Cooper Tire & Rubber Company
Q3 2012 Earnings Call Transcript

Published: 2 Nov 2012

[Operator:]

Ladies and gentlemen thank you for standing by and welcome to the Cooper Tire Third Quarter 2012 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I will now turn the call over to Jerry Long. Mr. Long, you may begin.

[Jerry Long:]

Thank you, operator. Good morning everyone and thank you for joining our call today. My name is Jerry Long and I serve as the company's Assistant Treasurer, responsible for Investor Relations. To begin with, I would like to remind you that during our conversation today, you may hear forward-looking statements related to the future financial results and business operations of Cooper Tire & Rubber Company. Actual results may differ materially from current management forecasts and projections. Such differences may be a result of factors over which the company has limited or no control. Information on these risk factors and additional information on forward-looking statements are included in the press release and in the company's reports on file with the Securities and Exchange Commission. With me today are Roy Armes, Chairman, CEO and President and Brad Hughes, our Chief Financial Officer. In association with the press release, which was sent out earlier this morning, we will provide an overview of the company's quarterly operations and results. The press release contains a link to a set of slides that are a summary of information included in the press release and 10-Q that will be filed with the SEC. These slides are intended to help investors and analysts quickly obtain information. They will not be used as the focus of today's call. Following our prepared comments, we will open the call to participants for a question-and-answer session. Questions may also be directed to our email address, which is [e-mail]. Today's call will begin with Roy providing an overview of our results. He will then turn it over to Brad for a detailed review of our quarterly results. Roy will then summarize and provide comments on our outlook. Now, let me turn the call over to Roy Armes.

[Roy Armes:]

Thanks Jerry and good morning to everyone. Needless to say, I am very pleased to report that the third quarter was a period of record performance for Cooper Tire and consolidated net sales were $1.1 billion, that's a 4% increase over the third quarter of last year and a company record. This increase was driven by 5% quarter-over-quarter rise in total company unit volume. Our third quarter results included record operating profit for any quarter of $133 million or 11.8% of total net sales compared with $47 million or 4.5% for the same period last year. North America segment, operating profit was $105 million or 12.8% of net sales, while the International segment operating profit was $36 million or 8.6% of net sales. Earnings grew to $1.17 per share, up $0.90 per share over the same period last year, demonstrating our continued focus on creating and sustaining shareholder value even in what remains a challenging global economy and sluggish tire industry. In fact on the topline, Cooper significantly outperformed the U.S. industry volumes in the third quarter and in the light vehicle category, we were up 6% while the industry was down 3% and in the light truck, we were up 20% while the industry was up just 6% and finally we were up 4% in TBR while the industry was down 3.5%. You’ll note that the industry comparison data here is from the RMA’s original release for the quarter, which was later revised showing even weaker industry performance. Our International segment volumes increased 13% compared to third quarter of 2011, and despite the challenging market conditions in China, we are pleased the domestic volumes for both our TBR and PCR segments continue to grow and outpace the industry. And our team in Europe continues to navigate profitably through a difficult economic environment. Third quarter volumes in the regions were down compared to the prior year. However, they were partially offset by incremental volumes from our new operation in