Matthew K. Juneau - Albemarle Corp. Scott A. Tozier - Albemarle Corp. Luke C. Kissam - Albemarle Corp. Silvio Ghyoot - Albemarle Corp. Joris Merckx - Albemarle.

Robert Andrew Koort - Goldman Sachs & Co. Matt Andrejkovics - Morgan Stanley & Co. LLC David I. Begleiter - Deutsche Bank Securities, Inc. Christopher J. Kapsch - BB&T Capital Markets Mike Ritzenthaler - Piper Jaffray & Co Michael J. Sison - KeyBanc Capital Markets, Inc. James Sheehan - SunTrust Robinson Humphrey, Inc.

Michael Harrison - Global Hunter Securities Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management).

Good day, ladies and gentlemen, and welcome to the Quarter Two 2015 Albemarle Corporation Earnings Conference Call. My name is Matthew, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

As a reminder, this call is being recorded for replay purposes. And now, I would like to turn the call over to Mr. Matt Juneau, Senior Vice President of Corporate Strategy & Investor Relations. Please proceed, sir..

Thank you, and welcome, everyone to Albemarle's second quarter 2015 earnings conference call. Our earnings were released after the close of the market yesterday, and you'll find our press release, earnings presentation, and non-GAAP reconciliations posted on our website under the Investors section at www.albemarle.com.

Joining me on the call today are Luke Kissam, Chief Executive Officer; Scott Tozier, Chief Financial Officer; Silvio Ghyoot, President-Refining Solutions; Joris Merckx, President-Chemetall Surface Treatment.

As a reminder, some of the statements made during this conference call about the future performance of the company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release. That same language applies to this call.

Please also note that our comments today regarding our financial results exclude all non-operating or special items. Reconciliations related to any non-GAAP financial measures discussed may be found in our press release or earnings presentation, which are both posted on our website.

With that, I'll turn the call over to Scott to discuss our second quarter results..

Thanks, Matt, and good morning, everyone. I'll start by discussing the quarter at a high-level and then cover some P&L and balance sheet details, and then close by reviewing the performance of our three GBUs in more detail.

Following that, Luke will discuss progress against our key strategic objectives, and close our prepared remarks by updating the outlook for the rest of 2015. To start, the key take away from the second quarter is, we delivered on all of the operational commitments we made at the beginning of the year and that were affirmed in our first quarter call.

We are on track to meet our expectations for the year. The second quarter performance of all three of our core GBUs was in line or better than our expectations at the beginning of April.

On a constant currency basis with 2Q 2014, these GBUs delivered sales growth of 7%, and adjusted EBITDA growth of 10% in the quarter lead by Performance Chemicals, which delivered double-digit growth in both sales and adjusted EBITDA.

At a total company level, including the three businesses targeted for divestiture, net sales in the quarter totaled $931 million, down 3.7% from 2Q 2014, with adjusted EBITDA of $230 million, flat with last year. Adjusted EBITDA margins of 25% were up slightly.

Excluding the impact of foreign exchange, sales and adjusted EBITDA would have increased by 3% and 5% respectively. The second quarter results demonstrate the strength of our core businesses with three GBUs delivering adjusted EBITDA margins of 30%, up from 29% in 2Q last year.

Our synergy program contributed to these improved margins as most of the new synergies achieved in the quarter were in areas directly related to our GBUs. Performance Chemicals adjusted EBITDA increased by over 24% versus 2Q 2014, with our bromine and lithium businesses driving most of the increase.

We also benefited from a large bromine related order moving up to 2Q from 3Q. Chemetall Surface Treatment results were similar to both 1Q 2015 and Q2 2014, despite significant FX headwinds.

While down versus 2Q 2014, Refining Solutions performance improved sequentially, as heavy oil upgrading or FCC catalyst returned to more typical levels of volume, revenue, and profitability.

However, results in Clean Fuels Technology were again negatively impacted by delayed change-outs, cost-cutting initiatives by refineries due to low oil prices, weaker product mix compared to 2014, and increasing competition from euro-based competitors and US dollar denominated markets.

Essentially, as you look at the total company, the increased earnings in the second quarter over the guidance we gave in early May were due to the shift in the timing of the bromine related order from the third quarter to the second quarter.

The end result is no change for the full year, but a shift in earnings from the third quarter to the second quarter. Now, I'll turn to some detailed P&L and balance sheet items. As a reminder, all year-over-year financial comparisons are based on pro forma 2014 results, as shown in the April 8-K, to facilitate a cleaner comparison.

