Q4 2019 Earnings Call

Good day, everyone and welcome to the fourth quarter 2019 minerals technologies earnings call. Today's call is being recorded out that's kinda lets turn call over just any thoughts Walter head of Investor Relations for minerals technologies. Please go ahead misspoke Walter.

Thank you at a good morning, everyone and welcome to <unk> fourth quarter and stuff and then Nike Inc. earnings Conference call todays call will gladly, Chief Executive Officer, Dusty Chair and Chief Financial Officer backlog following talking about prepared remarks, well open it up to question.

I would like to remind you that beginning on page 14 about 2018 can carry we lifted average responses from condition may affect our future results I'll also point out the safe Harbor disclaimer on the fly.

Great that's related to future performance by members of our team are subject to be glad to patients cautionary remarks and condition.

Now I'll turn the call over to stop so.

Thanks for this introduction to the [noise] good morning, everyone.

Oh, sorry, savvy with us today by a walk through our results for the quarter and the full year of 29 chief.

[music].

Give me more inside some of your focus on our key operational and strategic highlights.

And not will then discuss our financial results in more detail.

No wonder first horrible.

Following that'll finished by discussing our priorities and initiatives for 2020.

And the current trends, we're seeing a cross foreign markets.

[noise], let's start by giving you can take away for the fourth quarter.

Sure.

From a financial perspective total sales in the quarter were $440 million, we generated $53 million of operating income.

Earnings per share of 95 cents.

These results reflect the persistent market softness we've been experiencing over the past few quarters.

The most notable imports coming in our metal casting European Refractories, and North America paper PCC businesses.

Throughout the quarter, we've continued to tightly control costs drive productivity improvements and implement pricing actions.

Well operating in this challenging market environment, we drove growth across several of our protocol.

Oh pet care business continued its momentum as we grew our private label portfolio.

Leveraged the strength of see dramatic in Europe, and saw strong sales of our new fragrance boosters.

Hi, or activity in the construction market as well as the deployment of newer waterproofing solutions supported cells and building materials.

Robust customer demand for our latest radiology modifying sealing products led to a strong quarter for specialty PCC.

Also a solid quarter for ground calcium carbonate business.

We delivered overall growth in Asia, driven by sales increases in China, India and Indonesia.

Volumes of our Greensand bond products in China increased 19%.

We continue to demonstrate the significant value that are engineered products offer to our customers.

And they per PCC volumes in Asia grew 6% over last year.

Led by our new satellites in Indonesia.

A 14% volume increase in China.

Our service businesses performed well.

Energy services had a solid quarter continued its positive trajectory with higher well testing activity in the Gulf of Mexico.

Increase deepwater activity and international offshore basis.

Refractory sales were down sequentially due to continued weakness in Europe, and several furnace realize in North America.

However.

Flavor laser equipment sales were very strong in the fourth quarter and segment margin over 14%.

Cash flows remain robust through the fourth quarter capping off a strong cash flow year for us.

Operating cash flow for the quarter was up 14% compared to last year and free cash flow was up 30%.

All in all we continued to implement operational measures to manage through the market weakness, we've been experiencing while also maintaining growth in them and momentum across many of our product lines.

The format takes you through our fourth quarter financial performance I'd like to give you my perspective on 20 Nike.

What I was most encouraged by was our teams solid operational and strategic execution.

Against a backdrop of changing conditions in several key end markets and geographies.

Our teams resiliency execution focus and agility, one full display throughout the year.

Our performance reflected our continuous improvement mindset and focus on aggressive cost control, we implemented decisive measures to adjust our operations to align with changing market demand.

And during all of this we've got several strategic initiatives that support our long term growth.

Let me summarize the progress we made advancing those initiatives.

Well focused on growing in more consumer oriented markets through our household personal care and specialty businesses.

These are attractive markets with stable long term growth potential.

And we have unique capability and resources to serve.

This product line was up 8% for the year.

Driven by the strength of our global pet care business.

Well as increased sales from our broad portfolio of high margin specialty applications.

Such as bleaching Earth for edible oil clarification.

And products for the personal care and animal health markets.

Our strategy to shift the environmental products business from base shoot Geosynthetic clay liners to a higher value portfolio of specialized technologies gained significant traction.

With sales up 8% and margins at more than doubled over last year.

Sales of these specialty products grew by more than 40% and we have a robust pipeline of additional opportunities to secure this year.

Well positioned to support more complex landfill remediation and water treatment issues and also address these large market opportunities globally.

We are the world leader in Greensand bond systems for the global foundry market.

There are significant opportunities to leverage our deep technical expertise and demonstrate our value proposition with customers in large foundry markets, such as China and India.

This year, we extended our penetration into the trying to foundry market as volumes of our Taylor blended products increased 7%.

Despite the soft foundry market conditions, we experienced.

We're also the world's largest producer precipitated calcium carbonate the most advanced technology portfolio.

Our technologies help customers increased based filler levels and paper.

Dressed environmental and recycling needs.

And provide solutions for their premium packaging applications.

In addition, we also offer high performing PCC rheology additives for the automotive and construction sealants.

Our strategy is to expand our PCC volumes globally through each of these initiatives have you made considerable progress and 29 King.

