W. R. Grace & Co.
Q3 2016 Earnings Call Transcript

Published: 26 Oct 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the W.R. Grace & Company Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Tania Almond, Grace's Investor Relations Officer. Ms. Almond, you may begin.

[Tania Almond:]

Thank you, Takia. Hello, everyone, and thank you for joining us today on October 26, 2016. With me on the call are Fred Festa, Grace's Chairman and Chief Executive Officer; Hudson La Force, President and Chief Operating Officer; and Tom Blaser, Senior Vice President and Chief Financial Officer. Fred will start with the highlights, Hudson will review more detail on the operations, and Tom will go over the financials. Then, we'll open it up for Q&A. Our earnings release and corresponding presentation are available on our website. To download copies, go to grace.com and click on the Investors tab. Some of our comments today will be forward-looking and are made under Section 27A under the Securities Act and Section 21E of the Exchange Act. Actual results may differ materially from those projected or implied due to a variety of factors. Please see our recent SEC filings for more details about the risks that could impact Grace's future operating results and financial condition. We will discuss certain non-GAAP financial measures, which are described in more detail in this morning's earnings release and on our website. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release and website. Our comments on forward-looking statements and non-GAAP financial measures apply both to the prepared remarks and to the Q&A. And with that, I'll hand the call over to Fred.

[Fred E. Festa:]

Thanks, Tania, and good morning and welcome to all of you for joining us. Grace had another good quarter. We continue to achieve good margin improvement and strong cash flow. We also saw the return of top-line revenue growth, both year-over-year and sequentially, and delivered $103 million of adjusted EBIT or $0.80 per share. Revenue and margins were strong in our Catalysts business but slightly lower than expected in Materials. Our ART joint venture with Chevron was a bright spot with strong earnings in the quarter. We also made good progress with the integration of our polyolefin catalyst acquisition along with solid productivity improvements. Both are on pace with our plans. Regionally, there were no big surprises. North America was just a bit weaker than we thought, though stable. Europe was a little stronger than expected, and Asia remains weak, especially in China. For the rest of this year, we'll continue to focus on sequential sales growth, on integrating and leveraging the polyolefin catalyst acquisition, on our mix of productivity and operational excellence actions, and on delivering strong cash flow to fund more growth and return cash to shareholders. We will provide our formal 2017 outlook when we report our full-year results next year, but as we're putting those plans together now, I can highlight some of the factors that are shaping our expectations. We see tailwinds in several important areas. We expect volume in the FCC business to continue to grow. In addition, we see strong demand in our new polyolefin catalyst product offerings and are moving forward with our investment to support the growth. On the Materials side, our demand in the pharmaceutical and nutraceutical areas are strong exiting the year and we do not expect the inventory correction in silica product lines we saw in the first quarter of this year to repeat. Finally, we continue to have significant productivity opportunities across the business. As for headwinds, we think we're about a year into what we expect to be about a 36-month down-cycle in polypropylene licensing. In addition, demand for chemical catalyst in China is weak, and we don't expect this to turn around in the next 12 months to 18 months. There could be pockets of inflation, and we'll watch that closely. Finally, this is all against the backdrop of a competitive, low-growth global environment. All that said, we believe we're taking the right steps to be successful in this environment and look forward to another year of earnings growth and strong cash flow to reinvest in our future and return cash to shareholders. With that, I'll turn it over to Hudson.

[Hudson La Force:]

