Eric Swanson - PolyOne Corp. Robert M. Patterson - PolyOne Corp. Bradley C. Richardson - PolyOne Corp..

Michael J. Sison - KeyBanc Capital Markets, Inc. Frank J. Mitsch - Wells Fargo Securities LLC Michael Joseph Harrison - Seaport Global Securities LLC Robert Koort - Goldman Sachs & Co. LLC Benjamin Joseph Kallo - Robert W. Baird & Co., Inc.

Kevin Hocevar - Northcoast Research Partners LLC Daniel Rizzo - Jefferies LLC Dmitry Silversteyn - Longbow Research LLC Jason A. Rodgers - Great Lakes Review Rosemarie Morbelli - Gabelli & Company.

Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation First Quarter 2018 Conference Call. My name is Christie, and I will 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 now like to turn the call over to Eric Swanson, Director of Investor Relations. Please proceed..

Thank you, Christie. 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 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 could cause actual results to differ materially from those expressed in or implied by the 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 PolyOne 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 first quarter of 2018 to the first quarter of 2017 unless otherwise stated.

Joining me today on the call is 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..

Thanks, Eric, and good morning to everyone joining us. As you saw from our news release earlier this morning, we delivered record first quarter adjusted earnings per share of $0.68, and that's an increase of 15% over the last year. That's an excellent start to the year and a great step towards our goal of delivering double-digit EPS expansion in 2018.

Growth was the theme this quarter as we expanded the top line by 13%, and we needed it to overcome significant raw material inflation and higher freight costs. I'm proud of our team for delivering these results given this backdrop and it was all about sales.

As we've communicated over the last year, our investments in commercial resources, which include sales, marketing and technology, combined with our world-class service are what made these results possible and they will continue to be the difference makers in driving our growth for the future.

Our sellers are collaborating with customers and prospecting for new ones like never before. Our technologists are developing specialty formulations for new applications. And our latest marketing campaigns are promoting PolyOne and participating in the sales process at the earliest stages. These investments aren't simply adding people.

They're strategic, targeted deployments of trained personnel. And that's clear when you take a closer look at improvements in several key metrics. For starters, we're more focused than ever on our existing customers as our new additions have driven an 8% reduction in average territory size to better serve them.

With this new capacity, our sellers are making 35% more calls, resulting in significant additions to our already robust opportunity funnel, up 9% year-over-year. We're selling to a larger customer base with 1,000 new customers since we began our commercial investments in 2014.

In short, the rigor and discipline with which we approach the sales process has never been more effective. And that's great. But in the long run, sellers need something to sell.

I'm pleased to report our Vitality Index continues to exceed 35% and you've likely seen our recent news releases highlighting innovative technologies like fiber colorants, advanced composites and barrier additive solutions to name a few.

These new technologies are increasing sustainability, design freedom and light-weighting in key markets such as transportation and packaging. We have identified these and other high growth areas as fundamental to the future of our customers and to the growth in PolyOne.

Just this past month, our advanced composites team closed a fantastic new project in a marine application with continuous fiber reinforced thermal plastic materials. In addition to our recent unveiling of Hammerhead Marine Composite Panels last quarter, this is another big win in a demanding market with intense durability requirements.

These products are lightweight with incredible tensile strength and have a high degree of design flexibility for any customer application. This was a pipeline project that had been in development for over two years, which is typical for these types of specialty solutions.

They take time, but once we've established them, they're in the portfolio to stay. Creating customer loyalty is critical to our success where it's not about setting short-term records and winning one-time business projects.

It's about building lasting relationships with our customers and providing a long-term solution that solve their most pressing needs. Recently, a large multinational electronics customer started a new project that required anti-stain and UV-resistant materials. And they had not done this before.

Our quick response time combined with excellent collaboration across all of our businesses turned this into a win. Future revenues earned by laying collaborative strong foundations from the start, we do this fast through world-class service, commercial excellence and our materials science expertise.

These points of differentiation for PolyOne really hit home during our technical seminars where our strengths are on full display, whether it's a large existing customer or a prospect who hasn't made a single purchase.

We host collaborative workshops that cover the full spectrum of launching new products from design to production and we're ready to support our customers every step of the way. In March, we conducted such a session for a large global beverage company.

Our collaborative approach showcased PolyOne's offerings ranging from InVisiO color design to performance additives, liquid colorants and TPEs. The results from that day alone generated more than 10 new opportunities totaling over $1.5 million in annual revenue now adding to our growing pipeline.

