Ferro Corporation
Q4 2014 Earnings Call Transcript

Published: 26 Feb 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Ferro Corporation 2014 Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, February 26, 2015. I would now like to turn the conference over to John Bingle, Treasurer and Director of Investor Relations. Please go ahead, sir.

[John T. Bingle:]

Thank you. Good morning, and welcome to the Ferro Corporation 2014 Fourth Quarter Earnings Conference Call. Joining me on today's call are Peter Thomas, Chairman, President and Chief Executive Officer; and Jeffrey Rutherford, Vice President and Chief Financial Officer. Peter will open with a few brief comments. Jeff will provide financial details for the quarter and will discuss our guidance. And we'll address your questions at the end of the call. Our quarterly earnings press release was issued last night. You can find the release as well as the reconciliation of reported results to non-GAAP data that we'll discuss this morning in the investor information portion of Ferro's website, www.ferro.com. Please note that the statements made on this conference call about the future performance of the company may constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to a variety of uncertainties, risks and other factors related to the company's operations and business environment, including those listed in our earnings press release and more fully described in the company's annual report on Form 10-K dated December 31, 2014. Forward-looking statements reflect management's expectations as of today. The company undertakes no duty to update them to reflect future events, information or circumstances that arise after the date of this conference call, except as required by law. A dial-in replay for today's call will be available for 7 days. In addition, you may listen to or download a replay of the call through the Investor Information section at ferro.com. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Ferro is prohibited. I'd now like to turn the call over to Peter.

[Peter T. Thomas:]