Thank you, Fred. Catalysts Technologies performed well in Q3 with good margins. Our refining catalyst business grew earnings double digits with good contributions from both our ART joint venture and our business in the Middle East. We see continued improvement in the FCC catalyst market. Product performance has become more important than price as a driving factor in winning and retaining business. This is a healthy indicator for us and supports our confidence that we can capture value through price and product reformulation as customers sign and renew with us over the coming years. FCC catalyst pricing improved again in Q3 and is now up 0.8% from Q1. Global demand for transportation fuels remain strong, with gasoline demand up 1.7% year-over-year. Mitigating this, however, are high levels of refined product inventories, which affected Q3 refining margins and prompted some refiners to reduce crude runs or shift product slates. Several customers recently informed us of unplanned shutdowns during the final months of this year. As a result, we remain cautious on demand projections, particularly given the level of refined product inventories. We remain on track, integrating our polyolefin catalyst acquisition. Customer feedback has been quite positive, and it is clear the LYNX technology is a great addition to our portfolio. We acquired the business with a very strong hypothesis around manufacturing synergies and capacity utilization opportunities. 120 days in, the strong commercial fit, high-quality manufacturing operations, combined technical capabilities and solid culture fit, all confirm our thesis. We feel very good about where we are, though we still have plenty of work to do over the coming years to maximize the return on this investment. Specialty catalyst markets in North America and Europe are stable, but China continued showing weakness. Year-to-date, lower sales in China reduced Grace's overall sales growth by nearly 2 percentage points, with most of that in our Specialty Catalyst business. The biggest headwind is in chemical catalysts, especially the BDO and pyridine markets. We also see continued weakness in the polypropylene licensing market. Although we recently won two new licenses, we continue to expect lower overall licensing revenue and earnings in 2016 and 2017. That said, there are strong positive signs in our Specialty Catalysts business. The one I'm most excited about is the demand for our high-performance, consistent, non-phthalate polypropylene catalysts. This technology enables our customers to make a wide range of higher value, differentiated polymers and earn higher margins in their business. We're seeing customers in every region move quickly to adopt this new technology. Our ART joint venture had a very good quarter and has good visibility for Q4. Recently, we've had some nice wins in ebullating bed technology, which helps improve the run rate volume of this business. Materials Technologies grew in Q3 despite weakness in some regions and end markets. In North America, silica demand appears to be moderating after a strong first half, with the slowdown in the coatings market impacting our sales volumes. In EMEA, growth in coatings, consumer, and industrial markets was partially offset by weak process adsorbents demand. And in Latin America, improved conditions in Brazil contributed to good growth in the silica business. For Q4, we expect stronger sales and earnings in MARKET, with good performance in silicas and a strong year-end finish in fine chemicals. We continue to improve margins with a strong emphasis on productivity. With the spinoff of GCP Applied Technologies, we significantly simplified our business, eliminating more than 50 manufacturing sites worldwide and creating an opportunity to focus even more on our manufacturing performance. This year, we completed a comprehensive review of our fixed costs and are moving ahead with an increased focus on areas such as maintenance effectiveness, process capabilities and capacity planning. This is all part of a multi-year effort to improve productivity in our already good manufacturing operations. With that, I'll turn the call over to Tom.

[Thomas E. Blaser:]

Thank you, Hudson. Grace's third quarter sales were $404 million, up 1% versus Q3 last year, as reported, and down 1% adjusting for acquisitions and product lines exited earlier in the year. Overall, Grace's adjusted gross margins expanded to nearly 43%, up 60 basis points compared to the prior-year quarter. Adjusted EBIT for the quarter was $103 million, up 22%. Adjusted EBIT margin was over 25%, up 420 basis points over last year. Adjusted EPS for the quarter was $0.80 per diluted share, up 48% from last year, including a $0.02 positive impact from the stock option accounting change. Adjusted free cash flow year-to-date was over $190 million, which compares to $212 million a year ago. This represents 76% of our target of at least $250 million for the full year. Our adjusted EBIT return on invested capital on a trailing four-quarter basis was 23.3%, as reported. This compares to 24.3% at year-end 2015 and 22.7% last quarter. ROIC will continue to improve as we lap the disc ops effect and realize the earnings potential of the recent acquisition. Looking at our business segments, starting with Catalyst Technologies, sales were up 4% versus last year and earnings grew 9%. Adjusted gross margin was up 110 basis points compared to last year to 45%, reflecting productivity improvement and lower cost input, partly offset by mix effect related to the polyolefin acquisition. On a sequential basis, total sales grew 6%, including the benefit from the recent acquisition, and earnings were up 8%. Materials Technologies sales were up 2%, excluding the exited product lines, and down 5% on a reported basis. Adjusted gross margin was 38% for the period. Earnings were up 12% from lower operating expenses, primarily driven by the cost take-out related to the exited product lines. On a sequential basis, sales were flat, excluding the exited product lines. In the third quarter, we spent $20 million on share repurchase, and total year-to-date repurchases were $55 million. Today, we announced our quarterly dividend equal to $0.17 per share, with payment expected on December 8. Let's review our 2016 outlook, and then we can open the call for questions. We are maintaining our full-year guidance for 2016 adjusted EBIT to be in the range of $400 million to $405 million, adjusted EBITDA in the range of $500 million to $505 million, and adjusted EPS to be in the range of $3.05 to $3.10 per share. These ranges represent strong double-digit growth over 2015 and assume an average euro exchange rate of $1.10 for the year. Looking at the fourth quarter, we continued to see credible evidence of sequentially increasing sales, earnings and cash flow. Specifically, in Catalysts, we see increased sales from our Middle East customer startup, continued improvement in ART volumes driven by our secure backlog, Specialty Catalysts order timing and licensing wins, and added contribution from our recent acquisition. In Materials Technologies, we see slight revenue improvement and positive mix shift towards our higher-margin fine chemicals business and products. Net-net for the year, we expect Catalysts segment earnings to increase mid-single digit and Materials Technologies segment earnings to increase high-single digit. We continue to project 2016 corporate costs between $65 million and $70 million and pension expense to be about $12 million. We expect interest expense for the full year to approximate $81 million. Our capital investments for 2016 will approximate $120 million, down from our previous range of $130 million to $140 million. This level continues to include the capital required to achieve certain synergies from the polyolefin catalyst acquisition as well as our continued focus on timing our investments to align with our customers' spend and the market. Our guidance remains unchanged for 2016 adjusted free cash flow to be at least $250 million, including the favorable impact of our low cash tax rate. This year, our cash taxes will be outside of our longer-term cash tax rate of 12% to 15%, as we satisfy prior-year non-U.S. tax obligations. In closing, we remain committed to our disciplined approach to profit growth, cash generation and capital allocation management as we continue to deliver increasing value to our shareholders. With that, we'll open the call for your questions.