Overall, for the second quarter, we reported all-in diluted earnings per share of $0.46 or $0.84 per share excluding special items. There are a number of one-time special items during the quarter, and the largest of these related to the Rockwood acquisition. The inventory step-up resulted in a $0.25 loss per share.

One-time acquisition and integration costs resulted in a $0.15 loss per share. A full reconciliation of these items is in the press release.

We now expect our effective tax rate, excluding special items, non-operating pension and OPEB items for 2015 to be about 27%, somewhat higher than prior expectations due to changes in the geographic mix of our revenue.

The tax rate, along with an estimated increase in depreciation and amortization related to the acquisition, will negatively impact earnings per share by $0.03 to $0.05 per share for the full year.

With the commissioning activities underway at our La Negra lithium carbonate expansion in Chile, we now have more certainty on capital expenditures and reaffirm that they will be fractionally over 6% of revenue in 2015.

Working capital was somewhat behind our target at the end of June at 26% of sales, partly driven by a strong month of June sales, which increased accounts receivable at the end of the quarter.

However, our full year expectations are unchanged as we are maintaining gains that Albemarle made in 2014 and increasing focus on working capital management in the former Rockwood businesses.

Putting all of these pieces together, free cash flow, defined as cash flow from operations, adding back pension contributions, and subtracting capital expenditures, was at $217 million through June, excluding one-time synergy, acquisition and tax-related costs.

While free cash flow may appear slightly behind our full-year targets, this is simply a result of the elevated working capital at the end of 2Q, as I already noted. And we remain on track to reach January guidance of $450 million to $550 million before those one-time costs.

Free cash flow including these costs is now expected to be between $150 million and $250 million, as some of the cash tax payments related to the acquisition are scheduled to be paid in the first quarter of 2016. At the end of the second quarter, Albemarle's net debt-to-EBITDA ratio, as measured by our bank covenants, was 3.6 times.

Our year-end projection of 3.7 times to 4.0 times prior to any impact from divestitures remains unchanged from the first quarter. And finally, exchange rates, especially against the euro and the Japanese yen, have continued to have a significant impact on our comparisons to 2014.

Based on year-to-date results and updated ranges of $1.07 to a $1.11 for the euro and a ¥122 to ¥127 per U.S. dollar, we still expect a negative year-over-year adjusted EBITDA impact of $50 million to $60 million for the full year, with approximately $26 million of that impact already felt in the first half of the year.

Now, let me turn to the business unit performance in the second quarter. Before I address the three GBUs, note that the three businesses planned for divestiture, both Mineral and Metal Sulfides performed in line with expectations from the beginning of the year. But Fine Chemistry Services was down significantly versus 2014.

Refining Solutions reported second quarter net sales of $165 million and adjusted EBITDA of $48 million with margins of 29%. On a constant currency basis, sales and adjusted EBITDA were down 16% and 26% respectively, versus 2Q 2014.

However, compared to first quarter, adjusted EBITDA increased by 14% with adjusted EBITDA margin improving by 500 basis points.

The year-over-year decline was driven entirely by Clean Fuels Technologies, which continues to struggle with delayed change-outs, cost-cutting initiatives by refineries in the current low oil price environment, and a weaker product mix driven by fewer first fills in 2015.

In addition, we are seeing increased competition from euro-based competitors in markets where sales are made in U.S. dollars. Heavy Oil Upgrading, or FCC business performance, met our expectations with volumes, revenues and profitability returning to more typical levels after a weak first quarter due to a number of customer trials.

We ultimately retained all of this trial volume, obtaining multi-year contracts with good pricing, reflecting the value of our catalysts.

While these trials impacted first quarter of 2015 profitability, we saw sequential 2Q growth, and we continue to forecast growth in Heavy Oil Upgrading for the full year, with even stronger year-on-year adjusted EBITDA growth now anticipated and compared to our first quarter outlook.

With the weakness in Clean Fuels Technologies expected to continue, our forecast for Refining Solutions GBU is now weaker than at the end of 1Q, with full-year EBITDA expected to be down roughly 20% versus 2014.

Performance Chemicals had an outstanding second quarter with net sales of $437 million and adjusted EBITDA of $149 million, and margins of 34%. Compared to 2Q 2014, net sales were up 10% and adjusted EBITDA was up 24%. On a constant currency basis, results were even stronger, with net sales up 16% and adjusted EBITDA up 30%.

All three businesses in Performance Chemicals contributed significantly to earnings growth in the quarter. Lithium sales were up 9% with adjusted EBITDA up 26% compared to the second quarter of 2014. EBITDA margins were 43%.

