Kraton Corporation
Q2 2015 Earnings Call Transcript

Published:

  • Operator:
    Good morning and welcome to the Kraton Performance Polymers Inc. Second Quarter 2015 Earnings Conference Call. My name is Brad and I will be your conference facilitator. At this time, all participants are in a listen-only mode. Following the Company's prepared remarks, there will be a question-and-answer period. [Operator Instructions] Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mr. Shiels, Director of Investor Relations.
  • Gene Shiels:
    Thank you Brad. Good morning and welcome to Kraton Performance Polymers’ second quarter 2015 earnings call. With me on the call this morning are Kevin Fogarty, Kraton's President and Chief Executive Officer; and Steve Tremblay, Kraton's Executive Vice President and Chief Financial Officer. A copy of yesterday's news release and this morning's presentation is available in the Investor Relations section of our website. Turning to pages 2 and 3 of the presentation, I will draw your attention to the disclaimers on forward-looking information and the use of non-GAAP measures including in our presentation this morning and in yesterday's earnings release. During the call, we may make certain comments that are not statements of historical fact and does constitute forward-looking statements. Investors are cautioned that there are risks, uncertainties and other factors that may cause Kraton's actual performance to be significantly different from the expectations stated or implied by any forward-looking statements we make today. Our forward-looking statements speak only as of the date they are made and we have no obligation to update such statements in the future. Our business outlook is subject to a number of risk factors. As the format of this morning's presentation does not permit a full discussion of these risk factors, please refer to our Forms 10-K, 10-Q and other regulatory filings that are available in the Investor Relations section of our website. With regard to the use of non-GAAP financial measures, all references to adjusted EBITDA, adjusted gross profit and adjusted earnings or adjusted earnings per share in the call and in the presentation material exclude the impact of the spread between FIFO and Estimated Current Replacement Cost or ECRC. A reconciliation of EBITDA and adjusted EBITDA to net income or loss and a gross profit to adjusted gross profit, as well as a reconciliation of net income or loss attributable to Kraton to adjusted net income is provided in our earnings release and is included in the appendix of the presentation this morning. Following our prepared remarks, we will open the line for your questions. I will now hand the call over to Kevin Fogarty.
  • Kevin Fogarty:
    Thank you, Gene, and good morning everyone. I’d like to begin with a few comments to put our second quarter results in a proper context. During the quarter, we continue to see good demand and stable market conditions in the majority of the markets we serve. Our Cariflex business had strong volume growth in the quarter and we remain confident in the longer-term growth prospects for Cariflex. In our Specialty Polymers business, we saw positive sales trends for a number of differentiated products. Despite questions in the marketplace about the near-term outlook for China, our second quarter sales in China were up nearly 10% compared to the second quarter of 2014 driven by the specialty and differentiated nature of our business in Asia. In Europe, we saw broad based growth opportunities across a range of end-market applications. Overall demand in markets served by our performance products business was as expected, but as we will discuss in more detail in this call, we were not able to fully capture market opportunity in European and the European paving and roofing markets, due to production limitations in the quarter. Our second quarter financial results were below our expectations primarily due to operating issues at three of our manufacturing locations which adversely impacted our operating results as we were limited in our ability to fully satisfy sales demand. In addition during the quarter, we completed a significant turnaround at our facility in Berre, France, as we guided in the first quarter earnings call, the magnitude of this once every six years turnaround was expected to and did resulted in turnaround cost that were $5.7 million higher than in the second quarter of 2014. With regard to the operating issues as previously disclosed, during the second quarter we experienced operational challenges at our plant in Wesseling, Germany where we encountered a late start-up following the Berre, France turnaround. The issues in Wesseling and Berre constrained our SPS production by approximately seven kilo tons in the quarter and thus limit our sales into the European paving markets, reducing second quarter adjusted gross profit and adjusted EBITDA by $5 million. As discussed in our 8-K filing on June 12, the issues at Wesseling and Berre were resolved in mid-June with both plants now are operating at full capacity. Unfortunately, subsequent to the resolution of the Wesseling and Berre disruptions, we experienced an additional issue at one of our HSBC lines at our Belpre, Ohio facility, that impacted adjusted gross profit by an additional $2.5 million. The issue at Belpre did not impact sales, but it impacted quality of the product and resulted in inventory charge due to lost spec material. As you’ll see when we review the financial details for the quarter, the aggregate impact