Serbia which continues to ramp up production in line with our previously stated targets. This investment in Serbia reinforces our competency to acquire and upgrade existing assets to produce world-class tires with significant capital efficiency. And Brad will review all the specific quarterly results on a consolidated basis and by segment, but I want to spend a few minutes talking about what we believe is setting Cooper’s results apart from the industry. Our people and their ability to effectively execute our company’s strategic plan are at the heart of our performance. We launched our strategic plan in 2008 and our teams have been aggressively and consistently executing towards its three primary objectives; which are, one, creating and sustaining a competitive cost position, and two, driving topline profitable growth, and three, building organizational capabilities that help us achieve the first two objectives. Now let me start with the first one, creating a competitive cost position. We are working very hard at Cooper to drive process efficiencies and to optimize and leverage our global manufacturing footprint while building better products. And as a result of our global expansion strategy the International segment now represents 37% of combined segment operating profit on a year-to-date basis. While work remains to be done, we believe we are on the right path as we continue to leverage our global footprint to drive efficiencies. And we are well positioned with significant manufacturing capabilities in Asia as well as in Europe. And our second priority which is driving topline profitable growth is at the core of the success we have experienced over the past several quarters. This is all about developing the right products and getting them into the right markets at the right time to drive meaningful results. This includes the development of new products like the Copper Zeon RS3, ultra high performance tire and the Discoverer A/T3 SUV light truck tire that we introduced to great acclaim by third party testers. These products have continued to take toll with consumers who remain interested in the best tire performance at the best value. In addition, we have been increasing our foothold in the commercial tire market in the United States and gaining market share with our Roadmaster series of truck tires. We have recently penetrated the OE truck market where Roadmaster tires were named as an Original Equipment Option by a leading semi-trailer manufacturer, and just three months after being specified as OE Option, Cooper earned their top supplier award for excellence service and performance. So we are pleased that our team has earned a service distinction to complement our outstanding products. Our third priority, building organizational capabilities is clearly a long range continuous process where we focus on driving and sustaining a high performing team culture within our company. Under this strategic objective, we are focusing on Lean Six Sigma and other improvement programs to drive stronger, more disciplined execution by our organization. And part of this priority is the implementation of the ERP system that we will continue at a manageable pace as we discussed in previous calls. Another important part of driving organizational capabilities is leveraging global talent. For example, in a recently short time, in a relatively short time, we have effectively integrated the tire manufacturing plant in Serbia into our global manufacturing network. And today this facility employees more than 400 people and we continue to be pleased with the job our team is doing to grow our business in Eastern Europe and Russia. Now overall by staying focused on these three priorities, we believe Copper will continue to perform at or above the industry, even in an environment that continues to be challenging. We will do this by staying focused on our strategic plan and evolving it overtime to stay responsive to the opportunities we have ahead of us. Now at this time, what I would like to do is turn it over to Brad, and he will provide you more detail on the quarter.

