Sensient Technologies Corporation
Q4 2012 Earnings Call Transcript

Published: 8 Feb 2013

[Operator:]

Good morning, everyone, and welcome to the Sensient Technologies Corporation 2012 Fourth Quarter and Year End Conference Call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to Mr. Steve Rolfs. Please go ahead, sir.

[Stephen J. Rolfs:]

Good morning. I'm Steve Rolfs, Vice President, Administration of Sensient Technologies Corporation. I would like to welcome all of you to Sensient's conference call to discuss 2012 fourth quarter and year-end financial results. I am joined this morning by Mr. Kenneth P. Manning, Sensient's Chairman and Chief Executive Officer; Dick Hobbs, Sensient's Senior Vice President and Chief Financial Officer; and Paul Manning, Sensient's President and Chief Operating Officer. Yesterday, we released our 2012 fourth quarter and year-end financial results. A copy of the release is now available on our website at sensient.com. Before we begin, I would like to remind everyone that comments made this morning, including responses to your questions, may include forward-looking statements as defined in the Securities Litigation Reform Act of 1995. Our statements may be affected by certain factors, including risks and uncertainties, which are discussed in detail in the company's filings with the Securities and Exchange Commission. We urge you to read Sensient's filings for a description of these factors. Please bear these factors in mind when you analyze our comments today. Now we'll hear from Ken Manning.

[Kenneth P. Manning:]

Thank you, Steve. Good morning. Sensient delivered record results for 2012. This is the third consecutive year that we attained record levels for revenue, net income and earnings per share. Earnings per share increased to $2.49 in 2012 compared to $2.41 in 2011. Revenue in 2012 was approximately $1.5 billion compared to $1.4 billion reported last year. In local currency, earnings per share increased by 6.2% and revenue increased by 4.6%. The Color Group had a strong year, delivering record revenue and operating income for 2012. Revenue reached $494.1 million and operating income grew to $94.1 million. In local currency, revenue and operating income increased by 4.1% and 8%, respectively. The Color Group's operating margin increased 70 basis points to 19% for 2012. Operating margins have increased by 170 basis points in the last 2 years, as the Color Group has focused its sales effort on higher-margin products. In 2013, we expect the Color Group's operating income to grow by mid- to high-single digits in local currency. The Flavor & Fragrance Group also reported record revenue in 2012. Revenue was $875.3 million, an increase of 4.6% in local currency. Operating income was $123 million for the year. Operating income declined slightly for 2012 due to increases in raw material cost, as well as customer destocking, particularly in the second half of the year. We expect the Flavor & Fragrance Group to achieve mid- to high-single digits operating income growth in local currency next year. Yesterday, we announced a broad and strategic restructuring program. This program provides for the relocation of the global headquarters for the Flavor & Fragrance Group, as well as the relocation of management and technical personnel for our U.S. flavor businesses to Chicago. We believe that there are a number of strategic advantages to relocating this business, including giving us better access to our customers, improving our access to food industry talent and allowing us to showcase our broad product portfolio and a state-of-the-art facility. Many of our largest customers have locations in the Chicago area, and this move allows us to be closer to customers. The proximity to a major international airport will make our new facility easily accessible to all our customers and suppliers. This central location and enhanced transportation options will also make it easier for our management team to visit customers and to access our businesses around the world. The new facility has been designed to emphasize the customer experience. It will include a large customer presentation area and state-of-the-art laboratories for each of our product lines. We are confident that this facility will allow us to showcase our innovative capabilities to customers and attract and retain talented technical personnel. In addition, we are implementing a worldwide profit improvement plan throughout the company. The result of this plan will be to reduce our global headcount and consolidate several facilities in North America and Europe. These changes will make our operations more efficient and substantially reduce our cost structure without impacting sales and technical coverage or our manufacturing capabilities. We are making these changes to position the company for even greater profitability, and we expect these programs to be completed within the year. We will continue to invest in our business as we manage these restructuring efforts in 2013. We invested more than $100 million of capital into our operations in 2012, and we remain focused on upgrading our capabilities and developing new technologies. We also continue to evaluate acquisition opportunities. We will be selective in considering acquisition targets, focusing on opportunities that enable us to broaden our product portfolio and to commercialize new technologies. Sensient remains committed to increasing shareholder value. In 2012, we raised quarterly dividends to $0.22 per share. This was the sixth increase of our quarterly dividend since 2006. We also used the company's share repurchase program to purchase more than $23 million of Sensient shares last year. I am very confident about Sensient's future. The company is strong, and the 2013 profit improvement and restructuring activities will improve our cost structure and facilitate future growth. We expect to report earnings, excluding the impact of the restructuring charges, in the range of $2.64 to $2.72 per share in 2013. Dick Hobbs, our CFO, will now provide you with the details for the quarter.

