Cabot Corporation
Q4 2013 Earnings Call Transcript

Published: 30 Oct 2013

[Operator:]

Good day, ladies and gentlemen. Welcome to the Fourth Quarter 2013 Cabot Earnings Conference Call. My name is Tehicia, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Erica McLaughlin, Vice President of Investor Relations. Please proceed.

[Erica McLaughlin:]

Thank you. Good afternoon. I would like to welcome you to the Cabot Corporation Earnings Teleconference. Last night, we released results for our fourth quarter and full fiscal year of 2013, copies of which are posted in the Investor Relations section of our website. For those on our mailing list, you received the press release either by email or fax. If you are not on our mailing list and are interested in receiving this information in the future, please contact Investor Relations. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of the call. I'll remind you that our conversation today will include forward-looking statements which are subject to risks and uncertainties, and Cabot's actual results may differ materially from those expressed in the forward-looking statement. A list of factors that could affect Cabot's actual results can be found in the press release we issued last night and are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly in our last annual report on Form 10-K. These filings can be found in the Investor Relations portion of our website. Also, as we typically do each year, I would like to remind you that, over the next several months, in connection with the vesting of restricted stock awards issued under our long-term incentive equity program, officers of the company may sell shares to pay tax and other obligations related to their award. I will now turn the call over to Patrick Prevost, who will discuss the key highlights of the company's performance. Eddie Cordeiro will review the business segment and corporate financial details. Following this, Patrick will provide closing comments and open the floor to questions. Patrick?

[Patrick M. Prevost:]

Thank you, Erica, and good morning -- good afternoon, sorry, ladies and gentlemen. I plan to cover a few areas today, starting with our fiscal 2013 highlights. I will then spend a few minutes discussing the performance of our Advanced Technologies segment and then move to our fourth quarter highlights before turning it over to Eddie Cordeiro to talk about the financial performance of the fourth quarter in more detail. In fiscal 2013, we delivered a record of $529 million of adjusted EBITDA, which is 5% higher than fiscal 2012. We achieved this EBITDA level through several means

[Eduardo E. Cordeiro:]

