Earnings Call: Q4 2018

Jan 29, 2019

Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation 4th Quarter 2018 Conference Call. My name is Crystal, and I'll be your operator for today. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Joe D'Salvo, Vice President, Investor Relations. Please proceed. Thank you, Krystal. Good morning and welcome to everyone joining us on the call today. Before beginning, we would like to remind you that statements made during this 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 forecast of future events and are not guarantees of future performance. They are based on management's expectations and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by forward looking statement. Some of these risks and uncertainties can be 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 file 1 website where the company describes the non GAAP measures and provides a reconciliation from the most comparable GAAP financial measures. Operating results referenced during today's call will be comparing the fourth quarter of 2018 to fourth quarter of 2017, or the full fiscal year of 2018 to the full fiscal year of 2017 unless otherwise stated. Joining me today on the call our Chairman, President and Chief Executive Officer, Bob Patterson and Executive Vice President and Chief Financial Officer, Brad Richardson. Now, I will turn the call over to Bob. Well, thanks, Joe, and good morning to everyone joining us on the call today. I am pleased to report full year record adjusted earnings per share of $2.43 for 2018, and that's a 10% increase over last year. And it marks our 9th consecutive year full. Excluding acquisitions this year, we increased our sales, marketing, R and D resources, again, by an additional 6% which helped to fuel our organic revenue growth. And businesses through acquisition, closing 2 deals in 2018 ECAP and Platts account. And we are excited to kickoff 2019 by welcoming yet another specialty company to our family. FiberLine is a global leader in custom engineered fibers and composite materials that serves the fiber optic cable Oil And Gas Industrial And Consumer Industries. It's customer 1st, specialty culture and innovative product portfolio make it a perfect fit with PolyOne. I'll talk about this and Fiber Line a bit more later. And as many of you know at our Investor Day last May, I discussed our historic past and inspired future with a goal of creating a world class sustainable organization. I emphasize the 4 cornerstones of our sustainability endeavors, people, products, planet and performance, the 4 Ps And as we reflect back on last year, it's clear we made some great contributions in each of these areas. We started the year with the announcement of becoming an American Chemistry Council, Responsible Care company, and that is a direct reflection of our safety first culture. And in 2018, we achieved the safest year in PolyOne's history with 19% fewer injuries than in 2017, Back nearly 80% of our facilities were completely injury free. Our focus on people also requires that we build a high performing diverse and inclusive company. Lead by women is 1 associate resource group, the sponsored numerous leadership development training sessions in 2018. Further, we expanded our leader ship development and training. And these are rotational programs where new associates collaborate and contribute in various roles within the company. The breadth of global experience they receive forms highly effective and diverse skill sets bolstering our talent pipeline from the bottom up. And we also continue to invest in our in house leadership with over 250 of our associates graduating from NextGen And Poly Masters helping us to truly build tomorrow's leaders today. And as a result of these and many other efforts and for the first time in our history, we were honored to be recognized as a great place to work in the U. S. By the Great Place to Work Institute. It is a significant milestone in our ongoing journey to become a top workplace. Great places to work not only take care of their associates, but also advance all 4 cornerstones of sustainability. 2 weeks ago, we announced that we joined the Alliance to End Plastic Waste as a founding member and appointed Walter Ripple to Vice President of Sustainability. Walter joined Poly-one in 2008 with the GLS acquisition and he has won our General Manager of the Year Award Twice. He's a trusted technical and customer focused leader who will advance our sustainability initiatives while coordinating our efforts with the alliance to take better care of our planet. And performance is the 4th cornerstone in our sustainability commitment and we view it as both an enabler and a result of the other 3. As I said, 2018 marked the 9th consecutive year of adjusted EPS growth at PolyOne with record EPS of $2.43. That's an impressive accomplishment that we work tirelessly to achieve and build upon each year. And we overcame some significant industry dynamics last year, including raw material inflation, rapidly increasing logistics costs and more recently, a slowdown in demand in certain end markets