I offer these examples today to put some context around terms we use a lot at PolyOne. Words like commercial resources, collaboration and commercial excellence. As I said earlier, our past investments in these areas are not simply having more feet on the street.

Commercial resource investments at PolyOne are about the technical interactions and growth generating work that they're doing once they join our team. I'll now turn the call over to Brad for some segment commentary. Then I'll close with some remarks about where we're headed through the balance of the year..

Well, thank you very much, Bob. And indeed it was a great way to start 2018. In the first quarter, we reported GAAP earnings of $0.59 per share. Special items for the first quarter of 2018 resulted in a net after tax charge of $7.4 million or $0.09 per share and primarily related to environmental remediation and legal cost.

Adjusting for special items, EPS from continuing operations for the quarter was $0.68, up 15% from $0.59 in the first quarter of 2017, marking a new PolyOne record. As Bob mentioned, revenue for the quarter was up 13% to $902 million.

This included 6% organic growth, 4% from specialty acquisitions, and a 3% contribution from favorable foreign exchange. Growth was strong, consistent and global. Every segment and every region in the world grew revenue.

And while raw material inflation and transportation costs negatively impacted margins, it didn't stop us from delivering record first quarter operating income of $88 million as our team worked extremely hard to offset these headwinds and translate top line expansion to bottom line growth.

Such was the case with Color, Additives and Inks, which started out the year strong, delivering record sales and operating income of $271 million and $42 million respectively. Color grew the top line 28% year-over-year with 17% of that growth coming from our recent acquisitions, and 5% organic growth driven by strong performance in Europe and Asia.

Color clearly has momentum as our integration of recent acquisition continues and our commercial resources gain further traction in closing new business. Moving on to Engineered Materials, 15% revenue growth in Europe and Asia was partially offset by contraction in North America.

Sales in North America declined due to lower demand for solar, wire and cable applications as well as existing certain other products. In addition to this specific end market weakness, our Engineered Materials team continues to battle in a market that remains extremely tight for key raw material input like nylon resin, polyethylene and polypropylene.

On average, in the first quarter, the majority of our input costs were up 10% to 15% year-over-year with nylon resin pricing even higher, up 30%.

While some of these issues are subsiding, pricing is expected to remain elevated throughout the second quarter as producers work to rebuild inventories following unplanned outages on the Gulf Coast in January while robust demand continues to squeeze the market.

Despite these short-term challenges, our team is highly motivated and laser focused on sustainable growth for the future. And a key component of that is investment in commercial resources as Bob mentioned.

As an example, we recently began a new initiative with the European School of Chemistry, Polymers and Materials Science in Strasbourg, allowing for students to visit our plant in Gaggenau, Germany as we work on inspiring and attracting our next generation of PolyOne innovators.

In addition to investing in people, we've also invested significantly in new systems and tools to facilitate global collaboration among our R&D teams. By enhancing communication, we are ensuring that any and every solution developed in one of our labs is more efficiently and consistently available across our entire PolyOne portfolio.

And when I say entire portfolio, I don't just mean Engineered Materials. While PolyOne has four business segments, we are truly a unified company, focused on cross-segment collaboration to drive total company growth. That's why as I move to Performance Products and Solutions, I want to lead off with a collaborative PolyOne win.

With flammability requirements increasing for polymer solutions, one cable manufacturer in Asia reached out to PolyOne for assistance. The request went beyond polymer formulation and also included requirements for color masterbatch additives and pre-colored polymers.

It was a seamless response by us as our Color and Performance Products and Solutions businesses collaborated and won the opportunity which will enter the trial phase next month.

Overall, PP&S delivered 4% revenue growth driven by favorable pricing and mix from our specialty solutions, partially offset by the impact of inclement weather which impacted the start of the construction cycle.

Not all of this revenue growth made its way to the bottom line as PP&S like EM experienced raw material inflation related to PVC costs, up 12% year-over-year. This was primarily driven by a combination of tight supply and high demand as buyers underwent restocking in preparation for the upcoming construction season.

Ethylene also played a role as supplies were still constrained due to project delays from Hurricane Harvey. We expect these issues to alleviate in the second quarter, but prices may remain elevated for the balance of the year.

