Koppers Holdings Inc (KOP) 2017 Q1 法說會逐字稿

Good day, and welcome to the Koppers' First Quarter 2017 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Quynh McGuire. Please go ahead.

Thank you, and good morning. My name is Quynh McGuire, and I'm the Director of Investor Relations and Corporate Communications. Welcome to our first quarter earnings conference call. We issued our quarterly earnings press release earlier today. You may access this announcement via our website at www.koppers.com.

As indicated in our earnings release this morning, we have also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website; and a recording of this call will be available on our site for replay through June 5, 2017.

Before we get started, I'd like to remind all of you that certain comments made during this conference call may be characterized as forward-looking statements under that Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by certain risks and uncertainties, including risks described in the cautionary statement included on our press release and in the company's filings with the Securities and Exchange Commission.

In light of the certain significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as a representation that its objective, plans and projected results will be achieved. The company's actual results could differ materially from such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call.

References may also be made today to certain non-GAAP financial measures. The company has provided with its press release, which is available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

I'm joined on this morning's call by Leroy Ball, President and CEO of Koppers; and Mike Zygay, Chief Financial Officer. At this time, I would like to turn the call over to Leroy.

Thank you, Quynh. Welcome, everyone, to our first quarter 2017 earnings call. Now before discussing the details of our financial results, I'd like to provide an update on some key events during the March quarter. As always, let's begin with an update on our path to Zero Harm. We know that Zero Harm is about continuously improving safety and environmental performance, and we realize it's only possible by first fostering a strong culture that values feedback, connectivity, positive reinforcement and new ideas. During the first quarter, employees from across the globe continued to participate in the first 2 sessions of a 4-year safety leadership training series that combines coaching, skill building and engagement activities. To date, 27 locations have completed the first 2 workshops, and I'm encouraged by the positive feedback we started to receive from our frontline leaders. Now recently, we issued our 2016 Corporate Sustainability Report, highlighting the achievements that we've made to protect the environment and the communities that we serve. Now while we've printed sustainability summary brochures that are available upon request, I'd encourage everyone to visit the Sustainability section of our corporate website for our in-depth report, which highlights several areas where we've improved our environmental performance.

Overall, I'm pleased with the progress that we've made to date to strengthen our Zero Harm culture and we'll continue to update you as we reach new milestones.

Moving on to the financial results. I'm encouraged to see that our consolidated sales have stabilized after experiencing double-digit declines on a year-over-year basis for 5 consecutive quarters. The stabilization, which we expect to continue for the remainder of 2017, largely contribute to the significant growth in our profitability as well as improved earnings per share for the quarter.

I'd like to talk about some specifics in each of our business segments and would like to begin with the bad news story first: our Railroad and Utility Products and Services, or RUPS, segment. In that segment, we experienced lower sales volumes for both treated and untreated ties as well as lower pricing in both the class 1 and commercial markets, which drove our 11% reduction in sales and 36% decline in adjusted EBITDA. A part of the pricing decline was driven by lower average raw material prices and part was driven by an excess of inventory in the market, putting pressure on pricing.

Our railroad structures business also contributed about $1 million of the decline, as they had a tough comp due to an especially strong first quarter in 2016. Profitability of our Australian utility pole business was flat year-over-year. Now unfortunately, our comps for the railroad business don't improve until we get past August. So the second quarter is likely to be difficult as well, which I'll articulate later.

Now for our PC segment, or Performance Chemicals, higher sales volumes were the main driver for sales and profitability improvement, and that volume increase was primarily due to treated wood dealers stocking and selling treated wood with higher preservative retention levels. Now additionally, the trend for existing home sales continue to be favorable, benefiting the repair and remodeling market. We also saw some net benefits in raw material cost. These gains were offset in part by higher customer development costs, which are reflected through reduction in net sales. Now while both top line and adjusted EBITDA increases were driven by North America, once again, our international performance chemical locations all posted strong results and contributed for the gains as well.