The primary performance drivers were volume growth in battery grade products, increased pricing in battery grade and other lithium products and the impact of the Talison joint venture. We continue to be bullish on the outlook for battery grade products.

The portable electronics market continues to grow at 10% to 12% annual rates, and global battery electric vehicle sales have increased by more than 30% year-to-date. Our sales growth in battery grade products has been consistent with these trends. Overall, the business continues to meet our expectations, and we expect the positive trends to continue.

Underscoring our confidence in the growth of battery grade products, we have begun commissioning the new La Negra battery grade lithium carbonate plant and are moving to the next phase of planning for a world scale battery grade lithium hydroxide plant based on direct conversion of spodumene from the Talison joint venture in Australia.

Our bromine-based business had a very strong 2Q with sales up 15% and adjusted EBITDA up 31% compared to 2Q 2014. Adjusted EBITDA margin improved to 31% compared to 27% in 2Q 2014 and 28% in 1Q this year. These numbers clearly highlight the incremental earnings power of our bromine business.

We saw both sequential volume and price movement in our flame retardants business, improved pricing in our industrial bromides products and benefited from a large sale of methyl bromide for an agricultural synthesis application. This order was similar in size and profitability to an order we supplied in the third quarter of 2014.

In fact, we had forecasted this order in the third quarter this year as well. But the customer needed earlier delivery. Finally, our clear completion volumes in the quarter held up okay, driven by demand in the Gulf of Mexico as the rest of the world continues to be weak.

Given this strong 2Q, we now expect modest year-on-year adjusted EBITDA growth in bromine, a significant change from the beginning of 2015.

We continue to gain pricing traction and are pleased with the modest flame retardants volume growth, but the 2Q timing of the methyl bromide sale in 2015 and a weaker outlook for clear completion fluids in the Gulf of Mexico compared to the first half of the year will result in more difficult sequential comparisons in the second half.

Still, the stabilization of the business and overall improvement versus 2014 is very encouraging. Finally, Performance Catalyst Solutions, which also includes Curatives for reporting purposes, had another strong quarter with both our Catalyst and Curatives businesses performing well.

Adjusted EBITDA was up 9% compared to 2Q 2014, driven by strong Curatives volumes and pricing. Order timing, some one-time business and seasonality in Curatives will likely lead to a somewhat weaker second half in this business. But we now expect double-digit year-over-year growth, which has markedly improved from our initial flat outlook for 2015.

Chemetall Surface Treatment net sales were $213 million, with adjusted EBITDA of $48 million, resulting in margins of 23%. On a constant currency basis, sales and adjusted EBITDA were up 14% and 9% respectively, compared to 2Q 2014.

All key end markets are showing solid growth compared to 2014, with automotive, coil, aerospace and aluminum finishing leading the way. We're seeing growth in all regions, with Asia-Pacific, where we benefited from the buy-out of our Shanghai joint venture and North America, particularly strong.

Growth was modest in the European region as weakness in Eastern Europe and Russia along with foreign exchange impacts reduced overall growth. Based on our current outlook and the order book for the business, we expect an even better second half of the year, in line with prior expectations.

Now I'll turn the call over to Luke to discuss progress against our key strategic objectives and to update our full year guidance..

Bromine, Lithium and Performance Catalysts Solutions that make up Performance Chemicals. However, sequential comparisons could prove challenging for bromine due to the second quarter methyl bromide order that Scott highlighted and the expected weakening in clear completion fluids demand for the rest of the year.

Similarly, PCS faces tough sequential comps for the rest of the year related to the benefits from order timing in the first half of 2015. Nevertheless, we expect Performance Chemicals' adjusted EBITDA to be up by double-digits year-on-year excluding currency impacts.

Given the increased pressure on the Clean Fuels Technologies, our HPC business, our outlook for Refining Solutions has weakened since the end of the first quarter. However, Heavy Oil Upgrading or FCC continues to deliver outstanding results with strong year-over-year growth expected based on strong demand and a favorable pricing environment.

Chemetall Surface Treatment continues to perform very well and as Scott noted, we expect even better results in the second half of 2015. Based on the second quarter results and our expectations for the rest of 2015, we now project full year EBITDA between $940 million and $1 billion.

On an earnings per share basis, we are affirming our annual guidance of $3.65 to $4.05 per share in spite of the $0.03 to $0.05 earnings per share headwind due to the higher tax rate and depreciation that Scott discussed. In closing, through the first half of 2015, Albemarle and its employees are meeting our commitments.