and geographies in the second half of the year. With the 4th quarter being the most challenging of all. Recall from our 3rd quarter statements that we said in September, we saw wakening foreign currencies, demand slowdown in Asia, and softening in certain North America end markets, namely building and construction and compliance. And we projected that if we continued to see these same trends, adjusted EPS would be flat in the 4th quarter and that's where we ended at $0.41 a share. If we go back to our comments in October, we expected the fourth quarter to be difficult for our Performance Products And Solutions segment In particular, due to the weakness in demand for appliance in building construction, and that really played out as we thought. But we also experienced a decline in demand in Europe and Asia growth slowed as well, particularly in the consumer market space. And these two factors specifically impacted our Specialty Engineered Materials segment, which reported a year over year decline in operating income. To put the European impact into perspective, in Q1 and Q2 of this year, sales were up 23% 13% respectively. 3rd quarter growth slowed to 5% and in the 4th quarter, European sales actually contracted by 5%. Now some of this was certainly currency related as the dollar strengthened over the course of the year, but even so, we did see European weakness towards the second half and this weighed on color and engineered materials. Now again, as we go back to our comments in October, We did have some things play out to the upside where we had better than expected performance. Distribution finished the year very strong as we got traction on freight surcharges and related pricing and operating income increased 13% for the 4th quarter. Composites had a very strong quarter and did very well in certain markets such as healthcare and packaging, which held up well despite the previously mentioned geographic weakness. And I'll have some more comments in a moment about what we think all this means as we head into 2019. But for now, I'll turn the call over to Brad for some more specific comments on the fourth quarter and full year. Well, thank you, Bob, and good morning, everyone. That kind of reflect on 2018. It really was a story of 2 different halves, the tale of 2 halves. With strong growth But with this reflection, let me first start with our GAAP results. GAAP earnings of $0.15 per share were reported. Special items in the quarter resulted in a net after tax charge of $21,000,000 and were primarily related to mark to market pension adjustment and environmental related costs. Adjusted EPS from continuing operations for the quarter was $0.41 flat with the fourth quarter of 2017. Color added as an ink finished the year with another quarter of growth. Expanding sales 8% and improving operating income 5% in the fourth quarter despite weakness in Europe. Ultimately, Color had an awesome year, reaching $1,000,000,000 in sales for the first time in our history. This represents a 17% increase in revenue and operating income also expanded by 14% to $160,000,000, resulting in over $200,000,000 of EBITDA. We continue to see strong demand for our barrier technologies for beverage packaging in Europe and Asia. Color sales in this end market grew double digit. The Europe Color Business did experience some slowing in the fourth quarter, particularly in the transportation and wire and cable end markets, which were down year over year. Engineered Materials also experienced weakness in Europe during the fourth quarter, primarily in the transportation end markets, as well as SEM saw softening demand in the consumer end market as Chinese consumers appear to be more cautious in discretionary spending in light of slowing economy and other influencers affecting consumer sentiments. End markets in SEM North America were more stable comparatively, including wire and cable, which steadied in the fourth quarter as we are winning new business. This is a key milestone for this end market following 2 years of weakening conditions for these applications. Our composite business with SEM is performing extremely well. Our investments in commercial resources and technological developments are paying off and drove the platform's 1st ever year of positive operating income expanding over $3,000,000 We expect And I'm happy to report that our integration of plastic comp, which we acquired in June of 2018, is off to a fantastic start. Our invested growth strategy is underway and we've more than doubled their sales funnel. Additionally, the material expertise we gained from the acquisition is helping us close previously identified opportunities. Where we couldn't fully meet the material requirements, but now we do. So for example, We are winning new business with a customer in the outdoor high performance industry to replace metal with a long fiber technology that offers design flexibility enhanced strength and impact resistance. PolyOne's track record of commercial excellence with this customer opened the door and PlasticsOM's technical know how was key to locking down this win. In