Thanks, John, and good morning, everyone, and thank you for joining us today. As stated in our news release, we had another quarter of strong earnings growth with adjusted EPS increasing 117% for the quarter and 88% for the full year. The increases in profitability for both the quarter and the full year were primarily the result of higher sales and gross profit in our Performance Colors and Glass segment, along with reduced selling, general and administrative expenses associated with continued cost reduction activities and lower interest expense resulting from our midyear refinancing. This marked our eighth consecutive quarter of year-over-year quarterly adjusted growth and adjusted earnings per share since we announced our value creation strategy. And over the last 8 quarters, we have been working diligently to transform the company. We were able to first, realign our business structure in order to become leaner and more efficient; second, to return to a higher level of profitability with improved cash flow; third, to focus the business on our core strengths of glass coatings and color solutions; and finally, to substantially improve the company's returns on invested capital. Frankly, we made substantial progress in all fronts, exceeding our expectations with the results rolling out at a faster pace than initially planned. Those of you who have been following us over these last several years have witnessed the transformation. We have evolved into a functional coatings and color solutions company, divesting the majority of our organic chemicals businesses, including the Specialty Plastics business last July and the majority of the assets of our Polymer Additives segment in December. Along the way, our profitability has improved substantially with our adjusted gross profit margin increasing by 800 basis points to 25.8% in the fourth quarter of 2014 versus the fourth quarter of 2012 and adjusted EPS improving substantially from a loss of $0.07 per share to a gain of $0.13 per share we announced last night. Further, our ROIC continues to increase as profitability improves and we remain focused on managing our capital deployment. For 2014, our ROIC was 9.4%, including the December acquisition of Vetriceramici. Excluding the 1 month of earnings from Vetri and the related invested capital for the purchase, our ROIC was 11.1% versus 7.7% for 2013. We have made significant progress in this important measure, and it is now clear that our invested capital is generating returns greater than our weighted average cost of capital, and we are creating value. An ROIC of 11-plus percent puts us at the mean of our peer group for this key measure. Our goal, however, is to be in the top quartile of the peer group with an ROIC of 15%. Now everyone knows that the value is created by investing capital where the return is greater than the cost of capital employed. We are now at the point where our base business, the $700 million currently invested has a return greater than our weighted average cost of capital, and those assets will generate an ROIC greater than 15% during the 2015 to 2016 time frame. But to continue to create value, we need to invest in additional assets that have achievable models that generate returns greater than 15%. Further, our balance sheet is now much stronger. We ended the year with $141 million of cash and net debt of $172 million. Our net debt leverage now stands at just 1.3x EBITDA. So we are well-positioned for value-creating growth. We've already made progress here as well and are looking forward to pursuing value-creating growth more vigorously in 2015. We're focused on introducing new products, expanding geographically and acquiring other businesses that enhance our technology platforms and market positions, while creating incremental value for our shareholders. In 2014, sales from newly introduced or reformulated products totaled $65 million. The positive impact of these sales was partially masked by the unfavorable impact of foreign currency exchange rates and price competition. However, the new product introductions are a key part of our growth strategy and have played a key role in enhancing gross margins. We have a healthy pipeline of new products currently under development, which we believe will help drive future growth beyond GDP. On the inorganic side, we acquired Vetriceramici to enhance our global position in Tile Coatings, and we purchased assets of a reseller of Ferro porcelain enamel products in Turkey as a first step toward expanding sales in this fast-growing and important region. Further, we've identified an additional 30 to 40 small- to medium-sized acquisitions or JV opportunities that we are actively working on. So the inorganic opportunities are, in fact, real. We are excited about the growth prospects associated with our core strategic platform and are actively pursuing multiple organic and inorganic growth opportunities. Now despite headwinds in some markets and unfavorable foreign currency exchange rates, we see 2015 as a year of strong sales and earnings growth. We expect value-added sales growth of 10% to 11%, excluding the effect of foreign exchange rates. The increased sales are expected to be a primary driver for higher adjusted EPS of $0.85 to $0.90 per diluted share compared with 2014. This represents EPS growth of approximately 40%. It should be noted that our 2015 guidance includes our estimate of foreign currency impacts, which we expect to be unfavorable to 2015 EPS by $0.12 to $0.14. Adjusting for this impact, we are approximately in line with our original earnings target for 2015 of $1.00-plus, which we established in 2014. On the 2015 sales, Vetri is expected to contribute $60 million to $65 million, implying underlying organic growth of approximately 5%. This equates to growth of just above our target of GDP plus 1% in the markets we serve. We expect volume growth to be in the range of 6% to 7%, excluding volume growth from Vetriceramici. Continuing price pressure, principally in the Performance Coatings segment, will offset some of the volume improvements. In Performance Coatings, our largest segment, we expect relatively strong volume growth and sales growth on a constant-currency basis. Excluding Vetriceramici, growth is expected to be in the mid-single-digit range with gains coming from our presence in the Middle East and North Africa. The new formulation of our digital inks based on water compatible chemistries will also help support growth. We expect segment gross margins will increase by 150 to 250 basis points, partially due to the addition of the higher-margin Vetri business. As it pertains to Vetriceramici, we are quite pleased with the addition and partnership with the existing team. The integration is going well. Vetri is an excellent strategic fit with our existing Tile Coatings and Performance Colors and Glass businesses. It add higher-value product offerings, enhances our technical capabilities, expands our manufacturing footprint and enables us to accelerate expansion into important growth markets where we don't have a significant ceramic coatings presence, including the United States. For Performance Colors and Glass, we expect constant-currency sales growth to be in the range of 2% to 3%. We anticipate auto paste will continue to be strong, partially offset by weaker conditions for commercial construction. In addition, we recently lost business at a key Latin America container glass customer when we walked away from unacceptably low price bidding, so growth in this segment will be lower than the company average. Despite this, we expect gross profit margins will remain strong, slightly exceeding the 2014 average of nearly 37%. In Pigments, Powders and Oxides, we expect business conditions to improve. In 2015, the inventory issues at our major polishing customer that depressed sales growth in 2014 should be fully resolved, so growth should return to a normalized level. We expect constant-currency sales in this segment to increase by approximately 7% and gross profit margins to be maintained at the 2014 levels. While the year is just underway through January, we are experiencing consolidated growth, in line with our mid-single digits growth target on a constant-currency basis and continue to experience strong gross profit margins. Now before turning the call over to Jeff, I'd like to quickly comment on the other press release that we put out yesterday. Yesterday, we announced that we acquired privately held TherMark Holdings, Inc., a leader in laser-marking technology. TherMark is Ferro's largest partner in marketing laser-marketing (sic) [laser-marking] materials and also licenses technology to Ferro. While the acquisition is not large, it represents another example of the kind of opportunities that enhance our technology position, expand our glass-based coatings portfolio and adds value to our shareholders. And with that, I'd like to turn the call over to Jeff.