A 125000 ton satellite in Indonesia came online in the first quarter.

Helped drive paper PCC sales growth of 7% in Asia.

We also secured the permits for our next satellites in China, which will be our largest PCC plant globally when fully operational.

And in India, where our volumes were up 10% and 29 team.

We saw two new satellite contracts and started the construction on another expansion.

On the technology front.

We deployed a new variation of fulfill called fulfilled plus which is the most cost effective technology to increase filler levels and paper.

We also expanded our applications into the packaging market with a contract in Europe as well as through the deployment of environmental technology, which addresses the sustainability challenge of paper recycling.

Lastly, we introduced several new specialty PCC products to the market and supported that demand through capacity expansions.

Innovation and new product development is a core strategy for our company and we made notable progress strengthening our pipeline this past year.

Specifically, we commercialized 55 products.

And our revenue derived from new products was up 10% over last year.

We leverage our operational excellence tools with our R&D capabilities to develop higher value products on a faster timeline.

This year I've highlighted many of our other new technologies, such as floors or new yield resistex and editorial low emission technologies.

A formulation all of which reflect our enhanced focus on developing products that address broader environmental and recycling issues, both MTR and our customers.

These new products, which give us a more comprehensive and differentiated solution buffer or central for supporting our growth strategy.

Into new markets and geographies.

From an operational standpoint.

We overcame several obstacles this past year.

Market conditions noticeably softened in May and June.

Took decisive actions to align our cost structure with the new demand environment.

Throughout the year. We also continued to drive pricing actions offset the inflationary cost pressures that we've been facing.

[noise] engagement of our employees around our culture of continuous improvement enables us to navigate through these types of conditions. While also remaining focused on advancing our growth initiatives.

We conducted 10800 problem solving kaizen events and received more than 65000 suggestions from our employees throughout the year.

This isn't context.

Each day on average nearly 30 kaizen events are being held across the company and we're receiving 178 suggestions from our employees on how to do things better.

This is a tremendous level of involvement in the operations of our company from all 3630 MTR employees.

Demonstrating the power of our culture.

Throughout the year, we remain focused on cash flow generation and strengthening our balance sheet.

We generated $173 million and free cash flow, which was 36% higher than last year.

Well use this to pay down $92 million in depth.

And returned $48 million to our shareholders through share repurchases in dividends.

Lastly.

Sustainability has always been a core value of our company.

2019, we took steps to further advance our sustainability initiatives by establishing environmental reduction targets and six areas, which are outlined in our most recent sustainability report.

These new commitments bring more focus and clarity to the environmental aspects of our sustainability efforts and our fully aligned with our overall corporate strategy and financial goals.

All in all 2019 was a productive year for MTR.

So we faced some distinct market than operating challenges I'm proud of what our team accomplished during the year.

The momentum we generated and growth initiatives that we executed on in 2019 provide a solid foundation for sales and earnings growth in 2020.

I'll give you more of my perspectives on the your head at the end of the call, but let me turn it over to Matt who will take you through our fourth quarter results and first quarter or not.

Thanks, Doug and Hello, everyone.

Other do our fourth quarter results and full year results.

Elements of our four segments and also provide you with our outlook for the first quarter.

I'll, then turn the call back over to Doug for some additional perspective on a year ahead.

Fourth quarter sales were largely as expected with market trends consistent with the third quarter apart from our typically lower seasonal volumes.

Bridge on the left shows the sales change by major driver.

Foreign exchange impacted sales by 3.2 million dolls are one percentage point.

We do a price increases of $5.6 million in the quarter.

However, these increases were partially offset by $4.5 million lower market based pricing for specialty sense.

The biggest driver of change in overall sales versus last year was unfavorable volume and mix, primarily due to the continued market weakness in metal casting and European Refractories.

Well the shutdown at two paper machines in North America.

[noise] the operating income bridge shows that the volume mix and higher raw material costs had the largest impact.

Our pricing actions continue.

Generating $1.1 million in the quarter.

We also had one time items, resulting in an unfavorable comparison to the prior year, including corporate mark to market adjustments and a higher provision for bad debt.

We generated $2.6 million of savings from our restructuring program in the quarter.

And we're on pace to meet our $12 million annualized savings target.

Operating margin was impacted by volume and mix, that's the largest impact this quarter came from the unfavorable onetime cost comparisons.

Earnings per share excluding special items was 95 cents.

Our effective tax rate was 17.6% for the quarter.

Now, let's review the full year results.

Sales for the full year of $1.8 billion was similar to 2018.

However, there were a number of factors that affected our sales.

The unfavorable impact of foreign exchange was largely offset by four months of incremental sales from Setomatic, which required in may of 2018.

Each parents market driven decreases of metal casting European Refractories, talc, and North American P. C, which were partially offset by growth in household and personal care environmental products and energy services as well as pricing gains across many of our businesses.

In terms of operating income lower volume and product mix had an impact of $17.5 million, mostly driven by the sales decrease in our metal casting business.

I see an action totaled $23.1 million for the year and largely offset the raw materials and other input cost increases we experience.

Operating margin was 13.1% of sales with a lower market driven volume and product mix, having the largest impact year on year.

