Cabot Corp (CBT) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Cabot Earnings Conference Call.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. Steve Delahunt, Vice President, Treasurer and Investor Relations.

Please go ahead, sir.

Thank you, Christie.

Good afternoon.

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

With me today are Sean Keohane, CEO and President; Eddie Cordeiro, Executive Vice President and CFO; and Erica McLaughlin, Vice President and General Manager of our Tire business who will assume the role of CFO upon Eddie's retirement on May 15.

Last night, we released results for our second quarter of fiscal year 2018, copies of which are posted on the Investor Relations section of our website.

For those on our mailing list, you received a press release by email.

If you are not on our mailing list and you 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.

During this conference call, we will make forward-looking statements about our expected future operational and financial performance.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these factors appears under the heading Forward-looking Statements in the press release we issued last night and in our last annual report on Form 10-K that is filed with the Securities and Exchange Commission and available on the company's website.

In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results.

Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP.

Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investors section of our website.

I will now turn the call over to Sean, who will discuss the key highlights of the company's Performance.

Eddie will review the business segment and corporate financial details.

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

Sean?

Thank you, Steve, and good afternoon, ladies and gentlemen.

I'm very pleased with our operating results in the quarter as segment EBIT was up 19% on a year-over-year basis to a record high of $127 million and adjusted EPS was up 18% to $1.04 per share.

These results reflect our strong leadership positions and reinforce the power of our Advancing the Core strategy.

The Reinforcement Materials segment delivered a 46% increase in EBIT, driven by benefits from the 2018 calendar year customer agreements and a favorable spot pricing environment, particularly in Asia.

Let me talk about China for a minute because, once again, it was an important factor in the quarter.

The environmental agenda is a high priority for the Chinese government, and they continue to aggressively enforce standards against noncompliant companies.

The government's commitment to enforcement is clear, and this effort is particularly acute during the winter months as the demand for household heating drives increased pollution.

This resulted in curtailments of many of our competitors, which impacted carbon black supply in the market across the Asia Pacific region.

As I have commented previously, when China commits to a goal, as they have on environmental performance in their current 5-year plan, they don't waver.

However, implementation of central directives can be somewhat opaque and uneven between jurisdictions.

The intensity of curtailment actions will likely moderate outside of the winter season, and we will see variation throughout the year as changing conditions create movements in overall air quality index.

We will continue to be a leading voice for sustainable management practices in China.

And to this end, Cabot's Tianjin plant was recently recognized as the first chemical plant of any kind in China to receive Responsible Care 14001 certification.

It is leadership recognition like this that builds long-term support and commitment from our customers as reliability and responsibility are increasingly valued by them.

Overall, we feel very positive about the China market environment, our competitive position within the country and our ability to execute going forward.

Results in the Performance Chemicals segment improved year-over-year as price realization in specialty carbons took hold and our efforts to drive the mix through new products and applications continues to gain momentum.

Volumes were also higher across both Specialty Carbons and Formulations and Metal Oxides.

I am pleased with the commercial success, which is driving above-market growth in some high-end applications such as energy materials and high-performance compounds.

In the Purification Solutions segment, we continue to face significant challenges, specifically in the North America mercury removal application, which has resulted in recent weak financial performance.

As a result of the weakening ECS environment in this quarter, we conducted an impairment analysis and recorded a $224 million after-tax impairment charge in the quarter.

With our focus on formulated solutions, we do not believe the Purification Solutions business fits within Cabot's Advancing the Core strategy, and as such, have been considering strategic alternatives for the business over the last few months, including a potential sale.

While we have explored this quite extensively, given the current market conditions, we do not believe that a sale at this time will maximize value for shareholders.

Moving forward, the operating parameters for this business are clear.

Purification Solutions is currently generating positive free cash flow, and we will continue to run the business with that firm expectation.

In terms of strategy, we are now focusing on regaining share in the North America mercury removal application, continuing to grow volumes in the specialty side of our business, evaluating options to reduce fixed and variable costs and managing capital expenditures and working capital tightly.

We will also continue to explore all strategic options to maximize value for our shareholders.

