Earnings Call: Q3 2019

Oct 22, 2019

Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation Third Quarter 2019 Conference Call. My name is Shannon, and I'll be your operator for today. At this time, all participants are in a listen only mode. We will have a question and answer session at the end of the conference. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Joe DeSalvo, Vice President, Treasurer and Investor Relations. Please proceed. Thank you, Shannon. Good morning and welcome to everyone joining us on the call today. Before beginning, we'd like to remind you that statements made during the conference call may be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which cause actual results to differ materially from those expressed in or implied by the forward looking statement. Some of these risks and uncertainties can found in the company's filings with the Securities And Exchange Commission as well as in today's press release. During the discussion today, the company will use both GAAP and non GAAP financial measures. Please refer to the earnings release posted on the PolyOne website where the company describes the non GAAP financial measures and provides a reconciliation from the most comparable GAAP financial measures. Unless otherwise stated, operating results referenced during today's call will be comparing the third quarter of 2019 to 3rd quarter of 2018 on a continuing operations basis, which excludes the PPNS business that is presented as a discontinued operation. Also note that included in Attachment 8 to the earnings release issued today is an updated summary of the prior period earnings per share showing the impact of the discontinued operations. Joining me today on the call is our Chairman, President and Chief Executive Officer, Bob Patterson, and Executive Vice President, Chief Financial Officer, Brad Richardson. Now, I will turn the call over to Bob. Thanks, Joe, and good morning, everyone. I'm pleased to report that for the third quarter, we delivered adjusted EPS of $0.44. That's a 7% increase over the prior year. Our investments in recent acquisitions and sustainable solutions combined with our cost reduction initiatives continue to offset a weak demand environment. Specialty Engineered Materials led the way this quarter, growing operating income 7% highlighted by our recent acquisition of Fiber Line and new business gains in our composites portfolio. In fact, organic sales of Composite Technologies grew 8% in the quarter and operating income more than doubled over the prior year. Composites along with performance additives are 2 of our high growth technology platforms and the difference these technologies are making is reflected in our now less cyclical more specialty portfolio. With the announced agreement to divest our Performance Products And Solutions segment, We have taken yet another significant step to further establish us as a specialty company. Following the sale, 80% of PolyOne's EBITDA, will be generated from specialty formulations, and that's up from 7% from when we began our specialty journey. This latest portfolio enhancement reduces our exposure to cyclical end markets, while at the same time strengthens our balance sheet. Proceeds from the sale will provide us increased financial flexibility to accelerate growth by acquiring additional specialty technologies and investing in innovation focused on sustainable solutions. More on this strategic approach is captured in our just released Sustainability Report. It's our first ever at PolyOne and I'm going to spend some more time on that this topic in my closing remarks. To our customers, colleagues and friends in the PP and S business, we are excited about your future with SK Capital. We are grateful for we have invested in and grown this business, and it has played an important role in our transformation. As we look achieving a high level of operational excellence and of course, training and innovation. But as we look to the future, the business needs and owner like S K that will look to add acquisitions and incremental investment to help the portfolio achieve an even higher level of performance. SK has big plans for the business and customers should know they are in good hands. And we count ourselves among them as PP and S will continue to be a supplier to PolyOne and an important partner for our distribution business. Our distribution segment is having a record year from an operating income standpoint and it continues to be a cash flow generating machine. Despite challenges in certain end markets, our distribution benefits from a high degree of healthcare customers as well as engineered resins. Although sales are down, margins have improved on better mix, pricing and controlling costs. The reality is overall, macro conditions haven't changed much since the beginning of the year. Which is why I'm particularly proud of how we differentiated our performance in the quarter and demonstrated our ability to grow the bottom line in this environment. To be clear, some of this is controlled discretionary spending and increased our commercial focus on pricing and new business gains to improve mix. And this is what a specialty company does. Our most recent performance demonstrates the growing strength of our portfolio and how our investments and other strategic decisions are paying off in