Our businesses are overcoming significant headwinds and delivering outstanding results. Both our total adjusted EBITDA and our margins underscore the strength of our three GBUs. We are operating in a disciplined, consistent fashion with a focus on managing what is within our control.

We're effectively managing costs, capital spending and working capital and creating new savings through synergies.

We're creating new platforms for growth as evidenced by the commissioning of the new battery-grade lithium carbonate plan in La Negra, the performance of our Talison JV and the acquisition of our partner's shares in the Chemetall JV in Shanghai. Finally, the divestitures of our non-core businesses are on track.

Overall, we expect more of the same from our organization and our businesses in the second half of the year as we build on our industry-leading Specialty Chemicals platform to deliver superior returns to our shareholders over time..

Operator, we are ready to open the lines for Q&A. But before you do so, I would remind everyone to please limit your questions to two per person at one time, so that everyone has a chance to ask questions. Then feel free to get back in the queue for follow-ons, if time allows. Please proceed..

Thank you. And your first question comes from the line of Bob Koort of Goldman Sachs. Please proceed..

Thanks. Good morning, guys..

Hey, Bob..

Luke, I think it's probably human nature to sort of pick on the business that's not doing as well since – you seemed to do pretty well on some of those other business where they were concerns but the HPC business appears to be struggling, I think. Scott mentioned low oil prices causing challenges.

I guess I was thinking maybe crack spreads are more important to the health of the refining industry.

So can you talk a little bit about why you haven't seen a better response, given that refinery margins are actually reasonably healthy right now?.

Yeah. I think, it's a couple of things and Silvio may have some more details. Let me just talk at a high-level, Bob. I think crack spreads are more important, but I think if you look at the announcements that you've seen from the big intergraded's like Exxon, Chevron, BP, they are really looking to cut their costs anyway that they can.

In addition – so they are looking for costs everywhere. Maybe that's a cheaper catalyst, maybe that's running the catalyst that they have a little bit longer. The second thing is, they are not having to run as hard because there's a big supply out there of the refined product that greatly exceeds demand.

So when you look at the cost cutting initiatives that they are seeing and when you look at the – how the operating conditions are lighter, the catalysts are just lasting longer and then when they're switching out, sometimes they're switching out a cheaper catalyst.

Silvio?.

I agree with that Luke, and like you said, that overall it's the demand of HPC, that volume that is lower than we had expected. And that, driven by the fact that the refiners see opportunities to delaying change-outs, to use weaker mix or even going to the extent of not using fresh catalyst, and using recycled materials.

And all that adds up that the overall demand is lower than expected..

And then if I could follow up, my second question on the Heavy Oil Upgrading part, you mentioned retention of all your customers that had trialed.

Should we expect that might require, given the same characterization of your refinery customers looking for cost savings, that they required a cost concession? And then you and Grace don't want to ever say the word Takreer, but it appears there's some progress there.

Is that going to tighten up the markets enough to get some, a resumption of the pricing that you guys had started implementing a couple years ago? Thanks..

I think I can be firm on that; I'm not expecting that trend on the HOU side. The business is strong, the fuels demand is high. There is a globally increase in gasoline demand, which is favoring the HOU or the FCC operations. So I'm not expecting any impact there from the oil price..

And just to add on that, on all of those refills that we had – not refills, but on those contracts that we got, we weren't giving away price on any of that. That was one on performance trials. So you shouldn't view that in any respect. The market is tight, the capacity is tight.

So we're looking – it's a great pricing environment right now, and our product performance is what's wining those. We haven't heard any – the question is have you heard anything on Takreer? We haven't heard anything on Takreer.

Our catalyst is in there; it's performing as per expectations in the unit, and we are, just like everybody else, waiting to see what's going to happen..

Great. Thanks, Luke..

Thank you for your question. Your next question comes from the line of Vincent Andrews of Morgan Stanley. Please proceed..

Hi, yes, good morning, guys. This is Matt Andrejkovics calling in for Vincent. Thanks for taking the call. Last quarter, you guys had a nice table that broke out equity income contributions by the different segments.

I didn't see that this time is; are you going to go back to that at all because it's difficult to parse out how – for example, how lithium progressed during the quarter as you have Talison coming in.

So just maybe, if you can help us parse out like what drove maybe the growth, the new order and then Talison and how we can think about that?.

Yeah. So as you think about that, I mean the details will be in the Q, which should be out today, latest tomorrow. As you look at lithium specifically with Talison, of course, that was purchased in the end of May of 2014. So we had one month and a couple days of performance in 2014, of course a full quarter of performance this year.