Okay. Thank you, Patrick. For the fourth fiscal quarter, total segment EBIT from continuing operations was $98 million, which was $2 million higher than last year's fourth quarter. The increase, compared to the prior year, was driven by higher volumes, partially offset by lower pricing in Asia and Europe for Reinforcement Materials; and higher costs from the reduction of inventory levels, most notably in Performance Materials and Purification Solutions. For fiscal 2013, total segment EBIT decreased $25 million. The decline was driven by lower volumes and unit margins from a challenging macroeconomic environment and increasing competitive pressures. We also experienced an unfavorable impact from reducing inventory levels and unit outages this year. I will now discuss the details at the segment level, beginning with Reinforcement Materials. During the fourth quarter of 2013, EBIT for Reinforcement Materials increased by $6 million or 15%, as compared to the fourth quarter of 2012. The increase was due to 4% higher volumes, as compared to the prior year, from a recovery in most regions. This was partially offset by lower pricing in Asia and Europe and $2 million of higher costs associated with the reduction of inventory levels. Sequentially, EBIT decreased by $2 million due to higher feedstock costs and continued pricing pressure in Europe and Asia. Volumes increased by 1%, driven by higher demand in Japan, Southeast Asia and the Americas. While volumes are improving, our utilization remained in the 75% to 80% range in the fourth quarter. We have been at this level of utilization for about 1.5 years, and it has put pressure on our pricing and profitability levels. We believe that volumes have stabilized and we are seeing signs of improvement. However, it will likely be a slow recovery. Longer term, we are optimistic about industry trends and our global leadership position in the carbon black industry. In Performance Materials, EBIT decreased by $1 million, as compared to the fourth quarter of 2012. Volumes in Fumed Metal Oxides increased 8% from new product introductions and the successful commercialization of new capacity. Volumes were 3% higher in Specialty Carbons and Compounds, though with a less favorable product mix. The volume increases were also offset by $5 million of higher costs associated with the reduction in inventory levels. Sequentially, Performance Materials EBIT decreased by $2 million principally due to a less-favorable product mix. This was partially offset by 3% higher volumes in Specialty Carbons and Compounds and 1% higher volumes in Fumed Metal Oxides. We were pleased to see an increase in Specialty Carbons and Compounds volumes in the fourth quarter. We saw growth in the more mature markets of Europe and North America, in addition to China. We're cautiously optimistic about these recent demand trends and the positive impact of what appears to be a gradual European economic recovery. Fumed Metal Oxides demonstrated another strong quarter with year-over-year volume growth. Our China volumes have grown all year with our new capacity, which came online in late 2012. And we've had increasing success commercializing new products for the adhesives and silicones markets. Advanced Technologies EBIT increased by $10 million from the fourth quarter of fiscal 2012. The EBIT increase was driven by higher rental activity and the completion of significant rental jobs in the Specialty Fluids, higher royalties and technology payments in Elastomer Composites and cost savings from segment restructuring activities. Sequentially, Advanced Technologies EBIT decreased $1 million, as compared to the third quarter of 2013, due to $5 million of Aerogel royalty revenue in the third quarter of fiscal 2013 that did not repeat in the fourth quarter. This was partially offset by higher volumes, royalties and technology payments in Elastomer Composites. Specialty Fluids activity levels remained strong this quarter. Although quarterly variability will continue for this business, we have a strong pipeline of projects that are slated to use our cesium formate. Inkjet Colorants and Elastomer Composites continue to perform well. In Inkjet Colorants, we continue to see strong demand for commercial printing and office applications. For Elastomer Composites, we recognized $4 million of royalties and technology fees related to our agreement with Michelin. We expect to continue at this quarterly run rate through fiscal 2014. Our restructuring actions also contributed to the strong quarterly performance. We are very pleased to see this segment contributing so positively to results. This quarter, we began allocating indirect functional cost to the Purification Solutions segment. Having owned the business for 1 year now, we have developed a clearer understanding of the resources consumed by Purification Solutions. In 2013, we allocated cost to the business, as we do to other segments, and we recast quarterly segment operating income to include certain functional and indirect costs, which resulted in approximately $10 million of annual costs now allocated to the segment. This had no EPS impact and resulted in a -- in modest cost reductions in the other segments and unallocated corporate costs in prior quarters. We have not recast any preceding years, and therefore, fiscal 2012 does not have any allocations included in the figures. EBIT for the fourth quarter of fiscal 2013 was a loss of $8 million. Adjusted EBITDA for the fourth quarter of 2013 was $7 million, which compares to $19 million for the similar period last year. The adjusted EBITDA decrease of $12 million year-over-year was driven by lower volumes and pricing in the gas and air purification end market, $4 million of higher costs associated with the reduction in inventory levels and $2 million of higher corporate cost allocations. Sequentially, Purification Solutions adjusted EBITDA decreased $5 million due to higher costs and the timing of a royalty payment. The higher costs were associated with asset repairs and the reduction of inventory levels from unit outages that occurred in the third quarter of fiscal 2013 and extended into the fourth quarter. In addition, a $3 million royalty payment that was received in the third quarter of fiscal 2013 did not repeat in the fourth quarter. Volumes increased by 5% sequentially, driven by growth in water, food and beverage and chemicals, but this was offset by a less-favorable product mix. We were not satisfied with the results for the full year of fiscal 2013. As we look towards next year, we expect performance to improve. The improvement should come from 4 areas. First, we expect the mercury removal market will show modest improvement. Second, other end markets should continue to grow by 5% to 10% per year. Third, we expect to see a benefit from our recent price increases. And fourth, we do not plan to continue to reduce inventory in 2014, as we did in 2013. In fact, we plan to rebuild safety stock inventory as we resolve the operational issues experienced in the third and fourth quarters. I will now turn to corporate items. We ended the quarter with a cash balance of $95 million, which was an increase of $19 million from June. Our liquidity position remained strong at $603 million. During the quarter, we generated $135 million of adjusted EBITDA, reduced net working capital by $139 million and spent $69 million on capital expenditures. Also during the quarter, $175 million of debt matured and we used cash generated from operations to substantially pay for the maturity. Therefore, we expect interest expense in fiscal 2014 to be approximately $5 million lower than fiscal 2013. We recorded a net tax provision of $7 million for the fourth quarter, which included benefits for tax-related certain items. Our operating tax rate on continuing operations for the fourth quarter was 24%, and for the full year, it was 26%. We generated strong free cash flow in fiscal 2013 as a result of our record adjusted EBITDA performance, reduction in net working capital and the collection of a portion of the proceeds from the sale of our Supermetals business. As we look towards 2014, we expect capital expenditures to be between $200 million to $250 million. We anticipate our operating tax rate for fiscal 2014 will be between 26% and 28%. We also expect to collect the remaining $215 million of cash from the sale of our Supermetals business in the second quarter of fiscal 2014. And I will now turn the call back over to Patrick.