Adjusted EBITDA margins were very strong at 23.7%, which will be difficult to hold throughout the year, as I'll speak to later in the call. Now for our Carbon Materials and Chemicals, or CM&C, business, we were able to put together our second straight strong quarter, relatively speaking, as higher sales volumes related to the carbon black feedstock and other coal tar chemicals were partially offset by lower global sales for carbon pitch.

The considerable margin improvement of $10.1 million was primarily due to improved average pricing and the benefit of restructuring savings and lower average raw material costs. Crude oil prices averaged approximately 54% higher in Q1 2017 versus 2016 and contributed partly to higher average pricing levels. There's currently a lot of positive momentum in this segment, even with creosote volumes down due to lower crossties treatment, and we expect that positive momentum to continue throughout 2017 and carry into 2018.

And before I turn it over to Mike, I want to make mention that we finally received the $9.5 million loan owed to us by our former minority-held Chinese JV, TKK. It was repaid in full through installments throughout the first quarter, and we are now officially out of all ties with that joint venture.

Now I'd like to turn it over to Mike to discuss some of the key financial highlights from the first quarter of 2017. Mike?

Thank you, Leroy. I will begin by referring to the slide presentation that we have provided on our website.

Starting on Slide 4. Sales were $347 million for the first quarter, which were flat when compared to sales of $347 million in the prior year. The PC business had strong sales volumes, primarily driven by higher demand in North America. The CM&C segments reported higher sales volumes for carbon black feedstock and other coal tar products and higher sales prices for certain products, which was partially offset by lower demand for carbon pitch and creosote. Sales for the RUPS segment were unfavorably impacted by lower volumes of treated crossties, utility products and structure services.

Moving to Slide 5. Adjusted EBITDA was $42 million compared with $33 million in the prior year. This was due primarily to higher profitability from the CM&C and PC segments, partially offset by lower profitability for the RUPS segment.

Now I'd like to discuss several items that are not referenced in our slide presentation. Adjusted net income was $14.8 million compared with $5.9 million in the prior year. Adjustments to pretax income totaled $14.2 million for the first quarter and $11.6 million for the prior year quarter and primarily consisted of debt refinancing in 2017 and restructuring expenses in both periods.

Adjusted EPS was $0.68 per share for the first quarter compared to $0.28 per share in the prior year quarter.

Our adjusted income tax rate for the first quarter was approximately 27%. This lower effective tax rate is primarily due to a higher amount of earnings coming from foreign subsidiaries, where the tax rates are lower than in the United States, specifically, Australia, Canada and Europe. Now we expect this strength to continue throughout 2017, and we now estimate that our annual effective tax rate to be below 30% for the full year.

Cash used in our operating activities for the first quarter was $23.9 million to cash generated from operations of $2.5 million in the prior year. The higher working capital usage was related to higher accounts receivable and inventory balances, a decrease in accounts payable, a decrease in accrued liabilities as well. Also having a negative impact on cash in the quarter was the $19 million we paid out in cash for our bond tender premiums and transaction expenses related to our bond and bank debt refinancing, which we completed in the first quarter.

Capital expenditures in the first quarter were $14.9 million compared to $8.7 million for the prior year. This reflects the ongoing construction project for the new naphthalene unit at our Stickney, Illinois, facility, which we expect to complete by the end of 2017.

At year-end 2016, we began using a net leverage ratio to monitor our debt status. The calculation of this metric is included in the non-GAAP reconciliation schedules, which we provided in our earnings announcement. Using this new metric, our net leverage ratio at the end of the first quarter was 3.7x, which was right in line with the ratio as of December 31, 2016. This reflects our disciplined approach to optimizing our balance sheet, especially in a quarter that historically requires very high cash usage. Now we expect to be at a net leverage ratio of 3.5x or lower by the end of 2017, and our long-range goal continues to be a net leverage ratio of 3.0x or lower.