On a year-over-year basis, it's contributing roughly $6 million to $6.5 million incremental performance versus last year. It is performing better than expectations, so we're very happy with what's going on down in Australia..

the free cash flow number, it looked like the range increased by $50 million to $150 million to $250 million, but I didn't see anything else moving in the outlook.

Can you just maybe help reconcile how that would have moved?.

Yeah. The one item that moved in the outlook – so if you look at our normalized outlook, so that's without the acquisition costs and the one-time tax costs related to the acquisition, that did not change. So $450 million to $550 million, we're feeling very good about that range, given the performance and our current outlook in the second half.

On an all-in basis or reported basis, that free cash flow number, it did move up to $150 million to $250 million, and it's related to the tax payments for the acquisition. Part of those tax payments, so about $50 million of those tax payments are being pushed into the first quarter of 2016.

And so it's really just related to the timing of those payments..

Got it. Okay. Thanks very much..

Thank you for your question. Your next question comes from line of David Begleiter of Deutsche Bank. Please go ahead..

Thank you. Good morning. Luke, nice strong Q2 results, but you maintained the full year guidance.

Can you talk about what it would take to hit the low-end or the high-end of the 2015 guidance in the back half of the year?.

Well, to hit the low end of the guidance, we've got to see completion fluids really fall off more than what we've anticipated for the year. I think that that we've got – we could see additional foreign exchange – you've got bromine pricing.

So if we see some more bromine volume and the pricing continues to stick more than we have, we could see more upside there. The Clean Fuels Technologies that go along there, as you know, it always comes to order time. If we have an order slip one way or the other in the fourth quarter, that could have an impact on our earnings.

And really, it comes down to one of the non-core businesses that we have that we're looking to divest in custom services, they have got a big second half. So that could move the needle there, and there is some upside if we can get some synergies earlier. But I think really lithium is pretty solid for what we got – the estimate at the midpoint.

A lot of those contracts are baked in at the beginning of the year on price and volume, and at the capacity we're running there, not a whole lot of potential for major upside there. And on Heavy Oil Upgrading, we just got to deliver what we said we're going to deliver and feel very, very confident about our ability to do so there.

So, some upside in the bromine area if we can get pricing in a broader area than we have today and then some watch-outs on the HPC and on the Fine Chemistry Services..

Very good.

And Luke just on the bromine price increase you announced in late March, can you discuss how that's progressing and what you're seeing from other competitors, including the Chinese?.

Yeah, this is Matt. David, I'll take that. So, overall we continue to be very encouraged by what we're seeing in price. If you remember our original view is that we would not really see any net price versus volume this year, and that's changed a little bit with this update, that we're seeing some net benefit.

There has been – your point about China, there has been some movement in China of the price heading down a little bit that I know a lot of people have commented on. We don't view that as anything to be too concerned about at this time. There is always some movement in price to the downside in the summer in China because their production rates go up.

The price increase is kind of something we got to deal with over the long haul and we're feeling good about where we are right now, and the modest demand improvement that we're continuing to see to kind of underpin the basis for the pricing as well..

Great.

And last thing, Scott, was the methyl bromide order about a $5 million EBITDA impact into Q2?.

Yeah. So if you look at it, I mean at the end of the day, it was probably $0.07 to $0.08 of EPS..

Thank you..

Thank you. Your next question comes from the line of Chris Kapsch of BB&T Capital Markets. Please go ahead..

Yeah. Good morning. My questions are focused on the lithium business. I think you said that, based on contracts, that pricing is generally understood or fixed for the balance of 2015.

Just wondering if you could talk about, given those strength in demand for EDVs, how do you view the pricing entitlement for that business, maybe looking beyond 2015 into 2016?.

Yeah. I think, if you look at 2016 there's obviously opportunity for pricing; this is a good pricing environment. People are pretty much sold out of battery-grade lithium carbonate and battery-grade lithium hydroxide. If you look at the cost today of lithium in a battery, it's probably around 2%.

So it's very critical for the use of the battery, yet at the same time it's a small cost of that overall battery and we're sold out. So we feel good about the opportunities for lithium pricing in 2016 and it's already started having early conversations making sure the markets understand what those expectations are..

Okay.

And then, if you could just maybe qualify a little bit more on the demand shrink in EDV; where was it geographically pronounced and the plant that you're building to directly convert spodumene-based lithium to battery-grade hydroxide, is that intended to supply just Asian battery customers or is that intended to really supply customers globally? If you could talk about the timeline on that.