2019 earnings per share excluding special items for $4.23.

I don't forget the segments in more detail starting with performance compares.

[noise] performance material sales were 3% lower than the prior year.

Generally driven by metal casting.

So continued weak demand in the foundry market and lower volumes and pricing them specialty sense.

As Doug noted.

Metal casting penetration in China continued with Greensand bond sales growing 14% in the country.

Household personal care and specialty sales increased 4%.

Driven by higher pet care and specialty products.

Building material sales increased 12% on stable North American construction activity.

Environmental products sales were 9% lower than the prior year due to the timing of projects.

As Doug mentioned full year environmental products sales grew 8%.

We continue to drive this product line toward a more profitable mix, including our higher value resistex products and water remediation solutions.

Segment operating income was $23.2 million.

From the prior year was largely driven by the lower metal casting volumes.

Higher raw material costs.

Now looking for the first quarter, you see similar market conditions to the fourth quarter and the majority of our product launch.

You see continued growth in our consumer oriented in specialty businesses.

Building materials and environmental products should experience a typical seasonal uptick in March.

And overall for the segment, we expect operating income to be similar to the fourth quarter.

Let's move to specialty minerals.

Sales for this segment were relatively flat versus the prior year.

Growth in paper PCC in Asia.

Driven by the ramp up of the new satellite and capacity additions was offset by lower sales in North America due to paper machine shutdowns.

Specialty PCC products increased 2%.

Due to higher volumes from our demand driven expansions and sales of process minerals were flat overall, that's higher GTC offset lower talc sales.

Segment operating income was $19.4 million.

The year over year change was primarily due to the paper machine shutdowns in North America.

Lower paper PCC volumes in Europe, and lower talk sales into automotive applications.

You're focused on growth initiatives and PCC to offset market declines in North American paper.

That's the pilot it.

In the process of constructing approximately 250000 tons of additional capacity in Asia and Europe. We're also expanding capability in specialty PCC.

Now looking to the first quarter, we expect the market conditions that we experienced in the fourth quarter to continue for PTC.

And a typical seasonal uptick in March for processed minerals.

Overall for the segment, we expect operating income to be similar to the fourth quarter.

Let's turn to refractories.

[noise] refractory segment sales decreased 6%.

Hi, Merrily due to the continued soft steel market conditions in Europe.

We also experienced lower U.S. volumes, that's real results of several furnace three lines in the fourth quarter of 29 team.

He's reliance had a temporary impact on customer demand for our products.

Newly released in front of says require less monolithic through factory for a period of time.

Laser equipment sales were a highlight of the quarter with December installations, the highest on record.

Now looking to the first quarter, we expect though refractory volumes due to the furnace re lines as well as unplanned furnace outages at to U.S. integrated Mills.

We also expect fewer days or equipment sales coming off the very strong fourth quarter.

Overall for the refractory segment, we expect operating income to be lower by $1 million sequentially.

I will get energy services.

[noise] energy services had a solid quarter.

Sales up 16% and operating income up 9%.

Sales growth was driven by higher well testing activity in the Gulf of Mexico.

As well as increased demand for our services internationally.

In addition, we're seeing strong pull through from our Orca technology offering into Brazil, and Asia Pacific Deepwater markets.

The strong pipeline of process equipment sales.

And we see well testing activity remained stable.

Overall for the segment, we expect operating income similar to the fourth quarter.

Moving to our cash flow and could it even quarter.

[noise] generated $80 million of cash from operations in the fourth quarter, bringing the full year total to $238 million.

Full year free cash flow through $173 million, which was up 36% from 2018.

And in the fourth quarter.

We used our free cash flow to make $23 million debt payments.

We purchased 20 million of shares under our $75 million share repurchase program.

Our total liquidity is strong.

Cash equivalent to $243 million at the end of the fourth quarter and $200 million available on our revolving credit facility.

Our net leverage ratio stands at 2.1 times EBITDA.

We will continue our balanced approach to capital deployment and 2020.

Now let me summarize what we are seen for the first quarter.

Overall, we expect generally similar market conditions to the fourth quarter in all segments.

If he we see continued growth in our consumer oriented specialty product volumes.

In addition, our pipelines and environmental products and energy services are strong.

However, in the first quarter, we expect North American refractories volumes to be impacted by for industry lots.

Finally.

We're closely monitoring the developing situation in China.

Given the events happening in the country.

We could experience extended downtime.

Which would impact volumes and metal casting and paper PCC.

Some.

We expect first quarter EPS to be between 90 cents and 95 cents per share.

And now I'll turn it back over to Doug to share our perspectives and key priorities for 2020.

Thanks, Matt.

Before beginning that Q and a portion of the call.

Let me provide some high level things on the year ahead, and our operational and strategic priorities.

First off our team is energized aligned behind our culture and objectives and prepared to execute on the attractive opportunities in front of us as well as navigate potential obstacles.

As we start the year conditions in our key end markets are similar to what we experienced in the second half of 29 King.

On different however, as our customers is largely a adjusted their inventories to these lower demand levels.

We expect these market conditions to remain through the first quarter and our visibility to any improvement beyond that is limited right now.

Against this backdrop, we're well positioned to benefit as these markets strike.