short, Our enthusiasm for composites continues to grow. It's performing well now and the value and upside is only going to increase. As Bob said, Performance Products And Solutions had a very difficult quarter. Overall sales were flat, but margins were compressed due to unfavorable mix and higher raw material costs. Hollywood distribution finished the year strong. Increasing 4th quarter revenue 6% and operating income 13% as freight surcharges and other actions gain traction. All of our segments combined to generate tremendous cash flow and we finished the cash in organic growth initiatives and accretive bolt on acquisitions. The investments that have and will generate growth in the future. Quarterly dividend increase of more than 11 percent this year and share repurchases of 3.4000000 shares including 2,100,000 shares in the 4th quarter. While we are cautious about the near term outlook for select end markets, We certainly are optimistic about our future, and Bob will make some statements about our outlook. So Bob? Thanks, Brad. Again, as we look back on last year, it was a year of many accomplishments that are helping us to create a world class sustainable organization. It was our safest year on record. We were recognized as an ACC responsible care company and certified as a great place to work in the U. S. And we delivered our 9th year in a row of adjusted EPS growth. Which unfortunately suggests weaker demand conditions to continue in the near term. Our order rate for January suggests that organic sales for the first quarter will be up only slightly over the prior year. And if we include the Fiber Line acquisition, sales will be up about 3%. We think this translates to roughly flat EPS in the first quarter like a lot of companies seeing some weakness in the first half of the year. Think that the weaker foreign exchange itself is about a $0.03 headwind in the first quarter. And we do see some lower sales out of Europe. But we also see, again, continuing strength in composites and health care as well as other applications in packaging, which gives us a lot of encouragement for the upcoming year. And for all the attention the economy is getting doing quite well. Healthcare was up 8% last year. 25% of our distribution is in healthcare accounts. We have specifically invested in this end market over the course of many years. And I think as we mentioned with the results that we had in the fourth quarter, we're seeing some traction there. With OI and distribution being up 13%. Another highlight for us was in India where our team celebrated their 10th anniversary this year. We started with just a small collar master batch operation in the region and have now expanded to produce sell and innovate, color and engineered materials, as well as TPEs. And since our 2013 investment to build a new plant there, We've nearly tripled our revenues with operating margins at 20%. It really is a remarkable story. And as you heard Brad talk earlier about our packaging business, that was up 16% in 2018. Largely in part to our color offerings and design expertise. And lastly, our composites business is growing. It offers lightweighting options, replacing traditional materials with equal strength or better composites. And these trends aren't going away. They're gaining momentum and so are we. This includes engineered and coated fibers, which is an expertise of our latest acquisition Fiber Line. It will be immediately accretive to EPS and is expected to add approximately $100,000,000 revenue to our EM segment in 2019. Fiber Line is an innovative and specialty company that is doing incredible work and customized engineered fibers and composites. They primarily serve the fiber optic cable industry, and they are a leading supplier being called upon to support the build out of the 5G network structure. Fiberline products also serve oil and gas industrial and consumer end markets. The leadership team is exceptional, and the upside potential to help accelerate, accelerate the great things their employees are doing for customers is huge. This acquisition is yet another example of how we're investing in composites as a sustainable and high growth technology for our future. And to help us drive this growth, we hired a composites expert in Chris Petterson to lead the SCM segment. Chris was most recently with Hexcel, where he joined the following 15 years with Cytech. He began his career with Boeing And Aerospace where he spent 10 years after receiving a bachelor Master's degree in chemical engineering, emphasizing in composites. Innovation is at the heart of what we do, and we are not too proud to go out and acquire technology or new leaders to help us achieve the success. And when we do, we get the best. At PolyOne, we view building a world class sustainable organization as both a challenge and an opportunity. For years, we have been investing in and building a portfolio of sustainable solutions, such as barrier technologies that preserve shelf life, and help to provide food and beverage and thinner gauge designs that use less plastic. Or lightweighting solutions that replace