Thanks..

Yeah. It will be a world-scale plant. So it will supply globally. We'll be able to do that, not just for Asian customers. Really it doesn't make sense just to do it just for Asian customers because the size and scale that you need to build that world-scale plant to meet the needs of the markets.

And the timing on that is, as we've said, we've started the work on that, so it will come on line in a 2019, 2020 kind of timeframe. And in the interim, we're making arrangements to ensure that we're able to meet the market demand of that lithium hydroxide as it grows and we're not concerned at all about our ability to do that.

We have great plans in place for 2016. I can expand those. So we're going to be – we're going to meet the market demand. We're going to have the hydroxide available to meet the market demand. And we feel great about our process there and are extremely excited by the growth of battery grade and what it's going to do for this business..

And Chris, if you want to, I'll touch maybe just a second on the first question around the battery vehicle growth and where it's coming from, and where really the battery grade growth is coming from. One, you ought to think – remember that consumer and portable batteries continue to be a very big driver.

And while a lot of that maybe ultimately will be consumed in Asia, it's for global markets. And then if you think about battery electric vehicles, what's continued to really hold up are the true, pure battery electrics. So people think about Tesla, but it's more than just Tesla; it's the other true battery electrics as well – they're also growing.

They're holding up very well and continuing to grow. Those are the two combinations that are the biggest drivers for the business. And in a way, I'd say you ought to think of it is the global – where we supply is somewhat irrelevant, it's really global demand that's driving this..

Gotcha. Thanks, guys..

Thank you for your question. Your next question comes from the line of Mike Ritzenthaler of Piper Jaffray. Please go ahead..

Yes, good morning. Just on Refinery Solutions, I guess with the outlook looking a little softer than three months ago, can you remind us of the magnitude of CFT versus HOU in the revenue mix? And then, could you walk us through some of your assumptions for pricing mix and volume over the next couple of quarters? That would be helpful. Thanks..

Okay. Well, I think it was reported before. Both businesses have always been important and contributing both good cash flow and margin. Obviously, with the strength of the FCC today and the weaknesses of the HPC today and foreseeing for the rest of the year, there is an imbalance between the two businesses now.

And the FCC is a bigger contributor today than the HPC..

Okay.

Any thoughts on pricing mix and volume or is that just not something you're willing to comment on at this time?.

If you look at the second – if you look at the 2015 versus 2014 in HPC, the volume will be down and we'll have a much worse mix than we had in 2014. 2014 was a pretty high-water mark, but it's really all volume and mix. We hadn't seen much degradation in price at all, when you're looking at Catalyst per Catalyst.

So it's really been a mix issue and a volume issue in HPC. And on FCC, volume is strong; we'll see volume up and we'll see earnings up and a really good pricing environment for FCC catalyst, Mike..

Okay. Fair enough. I'm curious too about the sale process of the three businesses.

Has it impacted the year-to-date – has the sale process itself impacted the year-to-date results? I guess especially within fine chemistry solutions, has it been more difficult to win new business? And have those assets at all been, I guess, sort of impaired because maybe it's harder to sign up new customers?.

Mike, this is Matt, I'll take that. In reality, two of the businesses, I want to say, Minerals and Metal Sulfides or what they call trivatech (39:24), those business are doing just in line with what we expected, no impact at all. They're really having solid years.

If you talk about Fine Chemistry Services, we knew going into the year we had some tough business comparisons with contracts that were rolling off. We were counting quite a bit on getting some benefit in the electronics material space to help cover the year-on-year change. We've seen some supply chain issues and some delays in that electronics area.

That's really been the big driver for the negative year-on-year in Fine Chemistry Services. Don't think it has anything to do with the sales process..

Okay, fair enough. Thank you, very much..

Thank you. Your next question comes from the line of Laurence Alexander of Jefferies. Please go ahead..

Hi this is Dan Lizo (40:17) in for Laurence. With – just with the changing, or the unfavorable MATS ruling from the Supreme Court last – at the end of the quarter. I mean how does that affect just bromine demand or does it have a significant negative effect at all, or it's not something you're really counting on? Just a little a color, please..

Sure, if you look at MATS, there is a lot of uncertainty about how MATS will ultimately play out and I won't comment in detail, because there's been plenty of that in the last few days in the various earnings calls. But in reality, our business related to mercury has improved year-over-year, as anticipated up to now.

And the uncertainty comes in with what will happen post the Supreme Court ruling. We're just going to have to see how that plays out, what the D.C. appellate court does. MATS has not yet been stayed or vacated. We are still within our guidelines clearly for this year of what we expect from Mercury Control.

