Neptune Insurance Holdings Inc (NP) 2018 Q2 法說會逐字稿

Good morning, and welcome to the Neenah's Second Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Bill McCarthy, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. On the call with me today are John O'Donnell, our Chief Executive Officer; and Bonnie Lind, Chief Financial Officer.

After our prepared remarks, covering progress against key initiatives and quarterly financial results, John and Bonnie will open up the call for questions. We released earnings yesterday afternoon and reported record quarterly revenue of $271 million. This reflected strong organic growth and added acquired sales in Technical Products and Fine Paper & Packaging revenues that were equal to last year. Both segments benefited from increased selling prices and a higher value mix, and Technical Products results were also helped by currency translation.

As we communicated in our May call, second quarter results included an impairment charge related to the planned sale of our office products mill in Brattleboro, Vermont. This $32 million noncash charge, along with $1.3 million of expense related to withdrawal from a multiemployer pension plan and other restructuring activities, resulted in a GAAP operating loss for the quarter of $4.3 million or $0.29 per share. Excluding these items, adjusted operating income was $29 million, in line with last year, and adjusted earnings per share were $1.18 versus $1.22 in 2017.

We report adjusted earnings when it improves understanding results and comparability between periods and provide a reconciliation of these measures to comparable GAAP figures in our press release. I'd also note that our comments today include forward-looking statements, and actual results could differ from these statements due to uncertainties and risks outlined on our website and SEC filings.

With that, I'd like to turn things over to John O'Donnell.

Good morning, everyone. I'll start with a brief overview of segment results and then update you on some of our ongoing growth initiatives. Our business has performed well in the second quarter as it grew consolidated sales 9%, offset heightened input cost pressures and significantly improved cash flows. Starting with Technical Products. Both top and bottom line grew at a double-digit pace. This resulted from organic sales growth of 5% to 6%, in both filtration and in performance materials, complemented by added sales from our Coldenhove acquisition.

Filtration growth was led by higher sales out of Appleton and I'll talk more about that shortly. In performance materials, sales were up and backings, label and other specialties, with backings growth helped by added distribution of our premium tape product.

In Fine Paper & Packaging, sales were in line with last year and we made significant progress mitigating fiber and freight cost pressures to restore EBIT margins. While adjusted EBITDA was down versus last year, it was up substantially from the first quarter. The improvement came from actions taken to revamp our shipping practices to be more cost effective as well as additional selling price realization.

Next, I'd like to comment on progress against a few of our long-term growth catalysts. First, we're continuing to ramp-up sales from our Appleton filtration facility. Projected 2018 sales are now likely to be in the top half of the $15 million to $20 million range we previously communicated. At this point, 80% of the sales are already qualified with customers, up from 70% on our last call. Even more encouraging is the number of North American customers that are engaging with us regarding future projects and opportunities. As I've noted before, our capacity addition comes at a good time. Global market demand continues to grow, and there have been no other meaningful capacity additions. So customers are seeking suppliers who have the ability to grow with them. Our investment provides these customers with best-in-class quality and costs.

While we're excited about what we're seeing on the top line, I'd be remiss if I didn't mention that there have been a few challenges. In addition to being squeezed by increasing input cost qualifications, this year, we're currently below desired internal productivity and yield targets. To address the needed improvements, we've implemented teams focused on specific operational areas and made some necessary organizational changes. While still early in these efforts, I believe we're on the right track. We continued to expect this investment to turn profitable next year and for profits to grow each year as we move forward, ultimately delivering on attractive end of curve cash flow and return.

Our second growth catalyst is the acquisition of Coldenhove late last year. This gave us a leading position in the fast-growing $200 million market for digital transfer media. I've been extremely pleased with what the team's been able to deliver. As noted on the last call, we've realized synergies more quickly than anticipated as we implemented go-to-market strategies for our complementary products and customers and expanded our market reach.

We acquired this business with $45 million of sales. Sales and profits are well ahead of original projections and should easily top $50 million this year with a double-digit EBIT margin.