these uncertain times. More on this in a moment but next, Brad, will provide a segment review and go a little deeper on our performance for the third quarter. Brett? Well, thank you very much, Bob, and good morning. Now let me first start with our GAAP results. We reported GAAP earnings per share from continuing operations of $0.30. Special items in the quarter resulted in a net after tax charge of $10,500,000 compared to $500,000 in the prior year. The increase in special items is primarily related to the earn out adjustment associated with the Fiber Line acquisition. As the business's performance has been exceptional, exceeding our original expectations. To reinforce Joe's earlier comments, our results are presented on a continuing operations basis. Which excludes the PPNS segment, which is presented as a discontinued operation. Adjusted EPS for the This increase includes a headwind from a higher effective tax rate at a constant tax rate, EPS would have been up 10%. Driving the growth in adjusted EPS was Contributions from our Fiber Line acquisition, our growing composite portfolio and barrier additives continue to perform and differentiate us in what can only be characterized as a challenging economic environment. And as Bob said, we are benefiting from From a regional perspective, organic sales in Europe were down 11%, primarily due to weak demand in automotive applications and unfavorable foreign currencies. Foreign currencies negatively impacted the region's overall sales by 5%. Asia sales were down 7% as growth in the packaging end market from our barrier additive technologies was more than offset by weakness in the automotive and electronic end markets. Weaker foreign currencies impacted overall sales in the region by 2%. Still despite the top line weakness in Asia, operating income grew 11% for the quarter. Due to improved mix from our wins more known for mix improvement that drove margin expansion. But clearly, it's still a focus of ours. As exemplified by the Asia results this quarter and will continue to be. In reviewing our segments, SEM expanded revenue and operating income 10% and 7%, respectively. Strong performance from composites and North America wire and cable, along with mix improvements were able to offset unfavorable FX and weakness in Europe and Asia. Driving the mix improvement for SEM for wins in healthcare applications, where sales into this end market improved 19% in the 3rd quarter, and that follows a 25% growth in the second quarter of this year. Examples of wins and applications that are dry the steady growth include a sensor delivery device for a continuous glucose monitor. The applicator inserts a small sensor just beneath the skin, which continuously measures glucose levels, and sends the data wirelessly to a smartphone. The customer chose PolyOne because of our material science expertise in medical grade solutions and sophisticated formulations of FDA compliant medical grade polymers. PolyOne brought value to the OEM and its manufacturing network through both design and processing support. To create consistency and accelerated product development another contributor to our recent SCM Healthcare growth is the expansion of our NEU platform, which supplies formulations for catheter extrusions. These include specialty radio paint and pre colored materials as well as molded components used in intravenous, and minimally invasive therapies. These are just a few examples of how we continue to innovate for our customers and improve our portfolio Looking at our Color segment, revenue and operating income were down 6% and 7%, respectively. Weaker foreign currencies impacted both sales and operating income by 2%. From an end market perspective, Growth in Packaging And Healthcare was more than offset by weakness in transportation applications and more recently, in North American consumer applications. The packaging end market continues to be a growth story within Color as we've mentioned. Sales were up over 3% for the segment in the quarter driven by continued market demand for our barrier additives. Asia led the way in this end market with 8% growth this quarter. And at center stage was once again, our LACRA FX added this serving the expanding drinkable yogurt market. Similar to SEM, healthcare sales were also up in color growing 7% in third quarter. Recent wins include a new application for a melatonin related product, where we were able to contents. Melatonin is UV sensitive and easily degraded. Our solution met the technical requirements so well that our current was included in the patent filed by the OEM for this application. Another example including personal care product application for an existing customer who was launching a private label branded product for one of its customers. A prominent global solutions used in this particular medical class I application, we earned the business. And yet another example includes a great collaboration effort between our color and distribution teams. Our distribution team received the lead and we ultimately won the business over the competitor for a healthcare housing application. We were selected by this customer based on their speed to market requirements for a custom color design and the OEM's desire for a single point of contact. Our supplier relationships and distribution enabled us to obtain the resin