of the higher turnaround cost and the operating issues resulted – excuse me, reduced adjusted gross profit and adjusted EBITDA by $13.2 million relative to the second quarter of 2014. Despite the loss of seven kilo tons of production, sales volume in the second quarter 2015 was 76.2 kilo tons, down only 2.2 kilo tons compared to the 78.4 kilo tons reported in the second quarter of 2014. Given our production limitations, we were required to put SPS customers receiving products from Wesseling and Berre on allocation. Had this not been the case, we believe second quarter sales volume would have been at least seven kilo tons higher. Sales revenue was $256 million, a decrease of $68 million compared to the second quarter of last year, the revenue decreased approximately $34 million reflects lower average selling prices associated with raw material cost, $26 million due to currency movements, the remainder is associated with the decrease in sales volumes. The second quarter adjusted EBITDA of $25.1 million, while this was down $13.4 million compared to the second quarter of 2014, the decrease is due largely to discrete items in the quarter I just discussed. The aggregate impact of the higher turnaround cost and the operational challenges, on our second quarter 2015 results was $13.2 million, essentially the delta between our second quarter 2015 adjusted EBITDA of $25.1 million and $38.6 million we posted in the year ago quarter. To be clear, the higher turnaround cost and the impact of the production issues have not been added back for purposes of determining adjusted gross profit, adjusted EBITDA, or adjusted EPS. On a per share basis, the higher turnaround cost impacted second quarter 2015 earnings by approximately $0.18 per diluted share. The impact of the production issues at Wesseling and Belpre and the delayed restart at Berre were approximately $0.24 per diluted share. Combined the aggregate impact of $0.42 per share and as a result our adjusted earnings were $0.02 per diluted share in the second quarter of 2015 compared to $0.33 in the second quarter of 2014. A positive note, we generated net cash from operating activities of nearly $51 million in the second quarter of 2015, a significant increase from the $2 million we generated in the second quarter of last year. Now turn to Page 5 for a review of the second quarter results by product group. Growth in our Cariflex business continue to trend – continued on trend in the second quarter of 2015 with sales volume up 26% compared to the second quarter of 2014. While the increase in sales volume was led by surgical glove applications, we also saw sales volume increase in medical stopper and industrial applications. Cariflex revenues was $33.2 million in the second quarter of 2015 and this compares to revenue of $29.2 million in the year ago quarter. While sales volume was up 26%, revenue increased 13.5% and this reflects lower average selling prices associated with lower average prices for Isoprene, as well as a $2.5 million negative effect from changes in foreign currency. Excluding the impact of FX, revenue would have been up $6.4 million or 22%. With this continued growth, Cariflex now represents 13% of trailing 12 month revenue at 6/30/2015 and this is up from 10% of TTM revenues at June 30, 2014. At the right-hand side of the Slide 5, you can see that Medical Applications such as surgical gloves, stoppers and condoms continue to account for 93% for Cariflex revenues. With industrial applications accounting for 7% of revenues. By geography, our sales remains concentrated in Asia, a function of the supply chain dynamics for our global glove and condom customers, which are predominantly sold as finished products in the US. And lastly for the trailing 12 month period ending June 30, 2015, 100% of Cariflex revenue is represented by innovative and differentiated product grades. Turning now to Slide 6, second quarter 2015 revenue for Specialty Polymers was $85 million, down about $26 million or 23.4% compared to $111 million in the second quarter of 2015. The revenue decline was driven by a 12.7% decrease in sales volumes, lower average selling prices to reflect lower average raw material costs, compared to the second quarter of 2014. In addition, currency accounted for $5.7 million of the revenue decline. The decrease in sales volume was driven by lower sales into lubricant additive applications to a single customer and to a lesser extent lower sales into personal care applications, partially offset by higher sales in the medical and industrial applications and as well, higher sales into adhesives and coating business, as well as wire and cable applications. With respect to the decreased sales in lubricant additive applications specifically, in our first quarter call, we noted that a significant customer has implemented an inventory reduction program, which we believe will reduce overall sales into lubricant additive applications by approximately 5 kilo tons in 2015. The second quarter reduction in lubricant additive sales was in line with our expectation. And relative to the second quarter of 2014, sales in the personal care applications decreased reflecting the tail effect of the technology conversion in a portion of our personal care business from HSBC based technologies to alternative materials including USBCs in our performance products business. The right-side of the slide reflects the end-market application diversity for our Specialty Polymers product line. For the trailing 12-month period ended June 30, 2015, lubricant additives, personal