And last, but certainly not least, is PolyOne Distribution which delivered $18 million of operating income on $316 million in revenue, which was the highest ever quarterly sales for this business. While we reached record sales, margins were compressed due to raw material inflation, higher freight costs, and a higher mix of commodity resin sales.

The freight issue is a challenge across all of PolyOne as increased demand and driver shortages have led to a higher cost in the United States and Canada. We are implementing surcharges when and where we can. But during the first quarter, we estimate freight costs were up about 8% year-over-year, leading to a $2 million impact on the bottom line.

I'm proud of our team for delivering strong results despite this significant headwind as we continue to maintain a competitive advantage in the distribution market with world-class service, and we've leveraged this service with our global supply agreements with large multinationals into more and more business.

As our commercial success continues, we are also focused on capital deployment, and our overall capital structure to generate shareholder return.

In addition to paying out our increased dividend this quarter, we were able to leverage strong free cash flow and repurchased 1 million shares of common stock, while still funding the acquisition of IQAP and maintaining our leverage ratio.

We also re-priced our term loan, reducing the interest rate by 25 basis points to LIBOR plus 175 basis points, which will partially mitigate the underlying increase in LIBOR (00:16:27) that we are seeing. These actions are reflective of the financial health of PolyOne.

Our balance sheet remains strong and we ended March with over $470 million in available liquidity. That's capital we can use to pursue strategic acquisitions, invest in commercial resources and drive innovation. We're enjoying the work, remain committed to this strategy and are encouraged by the results we delivered this quarter.

Thank you and I'll turn the call back to Bob..

Thanks, Brad. While we set the tone early this year with strong growth both organic and acquisition driven, our focus now is on sustaining and accelerating that growth throughout the year with the expectation of delivering 15% EPS expansion in 2018. And we're confident we can do just that.

Our sales momentum is clear and we expect these gains to continue. I also expect margins to expand and I want to discuss that next. Certainly, raw material inflation has played a role in margin compression over the last year. For distribution for example, it is and sometimes just a function of math as our suppliers set prices.

For many product lines, we earn a fixed return in dollar terms, and higher selling prices result in lower margins as a percentage of sales. For EM and PP&S, we are working to higher costs in, PVC, polyethylene, and nylon resin to name a few. And as Brad also discussed, we are dealing with higher freight costs.

But we view these as short-term issues, and we look to our history of margin expansion through many cycles of raw material volatility as proof of what we can do in the future. Lastly, this quarter, it was Color, Additives and Inks that drove our operating income growth.

And while margins in that business were down year-over-year, pricing outpaced inflation for a net gain. It really was our recent acquisitions that were the primary driver of the decline in margin as a percentage of sales. As their margins, those margins of the acquired companies, are below our legacy business. But this is not a bad thing.

We purchased these businesses because they have specialty technology and a strong cultural fit with our team. They have tremendous opportunity to grow, and we expect to expand our margins as we integrate them with our global portfolio. A typical bolt-on brings 8% to 10% return on sales.

We can double those consistent with the long-term expectations we have for Color and Engineered Materials. And that results in tremendous value creation. So let's keep our eye on the prize. Just eight years ago, our return on invested capital was only 6%, and now it is 14%.

We are ahead of where we expected to be against our 2020 goal of 15%, and expect we can exceed this objective. To do so, let me tell you what we're focused on. First and foremost, we will continue to increase and invest in our commercial resources by 6% to 8% year.

It's a proven strategy that we've successfully executed, and with an addressable market of over $40 billion for polymers, there's unlimited growth we can accomplish. Secondly, we will continue to expand our specialty portfolio with strategic acquisitions.

We have a healthy pipeline in place and are constantly evaluating the market for bolt-on opportunities that can enhance our existing offerings or add complementary new ones. We look for motivated teams with a culture of innovation, with strong customer relationships and a portfolio of new technologies.

And we look for companies like IQAP with the potential to double margins in the next five or seven years. Third and finally, we will continue to invest in innovation and accelerate our growth of new products. Innovation is the lifeblood of a specialty company, and we have several key technology platforms targeted for the future.

We're looking forward to our upcoming Investor Day to be held in conjunction with NPE on May 10. We plan to update our investors with more details about these initiatives and how they will drive sustainable double-digit EPS growth, and most importantly, increasing returns on invested capital. That concludes our prepared remarks.

We will now open the discussion for questions..

Thank you. Our first question comes from the line of Mike Sison of KeyBanc. Your line is open..