[Jeffrey L. Rutherford:]

Thank you, Peter, and good morning, everyone. As John mentioned at the start of the call, you will find reconciliations of non-GAAP results discussed during this conference call in our press release and also in the supplemental financial data that is posted in the Investor Information portion of our website. My comments, in general, will focus on our continuing Performance Materials businesses as adjusted for restructuring and other onetime items to provide comparability of information from period-to-period. I will cover 3 primary topics, and then we will take your questions. First, I'll provide a quick recap of the quarter. I will then give a very quick overview of the performance of each of our reportable segments. And finally, I will conclude with the discussion of our outlook for 2015. As you are aware, we have divested the majority of our Performance Chemical business units. In July, we sold our Specialty Plastic business, and in December, we sold the majority of the assets comprising our Polymer Additives segment. We are currently in an active process to sell the remaining Polymer Additives asset, our dibenzoates manufacturing plant in Antwerp, Belgium. Because we are actively marketing this property, we will not discuss the specifics of a potential transaction or speculate on potential proceeds or timing. Both Specialty Plastics and Polymer Additives are now being reported as discontinued operations. For the fourth quarter, our discontinued operations generated income of $42 million. Included in the income are the results of the North America-based Polymer Additives assets up to the date of sale on December 19 and a gain of $73 million associated with the sale of those assets. Also included in discontinued operations are the full quarter results from the Antwerp assets. Note, there are no Specialty Plastics operating results included in the fourth quarter discontinued operations as the asset sale occurred on July 1. Now I'll turn to our results for the quarter on a continuing operations basis. On an adjusted basis, diluted earnings per share were $0.13 in the fourth quarter versus $0.06 last year. On an unadjusted basis, we reported a loss of $0.35 per diluted share compared with $0.66 per diluted share for the same period last year. The major adjustments, which we reported as onetime items in the current quarter, include the following

[John T. Bingle:]

Thank you, Jeff. Operator, we're now ready to begin the Q&A session. Please repeat the instructions to assist our guests, and we'll then take the first question.

[Operator:]

[Operator Instructions] The first question is from the line of John McNulty with Crédit Suisse.

[Robert Betz:]

This is Rob Betz, in for John. Taking the gross margin and EBIT guidance, we're back into an SG&A level that's slightly higher than we had expected. Can you talk about what the incremental SG&A you are embedding for Vetriceramici and touch on some of the ongoing cost initiatives that could cause SG&A to come in maybe better than expected?

[Jeffrey L. Rutherford:]

Yes. Well, what -- this is Jeff. What we have in -- for Vetriceramici is Vetriceramici is going to run approximately -- in SG&A, approximately $3 million a quarter. So what we have in our model is approximately $12 million. There are -- go ahead.

[John P. McNulty:]

Okay, continue.

[Jeffrey L. Rutherford:]

Yes. There are certain items that we're going to have related to continuing cost reductions. And again, it's the continuation of what we've been doing relative to back office, shared service facilities and so forth. And we have that built in. But what -- there is going to be some investment in other cost in acquisitions. We generally put 1% of sales back into SG&A for an acquisition. For -- so for Vetriceramici, we would allow the back-office functional cost to go up approximately $1 million. So there is potential. We do have projects both in '15 and '16 that will continue to generate cost reductions. But we're still online, excluding Vetriceramici, to be -- and adjusted for FX and adjusted for AIP and stock compensation that the fourth quarter of '15, excluding Vetriceramici bonus and equity stock compensation, will be under $40 million, even adjusted for FX.

[Robert Betz:]

Okay. That's helpful. And then, can you talk about your raw material basket and how you expect raw material cost to trend in 2015?

[Peter T. Thomas:]

Yes. This is Peter. Yes, raw materials, as we see them now across the globe, are projected or we're budgeting as being pretty much flat year-over-year. However, as Jeff mentioned, this year, we'll be implementing some additional cost reduction programs and margin expansion programs, and you've heard us speak to our direct spending initiative where we are rebuilding our processes for procuring in a way that it allows us to benefit and leverage volumes across the world to achieve lower prices. So we do have -- even though the base raw materials will stay flat, we expect to improve our raw material position because of our direct spend initiative. And that has been built in through the cost reductions that are showing the uplift in the gross margin.

