, you talk about your confidence in the Purification Solutions looking out past.

What gives you the comfort or the ability to have confidence with whatever happens within the Supreme Court if they deem it a law that doesn't need to go through?

Or is there an expectation that the Supreme Court will continue to accept this?

Or what gives you the confidence that this business will continue to grow?

So as you can imagine, these things are quite complex.

And actually the Supreme Court has been asked to review a single question, which is whether the US EPA failed to properly consider costs when they looked at MATS regulation.

The way we've talked to experts in this field, and we've made our own opinion.

But we're really at a stage where it's really not possible to predict the outcome of the review and the timing of it and what impact it will have on the MATS implementation.

We continue to monitor this closely.

And what's positive is we have not seen any changes in customer behavior.

So it looks like the coal-fire utilities are moving ahead.

They have installed or are in the process of installing the injection systems.

And we've also not seen any increased or new applications for extensions.

As a reminder, the utilities can ask for an extension of a year at the State level.

And there's been no increase in that activity that we could see.

So I think, in summary, it looks like the industry is continuing to prepare to comply with MATS as scheduled, and we're looking at seeing a pickup in volume in April.

The improvement that you saw in the last quarter in Purification Solutions, was there any, from what you could tell, orders coming in for the mercury removal?

In order they're starting to fill up their bins, I guess you will?

Or would you expect a surge in orders come March/April?

Right.

So we've seen an increase in demand in the last quarter.

But this has been from existing customers where, actually, the Canadian environment has gotten a little more stringent.

And we've had some additional business coming our way, which has been good.

With regard to the MATS implementation, we really are seeing the demand to pick up towards the end of our second fiscal quarter.

So within the next two to three months we'll see a ramp-up.

And as we mentioned in the earlier presentation, we have actually built up some inventory to make sure that we take care of this rapid increase in sales.

Thanks for taking my questions.

Thank you.

(Operator Instructions)

Your next question comes from the line of Kevin Hocevar representing Northcoast Research.

Hey, good afternoon, everybody.

Good afternoon, Kevin.

I'm wondering, could you help us with how to [mat] the Purification Solutions segment will -- kind of help us understand how that ramp- up, what it will look like in the back half of the year?

And I think you said there is, correct me if I'm wrong, but $3 million that I think you said was inventory build ahead of MATS during this quarter, maybe I misheard that.

But how should we expect it to play out for the balance of the year?

And what type of EBITDA can we expect for the full year?

Well, Kevin, I think you pointed out the inventory build.

And so that's benefiting the business a little bit now.

And that will probably carry through the Second Quarter.

In the third quarter as we start to ramp up sales, you'll see some inventory draw.

So although there'll be greater volumes in sales, it'll probably be negatively impacted by the inventory there.

And so you'll probably start to see a stronger effect in the Fourth Quarter.

Can't really quantify for you specific numbers because we're probably not going to forecast in that detail.

But also we are still in the midst of negotiating with customers on a number of different implementations even now just for the beginning of April.

But I think that's generally the trend that you'll probably see barring anything unforeseen happening.

Okay, and in terms of the rubber carbon black business, it sounds like Second Quarter you expect similar results compared to the First Quarter.

And then, it sounds like you expect some growth in the back half of the year.

So I'm wondering what gives you that confidence that it will resume growth in the back half of the year?

Does that mean that the destocking is kind of the full 3% type volume declines that you've seen and the end market demand is a little bit better?

Or wondered if you could help frame why you think it will return to growth in the back half?

Yes, let me try to add a little bit of clarity to Q2.

So obviously Q2 is shaping up to be challenging for Reinforcement Materials.

But we do see some improvement in the second half of the year.

And if I were to try to characterize the details, when I look at the major drivers sequentially from Q1 to Q2, I'd really have to break it up into volumes and margins.

So first of all, on the volume side, they're shaping up to be at a similar rate to Q1.

So while we'll see the lower contracted North American volumes, this is expected to be largely offset by less destocking activity and growth in Southeast Asia.

So that's why we're seeing volume shaping up at a similar rate from Q1 to Q2.

Second, however, as we look at margins, they're under pressure and will be impacted by the lower contract pricing that we spoke about, as well as less favorable raw material purchasing savings.

And these items together will impact us in the range of $10 million to $15 million in the quarter.

And then in addition, I mentioned the high cost European inventory.