I don't think it will have any impact on this year's numbers. And then depending on what happens in the appellate court, we'll see what happens longer-term..

All right. Thank you..

Thank you for your question. Your next question comes from the line of Mike Sison of KeyBanc. Please go ahead..

Hey, good morning, guys, nice quarter..

Hey, Mike..

If you think – I just wanted to run through the cadence of earnings in the second half. You had a 7/8ths in (41:45) headwind, methyl bromide it looks like. Sequentially, the third quarter looks a little bit tougher.

So, when you think about a third quarter EPS, does it sort of come down from the second quarter and the fourth quarter? Is it a lot better or are there things that, like cost savings, integration, that gets your third quarter maybe up or flat from the second quarter?.

Go ahead, Scott..

Yeah. I would say, Mike, as you look at the third quarter to fourth quarter, that we would expect that the third quarter be at or above the third quarter slightly, and then we'd see sequential improvement going into the fourth quarter. So if you think about that second half, roughly 45% to 47% in the third quarter and the rest in the fourth quarter..

Great. And then, Grace talked about the FCC capacity largely being slow heading into 2016 and – based on their wins. Can you talk about how your wins are heading into 2016, and where you're going to be in capacity.

And are you feeling better about the price, potentially, as we think about FCC catalyst heading into 2016?.

Yeah, so go ahead Silvio..

Okay. Thanks, Luke. Well, on the capacity I think it has been stated before with the growth in the demand – with a strong demand and the additions of new units, capacity utilization is increasing, and obviously that situation with the tight supply, the dynamics of the market are creating an atmosphere where there is room for price improvements..

So Mike, this is Luke. As you'll remember we have a debottleneck process going on right now at our Amsterdam site. And we needed that to be able to supply customers in 2016 based on the business that we have.

Even when that comes online in early 2016, and again it's a debottleneck, it's not significant capacity, we're still going to be operating at plus-90% in our FCC production units when you look at Amsterdam and Bayport in total..

Great. Thank you..

Thank you. Your next question comes from the line of Jim Sheehan of SunTrust Robinson Humphrey. Please go ahead..

Thank you. On your Surface Treatment business, it looks like you're performing quite well there and some of the macro trends are getting a little bit better.

Can you talk about your outlook for the second half? Are you seeing increasing order patterns and an acceleration in your business?.

Yeah, Joris, can you take that please?.

Yeah. Sure, Luke. Well, we expect a better second half in 2015. First of all, we will have carryover effect of market share gains we've done in 2014 and in the first half of 2015. We also have a favorable pricing impact and the impact of our acquisition in Shanghai.

So we are operating on a global scale, and we see a very positive demand in automotive globally and also from aerospace..

Great.

And just on bromine pricing, can you talk about what impact the strike in Israel had on the tightening of that market? And as that strike has ended, do you think that the pricing environment is moving towards value-based pricing in the industry or do you see any drop-off in pricing power as a result of increased production in Israel?.

So, Jim, this is Matt, I'll take that one. We've said all along that the impact of ICL strike was much less on supply than you might have expected. They clearly did a good job in preparing for the strike, had an inventory available for the strike and serving their customers during the strike.

So, I'd really say that the strike had a lot less impact than a lot of people seem to think. And we're much more comfortable with where pricing is going based on the trends we've seen overall in demand and based on – yeah, that the push to value is one way to describe that, obviously reflected in our adjusted EBITDA margins this quarter.

And our outlook is for that to continue right now..

Thank you..

Thank you for your question. Your next question comes from the line of Mike Harrison of Global Hunter Securities. Please go ahead..

Hi. Good morning..

Hi, Mike..

Joris, within the Surface Treatment business, you noted higher SG&A costs related to that Shanghai joint venture.

Is that just structurally a lower margin business or are we going to be able to rationalize some of the SG&A costs over time?.

Well, yes, we will see synergies and savings impacting our P&L going forward. The acquired business is pretty much automotive-driven and it is our strategy to diversify also our sales in China towards other segments with traditionally higher profitability as well.

But it's more or less in line with what we see in other regions, so there is no big impact there..

All right. And then you announced a butyl lithium capacity rationalization. Obviously you had a key application go away there. Do you envision other applications coming back over time on the synthesis side? And can you also maybe speak to the butyl lithium demand more broadly, particularly as we look at some potential weakness in China.

I know that's a key polymerization market for you..