Finally, we continue to realize attractive growth opportunities in premium packaging. In the second quarter, sales again grew by double digits with increases in label, premium folding board and Wide Format products. At almost 20% of Fine Paper & Packaging sales, we remain believers that premium packaging can transform this segment into an organically growing one, while maintaining it's very attractive mid-teen margins.

While on the subject of Fine Paper & Packaging, I'll note that our sales process for Brattleboro is on track, and we will communicate updates as we progress. With sales of over $30 million, most of this business was not of strategic fit with Neenah, and the divesture is part of a broader effort to increase efficiencies in Fine Paper and Packaging. As I mentioned on our last call, we expect these efforts to lead to an annual improvement in operating income of around $5 million.

So in summary, I'm pleased with the results in the second quarter and progress on our strategic growth initiatives. Given expectations of a continued inflationary environment for commodity input costs, we've still got plenty of work ahead. I'll talk about this later, but first I'll turn things over to Bonnie to cover quarterly financial results in detail.

Sure. Thanks, John, and good morning, everyone. At the start of the call, we mentioned the $32 million noncash impairment charge to write-down the long-lived assets that are largely related to Brattleboro. As noted on our last call, Brattleboro came with the FiberMark acquisition, though it was not a strategic driver for the acquisition and the remaining acquired business continues to generate an attractive return on our original investment. In addition to the impairment charge, we had one-time cost of $1 million to exit a multi-employer pension plan and $300,000 for restructuring of our U.S. filtration business. All of these one-time costs that were allocated to segments and details are shown in our press release.

This morning, I'll be commenting on adjusted numbers, which exclude these costs, and I'll start with Technical Products. At the risk of sounding like a repeat of May's call, Technical Products had another great quarter in their seasonally strong first half of the year. Sales were $150 million, a new record and up 18% versus the prior year. This reflected strong organic growth and acquired sales as well as a higher value mix, selling price realization and currency translation benefits.

In Filtration, sales were up just over 6%. In addition to currency, growth reflected higher sales of transportation filtration with North American sales up almost 50% year-on-year as we continue to ramp-up Appleton utilization. This helped offset lower sales in other filtration products following the strong first quarter for these grades.

We also benefited from an improved mix with sales of our higher advanced grades up 12% in the quarter as our German team has worked to optimize mix given their current capacity limitations. Performance Materials revenues grew 27% with organic growth of more than 5%.

As John noted, sales were up broadly with gains in backings, labels and other specialties. This specialties growth included our heritage digital transfer grades as we realized synergies with Neenah Coldenhove.

Technical Products adjusted operating income of $17.6 million was up 10% from $16 million in 2017. In addition to increased volumes, earnings benefited from higher selling prices and more favorable mix of products sold and currency translation. These items fully offset higher input and distribution costs as well as less efficient manufacturing operations in the quarter.

Turning next to Fine Paper & Packaging. Revenues of $116 million were about to equal to last year. Increased selling prices, growth in packaging and consumer and the higher value mix more than offset lower commercial print volumes, which included a large reduction in marginal business that doesn't make sense in a high-input cost environment.

Premium packaging sales were up by more than 10%, and sales to the retail channel grew by 15%. The strong consumer sales reflected incremental distribution at new customers, but also acceleration of some back-to-school sales that typically occur in the third quarter.

Adjusted operating income of $16.7 million was down from $17.5 million last year, but up significantly from first quarter income of $12.8 million. Versus the prior year, higher net selling prices and lower SG&A spending were not able to fully offset higher pulp and freight costs.

Versus the first quarter, income increased as a result of additional selling price realization, higher volume and actions we've taken to reduce distribution costs. Operating margins topped 14%, and were back within our expected range of 14% to 16% sales.

Turning to SG&A. Expense was $25.2 million in the second quarter, up from $24.5 million last year. The increase was due to SG&A acquired with Coldenhove that was partly offset by the lower Fine Paper & Packaging marketing expenditures, mostly timing related. While second quarter spending was below our guidance of $26 million, year-to-date SG&A spending is right at $52 million.

On allocated corporate SG&A of $5 million was up from $4.5 million in the prior year, in line with our expectation of approximately $5 million per quarter.

