Q4 2018 Earnings Call Transcript

Published: 22 Feb 2019

[Operator:]

Welcome to the SWMs Fourth Quarter and Year-End 2018 Earnings Conference Call. Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer. He is joined by Andrew Wamser, Chief Financial Officer and Mark Chekanow, Director of Investor Relations. Today's call is being recorded and will be available for replay later this afternoon. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Chekanow. Sir, you may begin.

[Mark Chekanow:]

Thank you, Victor. Good morning, I'm Mark Chekanow, Director of Investor Relations at SWM. And thank you for joining us to discuss SWM’s fourth quarter and year-end 2018 earnings results. Before we begin, I'd like to remind you that the comments on today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings including our quarterly reports on Form 10-Q and our Annual Report on Form 10-K. Some financial measures discussed during this call are non-GAAP financial measures, reconciliations of these measures to the closest GAAP measures are included in the appendix of this presentation and the earnings release. Unless stated otherwise, financial and operational metric comparisons to the prior year period and relate to continuing operations. This presentation and the earnings release are available on the Investor Relations section of our website www.swmintl.com. I will now turn the call over to Jeff.

[Jeffrey Kramer:]

Thank you, Mark. And good morning, everyone. Yesterday, we reported fourth quarter and full year 2018 results with the full year adjusted EPS of $3.48 exceeding the guided range we provided last February. We’ll cover the details shortly, but simply put while 2018 presented substantial cost headwinds, a variety of actions drove solid earnings and free cash flow of nearly $110 million. We finished the year strong, with fourth quarter adjusted EPS of $0.90 benefiting from good performance within both businesses as well as a lower tax rate than we had anticipated. The business fundamentals are healthy exiting the year. Within AMS, we delivered accelerated organic sales growth in 2018 and completed several key strategic growth and optimization projects. And within EP, we have improved our sales mix and continued to drive efficiencies. Now shifting to our operating segments, AMS achieved 9% organic sales growth in the fourth quarter. Transportation films, driven by robust demand for paint protection products delivered rapid growth, while filtration momentum continued, led by nearly 20% growth in our RO water business. AMS segment adjusted operating margin expanded during the fourth quarter reversing the margin pressure trend we have experienced throughout the year. While higher sales were part of that equation, we also completed our Austin site closure project during the fourth quarter reducing our fixed costs. Of note, some of these savings were temporarily offset by expected inefficiencies as the final volumes from that plant were transitioned to other sites. We also saw less pressure from higher polypropylene resin costs in the fourth quarter compared to the prior year. Though we caveat, it is still early in the year, resin pricing appears to be moderating and could be favorable versus 2018 average levels of recent polypropylene pricing holds. Taking our fourth quarter results in the context of the full year, we were pleased with 6% organic growth in AMS with solid gains across several of our end markets, and we believe we are set up for improved results in 2019 after a choppy year for margins. Importantly, the return of the replenishment cycle for our water filtration products was a positive theme throughout 2018, and we see continued, healthy long term demand supported by the need for better quality drinking water across the world. We also see continued strong growth for transportation films, as consumer awareness is increasing, particularly in Asia, where we have been successful in tapping into expanded distribution channels. We also made good progress on several strategic initiatives during the year. In addition to the Austin site closure, which was a major undertaking for optimizing our operations, we also expanded into a new Greenfield facility in China, which will serve as our backbone for growth in Asia. This expanded and enhanced state of the art facility was a design to accommodate growth across our key product lines and end markets. Furthermore, we completed our first international film line in Europe leveraging the unique capabilities of an existing site to provide additional capacity for our rapidly expanding transportation films business. And lastly, we completed initial customer qualifications for our new specialty filtration paper, an exciting opportunity that leverages our paper engineering capabilities within EP and our deep AMS commercial relationships in the filtration end market. Moving to engineered paper, fourth quarter sales increased 3%, another quarter of positive price mix performance provided an 8% lift more than offsetting a 4% volume decline. Our sales mix was strong during the quarter with several factors driving our performance. First, LIP volume was up, as well as most of our cigarette papers portfolio, and battery separated paper was another strong performer Second, we continue to deemphasize certain high volume below margin non tobacco products such as printing and writing papers, replacing a portion of those lower margin products with more attractive papers, including tip book, tipping papers and non-tobacco products such as greaseproof papers for food service packaging. EP segment adjusted operating margins remained pressured during the fourth quarter due to higher costs for wood pulp, which was up more than 25% and other input costs such as energy, as our wood pulp price escalators were not yet effective. For the full year, we delivered 4% segment sales growth, with the key takeaway being positive price mix performance more than offsetting lower volume. We continue to focus on a mix gaining share in attractive categories and deemphasizing lower margin volumes. As referenced, raw materials were a significant headwind for margins, with release expected in 2019 through price escalators. At this time though, there is limited visibility on wood pulp prices heading materially lower in the coming year. Regarding our 2018 strategic priorities, we believe, we have gained some share in LIP and other cigarette papers, and while inflationary pressure math some of the cost improvements we have made within our operations, we continued our focus on efficiency as a way to help offset tobacco industry pressures. Lastly, our heat-not-burn volumes increase versus 2017 as we continue to partner with several firms. However, as we have said, the rollout of new products by our customers will remain lumpy. Recently, consumer adoption rates have moderated, while our customers introduce next generation products. We continue to provide valuable support in this innovative product category, and consider ourselves well positioned when sales growth accelerates again. I will now turn the call over to Andy.