[Brad Hughes:]

Thanks, Roy. Roy has already covered some our key third quarter performance metrics, so I’ll move right into a discussion of profit. As reported our total company third quarter results including a record operating profit of $130 million, Roy may have said $133 million, $130 million is the actual result. That's 11.8% of net sales compared with $47 million or 4.5% for the same period last year. North America segment operating profit was $105 million or 12.8% of net sales and the International segment operating profit was $36 million or 8.6% of net sales. Our higher operating profit was driven by lower raw material cost of $144 million, $9 million from higher unit volumes and $7 million for manufacturing efficiencies, offset by $36 million of unfavorable price mix, $28 million of higher SG&A costs, $7 million of higher product liability costs and $7 million of higher other costs which includes increased pension expense. Higher incentive compensation costs resulting from higher projected profits affected both selling, general and administrative costs and other costs. This was primarily in the North America segment. Now I will review our segment performance and will start by providing detail on the North American tire operations. Segment sales were $816 million, a 7% increase compared with the third quarter of 2011. The top line improvement for the quarter was driven by an increase in unit shipments and higher price and mix. Unit sales for the North American segment increased 4% compared with the third quarter of 2011. Despite weak industry performance in the broadline and light truck segments as reported by the Rubber Manufacturers Association members or RMA; Cooper achieved growth in the third quarter as it outperformed the industry in nearly every segment. Total light vehicle tire shipments increased by 6% significantly better than RMA members and industry shipments, which were lower by 6% and 3% respectively in the quarter. Year-to-date Cooper’s light vehicle shipments have increased 5% compared to a decrease of 3% for the industry. Cooper’s passenger segment growth was 3% and light truck segment growth was 20%. It is also worth noting that our UHP product line unit sales grew 102% during the quarter, compared with the prior year as we continue to improve premium mix within our distribution channels. Commercial truck tire sales of the Roadmaster brand continued to gain strengths, as shipments were up 4% within the quarter compared with a strong third quarter in 2011. In comparison, total industry shipments within this category as reported by the RMA were down 4%. The segment’s operating profit was $105 million for the third quarter or 12.8% of net sales. This represents an increase of $87 million over the third quarter of 2011. Allow me to summarize the key drivers in the form of an operating profit walk forward. $102 million from lower raw material costs, $9 million from lower manufacturing costs and $6 million from higher volumes, partially offset by $14 million due to higher selling, general and administrative costs, $7 million from higher product liability costs, $7 million of other higher costs and $1 million of unfavorable pricing mix. Our raw material index was 229, which was 17% lower compared with the prior year third quarter, reflecting natural rubber and synthetic rubber price decreases. The index declined 13% sequentially from the second quarter, which was greater than the expectation we communicated in the second quarter earnings call. We expect the raw material index to remain approximately the same during the fourth quarter, compared with third quarter. Raw material cost are inherently volatile and Cooper’s purchasing strategy continues to place the priority on securing an adequate supply of raw materials and purchasing close to or better than industry competitors. As a reminder, in the United States, we use the Last In First Out, or LIFO accounting method, charging the most recent cost against sales, which in turn, impacts profits more quickly than other inventory accounting methods. Manufacturing costs decreased by $9 million due to a continued focus on implementing productivity projects that are driving cost savings to the bottom line, while maintaining high levels of quality for our customers. We believe these efforts will contribute meaningfully and incrementally to results over the next few years. Selling, general and administrative costs increased $14 million in the third quarter. This includes a projected increase in incentive based compensation year-over-year due to higher projected profit levels, increased advertising and other strategic brand investments in the North American markets also contributed to the increase. Product liability expenses were $28 million, an increase of $7 million from the same period of 2011. This increase is consistent with the company’s expectation that full-year product liability expense will be moderately higher in 2012 as compared to 2011. The level of product liability expense is very consistent with the outlook we communicated earlier this year. Other operating cost which are comprised of pension cost and incentive compensation also increased $7 million compared to third quarter in 2011. Now, turning to our international tire operations, net sales in the international segment were $411 down 2.5% from the third quarter of 2011. Despite strong unit growth, revenues declined as a result of lower selling prices reflecting the very competitive environment in both Asia and Europe. Higher unit volumes in the Asian operations which were up 10% compared with the same quarter last year. Domestic PCR and TBR volumes grew impressively despite soft market conditions in China. Efforts to expand distribution and supply of light vehicle tires in China continue and are reflected in favorable growth in the Cooper brands over prior year third quarter. In particular, sales of Cooper branded tires in the higher positioned product segments experienced the most growth. Sales of intercompany shipments to support both the European and North American operations were also stronger in the quarter. The Asian sales volume gains were achieved in the face of a slower economic growth in China and the ongoing impact of exiting bias and other lower value tires. We are pleased with our third quarter results as they confirm our direction and future opportunities in China. European volumes decreased 4.5% as a result of the continued weak industry conditions in the European markets. Despite the challenging economic conditions in these markets, we achieved market share gains compared to 2011, primarily through growth in Eastern Europe and Russia, as well as sales of a new product line produced at Cooper’s new Serbia tire operations. The performance at our international segment is a reflection of Cooper’s commitment to growth our presence in the global tire market, and we are pleased with our progress in driving profitable top line growth. Operating profit for the third quarter of 2012 was $36 million or 8.6% of net sales which is an improvement of $5 million and 1.4 percentage points over the same period of 2011. The following where the underlying factors impacting operating profit for the international operations in the form of an operating profit walk forward

[Roy Armes:]