quickly to then expedite the color design and sample to the customer. With an on target sample, the application was approved and immediately followed by commercial orders. Bad response and an accurate design enabled the win for PolyOne. It's also a great example of the strategic fit of our distribution business and how we can And speaking of distribution, it had yet another quarter of operating income growth. The segment grew operating income 7% on operating margin expansion from improved mix and pricing. Primarily related to gains in outdoor high performance, which now makes up approximately 8% of POD segment revenues. In the third quarter, volume was up 18% in this growing end market through a combination of new wins and expanding with existing large customers, particularly I'd also like to add to what Bob said about POD's presence in healthcare. In 2013, About 20% of segment revenues were healthcare. Today, it's nearly 30%. Healthcare is a growing point of differentiation for our distribution business and is contributing to our company's ongoing movement towards higher margin less cyclical end markets, regardless of the segment. Before I turn the call back over to Bob, I wanted to highlight the recent The latest increase reflects our track record of growing earnings over the long term and our confidence to continue doing so in the future. This cash in the same wave that we have in the past to benefit all of to deliver differentiated performance and rewarding and opportunistic share repurchases. With that, I'll turn the call back over to Bob. Thanks, Brad. Our prepared remarks today have been I'll continue. Related to our sustainability report And certainly, it does cover a number of things such as environmental, social and governance activities as we go to market. But it goes well beyond that. It demonstrates how we are adding value to all of our stakeholders and positively impacting the planet and our communities. It also provides an inspiring look forward at what's to come. For those of you who have read our 2 previous annual report, You know, we approach sustainability from the standpoint of 4 quarterstones people, product, planet and performance. The 4Ps are inextricably linked to it on another and our recently issued report provides a tremendous amount of insight into the progress we have made in each area. For example, tations are also discussed. We review some of the many leadership development, technical trainings and other educational offerings. Which work in concert to help us attract, retain and promote tomorrow's leaders today. We also address how PolyOne's formulations, in particular, will play an important part in improving how our performance additives for packaging help reduce material usage, energy requirements, and ultimately spoilage while increasing protection for food and beverage content. Many of our additives also improve recyclability of packaging, thus promoting a more circular economy. While other additives offer we offer rely upon renewable energy out locations. Our ECO conscious formulations like NYMEX utilize reclaim nylon in our formulations and growing interest among brand owners. And at the core of any polymer solution is the opportunity for light weighting, when used as a substitute material for metal, glass or wood. Our composite solutions take material replacement and reinforce to a new And in the transportation industry, this all translates to reduced carbon emissions through better fuel efficiency. These are just a few of the many product and innovation examples we highlight in our report. Again, I urge you to read the report. You will gain a deeper understanding of the growing need for our sustainability based material science. In turn, our stakeholders will see the clear alignment with our investment in each of the 4 ps. You will see the many reasons why PolyOne is in an excellent position to contribute and grow as customers adjust in real time in the changing landscape and regulations of Plastics globally. It's inspiring, and I think you'll understand why. Despite all the macro noise, we feel better about our future than we ever had before. Our specialty transformation, which began in 2006, continues with an enhanced portfolio of technologies, with operational and commercial excellence to serve customers everywhere around the world and with a unique ability now to help enable the sustainability challenges of today and tomorrow. Our near term focus is on finishing 2019 as strong as possible and with momentum. It's certainly been a choppy year in many regards, but we have grown the bottom line. And we reiterate our positive outlook for EPS growth this year and expect fourth quarter EPS to be about 10% higher than the prior year. As I said on our last call, we are managing for today, while leading for tomorrow. That concludes our prepared comments for today's call. We welcome any questions that you Your first question comes from Mike Harrison with Seaport Global. Your line is open. Hi. Good morning. Can you hear me okay? Yeah, Mike. We can hear you. Thanks. I appreciate the chance to have some questions here. I wanted to ask about the composites business. You referenced the growth rate, I believe 8% is what you were seeing there. Do you feel like if that business has slowed or decelerated at all with some of the macro uncertainty? And can