[Patrick M. Prevost:]

Thank you, Eddie. We're pleased with the positive demand trends in a number of our end markets around the globe. Our industry demand is improving, and even though our first fiscal quarter is normally the weakest seasonal quarter, we expect demand trends to improve as we move through 2014. The European recovery is likely to occur, albeit at a modest rate. We're experiencing growth in South America and Asia, and the North American replacement tire market is improving. Local tire production in North America will, however, remain under pressure from import competition. The Purification Solutions segment continues to show solid growth in most end applications. And we have been actively engaged with customers in the North American mercury removal sector for carbon injection equipment and future supply of activated carbon. We expect the business to return to more normal historical levels next year. We expect continued momentum in the Fumed Metal Oxides business. And we project improvement in infrastructure-related applications in speciality carbons and compounds. We are pleased with the second quarter in a row of strong Advanced -- the strong Advanced Technologies performance, and we anticipate continued revenue growth in this segment in 2014. We're cautiously optimistic about fiscal 2014 after seeing signs of demand improvement in most of our global businesses. Thank you very much for joining us today. And I will now turn the call back over for our question-and-answer session.

[Operator:]

[Operator Instructions] Your first question comes from the line of Kevin Hocevar from Northcoast Research.

[Kevin Hocevar:]

I was wondering if you could update us. It sounds like you expect Norit to improve next year, for the reasons that you cited. I think, previously, you'd mentioned the returning to the $90 million EBITDA level in 2014. And I know there's an additional $10 million in costs allocated to this segment. So should we think of that still kind of maybe $80 million EBITDA then in 2014? Or does that number change at all based on how the business has been trending?

[Patrick M. Prevost:]

No. So you're correct, Kevin. We're looking at the business returning to the trend line next -- so this fiscal year 2014. And the numbers that you mentioned are correct. We're looking at $90 million without allocations and $80 million with allocations. And I think, in addition to that, the big disappointment this year has been the mercury removal market, and we're continuing to see that, that business is -- has been more difficult than we anticipated. We think we'll see some small improvement in 2014. But the other area that we're working very hard is the area around plant operations. We had some difficulties in the last 2 quarters, and we're getting through that. We're applying some of our Cabot operating standards and we'll have it fixed. And I think the last point I would make is that we're seeing the non-air and gas markets continue to grow at 5% to 10% and have seen that throughout '13, and we're expecting to see that also in '14. And we've put also price increases through recently. So all of that should get us to that return to the performance of 2012. And with the expectations through the MATS regulation that we're still looking at favorably kicking in, in 2015, that we would be expecting the business to reach levels of EBITDA of around $118 million -- about $180 million sometime in and around 2017.