Thanks Brad. I think its important for me to close the loop on our discussion today and as I started out this morning talking about what has been driving our success and why Cooper continues to outperform the industry, our remarks focused on the role that our strategic plan has played in driving performance and keeping us focused on the right things to grow our business profitably. And obviously, our strategic plan and our execution of the plan are in our control and we believe our people are doing a great job at it. Of course there is also factors that are out of our control that can impact both Cooper and the entire industry. First, while we expect raw material prices in the fourth quarter will be approximately the same as the third quarter on a longer-term basis, we anticipate raw materials will generally trend higher. Second, the special US tariff on imported Chinese tires expired on September 27, and while this may cause some near-term volume variability we continue to believe that Cooper is well positioned for the mid and long-term and we will continue to effectively manage inventory levels to meet projected demand and if require we will adjust production as necessary. In ramping up our formal remarks this morning, I want to convey that Cooper Tires is confident in our people, their capabilities and our business model. And we are cautiously optimistic about the fourth quarter and 2013 due to the uncertainty surrounding the presidential election, potential government response to the pending fiscal cliff and challenges in the world economy. We will continue to act strategically and prudently to manage our investments and cost to help navigate through these uncertain times and emerge as a stronger company. Now that concludes our prepared remarks and I think it's time to take some questions. So operator if we can have our first question please.

[Operator:]

Your first question comes from the line Elizabeth Lane [Bank of America Merrill Lynch]. Elizabeth Lane - Bank of America Merrill Lynch This is Liz Lane from Bank of America Merrill Lynch. Congrats on the great quarter and so you mentioned that Cooper’s continuing to take market share at least in North America with year-over-year volume improvement when the RMA data was indicating pretty significant declines in replacement tire shipments in the third quarter. How much of the market share gain do you think is from recovery in broad line relative to other tire segments and how much is from maybe more aggressive pricing or anything else that will be you need to Cooper?

[Roy Armes:]

Well, I think first, Liz, if you look at the industry, first of all, we're looking to grow profitably. We're not looking just to take market share and to do that, we've introduced some products that has allowed us to get more into the higher into the range of products or higher value products. At the same time, delivering great value to our customers and I think our customers are appreciating that part of it. So it’s a mix of performing better in the broad line category but performing a lot better in more the premium category. Elizabeth Lane - Bank of America Merrill Lynch And in the international segment, it looks like price mix is pretty bit negative although it was offset by raw material costs, how should we be thinking about modeling price mix going forward in the international market? Is it just a challenging time where you have to discount tires heavily to move the units or is it more of a mix issue?

[Brad Hughes:]

Liz, I think the way to think about it is we have talked about this to some extent in prior calls and it’s driven primarily by China in our international results, pricing their moves a lot faster in response to changes in raw material costs or price changes that’s both up and down. And so, what we have seen over the course of last year as raw material prices were increasing for part of the year, they were moving our prices for our tires were moving higher and faster. We are now seeing that in reverse. So, I think the way to model it or think about it is to have it based upon your outlook for raw materials. It will move largely in step with that, but overall, we still managed to hold on to some improvement there. Elizabeth Lane - Bank of America Merrill Lynch Okay, so in general, if we think raw material costs are going up next year in the mid to long-term that we would expect the pricing environment to get a little better there?

[Brad Hughes:]

Especially in the international and Asian markets, yes. Elizabeth Lane - Bank of America Merrill Lynch Okay, great. And just one housekeeping item, you mentioned the raw material index should be about flat sequentially in the fourth quarter, what would that imply for year-over-year?

[Brad Hughes:]

Between 9% and 10% year-over-year. A decline of 9% or 10% year-over-year.

[Operator:]

Your next question comes from the line of Rod Lache. [Deutsche Bank]

[Rod Lache:]

I have just a follow-up question, first of all on pricing. There actually was a price adjustment and I think it’s on opening price point products for Copper in the US during the first week in October. Could you just give us a sense of how we should be bracketing that, what percentage of your portfolio was subject to the adjustment? How should be we thinking about that related to other things that move around here on the P&L going forward?

[Roy Armes:]

First Rod, your observation is right. I think we got more competitive at the opening price point after the tariffs. I don't recall what the exact percentage was about and we don't normally talk about that anyway. But that clearly opening price point is the one that’s gotten the most pricing pressure, but we have been able to offset any of that by having a higher mix or better mix of our other products. So I think that pressure is going to continue through the fourth quarter.

[Rod Lache:]

Okay, I guess just the net of these things. Is there anyway to frame, how you would think average transaction prices kind of flow through from Q3 to Q4 for Copper?