care and medical applications continue to comprise a significant portion of our business. And for the TTM period ending June 30, 2015, 72% of revenue for Specialty Polymers is derived from innovative or differentiated product groups. The slight decline in innovative and differentiated product revenue from 73% to 72% reflects the lower sales of differentiated grades into lubricant additive applications resulting from the customer inventory management program I just mentioned. Looking now at Performance Products on Slide 7, revenues for Performance Products was $138 million in the second quarter of 2015, a decrease of $46 million or 25%. Despite the loss of an estimated 7 kilo tons of European paving volume in the quarter, associated with the production issues in Wesseling and Berre, overall sales volume was down only 1% compared to second quarter of 2014. The decrease in European paving volume was largely offset by higher sales into European and North American roofing applications and increased sales into personal care, flexographic printing plate and sealing and coating applications respectively. Given relatively flat sales volume, the revenue decrease primarily reflects lower average selling prices associated with lower average raw material costs, primarily butadiene, compared to the second quarter of 2014. However, $18 million of the revenue decrease is attributable to currency. For the TTM period ending June 15, 47% Performance Products revenue was from sales in Europe and 36% was from North America. Latin America represented 9% of TTM revenues and Asia, 8% of TTM revenues. And 37% of Performance Products trailing 12 month revenue was derived from innovative or differentiated product grades, up from 36% for the TTM period ending June 2014. Turning now to Slide 8 for a summary of Kraton’s overall portfolio. As stated, Cariflex now accounts for 13% of revenue for the trailing 12 month in the June 30, 2015 and this is up from 10% for the TTM period ending June of 2014. Due to the continued growth in Cariflex and differentiated offerings in our Specialty Polymers business, Asia now accounts for 27% of TTM revenue at June 30, 2015 with Europe accounting for 35% and North America comprising 33% of TTM revenues. Lastly, as we continue to focus on our shift to higher value innovative and differentiated product grades, 57% of trailing 12-month revenue at June 30 came from differentiated product grades, up from 54% for the comparable periods ended June 2014. So with that background, I will now turn the call over to our Chief Financial Officer, Steve Tremblay for a more in-depth financial review. Steve?
  • Stephen Tremblay:
    Thank you, Kevin. I’d like to begin my remarks on Slide 9, first looking at the factors impacting second quarter revenue and adjusted gross profit. Second quarter 2015 revenue was $255.9 million, a decrease of $67.9 million compared to the second quarter of 2014, of which $33.6 million was due to lower average selling prices associated with lower average raw material costs, $26.1 million was due to foreign currency. The balance of the decline or $8.2 million reflects the $2.2 kilo ton decline in sales volume, which also includes the seven kilo tons of demand which we could not meet given the operational issues at our European sites. Absent these production issues, sales volume in the quarter would have been in the range of 82 kilo tons to 83 kilo tons which would have put a 6% ahead of Q2 2014. Adjusted gross profit was $53.2 million in the second quarter of 2015, a decrease of $14.8 million compared to $68 million in the second quarter of 2014. Of the $14.8 million decrease, relative to Q2, 2014, $5.7 million is attributable to higher turnaround costs, again driven by the Berre turnaround, $5 million was due to the sales volume shortfall arising from these production issues in Europe, and $2.5 million was due to the production issue at our Belpre site. These three items aggregate $13.2 million of the decline in adjusted gross profit with the changes in currency providing an additional headwind of nearly $4 million. I want to take a minute to provide a bit more color on the production issues that negatively impacted our Q2 performance. First with respect to Berre, the operating cost required to complete the turnaround at Berre drove a $5.7 million increase in second quarter 2015 turnaround costs, which was inline with our estimates. On a six month basis, the total cost with turnaround was $6.6 million. The last major turnaround at our Berre site was in 2009. And although we correctly sized the cost to complete the turnaround, we encountered an unexpected issue that ultimately increased the downtime associated with the turnaround from a scheduled 63 days to an actual of 80 days, effectively 17 additional days of downtime. It was this extended outage that resulted in the lower sales volume. Although we built safety stock in advance of the turnaround, we could not cover seven kilo tons of the demand, given the longevity of the outage versus our planned downtime period and this was exacerbated by the specific product grades, which were impacted by the outage. All in, this negatively impacted Q2 results by $5 million. Regarding Belpre, a mechanical issue on one of our HSBC lines resulted in a production of aspek material which required an inventory write-down of $2.5 million. As we stated in yesterday’s press release and as Kevin mentioned in his opening comments, the turnaround cost and the impact of these operation issues impacted both our GAAP and non-GAAP results