[Kevin Hocevar:]

Okay. And looking at the Reinforcement Materials segment. Just looking at some of the geographies, it look like South America showed a big improvement, so same with Southeast Asia, it showed strong volume improvements. And then conversely, China softened a bit. So I was wondering if you can explain some of the geographic performance of particularly those geographies in Reinforcement Materials.

[Patrick M. Prevost:]

Right. Yes, and I realize that the way we report the numbers may cause some confusion, so I'll start with China. China is continuing to grow, so the negative 3% that you're seeing on our table is correct, but it's the result of something that's not directly related to China. As you know, we closed our Malaysian joint venture a few months ago and -- actually 2 quarters ago. And we're in the -- and we have been diverting some of the Chinese-produced materials to the Southeast Asian markets. And as a result, our comps on the local sales-to-market level have actually come down. But it's not a reflection on the growth in demand in China. And as you know, we've just started up a new plant that will actually pick up and continue to allow us to participate in that growing market. So China is a bit of a unusual situation in terms of that table. The Japan picture is one of recovery from the production problems we had at the beginning of the fiscal year '13. So beyond that, I would say we're seeing things going back to normal there, and the 8% growth in both sequential and year-over-year reflect that. We've seen some improvement in Southeast Asia. We're very pleased with that. We believe that some of these markets are actually not only growing of -- with regard to domestic consumption, but we're also -- we also believe that there are some export opportunities that have picked up again that would move tires into the U.S. and Europe. Moving on to the Europe, Middle East, Africa markets

[Kevin Hocevar:]

Okay. And then just final question. We're about a month into this quarter. Just wondering if you can update us on kind of demand trends, particularly in rubber blacks, and kind of your expectations for -- I'm assuming you're knee-deep in contract negotiations for 2014 for rubber blacks, so kind of an outlook for that as well.

[Patrick M. Prevost:]

Right. So on the contract negotiations, we're in the middle of it, so I'm not going to be able to provide any color in that respect, but as I mentioned or as we mentioned in our introductory words, we're still at, as a whole in the rubber blacks business, running at about 75% to 80% operating rate. And we've been at these rates, more or less, for 1.5 years. I mean, some of the swings in volumes have been absorbed by inventory either reduction or increase. But we've not seen the supply-demand environment improving, and that is still creating some pressure on prices in certain geographies. We still believe that we're somewhat off the long-term trend of growth in demand for tires that would equate to a normal economic environment. So we're currently expecting some recovery at some point. The difficulty is, of course, to get a sense for when that will occur, but let me tell you that we're -- we've been working very hard at being ready for taking advantage of a recovery and a rebound in the business.

[Operator:]

Your next question comes from the line of Laurence Alexander from Jefferies.

[George D'Angelo:]

This is George D'Angelo, on for Laurence. In your Specialty Fluids business, you guys have had 2 very strong quarters, and I was wondering if -- should this be viewed as a new run rate for the business?

[Patrick M. Prevost:]

George, I think I would take a very big risk of saying that this is the new standard on a quarterly basis. As you may know, this is a business that is lumpy. And we will continue to see that because most of the revenue is driven by projects, and it's very difficult to assess when these projects kick in, how long they last. But what I would say is that, in general, we're seeing increased adoption of the technology. And we've seen more projects lately and we're seeing increased understanding of what our speciality fluids can bring to the drilling of oil and gas in difficult environments.

[George D'Angelo:]

Okay. And just one more. Do you have any color on sequential demand trends in specialty blacks in the -- and in the mining tire market?

[Patrick M. Prevost:]

We -- on the mining tire market, I believe that, with the slowdown in the mining environment in general, that will have an impact. But I would say that the mining tire demand is a small fraction of the total carbon black demand, it's several percentage points only. And I think the other point I would make is that the -- there was an enormous backlog in terms of mining tire deliveries. So I think what may happen is that we may only see a reduction in that backlog rather than actually a strong reduction in mining tire impact on carbon black. I'm sorry, the other question was related to the speciality blacks, I think, business, is that correct?