The positive momentum that we generated last year across several of our product lines and geographies will continue.

And we have a number of projects ramping up throughout the year, the combination of which lay the foundation for sales and profit growth in 2020.

We'll be bringing online more than 250000 tons with additional PCC capacity in Asia and Europe.

Driving volume growth later, this year and into 2021.

In specialty PCC, we anticipate another solid year supported by our capacity expansions.

A metal casting business will continue to penetrate large global foundry markets with our engineered Greensand bond formulations.

Build on the momentum we generated last year in household personal care specialty and environmental products businesses.

And in energy services, we expect another solid year with a strong pipeline of offshore well testing and filtration projects.

New product development continues to be a priority for us. This year will further accelerate our product development processes and introduced an increased number of tailored products that address our customer needs.

Well also be focused on margin improvement through pricing actions across our product portfolio.

Savings in our supply chain as we've seen inflationary pressures begins to taper.

As well as cost control and productivity improvements.

In addition, the cost reduction initiatives, we implemented in 2019 will help drive margin growth this year.

Our strong balance sheet.

Our debt levels that debt at target levels gives us the flexibility to deploy capital to shareholders through dividends and share repurchases.

And also toward acquisitions, where we have a healthy pipeline of opportunities, but aligned with our strategic growth initiatives.

To sum up the year ahead, we see a positive 2020.

Some uncertainty in the first half of the year, giving way to a stronger second half.

The growth projects, we haven't had take hold.

Before turning it to questions.

Given the rapidly changing health situation in China I.

I thought I'd take a moment to address how this pertains to MTR.

First and foremost our focus is on the safety and well being of our 500 employees there.

Well also maintaining close communication with our customers and suppliers.

Yeah 15 locations in the country, none of which are in the <unk> province.

Closely monitoring this fluid situation I'm in daily contact with our leadership team there.

With that let's open up the color questions.

[noise] seem I might ask a question, Chris I know by pressing star one on your telephone keypad Imperium Speakerphone. Please make sure you hear me a function it's turned off some of my ears Technoserve <unk>.

Again that is star wine, if he wants to ask a question.

Well take our first question from Dan Moore with CJS Securities.

Good afternoon, guys. This is a brendan on for Dan. So I wanted to ask if you go back to you mentioned at the end with the kind of Iris I know, it's probably changing by the day, but I guess.

What would you.

Sarah that either I guess potential first second derivative kinda impacts on the business and and you might have mentioned this bank at you, but does it did that impact your EPS guide for once you are you still I'm still unsure.

Uh huh.

How can affect you just because it's I was just again changing Benedict.

Yeah. It is a pretty spread and it is a a fluid situation. We're certainly on top of it contacting daily with our with our employees there.

At the moment, so all of our employees are safe and healthy.

But we continue to monitor that are constantly you know right now we have 15 locations there like now or save one our seven PTC plants are all operational except for one.

Which will probably be down until about the the 10th of February or other five locations, primarily metal casting locations will likely be down until February 10.

Again, we're continuing to monitor or both our supply chains and customer activity to make sure that a word supportive of all that so that's where our employees are located.

You know many of our facilities are located in areas that are currently affected but that obviously could change. So we're monitoring that I guess from your guidance situation. Your guidance question or guidance you know in the first quarter, we always a.

Build in some additional outages that typically happen in some of our customer base you know normal years around linear hall of Chinese holiday Amir.

So we did that in that guidance. What it doesn't include is any significant extension and what's going on and that that we just can't measure that at the moment.

But we do have some built in there for some extended outages, but if it continues on for a longer period of time, that's certainly going to affect bps.

Great. Thanks, and then a question just with a changing gears a cap allocation nearing that two times leverage.

Yeah.

Were you said, you're more comfortable and and obviously you did.

My back this year, I guess, where are you thinking for 20 funny I.

A balanced approach so.

Opportunistic M&A and some buybacks.

Are you thinking.

Yeah, you know we currently have a a 75 million dollar a one year program authorized by the board and will be executing on that I guess the way. We look at today's now that our debt levels are kinda to our targeted levels. We we look at us during that toward share repurchases. The preference, but also you know we continue to look at acquisitions and.

They ebb and flow we might pull back on that Cheryl.

Repurchases since your to what we feel our attractive you know strategic growth acquisition. So I think it's both we'll see how we'll see how the year plays out on both fronts, but right now the priority is executing on that 75 million dollar program.

And through the end of the fourth quarter, we had already purchased $20 million under that program.

Okay, great. Thank you guys appreciate it.

But let me just go back 'cause it might be another question just to frame up.

Yeah, China, our sales on a and then given quarter and trying to around $35 million.

Margins are little bit lower than there are on average for the company just because in some of the new developments in startup costs that we have there, but that give you an idea of like a full quarter kind of impact.

So you know has an impact but it's not overall, it's about 8% of filled with a company. It's not the overall significant to the overall operations in the annual a quarter for the company.

Okay great.

Got that thanks.

Our next question from Sucky Kian JP Morgan.

I still running.

Thanks.

Non.

The being able to <unk>.

Yeah.

I am I right.

HM.

Yes guidance.

On price expectations that you have.

For the first quarter results for like the phone here in terms of selling prices.