Hey, guys, nice start to the year. Bob, it's been a while since you've sort of given a specific EPS growth outlook. That's great.

So just maybe give us a feel for what's giving you the confidence there and maybe some of the components of the growth, how much of that will come from acquisitions, organic, and maybe lower tax rates?.

I think, if I may, just take that reverse order if I can. I think that where our tax rate is for the quarter is probably pretty close to where we think it's going to land for the year.

So, as I think about going forward, we'll have a little bit lower tax rate for the full year but not really significant changes from where we are in the quarter if that helps. Secondly, I really think that the drivers will be very similar to what we saw this quarter with respect to a mix of organic and M&A.

And most importantly, I think that this first quarter really is going to be the most challenging quarter that we have all year for Engineered Materials, and we have an improving outlook for that segment over the balance of the year. So it's really those three things. Interest rates are going up a bit.

As Brad said, we were able to just re-price part of our floating rate debt portfolio which helped some, but I do think that's a little bit of a bad guy for the year offsetting some of that..

Right.

And then can you maybe walk us through the improvement potential in Engineered Materials as the year unfolds? When do you think pricing will overcome raw materials and what type of volume growth do you expect to see as 2Q to 4Q comes?.

Yeah, first of all, I think that we have a lot of pricing actions in play.

And really, as I look back on 2017, it's really become obvious and evident what a big distraction that's actually been for us and I think probably a lot of companies to just have to spend so much time with your customers on that subject when you'd rather be talking about innovation and new product development.

So I think it gets a little fatiguing over time. That being said, I think those actions really are going to start to gain traction here towards the end of the second quarter. But going into the second half, probably pretty consistent with what we said at the end of our call in January.

And then low single-digits for volume growth, I mean, there was a little bit of business that candidly is a result of inflation. We're probably not going to hang on to and that's okay..

Great. Thank you..

Yes..

Thank you. Our next question is from Frank Mitsch of Wells Fargo. Your line is open..

Hey, good morning, Bob.

How would you break down that organic 6% growth between price and volume?.

Sorry, about 2% to 3% on the underlying growth of the balance being in price..

All right. So not that different. And, Brad, you mentioned that the growth that you saw in Q1 was strong, consistent and global.

How would you describe the outlook so far in Q2 and your expectations for the year there?.

Yeah, I mean, I think the kind of growth rate that we saw here in the first quarter, I think, will carry forward. The overall 6% organic growth, I think, is a good proxy as to how we're going to do the rest of the year. We had very, very good growth out of Europe and Asia and North America was strong.

But again, I think the 13% that we did this quarter, I think, is sustainable as we move throughout the year..

Terrific. Thank you so much. And you mentioned that your freight costs were up 8% which was a $2 million impact.

Can you size raw materials for us?.

I think the overall raw material impact was probably around $9 million to $10 million and if I look at freight, that's probably another $2 million or, Brad, I think, said that number earlier..

Yeah, yeah..

And so that $9 million to $10 million, that's the high watermark for the year is your expectation?.

I don't know if it's the high watermark for the year. I do think that with respect to our most challenged business, EM, we are passing the low watermark. So that's kind of how I view the outlook for that segment..

Thank you so much..

Yes..

Thank you. Our next question is from Mike Harrison of Seaport Global. Your line is open..

Hi, good morning..

Hi, Mike..

Bob, you called out IQAP in the press release.

I was wondering if you can talk about how that business is performing relative to expectations, how the integration is progressing, and maybe why you're excited about that deal in particular?.

Yeah, I think we just called it out really in this most recent release because it was our most recent acquisition, and candidly, I'm just as excited about Rutland and Mesa. And so those two may have gotten more attention last year and IQAP is getting it right now.

So don't draw a conclusion on there's something perhaps unique about IQAP versus those other most recent deals. I was just there a couple weeks ago. I really like what we see from a cultural fed standpoint. It's something that we pride ourselves on in terms of evaluating to due diligence process.

But once you start working together, you really learn even more about each other and that's certainly very exciting. They have a really good position and a specialty mindset. And I just really, again, like I appreciate that the team isn't trying to grow in commodity applications and they're focused on the right business.

And they're really focused on improving their safety and taking care of their customers just like we are. So some of those comments might probably just stem from my visit there a week or two ago and thinking about that most recently..

All right. As we think about the 15% EPS growth target. I was wondering if you can talk a little bit about the cadence of earnings growth. Obviously, we're up against kind of the toughest comp in this quarter and you guys are off to a pretty good start.