[Operator:]

Thank you. And our first question comes from John Roberts at UBS. Your line is now open.

[John Roberts:]

Good morning.

[Fred E. Festa:]

Good morning, John.

[John Roberts:]

Could you help us understand how TAKREER affected the sequential comps in the Catalysts segment third quarter versus second quarter and how it'll affect fourth quarter versus third quarter?

[Hudson La Force:]

John, this is Hudson. We are – we began supplying TAKREER in Q3. As you know, we did not reach our potential with them in Q3. And so there was growth in Q2 to Q3 sequentially as that business ramped up, and there'll be growth again from Q3 to Q4 sequentially as we approach the full – a full run rate with that customer.

[John Roberts:]

Okay. And you don't want to quantify that for us, do you?

[Hudson La Force:]

No.

[John Roberts:]

Okay. And then just to help me understand, when you see lower BDO catalyst demand in China, for example, is that the customer volumes of BDO are down, or are they delaying maintenance on BDO units, and so it's a refill order that's missed? Or how does that lower demand to you kind of occur? What's the driver behind that?

[Hudson La Force:]

It's a good question. So their business is actually okay from a volume perspective. Demand for the underlying material is okay. But there's significant overcapacity in the industry. So they're running at low utilization rates, which means less requirement for catalysts. There's really not an opportunity for the catalyst to make a big difference in their units. And so – because of those low utilization rates. And so they are pushing out maintenance activities, they're pushing out catalyst refills.

[John Roberts:]

Okay. And then just letting the activity run down on that catalyst longer than normal?

[Hudson La Force:]

And when you're running at high utilizations you care a lot about that. When you're at low utilizations, it doesn't really affect your economics.

[John Roberts:]

Got it. Thank you.

[Operator:]

Thank you. And our next question will come from Christopher Parkinson at Credit Suisse. Your line is now open. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker) Perfect. Thank you very much.

[Thomas E. Blaser:]

Hi, Chris. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker) Can you just talk a little more about the headwinds you're facing that you included in your presentation, including the polypropylene licensing, and just anything else? You mentioned BDO, but anything else that's driving the weaker than expected catalyst demands? Just any color on these on the degree of how it's affected 2016 and your preliminary expectations for 2017 given current trends would be great. Thank you.