Next I'll cover some of our corporate items. Interest expense was $3.3 million compared to $3 million in 2017. The increase resulted from incremental short-term borrowings to finance the Coldenhove acquisition.

On to taxes. Our adjusted tax rate for the quarter was 21%. This was largely in line with last year's second quarter rate, which benefited from our election not to repatriate overseas funds. The ongoing book tax rate this year is still expected to be around 23%. That is down from 29% last year due to the changes in the U.S. tax law, which took effect in January.

Our cash tax rate this year is projected to be under 10% and reflects benefits from consuming our prior period R&D credits over the next 2 to 3 years. Following this, our cash tax rate will start to converge with our booked tax rate.

Moving to our balance sheet. Debt declined $17 million in the quarter to $253 million as we used available cash flow to pay down short-term borrowings. Most of our debt is comprised of $175 million of U.S. bonds that are due in 2021. The remaining debt is split between the U.S. and Germany as we've shifted more debt to Europe this year to take advantage of lower interest rates. With debt-to-EBITDA below 2x and plenty of available borrowing capacity, we remain conservatively financed and have the ability to take advantage of attractive investment opportunities.

Cash from operations was a very strong, $32 million, in the quarter as we bounced back from a slow start to the year, mostly due to seasonal timing of accounts receivables, which remains very healthy.

In the second quarter, we choose to exit a multi-employer pension plan at one of our mills and took a charge of $1 million to establish a liability equal to the present value of required future cash payments over the next 20 years.

Neenah was an extremely small part of the plan. And given the plan's perceived financial risks and ability to change funding rules unilaterally, we thought it better for our employees and for the company to exit and offer a more stable retirement alternative.

In total, our post-employment benefit plans are in great shape. We expect cash outlays for these plans to be around $17 million this year, which is slightly below where we were last year and $6 million higher than related ongoing expense.

On to the capital spending. Outlays were $8 million in both the second quarter of 2018 and in 2017. For the full year, spending is projected to be similar to last year and within our stated range of 3% to 5% of sales. Around 60% of spending will occur in the second half of this year when we take our annual maintenance down.

Finally, we returned almost $8 million of cash to shareholders, mostly through our dividend, which is up 11% from a year ago.

To wrap up. Neenah's financial position remains very strong. Our businesses generate sizable cash flows, our balance sheet's in great shape and we have a disciplined approach to deploying capital. Our priority is to act on organic investments and acquisition opportunities that add value and we remain committed to returning a portion of our cash flow to shareholders through an attractive dividend.

With that, I'll turn it back to you, John.

Thank you, Bonnie. I'll finish up with some comments on the external environment and a few other items impacting the remainder of the year.

With currency, while currency was a benefit in the first half due to a stronger euro, the current rate of 1.16 is now about $0.05 lower. We've noted before that a $0.05 change represents about $2.5 million of sales and $0.5 million of EBIT per quarter. And that should approximate the quarterly reduction in translation benefit in the second half versus the first half of the year.

As a reminder, we schedule annual maintenance downs at most of our facilities in the third quarter. Typically, the added cost for these downs is $3 million to $4 million. This year, we expect costs to be $1 million to $2 million higher, due in part to additional infrastructure work in Germany that's only required once every few years. Filtration and other technical products are also impacted by seasonality with second half demand typically lower than the first half.

Global economies generally remain on sound footing supporting growing demand for our products. The U.S. economy continues to do well and about 2/3 of our sales are in the U.S., with Fine Paper & Packaging being the largest part. In Europe, conditions have improved versus a couple of years ago, notwithstanding recent worries surrounding global trade issues.

One subject getting a lot of attention has been tariffs. We sell into about 80 countries, and like other U.S. companies, we're dealing with a number of uncertainties. While our global Technical Products manufacturing base provides flexibility, it's unlikely we'll be able to completely offset a loss in sales if significant or multiple tariffs are enacted. In addition, there could be added costs for imported materials.