I'll now turn it over to Eddie to discuss the financial results of the quarter in more detail.

Eddie?

Thank you, Sean.

I will discuss the segment results beginning with Reinforcement Materials.

During the second quarter of 2018, EBIT for Reinforcement Materials increased by $25 million as compared to the second quarter of 2017.

The increase in EBIT was principally due to higher unit margins driven by favorable spot pricing in Asia and the positive outcome of our negotiations of our 2018 customer agreements.

The business also benefited by approximately $6 million in the second quarter from timely price increases relative to rising feedstock costs.

Sequentially, Reinforcement Materials EBIT increased by $17 million compared to the first quarter of fiscal 2018, driven by the same factors I just noted related to our 2018 customer agreements and favorable spot pricing in Asia, partially offset by higher fixed costs.

Volumes in the Americas and EMEA were up both year-over-year and sequentially, driving higher capacity utilization throughout our network.

Looking ahead to the third quarter, Reinforcement Materials will continue its robust performance supported by our strong execution in a favorable market environment.

We do not anticipate that the $6 million benefit from the timing of price increases ahead of rising feedstock costs will repeat, and we expect higher maintenance-related costs in the third quarter.

Now turning to Performance Chemicals.

EBIT increased by $6 million compared to the second quarter of fiscal 2017 due to higher margins from price increases and higher volumes.

Volumes increased by 9% in the Specialty Carbons and Formulations business and 2% in the Metal Oxides business.

The increase in Specialty Carbons and Formulations volumes was primarily due to the recent Tech Blend acquisition and above-market growth in specialty compounds.

Sequentially, Performance Chemicals EBIT increased by $10 million compared to the first quarter of fiscal 2018, primarily due to higher volumes from Specialty Carbons and Formulations and higher unit margins from Metal Oxides, partially offset by higher fixed costs.

Sequentially, volumes increased by 19% in Specialty Carbons and Formulations due to increases in both our carbons and compounds product lines.

The combination of the Tech Blend acquisition and continued penetration in the high-performance compound market is contributing to strong growth for this business.

Looking ahead to the third quarter, we expect to see similar overall performance around the level of the second quarter with some offsetting impacts.

We anticipate higher volumes that will be offset by higher fixed costs to support growth in the investments.

Additionally, we expect to maintain our margins as price increases offset the impact of rising feedstock costs.

Second quarter fiscal 2018 EBIT in Purification Solutions decreased by $8 million compared to the second quarter of fiscal 2017 due to lower volumes and margins from increased competition and lower demand in mercury removal applications.

Sequentially, Purification Solutions EBIT decreased $12 million compared to the first quarter of fiscal 2018, driven primarily by lower mercury removal related volumes and the receipt of the final $5 million of royalty payments in the first quarter of fiscal 2018.

In the quarter, we were negatively impacted by $2 million of higher variable costs, which are not expected to reoccur.

Looking ahead to the third quarter, we expect to see some improvement from the second quarter due to higher seasonal volumes in North American water, continued growth in specialty applications and the benefit from lower variable costs versus Q2.

Second quarter fiscal 2018 EBIT in Specialty Fluids decreased by $3 million as compared to the second quarter of fiscal 2017 and decreased $1 million compared to the first quarter of fiscal 2018 due to a lower level of project activity.

We expect project activity for the second half of the year to increase as oil and gas projects begin to ramp up.

I will now turn to corporate items.

We ended the quarter with a cash balance of $179 million, and our liquidity position remains strong at about $900 million.

During the second quarter of fiscal 2018, cash flows from operating activities were $36 million.

This included an increase in net working capital of $65 million, driven by the impact of higher revenue and oil prices on working capital balances while overall days were reduced.

Capital expenditures for the second quarter of fiscal 2018 were $57 million.

As we look at the full year, we expect capital expenditures to be approximately $250 million, including growth investments for our fumed silica business.

During the quarter, we paid $19 million in cash dividends.

We recorded a net tax benefit of $7 million for the second quarter, and our year-to-date operating tax rate was 21%, which also represents our current forecast for the year.