[Andrew Wamser:]

Thank you, Jeff. I'll now review our financial results. In the fourth quarter, AMS net sales increased 9% to $108 million with no acquisition benefit, as our transportation and filtration businesses posted solid gains. Adjusted operating profit grew 16% as margin expanded 90 basis points. Sales growth more than offset moderating pressures from the Austin closure project and higher resin costs. Market prices for resin were up more than 5% during the quarter compared to last year, though that marks a notable easing of the year-over-year pressure we saw earlier in 2018. For the year, AMS sales grew 8% or 6% when excluding the benefit of the Conwed acquisition. Our diversified revenue base in AMS continued to provide strong organic growth. Filtration and transportation were the key drivers, with our medical business also delivering solid full year results. Infrastructure, construction and industrial sales were generally flat for the year. Segment adjusted operating profit declined 5% as margin contracted 220 basis points for the full year, again, reflecting the anticipated Austin closure expenses and higher – high polypropylene costs, which were up more than 20% compared to 2017. We expect operating profit in AMS to experience strong growth in 2019, and Jeff will expand more on our outlook shortly. For EP, fourth quarter sales grew 3% with price mix providing an 8% benefit which more than offset a 4% decline in volume. As Jeff detailed, the positive mix shift was due to a combination of factors, including good LIP volume and a more profitable mix of non-tobacco papers. Unfortunately, the contractual lag on price increases overshadowed other positive aspects of our EP performance, as adjusted operating profit was down 12% in the fourth quarter with margin contracting 330 basis points. Wood pulp costs were up more than 25% on average during the fourth quarter, and accounted for 190 basis points of margin contraction. For the full year, EP sales increased 4% with similar trends of a 5% positive impact from price and mix offsetting a 3% decline in volume. Currency provided a 3% benefit our full year topline results as well. Adjusted operating profit was down 2% with margin contraction of 150 basis points as wood pulp prices were the primary source of pressure. We know, wood pulp price indices were up more than 30% compared to full year 2017. Unallocated expenses declined 24% in the fourth quarter, essentially driving the 9% full year decrease. One particular item that skewed this year-over-year results was stock market volatility. As a result, our fourth quarter stock market declines, which pressured many other companies in our sector and also SWM’s share price, our deferred compensation expense was reduced. This was not business related and absent further volatility, would expect this benefit to reverse in 2019. The singular item accounted for benefit of approximately $2 million in the fourth quarter. From a consolidated view, sales were up approximately 6% for the quarter, and for the full year as well. Adjusted operating profit was up 6% in the fourth quarter with flat margins and for the full year was down 2% with 130 basis points of margin contraction. Adjusted EBITDA was $42 million in the fourth quarter, up 3% and was $197 million for the full year, essentially flat with 2017. All told, given the significant headwinds on raw materials, which were approximately $20 million in wood pulp and resin alone, we were pleased with our EBITDA performance. Shifting to consolidated earnings, fourth quarter 2018 GAAP EPS was $0.23 compared to an $0.89 per share loss in the fourth quarter of 2017. In the fourth quarter of 2018, we recorded a $0.50 per share non-cash impairment to one of our Chinese joint ventures. This recon based business in China, a 50/50 partnership with the governing body of the Chinese tobacco industry delivered a modest