as we do not consider them to be non-GAAP adjustments for the purposes of determining adjusted gross profit or adjusted EBITDA. On this basis, our adjusted gross profit was $698 per ton, compared to $867 per ton in the second quarter of 2014. Although not treated as add-backs in determining adjusted gross profit, the nature of these items clearly impacts comparability of results. The $5.7 million increase in turnaround costs translates into $75 per ton, a $7.5 million aggregate impact of operation issues translate into $98 per ton and the currency headwind had an impact of $48 per ton. Excluding the impact of these three items, adjusted gross profit would have been $919 per ton, up from $867 per ton in Q2 2014. Despite these second quarter headwinds and based upon our current outlook for the balance of the year, we still expect our full year adjusted gross profit to be within the range of $900 and $925 per ton. Let’s move to Slide 10 for a discussion of adjusted EBITDA and earnings per share. Adjusted EBITDA for the second quarter was $25.1 million, a decrease of $13.5 million, compared to the $38.6 million we posted in the second quarter of 2014. As shown on the left-side of this slide, the bridge from 2014 adjusted EBITDA reflects the same factors that impacted our gross profit. The operational issues in turnaround costs reduced 2015 adjusted EBITDA by an aggregate of $13.2 million and foreign currency exchange rates had a negative impact of $2 million in the second quarter, when compared to the second quarter of 2014. On a per share basis, adjusted EPS of $0.02 per share in the second quarter 2015 was negatively impacted by the operational issues and the turnaround cost which aggregated $0.42 per diluted share. In addition, currency negatively impacted adjusted EPS by $0.04 per share. On the other side, adjusted EPS benefited from lower depreciation and amortization, lower interest expense and lower income taxes, which added approximately $0.08 per share compared to the second quarter of 2014. I want to take a moment to recap the first half of 2015, compared to the first half of 2014. First, sales volume for the first half of 2015 is 151 kilo tons and this compares to 153 kilo tons in the first half of 2014. Had we not been sales volume constrained, sales volume would have been up approximately 3% on a year-to-date basis. Despite the second quarter production issues, the turnaround cost and the aforementioned currency headwinds, first half 2015 adjusted EBITDA of $74.4 million is only down $1.7 million compared to the first half of 2014 driven by favorable overall business dynamics which in the aggregate provided $17.1 million of adjusted EBITDA growth in the first half largely associated with our growth in Cariflex and Performance Products. As we turn to Slide 12, a few comments on the status of our cost reduction programs. As a reminder, in our Investor Day held back on June 16, we provided details on the cost reduction initiatives that are but one element of our three-part strategy. Due to the initiatives currently underway, we plan to achieve $70 million of fixed and variable cost reductions by 2018, of the $70 million of aggregate cost savings, we have committed to deliver $18 million in 2015. Through the first half of the year, we have achieved $6.5 million of the targeted cost outs and we remain on track to meet our full year $18 million objective. Slide 13, shows some relevant data on cash flow and some other financial highlights. Net cash provided by operating activities was $50.7 million in the second quarter of 2015, which is a very strong second quarter, driven primarily by reduction in inventories, and the timing of other receipts and disbursements. This resulted in net cash provided by operations of $44 million in the first half of 2015, a significant improvement from the cash flow deficit of nearly $52 million through the first six months of 2015, a result of the more favorable raw material environment and the ongoing focus on managing working capital. During the second quarter, we purchased approximately 62,000 shares of our common stock for a total of $1.2 million. Since the inception of our $50 million share repurchase program implemented at the back-end of 2014, we have purchased 1.7 million shares for a total of $32.7 million which results in an aggregate purchase price of approximately $19 per share. This share repurchase program has effectively reduced our overall share count by 5% since September 30, 2014. As it’s customary, we are providing certain discrete guidance items. I will say that these modeling estimates are virtually unchanged since our first quarter review. And as I mentioned earlier, we are still targeting adjusted gross profit per ton of $900 to $925 per ton for the full year 2015 and our CapEx estimates Kraton and our new HSBC plant in Taiwan are also unchanged. With regard to raw material prices, our outlook for the second quarter included a decrease in butadiene prices. During the quarter, supply issues in Asia drove an increase in butadiene prices and overall raw material prices increased marginally versus our then expectations. As such, the negative spread between FICO and ECRC in the second quarter 2015 was $5.8 million compared to our estimate of a negative spread of $10 million to $15 million. Now as we look forward to the third quarter 2015, we are currently expecting the spread between our FIFO results and estimated current replacement cost to be minimal. I’d like now to turn the call back to Kevin Fogarty for his closing comments. Kevin?