[Fred E. Festa:]

Yeah. Chris, as we look out and as we're planning for 2017, first of all, we're planning our cost basis on a conservative level. We want to make sure from a cost standpoint we're conservative on that side of it. As we've gone through the year, we've seen the chemical catalyst volume continue to drop, as previously as Hudson mentioned with John, based on the refill activity. So we're planning that to be – we're planning that to be low next year from that perspective. On the licensing side, you know, licensing is a cycle. You get a license, it takes about three years. On average, over the past years, we've won a little over three licenses. We've won two this year. They happened to be back-end loaded. They just – they've come in the quarter, which is a good – which is good – a good sign from that standpoint. But we're planning conservative for next year. And at this point in time, I couldn't even tell you if we've got one in the plan. But we want to plan conservative. Net-net, if you look at that whole effect going into 2017, it's probably $10 million of EBIT dollars, maybe $12 million of EBIT dollars. And we'll see. But as I said, when I look at 2017, I like what we're seeing on the FCC side of it. I like the specialty catalyst volume and the uptick on that position. We're going to plan conservatively on the cost. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker) That's great color. Thank you. And you also mentioned positive – some positive commentary on the pricing front going forward, and we saw a little sequential improvement there. But can you comment on what you're seeing, given the sluggish macro, just kind of going forward? I mean, is the opportunity to drive price/mix mostly mix? And then just any comment on how large the reformulation opportunities are would be greatly appreciated. Thanks.

[Hudson La Force:]

Sure, Chris. This is Hudson. Great questions. So we – when we look at account wins or losses for that matter, we analyze what happened, what worked, what didn't work. And we've seen a significant shift in the drivers of account wins over the past year where price had been an important component of that a year or two ago. We're now seeing product technology be the driver in terms of customer decisions on supplier. That is a great development. And we think it builds or firms up the foundation that we've been putting in place to create opportunities to create more value through price and reformulation going forward. What's the mix between price and reformulation? Traditionally, it's actually been more about reformulation. To some extent, it's a false distinction, because even when we're driving price, it's really driven on the back of a new product technology that we're introducing. And so, to some extent, that's a false distinction. Price shows up more strongly in the top-line. Reformulation shows up more strongly in the gross margin line. But at the end of the day, we're creating more gross margin dollars either way, which is really what we're focused on. Customers continue to come to us looking for technology solutions to their operating issues. And some of our customers have been reporting earnings over the last week or two. Most of them are seeing a tougher margin environment. That's an opportunity for them to come to us and say, how can you help us run our operations better? How can you help us get more value out of our refinery? And that's what drives this virtuous cycle of different catalyst technology that's providing more value for our customer and our chance to capture a piece of that. That's the marketplace dynamic that's happening right now. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker) Fantastic color. Thank you.

[Operator:]

Thank you. And our next question will come from Mike Sison at KeyBanc. Your line is now open.

[Michael J. Sison:]

Hi, guys. Nice quarter there.

[Fred E. Festa:]

Good morning, Mike.

[Michael J. Sison:]

Fred, when you talked about volume growth in FCC in 2017, can you maybe help us out in terms of how much of that will come from TAKREER? And then, are you going to see some base – sort of base FCC volume growth as well?

[Fred E. Festa:]

Yeah. Listen. I don't want to get into too much of the specifics now. We'll give you all that color when we report for the full year. But obviously we'll have a full year of TAKREER where basically we've got four months, maybe four-and-a-half months this year. And we've got some – and some of the other activity in some of the other regions has been positive as we've gone through.

[Michael J. Sison:]

Great. And then in terms of industry operating rates for FCC, I think you're fairly close to running full out there. When you look across the landscape, is it fairly tight as you head into 2017?

[Fred E. Festa:]

Yeah. I mean, we think so. We can see ours. And as you said, I think we're going to exit the year very tight from that standpoint. And the first quarter, the first quarter sometimes is not fully indicative because a number of customers take the turnarounds in the first quarter, as you know, from a – from changing over from the heating season and so on from that side of it. But everything we're seeing out there, the market continues to tighten up from a capacity utilization for our – for the suppliers of catalysts.

[Michael J. Sison:]

Great. Thank you.

[Operator:]

Thank you. And our next question will come from Laurence Alexander at Jefferies. Your line is now open.

[Daniel Rizzo:]

Good morning. It's Dan Rizzo on for Laurence. You talked about your productivity efforts and eliminating I think 50 manufacturing sites. I was just wondering like where we are in the process and how long it will take to kind of fully implement the efforts. Is it – I mean, is it going to take over the next couple of years, or is the bulk of it going to be done in the first six months or next six months or so?