Sure. Michael, I'll take it. If you look at butyl lithium, originally, we thought we would see enough growth in butyl lithium and other applications to fully cover the loss of that synthesis application from last year in 2015. We've covered a part of it, but not all of it.

But other, if you will, other specialty lithiums have continued to grow, and that's reflected in some of the numbers. So I think, while we might not have covered it fully in butyl lithium, we've covered it in other ways at this point.

And if you look at the outlook for the growth of elastomers over time, which is the key polymer application for butyl lithium or synthesis application, it will grow. It will grow over time. There's going to be – it's going to get covered; it's more a question of will it be 2016 now than 2015..

All right. Thanks very much..

Let me – maybe I should say one more thing though, that if you think about the rationalization, there was always a fair amount of redundant capacity in the butyl lithium supply chain that Rockwood had. And given our setup with organometallics, and the way we've looked at things, it's given us some freedom.

So I don't think you should view that we're reducing our capacity to serve the butyl lithium market by this rationalization. We're still in good shape from a supply point of view; it's more just using our assets in a better way..

Thank you for your question. Your next question comes from the line of Tyler Frank of Robert Baird. Please go ahead..

Hi, guys. Thanks for taking the question.

I was wondering if you could just give – provide a little bit more color on what you're seeing for the drilling completion fluids? Do you think that this will continue to decline over time if low oil prices stay where they are heading into 2016?.

Yeah, I think – remember that we are strongest where our applications are in deepwater drilling. So, I believe that if they continue to come low, it depends totally what happens with the capital dollars related to drilling and where they go to drill.

There is a lot of data out – I forget who put it out, but I read it earlier this week, that to keep the production flowing of the oil that they are pulling out, some of them are moving to quicker paybacks on some of the drilling, which takes them into the shallower water.

So if oil stays low, I think next year you could continue – we expect the second half would be weaker than the first in 2015. And if oil stays where they are, you just have to see what they're going do from a capital standpoint, but it could certainly stay -w e could see the second half of 2015 longer.

And historically, the longer oil prices have stayed down during a period of time, the longer it takes from an E&P standpoint for it to pick back up. And then we're the tail of the E&P. So, the longer it stays down, the longer drought I think you would expect to see.

But, again, we're going to control what we can control from a cost standpoint, from a technology standpoint, from servicing our customers and meeting the demand where it's there..

Got it.

And it sounds like demand for bromine remains strong; can you just talk about how you guys look at the overall market demand and price stability in terms of potential future price increases and when we should expect this, the original 30% price increase, to be fully baked into numbers and the model, and then how you guys look at potentially increasing prices again?.

So, Tyler, clearly we're still in the implementation process on the initial price increase. I think we will differ the next price increase until we fully implement this one, but we feel good about the trends. What we've said along is that the demand question long-term around bromine is centered on flame retardants.

And it's good now to see that we're seeing growth in 2014 over 2013 and we're seeing that growth continue in the first half of 2015. And we continue to feel good about that.

If you look at all of the other applications for bromine outside of FR, really the only one that's really a watch-out right now is the one we've been talking about just a second ago, which is what's going on with clear brine fluids. Long-term, that's still an area we feel very good about.

Shorter-term or medium-term with low oil prices, we've got to deal with that. So, the trends are headed the right way in our view for overall bromine demand, with the exception of clear brines, which is more of a short-term to medium-term issue related to oil prices..

Great. Thank you..

Thank you very much indeed for your questions. I would now like to turn the call over to Matt Juneau for the closing remarks..

Yeah. This is Luke. We've got a number of questions probably that I want to go ahead and address about Michael Wilson.

When I talked to Michael about joining Albemarle a few years ago, I knew he had career aspirations to be CEO of a publically traded company, but the kind of guy he was I knew it was worth bringing him in and he came in and he has done an absolute fantastic job for Albemarle over the last two years, driving the business, and more importantly, putting in a leadership team in place that can run that business for him.

Now, Michael's got – received a great opportunity with Ingevity to become a CEO, to put together a brand new Board of Directors, to build his management team and do it all in a great place like Charleston, South Carolina. So we're very, very happy for Michael and wish him all the best.

But that team that he put together in Performance Chemicals is clearly one of the top teams in the Specialty Chemical area in those businesses. And I'm absolutely confident in their capabilities to continue to drive this business, and we don't expect our Performance Chemicals business to skip a beat.

Matt?.

Okay. Thanks, everyone, for joining the call. We appreciate your time and attention. And everybody have a great day. Thanks..

Thank you for joining today's conference, ladies and gentlemen. This concludes the presentation. You may now disconnect. Good day..