The $7 million benefit recorded for the second quarter includes $27 million of certain and discrete tax items primarily related to the impairment of Purification Solutions business.

And I'll now turn the call back over to Sean.

Thanks, Eddie.

We are very pleased with our second quarter operating results and our trajectory for the full year.

Looking across the segments.

Reinforcement Materials is expected to continue its strong performance during the second half of the year.

Specifically as it relates to China, coming out of the winter season, environmental curtailments have moderated while demand is increasing following the Chinese New Year slowdown.

Therefore, we expect volumes to seasonally improve while pricing will moderate somewhat albeit at strong levels historically.

These impacts will likely offset each other in our third quarter.

We remain positive about our business in China and believe we are well positioned going forward.

Moreover, there is building evidence that the carbon black capacity utilization is at very high levels globally.

In fact, several customers have initiated discussions with us for 2019 and beyond as they look to secure volumes in a tight market environment.

Thus, we are increasing our full year outlook for the segment and now expect fiscal 2018 segment EBIT to be in the range of $250 million to $270 million.

In Performance Chemicals, we are pleased with the pricing realization and expect to maintain our margins and solid volumes through the second half of the year.

Our efforts to drive favorable mix through new products and applications continue to gain traction, and our long-term growth investments remain on track.

Our fiscal 2018 segment EBIT expectation remains in the range of $200 million to $215 million.

While the Purification Solutions segment continues to see some momentum in the specialty applications, it is more than offset by the ongoing competitive pressure in the mercury removal pricing and volume.

As a result, we are lowering our expected EBIT to 0 to $5 million for the fiscal year 2018.

Finally, in Specialty Fluids, as expected, we will begin to see the benefit of recent commercial successes in the second half of the year as project activity commences in both Europe, Middle East and Africa and Asia.

Segment EBIT is expected to remain in the range of 0 to $10 million for the fiscal 2018.

Based on our current view of the market and economic conditions and our updated outlook for each of our segments, we have raised the low end and tightened the expectation of adjusted EPS for 2018 to be in the range of $3.90 to $4.20.

In closing, we are seeing success with our strategy and remain confident it will deliver attractive total shareholder return.

We will continue to grow volumes in line with market levels, invest in new product and process technology, seek to capture the operating leverage from improving utilizations and pursue growth investments, including both on M&A and our existing businesses.

And finally, we continue to focus on creating shareholder value through generating strong discretionary free cash flow and reinvesting that in our core businesses as well as returning cash to shareholders.

I also want to take a minute to recognize and thank Eddie Cordeiro for his commitment to Cabot over the past 20 years.

We will miss your leadership and commitment to Cabot and wish you the very the best in your next pursuits.

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

(Operator Instructions) Our first question is from Jim Sheehan of SunTrust.

Could to give us some more color on why you believe that divesting performance -- Purification Solutions at this time would not create shareholder value?

Sure, Jim.

I think our focus here is to do what's best for shareholders, and we have been exploring all strategic alternatives over the past period here, as I commented, including any sale options.

I think, given the current market environment right now in particular with where things are in terms of mercury removal, it didn't create the best opportunity to maximize what we believe to be the intrinsic value of this business.

Great.

And in terms of the carbon price -- spot price outlook for carbon black in China, how have you seen that progress during the quarter and into the current quarter?

And do you expect any weakness in carbon black pricing to show up in future quarters?

Yes.

So as we commented in the prepared remarks, we, I think, operated extraordinarily well during what was a very dynamic quarter.

During this period of time, we were able to operate our plants at very close to full utilization while there were impacts across the whole industry.

So I think we've really distinguished ourselves in terms of the way that we run our operations.

And we've also been very dynamic in terms of managing our commercial activity during this same period.

And during the period, feedstock was pretty volatile.

You might remember that it kind of peaked in late December and then has been quite volatile throughout Q2, and we were able to operate in a pretty dynamic way in terms of managing our pricing.

And as a result, it did quite well this quarter.

Now we have seen that coal tar prices have moved off a bit, that peak that we saw in late December, although, again, they've been quite volatile during this past quarter, but they have moved off.