Yes, Okay I, yeah, as we looked at the the first quarter guidance you had seen is a very similar market condition or moving from the fourth quarter two the first quarter.

And so the overall volume level and the mix that we have will be fairly consistent from a pricing perspective, I think you've seen us over the course of the last 10 12 quarters continue to drive pricing against inflationary factors, but also to get the value of our.

Products that exist or through the value contribution we provide to our customers that's going to continue.

So you will see us on pace with what we've experienced over the past couple of quarters in terms of overall pricing deltas on a year over year basis.

Okay.

Helpful.

I was also wondered what you can.

Talk about what was behind the this strong growth in building products position in the fourth flat. What's your thought was up 12% to set up.

Oh sitting and you should think land prices now Mike and how is that just from a falco five for that.

In January.

Yeah. So this is John good morning. Thanks for your question building products like you saw we had a good quarter I'm one of that as you know timing of projects as you know this Ah. This business is highly dependent on construction markets worldwide.

We have already fairly robos robust Ah portfolio, we're introducing new technologies. So those.

Certainly would go in our favor as our customers recognize the value proposition that we have and you know looking forward, we were pretty well positioned with our with our products are sales team or more production capability worldwide, which as you know weve restructured over the course of the past year and Uh Huh.

But the <unk> the fundamental reason that customers typically buy from US is the technical support that we provide them as well. So so looking looking forward, we're well positioned to take advantage of the construction markets I'm the portfolio ebbs and flows based on timing and a new affordability to spend by the.

The building owners are the municipalities that are just another building.

That's okay. So yes, that's helpful thankful for that.

Asks the last question on the metal casting business.

Did you have how do you asked to whether the automotive from office for being able to be better flat panel on like I realize the first quarter, but particularly difficult, but do you have a.

He gave a concept for you know what you expect before they can you or do you think takes one of the portal forget think they'll be blah nationally there.

Well right now I've got a couple of different statistics that had been looking at and we're trying to marry that with you know it's not just automotive I think automotive is probably about 40% kind of some of the end market exposure enough for foundry customers and that includes North America.

And China, and India heavy truck other agricultural off highway is the other other big sectors right now it looks as though into the automotive market is going to be down a little bit that but I think we're feeling from our customers right now it seems flat and right now we're not seeing anything changed from an upward trajectory or downward food through the first quarter it seems to feel.

A lot like it was in the end of the third quarter fourth quarter.

And then to this first quarter. So largely right now is flat I can't you know were constant contact with our customers it doesn't seem.

They're giving us much information on what they see past.

This past March it's it's too hard to in terms of the uncertainty out there heavy truck lower than last year, that's going to have a smaller impact on the metal casting bought volumes I guess, what I'd characterize it to the first quarter, it's going to be about the same and right now we're looking at relatively flat flat market. The differences I mentioned in my comments is that what.

We experienced last through the third and fourth quarter with a lot of de stocking we saw that across some of our our markets. We have seen that many of our customers have adjusted those inventories and so I think that compounding effect is largely over so I think it should there be a catalyst that changes things and somewhat positive direction.

I will benefit from that pretty quickly.

Thanks, Josh.

Thanks.

Well now take our next question Simon Rosemarie Morbelli, but can't research.

Good morning, everyone.

Correct.

Could you touch on you've tried to accept you mentioned that fit new projects I mean, yeah revenues increased 10%.

Can you talk about.

The shot their sights set on which tend to can't apply and then can you talk about 18 chems fat legions shot a regional success.

Sure.

So our new products I'm trying to see I can characterize is for you.

The way, we talk about a good growth in new products does anything that we've kinda commercialized there was a fast past five years, we generate revenue from those services are continued new and ramping up and and revenue from those new products has grown to 10% over last year. So there seems to have increased traction from those new products. They are you know there.

There are across our businesses I would say you know given the size of our performance materials business. The majority of I'm not the majority, but more than half of them are in that business is a lot of innovation going on across the broad product portfolio and our personal care business.

In metal casting a John mentioned, our building products with new waterproofing products and of course, our environmental so with our new remediation and specialty products. So there are a broad range and they apply globally.

In PCC or we mentioned, our new technologies kind of environmental addressing environmental issues and hikes filler technologies for paper customers.

So the majority I think of the new product revenue growth is in a.

Paper is in the performance materials business.

I want to leave out Refractories, we've got a number of new hybrid and technologies, that's moving us deeper into the D.A. aftermarket as production shifts are far away from you know over time away from be west and that's been a big driver. So it's really across the company.

And it is it is globally, we generate did about a 100 and you know over $100 million from new products. This year.

Tell you.

A lot of that goes to replacing ourselves. So there's probably 50 50 in terms of whats in a really new growth new avenues, and then 50% its upgrading a product for a customer need.

And replacing an older product to keep things.

The proposition fresh so.

Hopefully that characterizes a bit of the new product development, we see that growing.

A growing next year.

That's very helpful things, a and that brings me to my next question, you said that more than half of the new projects, what she new age it came to foamix material from it I guess I'm into jail AIDS that would be on me one of your segments even lodging.

And then what I was expecting I suppose to all lumpy that business, which seem to have done better than my expectation speech was based on your guidance at the end of the said corridor.