That will also hurt us in Q2 alone.

So this is a temporary Q2 impact, and that will be somewhere in the $5 million to $10 million range.

Now, if I look forward through 2015, again, volumes are expected to be roughly flat year over year, so we would expect to see volume growth in the second half of the year as compared to Q1 and Q2.

On the margin side, however, lower raw material purchasing savings and contract pricing will obviously persist.

But the European high cost inventory in Q2 will be a headwind only for Q2 as compared to the prior year.

So that's kind of the way we're seeing Q2 and the full year shape up.

Okay, and then in terms of the Performance Chemicals, it sounds like you were able to get pricing while raw materials lowered.

So wondered how were you able to do that?

And I think you called out too by building inventories that helped your margins as well.

So would that turn into a headwind next quarter as you sell out of those inventories?

So I guess that and the price [raws], do you expect that to continue?

So I think you're exactly right on the Performance Chemicals.

We were able to maintain price increases that we had implemented actually before raw materials started to come down.

And we were able to hold onto those price increases as we saw some declining raw material costs.

So that helped the margin.

And in addition, we did build inventory, not on purpose, unfortunately.

The volumes that we hit in December in particular were lower than what we expected.

So as we look at the remainder of the year, we'll obviously want to stay competitive, but also maintain our margin structure in Performance Chemicals.

And the margins -- and the business there tends to be a bit more focused on the specialty side as opposed to on the more price-taking side.

So I think that's how we'll approach that business for the remainder of the year.

I think to add to that, I would say our strategy is really to balance the price and volume.

And I think we're making good progress here.

In the Second Quarter we'll see a little bit of the destocking continuing.

And this is especially the case of our Specialty Carbons and compound business.

The value chain is fairly deep and broad, and we saw that in 2009.

It takes a little longer to flush through these types of inventory situation than it does, for example, in the Reinforcement Materials business.

Okay, and then just final question.

In terms of you stepped up your share repurchases this quarter.

Typically, you've reduced the share count here.

Typically it's largely been used to offset dilution.

So just curious, thoughts on share repurchases for the rest of the year, how should we think of that going forward?

So we haven't changed our strategy on the share repurchases.

And we've communicated that in the past.

It's really about offsetting dilution from incentive comp, as you mentioned.

And we'll be opportunistic to do so.

We haven't really bought back shares for the last two years after the Norit acquisition.

As we had other priorities for our cash, we brought down our debt.

And we feel comfortable that we were at a position where we could start the repurchase again.

And we've done that a little bit in September and continued in December.

We've gone and obtained authorization from our Board to get another 5 million shares of buyback capability.

And we're going to be looking at these as we balance our various uses of cash flow going forward.

All right.

Thank you very much.

Thank you.

Your next question comes from the line of Christopher Butler representing Sidoti & Company.

Please proceed.

Hi, good afternoon, everyone.

Hi, Chris.

I was hoping you might be able to give us a little bit more granularity on the top line for the purification business.

If we were looking at volume growth out of the air purification side, was that only from Canada and those type of customers?

Or did you see any growth coming from the US-based air purification?

Well, we're seeing growth, actually, both from pricing and also some volume in North America.

We've had a bit of a weaker water business season.

But all in all, we're seeing strength in our position in the business, and that is being reflected in both pricing and volume.

And as far as the price increases that you saw, are those just new contracts that you might have started working on in the quarter?

Or did you raise prices across the board or something closer to that?

No, we do pricing -- in general, pricing is done across the board by different applications.

But we've been very persistent with price increases in that business during the course of 2014.

And we're very pleased with the impact and the results we've had, in addition to the fact that we've seen operations improve significantly.

If you remember, we had some operational issues.

And we're getting our arms around those.

And it's really starting to have an impact at the cost level.

And with the revision to your Capital Expenditures expectations for this year, could you give us an idea of what's been cut or pushed off from your plans this year?

We're looking at our CapEx in light of the environment and some of our businesses have lower utilization rates, so clearly projects that were designed to add more volume are going to be perhaps delayed.

We're going to be more focused on the maintenance side of things, cost opportunities.

So all in all I would say it's a general review around the type of projects and the timing of those that has lead us to push back and reduce the CapEx envelope at this time.

I think we'd like to see a little more about how the economy will develop to pick up on that front.

I appreciate your time.