[Operator:]

Our next question is from the line of David Begleiter with Deutsche Bank.

[David L. Begleiter:]

Peter and Jeff, just on your cash balance and plus your expected cash flow increase this year, if you are not able to make acquisitions or -- what's your expected -- what are the alternatives for use of cash this year, debt pay down, share buyback? And in terms of acquisition, how is the pipeline right now and any color as to activity near term?

[Jeffrey L. Rutherford:]

We've been consistent in saying that our #1 value-creation use of cash would be investing, and we talked about what that -- what our model is. Our -- again, our guidance for '15 excludes any acquisitions. Vetriceramici is in there. It was done in the fourth quarter of '14. But our guidance is without any incremental acquisitions. In fact, it doesn't even include TherMark, which we just announced. So we have $120 million of excess cash now. We'll generate $50 million of cash in '15. Our $700 million of assets that we have invested today have the potential to generate -- over the next 3 years, they'll be generating somewhere between $90 million and $100 million of excess cash, free cash flow. So what we built into our model is acquisitions of $100 million a year over our modeling period. And what we've said is, for modeling purposes, we want, after the initial functional synergies are realized, a 10% return on invested capital on that $100 million, growing to 15% over a reasonable period of time. Vetriceramici is going to do that. We have that built in our models, and that's part of our guidance. So if we can't find those types of acquisitions, and all indications, by the way, are that we are going to find those types of acquisitions and be able to build that model, that $100 million of incremental investing annually over the next 5 years, let's say. But based on your question, if we cannot find those, we have to be disciplined enough not to do those acquisitions. And as we've historically said, when we have excess cash that we can't invest and create value, we'll give it back to the shareholders. Now how that's going to be given back is yet to be determined. But it -- but we all know it's either through some type of dividend or it's going to be some kind of share repurchase. But right now, we're focused on investing and creating value in that manner.

[David L. Begleiter:]

And Jeff, just on Vetriceramici, ex FX, is the -- are the 2015 results forecast that you are forecasting above or below what you're forecasting back at the time of the acquisition in September, ex FX?

[Jeffrey L. Rutherford:]

Yes. And what we predict -- it's right in line with where we predicted it would be. It's going to affect our earnings about $0.02, and what we have built in our model is about $0.11 contribution from Vetriceramici for '15. So that -- I think we originally said $0.12 to $0.14. And we have -- and based upon the euro at $1.12 we're at $0.11.

[Operator:]

Our next question is from the line of Mike Sison with KeyBanc.

[Michael J. Sison:]

In terms of growth in your businesses in 2015, on a value-added sales constant-currency basis, can you walk us through kind of sums of the sensitivity, how much of the growth you expect to see in the sales front that's kind of within your control, new products you've seen? You have a very good growth in Colors, for instance, Colors and Glass over the last couple of quarters. And then -- and maybe how much is somewhat dependent on the economic environment?

[Peter T. Thomas:]