profit in 2018. However, its multi-year results have lagged the original business case due to unique characteristics of the closed Chinese market. This stage investment was made between 2011 and 2014 and has been impacted by increasing overcapacity of RTL as multiple regional players have built excess production capabilities for internal China’s demand. We have shared our concerns about the long term market dynamics in the Chinese recon market periodically on our earnings call. And while we expect the venture to contribute modestly to earnings, the temperate outlook now warrants the accounting impairment. Please note, this Chinese joint venture is unrelated to our more global recon business within the EP segment. Regarding the fourth quarter 2017 GAAP loss, recall we incurred a non-cash charge of $1.29 per share, primarily related to the changes in the U.S. Tax laws enacted in late 2017. For the full year 2018, GAAP EPS was $3.07 up from $1.12 in 2017. In addition to the joint-venture impairment, 2018 GAAP results were affected by two positive items, a $0.25 gain from a contingent liability re-evaluation and $0.43 gain related to tax adjustments, driven mainly by tax law changes in the U.S. Full year 2017 GAAP EPS reflected the large fourth quarter tax charge, as well as a $0.21 of restructuring expenses. While we want to be clear regarding our GAAP results and the items they reflect, when adjusting for these onetime items, as well as our typical purchase accounting adjustments, adjusted EPS may provide a more meaning – a more helpful view of our year-over-year earnings comparisons. We encourage you to review our non-GAAP reconciliations to see the detailed review of our non-GAAP adjustments. For the fourth quarter of 2018, adjusted EPS was $0.90 up from $0.64 in the fourth quarter of 2017. And full year adjusted EPS of $3.48 was up 9% versus 2017. We are pleased by the strong closing performance, which as a result of a number of items; first, our tax rate finished 2018 lower than we had originally expected. Recall we originally projected a several hundred basis point decline from the 30% normalized rate in 2017. When adjusting for unusual items, the full year 2018 tax rate finished at approximately 21% after tracking at approximately 24% through the first three quarters of the year. In addition, despite our previous discussions, the Chinese joint ventures delivered higher, fourth quarter profits versus the prior year period. Though, that performance did not alter our impairment test. Outside of the tax rate benefit and strong joint venture finish, two other factors drove strong EPS performance. First, the fourth quarter and full year benefit by approximately $0.05 each from the lower deferred compensation expense, which I referenced earlier. Second, an adjustment to the tax treatment of our purchase accounting expense add backs when calculating adjusted EPS benefited the fourth quarter and the full year adjusted EPS by approximately $0.05 each. These factors combined for a $0.10 benefit to our fourth quarter and full year results that were not directly business related. All told, excluding these two non-business items, our fourth quarter adjusted EPS would have been $0.80 and our full year would have been $3.38 in the middle of our originally guided range of $3.30 to $3.45. 2018 free cash flow was $109 million up $90 million in 2017 due in part to lower capital spending. CapEx was approximately $30 million for the year, down about $11 million due mainly to timing of capital projects, with some spending pushed into 2019. From a leverage perspective, for the terms of our credit facility. We were at 2.5 times net debt to adjusted EBITDA at the end of the fourth quarter, down from 3.0 times at year end 2017 and we would expect that leverage would trend lower in 2019 as a function of free cash flow generation. Now, back to Jeff.

[Jeffrey Kramer:]