traditional heavier materials. Breakthrough fiber colorant technology that minimizes the amount of wastewater. Generated during the customer's production processes. And we measure the health of our innovation capabilities and portfolio through our vitality index which again in 2018 was over 35%. It's a testament to our innovation capability and a sign of confidence to our customers. Add Fiber Line the prior year investments we have made to upgrade our portfolio, and we've never been in a better position to navigate the short term dynamics I just described. In doing so, we can and will continue to deliver for our customers and shareholders for the long term. That concludes our prepared remarks. We'd be happy to open Call. And our first question will come from Mike Sison from KeyBanc. Your line is open. Hey guys, nice quarter. Bob, in terms of your outlook for 2019, acquisition momentum is increasing here. How much earnings growth can you get from acquisitions this year? And then how much growth can you get on an organic basis? Yes. I mean, with the start of the year, obviously, being as uncertain as it is, it's really challenging to predict that for the full year. We are excited about fiber line, which we think can add $0.02 to the bottom line. And of course, we bought back 2,000,000 shares in the fourth quarter of last year, which helps us as well. The real unknown here, I think, is just some of the weakness we see in these end markets and geographies like Europe. Okay. And then just a quick follow-up on Performance Products Solutions. Margins have improved well over the last couple of years. And when you think about the decline you saw in the fourth quarter, how much of that do you think is structural versus just you can overcome that as 2019 and beyond unfolds? Yes. I mean, look, as we start the year, we do so, 1st of all, looking back on the fourth quarter and say, it really makes hurt us quite a bit with appliance being down as much as it was. As well as building construction being weak. Sales were roughly flat as we offset that with some lower margin contract manufacturing business. But going into 2019, I think there's an opportunity for margin expansion here, Mike. And I think we can do that with a little bit of recovery in 1 or 2 of those end markets as well as hopefully a better traction on pricing. Great. Thank you. Yes. Thanks. Thank you. And our next question comes from Frank Mitsch from Fermium. Your line is open. Hey, good morning folks. Bob, if I could get a little more granular with respect to the 3% organic sales growth in the fourth quarter. Can you talk about how the pace progressed through the quarter and you're forecasting 0 organic growth in Q1. I mean, are you expecting, I'm just trying to get a picture of the shape in my mind as to how that is progressing. In terms of how we did in 4th quarter and what your expectations are here in January. With respect to the progression question, are you asking that about the fourth quarter? Yes, sir. All right. And then go into the first, sure. Look, as you know, coming out of September, September was very weak and sales were down. October was a little bit better than September, but probably only 1% or 2%, if you will, versus where we were in 2017. So the months effectively, played out kind of like we thought, which was roughly flat with what we saw in our Tober. The only thing that I'd say, kind of weighed on 4th quarter results more than we expected was the decline in Europe. Which we also believe really was primarily associated with the auto industry, which made December weaker than October November. So as we stand here today and we look at the order rate for January, organically, sales are up about 1%. If we add acquisitions, they're up about 3%. And that's inclusive of that currency headwind that we said, which is about $0.03 in the first quarter. A little early to say what Marsh looks like. As you know, in our quarters, March has a tendency to be a strong month, but right now we've got ability probably end of January February. Got you. Got you. And as I you look at the year over year 28 as a full year versus 2017, obviously margins off a bit. You've obviously been making some progress in terms of price for the higher raws earlier in the year. Where do we stand on that interplay between your ability to raise prices versus raws and expectations for for margins. Yeah. And so I obviously, we saw some really good progress on the distribution side and I think that gives us more I'm going into 2019. We've had really a very good year all year long with respect to color there is some weakness in PP and S that we project to continue here in the near term. Look, as I kind of shaped things up, it's, look, as you know, it's challenging to try to forecast, what we see beyond our current order rate I think with strength in composites, with strength in healthcare, like we're seeing, and if packaging holds up there's an opportunity to meet or beat last year's EPS in the first quarter. We've just got some big challenges to overcome on currency in Europe. Got you. Very helpful. Thanks, Bob. Thank