Yes, Mike. The way we have it is, as Jeff mentioned in -- on our script, we're looking at, on an absolute basis, a 2% to 3% value-added sales growth. And if you look at each of the businesses, they vary. As we mentioned, in Color and Glass, it's about 2% to 3% up. A little short from last year for a couple of reasons. One, we had a very good year in '14, and the auto business was very strong. So we had some carryforward from last year that will be coming in. But we'll -- some of that will be offset because of the construction business remains very flat in Europe for our flat glass business, which is really one of our larger segments for glass. So as it relates to Performance Glass and Colors, that 2% to 3% that we just spoke of is in our control. But at the end of the day, everyone knows what the macro headwinds are, and why don't we spent a couple of minutes on that business, sharing with you some of the tailwinds that we see that could be helpful. In that particular business, in Color and Glass, there is very strong demand -- it's all small numbers in the Middle East and North Africa. But at the end of the day, the demand for all of those product lines remained very strong in Egypt and the Middle East. We are also introducing some new products in that business this year, which would be a new color-intensive auto enamel for new models, if you will. We have a dust-free forehearth color pearl opportunity and demand for more environmentally friendly non-dusting products that we'll be introducing. Also, with the addition of TherMark, the new laser printing business, that's embedded into the Color and Glass business, and Jeff mentioned that those numbers are not built in. And as a perspective, the sales right now are less than $5 million, but the gross margins are in excess of 55%. We also are introducing, as part of the TherMark program, part of the market expansion and adjacency, if you will, would be to digital print with inks on glass substrates as a new opportunity. So they're -- even though we're showing the 2% to 3% growth that's in our control, we do have some tailwinds on that particular business. As it relates to Performance Colors and Glass, that business overall, has a nice revenue and volume growth that -- and Performance Coatings has a nice growth profile that we've mentioned in our script. And what we have is a nice geographical expansion within the Middle East and also North Africa. We're also seeing, potentially, the benefit of Thailand, which is unveiling a new stimulus package, which could increase our tile demand and production in Thailand. Also, the governments in some of these emerging markets are more stable this year, particularly in Indonesia. And what's happening there is the government is streamlining the processes for public investment in a way that could stimulate the economy. So we'll be in good -- and have a good position in Indonesia as well. So again, what I'm trying to highlight, even though we're showing certain growth rates, what we're showing and what we've said all along is we want to deliver consistent and predictable results. So what you see from us is what we have in our visibility and we feel very, very good about. And what I also want to make sure with all the negative news around the macro headwinds that we do have tailwinds. And so those things that I just mentioned will help push the Performance Coating business moving forward. As it relates to our PPO business, the good news is that 1 customer that overstocked at the end of 2013 has depleted their inventory through '14, and we're back on track in a normal pattern with our PPO business. And also, we are working on some new product development around a new range of pigments that will be out. And that also will present a tailwind for us, if you will. But what you see on the surface is the growth that we're showing is what -- is in our control. But there are tailwinds that could help us move moving forward.

[Jeffrey L. Rutherford:]

Yes, Mike, what we do in sales planning is we run various scenarios on a macro basis, Monte Carlo scenarios on high end and low end. And what our models generally do is gravitate back toward our weighted average GDP based upon predicted GDP for world economies. And basically, that's what you have in our '15 model. As we first adjust for the negative FX effect and then we have growth, somewhere between 3.5% to 4% on organic growth, and that's our weighted average GDP. And we'll run that volume. We need to hold pricing, but we'll run that volume or better worldwide. We know that. And then we look for an -- we look for a growth from investment, either capital investment or product investment. And Peter's talked before about all of the things that we have in the pipeline relative to new products. And as those roll out, some of them require capital spending, some of them don't. But we built -- we only built in 1% for that. Then we have Vetriceramici, which we know it's -- what that model is going to look like. And that what's given us our sales growth. So this is a very leverageable model. That -- mean that's the point, right? If we get better than GDP growth, right, then we'll do much, much better on bottom line. So we tend -- as everybody knows, we tend to be a little conservative with modeling. But we tend to migrate back to a GDP, weighted average GDP number on organic growth.

[Peter T. Thomas:]

Yes. And just underscore one point in case we don't get the question about Vetriceramici and how that's working, that acquisition is going extremely well. We are really, really pleased with that acquisition, and it also serves as a tailwind for us, in that already in a short period of time we've been able to take their products to our existing marketing channels, throughout the world, where they didn't participate, and we've established relationships and positions. And likewise, in a cross-customer basis where we might have had a position, they're pulling our old products along. So right now, the synergies between the 2 companies and the discipline that's put -- been put in place around not interfering with that brand, is actually working extremely well and will absolutely present a tailwind for us moving forward this year.

[Michael J. Sison:]

Great. And as a quick follow-up -- and you touched on this a little bit, but given how well Vetri is been doing, can you sort of walk us through what your thoughts on valuation, the M&A environment, so sort of what's next on that checklist in terms of focusing and adding to your portfolio?