Can you give us a C O spot.

Why you'd need better I mean, some than you anticipated and then within performance materials. While you have a lot of me topic, which I would guess has a higher margin.

They do I guess, so what are the way I'll answer. The question is performance materials was one that showed you the impact on our mix. The majority of that mix change shift is was shifted into in in performance materials. So I would say, though the decline in metal casting Oh go.

Locally or which has been one of our larger segments and also code has a a nice profit margin to it didnt wasn't not fully offset by the environmental products.

And the other product lines in that segment, which right now as we've mentioned our lower margin right now, but we've been moving them up through that specialty so as those margins expand in those other products that will aid the margin recovery in that segment, but the biggest issue.

In terms of margin in that product line for that segment has been the mix shift from metal casting to these newer and developing growth growth segments growth products. So the other businesses more stable in terms of their mix.

In fact, it in paper in terms of volumes this quarter, but their mix, which should mean their margins have been much more stable as we've seen.

Okay and.

If I just [noise].

And easy questions. Scott interest expense was about 9.9 million in different in the fourth quarter at substantially lower as you have to pay down debt. If he said good number to use of the next fourth quarter.

Yeah. So rosemary two factors in the interest expense that you'll remember we have a component that's floating rate that that's probably about 40% of our overall that and the rest is fixed and so as interest rates have come down in that market are you seeing a rate move a bit lower.

But then we've also been paying down so assuming that that rate stays fairly flat. That's a that's approximately $10 million isn't isn't good estimates use going forward.

Oh, Okay, and then actually you mentioned a in a in your prepared remarks, some that bad debt.

You touched on that what is the dollar amount <unk> and given the environment out there are you expecting a lots more going forward.

No to the last part of that question on expecting more bad debt going slower. This was a singular customer issue, where we are essentially resolved and ongoing dispute with the customer and specialty minerals.

And so the overall impact of that if you look at the bridge I provided on operating income was in other bar that was about $6.6 million.

About half of that is related to the mark to market that sits in corporate and the other half was the provision for bad debt.

Okay. Thank you.

Next question will come from David It sounds from C.L. King [noise].

Oh, Okay fine.

He is.

I had a few questions I think the first question.

I was hoping to get a little clarity on would be related to your PCC business.

And I.

Personally I kinda consider 2020, a major kind of transition year for that.

Foundational business. The yours, you had the number of satellite plants due to start up.

And I'm also kind of wondering if there are rating.

Further shutdowns that are that had been announced that maybe not executed so would I be correct. If I used to do a waterfall over cascade or whatever that may be this business will finally turn.

Clearly positive year over year, a in the second half of this year is that your expectation like what are they kind of the moving parts that we should keep in mind as 2020 progress.

Yes.

Sure. Thanks, David So he started off.

Highlighted in my comments, what we're building this year and so yes, most of that will come on in the second half and so I do think that that turning point is next year.

It is in the second evidence here, let's have a number of other projects and new technologies that are also again packaging.

Our new filler technologies.

But not just the based filler that we're building and so we have a number of different fronts that we're working on growth executing our last year, but regarding the timing of that waterfall that you had mentioned when they turned over the DJ needing to be more specifics on a when these are coming on line.

Yeah. Thanks for the question. There's a couple of up couple of dimensions I want to put all right. Let's let's first just make sure you're a clear on what what's coming because you'd asked about the other announcements are things and last year and international paper had announced that they'll be taking down a machine in their Riverdale mill.

Which is in North America.

Net effective that is some 50000 tons that that will be.

Lost in that.

At that location now.

They are putting in a packaging line.

And we're going to be participating in that conversion of the packaging, so they'll be making white top line or so so its 50000 tons that are coming out and then some time or replacing that will be probably it.

We'll probably get 40% to 50% of that Fac.

And it'll be a much more we believe sustainable revenue stream at that location. So that's part of our shifted new technologies there the other than that.

Volume that is coming online Doug had mentioned that we.

Started a expansion in India that expansion.

Plus a new satellite will be coming online at the end of the first quarter and that's about 40 to 45000 tons.

In the second quarter, we'll be starting up the another opportunity in India, which is some up 50000 tons are so low so recognizing that profit impact and that probably in the third quarter, Oh, we announced a packaging a satellite and you.

Correct.

The satellite won't be finished that expansion won't be finish until 2021, well we've been able to do some de bottlenecking on lot and well start seeing increased volumes come on line up for that in the fourth quarter.

As well so.

Long winded way of saying that in that second half a especially towards the end of that have this substantial volume coming on there's a very big piece in volume that is coming on with a cut in China with Chen Maine.

It's the name of the customer that's 150000 metric tons that a we'd expect to start bringing online late in the third quarter early in the in the fourth but that'll be a slow ramp up given the magnitude of of the opportunity.

And on top of that we've discussed a pretty robust pipeline in the past and let me just affirmed that that continues to move along pretty well.

In the past I've expressed some 20 opportunities that that's still exists 20 opportunities.

And it's across.

Three sort of up technology lanes.

Traditional PCC that goes into printing and writing grades, especially in Asia.