As I'm sure you can appreciate, this remains a fluid process, and as a global manufacturer, we'll manage our business to minimize any value impact. However, the bigger and more certain story this year has been the steep rise in commodity prices. In the first half, input costs were up $10 million year-on-year. We expect costs in the second half to be up $14 million as prices for pulp and other materials have continued to rise. $24 million of higher costs in the year for a company our size is a significant headwind, and it will take time to completely recover the added increase in the second half of the year. With that said, we still expect to more than that -- we still expect to offset more than 80% of input cost increases this year through our pricing actions and anticipating that we will offset the remainder as we head into 2019.

In addition to increases already implemented, in Fine Paper & Packaging, we recently announced a third increase in certain grades that will take effect in the fourth quarter. In Technical Products, pricing discussions are held on a customer-by-customer basis. Most customers with cost adjusters should expect to see these triggered as prices continue to rise. As you know, each of our businesses has demonstrated its ability to recover input costs over time. And in the year's high inflationary environment, higher market activity is higher than any time in the past.

On our last call, I spoke about high freight rates that have disproportionately impacted our Fine Paper & Packaging business. Freight rates started rising in the back end of last year and were up by over $4 million in the first half of this year. Our teams have done a nice job making changes to improve our cost structure, while ensuring they did not impact customer service. Consequently, while still higher year-on-year, we expect the impact to be more modest in the second half.

So as I wrap up, you can see our teams are actively and successfully addressing an unusually challenging cost environment. Our market positions are strong, and demand for our products is growing. We have important catalysts for longer-term growth as we gain share geographically in global transportation filtration, realize synergies from our leadership position in the fast-growing digital transfer market and maintain our goal of double-digit growth in premium packaging.

Our balance sheet affords us the financial flexibility to pursue and act on attractive opportunities. And as always, we're actively seeking acquisitions that will add value and help change our growth trajectory as Neenah continues to evolve into a faster-growing and more profitable specialty materials company.

Thank you for your interest, and we'll now open the call for questions.

(Operator Instructions) Our first question comes from Jon Tanwanteng with CJS Securities.

John, when you -- when do you actually see packaging tipping the growth of the Fine Paper into kind of a higher sustainable growth rate? Is that something on the near-term radar?

It's -- well, we see it within the 5-year horizon. I think mathematically, just looking at -- that's a business that is 3% to 5% decline. About 75%-or-so of the business is in that decline and growing at double-digit on the other as we continue to gain scale on that, we see it in the near term horizon.

Okay, great. And then, Bonnie, if you could. How much of a drag was Brattleboro on the quarter, if you could break that out?

We don't break out our results by mill. But I would tell you, it was not a cash drag.

Okay. Got it. And then, I ask this question every quarter, John, but can you talk about the pipeline for M&A? And if you're active there, where do you see the opportunity of the headwinds to help in crossing the finish line?

Yes, and thank you for that -- the continued interest in that, Jon. You do ask every quarter. This is a slower time of the year in the summertime from an M&A standpoint. But with that said, the majority of our acquisitions have really been upward bound, not books in. So we really identify which companies we think could have a good fit. So we do have an active radar. And we're only 9 months or 10 months from the Coldenhove acquisition so -- which we believe we've got a very good cadence. A number of companies that are out there that we're trying to work with, but as we address or find opportunities, you know I'll come back and communicate that to you.

Jon, I'm going to do a redo on your first question. So we didn't have -- we have minimal impact from Brattleboro on that quarter. We have communicated that we expect to have $5 million of incremental benefits once we divest the facility and we complete the rest of our Fine Paper portfolio optimization and other activities that we're doing. I would say in the quarter, we probably had somewhat less than $0.5 million of benefit from the stuff that we've already got underway. And we see that the bulk of that $5 million will start after the divestiture of Brattleboro.

Got it. That's very helpful. And then one final one for me just on the tech product segment. It's obviously been strong for 2 quarters in a row. How sustainable do you see that year-over-year strength as we head into the second half? It seems like Q1, you had some one-offs in terms of lumpier products that sold through. It sounds like in Q2, you pulled something in from Q3. Does the improved expectation at Appleton offset that and can we expect that trend to continue?