[Brad Hughes:]

Rod, maybe the way that you may want to look at it is on those price adjustments were on a limited number of tires and I think that most of what you saw in the third quarter on, will roll it through to the fourth quarter but, at this point in time, we are not expecting any significant changes in pricing or mix as we walk into the fourth quarter.

[Rod Lache:]

And you are going to benefit presumably from the elimination of the tariffs that you guys have been paying, is that something that you see as kind of a net positive?

[Brad Hughes:]

Yes, we would anticipate that now its only going to be for about a quarter of this year, but it becomes more meaningful next year on an annual base, but yes, we expect to see benefit from the reduction of tariff on the tires that we bring in from China.

[Roy Armes:]

Yeah, and net-net from what we can tell right now Rod, it should be a positive for us.

[Rod Lache:]

And on the raw materials, it looks like the P&L benefit, at least this quarter was less than that 13% decline in the index that you referred to. Can you just give us a sense of how those differences sort of look when you look out to the fourth quarter, would it mirror the index that you talked about?

[Brad Hughes:]

Yeah, I think and we highlighted in the second quarter that we thought that we might have benefited a little bit more than what the index had indicated in the second quarter and that in the third quarter it might be a little bit less than what the index. I think that as we go into the fourth quarter that the change in the index should be more representative of what we see.

[Rod Lache:]

And lastly, I was hoping you might just speak kind of about long-term leverage targets for your company. Obviously there is not a lot of leverage here, just on the, from a very high level looks like maybe less than 0.3 times net debt to EBITDA; how should we be thinking about that in terms of the way that the company thinks about these targets; what would lead you to modify those leverage levels, just considering that you are still fairly cash flow generative at this point?

[Roy Armes:]

I think Rod, the way we look at it internally particularly in this economic environment that 35% to 45% of debt to capital is about where we think we ought to be at this point in time. Now having said that, we also want to have ourselves, get ourselves into a position that if an opportunity presents itself to us and we are in a position that we could lever up significantly beyond that. But I think some of the reservations we have is just watching this economy see how we are responding and being able to manage this business effectively during that economic recovery time and then have ourselves positioned such that we can take advantage of any opportunity that presents itself. We are not afraid to levering up a lot more than where we are at if the opportunity is there.

[Rod Lache:]

Okay, but there is nothing that you see sort of in the near to intermediate term horizon that would lead you to modify those leverage levels?

[Brad Hughes:]

No, I don't think so. We are also mindful of the pension and other post retirement benefit obligations that we have on the balance sheet and so we are pretty comfortable with where we are at and to Roy’s point we believe it leaves us in a position that we can react appropriately to any significant economic issues or opportunities if they present themselves.

[Operator:]

Your next question comes from the line of Brett Hoselton [KeyBanc].

[Brett Hoselton:]

So based on your response for the last two questions, my sense is that price mix, your expectation is that price mix is going to be net of the tariff, benefit of the tariff; it’s going to be neutral into the fourth quarter and then raw’s are going to be kind of be neutral into the fourth quarter. So therefore just price mix versus the tariffs versus the raw’s suggest that your operating income into the next quarter should be flat, less maybe some volume degradation that you normally see seasonally. Is that, am I hearing it correctly?

[Brad Hughes:]

Yeah, I think roughly that’s a correct summary of what we've been saying.

[Brett Hoselton:]

Are there any other material positives or negatives going into the fourth quarter sequentially?

[Brad Hughes:]

I think the only other thing that we're keeping a close eye on is we will manage our inventory levels appropriately as we approach the end of the year and while I don’t see anything significant there, we may take some small actions to make sure that we’ve got the right inventory levels. That could be up or down, but right now coming out of the third quarter, we're mindful that our inventory levels are a little bit higher than where we had planned them and if we need to readjust our production schedule to achieve that, but again I don't think that will be significant factor for the fourth quarter.

[Brett Hoselton:]

And then taking a long step back and just kind of contemplating 2013, it seems like the general expectations in the industry for North America is that the volumes are likely to be flat. That’s kind of what we're getting from a number of different tire OEs and so forth and I am wondering do you see that materially, as being materially different and then maybe secondly, do you continue to expect that you would be able to gain some market shares you have been doing in moving into 2013?