Thank you.

Your next question comes as a follow-up from the line of Ivan Marcuse representing KeyBanc.

Please proceed.

Thanks.

Just a real quick.

You laid out the headwinds that you have in your reinforcement, but you also talked about cost savings in Latvia.

Is there anything going for you in regards to lower costs?

Or where should you see that fall through, at least on the Latvia side or anything else in terms of on the corporate expense?

Or is it going to go through the margin?

I guess, Ivan, I'd point out two things.

One is we put in place some cost reductions in the First Quarter anticipating weaker business results.

And that probably benefited us by about $5 million in the quarter.

And we would expect to see something similar going through the rest of the year.

But again, that was something that we already saw in Q1 depending on how you're looking at things.

And then the second thing is, of course, we had quite a large LIFO benefit in Q1 which was $5 million.

And the expectation for the year would be that that would continue.

So barring changes in raw materials, costs, and forecasts, we would expect to see about $20 million total LIFO benefit based on the dramatic reduction in feedstock costs throughout the year.

I think those would be a couple of the positives.

I think we're looking at purifications growing in the back half of the year, so that's another positive.

And then, we would expect to see some of those volume improvements in the second half of the year.

I think those are the main items.

Yes, we still feel that the construction industry in North America, automotive in general, some consumer markets are going to see some solid growth during the course of the year.

And some of this will, of course, come through in the second half of the fiscal year for us.

Second Quarter is going to be slightly more difficult because of the various issues we're dealing with mainly related to the destocking and the feedstock environment.

Got you.

And then in the reinforcement business, the data that I've seen, which I know it's not completely perfect, but it looks like you, at least in your European volumes, underperformed the market a bit.

Is it a similar type of environment in North America, where you've chosen to walk away from some business?

Or how would you describe it, or would you describe it?

Was it really a market-share loss, or simply just a destocking?

I would say that we have over the years, the last five, six years, taken a pretty strong approach with regard to our Reinforcement Materials' raw black strategy.

And its been that we believe that value over volume is what's going to drive us.

And in more difficult environments, like we've just experienced where utilization rates have dropped somewhat more than we had expected, and this right in the middle of our contracting season, we've had to take some hard decisions with regard to sticking to our gun, with regard to our pricing, and have, in certain cases, accepted some losses in volume.

We think those losses are temporary.

Most of our contracts are annual in nature.

And clearly, we're going to be working through this and making sure that we recover during the course of the year.

All right, great.

And then just in North America with the 15% reduction in volumes, so the way I understand it is pretty much all of North America is pretty much contracted type of business.

So would you expect a year-over-year decline?

Is that how to think about it, 15% for the next four quarters?

More or less.

Got you.

And then the last quick question on purification.

With the operations improvements and maybe things getting a little better there, would you anticipate First Quarter being a low watermark in terms of operating performance?

The First Quarter, so --

So you lost a couple million, so I'd expect if volumes get a little bit better going into March --

Yes, the intent is clearly to see the business continuing to improve.

Okay, thanks.

Thank you.

With no further questions at this time, I'd now like to turn the call back to Patrick Prevost for closing remarks.

Okay, thank you very much for joining us today.

And again, I think that with regard to our businesses, we're going through a difficult period right now.

We've had many moving parts.

We're trying to give you enough clarity to understand the situation.

We had a sharp decline in oil.

Foreign exchanges have been complex to deal with.

We had the US tariffs on Chinese tires, which are creating some dislocation in the supply chain.

And then, the demand is being fairly weak in certain parts of the world.

So that has lead to some intense competitiveness.

But we're still very confident in the development of the tire and rubber industry.

We think growth will be in the 1% to 2% in 2015.

This is below trend.

We think that 3% to 4% is what is a more normalized environment.

And we believe that we will be returning to these levels.

As Cabot, we're continuing to drive our strategy.

We're on top of operational excellence.

We have, we believe, the most competitive assets around the world.

We've added assets in Mexico and China.

We're the technology leader in process and product technology.

And we work with most of the global players around the world and have excellent relationships with them.

So what I would say is we're on track with our strategy.

We're dealing with the issues that we're facing currently in the near term.

And we're looking forward to continuing to contribute to the creation of value for our shareholders.

So with that, I'd like to thank you again for joining, and we'll look forward to speaking with you again next quarter.

Thank you.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.