Yes, that's a great question. A couple of things. It's not a surprise first and second quarter were very strong in Tech products, they are always. And we try to reference and remind of that. As we move -- in the first quarter, we had actually really strong filtration. In the second quarter we had really strong performance materials. So it's been nice adds from both businesses as we've moved through the first half of the year. In the back half of the year, there is no way that Appleton -- we're talking about $15 million to $20 million this year. The majority of that is going to be in the back half as we ramp that up. So it wouldn't be able to offset, I think, Technical Products seasonality. Remember that, Coldenhove we acquired last year in the fourth quarter. So that's -- we're going to lap that. And as far as pulling anything from the third quarter to the second quarter, if I said anything that gave you that impression, I didn't mean to do that because I don't think that's necessarily the case. We've had 2 strong quarters that are seasonally strong overall. We definitely expect a diminished seasonality and impact from our outages as we move into the back half of the year. And Appleton will be, even, from a revenue standpoint, a bit of a misnomer as we ramp up to that $15 million to $20 million.

Yes, we did pull-through some consumer over in the Fine Paper business, some consumer business from the third into the second.

Our next question comes from Dan Jacome with Sidoti & Company.

So I just want to follow up on that last point on the pull forward. Not to overdo it, but it sounded like there was some pull forward on the retail side, as you said, from the back-to-school. Do you think the third quarter, overall, that area of the Fine Paper segment that you sell into those retail channels can stay, what do you call it, stable in the quarter?

Yes, Dan, I like your caution at the beginning not to overdo it. Our retail business itself is, call it $80 million to $100 million. And what really drives the movement, we talk about back-to-school, so it could just be the timing of back-to-school, but also distribution shelf reset. So if you get a strong shelf reset, pick up new distribution, you can have a big quarter and then the next quarter behind it, you can have a challenging quarter as a well. So I'd really hate to suggest that, that is a big trend. What we consciously never do is pull things from one quarter to the other quarter. So if anything moves from 1 quarter, it's really when they decide to stock up for back-to-school when it hits, so.

Right. Okay. Inventory rebalancing, out of your control, okay. Makes sense. And then I want to touch quickly on the sort of higher distribution, trucking costs afflicting, I think, most North American paper packaging providers. You guys seem to be managing that well thus far, and I think you talked a little bit about it. Can you share maybe 1 or 2 extra comments on how exactly you have been doing that? I know that you work with a lot of distributors but there are a couple that are the majority of your distribution network, if I'm not mistaken?

Our overall -- first of all, a lot of them are policy changes associated with the amount of freight that we would let ship economically or without surcharges. As a reminder, high value products ship often in smaller orders, so many of our go-to-market strategies are pooled trucks and how we optimize those pooled trucks are a big part of that. A lot of that was -- from a customer standpoint, can be viewed as pricing as well, but it really does diminish the dead weight or air space in our shipments from that. We do have customer-specific programs, where we have opportunities to really -- working with them, whether it's in pickups or whatever, diminish the amount of cost from a freight standpoint. And I would want to leave you with the fact that we'll be at an elevated freight level. But these -- but I didn't want you to think we're sitting here quietly doing nothing. I think the team has really done a lot of work to offset a good share of that.

Okay. If I understood, it sounds like you have some sort of intrinsic benefit to your -- given the business model, in terms of like order sizes and maybe like batch size or something, that's on the trucks?

Yes, we determine -- for prepaid freight, we determine the size of an order that we will pay. And so if, in fact, we can influence a customer's order size, if they'll order less frequently and optimize truck more, and that's really what we were able to do. We changed the order size requirements for our customers.

Okay. And then, someone had asked about the Fine Paper mix as you scale up to premium packaging. You said it's a 5-year target that you -- but that 5 years is referring to like a plan that you guys have announced to us in the past, right?

No, what I'm saying is that -- Jon asked, when do we believe that would cross the decline from the other, and I said, within 5 years. Okay. So I gave you a big horizon, but one -- you can still see it's fairly near term.