you. Thank you. And our next question comes from Colin Rusch from Oppenheimer. Your line is open. As you think about the European auto opportunity in the composites business, how big an opportunity is there for replacement? And how soon might we start to see those products roll through? Well, look, for the most part, the investments that we have made in composite of the North American base. These are the businesses that we've acquired and where we've innovated. And so as part of our strategic plan, we have, huge opportunity to expand that outside the U. S, which includes European auto. Presently, we're not doing very much at all with respect composites in European auto or Asia for that matter. So I kind of view that market as wide open column. Okay. And then from a timing perspective, is that kind of a 12 month, 24, 36 month opportunity, or is it beyond that? No, I mean, I think that's a pretty long sales cycle if you think about getting into next generation up plans and platforms for the automotive industry, where we have had outstanding traction and composites to date as been in outdoor applications as well as, in industrial and now growing in some of these fibers for wire and cable applications. So fortunately, there's a huge growth opportunity that exists outside of automotive, and that's where we've been capitalizing on for the last year or 2. Okay, that's super helpful. And then just with the new sustainability role, can you talk a little bit about what how much of that time is going to be on operations and how much of the time is going to be really focused on business development opportunities and sustainability from leveraging the technology platform that you guys have? Yes. So most of Walter's time is going to be focused on, the portfolio of sustainable solutions that we have and leveraging that to help drive growth and support our customers who are all looking for ways to take material out of packaging, for example, is probably the best area where, Walter can be of help. As well as the on the initiatives to, participate in programs like Alliance to End Plastic Waste. So got a team of folks that are dedicated, as you know, to improving operations here, Great Lean Six Sigma Program, awesome safety, culture and all those things, which are being run by them. So I really view Walter's focus being on, again, sort of the portfolio of the products we sell and these alliances we're creating in the industries. Great. Thanks so much guys. Our next question comes from Mike Harrison from Seaport Global Securities. Your line is open. Hi, good morning. Hi, Mike. Good morning, Mike. Bob, I was wondering if you could talk in a little more detail about the PP and business, the sales were flat. What was the volume and pricing breakout? And can you maybe talk about, how the destocking is progressing in building and construction and maybe are there areas that we're offsetting the weakness that you're seeing there? Yes. From an end market standpoint, appliance was down significantly. It was down about 16 percent in the fourth quarter for us. Building construction was down about 2 or 3, but building construction is a bigger end market that we serve there. So that has kind of an all but a larger effect. Now some of that business was offset, as I mentioned, by lower margin contract manufacturing to kind of put almost volume into a push, if you will, but margins were impacted by that being, again, dealer serious to the fourth quarter. So that's kind of how that played out. Mike, with respect to that, plus we had some raw material inflation in the fourth quarter. All right. And then on the composites business, can you give us an update on where we are in terms of profitability And maybe what your expectations are for OI contribution in 2019? Yes. So overall, we, I think we generate $3,000,000 of additional operating income this year from composites, which puts us into a positive territory. Think we really crossed over that in, towards the end of the second quarter of this year and we've been there ever since. And with the growth rate that we have and projects in place. I see that continuing into 2019. I know that those sound like small numbers and they have, But, with all the investments that we make, I think there's a huge leverage equation here and a really good opportunity for us in 2019. All right. Thanks very much. Yes. Thank you. And our next question comes from Bob Koort from Goldman Sachs. Your line is open. Good morning. This is Dylan Campbell on for Bob. I just want just want to go a little bit deeper on kind of margin and raw material discussion. We've seen a couple of the your key raw material polyethylene, polypropylene or TiO2, pricing start to come in. Can you talk a little bit about your ability to hold on to price when raw materials are declining? I mean, historically, if you look back over time, was done very well in that environment. As you know, we've had some frustrating times as well with respect to In some cases, pricing not keeping pace with inflation, but I think that if raw materials do pull back and we see some easing there, there's a