The loss on the early extinguishment of debt for the first quarter was $13.3 million and is shown as a separate line item on our income statement. All of our senior notes which were due in 2019 were repurchased at a premium. And accordingly, we realized a loss on the extinguishment of this debt totaling $10 million. This consisted of $7.3 million for the bond premium and as well as tender expenses and $2.7 million for the write-off of unamortized debt issuance cost. In addition to that, we repaid our term loan in full and also entered into a new revolving credit facility. Accordingly, we realized an additional loss of $3.3 million for the write-off of unamortized debt issuance cost. Now all these were onetime expenses in the quarter and will not affect any future periods. We accomplished this balance sheet refinancing in early 2017, and it is expected to reduce our interest expense by approximately $5 million per year on a go-forward basis.

Now I'd like to turn the discussion back over to Leroy.

Thanks, Mike. Now looking at each of the 3 business segments and the outlook associated with them, I'm going to start with Railroad and Utility Products and Services. As I indicated earlier, it was a tough start to the year, and that likely won't be improving until at least the beginning of 2018 as we see it.

Putting aside an improving rail traffic situation, which will eventually have a positive impact on us, the rail industry continues to be under immense pressure to improve their operating ratio by cutting cost, and it has reached the tie industry. In addition, we are finding certain railroads are being much more aggressive on their inventory management methods. As a result, spring tie orders have declined, and we are seeing a pullback in treatment by certain railroads. Some of the treatment reduction is being replaced by gains in other areas, but on a net basis, we expect treating volumes to be down by 7% to 10% for the year, most of which will be reflected in the first 2/3 of the year.

Now as reflected on Slide 7, we're ratcheting down our 2017 adjusted EBITDA guidance for our RUPS segment by approximately $8 million from our February 2017 guidance. That would equate to a fairly pessimistic $56 million of adjusted EBITDA, which is a $16 million decrease from prior year. Now I do believe that 2017 will be the trough for this segment and 2018 will begin to climb back up, based upon an improving rail industry as well as some specific measures that we're taking to improve profitability that I will talk about more as the year progresses.

In our Performance Chemicals business, we once again saw a year-over-year double-digit volume increase driven by the factors mentioned earlier. Looking ahead, the industry move to higher retention treated products began in earnest during the second quarter of 2016, so our sales and volume cost will begin to get tougher as the year moves on.

Now while remodeling spending in North America is projected to remain pretty robust for this year at 6.1%, as estimated by the leading indicator of remodeling activity, or LIRA, released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, the pace will begin to slow in Q2. And by Q1 2018 spending is predicted at that point to be sequentially flat, indicating some cooling off in building products.

Now our average raw material cost, driven primarily by copper pricing, will also get worse as the year goes on if copper continues to hold in the $2.50 to $2.60 per pound range. Despite all of that, we're still raising our EBITDA guidance for Performance Chemicals in 2017 from $85 million to $87 million, as you can see on Page 8 of our slide presentation.

However, as a result of taking into account everything that I previously detailed, I don't believe we'll be able to continue duplicating the 20% -- 28% year-over-year adjusted EBITDA improvement that we saw in the first quarter. For the year, we see adjusted EBITDA margins finishing at approximately the 21% mark, which is a little lower than where we finished the first quarter but slightly ahead of 2016.

Moving now to the outlook regarding our CM&C business. We currently stand at an LTM adjusted EBITDA of over $33 million and expect that to improve further as the year progresses. Our combined North American and European business, which was expected to drive the majority of our improvement over 2016, is still expected to deliver as planned and maybe even better, despite having to make up for lower creosote volumes.

Our Australian and China regions, however, are exceeding expectations due to a tight supply market in China has driven up pricing in [both regions]. As a result, we are increasing our adjusted EBITDA guidance from the $32 million communicated in February to $38 million, as indicated on Slide 9, which represent a $15 million improvement over the prior year.

So going back a year, our original target for CM&C was to reach $40 million of adjusted EBITDA and a minimum 9% margin by the end of the 2018. We now have an outside shot to get there a year early, with even more benefit to come in 2018.