you maybe comment on the pipeline of new applications that you're seeing within that composites business? It's actually been the opposite. We haven't seen slow. And in fact, I think it's been picking up as demand for those applications seems to be moving in a different direct and some of the other macro pulls. That may be because we are heavily aligned now with fiber line in the fiberoptic infrastructure build out, which will and does include 5G. But also, I think there's just a lot of demand for composites for reinforcement materials that, a number of industries are looking at. So We've seen growth from Fiber Line this year, but we've also seen growth from our legacy composites business, Mike, really all around the world. All right. And then also wanted to ask a question about your sustainability efforts you just went into some level of detail there and I look forward to looking through that report. But I know one of the issues you've been working on you mentioned recyclability. Can you talk a little bit about kind of what inning we're in in the process of making plastics more recyclable? And whether you see that being driven decision on the part of your customers where the cost of recycled resin might be lower than virgin resin? Well, I think we're in the early innings. And I really do believe that's being driven by, 1st consumer preference. And then second, a brand over a brand owner desire to serve that preference. So I think there's a lot of customer pull for sustainability initiatives. And what I love about our portfolio is that it is really going to enable that. As you know, we're not a base resin manufacturer but rather a formulator. And many of our formulations are aimed at doing just that. If it's to help use less plastic in some cases or I think what you'll see in the future is just a higher use of recycled content. And that I think has been a big area of focus for brand owners, many of whom, as you know, are stating some some public goals about where they want to be in 5 or 10 years from now. And I think that's a good thing for our portfolio. All right. Last question I have is maybe one more for Brad. Just wanted to get some guidance on the corporate segment. Wondering if that $18,000,000 number for Q3, does that reflect a full quarter of stranded costs from the PP and S business? Or maybe how should we think about that $18,000,000 number as we look into Q4 in 2020? The answer is yes. So all of the periods have been adjusted for the retained costs. So those will be part of our continuing operations. I think the 2018 was maybe a little on the low side. I would say it's going to be more like 19 to 20 on an ongoing basis. But as you know, our plans are between now and the end of 2020 would be to take about $12,000,000 out of our retained cost, and that's our plan for 2020. All right. Thanks very much. Thank you. Your next question comes from Mike Sison with Wells Fargo. Your line is open. Hey guys, nice quarter there given the difficult environment. Yes, we can hear you. Yes, so, I might have missed this. I apologize that, but in terms of your guidance, for 2019. I think you guys said fourth quarter would be up 10% year over year. I think I missed the full year, but could you give us a basis for the fourth quarter? Is that based on the $0.25 pro form a, ex PP and S? And then what the basis is for 2018? Right. It's based on if you look at the attachment date in the release that has a split of continuing ops and disco ops. So the 10% increase is using last year's fourth quarter from continuing ops. Which was $0.24, right. If you look at Attachment VIII, we fine tuned the numbers here, trying to so 24 would be our fourth quarter of 2018. Got it. Okay. And then Bob, you're getting a lot of cash here soon in the fourth quarter. Can you maybe walk us through what sort of the plans are there? I think there's press saying Clariant's business is up for sale. Is that something of interest to you? And how fast do you hope to deploy some of that cash back into either acquisitions or debt paydown, etcetera? Right. So I mean, we will immediately put, the cash proceeds to work and paying down the revolver balance. There will be some remaining cash that sits on the balance sheet, at least for the time being, with the expectation that we can put that to use Again, to support our growth initiatives going forward, I can't comment on the clearance speculation. Okay. And then last one on 2020. Can you maybe frame up how earnings growth looks next year? And in a difficult environment, just maybe walk through some of the things you can control where you see some growth and what type of earnings growth, polyone can provide given you're much leaner and generate a lot of cost savings this year? Well, I think we're going to defer our comments broadly on 2020 until we get to the end of this year and release our numbers in January. What I can say is that I believe there's still going to be strong pull for composites and sustainable solutions. I think those things will continue to see positive trajectory in the way that we have seen them play out this year. I think when we get to the end of the year, hopefully we get a little bit more clarity on some of the bigger industries and macro dynamics, primarily around auto and Asia and Europe. If I look back on this year, Those have been the two areas