real opportunity for margin expansion. And so I think that's an opportunity for 2019. Thanks. That's helpful. And you mentioned earlier that freight charges and distribution is starting to gain traction. Can you give a little bit of color in terms of heading into 1Q 2019, how much benefit is left over to gain from freight charges or pass due to freight charges? I think if you look at, sort of how the fourth quarter played out against itself last year, That probably gives you a good indication, the kind of momentum we have going into 2019. Again, in terms of benefit on pricing, I think that will hold in the 1st part of the year. Those price increases really went into effect in the middle of August of this last year. So I've got our expectation. That's a good guy for us in the first quarter. Except for the fact that we continue to see logistic costs be a challenge for us. So to the extent that they go up, we may have to increase those surcharges. Got it. Thank you. Thank you. Our next question comes from David Katter from Baird. Your line is open. Hi, guys. Thanks for taking the question. One more here on raws. You talked a little bit about the trend heading into next year. Which ones are you focused on specifically that may come in more than others? Or which are you particularly constructive on? I mean, for us, if I look back on the last couple of years, there's no doubt that nylon pricing has probably been one of the biggest challenges we've had, particularly inside of our Engineered Materials platform. So we will be watching that closely, maybe with some ease to that one. I'd say that's at the top of the list. But obviously, if you look across the board, look, We are a formulator and we formulate around base resins. We don't make those, but they're a big part of the input costs on the carrier side. So polyethylene, polypropylene, etcetera. Big factors too. Great. That's all I had. Thanks guys. Sure. Thank you. Our next question comes from Laurence Alexander from Jefferies. Your line is open. Good morning. Good morning. Good morning. First one is, on the Engine Materials business, How do you think about lapping the timing of lapping margins on a year over year basis before the impact of acquisitions and what the impacts of the acquisition on the margins on the segment margins for 2019 And then secondly, you mentioned the pace of new hires in training in 2018. What are your targets for 2019? And I don't know if you have it yet for 2020, but how are you thinking about expanding the technical sales force? Yes. So I mean, with respect to, margins for Engineering Materials, I would say that with what we see right now, they'll be down in the first half of the year. A lot of that actually being driven by this weakness that we're seeing in Europe right now. On our underlying business, I do think we're making on our line business and markets outside of that. I do think we're making traction with pricing and seeing opportunity there, but it's probably in the middle of the year before you see that on a stated basis increasing. Next with respect to those investments, look, We have, I think we have invested a lot over the last 4 years in sales, marketing, and technology. And as we've said every chance we had the opportunity to last year, we also want to do a better job becoming more efficient with the resources that we That's going to be a primary focus for us. I expect that we'll continue to invest in those resources over the course of 2019. But probably with a heavier focus on technology and sales than the other areas. Okay. Thanks. No. Thank you. Our next question comes from Rosemarie Morbelli from G. Research. Your line is open. Thank you. Good morning, everyone. Good morning. Hi. Bhavan, I was wondering if you could give us a feel regarding building and construction. Is this slow down mostly weather related or do you actually see a longer, type of secular issue? I mean, obviously, there's a lot going on right now with respect to interest rates and concern about people having us to cash in the same way that they once did to buy homes. So that's probably playing a factor there. I wouldn't cite the weather don't think that we saw that in particular. Others have mentioned it. And there may have been some destocking that took place in the fourth quarter just with respect to on hand inventory levels. So, that really remains to be seen. Usually the first half of the year is the strongest. And right now, it's starting out weak. So we'll see how that plays out here in the next few months. Okay. And when you are talking about destocking, in your mind was in the 4th quarter, was it larger than usual or more or less in line And is it continuing in January? I mean, some companies and especially in Europe have taken long vacations. I am not sure they are back in January quite yet? I mean, look, when we saw the results in September, I would say that was probably the steepest to line of what we saw in the year. And then things never really picked back up in the fourth quarter. So I don't know that I would say that Q4 was like that the pace of it increases the quarter