[Peter T. Thomas:]

Yes. So as we've mentioned, we are working on multiple opportunities because this is the -- we're in the third phase of our strategy, which is reenergize growth. And our model, as we are trying to target, represents moving forward, 65% from inorganic growth and about 35% from organic growth. So if you look at last year on the acquisition of Vetri, which brought roughly $60 million, $70 million, we had, from new products, greater than $50 million. So that model that Jeff refers to, that $100 million a year is very realizable for us. It was last year. We have a lot on the table that will deliver that again this year. And so the point is we're not just growing inorganically. We have to have a good balance. And our -- as Jeff mentioned, we've talked about our pipeline. And what we've been able to do is now that we're in 18 to 24 months of it, we have a better appreciation on what the probability is versus non-probability. And over a 5-year time horizon, we're looking at somewhere between $300 million to $350 million worth of contribution at a point in time. So last year, we were in excess of $50 million. This year, we have built in something very similar. So the organic -- and like a TherMark acquisition will be similar to this type of organic activity even though it was an acquisition. But in terms of acquisitions, we've mentioned we're looking at multiple acquisitions that range anywhere from geographical expansions or expansion in an existing market, like Egypt, for an example. We would have technology expansions similar to TherMark. There will be consolidation opportunities or rollups particularly aligned with the Performance Coatings business. And also, we here -- we have here near-adjacent expansion opportunities relating to our Color and Glass business. So right now, we are working on multiple inorganic opportunities that we feel very good about.

[Operator:]

Our next question is from the line of Rosemarie Morbelli from Gabelli & Company.

[Rosemarie J. Morbelli:]

Going -- following up the question on acquisition, I seem to recall that in the past, you said that you expected every $100 million worth of revenue from acquisition to generate about $0.13 to the bottom line. Is that still a ratio we are looking at?

[Peter T. Thomas:]

Yes.

[Jeffrey L. Rutherford:]

Yes. It's -- when -- with every $100 million of investment. It's -- yes, it's somewhere -- it's going to be in $0.12 -- $0.11 to $0.12 a share.

[Rosemarie J. Morbelli:]

Okay. And so when we are talking about Vetri, you said that they are bringing good manufacturing facilities. Is that an opportunity to consolidate a few or 1 Ferro facility into Vetri? Or do you need all of that additional capacity?

[Peter T. Thomas:]

Yes. At this point, we need all of that available capacity.

[Jeffrey L. Rutherford:]

And that capacity, the Vetriceramici capacity is a little different than our normal. It's a higher-end capacity, a higher-end frit production. The opportunity there is, where else can we be selling that higher-end product within our channels?

[Rosemarie J. Morbelli:]

So if this is the case, Jeff, do they actually -- as you are offering Vetriceramici product lines to your group of -- to your own channel, do they have actually -- looking at it from the other angle, do they have enough capacity? Or do you actually need to invest there and add to what they actually do at the moment?

[Peter T. Thomas:]

Yes. At this point, Rosemarie, they have sufficient capacity to get us through for the next couple of years. However, based on our projections of what we think could happen, particularly as we're progressing on using each other's channel markets, we may have to add some more capacity. But we'll have a better handle on that at the end of this year.

[Jeffrey L. Rutherford:]

Their manufacturing capacity, it's in Italy and in Mexico. So it's very well-positioned to where it should be. And just as a reminder, we went through it fairly quickly on the prepared remarks. But we have built into our cash flow budget, $35 million of CapEx for our base business in '15. We only spent -- in the base business, we only spent $16 million in '14. So we have room in our model. And we're hoping to see some value-creating activities come in from our base business. And if we have a model that shows we're going to create value by expanding capacity or something like Vetriceramici with such high margins, I think that's one of them we would readily look at.

[Rosemarie J. Morbelli:]

Okay. And then one last question, if I may. When we look at your EPS range, what needs to happen for you to -- never mind beating, which you seem to be doing every quarter, but for you to reach the 90 -- the higher end of the range, is that only a change in currency with the dollar weakening a little bit versus current level? Or get -- do you need something else to happen to get to the $0.90?