And I think the combination of that and some moderation in the curtailments will likely lead to some moderation in pricing, although we'll continue to see margin levels and pricing levels at what I would say are historic highs.

I mean, today, the carbon black price in China is actually the highest in the world.

So I think the fundamentals are there for continued outperformance, but it is a dynamic situation.

And as I've commented many times, I think how implementation of these central directives in China plays out can often be somewhat opaque and uneven in different jurisdictions in -- and over different periods of time depending on how the overall environmental performance and air quality looks.

But I think the direction is pretty clear.

I think the fundamentals are pretty strong.

And I think our position is, far and away, the leading one in China.

Could you talk about the impact of potential tariffs in China and the U.S. on your business?

We don't really see any specific impacts at this point, Jim.

I assume you're referring to any tariffs put in place because of the trade friction between U.S. and China, but don't see any specific impacts here.

And I think the way to think about it is in a similar way, when there had been either actions or attempts to put antidumping duties in place, in the end, it really not had much impact on the business because the world is structurally dependent on China.

Today, China produces somewhere around 40% of the world's tires and 40-plus percent of the world's carbon black is there to support it.

But these investments in tires, these value chains are pretty structural, and so there have been times where duties have been put in place.

And in the end, I think all they resulted in was higher consumer prices.

So I would expect if there were some future trade actions specifically against the tire industry, it would probably play out in a similar way that antidumping duties have played out, given how structural that value chain is.

Our next question is from David Begleiter from Deutsche Bank.

For Sean, just -- Performance Chemicals, Sean.

Would you expect margins to turn positive in the back half of the year as prices catch up to raws?

Well, this is -- as you know, David, we've been chasing this for a while now.

So we're really pleased with the price realization that we've been able to finally see here.

But I think if you just pull the lens back a little bit, I think 7 out of the last 8 quarters of raw material costs have been moving up.

And as recently as yesterday, maybe even today, I think headline oil was sitting right around $70 a barrel.

So it continues to move, and we need to continue to go after pricing to recover this.

So whether or not that leads to near-term margin expansion, unclear, because again, it seems to keep moving up, probably signaling the overall strength in the economy.

But I think while this business is driven more by performance in the applications, feedstocks are a key input factor here, and they can't be ignored when they're rising.

So we'll continue to push for expanded price increases where necessary to offset this headwind, but I think success will depend to a certain degree on overall conditions and the competitive environment.

But I will say that we're pleased with the momentum that we're finally seeing show in our results here this quarter.

Understood.

And back to Reinforcement Materials, carbon black, can you discuss operating rates, where they were in Q2, where you think they'll trend in the back half of the year?

Yes.

You said, David, operating rates?

Yes, operating rates.

Yes.

Yes.

I mean, overall, our utilization was quite high, in the sort of high 80s to, we'll call it, in and around 90% utilization in the second quarter.

So we find ourselves in a fairly tight situation globally.

And we think that this is pretty indicative of the industry overall.

And I would expect that, that trend will continue as we look at what is pretty solid demand overall from our tire and industrial rubber customers.

And on the supply side, no real capacity additions to speak of and China continuing to enforce environmental standards.

We think that those trends are pretty durable, pretty structural.

So I wouldn't expect any significant change from the levels we're at right now.

Our next question is from David Katter of Baird.

I was hoping if you could throw a little more color on the volumes beat in Performance Chemicals.

Any information on which products in particular you're seeing strong demand for?

Sure.

We're really pleased with the overall progress in the segment here in terms of both volume growth as well as -- I just commented around pricing realization to deal with rising feedstock costs.

So I think we're really pleased with the balance here.

I think on the volume side, a couple of things are important to note here.

One is that developing new products and applications is a central tenet of our strategy in this business, and there are a couple of areas that we're pretty excited about, that continue to have very good momentum.

One is the role of conductive carbons in energy materials.

So in this case, we're talking about the role of batteries, both the lithium ion as well as advanced lead acid batteries.

I think the fundamentals there in our progress is something we're excited about.