went along. But I just think flat out of our customers are really aware of how much working capital they have in line. I must be very cautious as they start this year. So I don't see January as a further reduction, but perhaps an absence of an increase for a better explanation. Thanks. And if I may ask one other question regarding Maybe you could share a little more details on the alliance working on ending past equates. I am assuming that translates also into selling less plastic in addition to recycling. Could you give us a feel for the impact, the potential impact on polyone? Yeah. Look, I think it's all of the above. And, look, we're really excited to be a founding member of this alliance, there are obviously some really big name companies that are in there as part of that that have helped to create the organization. We're proud to be a member organization with them. I kind of view that the Alliance mission as having a couple of different missions. One of course is just to simply help, expedite an outreach program to clean the waters around us and the land in which we live. I mean, we, I think can lend a helping hand to help do that cleanup. And so there's going to be infrastructure projects that are invested in to do that. But then the next level, of course, is being more innovative with respect to how we get perishable beverages, food, etcetera, to people in this world with less material. And candidly, that's been a sustainable solution of ours, for years, right, which is I look at what our color matrix offerings have. So with respect to oxygen, carbon scavenging, added to use lighter weight materials that plays right into what we do. And, it's a big reason why we've never been obsessed about the volume game. We're obsessed about revenue and margins. And I think there's an opportunity here with respect to the portfolio of sustainability solutions to do just that, even if it is less pounds. Thank you. And our next question comes from Dimitri Silverstein from Buckingham Research. Your line is open. Just trying to understand a little bit, as sort of your comments on inventory and customer potential destocking. You talked about the possibility of raw materials declining in the back end of the year. If we if you have not seen destocking in the fourth quarter or not seeing first quarter. Do you expect your customers at some point to start lighting out their inventories in preparation for lower prices? Maybe towards the back end of 2019 or 2020? Or is this sort of it's the risk that you take every quarter or every year and you're not really that concerned about it 2019? Yes. I don't know that it's going to play out any different than it has in the past. And customers, Look, it depends on what they're buying from us. If it's a distribution customer and, the pricing really is pass through from what our supplier said, you can sometimes see those types of moves where people are trying to buy ahead or delay. I don't see that impacting Color Engineered Materials really at all. I think what's going into those markets is being bought as it's needed when it's needed. And I don't think that there was such a move or change in inventories related to those that it makes 2019 appreciably different than what we've seen in past years, Dimitry. And candidly, what we see with distribution right now is pretty good momentum. So I think that's a positive sign. Absolutely. So would you say that to the extent that any sort of destocking or slowdown has happened that it's more in preparation for a slower growth environment expectation rather than lower pricing expectation? I think that's fair. Yes. Okay. And then just trying to understand your comments around the composites profitability. So it was composites did a $3,000,000 more EBIT this year than last year or in 2018 and for 2017, which put them in a slightly positive EBIT for the year. And you expect that pace to continue. So if I read this, sort of it sounds to me like you're kind of expecting mid to high single digit millions of EBIT from this business in 2019. Is that the right way to think about that? If I were using terms like low, medium and high, I would probably use low to medium. Or low to mid, if you will, on their profitability level, having just sort of gotten past that breakeven point. But look, we got $100,000,000 of our $100,000,000 of composites business today. And I think the leverage is really big on that. So even if we get to medium, that's still a good increase in 2019 over 2018. Sure, sure. Okay. And the last thing I was just going to say is I know we're really excited about composites and I think there's a really good revenue growth opportunity in 2019, despite what's going on with the economy. Got it. So that could actually help you with the overall growth. So that's great. And then final question, both Materials and the collars and additives saw, what I would call a widening of the year over year negative belt on margins. Is that just the case of demand in Europe falling off basically in some of these end markets you mentioned, not an earlier reflection of raw material doing something