Moving on to our 2019 outlook, we are guiding to an adjusted EPS range of $3.40 to $3.60. We anticipate sales, adjusted operating profit and EBITDA to all increase slightly higher than adjusted EPS due to higher projected interest rate expense from our bond financing, and a slightly higher tax rate than the 21% normalize from 2018. We also expect free cash flow to again exceed $100 million with CapEx expected to be between $35 million and $40 million. For modeling purposes, we would suggest using approximately 5% as an average interest rate on our total debt. Our range reflects strong profit growth in AMS; modest pressure in EP and several million dollars of increased IT spending in support of our ongoing growth expectations, which we know will be classified primarily within our unallocated expense bucket. Generally speaking, inflationary pressures continue, and while we see some early signs of relief in polypropylene, wood pulp remains elevated as do freight costs. More specifically, in AMS, we expect continued sales momentum and improved margins as a result of pricing actions, potentially moderating resin costs, and benefits from the Austin closure. We plan to reinvest in the business as well, deploying some of those savings into additional marketing, commercial development and product innovation initiatives. We will also be strategically adding global capacity to support our growing transportation and filtration businesses, and pushing to ramp up sales of our new filtration paper products. Within EP, we expect to combat industry attrition through a variety of means, including further positive shifts in our sales mix, with potential share gains in LIP and other attractive product categories. Of course, we will continue our company wide focus on innovation, and operational excellence to drive value, and support long term top and bottom line performance. In closing, I just want to reiterate some key things regarding our business fundamental. 2018 overall results were encouraging, with good performance from EP, organic growth in AMS, investments in new capacity and innovation projects around the world, solid free cash flow and stable EBITDA despite inflationary pressures exceeding $25 million. Our diversified portfolio in AMS has healthy underlying demand, and with a potentially less volatile cost environment in terms of raw materials, and with our awesome project behind us, we believe, we have set up a solid 2019 growth. EP continues to perform admirably against a challenging industry backdrop as evidenced by only modest decrease in adjusted operating profit, despite a $30 million headwind from would pulp prices. From a longer term perspective, we have made great strides in transforming the business, with AMS having enough scale to balance out the inherent industry pressures of the EP segment. As we push to further grow the company, through both organic initiatives and potential M&A, we have ample liquidity to pursue our growth ambitions and further rebalance our portfolio towards growth businesses. We appreciate your continued interest and support. That concludes our remarks and Victor, please open the lines for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Daniel Jacome from Sidoti. You may begin.

[Daniel Jacome:]

Hi, good morning. I'll start with the EP segment first. I think you noticed some share gains in LIP, can you elaborate a little bit on that? How much -- if possible was an exciting player or how much was just an industry mix change from one producer to another? A - I think there's a combination of factors. I think, you know Dan, as we always talk about, we believe we're the leading supplier of LIP and because of that I think our customers really value our participation in their supply chains. And so I think we gain some share just because of performance in our capacity capabilities. I think also there was an exit of a smaller player that has been participating in the marketplace, and I believe we achieved some share gain from that as well. But it's really a combination of both. It’s not a single item.

[Daniel Jacome:]

Okay, great. That’s helpful. And then to AMS, it looks like the water filtration sites getting a little bit more robust. Can you elaborate on that? And what you expect the next year or two? Should we expect a more smoother linear up cycle or to realistically maybe some fits and starts here and there, but other than that more bullish?

[Jeffrey Kramer:]

Dan, this is always that question. I would love to have a nice linear play in all my market places if I could. And if you could indicate how I could get to that, I’d appreciate it. But, yes, we are seeing very positive trends in reverse osmosis. We told you earlier that there’s too many drivers; one, is a little bit lumpier when they bring on a brand new plans and new capacity and one is the replenishment cycle. Some new capacity is certainly being coming on, but a lot of this benefit has been that delayed replenishment cycle that we've been seeing over many years. When we talk to our customers it had been something that they been able to extend with low energy prices, but after a period of time that just needs to come back to roost. And so, we think that trend should continue relatively smoothly over the coming year and hopefully for several years to come.

[Daniel Jacome:]

Okay, terrific. And then last question kind of two questions buried into one. So the Europe, the new film capacity, how much of that is going to cost generally speaking? And then I think on Asia you may have said on the consumer film side, expansion of your distribution channels, any color if possible on either of those or both would be fantastic?

[Jeffrey Kramer:]

Yes. Sure. So we don’t usually announce how much it cost us to install a line, but this capacity was reasonable for us for two reasons. One, we’re able to take advantage of a site that already had capable individuals and capacity on. So we’re able to slot a line right into that. And so, it was a very reasonable investment for us and we’ve already gotten qualification for it. So, we’re excited about it. Again, each one of our lines while still significant investments, are not like $50 million investments that you need to put into a green field site. I mean, we could easily move lines into sites for a very reasonable capital investment. Moving to distribution channels; so, two things are happening. So, we continue to focus on Asia for all our product lines. We indicated we build that new plant in Suzhou. We built that with capabilities for expansion and for multiple product lines and so that’s great. But we’d expanded our manufacturing presence we’ve also become and raised our profile in Asia with our customers. And there are number of customers throughout Asia both in China but also Korea and Japan etcetera that are really starting to look to us a quality film supplier for surface protection films. And so, we’re hoping that trend continues as the market place becomes more aware of transportation films. And I think we’ve mentioned before, we take its a megatrend as a rising middle class investing in automobiles and for infrastructure are looking for ways to protect it in this kinds of film work really well. And so, we’re very positive in that.