  • Kevin Fogarty:
    Okay, thank you, Steve. It is to say from an operational standpoint the issues we experienced in the second quarter were disappointing. We take great pride in the quality of our products and in our ability to serve our customers. During the second quarter, we did not measure up to the high standards we set for ourselves at Kraton. As you would expect during the quarter, our teams worked tirelessly to resolve the issues and mitigate the impact. We understand the underlying causes of the operating issues which were mechanical in nature that limited production and impacted production quality. I do want to reiterate that in our view, the issues were not the result of any under investment in CapEx or in maintenance programs and the issues pose no safety risk. In the final analysis, the problems were caused by the impacts of mechanical issues on a complex manufacturing process. That said, they have been addressed and our plants are operating in a safe and reliable manner at planned rates. Outside of the impact of the operational issues, the quarter was essentially in line with our expectations. However the impact of the operational issues and the expected increase in turnaround cost resulted in financial results that do not reflect the opportunities we have in the various markets we serve with the growth potential we see for the balance of the year. As I said in my opening remarks, given the specialty and differentiated nature of our sales in Asia, our business in the region is holding up well in the current environment. Asia now represents 27% of trailing 12 month revenue at June 30. Our Cariflex business continues its growth trend. Year-to-date Cariflex sales volume up nearly 14% compared to the first half of 2014 and we expect sales volume in the second half of 2015 to show sustained growth compared to the first half of the year in both latex and solid Cariflex offerings, supported by the recent start-up of our latest latex capacity expansion in Japan. In our Specialty Polymers business, we are now in the process of launching our newest patented Kraton HSBC polymer, a high melt flow resin which offers customers a wider range of processing windows for Styrenic Block Copolymers, unseen to this point in the industry. We are also revitalizing the growth of some basic HSBC solutions with key partners in the compounding industry. And combined with the trends in our low molecular weight grades, which will be manufactured in our new plant in Taiwan beginning next spring, our expectation is for continued growth in the second half of the year with higher sales volume compared to the first half. In our Performance Products business with our production assets back online, we expect volume growth in the second half of the year as well. Again looking at raw material environment, we did not expect that the primary raw materials butadiene and styrene in particular increased to the agreed date in the second quarter. And this puts some pressure on our margins. These increases were the result of unexpected capacity outages in several regions for both models. However, the price pressures have eased in the past few weeks and spot prices in Asia are already coming down significantly. Based on trends for crude oil prices, which are testing four year lows, we believe butadiene and styrene cost will decrease throughout the third quarter and this should facilitate margin recovery. Given these factors, we still expect to deliver on our adjusted gross profit guidance of $900 to $925 per ton. In addition to running our global manufacturing facilities safely, producing industry-leading high-quality polymers and resins at operating rates and process yields consistent with our businesses for the balance of the year, we have two distinct priorities. The first is ensuring that we capture market opportunities in the back half of the year to achieve our business plan for 2015 delivering growth over 2014 results. Our second priority and equally important is continuing the implementation of the three-part strategy we presented at our Investor Day less than two months ago. As Steve said, we are well on our way to deliver $18 million of cost reductions in 2015. Moreover, the processes are in place and underway to deliver the balance of $70 million in total cost reductions we expect to achieve by 2018. We are absolutely committed to delivering on if not exceeding our $70 million cost reduction target and we look forward to providing you with updates on all aspects of our strategic plan in the months to come. At this time, I’ll ask the operator to turn the call over for some questions.
  • Operator:
    Thank you. [Operator Instructions] Our first question is from Jason Freuchtel with SunTrust. Your line is open.
  • Jason Freuchtel:
    Hey, good morning.
  • Kevin Fogarty:
    Hey, Jason.
  • Stephen Tremblay:
    Hey, Jason.
  • Jason Freuchtel:
    You noted that you are encouraged by a business and many of the markets you serve and volumes may increase. How many months of visibility do you have for future demand for your Cariflex specialty and performance product sales? And are there any end-markets that appear weaker relative to Q2?
  • Kevin Fogarty:
    I think, we’ve always said, we have typically visibility in the one to three months range for the majority of our products. With respect to Cariflex specifically, I think, we would say we have a visibility longer than that because the supply chain is so vital to our customers’ business that we work tirelessly to make sure that we have supply to meet their needs. So I would say it’s closer to the three months cycle for Cariflex.