of, most significant demand decline that we've experienced. I don't really want to prognosticate on those 2 at this point, but hopefully we're in a better spot to do so in January. Got it. Thank you. Your next question comes from Colin Rusch with Oppenheimer. Your line is open. Thanks so much guys. Could you talk a little bit about input costs and what your opportunity is there to reduce costs over the next period of time. But then also talk a little bit about the opportunity to integrate some renewable input materials so that you end up with a bit better full cycle life with some of these products? Yes. I mean, the first thing I'd say is that we have, there have been a little bit of deflation in a couple of Again, the base resin inputs that we have. I'd say that is helping a little bit in the current period, but not as significant amount. But then of course there also are some ongoing, I say, inflation in areas like nylon. And now maybe that's just a hangover from prior year costs, but we're still seeing that up some. So if I look at a whole basket, Colin, maybe it's all down 1% or something. It's pretty close to 0. You're Next question I believe relates to what opportunities we may have for a greater degree of recycled content. And I think there's a tremendous amount of opportunity, but that has to be done in concert with what our customers want, right? So our customers need to specify I think material content that works for them. I think we're going to see a lot more pull for recycled content and we hope to support that. Okay. That's a follow-up and then I'll take offline. And then in the Specialty Materials business, the operating margins are holding kind of flat you and as you grow, what sort of opportunities are you seeing to increase or expand operating margins as you continue to grow that business? Yeah, I mean, the first thing I'd say is that, bringing fiber line in that was at a little bit lower operating margin than where we were. From a legacy perspective on EM. That's pretty consistent with acquisitions we've made over the last 4 or 5 years, as you know, and the intent is to expand that over time. So I view that actually as a good thing. So we're in good stead there, but it is influencing the year over year comparisons. Your second question on that was what with respect to margins? No, just the opportunity to expand operating margin. A percentage of that business. Right. So I mean, obviously Fiber Line and where we are with respect to composites presents a good opportunity. As you know, I mean, the legacy, composites business inside of PolyOne, to date still has a relatively low return on sales because of the significant amount of investment we've made. And so as that grows, I think that will have the greatest impact on margin improvement. All right. Thanks so much guys. Sure. Thanks. Your next question comes from the line of Ben Kallo with Baird. Your line is open. Hey, thanks for taking my questions. I guess first, maybe going back to Mike's question, just how do we think about your debt capacity, if you want to make an acquisition out there, what you feel comfortable with, following the sale of PP and S. And then number 2, just following on to the EM margin question, Could you just talk through kind of the Q over Q decline? And I think you said that's related to composite growth, but just maybe in more detail there. Yeah. I'd say, 1st of all, with respect to leverage, our view on that is conservative. We have said that for the right acquisition, we can certainly take leverage above three times. Obviously, with the sale of PP and S and cash on the balance sheet, we'll be sitting around 2. So that's pretty low from where we've been historically. To the extent that we're going above that, obviously, we've got to have line of sight to getting back down below that number, again, in the event that we do an acquisition. So I'd say our view on that is still, pretty conservative. Ben, With respect to Engineered Materials, again, I think the biggest thing that's kind of influencing things is is the addition of Fiber Line. But I would also point out that, the European auto decline in demand has sort of disproportionately impacted our EM business in that region. And that's another reason why the margins are down this year versus last year. Those are the 2 biggest reasons for that. Thank you. Your next question comes from Jim Sheehan with SunTrust. Your line is open. Thank you. Good morning. Good morning. How would you characterize your interest in expanding your existing Masterbatches business is the broader Masterbatches business attractive or are you really just focused on niche specialty areas of that market? I mean, I think the broader Master batch business is very attractive and continues to be think going to be an important enabler for sustainable solutions going forward. I mean, for example, just the use of a higher degree of recycled content for beverage packaging, for example, is going to require, I think additional color in order to facilitate that. Certainly Additives will enable it as well. But I feel very good about the overall color portfolio We have a tendency to point out, I guess, probably in the last 2 or 3 quarters. Some of the additives and specifically sustainable solutions because they've been growing this year, but, that's not to detract at all from