[George D'Angelo:]

Yes, just color on that business as well, demand trends.

[Patrick M. Prevost:]

Yes, so we look at that business in general as a business that would grow in the 5%-or-so range in the long run. We -- however, as we look at the next quarter, we're moving into a quarter that tends to be seasonally weaker, so I believe that we're going to be looking at more of a flat quarter from a volume point of view.

[Operator:]

Your next question comes from the line of Ivan Marcuse from KeyBanc.

[Ivan M. Marcuse:]

Real quick, I didn't hear the last part of that. Are you looking for volumes to be either tracking sort of flat on a sequential basis in your reinforcements? Or is that referring to a different business?

[Patrick M. Prevost:]

No, this was -- I was referring to the speciality blacks business. So we're looking at flat volume for speciality blacks on the...

[Ivan M. Marcuse:]

What about for reinforcement?

[Patrick M. Prevost:]

Reinforcement, we may see a small reduction in volume in the -- sorry, I'm missing my -- sorry, I moved to the wrong business here. So we're looking at a small increase in volume in the -- so flat in speciality blacks and a slight increase in Reinforcement Materials in the fourth -- the first quarter of '14.

[Ivan M. Marcuse:]

How much were the plant startup impact EBIT in the fourth quarter on a sequential -- or in the first quarter on a sequential basis versus -- relative -- versus the fourth quarter?

[Patrick M. Prevost:]

Well, we mentioned that the new plant will impact the business from -- on a fixed-cost basis by $20 million on an annual basis. So I would say that a good rule of thumb here would be to say that we'll have a negative impact of about $5 million. We will, of course, try to sell as soon as possible out of that plant, but right now, we're looking really at seeing the first impact to the bottom line, positive impact to the bottom line in the second quarter.

[Ivan M. Marcuse:]

And there won't be any working capital charges? And on -- and after this quarter, is that all worked out through, or there will be more?

[Patrick M. Prevost:]

Eddie, could you?

[Eduardo E. Cordeiro:]

Yes, I think we've gotten to a point, Ivan, with the footprint where we're reasonably content. If we see opportunities, we might go for more cash opportunities. But I think at this point, we're looking to try to maintain where -- to the level where we've achieved to.

[Ivan M. Marcuse:]

Okay. And then if so -- if you're looking for a little bit of improvement in mercury removal and you have these working capital charges coming out, and then you have demand that's sort of flat to up, it sounds like -- and you have lower interest expense, it sounds like you're -- or should your earnings, even with the plant startup, be -- on an all-in basis, I believe it's on an operating or EPS, be higher in the first quarter versus the fourth quarter?

[Eduardo E. Cordeiro:]

Are you talking about our corporate earnings, Ivan?

[Ivan M. Marcuse:]

Yes. Or you're -- however you wanted to look at your EBIT. So if you take all the charges that come in...

[Eduardo E. Cordeiro:]

Yes, we're -- I think we're starting to get dangerously close to giving much more guidance than we are comfortable with.

[Ivan M. Marcuse:]

Okay. And then if you look at your -- and then utilization rates, you said 75% to 80%. Do you think the industry is about in that same level?

[Patrick M. Prevost:]

I would say that, of course, we only know as much as we can about our competition. But I would say that it would be a good rule of thumb to say that our competitors are running at about the same rates.

[Ivan M. Marcuse:]

Okay. And then my last question is, you paid down a slug of debt this quarter. How much -- you're going to be -- you should be -- it looks like, at least in my estimates of cash, you should have a pretty decent cash flow going into next year. So how do you look at the uses of cash? How much debt could you pay? Is there any more that you could pay down? And what's sort of your anticipation of what you're going to do with the $200 million that you're going to get from the Supermetals once that comes through in the second quarter?