[Jeffrey L. Rutherford:]

Well -- I mean, the way we model is, we'll get there if something extraordinary doesn't happen to us, right? If something like the hit we took in FX, if the dollar drops or the dollar continues to strengthen and the euro continues to decline, then we’ll probably have some risk in this model. We're at $1.12. If it weakens, the dollar weakens. Obviously, we'll beat these numbers. But within the base business, ignoring the currency effect, this is an extremely doable model, right? Everything that we have in our model right now is based upon things we control. It's continued cost reductions, right? We -- as I've said on other calls, we can't relax on that. There are things that need to be done. I'm looking at the room, some of our guys, my guys are in this room, and I'm telling -- I'm letting them know we're going to do these thing. This is not -- we're not taking a vacation on cost reduction. But also built into this is the improvements that Peter talked about and things like direct purchasing and strategic direct purchasing. And that's part of our expansion of gross profit percentage. So there -- everything in here, if the weighted average growth that we have built in, and we'll get that on volume, we'll hit these numbers. Because it's within our control. On the base business, acquisitions are a little different there, right? You need a third party. But if GDP holds at about -- worldwide GDP on weighted average for us is somewhere around 3%. If that holds, we'll make this plan.

[Rosemarie J. Morbelli:]

When by -- we make this plan, I am guessing you are talking about the $0.90 as opposed to $0.85? Sorry for reaching.

[Jeffrey L. Rutherford:]

We gave a range.

[Operator:]

Our next question is from the line of Dmitry Silversteyn with Longbow Research.

[Dmitry Silversteyn:]

Can I ask a question on the businesses that you're divesting? The benzoic acid derivatives plant, is the construction there still sort of on track and you still expect that plant to be up and running this year, whether you end up selling it or not?

[Jeffrey L. Rutherford:]

Well, you'd have to define on track. We're -- obviously, we're a little late from our original plan. That plant will be -- we are still making investment. If you look at our balance sheet, you can obviously see what we have invested in our Antwerp plant. That's our asset held for sale, so it's approximately $33 million. What I could tell you is that we still need to invest in '15. There's going to be approximately another, in U.S. dollars, somewhere around $15 million of what is already committed. We also know, in that model, we have some excess working capital, that we should be able to harvest the excess working capital. So we're going to have a number, right, of net investment on our balance sheet, somewhere in that $45 million range. Look, what we're trying to do is we're trying to recover that asset or have a return on that asset. It is being actively sold. We do have a third party who is in a process to sell that facility. But for anybody listening who wants to buy a discounted asset, we're not going to sell it on the cheap, right? We're doing this on the behalf of our shareholders. And so we're going to sell it for what we believe it's worth. And we've got time constraints, it's an asset held for sale and the whole bit from a GAAP perspective. But we're going to do what's best for shareholders to harvest that asset.

[Dmitry Silversteyn:]

Okay. In your prepared remarks, in discussing one of the businesses, you mentioned that it was impacted by weak construction. Can you expand on that a little bit? From other companies that supply into the construction industry, we generally have been getting positive commentary over the past several months.

[Peter T. Thomas:]

Yes. It's Peter. For us, what we -- it's really a focus on one component of our business. It's the Color and Glass business related to our sub-MBU, which is flat glass, which is mostly for commercial, and it's in Europe. So yes, our business in the U.S. is strong. But Europe, where we have more business, since it's the mature market for us. If you do a lot of work -- construction in Europe is going to be pretty much flat year-over-year.

[Dmitry Silversteyn:]

Got it. Got it. Okay. You mentioned the use of cash and the $100 million or so a year being deployed for acquisitions in the absence of that, maybe share repurchase or dividend. I take it, reinstating dividend is not a high priority for you yet, and you're probably going to wait a couple of more years to get a more solid footing financially before revisiting it.

[Jeffrey L. Rutherford:]

I know the board has debate on this quite often, and right now, the belief and the consensus is that we can create more value by acquisition. And at some point in time, we're going to have -- the high-class problem, right? For us, if you go back 2 years ago, we weren't talking about any of this. So it's a high-class problem whether to invest or return capital to your shareholders. And we're there. But right now, we see -- and what we see from an M&A activity, we can create more value for our shareholders by doing M&A. So it's all -- but as is anything with us, right, we're willing to listen to anyone and have any discussion on any topic. And this is another one.