the balance of the Master Vash portfolio. Good. And you sound pretty bullish on barrier Technologies and sustainability overall. I'm just wondering how are customers deciding what materials to use? Are they sticking with PET or are they switching more to aluminum containers? And how are you trying to balance that? Well, I think I think you are seeing some experimentation, if you will, with doing some things a little different out there from a consumer perspective. But broadly speaking, I believe consumers are still using the materials that they have historically for food and beverage containment. But where they're looking to make changes is to try to increase the degree of recycled content Certainly, there's a focus on using less overall if they can as well. And that could be thinner gauge material and or an absence of materials. So, I'd say the biggest push on material substitution is probably around using a higher degree of recycled content versus an outright switch to something different. Great. And can you comment on where you see your customer inventories? And when would you start to expect some restocking next year? Again, I'm going to defer probably comments on 2020 till we get into January and see if we've got some better clarity on that. Hopefully, we do. As I pointed out earlier, maybe to Mike's earlier question was, we've seen pretty significant pullback in auto and Europe and Asia And I'm not really don't really have a clear vision on when that actually starts to improve. So hopefully we see something between now and we report back in January. Thank you. Your next question comes from Dimitry Gozheim with Buckingham Research. Your line is open. Good morning. Thank you for taking my question guys. Just want to understand sort of on some of the economically challenged regions like Europe and Asia Pacific. What were the trends like during the quarter? In other words, were they sort of getting weaker as the quarter progressed? Or was there some level of stabilization? And then kind of how do you look within that context, on the fourth quarter kind of going beyond the earnings guidance that you provided, if we think about, sort of above the EBIT line items, where do you see kind of growth in those regions going in the fourth quarter? Yeah. I'm not sure that I would say there was, any noticeable difference between, let's say, July the other months of Q3. I will say that there's a general observation about the two regions and specifically auto They were down more in the 3rd quarter than they were in the 1st and second quarter. And that may just coincide with the time of year. I'm not sure But with respect to our estimated 10% increase in EPS in Q4, that takes that all into consideration. Okay. And then your outlook on raw materials, you mentioned that in the quarter, there were an aggregate down about 1%, so almost flat year over year. Would you expect that to get better in the fourth quarter, on year over year comps or are we sort of at the end of the the modest deflation cycle that we had in raw materials over the last year and a half? I mean, again, I think it's really difficult to ask that answer it for the portfolio in its entirety, but I'm expecting to see probably something that looks a lot like what we had in third quarter with respect to year over year changes. Maybe it starts to get a little bit better, but really that remains to be seen as the quarter plays out. At this point in time, I'm not seeing much different. Got you. And then final question, you mentioned in the press release and in your prepared remarks, seeing some cracks in domestic consumer market demand. Were you referring to any particular segments of your business or segments of the economy where those consumers in the U. S. Are slowing? I mean, I think more so than anything else is probably some. We have called it consumer, but it may be right on the edge of saying consumer electronics, is sometimes it's not a perfect signs somewhere things go into from an end market standpoint. But I'd say I'd point though that out as one area that seems to be a little bit weaker this year than it was last year. I don't know whether or not that's a tariff thing or trade thing. I don't really know. I mean, our customers say that to us sometimes, but it's really hard to determine if that's the case. For us, we focus on our new business gains and taking care of the customer. And from that standpoint, I think things are going well as they could be. Okay. Thanks, Bob. Yes. Your next question comes from Bob Koort with Goldman Sachs. Your line is open. Bob Koort. Your line is open. Please check your mute button. Good morning. This is Don Campbell on for Bob. A quick question on the color business. In first half of the year, it seems like there's pretty decent margin declines on a year over year basis. But actually improved this quarter was relatively flat in terms of margins year over year. Can you give kind of a breakdown? I think volumes still were relatively pressured this quarter on a year over year basis. So can you give me a little bit of a breakdown of what improved this quarter to make that differential between this year and last year's margins a little bit smoother? Yes. I mean, look, I think it's a combination of a number of set of actions that we've sort of felt self help here over the course of this