[Eduardo E. Cordeiro:]

Well, Ivan, just from a capability perspective, we have about $250 million of short-term debt that could be paid at any point. Generally speaking, our capital allocation strategy includes, of course, investment in the existing businesses, returning cash to shareholders through dividends as well as share repurchases, continuing to improve the debt metric. We'd like to get the debt-to-EBITDA to a more historically consistent level to where we've been. And then -- and those are really the key elements of the capital allocation strategy.

[Operator:]

Your next question comes from the line of James Sheehan from SunTrust Robinson Humphrey.

[James Sheehan:]

Patrick, I was just wondering if you could comment on the outlook for replacement tire demand recovering to prior demand trend, the long-term trend? And you mentioned that you're getting ready for that and you're going to be prepared for it. I'm just wondering, how much inventory do you think your customers have of the different chemicals they need? I think they've been waiting a long time for this to return to trend as well. Have they already stocked up? Or how would you assess that situation?

[Patrick M. Prevost:]

I -- is it James, is that right, is that correct?

[James Sheehan:]

Yes.

[Patrick M. Prevost:]

James, I believe that the -- that our customers, similar to us, have been very cautious. We've been expecting a recovery for more than a year. And we always feel like we're on the brink of it happening, and then we go back into a mode where consumer confidence is holding us back and either a -- through the OEM or the replacement markets where we're seeing limited recovery. And additionally, we believe it's become a little global in its nature. When in the past we could count on Asia growing steadfastly, right now, Asia has become a slightly more volatile as well. If I look at the long-term trend, I would say that we've gone through several decades of history, and we see a very robust 4% growth trend for tire demand and indirectly then, of course, for carbon black. And we've seen several periods over those last 25 years that we've studied more in-depth where, over periods of 1 to 2 years, and in one case, actually, I think it was 3 years or so, we saw flattish demand. And then after these periods, we saw a fairly significant recovery that basically brought us back to the trend line, which means that we saw growth beyond that 4% level to make up. Now we believe that we're back in one of these periods of slow-to-flattish growth. And it's been now protracted, so I believe that, at some point in time, demand will kick in. We believe that, on the replacement side, people have been stretching the use of their tires beyond a safe level, and we have some anecdotal evidence of that. But of course, there's no way you can lead a horse to drink if it doesn't want to drink, so we're still waiting for that confidence to return. And I think that, if you speak to our customers on the tire front, you will be getting similar indications. And in that respect, I believe, the -- that the inventory pipeline is pretty weak right now. Everybody -- nobody is going to take a risk considering the false starts that we've had in the last year or so.

[James Sheehan:]

And could you also comment on the current pricing environment for carbon black in China?

[Patrick M. Prevost:]

Right. So the Chinese environment is one of high growth. We're still seeing the local demand as well as the export demand for tires being fairly robust. With that, we also are seeing a robust competition from local Chinese producers. And we've been mentioning that the margin environment reflects a more competitive environment.

[James Sheehan:]

And finally, could you also explain, what is the ramp of mercury removal demand going to look like in 2015? Do -- your customers, the utilities, do they have to be in compliance during that calendar year? Or how -- I understand they have to fully be in compliance maybe a couple of years from then. How would you describe the demand curve shaping up once the MATS regulation is in place?

[Patrick M. Prevost:]

So this is a fairly complex exercise, as you can imagine. So the MATS regulation kicks in, in April 2015. In theory, from that moment, the coal-based utility should be operating within compliance, so it's like a cliff. The mitigating factor here is the fact that some of the utilities -- or the utilities have the ability to ask for a deferral on meeting the regulations up to 1 year. And we've heard that some of those utilities have done that, but it is not going to be an across-the-board process. So we believe that the combination of people working today always -- already towards meeting that April deadline, and the people that are asking for a delay would provide a little smoothing of the curve. And we've got our predictions and our plans to basically develop a better understanding of what that curve will look like. But in any event, we believe that the environment will be very tight in the beginning of 2015 and middle of 2015.