different? Almost entirely about what happened in Europe. It really was. And like I said, I mean, Europe was down 5% for us in the 4th quarter and that's our most profitable region. So that really is a story on margins for those 2 businesses in that quarter. Got it. Okay, top that's it. Thank you. Yes, thanks. Thank you. Our next question comes from Jason Rodgers from Great Lakes Review. Your line is open. Yes. I wonder if you could discuss any change in the competitive environment you might be seeing, given the current end market weakness? I'm not sure that I've seen anything out of the ordinary or unusual. If I look back on 2018, I mean, it was a year of such sort of significant inflation and freight costs increasing. It felt like everybody was experiencing the same type of things. If I went back to 2017, I probably had some more for us strations around the competitive dynamics and not seeing competitors trying to go out aggressively as we were, but I really felt like 2018 was a better year for that. And right now, I think it's probably the same. I think with a year behind us candidly and seeing all this inflation, people realize that that's year to stay. What we're really trying to get our arms around is the demand side of the equation. And are you planning on maintaining the same level of investment in sales and marketing research resources this year that you did in 2018? Well, one of the things that we got was Fiber Line brought in, a new set of folks. And so we'll think about incorporating them into our commercial resources first. And as a result of having them on board, we may not have to hire at the same organic pace that we have. And also as I mentioned, maybe a few moments ago, we're really driving hard towards increasing efficiencies for the resources that we have added where it's not so much about just adding people for the sake of adding people, but candidly driving more sales dollars per associate. So it's a balance there. I think the headcount will go up this year, but it may not be at that 6% pace. And I know you don't give full forecast for the year, but just given the comments around the first quarter is a double digit EPS growth off the table for 2019? I think that there's a lot to be seen with respect to what happens from a demand perspective, as the year plays out, and it's really too early to answer that question. One of the reasons why we don't try to. Look, as I was answering questions about the first quarter or even giving some preliminary comments on that, There are certainly things that our weaknesses from a demand standpoint and foreign currencies a headwind Well, we got some really great traction in health care and composites. We bought back 2,000,000 shares in the 4th quarter And there's an opportunity to meet or beat last year's EPS numbers early as the first quarter. And I think if we can get there, That's a good sign for us to get to double digits this year. All right. That sounds good. Just a numbers question. CapEx, and tax rate estimate for 2019 that you might have? Thank you. Percent in 2018. I think that's a good placeholder for 2019. As we look at CapEx, certainly, if you look at historically, the last few years, we've been spending about $75,000,000 a year. We certainly have good long term growth, and we're looking at some additional capacity in order to be able to support that growth. In particular in Asia. So I would think next year, excuse me, 2019 would be maybe more in the neighborhood of $85,000,000. All right. Thanks again. All right. Just one more question. Thank you, sir. Our final question will come from Jim Sheehan from SunTrust. Your line is open. So you clearly bought some more shares in the fourth quarter than usual, probably given the share price weakness Can you talk about how you view the share buyback opportunity going forward? Would you tend to be more aggressive with valuation where it is right now or would you try to space that out more evenly throughout the year? Yes, I think it's We never give any specific guidance on how we're going to be buying back shares. You are correct with what you said about the number of shares we bought back in the fourth quarter and why, I mean, that's spot on with respect to where the share price was. Obviously, with the acquisition that we just completed with Fiber Line consuming $120,000,000 in cash, we always try to take that into consideration as well. So we'll see how the year plays out with respect to M and A opportunities and Cali probably just have more to say about that when we get to the end of the first quarter. Great. And you highlighted weakness in your transportation end market. Could you just parse out how much of that was automotive versus RV and outdoor type of transportation? Yes. For most part, that was, automotive. So we really were commenting on that when we said If we said broadly transportation, we really met auto. Thank you. Yes. Okay. Thanks everyone for joining us on the call today. We appreciate your time and attention. Look forward to updating you following our next call after ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.