Wondering kind of how things trend as the year progresses?.

Yeah, I think some of that is also related to raw material cost. So Frank had just asked a question about passing the high watermark, if you will. And when we look at the raw material cost increases that we were seeing at the end of last year going into the first quarter, we typically can expect the lag effect on that to some extent.

So I think there's more to come in the second quarter, but we got a lot of pricing actions in place. So I'm expecting double-digit EPS growth in Q2. But maybe $0.01 or $0.02 lower than what we expect in the second half of the year just in terms of where we land between 12% and 15%.

All right. Thanks very much..

Yeah..

Thank you. Our next question is from Bob Koort of Goldman Sachs. Your line is open..

Thanks very much. Bob, I think you said you had 3% volume, roughly.

Can you give us some sense within the segments how that trended year-on-year organic volume?.

Yeah, well, we really had – I mean, I guess I'll just start with PP&S and POD, were both up the most. EM actually went backwards on volume. And as Brad was saying, I think, in his prepared remarks or a follow-up question, largely that was due to wire and cable applications in North America because we did have good volume growth in Europe and in Asia.

And then Color was actually down maybe by 0.5%, but that was primarily in some coatings applications that candidly we're not just going to try to fight a price battle on those. So a little bit down on Color and EM and up in PP&S and POD..

And with your customer base, is there a capability of sort of instantaneous pricing, so you can – I mean I'm sure you saw some of this elevation in raw is coming, can you not, when you put your bids in, incorporate that price, or what can you do to offset those raw materials more efficiently?.

Yeah, I think really it does vary by segment. And in POD, for example, from a distribution standpoint, our suppliers are setting the prices, and we're typically putting those in place immediately. There can be a lag at times between what's on hand in inventory versus what we're selling into a price increase.

Color probably has the most rapid immediate arm's length ability on pricing, which is why you're seeing such good revenue growth in the first quarter. And then really it comes down to PP&S and SCM, where just structurally in those businesses, there's more of a lag. And it's not necessarily because of a defined lag with respect to contract terms.

I just describe that more probably as industry norms. I mean, candidly, it's a little frustrating for us with what we see from a competitive dynamic in both of those two segments. But I can assure you we're moving as fast as we can..

And my last one, do you think there's any need to sort of reassess how you formulate your longer-term targets? I know a couple years ago you introduced the Platinum 2020 margin target, which with the inflationary effect of those raws as you say, they sort of push against those margin targets.

Is there a different way that you can look at the goals that are out there or should you?.

Well, when we get to our Investor Day in May, we're going to spend a lot more time on just that. And I do think it's important to recalibrate where we are on margins.

I would say it's less about what's going on with raw materials in the near-term and more about what we expect our acquisition portfolio to look like and investments that we're making in new technologies like composites.

So, as you know, we have really sort of a fledgling composites business, not necessarily from a revenue standpoint but new to us at $80 million to $85 million. But it's breakeven right now because we're investing a lot in it.

So, as we think about margin expectations, I think we really do need to revisit, how will the acquisitions impact those margins and the investments that we're making, Bob, and that's probably something we could do a better job of in general. But I really want to focus everyone on return on invested capital, because candidly, that's increasing.

We're ahead of where we thought we would be against our 2020 goals. And I think we got a real shot at beating that..

Terrific. Look forward to hearing about it in a couple weeks. Thanks..

Thanks..

Thank you. Our next question is from Ben Kallo of R.W. Baird. Your line is open..

Hi, good morning. Congratulations on the quarter..

Hi, Ben. Thank you..

Hey, I just want to kind of – we're talking about the acquisitions and the headwinds you guys have had. So you've made about five acquisitions, if my count is right, over the past two years.

First, can you just maybe go back to the earliest ones and help us kind of just qualitatively on how those businesses have expanded margin maybe just so? Because I guess some of the larger ones have been more recent, so that probably has a bigger impact on margin now, if you catch my drift there.

And then as we think about future acquisitions and tuck-ins, Brad, maybe you could just talk about how you look at the balance sheet, maybe a refresher on that and what your leverage is.? Thanks, guys..

I'm going to go first, and then I'll hand it to Brad.

Look, we have some really great slides that are going to articulate how margins have evolved over our bolt-on acquisition history where we're really going to lay that out by just about every deal we've done, and we're going to show you the investments we've made and where they are relative to our expectations.