[Operator:]

Your next question comes from the line of Christopher Butler from Sidoti & Company.

[Christopher W. Butler:]

I apologize if I missed it, but did you indicate what an apples-to-apples volume number would have been in China if not for the mitigating circumstances?

[Patrick M. Prevost:]

No, I did not.

[Christopher W. Butler:]

With growth of 16% year-over-year in the third quarter, were you double digits? Could you give us a range or an idea?

[Patrick M. Prevost:]

Why don't -- I don't have that number off the top of my head here, Chris, so how about we'll get back to you separately?

[Christopher W. Butler:]

Of course. And then just to clarify

[Patrick M. Prevost:]

Yes, so we're looking at the business EBIT offsetting the $5 million of fixed costs in the second quarter.

[Christopher W. Butler:]

Okay. And a few times during the presentation, you talked about the imports slow in the U.S. market for car tires. How much of an impact does that have on you as a global player? Or is that just sort of a -- sort of adjusting or something that factors into your U.S. numbers?

[Patrick M. Prevost:]

Well, it -- I would say, as a global player, we will participate one way or another, so that's one of the advantages. I think the disadvantage is, of course, that we believe that we'd like to support our customers in the -- in their domestic markets and it creates some additional complexity with regard to planning. But I would say, in general, we believe that the growth in imports will be a factor but should be a minor factor with regard to the situation in 2014.

[Christopher W. Butler:]

And just finally, looking at the Norit business, how much did -- how much maintenance costs were there in this quarter?

[Patrick M. Prevost:]

Let me -- I'm just checking my numbers here. It's -- I think we're expecting the cost to be in and around $2 million.

[Christopher W. Butler:]

Okay. So $4 million of higher inventory and about $2 million of higher maintenance costs were in your fourth quarter?

[Patrick M. Prevost:]

That's correct, yes. That's...

[Operator:]

Your next question comes from the line of Jeff Zekauskas from JPMorgan.

[Jeffrey J. Zekauskas:]

In Reinforcement Materials, are your raw materials inching up? And might that lead to a little bit of margin pressure in the short term?

[Patrick M. Prevost:]

We -- I would say that we see some fluctuations, some of it recently, that created the situation that, in the fourth quarter, we were unable to pass-through some of the raw materials, but we didn't see anything that was significant and that would show a change in trends. So we think it's more the bumps in the cycles on a monthly or quarterly basis.

[Jeffrey J. Zekauskas:]

Okay. And you've talked about -- or sort of 2012 was a year of very good pricing in Reinforcement Materials, and 2013 was less strong. And we're -- you're growing at a slower rate of volume growth, but there's been some price erosion. So order of magnitude, when you think about 2014, do you think your margins will be up or down versus 2013 in Reinforcement Materials? Or can you not tell?

[Patrick M. Prevost:]

Whatever -- I mean, we'll be speculating no matter what, Jeff, but I think what we're dealing with is an extended period of low utilization for our plants. And we've taken an approach that the current black business is not a commodity business and there's multiple products and multiple specifications and technical needs. And we've taken an approach of price leadership. By doing that, we have, of course, especially in a weak economic environment, allowed ourselves to lose perhaps some volume to maintain mount -- margin. And it -- this is a bit of an art rather than a science in trying to manage towards -- maintaining that price leadership in expectation of a more-favorable environment is what this is all about right now. And again, I think we have done well considering that we've been at very low utilization rates for quite some time. And we're hoping that, in 2014, we're going to start seeing change in the right direction. Now the latest volume developments are giving us some hope, but I'm not at the point where I'm going to say, yes, we're seeing a recovery, a strong recovery, next quarter.

[Operator:]

Ladies and gentlemen, we have no more questions in the queue. I would now turn the conference back over to Patrick Prevost. Please proceed.

[Patrick M. Prevost:]

All right. Thank you very much for joining the call today. And I'm looking forward to speaking to you again next quarter. Bye-bye.

[Operator:]

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.