And the other is, broadly speaking, in the space of plastics.

So if you look at the specialty carbons market, roughly half, maybe a little more than half of the market for specialty carbons goes into plastic applications, and we're the leader here, have a #1 position in global in plastics, and I think that's because of a couple of things.

One is our ability to develop new grades of carbons, specialty carbons for this application and our unique downstream position where we also produce black masterbatches and compounds for the plastics market.

And so this both upstream and downstream position and our understanding of these applications, I think, has really allowed us to win here.

And you're seeing that show up in the volume growth numbers that we reported.

Along the same lines of developing new products, how does the acquisition environment look?

And where do you think bolt-on M&A might make the most sense?

And what sort of appetite do you have for bolt-on M&A?

Yes.

So I think we have put a pretty clear set of boundary conditions around M&A, and so it absolutely is an important part of our strategy but one that will be defined by a bolt-on.

And so what we mean here is a right down the middle acquisition in one of the businesses that is core to our portfolio.

So we would continue to see opportunity in Reinforcement Materials that might strengthen our position in certain geographies, and so that will be in scope for us and something that we have a lot of confidence in.

And I think we've proven with our playbook that we know how to run these businesses, I think, better than anybody else.

And so that will definitely be in scope.

And in Performance Chemicals, across the range of product families here, we believe there are also opportunities for bolt-on M&A.

So the most recent one that we did, Tech Blend, adding a black masterbatch and compounds position in North America to the portfolio is a good example.

And this one is playing out well for us and paying off already.

So we'll continue to look for opportunities across the specialty carbon, specialty compounds and fumed metal oxides portfolio for bolt-on acquisitions.

Our next question is from Kevin Hocevar of Northcoast Research.

Sean, you mentioned earlier that some customers were already reaching out to you for contracts for 2019, which I thought was interesting because I thought that, usually, those negotiations start on August, around the August time frame.

So I was wondering if you could comment on that.

Is that a sign that fears from customers about supplies is maybe the main priority as we think about 2019?

And I think you also mentioned 2019 and beyond.

So are customers reaching out to you to do multiyear contracts?

And what's Cabot's willingness, I guess, to do multiyear when I think the norm is 1-year contracts?

Yes.

Thanks, Kevin.

And no, you're right, the norm has certainly been 1-year types of agreements, and the exception may be where some stretch over a little bit longer duration but mostly 1-year agreements.

And so I think the signals that we are getting from customers engaging with us, they're driven by a couple of factors.

One is clearly valuing supply reliability.

And so given -- a couple of factors here, given that the overall market growth remains robust, and on the supply side, there hasn't been that much investment.

Utilizations are tightening and supply reliability and certainty is becoming, I think, more and more important and understandably so.

And so that's leading to some of this dialogue.

I think the other factor that's playing out is the overall role of sustainability in order to be a reliable supplier than being able to operate consistently is something that's a big factor in terms of overall reliability.

I mean, it's most pronounced and most clear right now in China, but we're clearly seeing that, that the overall sustainability agenda is rising.

And I think customers, they care about this because they, too, have objectives to be sustainable suppliers, and they need to look back in their value chain to make sure that they've got suppliers that are operating to those standards, and Cabot clearly distinguishes itself in that way as well.

So I think these factors are driving the overall environment to be fairly tight and leading to conversations based on both this reliability and sustainability theme.

Got you.

And you mentioned, too, a lack of supply really coming online.

So maybe, could you just comment how long does it take to build a greenfield plant and -- or an expansion?

And what do you think's the hesitation here from Cabot's point of view?

Is it -- I know there's been increased environmental regulations.

You got to install these, what, $40-million, $50-million scrubbers.

I know there's operating costs associated with that, too, once those are turned on.

So are we still not yet at a level of profitability that warrants reinvestment?

Or curious of your viewpoint there.

Yes.

Well, I think for Cabot, we certainly are.

And our plan here over the long term would be to continue to support our customers with the appropriate capacity investments to support their growth.

I think that's an important factor here in terms of the long-term health for a business.