So, if I could just put that aside, I think there's a lot more information coming at the Investor Day on acquisition margins.

But for example, on the most recent ones, we've invested heavily in composites for example, and when we brought that on board, it was probably a minus 1 or a minus 2 from an OI standpoint, and we're probably up to breakeven in the second quarter this year. So I know it sounds like a small thing, but as soon as that takes off, it'll be very accretive.

So, Brad, you want to talk about the balance sheet flexibility?.

Yeah, sure, absolutely. Good morning, Ben. I would just point out, again, Bob was talking about kind of our earnings growth and really that has translated into very strong growth in our underlying free cash flow which will be over $200 million this year. So I think that's certainly a source for our acquisitions.

We ended the quarter with $470 million of liquidity. I would also point out that the tax changes has given us really good access to our liquidity. And specifically to our debt ratio, we finished with net debt-to-EBITDA of 2.9. Again, I'll just reinforce that we just re-priced our term loan. That was extremely well received.

So there's very, very good confidence in the capital markets in terms of what we're doing..

Thank you, guys..

Yeah. Thanks, Ben..

Thank you. Our next question is from Kevin Hocevar of Northcoast Research. Your line is open..

Hey, good morning, everybody..

Hi, Kevin..

Not to beat a dead horse here, but with the 15% EPS growth expectations for the year, you were able to grow that in the first quarter here. And I think the comps get easier as we progress through the year, because last year, you faced the – PP&S faced a lot of headwinds from the hurricanes that hit in terms of their earnings.

And it sounds like Engineered Materials is expected to start maybe in the back half of the year showing some EBIT growth. And it sounds like the expectation's for organic growth to continue at that 6% clip.

So I guess I was just curious, how do you view that 15%? Is that a relatively conservative number, or do you feel pretty good about that 15% for the full year?.

I mean, I feel very good about it. I think it's our best estimate and that's how I would characterize it. I made some earlier comments with respect to how that might play out over the quarters.

And I think you're right to point out that Q4 of last year was probably a little more challenged as we look at the comps and so possibly some more growth in Q4 than what we'll see in Q2, for example. But really that's probably kind of where we're thinking right now..

Okay. Got you.

And then on the $2 million in freight, is that your best guess at this point kind of the run rate of inflation we'll see from freight on a quarterly basis, and is that something you can pass along in price or is that a cost that you'll have to end up eating?.

Look, it's like any other cost of production and our delivery, it really does depend on the business and the timing of it. I would say it was a negative for us in the first quarter but pricing actions are in place that will help neutralize that, really probably as early as the end of the second quarter. So we'll catch up on that.

It's really difficult as you can imagine to get margin expansion on freight, but we will be able to pass that through..

Got you. Okay. Thank you very much..

Yeah..

Thank you. Our next question is from Laurence Alexander with Jefferies. Your line is open..

Hi, guys, it's Dan Rizzo on for Laurence..

Hi, Dan..

You mentioned before expanding your customer base and increasing penetration with logistics increasing I guess (00:39:12) wallet share of customers.

I was wondering what's more, I guess, there's more opportunity with, is it just kind of expanding to a different customer set or is it just penetrating more? Where do you see most of the growth coming from?.

I do think that we're attracting new customers and really see that as incremental. Some of that comes through the acquisitions that we've made where we're bringing in some customer relationships, where they probably had stronger relationships than we did. But for the most part, I'd say it's a new set.

I mean, that's what we meant by that comment with respect to the 1,000 today compared to where we were three years ago..

Okay. Thank you very much..

Yeah..

Thank you. Our next question is from Dmitry Silversteyn of Longbow Research. Your line is open..

Good morning. Thanks for taking my call.

Just wanted to follow-up on a couple of things, first of all this latest Spanish acquisition, can you provide us what the sales run rate for that is? I know what the Rutland and Mesa did, but what is this one going to do for you in 2018?.

Yeah, I think it's close to $50 million in revenue..

Okay. About $50 million.

And I'm assuming it's that same kind of high single-digit, low double-digit margin?.

Yeah..

Okay. And then just getting back to your raw material questions. You mentioned all the headwinds you're facing. BDE pricing, butadiene pricing which was a problem for you in 2017 when there was a huge spike, that seems to have come down a little bit.

Do you see that as a tailwind as the year unfolds and then PVC pricing, if you at least look at the spot and contract charts out there, does look to be down year-over-year.