year. There have been some cost reductions. But we've also worked on pricing and probably benefiting a little bit here from mix in the third quarter, notably around Additives in the sustainable solutions I mentioned, carry a little bit better margins than some of our other products. And I think that's really what is lending to it. So I think what you're seeing in the third quarter is really just sort of circling past where we were last year and finally seeing some benefit from those actions. Got it. That's helpful. And then for the barrier additive technologies, I think you guys said it grew 3% this quarter. How does that compare, I guess, the last handful of course. I'm just trying to get a sense of whether that's decelerating or accelerating in terms of trend there. Yes. I mean, look, we did see some stronger sales in that market in the first quarter, but I'd also say there's some seasonality effect to that and a lot of that of course is outside the U. S. So, I'm not sure I would conclude that while it is a little bit slower growth in Q3 from where it was in Q1, I'm not putting that in the alarming category. I think we'll see more as we get into a fourth quarter. But certainly customers in every industry are thinking about how much inventory they have and why and always concerned just in general about what's going on with the macro economy. Got it. Thank you. Your next question comes from Lawrence Alexander with Jefferies. Your line is open. Good morning. How much was FX as an impact on profits for Q3 and how and your thoughts for Q4? And then on Q4, the Q4 outlook, are you factoring any significant year end destocking or shutdowns by your customers? So FX, I think, was about a $1,500,000 bad guy. For the quarter. A lot of that shows up in color. Some in Engineered Materials, as you know, And I think we're going to continue to see a little bit of a headwind in that respect. It's been interesting over the last eight quarters. The dollar just doesn't seem to be or I see the dollar doing well at Euro hasn't been pulling back up where we hope that it might. With respect to destocking, I think our customers, basically are very cautious about the year and how the next year starts. And so I think they've been kind of on high alert here for a period of time. So I'm not sure if you're going to see something unusual in the fourth quarter. Typically, you do see much lower levels of inventory at the end of the year. And I really don't know if that's going to be different this year than what we've experienced last year. And with respect to the sustainability push that you were emphasizing this morning, how much of this is going to lead to a change in skill sets or hiring patterns and how much of it is just disclosing and reframing initiatives that you had already well underway? Well, one of the things I'm really, thought of what we have done is, you know, Laurence, we've added lots of commercial resources over the last 4 years. Oftentimes people hear commercial and they think sales But for us, that really has been sales, marketing and technology. And in fact, the technology increase has really been on par with sales. So it's almost been a one for one as we've added a salesperson. We've added somebody in technology. And I think that's aligned with having a greater degree of engineered complexity in the portfolio, but a lot more focus on these sustainable solutions. And that is inside the business units as well as what we sponsor at corporate from a research and development standpoint. And then lastly, are there any end markets that have longer selling cycles that we should see shift as a factor in your growth algorithm in, say, 3 to 5 years? Well, look, with respect to sustainability, particularly for food and beverage packaging, That has historically been a long sales cycle, just because of FDA and related regulatory requirements. What I do think you will see is brand owners pushing for that to happen faster. So as they look to use more recycled content or streamline our products, they'll be pushing that faster if they can. I think it will still be a relatively longer sales cycle. But I do think that's one that could actually get a little bit faster. Outside of that, I wouldn't say there's any change to how I'm viewing sales cycles today versus a year or 2 ago with health care being the longest. And some of the other, I'd say, maybe standard packaging shareholders being shorter. Thank you. Sure. Thanks. Your next question comes from Kevin Ho Kurt with Northcoast Research. Your line is open. Hey, good morning, everybody. So in Just curious, in this, you guys referenced earlier, the $1.51 in EPS from continuing operations that you highlight at the end of this press release. In the, the when you divested not the divestiture of PP and S, it was a you had $1.54 in there. So wondering what the delta is that $0.03 Delta. Is there more stranded costs maybe than you initially thought or why the slight difference in those numbers? No, Kevin, not really what you can appreciate when we had to split the PP and S out. There was a lot of work that we've done since that announcement on our overall effective tax rate for PP and S as well as from continuing operations. So the change really was associated with the tax rate. Brad, the cash generation this year has been really good. And working capital in particular