On Slide 10, you can see the ups and downs that we expect on the sales line in 2017. While CM&C will benefit from higher pricing and a stabilization of volumes and PC demand is expected to stay strong, softness in our RUPS business will likely keep consolidated sales for 2017 at approximately $1.4 billion, which is no different than what we communicated a few months ago.

Turning to Slide 11. Our guidance for 2017 consolidated EBITDA on an adjusted basis is still targeted to be $180 million compared with $174 million in the prior year. Now while I was tempted to raise our EBITDA guidance given the continued positive trends in our PC and CM&C businesses, the headwinds facing our RUPS business and a little uncertainty on how PC will fare against stronger comps as the year goes on has me cautious at this early stage in the year. But as always, we'll continue to keep you informed every quarter regarding any updates in our outlook.

Our adjusted EPS guidance is projected to be between $2.80 and $3 compared with $2.60 in 2016. The increase in adjusted EPS is primarily due to a lower effective tax rate, as Mike talked about earlier.

Capital expenditures in 2017 are still expected to be approximately $70 million to $75 million. Construction on our new naphthalene unit in Stickney, Illinois, will be kicking into higher gear beginning in the second quarter, and our overall capital requirements for our CM&C consolidation plan are in line with expectations.

Certain capacity additions for our PC business will be completed and come online by the time we do our next call in August, while the remaining PC projects will be completed by year-end.

During the next few quarters, we plan to offer deferred terminated vested employees of our pension plan an opportunity to receive a lump sum benefit, similar to the program that we ran last year. In addition, we plan to sell the smaller dollar tail end of our retiree annuity pension payments to an insurance company. Both actions will result in the lowering of our pension liabilities and cost us no current cash. This will be funded from the pension plan asset. It will result in operating cost savings due to lower administrative cost as well as lower our overall risk moving forward by taking a sizable slice of our pension liability off the balance sheet.

There will likely be a noncash charge associated with those transactions when they occur that we plan to isolate as a special charge, similar to when we the conducted a similar program during 2016.

Now I'm pleased to say that we continue to move down a path of significant improvement, and I believe that on balance improvement is sustainable moving forward. At the same time, we're reducing risk in many different ways such as improving our capital structure; lowering our leverage; taking pension liabilities off the balance sheet; and even making positive progress in certain legal proceedings, which you can read about more in our 10-Q.

Each quarter, I'm more encouraged by our progress and more excited about the opportunities that lie ahead of us.

And I'd now like to open it up for any questions.

(Operator Instructions) And we'll go first to Laurence Alexander from Jefferies.

It's Dan Rizzo on for Laurence. You mentioned that with the RUP it's going to be a little rough until probably 2018 at the earliest, but do you still anticipate the same seasonality that we've historically seen in the business?

Yes. Yes, I would. So I think that you can expect a better second and third quarter, relatively speaking, compared to our first quarter. And then our fourth quarter will, again, be seasonally down from that.

Okay. And then with the PC segment, with the change in [deck] additive requirements, is that's still going according plan or, I mean, as expected?

Yes. It's still -- yes, still moving forward. And think I mentioned in my prepared remarks that really didn't start having a positive impact on us until we got into the second quarter of last year. So we still had this first quarter where we had a much lower comp. We're now more or less a full year into it, and there's still people adopting. So we still think we can see some volume gains throughout the remainder of the year, but it's not going to be as dramatic as it's been over the last 4 quarters.

Is adoption -- I mean, besides the initial surge, is the adoption a multiyear process for something?

Well, yes, it's -- right. So each -- I'd say each treater and retailer are adopting at their own pace. So you have some that came out early and did it. You have others that are holding off and taking a little more time. So yes, it's over time, Dan.

And we'll go next to Liam Burke from Wunderlich.

Leroy, could you give us a little more color on some of the non-tie related products like bonded insulated joints how that's fitting in? How they're affected by the real CapEx? Are you seeing any life along that line?