  • Jason Freuchtel:
    Okay, great. And have you gotten any orders yet for the new HSBC product you mentioned?
  • Kevin Fogarty:
    Oh yes, we are selling that material. We are making it available to customers and I’ll remind you, I think I’ve said this before, but, this technology evolution certainly a significant step improvement in the overall processing window for HSBC was made possible in 2015 because of the start-up of our semi-works line and our ability to produce quantifiable materials in a very rapid fashion. So, we’ve actually taken that to the next step and actually made our first production run on the production assets, because, we have not seen interest in a new Kraton launch polymer like this in a long time and we are really excited about the possibilities because it is a real step improvement in that process.
  • Jason Freuchtel:
    That’s great. Did the detail revealed during your Investor Day prevent you from repurchasing more shares during the quarter? And how should we kind of think about capital allocation to share repurchases in the back half of the year?
  • Stephen Tremblay:
    We remain committed to that $50 million aggregate target that we set Jason and your speculation about the impact of the information that we wanted to disclose on June 16 was clearly a fact pattern in the level of repurchases in the second quarter vis-à-vis the prior quarters.
  • Jason Freuchtel:
    Okay, and lastly, how should we think about the cadence of the remaining $11.5 million of cost savings in the second half of 2015?
  • Stephen Tremblay:
    Yes, I would think about those, Jason, coming in, in the third and fourth quarter effectively ratable. Happy to report that the boiler project at Belpre is progressing very, very nicely in accordance with plan and the – at the run rate SG&A reductions in the second quarter of around $2 million were basically, third and fourth quarters should be the same. So, think about it, roughly ratably with more of a mix into the cost of goods sold than in the SAR area in Qs three and four.
  • Jason Freuchtel:
    Okay, great. Thank you.
  • Operator:
    [Operator Instructions] Our next is from Edlin Rodriguez of UBS. Your line is open.
  • Edlin Rodriguez:
    Thank you. Good morning guys. So, just one quick question on raw material prices coming down. I mean, do you expect that to have any impact on customers’ psychology and I think they see prices coming down that they might be enticed to not buy as quickly because they think prices may be not coming down eventually. So they could do some inventory de-stocking?
  • Kevin Fogarty:
    Well, you know, this is the second quarter going into the – excuse me – we’ve come off the second quarter going into the third quarter and we are in the middle there for the paving season. So the ability for customers to look at inventory in that regard is pretty slim. In the rest of our business, I’ve said this time and time again, inventories are typically managed today versus just a few years ago at very low levels. So people are looking at their own supply chains in a way that, it doesn’t give them the kind of flexibility that you are talking about as perhaps they were able to do in the period through 2008, 2009. So, no, I don’t think there is anything significant we are concerned about there.
  • Edlin Rodriguez:
    Okay, that’s fine. Another quick question. Speaking of paving and roofing, I mean, many companies have talked about the impact of adverse weather in parts of the country to do outside work in terms of painting and so forth. Did you see any impacts from the bad weather that we’ve had earlier in the quarter?
  • Kevin Fogarty:
    Yes, and I think you could say that’s true. There was – from, particularly in the US, but, the good news I guess if there is weather in the second quarter, they still got plenty of time in the year to catch-up on those projects.
  • Edlin Rodriguez:
    Okay, and one last one on Cariflex, yes, this business is growing significantly, I mean, one, do you think that growth would be sustainable over time? And two, now it’s at 13% of sales, but how much larger can it get?
  • Kevin Fogarty:
    Well, we’ve been talking for quite sometime that trend line growth there in our view is, kind of that mid-teens level that we’ve been achieving and that’s kind of how we look at the business and plan around the business. And of course, when I mean plan around the business, I am just not talking about projected revenue growth, I am also talking about making sure that we have capacity in place to serve that growth.
  • Edlin Rodriguez:
    Okay, it makes sense. Thank you much.
  • Operator:
    [Operator Instructions]
  • Gene Shiels:
    Brad, if there are no more questions at this point, we’ll go ahead and wrap up the call. I’d like to thank the participants this morning for their interest in Kraton. A replay of the conference call will be available later this morning. It will be accessible through the Investor Relations section of our website under the presentations tab. There will also be a telephonic replay and you may access that by dialing 866-363-4055. The replay will be available until 11
  • Operator:
    This concludes the Kraton Performance Polymers, Inc. second quarter 2015 earnings conference call. You may now disconnect.