[Peter T. Thomas:]

Yes, good. It's really a good comment, right? Because at the end of the day I think we all around this table, and hopefully all of you, realize that our stock is undervalued. But to Jeff's point, we're working on handful of deals here that we believe will bring even more value. But certainly, as time goes on, if these are not coming to fruition, the first thing we would do is have a discussion around this and take care of our shareholders.

[Dmitry Silversteyn:]

Got you. And then one final question. On the 2015 guidance, initially, the guidance was $1, then something better than $1. And now it's $0.85 to $0.90, and there's about $0.11 of the acquisition in there, about $0.12 to $0.14 foreign exchange headwind. So I mean, net-net, it sounds like those 2 cancel each other out versus your view on the year, let's say, a year ago before this acquisition or foreign exchange devaluation happened. So it sounded to me...

[Jeffrey L. Rutherford:]

That's before we sold Polymer Additives and Plastics, right? So what happened is, originally, it was in over $1, then we sold the organic chemical businesses, and it came back to $0.90. Then we had the Vetriceramici, and it went back over $1. And now it's back down because of FX.

[Dmitry Silversteyn:]

Got you. Okay. So that the only piece that I was missing. I just wasn't sure if it was -- if the economic outlook was a little bit more conservative for you than versus a year ago or what was that $0.10 to $0.15 takedown. But that sounds -- it sounds like it's the sale and the loss of profitability Polymer Additives.

[Jeffrey L. Rutherford:]

If we took our models, our internal models and did -- took all the FX effect out, we're right on the model we had -- that we built for the company 2 years ago. We're -- and by the way, we've tracked -- we do -- we're a further value EVA company. We know what the valuations are. We know what the valuations are of all of our acquisitions. I can tell you today what that little TherMark acquisition -- it's going to create -- in our models, it created $5 million of value. It's small, but -- on a $5 million acquisition. So we're going to double our money on that acquisition. And that's -- we do that for all of our acquisitions, all of our investments, all of our models. And basically, that's how we run the business based on EVA.

[Dmitry Silversteyn:]

Got it. And just to confirm, did you say that your guidance is based on $1.12 to the euro?

[Jeffrey L. Rutherford:]

Yes.

[Dmitry Silversteyn:]

Okay. So if it improves from that, there should be substantial upside in terms of your ability to deliver EPS at least.

[Jeffrey L. Rutherford:]

Oh, yes, absolutely. But we'll report on that. We'll keep track of what the effect is.

[Operator:]

Our next question is from the line of Christopher Butler with Sidoti & Company.

[Christopher W. Butler:]

Just wanted to circle back on the Vetri acquisition. You had put out some numbers about your expectations with -- including foreign currency. But after talking about some of the synergistic opportunities with Vetri, the sort of gross numbers didn't really change. Is this a situation where it's going to take a while to see those synergies and not necessarily in 2015? Are the synergies to be found in some of your other products because of cross-selling opportunities? Or is this just upside that you might have to 2015?

[Jeffrey L. Rutherford:]

It would be upside. We -- what we have built into the model for Vetriceramici is a very doable model. And basically, what it runs, it's running at our standard model, so about 10% return of invested capital. The synergies that will be harvested initially our functional synergies, right? And then we'll be a little more circumspect about the commercial synergies as it rolls out. And probably, the synergies there are selling their products in our other markets, right? And we don't want to announce where those markets are. But you can think about where they're thinking was when they built a plant in Mexico. And so one of the largest markets in the world for their products, you're going to be in South America, in particular. And so there are a lot of opportunities for that product to expand worldwide. And their product is held out, Peter you know this better than me, it's held out as the top end of the tile products.

[Peter T. Thomas:]

Yes. And like we said earlier, the cross-selling is already gaining traction. And basically, you take Vetri with an average gross margin of between 40% and 45% and move them into our top customers who really love Ferro. And we gain our market presence that they didn't have and enjoy the added benefit of that extra business as well as Vetri cross-selling and moving into our -- their customer base. And we're just getting a cross-channel benefit from this that we're really excited about. And it may also be a little bit better than we had anticipated.

[John T. Bingle:]

That concludes our call this morning. As a reminder, for copies of our press release, replays of the call or to access our SEC filings, please visit our website at www.ferro.com. Thank you for your time this morning, and have a great day.

[Operator:]

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.