Okay, it was a terrific question so I wanted to clarify on that. And then, last question on housekeeping. I should know this but I don't, when was the last time you kind of refinanced the senior tranche of your capital structure? I think you still have 5.25%. Is there any opportunity to refinance down the road, near term? Or is this just kind of wait and see?

Dan, the bonds are due -- they're 5.25%. They are due in 2021. We've got a 130 basis point call premium until May of next year, and then it becomes a no-call. So we're not looking to margin anything with that 130 basis point call premium.

Our next question comes from Steve Chercover with D.A. Davidson.

Apologies, if these questions are kind of similar to the other 2, but in the Fine Paper & Packaging segment, it sounds like your initiatives on freight provided you the upside to margins because we know the pulp did not get any better. Is there more to come on the freight or any of the other input costs?

Yes, I think the freight activities, you can say, stable at a higher level if you would like. And as much energy as has been around freight, there was significant pricing activities that did offset input costs. So I think for -- to characterize that for Fine Paper, they were able to offset the input costs. And that's not all of them in the first half. The second half is going to be the real challenge and that's what I was trying to allude to in the call. We're expecting higher input costs than we had in the first, and we will likely have some of that roll into '19.

But nonetheless, pulp won't be high forever. Who knows when it will finally turn. Let's just -- I assume that's not something you would just rebate your clients then, as you finally get a bit of a tailwind on the input cost?

The way our pricing strategy is, that's exactly right, in the Fine Papers, that we're very cautious about announcing a lot of price increases because we know there is not a lot of price movement as commodities go up and down. If -- in fact, we can minimize the amount of fluctuations for our customers and make it more stable, the better off we are. That's why I think I mentioned that a third increase in this year is -- you can say, you were there. It hasn't happened for quite some time around that and we're seeing prices go up in the mid-teens.

Well, that's terrific. And then, again, not wanting to get into guidance, but we know the typical seasonality of your business, particularly due to maintenance and the sales cadence of filtration. But after Q1, we certainly had the impression that freight and input inflation wouldn't be offset until the second half. And then, of course, you've got this increased ramp-out of Appleton. So is it fair to say that this could be an atypical year, nonetheless, where the second half is as good, or better, than the first half?

I want to be as much of a believer as anyone on that. But I can tell you, that's not going to be the case, necessarily. I think while Appleton is beginning to ramp up, a small portion of Appleton's revenue actually happened in the first half of the year. We're definitely ramping up. And one of the challenges I mentioned is the overall costs on the yield, because as customers order 1 roll, and then 10 rolls and then much larger, we're just now starting to build the order size that gives us the opportunity to really drive down our costs. Input costs are going to continue to drive up, and then the higher down costs. So I'm not ready to say that we're going to change historical seasonality right now, necessarily.

I'm sure you will do your best, nonetheless. Final one with respect to Brattleboro, you said that your EBIT will go up by about $5 million once it's out of the mix. And there is a little bit of that, that will be operational improvement elsewhere in your system. But is it fair to say that once it's out of the mix, that it will bring down our sales by about $30 million, and basically our depreciation by around $5 million?

Yes, the sales part I absolutely agree. But depreciation...

No, no, yes. Our depreciation there is about $2 million.

Not nearly that high. But you're right. Those are big components from it. It's really as we look across the rest of the system, that's where we're building up to the $5 million in the Fine Paper side of the business. The value of those $30 million in sales too, that we've suggested to be -- because they were non-strategic as we talked about, are not your historical high-teens margin.

But it's not as if you're going to be transferring the production elsewhere because it's not really product that you want to make?

Right. And we're doing this in big buckets. But I would say if there is a customer or a product that might be there and they chose to continue to work across our systems, that might happen. But yes, you are exactly right. These are ones where we said, "this clearly doesn't fit our portfolio on an ongoing basis, it's not strategic to us to that end", and that's how we came to the conclusion to rationalize our footprint.

Our next question comes from Mark Weintraub with Buckingham research.

Just first to clarify and make sure I understand. So with Brattleboro, the $5 million, is that largely reflective of the book losses it was accruing? Or, you seem to be referencing that there is going to be some profit pick-up elsewhere, but then it's not clear you're transferring business. I'm a little bit confused there?