looks like it's it you've managed that quite well. So Wondering what you attribute that to and, does anything reverse out perhaps in the fourth quarter? What is your outlook here for free cash generation? And do you see there are there more opportunities to drive working capital even lower? Well, I think it will. I mean, we have the normal seasonality in the fourth quarter, typically, there's further release of our working capital. As you know, this has continued to be a strong focus of the corporation. It has been for a long time and appreciate your comments on that. The free cash flow this year from continuing operations is about $135,000,000 and that fund $60,000,000 of our capital investment, which is really a large chunk of that associated with supporting the overall growth. So that's kind of what we're thinking in terms of the overall cash generation for the year. Okay, perfect. And last one for me is with the PP and S divestiture outside of the stranded costs, are there any top line synergies that you might lose between things that might be sold through the distribution business or, or any procurement synergies, anything like that outside of the stranded costs that might go away, when you lose that business? I think, Kevin, 1st of all, we have And a supply agreement that will be an ongoing part of how we work with between distribution and PP and S. It will be one of the largest suppliers that we actually represent in our line card. And I think a very important relationship for us. So I think the GM brand views that as a very good and effective way to go to market. Obviously, as a supplier that we represent, We need to work hard to make sure that they feel that way a year 2 3 years from now so that we continue to have them as a supplier. So I don't see that changing. I think we have a very good relationship. It will continue that way. I don't know if there's really an impact here on the the supply chain with respect to purchasing primarily because the underlying base resin going into PP and S run PVC, for example, is not something we use in our other businesses. So there may be some small things share in there, but nothing really to point out as significant. Okay, perfect. Thank you very much. Your next question comes from Rosemarie Morbelli with G. Research. Your line is open. I apologize if it has been asked, but I was somehow bumped out of the call. So I missed some of the comments. Do you think, Bob, that there is enough recycled material currently to supply customers should they move very quickly towards increasing that particular level? I don't. I think that's one of the challenges that the world is facing right now is that brand owners are making some pretty big statements about where they want to be in 5 or 10 years with respect to the use of recycled content. And presently, we don't have enough supply to meet those needs. So fortunately, I think we have, organization like the Alliance Stend plastic waste that's very much focused on improving the amount and degree to which we can harvest recycled content. But right now, that's a huge challenge. So with this in mind, Then we hear from a lot of large beverage companies that they are planning in switching from plastic bottles, single serve to aluminum cans and some of them have already announced that they are going to add capacity. So, if this is actually the case. How much of an impact is it going to have on your various technologies? I am assuming that a lot of that is going into those plastic bottles caps or maybe A lot of the barrier technology is going into, food and beverage applications and PET for beverages, for example, is a really, a really good place with that work. So look to the extent that somebody switched out of a PET like 20 ounce bottle and want to an aluminum can, yes, that would impact us. We are really seeing that in very small areas, the ones you've probably read about. I'd say we're getting way more pull from customers though. To actually help them continue to use PET but to do so with a greater degree of recycled content. So What I'm hearing from customers really is more of a ladder than an outright switch out of material content. Okay. Thanks. And I have two quick questions. Your EPS growth of 10% in the 4th quarter Does that include additional share buyback or is it just pure operations improvement? That's just operational improvement. Okay. And then could you remind me of the size of the revolver you are going to pay down? Rosemarie, if you look at our Q, which will be filed here momentarily, it's about $194,000,000 on the ABL right now. That will paid down. Okay. So that leaves you with quite a bit of cash in hand to Clearwave if I can use that word. All right. Thank you. Yes. All right. Thanks Rosemarie. We appreciate your question and all the others that we got today. We apologize for what seemed to be a little bit of technical difficulties on the call. We did hear everyone okay, but we know that there were some, people who were Bylistan fell off. So we're available to answer questions and take those over the course of the next day or 2 as you have them. But for now, we just say thank you for joining us on the call today. We look forward to updating you on our progress at our next regularly scheduled call in January. Take care. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.