[Fred E. Festa:]

We've – we constantly work productivity. I think you see it in our margins. And we've been able to expand our margins without a lot of volume uplift even this year. So that's something we work all the time. Hudson has laid out a very good plan with the – with all of the operations. And coupled with what Tom is looking at across all of our base cost, we're putting those actions together. It's really a 24 – we want to get it implemented over a 24-month period starting next year. And I think we'll give you some color into that, how much we expect in next year, as we get – as we roll out our earnings guidance.

[Daniel Rizzo:]

Okay. And then you talked about reformulation as an important part of price. I mean, without the reformulation, is it very difficult to get price through? I mean, is there pushback on that that you have to show them something before they will even talk about potentially just giving you some – accepting some price increases?

[Hudson La Force:]

The driver for the FCC catalyst industry, actually all of the catalyst businesses, is value creation for our customer. And that means bringing them better technology. And that has always been the best lever for us on pricing. And whether it's a new account where we're bringing them a better technology or an existing account where we're giving them something new based on some change in their circumstance, that's always been the winning driver for that business.

[Fred E. Festa:]

Yeah. Let me just – Tania just shot me a quick note here. Let me just make sure we quantify – or not quantify – make sure the question – we're not eliminating 50 sites. What Hudson mentioned is where we have broad range in GCP, we're focused down to now less sites on that side of it, and we're able to accelerate that productivity. So it's not the elimination of 50 sites.

[Hudson La Force:]

These are GCP sites that went with the spinoff company.

[Daniel Rizzo:]

Oh. Okay. No -

[Hudson La Force:]

Sorry if it's not that (26

[Daniel Rizzo:]

No, that's fine. Thanks for the clarification and thanks for the color.

[Operator:]

Thank you. And our next question will come from Robert Koort at Goldman Sachs. Your line is now open.

[Robert Andrew Koort:]

Thanks. Good morning, everyone.

[Fred E. Festa:]

Good morning, Bob.

[Robert Andrew Koort:]

I wanted to explore something that I'm a little bit surprised at. Hudson, I think you said that the value proposition is starting to gain more traction with customers in the last year. And I guess I would have expected refining margins are down from where they were in their heyday, but they've been pretty stagnant over the last couple of years. Is there something different about crude slates, about product slates? What flipped that switch? Because I think, as you said, the selling proposition has always been value enhancement for the customers. Why are they finally starting to respond to that in the last year?

[Hudson La Force:]

I don't – I wouldn't characterize it that way. I think the point I wanted to make is that's an ever-present part of our business model, the value creation model we have with our customers. What had happened, if we go back a couple of years, is price-competitiveness had kind of – had become a bigger part of it, and that's starting to fade away, getting us back to what has traditionally been the basis of competition.

[Robert Andrew Koort:]

Got it. And would you say any thrifting or trade-down, then that is also behind the industry?

[Hudson La Force:]

It depends – that's a customer-by-customer question. And we do have a portion of our customers that are focused on minimizing catalyst costs, and they'll trade that against refining performance, but most of our customers are focused on the other end of that balance. And they're willing to pay for the best catalyst technology to get the best operating performance in their refineries.

[Robert Andrew Koort:]

And if I could sneak one last one in, can you give us a sense, is there much ahead on the regulatory front that will stimulate demand, any more thresholds across some of your customers' customers that are going to need more active catalysts or different products?

[Hudson La Force:]

There I don't – I can't quote you the specifics, Bob, but the regulations in the emerging countries continue to tighten up towards mostly European standards. I'm sorry, I'm drawing a blank on the degree and the timing for that.

[Fred E. Festa:]

Yeah, I mean – yeah. Let me jump in. I would say you'll see that more reflected in two areas. One in the hydroprocessing side for low sulfur – low sulfur into diesel. And we're seeing good demand in our joint venture on the ART side from that perspective. So that's a positive. And the other side is still the need for propylene. I mean, propylene is still short. If you look in China, China is still importing propylene. Our two new licenses were for propylene, on that side of it. So that continues to be favorable from a catalyst perspective.

[Robert Andrew Koort:]

Great. Thanks, guys.

[Operator:]

Thank you. And our next question will come from Michael Harrison at Seaport Global Securities. Your line is now open.

[Michael Joseph Harrison:]

Hi, good morning.

[Thomas E. Blaser:]

Good morning, Mike.