Yes. Right. So we saw -- actually, that was a business that probably had more downside associated with it earlier in the rail cycle. So last year, we were seeing -- we're getting hit harder by a downturn in that business, I'd say, right out of the gate in 2016. And so we had a tough year in rail joints, throughout the entire year, whereas ties didn't start really getting impact until, like I'd say, at the end of third quarter. We have seen a little bit of a pickup in that business, a pickup in bid activity. And we're pretty optimistic that, that is already starting to see a little bit of a comeback. So that one seems to be just a little out of sync with maybe our tie business in terms of where it fits within the cycle. So.

Okay. And you've mentioned tough comps on the bridge business -- the bridge engineering business.

Yes. Yes, yes.

Are you -- how does that look as we go through '17?

It's going to be down this year compared to last year. Last year, they had their best year ever, and that's a big project-oriented business. So you get a couple of large projects, and that can have a significant impact on any given year's revenues and profits. They -- that's what they had essentially last year was a couple of really sizable projects. And that helped drive their results to their best year ever. And we weren't able to replace those projects at the, I'd say, at the dollar level and profitability level as we headed into 2016. So this year actually looks like it's turning out to -- or it's projected to be a little more of a normal -- what I call a normal year for them as opposed to last year, which was a really, really strong year.

Okay. And Mike, very quickly on the cash flows, you mentioned, the working capital needs. Presuming it's just a seasonality of the working capital? Or is there anything in there that's different than normal?

Yes. The only thing, Liam, that's in there that's different than the normal is the $19 million in cash we paid out for the debt restructuring, both the bonds as well as the new credit agreement with our banking group. So other than that, it appeared fairly well. I think as we go forward our cash generation is greatest in Q2 and Q3. We expect that to continue as well as into a little bit into Q4. So no change there, and really, the only one major item was the refinancing.

And we'll go next to Rudy Hokanson from Barrington.

A couple of questions. One, do you give us guidance for what the final interest expense will be for 2017?

Yes. Interest expense is going to be about $5 million less than it was in 2016. Now that's on an apples-to-apples basis if we continue to have fed rate increases, which will impact our variable borrowings, which is our bank debt, that may go up slightly. But as it stands right now on an apples-to-apples basis, when we refinance the bonds and we refinance our bank agreement, when you took at a lower interest rates we were able to receive on both those pieces of the restructuring, we estimated at that time our interest expense for a full year to be about $5 million less on an annual basis.

Okay. On the CM&C business, are there's some macro trends or something that you can depend upon more than maybe a quarter or 2 out right now that you see? And is there any geographical issue that's influencing CM&C business that is noteworthy?

Well, I'd say, Rudy, certainly, the tightening in pit supply in China is something that we're -- we've seen here over the past. Certainly over the early part of the year, we do -- we don't see that changing as we look out over the remainder of this year, which has driven pricing in China up. It's driven pricing in Australia up. And we -- and that's, again, one of the contributing factors to us really increasing our CM&C guidance for the year. Does that change or tail off in 2018? Actually, we say there's -- we would think that there will be a greater likelihood that, that continues out into the nearer term with everything going on, with all the noise surrounding heavy industry and, obviously, tariff talks in the U.S. around a lot of stuff coming out of China. I don't see that really changing anytime in the near term. So I think that's something that we're banking on, even as we move out into 2018, which, like I said, given the benefits that will come on after we have our naphthalene plant up and running in Stickney, really puts us in a great position to have CM&C be well ahead of where we were projecting it to be just a year or so ago.

And is that an important part of the reason for lowering the tax rate, the geographical distribution of earnings, just what's going to be coming out of there?

Yes.

Okay. And on the PC business, are there any new products or markets that you could highlight? You mentioned that internationally it's doing well. But what percentage of sales right now is coming internationally from PC? And are there any new products or developments that you could highlight for us besides what we've seen happening?