But I do think there are some important factors that have made capacity investments more challenging.

And probably, if you just kind of pull the lens back a little bit and look at what has happened over the last 20 years, it has basically been the emergence of China.

And virtually all of the capacity that has come on has come on in China.

And now, I think the rules of the game have really changed there, and we're going through a period of shakeout, and I don't see that changing.

Now in the rest of the world, there are still uncertainties out there, I suppose, that some have around how environmental enforcement trends are going to play out and what that might mean for investment.

But in terms of Cabot, we are running the business with really strong results, with results in excess of our cost of capital so we can justify investments to support our customers, and that would be an important part of our strategy as we go forward.

And last question, I wanted to understand, in the Reinforcement Materials guidance, EBIT of $250 million to $270 million, which implies a pretty big step down sequentially.

I understand that there was a $6 million onetime benefit in the quarter, and it sounded -- but it did -- and it sounds like there's some increased maintenance expense, but it sounded like you expected a pickup in volume in China, maybe a little lower pricing but that offsets one another.

So I guess I'm just kind of curious, is there a lot of maintenance?

Is this a big maintenance that's coming in the back half?

I guess, I just want to make sure I understood the step down sequentially there.

Sure.

Yes, yes.

So let me try to give a little bit of color here, Kevin, to help out.

Again, I would start by saying that we feel really good about the results in this segment and the outlook here going forward.

So I think that's very positive.

On a sequential basis, we do expect that the numbers will be down a little bit versus Q2 for a couple of reasons.

One is that we won't see a repeat of the pricing versus feedstock run-up benefit that we saw this quarter and that's around $6 million of impact.

And then we typically have higher maintenance in this season as weather is better, and you typically have higher planned maintenance, and so it wouldn't be unusual to see higher maintenance cost in sort of the mid-single digits range in terms of millions.

So I think those 2 factors are important factors to think about in terms of progression of Q3 versus what I think was certainly a record and terrific performance in Q2.

Our next question is from Chris Kapsch of Loop Capital Markets.

I wanted to follow up on the discussion around the -- just the global reinforcement materials business and the notion that you have customers reaching out to you concerned about supply.

Can you just talk about the source of that concern on their behalf?

I'm assuming these are global customers.

Just by geography, obviously, there's this acute sort of dynamic in China and that's playing out.

But is it other regions as well that they're concerned about?

Their supply.

I mean, there's some scuttlebutt from a recent industry event that the outlook in North America is tight, notwithstanding some still soft passenger tire demand trends but is it -- maybe you can just kind of roll through which regions are really providing the impetus for this new narrative.

Sure.

Well, I think, on balance, it is a global story, Chris.

I mean, we certainly see slightly different sort of degree from region to region.

But clearly, it's a global story.

And I think the fundamentals globally support that.

And I think it does come back to the fact that customers are intensely focused right now around supply reliability and wanting to align with suppliers that can support them in that way and also suppliers that are going to be sustainable in their actions.

And again, I -- look, all of these global customers are, I think, serious about their own performance in terms of sustainability.

And I think you have to make sure that your supply chain is operating in the right way.

And clearly, there've been lots of examples of this not being the case in China over the last 10-plus years, and that's all changing here now.

So I do see it as a global story, and I think the outlook for the tire industry is still on balance, is -- and, therefore, carbon black for tires is going to grow in and around the 3% range.

And so if you just look at that growth rate and turn it into carbon black tons and look at the current utilization levels, you start to see that things are fairly tight and, therefore, customers are wanting to make sure they align with the best suppliers to ensure reliability of supply.

So I don't think it's -- I think that's really the story here.

Okay.

And if I could just follow up on that because, I appreciate you guys, your stewardship and focus on sustainability, but sustainability certainly doesn't come for free.

And given what you just described as a tightening global market and we've seen this, obviously, in each region.

And China's a little different than Europe, which is different than North America.

But global tightness coupled with the desire for a sustainable supplier, sure sounds like you have the setup for incrementally more pricing going into '19.

Two questions.

One, and I'm sure it's too early to throw out an order of magnitude, but any thoughts on where that's going in terms of pricing?