And some packaging grades that are in the more developed regions on top of that we've got a douglas highlighting environmental products. We've got some further pursuits and pretty advanced discussions on environmental products products that we call in virus, Phil and new yield and then we've got some new things that we're trialing out and packaging is.

Well.

So that's that's the paper component and then when we were very excited about the expansions that are coming online for specialty PCC as well, which should show up in that segment as.

I I you know good element to growth in 2020 as well.

So David only just to summarize that what we're bringing on in the first half of this year largely filled the whole there was created last year from shutdowns.

In the second half of this year, there's another 200000 tons coming online that will ramp up through the second half and into 2021, that's gonna be that growth.

In addition to that did you mentioned the number of different technologies that we've dealt with the environmental that's all incremental smaller volumes, but also incremental to that whole story that help.

Yeah. Thank you very much setting the agree.

<unk> color and I'm just thanks in particular mentioning the.

Transition, it's kinda <unk> no it wasn't aware.

I Wonder, who maybe circle around to the Kamineni question, maybe from a different angle.

So I think and one in the Refractories area one of your major global competitors.

Announced an acquisition.

The U.S. competitor I think yesterday or the day before.

And.

You know to my eyes <unk>.

Kind of strategic terms.

They would how they want to leverage that that investment.

So in general I mean, where are you aware where are you bidding on that or was it was a three.

The refractory area is something of interest to you and how do you think the the entry of you know a very large global competitor.

With the strategic focus on that area at night, Mike So the competitive or balance in the U.S. Mark. Thank you.

Sure.

So let me say, yes wherever they tend to end of the company, let Brett Argerich US who runs our refractories business talk more about how that fits or doesn't really fit with what we do but we were aware of it. So we understand the competitor, but I thought I think that's geared toward a different a different strategies in the ones. We are in terms of furnace.

The lines and maintenance suppress give a little color and what looks like you know.

Sure sure. Thanks, David Yeah, as Doug said, we were aware of the.

The acquisition you know the buying company is is it was already position a it's a global company and they're well position that the the purchase the company is a smaller mid west based company and they serve he serves some of the markets that we do exactly served markets. There are small there.

Smaller.

They're not currently a major competitor of ours a their focus is more on the illumina based products casket, those rambles waters and shapes, that's a very small part of our business in some cases, it's not even any any part of our business at all but our focus.

Is more on the Magnesia base refractories or basic refractories as we call them.

And we focus more on the furnace repairs in becomes a bigger meals. The in both electric furnace, Suzanne and integrated so again.

Maybe a good fit for for the buying company, but yeah. It's it's something that there isn't a big impact to our business. Yes, just other we're aware of David but not something that has say fits our strategy and what we where we are in these mills npls in the H.I. furnace.

I don't Davis's type thing.

Thank you for that let me just ask and their time for one or two more should I get back in Q.

Sure I was kind of the question good.

Okay, great. So I have one for Matt and it would kind of be you know variation on the question that we're down to earlier, but when you do look at the interest rate.

Rate structure here, I mean niches and I don't know to me I never expected to see rates quite the level again.

So I understand you know if you just maintain the current capital structure. You know, we can kind of tough south the the trends within interest expense and it will go down a little bit but from your from your perspective are there any opportunities here in other words.

You know would you refinance easier to meaningfully lower your overall interest average interest rate or maybe change the term structure of what you have out there, but does the current interest rate environment present, you know.

Unusually good or structural opportunity for you.

[noise]. So we are benefiting like we said you know we have a a good position in floating rate debt. That's allowed us to take that actual rate difference down as markets have moved down.

I think as he as we look longer term for US we have two real big components in our debt structure. We have a a note that is due in 2021 and then one that's doing 2024, and we've been paying down the 2021 position.

Currently sitting and debt position of about 100 to 200 million Dollarss and so the way that we've looked at it a bit in that you're hedging the cash flow generation that we're expecting for 2020 again, we're expecting that $150 million level in play with a capex between 70 and 80 million.

Dollars that gives us that flexibility and that's why Doug and I talk about the balance approach to capital deployment, yes, you're seeing a share repurchases to go up as we near the two times a target level on net leverage but also maintaining flexibility in that capital structure.

And giving some additional cash flow to debt pay down and taking care of that 2021 will be a an opportunity for us looking longer term.

The maturities themselves don't present, a significant risk to us, but as you said a with rates where they are prevent the presents an opportunity potentially to term out at a relatively attractive rate and maybe get some of that fixed and so we're looking at all of those options, but given the cash so we have the flexibility.

We have a with that cash flow and the or the the terms that we have in order to major tranches and I'm right now there's not a significant amount of urgency and let me just also add given our average rate of that is about 4%.

That's a that's very attractive as well.

Okay, and if I could just to squeeze in one last one this would be maybe more of a philosophical question for Doug.

But you know you've you've been a in charge for a number of years and over that time.

By the way my questions about organic growth for them.

Over the over that time, he's done a tremendous amount of work internally and put out you know.

An array of new products and have repositioned your assets geographically significantly, but you know the topline still is hovering around that 1.8 billion dollar.

Ah area and you know it remains a tricky macro environment.

[laughter] from your position do you think the.

Your company is now.

Position Kinda drive.