Yes. So it's about 2/3 North America, about 1/3 international business. We are actually looking at some things internationally to build around the businesses that we have there. Those businesses, I'd just say, since -- certainly since we've owned, and I think pretty much in its history, the most volatility we've seen out of those international business has probably been Europe. Our Australia, New Zealand business has been a pretty steady stable business throughout most of its history, and it continues to perform that way. We've made a number improvements in Europe since we took that business on. It was basically a breakeven business when we bought Performance Chemicals. We have a young man, Thomas Christensen, who runs that business for us, who's done a fantastic job of really improving the performance over there, and he's got a lot of great ideas for how we can continue to benefit it moving forward. Javier Romero, who runs our South Central American business there, has done a great job building that up. He continues to look for opportunities there. We think we have some opportunities actually to add to our core business and maybe branch out into a couple of different products, not far from what we do that are interesting but I really can't get into a lot of detail about. As we look at North America, yes, there's some things that we have in development that is not for me to talk about on this call but interesting opportunities that will continue to build right -- either within -- directly within our core of what we do or build really right around our core. So we're excited about the opportunities for that business moving forward.

Okay. And not too long ago, you were talking about having capacity issues with the PC business. And I was just wondering is that all rectified now? Or do you still find yourself relying on outside sources that are putting some pressure on your margins? Or are we seeing things right now more normalized?

Yes. So there are several things that we're doing from a capacity standpoint in terms of investments on PC. And so it's not just like one silver bullet magic project; there's several projects involved. There's a few of those that will get completed here in the second quarter or early in the third quarter. I think I indicated by the time we do our next call in August we'll have several -- we'll have a few of the smaller projects completed, which will help take some pressure off. The larger project won't be completed probably until near the end of the year. So -- and even then, I think based upon what we're projecting as demand we'll still have a piece of our business that will have to go outside and buy from third party in terms of intermediates. We'll look about, again, what we want to do from a capacity standpoint as we go into '18 as well. But we'll have closed that gap a decent amount here by the end of this year, but we're going to -- we're still going to be dependent upon third parties for a piece of our intermediate raw material supply throughout the remainder of this year for sure.

And we'll go next to Chris Shaw from Monness, Crespi.

If I could ask about the PC margin. I know you said they're not going to last at these levels. But just in the first quarter, the incremental, I mean -- they kind of -- they were up more than I would've thought, and just trying to figure out is that just volume growth? I mean, you mentioned volume. I think you might have mentioned lower cost. But I guess I'm trying to get at -- I mean, what the incremental margin is there? And is there a really big fixed cost base that you're covering when you get higher volumes?

Yes. It is -- the big part of it is volume related. As I mentioned, the whole ground contact in higher preservative products really didn't take off -- start taking off until the second quarter of last year. So we got a pretty nice year-over-year volume increase here in the first quarter that contributed quite a bit to it. We had our overall first quarter raw material pricing probably hedged it in at a -- on a comparable basis. A good amount lower than where we were at from a cost structure standpoint in the first quarter of last year. Those 2 things were the probably the biggest contributors. But as we move out over the year, we're going to see that gap between our raw material cost this year versus last year really start to converge. So we're going to lose some of that -- a lot of that benefit, year-over-year benefit as we move out as well as the volumes. I think our volumes will continue to be up year-over-year as we move out through the remainder of the year, but they're not going to be up by nearly the percentage that they were in the first quarter.

Can I ask what the year-over-year lower raw material was in the first quarter? What (inaudible)? It's not copper> It's supposed to be (inaudible).

Well, there's a whole host of things that go into that. Copper is a piece of it. There's some, again, some intermediate materials and stuff like that. We don't have that number that we're able to share here, Chris. So I can't give it to you.

I'm not looking for a number, but what are the intermediates? And what's kind of [class] -- is it chemicals or...

So we buy the copper -- we buy the scrap copper, and we produce cupric oxide and copper carbonate, right? And that goes into the products that we make as well as several buying sides and different things like that. So there's a whole host of different things.

Okay, got it. And then just with oil was sort of weaker this week is what -- it made me think about you guys again. So -- but with all the restructuring and exiting of JVs and CM&C, is there any -- like is there a number of how great will you reduce the exposure to oil in that segment? Even a general idea?