[Michael Joseph Harrison:]

You had expected to have some integration costs related to the BASF acquisition during Q3. Can you quantify how much those costs were during the quarter? And do you expect any additional cost to stretch into Q4?

[Thomas E. Blaser:]

Yeah. We don't typically provide that kind of detail, but I can tell you that most of those costs will be through the pipe – are through the pipe through the third quarter. So we should expect uptick in the business from that.

[Michael Joseph Harrison:]

All right. And then, I was also hoping that you could give some thoughts on the UOP dissolution of the relationship with Albemarle. Wondering if this is a threat or an opportunity as it potentially creates another player in the HPC market.

[Fred E. Festa:]

Yeah. I mean – that's right. UOP has traditionally been in the licensing side and they partnered with Albemarle to supply the catalyst for the hydrocracking side that they had licensed. Albemarle has chosen to make that catalyst inside from what we've seen in the public data – I'm sorry, Honey...

[Hudson La Force:]

UOP.

[Fred E. Festa:]

UOP – sorry about that – has chosen to make it inside. I mean, what we've seen in the public database on capacity, it's 1% to 2% of the industry capacity. We've got a very strong license partnership with Chevron Lummus, and we've been producing that catalyst. So we haven't seen a lot of dynamic shift in the industry as a result of this, and it's – it's good business. It's good business out there, and it will continue to be good business and supported a lot by the lower sulfur regulations.

[Michael Joseph Harrison:]

All right. And finally, I was hoping that you could give a little more detail on – you mentioned the refined product inventories being at relatively elevated levels. It does seem like refiners are working to manage them, whether that means doing some turnarounds or shutdowns or shifting some of their production away from gasoline toward distillates. Can you just walk through the impact that you're expecting to see over the next couple quarters as those inventory levels spur refiners to take action? What does that exactly mean for FCC and hydroprocessing catalyst demand?

[Hudson La Force:]

We think these are fine-tuning type adjustments when you think about it at the global level. Individual refiners may slow down or shift their slate or do an economic – a turnaround for economic reasons, as you illustrated. But when you look at that across the global industry, we think these are pretty small fine-tuning type of facts.

[Michael Joseph Harrison:]

All right. Thanks very much.

[Operator:]

Thank you. And our next question will come from Ben Kallo at Baird. Your line is now open.

[Benjamin Joseph Kallo:]

Hey, good morning. Hudson, on the reformulation question again, can you judge if you guys are gaining ground on technology? I guess that's most likely through share, we judge that. But just kind of if you have any commentary on where you guys stand on technology advancements since I guess (33

[Hudson La Force:]

Ben, we feel great about the quality of our technology portfolio. And it's something that we work on continuously. It is the biggest driver of the margin expansion we've had in catalyst over the last many years. And we're not – we're not the best supplier in every single situation. We have a lot of respect for our competitors' capabilities. But I would not trade our portfolio for anybody's and feel terrific about its strength and breadth really. On the capital allocation, I'll shift it to Tom.

[Thomas E. Blaser:]

Sure. So, Ben, thanks for the question. Our capital allocation remains consistent with what we've previously communicated. We see our priorities as capital allocations for growth, investment in R&D for new technology, and then we look at keeping our debt leverage to a level we were comfortable with. And then we also look to return capital to our shareholders in the form of dividends and in share buyback.

[Fred E. Festa:]

Yeah. I would jump in, Ben. It's Fred. I mean, I don't – we don't see any structural change to what we're looking at. And from an M&A pipeline perspective, we're looking hard. And we'll see what we can do there, but at the end of the day, we generate a lot of cash, as you know. And we'll deploy that cash in that manner.

[Tania Almond:]

Next question, operator?

[Operator:]

And our next question will come from Chris Shaw at Monness, Crespi. Your line is now open.

[Chris L. Shaw:]

Yeah. Hi. Good morning, everyone.

[Thomas E. Blaser:]

Good morning.

[Chris L. Shaw:]

I'm trying to read through maybe the – between the lines a little bit on the – your views on FCC pricing going forward, maybe longer-term through 2017. It might sound like you're a little more cautious in terms of demand so that might impact your view slightly through next year. At the same time, I guess you're more positive on the uptake in technology. So I mean, net-net, is your view still the same in terms of your ability to get the price increases?