You mentioned that actually as a headwind, so I'm just wondering if it's just a question of timing as these costs flow through your P&L or you're in some sort of a contract that limits, that has caps and floors where you don't see the relief as quickly.

So can you comment on those two pieces of your raw material purchases?.

Yeah, so butadiene was down year-over-year with respect to quoted pricing. So, for us, that may have a lag effect on, if you will, by a quarter or two. But really, it was overshadowed by the incremental costs of nylon and polyethylene in that business.

So, unfortunately, where we're getting a little bit of a good guy on that euro comp, I think it was more than offset by those other two. And then for us, our PVC costs were up in the first quarter. And so I'm not certain on where the projection is for the balance of the year, but we were assuming they were going to be up a little bit.

If that certainly changes, then that would be help to us..

Okay. All right. And just one final question, as you look towards the second half of 2018, obviously, you and other companies experienced a pretty significant third quarter headwind from the Harvey event and the logistic disruptions and raw material costs.

As you kind of look at the cadence of earnings, would you expect that to be sort of your best quarter in terms of year-over-year comps?.

Yeah, I think a little bit better in the second half and that's true for Q3 and Q4 for those reasons..

Okay. All right. Thank you..

Yeah, thank you..

Thank you. Our next question is from Jason Rodgers of Great Lakes Review. Your line is open..

Yes, you talked about the $9 million to $10 million in raw material costs impact in the quarter.

How much did price help offset that either on a dollar basis or percentage basis?.

I mean, look, price over raw materials wasn't that good guy for the company as a whole, and really, it was a negative for EM and really a positive for Color and PP&S kind of a, say a push, if you will, in Distribution..

And do you expect pricing to have even more positive impact in the second quarter?.

Yes..

It's going to continue to be opportunistic for us. So we don't really give guidance on the number of shares we expect to buy for any quarter or time period. We always start with that philosophy in mind that we're offsetting equity awards but historically have done more than that through the course of the year..

And then if I could squeeze one more in.

Is the expectation still to see year-over-year margin improvement in Color and PP&S starting in the second quarter?.

We will for the full year start to get some traction in the second quarter..

Thank you..

Yeah..

Thank you. Our next question is from Rosemarie Morbelli of Gabelli & Company. Your line is open..

Thank you. Good morning, everyone, and congratulations on the first quarter. I was wondering I may have missed it, and if I did, I apologize. But you said that volume was strong in Europe and Asia Pacific.

Can you share with us what type of the volume growth compared to the 3% overall?.

Yeah, and so in total, one of the things, I just need to highlight is, as Brad mentioned, in EM for example, we did have volumes slightly down almost entirely inside of North America. So when I look at where Europe and Asia were, they were both up solid single-digits..

Okay.

So solid single-digit, I am translating that to be 7% to 8%?.

No. 4% to 5%..

Okay. All right. Thanks. And there is an issue regarding single-use plastics and its impact on the environment.

And so, while a solution is going to take a long time, I was just wondering if you had any comments about it from an industry standpoint and the potential impact on your operations?.

Yeah, I mean, look, I think that's really an important – I think that the markets and population overall is focused on and I think we're going to see a decline in those items just as you said. So look for us, we really don't make things like straws and stirrers and stuff like that.

As you know, we're really focused on Engineered Materials and things that are going into higher performance applications. So I don't think in the long run that's really going to be an issue for us, but certainly, we're going to do what we can to increase awareness about reusing and recycling wherever possible..

Don't you sell liquid colorants into the PET bottles and single-use plastic bags which seems to be the two major issues as opposed to straws?.

We don't do anything in plastic bags and certainly we do put additives and some colorants into PET containers. But when you just think about what lighter gauge material has been able to do in terms of bringing perishable beverages to so many places around the world that we wouldn't otherwise.

I see a continued trend in reducing the gauge of materials used but not the complete and absolute displacement of PET being used for beverage containment..

Okay. Thanks.

And just lastly, if I may, can you just give us a bit of feel for your environmental charges and is there more to come?.

As you know, we have ongoing pulp and tree (00:47:24) costs really at one location. It's a legacy location from the Goodrich days. There really isn't any other updates or things to expect of what we know right now..

Okay. Thanks..

All right. Well, thank you very much, and I appreciate everyone who was able to participate in the call today and ask questions. And we hope to see all of you at our Investor Day on May 10 at NPE. Bye for now..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a great day..