We've reduced it dramatically, I'll tell you that. It used to be almost 1:1, right? And now -- I'm looking at Mike here, if you can recall the last sort of fence we've put around that.

Yes. It was -- like Leroy say, historically, it was about 1:1. So for every $1 drop or increase in a barrel of oil, our EBITDA would go up $1 million. But now, a closer rule of thumb to that -- and it continues to decline. But a closer rule of thumb is for every $5 of increase in oil per barrel, whether up or down, our EBITDA is impacted by only $2 million up or down. So we're pretty far away from that 1:1 ratio that we have previously. Currently, close to the 2 for 5. And somewhere along the line, we're going to be kind of down between -- below 2, to be honest with you.

Okay, that's very helpful. And then this might be just semantics, but the increased EBITDA forecast for CM&C, on the slide, it's -- the bucket is the restructuring savings. But when you talk about it, it sounded more like it was an improvement in Australia and China, things like that. Is that the same bucket or like...

It's -- there's some of that in there. Yes, it's certainly, as it relates to China, no question about it. The other China, Australia piece I think is the improvement is probably buried into the other piece of that bridge, offset by some things that are going the other way.

And we'll go next to Curt Siegmeyer from KeyBanc.

Just to follow up on that question on CM&C. Your outlook suggests $15 million in EBITDA growth in '17, and we saw $10 million in the first quarter. So just kind of bridging that for the rest of the year, do you -- is there pricing headwinds or what? Was the chunk of savings in the first quarter disproportionately larger? Or how do we kind of...

Yes, yes. Sure. So there were 2 big events last year that didn't happen until the beginning of the third quarter that allowed us to capture -- if you remember, most of the benefit that -- most of the year-over-year improvement last year was driven in the second half of the year. Those 2 events were shut down over our Clairton, Pennsylvania, facility, and the resetting of basically our raw material pricing. So we saw a dramatic decline in raw material pricing in the back half of the year. We saw a bunch of fixed cost come out in the back half of the year. So here we sit in the first half of the year, first quarter in particular, as you saw last year, we had -- actually had a loss in the first quarter. And so we're -- the benefits that we received on the back half we're now getting through the first half of this year on much lower, lower comp. So you should expect that much of the improve -- year-over-year improvement in CM&C we will see in the first half of the year. It will get tougher as we get out into the second half of the year, although there's still an opportunity, I think, to see improvement there as well. But it will -- again, it won't be as dramatic because we're getting some of the benefit here in the first half that we got in the last half of last year.

Okay, that makes sense. And then just on raw material inflation in general. What -- I know there were some comments about lower cost in the first quarter. So just kind of wondering what the puts and takes are there, kind of going forward what your expectations are the rest of the year?

Yes. I think we're in pretty good shape as it relates to raw materials in the CM&C segment. For most of the stuff that we have, we have some -- we have an ability to move pricing with some of the changes in raw materials. So I don't worry about how that moves. For the most part, I think, we're fairly -- we're much better protected there than what we have been in the past. Railroad, obviously, we have the opportunity, for the most part, to pass through changes in crossties, and that's been a soft market anyway. So on the Performance Chemicals side, there, again, copper, I think as we move throughout the year we're going to see higher average copper prices compared to where we were in the back half of last year. Now again, we have a significant amount of our under contract through hedging arrangement. So -- and that's the reason why we have those hedging arrangements in place, to take out the volatility. But as hedging contracts roll off and new ones roll on, you're eventually -- if the pricing doesn't change, you're eventually going to gravitate to a higher average level pricing. And that's -- if pricing doesn't change, that's where we're ultimately going to be moving towards. And so 2018 as an example, based upon where things are at today is likely to be -- if nothing else changes, is likely to be higher. So we're going to see some pressure coming from raw material pricing in that respect if nothing changes in terms of where copper's at. So those are, again, kind of at a high level, the bigger items. Copper is the one that probably we're keeping the closest eye on right now.