Topline growth organic growth going forward on an annual basis, even if the macro environment in particular, no orders and steel and paper you know the macro demand levels. So don't change so much in other words, how much of a cyclical Rick.

Coverage is required for your topline to start to show meaningful growth relative to you know internally develop new products in application. Thank you.

Well, let me, let me start by saying cousin industrial minerals company, we're going to supply a variety of industrial minerals segment or industrial segments that have some cyclicality to them. So we are going to see the ups and downs of automotive and construction and that that's going to be a piece of our company.

And Steve it's been a or I guess, what I can tell you is what had been working on him with his team has been working on is to start to put ourselves in position to do it said to developed products or to put ourselves in geography is that avail ourselves too much more sustainable in long term growth so pools.

Opportunity that we have the capability to serve and also that have less cyclical or non cyclical, but also more steady growth rates and that's why I talk about today areas big pulls up opportunities for things that we do like in metal casting, but in big pulls in China, and India basically applying what we do and same with PTC applying.

What we do.

Well quickly, but why and what we do today in North America to other areas, but there are things like when I talk a lot about household and personal care and specialty these are products that address more consumer related markets and color.

And they are also as larger pools of opportunity for us, where we have unique capabilities and vertically integrated to supply, but they also have more steady growth rates associated with them. So there's more work to do no doubt in terms of making sure that our technologies are not just fillers in paper, but they apply.

To a broader range of packaging and environmental issues that these papermakers phase.

Moving ourselves into markets, such as environmental consumer product oriented markets that are mineral based but that have more stable growth rates and larger opportunities. But then also focusing on doing what we do really well around the world in our large positions like metal casting and applying them to other big pull the profit so yes I.

I think there's more to do that is the strategy that we've been under in terms of moving ourselves that way you.

You're gonna see overtime as you saw this past year that cycle and our mature businesses, you know take away, but I will tell you that what we've delivered in this past year on these new products and what will continue to deliver a we feel going into 2020 is probably $50 million to $60 million, that's kind of base run rate growth.

Just from what we have in hand.

So the satellites, we haven't had the new technologies and our run rate that we've developed over the past few years and the products I mentioned is a 2% to 3% growth rate next year, if nothing else happens.

Should markets recover we come out of that cycle that compounds.

So I've always stated that this business thought up I know, it's never natural but on a regular run rate should grow at about five you know mid single digits person and as we continue to with our operational excellence initiatives and drive margin improvement I think that creates pretty LP story for earnings growth over the long over the next several quarters.

Outdated.

Yeah, I know that was great color I appreciate that thanks very much.

The middle.

Well now take our next question it sounds a lot from something that went to JP Morgan.

Okay, I spoke of hard to Syria.

[noise], it's a better sorry about that yes, yes, yes.

I thought that I'm, sorry in tempting restructuring savings my memory is set you sent you would be at the 12, playing a run rate in the first quarter and so maybe you actually sent you know restructuring savings while I don't know four to 5 million in 19, maybe 10 to 12 million in 2020 <unk> do you think the majority of that will slow down to them.

Bottom line well what did the offsets to that and I'm also wondering why don't you from.

To remind me talking about where you think the savings might show up in the second basis.

[noise] outsized <unk>. The second just sorry can you just repeat the last part of that question soak up.

Oh I was just wonder when do you might need which segment should benefit most from John I was trying to kind of cycle.

Got it absolutely. So I think your math is is a is right actually when you look at it a you're you're seeing in the 2019 timeframe.

Capture of about five to 6 million, which means incrementally you're going to benefit from the restructuring savings.

About a that amount and 2020.

When you look at what has been somebody offset so in terms of the overall bridge process. We in this quarter you saw some of those onetime items right, which was a relatively big impact and so as as we look forward.

Not looking to really have a determination on whether we have those onetime items are not again, because they're really driven by some outside factors, but if those don't recur a that that should be phone dropping to the bottom line and the biggest piece of where you are seeing.

The savings come from isn't that performance materials business, but really it's been across the portfolio.

Where we've been taking opportunities to gain efficiencies and to pull some savings out I think we've told you know a large portion about has been on the people side. So.

If you look at 2020 will be impacting the bottom line offset here in the fourth quarter by some of those one timers and should become an across the portfolio.

As as we move forward.

Yeah. So we're confident we're looking very hard I mentioned in my comments on cost control given the market environments. We have you know all of our employees are focused on continuous improvement productivity improvements.

The discretionary spending you know and this kind of environmental very focused on costs, you will see incremental five $7 million is after restructuring coming through on a year over year basis in 2020, and we're going to continue to look at ways to save money as we continue through this kind of market environment. So that's a that's part of our DNA and we're going to continue with that and 2020.

By the way circa sorry, I think part of your question was not only what segment the where is it right and I think we've told you previously that a big piece of this was taken in the in the cost of goods sold so in the operations and plan administration I'm, so not necessarily in upstream.

Thanks very much.

[laughter] say much turn the call back you can't Miss Buckwalter for any closing remarks.

Hi.

Thanks, everyone for joining us today, we have probably speaking with you again can have a paintball.

[noise] [noise] kinda once again that does conclude today's conference. We thank you won't see your participation you may now that's kinda.

[noise] [noise].

[noise].