Sure. And I'll take a shot at it, Bonnie.

Okay.

So it's triggered predominantly from the vestiture of the facility. And then, from our standpoint, when we divest that, the opportunity to run more efficiently some of the -- across our whole asset base, we're scooping all of the improvement efforts in for Fine Paper and I think we're probably, inappropriately, tying them all to Brattleboro. But Brattleboro is one big step in the efforts that we have going forward. I really should suggest, we've got improvement efforts, cost efforts, going on in Fine Paper that we continue to work behind. And you should expect the ultimate value to be $5 million when we're done from that. And oh, by the way, our biggest flagship effort is divesting the Brattleboro facility. That's probably a better way of...

I think that's better.

Got it. Okay. And then, just also trying to understand, you had indicated that pulp would be -- if I did my math right, about a $24 million headwind this year. And that you anticipated you would recoup about 80% of that via price, and maybe mix, et cetera? And then, should we be viewing any freight escalation as above and beyond that? And then you are offsetting that though, through some of your internal actions? Is that the way to think about the input cost side?

Yes. So freight has probably had an $8 million impact to us this year.

Year-on-year.

Yes. And we've offset a couple of million of that. So for the full year, maybe $4 million in the first half, $2 million in the back, probably the way to look at that. So there's $6 million impact. The $24 million we talked about input cost, yes you're dealing with really $30 million. The difference between the 2, and why we've not pushed them together necessarily, one's more systematic, right, and one's more from a commodity movement. We have announced pricing and have activities underway. But given the implementation timing associated with those -- if you announce a price halfway through the year, you're going to get a half a year's worth of that price. That's why it will roll into '19. I want to be sure that I'm clear to say that all input costs, were going to be able to recoup through our prices and mix activities that we have in the marketplace. I wanted to give you kind of a definitive line for the fiscal year that we won't get it all done by the end of the year, but more than 3/4 of it, I think.

Okay. Understood. And just that 80% referenced, I assume that is fiscal '18 in its entirety versus fiscal '17 in its entirety, not year-end exit rates?

That's correct. That's correct.

Okay. Very good. And then on the plus side we've got Appleton, we've got Coldenhove, we've our organic growth. And then, I guess, just as that other negative we have got -- we have got the higher outage costs in the back half of the year than usual. Any other big drivers that I'm missing?

You've got the mystery guest, of tariffs. We'll call it the mystery guest because I don't know how to size that. I wanted to make sure that my tone on the call was one that we've dealt with currency change and global sales. We're going to deal with this -- it's not going to be an excuse, but it might have an impact. I also reference I think, just to have my soul cleansed here, that the back half we expect a lower currency benefit, slightly.

Right. Although, presumably with the benefit in the first half, but maybe for the full year, it's not a negative. It might even be -- well it's yet to be seen.

Yes.

Just maybe a little bit -- is there any more color you can give us on the tariffs. What are you watching closely?

I would be remiss if I didn't say I'm looking at China, right? So we sell to a lot of countries. We have a global footprint and I think that gives us an -- at least somewhat of an advantage for somebody who does not have a global footprint, at least in our Technical Products business. Our Fine Paper business that's not an advantage to that end. We don't know the magnitude 5%, 25%, but we know it's not beneficial. So that's what we're watching across here, and across our overall businesses. China, we do less than $50 million in sales in China today. So that's not a huge amount. And I don't want you to walk away feeling like it's a big bogeyman to that end. We're going to continue to manage our business in a way that, ideally, we can deal with this as an ongoing part of cost of doing business. But I -- China would be the one I'm most concerned with. Then many of the others we've got capabilities that -- in Germany and in the U.S. that have overlapping capabilities, and we'll continue to try to manage our portfolios in a way that provides the best returns.

This concludes our question-and-answer session. I would like to turn the conference back over to Bill McCarthy for any closing remarks.

Okay. Great. Well, for those of you in the New York metro area, I note that we'll be presenting at the Jefferies Industrials Conference tomorrow morning. And for everyone thank you for your time, and please feel free to reach out if you have any questions. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.