[Daniel Jacome:]

That’s terrific. I’ll get back in the queue.

[Jeffrey Kramer:]

Okay. Thank you, Dan.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Kurt Yinger from D.A. Davidson. You may begin.

[Kurt Yinger:]

Thanks and good morning, Jeff, Andy and Mark.

[Jeffrey Kramer:]

Good morning.

[Kurt Yinger:]

I was wondering if you guys could start off with maybe talking about your medium to long-term margin expectations for the AMS business. And I know you guys don't guide to specific segments or anything on an annual basis, but at a high level what might be the puts and takes verse that expectation and your own internal plans for 2019?

[Andrew Wamser:]

Sure. So, when you look at for 2019, you would expect the AMS business to have some margin expansion. I think you could pencil in anywhere in the order of magnitude of at least 5200 basis points. When you look at the contributing factors for that, it’s really a couple of folds. One is, we are seeing some of the benefits of resin prices today in that if its hold where spot prices are today, but we don’t predict forward curves. The second impact with the closure of the Austin facility which we talked about all last year. The one thing that I would mentioned though at least as it relates to Austin is if you recall, we moved from Austin, we move several lines to four different facilities and for those facilities there are familiar with the products in each of those locations. But it will take them some time to get the learning curve to be as efficient as it was for that team in Austin to run those lines. So between those two factors we would expect about – anywhere between that 1500 basis points of margin expansion within AMS.

[Kurt Yinger:]

Got it. Thanks Andy. And in the release you touched on some trade uncertainty and the potential risk of slowing growth in Asia. Yet it seems like transportation films was again a big growth driver and in the past I think China has been a pretty big part of that. So, could you maybe talk about which products you may already be seeing pressures on or what you think might be at risk going forward?

[Jeffrey Kramer:]

Yes. Kurt, this is – that’s more of a general commentary. I think it would be wise for every company to be saying, we are not seeing the slowdown in growth in any of those regions now, but the -- just the sheer number of trade topics that are in development from Brexit to the trade tariffs et cetera, we always feel it just prudent to talk about it, because it could have an impact. We’re not seeing it. We’re hopeful that the governments will be able to resolve all the issues. But I think one of the key things that also important is that we have capacity throughout the world. And so, we have global capacity in Asia. We have it in Europe, and we have it in the U.S. and so that'll insulate us from a lot of the activities as well. So, there's nothing specific we were pointing to other than we tend to be cautious about the global macro trends overall.

[Kurt Yinger:]

Okay, okay. That’s good to hear. And switching over to EP, with some of your price escalators on the cigarette papers side tied to pulp. Is there any way you could sort of quantify what kind of revenue tailwind that might be for 2019?

[Jeffrey Kramer:]

What I would say it to that, we’re projecting the EP business to be largely flat, maybe from declining -- marginal declining pressure there. We look of the impact of pulp and the impact to the escalators. We’d say, the first half of the year might be able to be a bit more challenging I think than the second half if you saw some of that rise throughout our last year. There certainly will be an impact in elevated pulp cost, again for that first half to year-over-year, but the pricing escalators that we have we expect to be caught up. But as a net benefit even by taking some additional share we would expect it to be largely – maybe a modest decline.

[Jeffrey Kramer:]

Okay. And then, I know, Dan, touched on this a bit, but looking at the 8% price mix benefit, I understand that some LIP share gains probably benefited that figure, but were there any pure price increases that flowed in from either the U.S. or Europe and is -- are those share gains that you benefited from something that can be sustained going forward?

[Andrew Wamser:]

Sure. So, what I'd say on some of the non-tobacco papers we were able to increase price immediately. And so then – the other benefit we had in the fourth quarter to the back half of the year is that, we saw less of sort of the lower margin fill up paper that we would have and then we were able to replace it with some of the more higher margin cigarette paper. So that what’s really what help offset. What Jeff talked about we did have 13 million of headwinds in raw material inputs and those are the key reasons why we were to overcome that.

[Jeffrey Kramer:]

Yes. Kurt, really, again we do have good products in our non-tobacco paper segment as well and we have some good mix effects there. So it’s a combination of multiple factors, a little bit price, little bit of share gain in LIP, a little bit of good performance in our battery separated business which is what we talked about. And then a mix effect as we’ve been able to replace lower margin products with higher margin products. So it was actually just a good solid quarter across a number of sub-segments within EP business.