And we'll go next to Scott Blumenthal from Emerald Advisers.

Leroy, congratulations in getting closure on TKK. Not to rub salt into a wound here, but any update you can give us on KJCC at this point?

First of all, there's no salt in that wound. I'm -- we get the money back, so that's fantastic, actually. I'm happy about that. KJCC. KJCC, funny enough, was built to supply needle coke into NSCC's subsidiaries plants. And the needle coke market, I couldn't tell you where it's at exactly today, it's still depressed, well below levels that needle coke was at when they made the decision to enter into the arrangement and build their plants. They're taking a very, very small amount of product out of that plant. But again, the flexibility that we have in terms of being able to take products to other markets and the protection that we have within the agreement with them in terms of protecting us on a margin standpoint has allowed us to actually have a pretty nice quarter in that business. I told you the pitch market's tightened up over there. We're getting a lot of inquiries to take product and capacity that's available right now and move it out in nice prices. So again, we're in a good spot right now with that business. And again, even if that other -- even if the pitch markets dried back up, we still have the protection of the [market], so we're in pretty good shape.

So you we haven't seen any change in the behavior of Nippon Steel at this point?

No. No. They've been a great partner. They -- other than not taking the volume, they've done everything that they're required to do contractually. And we -- the thing I'll say is we had good protections in that contract. So nobody really could have foresaw what happened over the last 3 years in those markets -- for 4 years, really, since we signed that agreement. But we really took a lot of risk off the table when we entered into that agreement. And even with the adjustments for a renegotiation we did (inaudible) when we got the $3 million payment, we still we're able to protect our downside. We had to give up some upside, but we were really able to protect our downside. So all in all, I think it was a pretty -- it's been a pretty good outcome so far.

And the utilization of that facility currently compared to, I guess, kind of where you were at the time?

I was just -- yes. I was just looking at it actually. And I think we're running somewhere in the 75% to 80% utilization range over there, something like that. Hang on second. Yes. About, yes, mid-80s, something like that looks like.

Okay. So it's a decent business right now.

Yes. Last year in the first quarter we probably -- we ran less than 60%.

Okay, super. And jumping around here a bit. Could you remind us as the size of the bridge business overall or as a portion of RUPS?

Yes. It's a $40 million to $45 million business yearly. It doesn't really stray from that range.

That's helpful. And I guess my last one is for Mike. Mike, I think you mentioned $70 million to $75 million of CapEx this year. Is that correct?

That is correct.

Okay. And I think -- if I'm not mistaken, you did have about half of the investment in Stickney coming this year, half last year. Correct me if I'm not right. So can you maybe break down the rest of the $70 million to $75 million? Obviously, some of that's increasing capacity in PC? And what else am I missing?

Scott, I'll say you're a little off in terms of the breakdown. We didn't spend half of that investment in Stickney last year. And we have a number of projects that kind of fall under that umbrella. So I'd say of the $70 million to $75 million, still probably, I'd say the majority of that is CM&C consolidation and improvement project related, including that project in Stickney. Breaking down that $75 million, we probably had $12 million, $13 million of that in railroad, something like that. A similar sort of number, probably, in performance chemicals, maybe a little higher because of the capacity expansions that we're doing there that'll maybe make up $8 million of that number, something like that. And then the balance would be Stevens, which includes naphthalene and a number of other projects (inaudible).

And we'll turn it back over to the speakers for any additional or closing remarks.

Thank you. Just to summarize, I want to thank our team worldwide for the hard work that they have done improve our company financially, operationally and [healthily]. I think we have a solid foundation to sustain our safety-first culture with the goal of Zero Harm. I'm also proud to say that today we have a stronger balance sheet, less risk and volatility within our business, improved profitability and we're well positioned to further expand our presence in the marketplace. As always, we will remain highly focused on delivering shareholder value. Thank you all for your continuing support and for joining us today.

That does concludes today's conference. Thank you for your participation.