[Hudson La Force:]

I think the simple answer is yes, Chris. I wouldn't try to split hairs or find the nuance. What we're trying to communicate is we feel very good about our technology. We feel good about our ability to bring solutions to our customers that they value and will pay for. And the differences between price and reformulation are irrelevant when you get to the gross margin line. And I don't mean that to be backing off on price. It's just these are nuances that are really too fine for how the business works.

[Chris L. Shaw:]

Right. Okay. Thanks. And then on the Catalysts segment, the gross margins in the quarter were down. And I'm assuming that's some impact from BASF. And is there also an impact from the TAKREER volumes at all, or what's in there exactly?

[Thomas E. Blaser:]

No, it's – like you said, it's really related to the weaker margins coming from the BASF acquisition.

[Chris L. Shaw:]

And have you indicated either qualitatively or else sort of what the differential in the BASF margins were relative to Catalyst segment margin in basic terms?

[Thomas E. Blaser:]

Yeah, we haven't. What we have shared is what we thought the trailing 12-month EBITDA range was for the business as we made the acquisition.

[Chris L. Shaw:]

Oh, that's right. Thanks. And then just finally, do you anticipate buybacks accelerating any time soon, now that you've gotten the balance sheet more in order?

[Thomas E. Blaser:]

So it's great question. You know I can't answer that. But what I can tell you is that under our current authorized share buyback, we've got about $170 million left at the end of Q3.

[Chris L. Shaw:]

All right. Fair enough. Thanks, guys.

[Thomas E. Blaser:]

Yeah.

[Operator:]

Thank you. And our next question will come from Chris Kapsch at Aegis Capital. Your line is now open.

[Christopher J. Kapsch:]

Yeah, good morning. I just had a couple follow-up questions on current trends, primarily in Catalyst business. And specifically on the nuance about the refined product slates and the excess inventories and the consequent refinery cuts, was that commentary focused on the domestic refining end market? Or if you could just provide some color on how that's playing out on a global basis by region?

[Hudson La Force:]

Chris, we meant it to be – this is Hudson. We meant it to be global. Obviously where inventory levels are vary around the world. There are high refined product inventory levels in the United States, but this is a truly global market. And a lot of the outlet for that inventory is exports. So I think the regional distinctions don't really have effects on our business.

[Christopher J. Kapsch:]

I just was wondering if the refinery cuts that you cited were more acute, say, domestically vis-à-vis than the other regions.

[Hudson La Force:]

Sorry, I may have misunderstood your question. No, there's no – there's no regional concentration to the unplanned shutdowns. We're seeing them in three out of the four regions that we operate in.

[Christopher J. Kapsch:]

Okay. Thanks. And then you mentioned on a forward look, a lot of cross currents, encouraging outlook, I guess, in FCCs and polyolefin catalysts and maybe less sanguine in chemical cats and polypropylenes. Could you just talk about HPC? And I know that flows I guess through ART. Could you just talk about the – because one of your – one of the competitors in that space talked about the order backlogs being pretty strong. So, curious how that's looking out into 2017. Thanks.

[Hudson La Force:]

We have a good backlog in our ART business right now. It's – we've got strong order backlog for Q4. ART's had a good year this year, and we think it will have a good year next year.

[Christopher J. Kapsch:]

Okay. Thank you.

[Operator:]

Thank you. And I'm showing no further questions in the queue at this time. I'd like to turn the conference back over to Ms. Tania Almond for closing remarks.

[Fred E. Festa:]

Yeah – no. This is Fred. I'm just going to wrap up real quickly. When we last talked to you on the second quarter, and now we're talking now in the third quarter, fundamentally nothing has dramatically changed. The puts and takes in the third quarter, we got there a little bit differently, little bit weaker on the chemical catalyst side, little bit weaker on absorbents, stronger on our polyolefin, specialty catalyst and ART. And going out forward, for the fourth quarter, we see good volumes on the FCC side of it. We see a slight uptick in ART. We're confident on the specialty catalyst, especially the new products delivery, and we've got a good mix of business going into the fourth quarter with our Materials business. So, again, nothing's dramatically changed, little bit different mix, and we look forward to updating you on 2017 as we report our fourth quarter. So, thank you.

[Tania Almond:]

Thank you very much. And if you have any follow-up questions, you can reach me at 410-531-4590. Thank you very much, and have a great day.

[Operator:]

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