[Roy Armes:]

I think looking at the industry, Brett, I think our heads would be there as well. It could be up slightly, but for all practical purposes, flat is where I think the general consensus’ are. So having said that, again we are not necessarily out looking for market share gains as much we are making sure that we are profitable in the business that we do take. I think having said that, if you look at our, our new products that we have introduced and we will be introducing more new products next year you look at our emphasis here to continue to drive our cost down and provide value to our customers. I think we are planning in 2013 to keep the momentum going that we have established here in 2012.

[Brett Hoselton:]

And then basically the same question in Asia it seems like we have been seeing double-digit growth here for the past couple of quarters here 8% in the first quarter, thoughts going in to next year the industry seems to reasonably good as far as a replacement demand is concerned into next year. Would you continue to expect similar K in to the next year, I know you are not forecasting that but what’s your general sense?

[Roy Armes:]

I think we are going to see some growth there. I think by the second half of next year some of the measures that the government is putting in place there will start to take hold and stimulate that economy a little bit, and I think as a result of that we could see some additional growth in the second half. But we feel pretty good about where we are positioned there. Now although we have been adjusting pricing, one of the things that we have done, we have an adjust pricing more than the industry because we believe that we’ve got a value proposition there that warrants a better price therefore we get better margins as a result of it. So we are still expecting that going into next year and we are still expecting some good growth there.

[Brett Hoselton:]

Margins are very good this quarter, outstanding 11.8% for the company, 12.8% for North America. Historically you’ve talked about an operating margin range in that 6% to 8% range. Are you at a point now where you are optimistic that you might at least be able to stay at the upper end of that range or may be then above that range?

[Roy Armes:]

I think the things I just mentioned, Brett with our new products the cost initiatives that we have internally, the operation efficiencies and process efficiencies, our low cost country capacity that we are developing, our overall footprint that we have that we can leverage better. I think it’s safe to say that we are to be sticking at the high end of that. But at the same time I would say all of this was in our efforts to expand our margins. So we are continuing to look at, doing that going forward.

[Brett Hoselton:]

And then finally, just wondered if you had any comment, there is always been some news for the past quarter regarding Apollo and I am wondering if you have any comments, that you like to make about that or not?

[Roy Armes:]

No, I think you guys probably know our policy on this. We are just not going to comment on rumors and speculations that are out there. I would say that, it was a distracting few days for us and our people are more focused on delivering our strategy, than we are worried about news leaks and things have come out there. So, we just don't have any comments on that part. We are going to stay focused on what we are doing. And also Brett, talking about the margins there, there is always those caveats of macroeconomics and the raw material cost and those kind of things that really affect the margin, but I think from a core business standpoint, we feel pretty good about delivering some very good margins going forward and looking at how we can continue to expand those.

[Operator:]

Your next question comes from the line of Bret Jordan.

[Bret Jordan:]

A couple of good questions and one sort of following up on that last on pricing; what are you seeing in the competitive environment, if you take a little bit of the entry level pricing down at early October. Where do you see peers in that category being priced relative to you now.

[Roy Armes:]

I'm not going to comment on where competitors are relative to us. We know we have to be competitive in those product categories. Most of what you are seeing out there is a more pricing pressure on the opening price point, and there are incentives and promotions that are out there to try to drive the business but those aren't totally uncommon at this time of the year, because we get into, we have our $75 rebate that its in conjunction to the fall year, so we run that promotion almost every year in the same timeframe. So there's some of that that's out there. But really the one’s that’s made price reductions has been primarily on the opening price point lower end product.

[Bret Jordan:]

Okay. And I guess looking to your improving business mix its fair to think that you continue to track higher growth in dollars than units going into next year, but there's not enough pricing pressure that you would lose the dollar growth to units.

[Roy Armes:]

We are not anticipating that for sure.

[Bret Jordan:]

One last question on the 229, the raw index. Do you have an internal target or expectation for what you think that index inflation is next year, given that you say you expect some upward pressure on pricing.