And secondly, traditionally, the contracts, these global contracts have sort of -- in terms of the pricing, there's been base pricing and then there's been the feedstock pass-through linked to certain indexes.

Is there -- given this changing dynamic, is there any reason to think about something more creative in terms of the structure of the contract that can allow you to get a better return for the sustainability and the reliability that you're providing for your customers?

Well, I think you're onto a very important point.

And in fact, that's been what's been driving our actions here over the last couple of years as we've dramatically improved the performance in this business because you're absolutely right.

I think reliability and sustainability, those don't come for free, and those have to be realized in the form of an appropriate price to support those investments.

And I think we have been making very clear progress in demonstrating that.

Just look at the results of the business.

So I think that you're on to, I think, what is a central part of the sort of value proposition to customers and why they value -- why they value us.

I think on the question of where things go from here in terms of 2019 and beyond, I think it's a little bit too early to tell.

But I would focus more on the fundamentals because -- I mean, what we try to do here is focus on that.

And so if you look at operating our plants, making sure that we have all of the performance and environmental controls in place, that we're supplying reliably to our customers, that we're being dynamic in the spot markets, that we're being strategic and dynamic in our feedstock purchasing, all of these sort of fundamental factors, I think, that separate us, these are real.

These aren't -- these are durable things.

All right.

And just one follow-up on the Purification Solutions, the impairment charge.

Just the order of -- assuming that takes down the fixed cost, could you just share with us what the lower cost structure would be associated with that impairment charge?

Yes, that would be around $10 million on a full year basis of lower D&A.

Our next question is from Mike Sison of KeyBanc.

This is Connor Cloetingh on for Mike.

So I was just wondering, tire companies generally reported weak volumes in this first quarter.

In North America and Europe, you guys were up pretty solidly.

What are you attributing to that growth when the tire companies weren't doing well?

Is it share gains?

Or what might be driving that?

Yes.

So in most of our European and North America business, this is under annual agreements.

And so we are seeing the results of those agreements from last year flow through in our results here.

I think we're also seeing that certain product lines are performing particularly well.

We're seeing a real rebound in the OTR markets, the off-the-road markets.

And so this is an important application for a number of customers and where a lot of our products go.

So I think there's a combination of outcomes from our customer agreements from last year rolling through this year as well as certain applications that are performing pretty well and where we're a key part of.

Great.

And then in Performance Chemicals, are most of the investments you're making -- I know you've announced the fumed silica plants, but on the specialty carbons side, it seems like demand's been pretty strong there.

Is there a need to increase capacity?

Or do you have sufficient capacity to meet demand in that business for the near future?

Yes.

Yes.

So we're going to be looking at capacity options -- are looking at capacity options across all of the product lines of Performance Chemicals right now.

So you've seen the announcements in fumed silica, you saw our recent acquisition of Tech Blend as well as the new line in specialty compounds.

And then in the specialty carbon side, what you'll see over time here is a mix of things where in certain cases, it makes most sense to modify an existing unit that we have in Reinforcement Materials to upgrade and produce higher-value specialty carbons.

So you'll see some of that continue to play out for us, and then there will also be certain high-value product lines where we will be coming along with either debottlenecks or new units to support what is a continuing pretty robust environment in terms of demand and value for our products.

Great.

And then just one quick follow-up.

Did you give how much Tech Blend contributed to this segment in the quarter or...

No, we didn't.

Is that something you'll let us know, the acquisition contribution or you're not breaking that out?

No.

Although I think when we disclosed the acquisition, I think we gave a sense for what the multiple was on that deal.

And so we paid about 8x for that, and we paid $64 million.

So on a full year basis, EBITDA in the range of $8 million.

Thank you, and that does conclude our Q&A session for today.

I'd like to turn the call back over to Mr. Sean Keohane for any further remarks.

Thank you, Christie, and thank you all for joining us, and I look forward to speaking with you next at our Investor Day later this month in New York City.

Thank you very much.

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

This does conclude today's program, and you may all disconnect.

Everyone, have a great day.