[Andrew Wamser:]

Okay. Make sense. And then could you expand a bit on these specific applications for the filtration paper you’ve qualified? And any information you could provide maybe on market size or a near term opportunity set would also be really helpful?

[Jeffrey Kramer:]

Yes. We’re still little cautious in how we’re talking about it, because it’s a brand new product from a competitive reason. It is in the filtration paper marketplace and we hope to be able to give you more color as the year progresses. We just want to share about it, because it is something that we talked about in the past. We made a major investment to in capacity to be able to manufacture this in our EP side and we’ve reached some good qualifications, initial qualifications in new customer. So I think that something you’ll hear more about the future, but I'm a little reticent at this particular phase.

[Andrew Wamser:]

All right. Fair enough. And lastly in your view what are kind of the biggest needle moving items when we look at the 2019 guide that can maybe drive us towards the lower end verse the upper end and what sort of things should we be monitoring on that front?

[Jeffrey Kramer:]

Yes. I think we have all have watched inflationary cost pressures, right. So, we talk about the resin. We talk about pulp. We also have energy costs. We also have transportation cost particularly in the U.S. as trucking is becoming cost. So I think the inflationary cost question is always going to be important. I think we have a good outlook on it, but those things can move at any time. So I think those would be the biggest issues on the downside if they move very rapidly in the direction we haven’t predicted. I think the upsides are really around mix effects that we have in both EP as well as in AMS, and really that core organic growth that we've been promising on AMS at the higher margins if we can deliver on that, I think that can give us some of the upsides that we have. I think we’ve given you some good guidance around where we think we’ll be and we’ll be able to keep reporting every quarter around some of those key strategic initiatives to show you how we’re progressing.

[Andrew Wamser:]

All right. Great. Thanks Jeff and good luck in the upcoming quarter guys.

[Jeffrey Kramer:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Dan Jacome from Sidoti. You may begin.

[Dan Jacome:]

Hi. Just one more of a housekeeping question. So you give us a guidance on the CapEx, which it looks if I'm not mistaken a step-up from this year to the tune of 11 million. So assuming you were targeting a free cash flow number for 2019 that was in line with what you reported in 2018? You need about an $11 million swing in operating cash flow, excuse me, just trying to get a better sense of how you're looking at the working capital line in the next couple of quarters? Thanks.

[Andrew Wamser:]

Yes. On the CapEx side, we ended the year at $30 million and some of that has – it’s a little bit lower than we’d expected and some of those products we pushed into this year. Our guidance for 2019 is between $35 million and $40 million. So we ended the year at $109 million in free cash for 2018. I think the degree in terms what we would exceed or be it around that level will be dependent obviously on what the final CapEx number is obviously and then what happens on a working capital side. On the working capital really – largely will depend on where unanticipated higher sale or lower sale comes from. To the degree that some of these sales are going into market like Asia, the terms are little bit longer until it could be a little bit more of working capital. To the extent that it's up, it could be a benefit. So that’s kind of – we think and around what we did last year is a good ballpark. So we think 2019 would happen for this year, but I think plus or minus, it will depend on absolute CapEx spend.

[Jeffrey Kramer:]

And we’ll also as we indicated we’re expecting strong growth in our AMS segment with higher operating cash flows from that as margins increase and we have organic growth until some of that will help offset some of that capital spend as well.

[Dan Jacome:]

Okay. For sure, very helpful. Thank you.

[Jeffrey Kramer:]

Sure.

[Operator:]

Thank you. And I’m seeing no further questions in the queue. I’d like to turn the call over to Dr. Kramer for closing remarks.

[Jeffrey Kramer:]

Well, thank you everyone for staying with us during this call. I think as we indicated we’re pleased with how we ended the fourth quarter. It was a little bit bumpy as raw material costs throughout the year gave us some headwinds. But I think the business performed admirably. And I think that’s a good indication as we move strategic transformation of the company of our forward momentum and we’re hopeful that will have a nice positive year to talk about at the end of the year of 2019 as well. So thank you again for all your support.

[Operator:]

Ladies and gentlemen, thank you for participating today’s conference. This does conclude the program. And you may all disconnect. Everyone have a great day.