[Brad Hughes:]

We normally just provide guidance for one quarter out, and then we will provide an update when we get into the early part of next year with the fourth quarter of earnings call.

[Roy Armes:]

But Brett, given where the raw materials are right now and what we are seeing; I think it is conceivable that next year we should see some trends that's a little higher than where we are at today. A lot of that's going to depend on the demand and the volume and that sort of thing. But I think that would be safe, what percentage we don't really know at this point in time.

[Operator:]

(Operator Instructions) Your next question comes from Aditya Oberoi.

[Aditya Oberoi:]

I actually had a question on your incentive comp. It seems your SG&A was higher year-on-year because of higher incentive comp and your other costs were higher. Can you explain a little bit how incentive comp rose in both the line items?

[Brad Hughes:]

Yeah, first of all, it’s driven by projected profitability. So it’s based on the higher profits that we are projecting for this year but the reason that its flowing through both of those is there's a portion of it that flows through for example our North American team and then there's a portion that flows through for our corporate team that's picked up in other. So it’s more about where the recipients are located in the company, more than anything else.

[Aditya Oberoi:]

And the other question I had was on the raw materials. Now, if I just try to interpolate what you guys have given the 17% decline this quarter in terms of the raw material index implied a $144 million tailwind, next quarter it will be 9% to 10% decline in the index. Would that translate to $80 million to $100 million kind of a tailwind, am I doing the math right there?

[Brad Hughes:]

I mean, you have to look at the volume that you are projecting that against because it’s going to obviously be driven by the volume in combination with the material costs. But I think your conceptual approach to it is correct, once you adjust it for the difference in volumes that are seasonally typically a bit lower in the fourth quarter than they are in the third.

[Aditya Oberoi:]

That would make sense.

[Jerry Long:]

Operator, we have time for one more question.

[Operator:]

Your next question comes from the line of Efraim Levy. [S&P Capital IQ]

[Efraim Levy:]

You gained market share in Europe because of Eastern Europe and Russia, do you know your share within Eastern Russia, Eastern Europe and Russia and the West Europe each one separately?

[Roy Armes:]

Efraim, we don’t discuss our market share there and some of the data and the information is not as good in Eastern Europe. So we wouldn't want to speculate on that.

[Efraim Levy:]

And what percentage of your overall business is the premium or ultra?

[Roy Armes:]

Overall or in one region?

[Efraim Levy:]

Overall.

[Roy Armes:]

Don’t know what it is.

[Brad Hughes:]

There are varying definitions for those but the way that we would define it, it would be about 60%.

[Efraim Levy:]

So you are moving your mix up scale. So but in certain regions you had unfavorable mix or what is, just higher, are you getting trying to move but there is more volume in the lower end?

[Brad Hughes:]

Whether, we talk about price index and so there is a combination of things that are happening in that number that include the international segment as an example. Changes for pricing related to lower raw material costs. But in addition to product mix, there is also customer mix that could also be geographic, market mix that could be affecting that. There is a lot that's going on with inside that number. In general, from a product standpoint, we are seeing improvements in the mix results in the third quarter.

[Jerry Long:]

Operator, we have time for one more question.

[Operator:]

(Operator Instructions)

[Roy Armes:]

Okay. If there is no more questions, let me just close with a summary here of our business. Again, we are very pleased with our quarter’s record performance particularly given the sluggish global economy and if you look at the volume increases and the sales increases we have had, we have been able to leverage those into a very profitable quarter and year-to-date. We think that our strategy has done a great job of guiding us but our people and their execution of the strategy has really been the critical element of our success. The new products we have been introducing have been successful in shifting our mix and providing an excellent value proposition for our customers and we are growing in many segments and continue to be profitable. So overall, our business model is proving to be resilient in a volatile market and economy and as economy recovers, I think we are well positioned to emerge as a stronger company. As a result, we thank you for your attendance today and looking forward to next quarter.

[Jerry Long:]

Thank you.

[Operator:]

This concludes today’s conference. You may now disconnect.