[Richard F. Hobbs:]

Good morning. As Mr. Manning stated, Sensient reported another year of record revenue and earnings per share. Annual revenue for 2012 was $1.46 billion, an increase of 2% from 2011 revenue of $1.43 billion. Operating income was $191.2 million in 2012 and $190.8 million in 2011. Foreign currency translation decreased both consolidated annual revenue and operating income by approximately 3% in 2012. In local currency, revenue and operating income increased by 4.6% and 2.9%, respectively. Diluted earnings per share were $2.49, an all-time high for the company and an increase of 3.3% from $2.41 reported in 2011. In local currency, earnings per share increased $0.15 or 6.2%. Sensient's revenue of $356.2 million for the quarter end December 31, 2012, was a fourth quarter record and an increase of 4.7% from $340.4 million recorded in last year's fourth quarter. Operating income in the fourth quarter was $39.7 million and $43 million in 2012 and 2011, respectively. Foreign currency translation did not significantly impact revenue or operating income in the fourth quarter of 2012. Diluted earnings per share were $0.55 in the fourth quarter of 2012 compared to $0.57 in 2011. Sensient's cash from operating activities was $139.4 million for 2012 and $142.9 million for 2011. Cash flows strengthened throughout the year and were up by 30% in the fourth quarter. The company invested $103.8 million during 2012 to upgrade its production facilities and expand its technical capabilities. Sensient repurchased $23.2 million of company stock in 2012. Total debt as of December 31, 2012, was $354 million compared to $335.4 million as of December 31, 2011. Sensient's balance sheet remains strong. The company's debt to total capital ratio improved to 23.5% at December 31, 2012, from 24.2% at the end of last year. Debt to EBITDA was 1.5 at the end of 2012 and 1.4 one year ago. As Mr. Manning mentioned, Sensient is implementing a broad and strategic restructuring program. The program results in the relocation of our Flavors & Fragrances Group headquarters to Chicago, the consolidation of several manufacturing facilities in North America and Europe and the elimination of more than 200 positions worldwide. The restructuring program will result in onetime cash expenses between $20 million and $24 million, most of which will be recognized in the next 12 months. In addition, we'll recognize noncash asset write-downs of between $6 million and $8 million. Annual savings from the program are anticipated to be between $10 million and $12 million and approximately $6 million to $7 million being realized in 2013. The savings in 2013 will be weighted more to the latter half of the year. I will now take a brief look at the results of our operating groups. Sensient's Color Group reported record revenue of $494.1 million for 2012 compared to $491.9 million in 2011. The Color Group's operating income was $94.1 million, also an all-time high and an increase of 4.3% from $90.2 million reported in 2011. Foreign currency translation decreased both revenue and operating income in the year by approximately 4%. In local currency, revenue and operating income increased 4.1% and 8%, respectively, in 2012. Operating margins increased 70 basis points to 19% in 2012. Strong performances from the North American food and beverage business and the digital inks business drove the increased results. Revenue for the Color Group is $114.3 million and $112.8 million for the fourth quarters of 2012 and 2011, respectively. Fourth quarter Color Group operating income was $19.1 million in 2012 and $20.3 million in the prior year. Foreign currency translation reduced both revenue and operating income by approximately 1% in the quarter. The Flavors & Fragrances Group reported record revenue of $875.3 million in 2012, an increase of 2.1% from $857.5 million in 2011. Operating income was $123 million in 2012 and $129.4 million in 2011. Foreign currency translation decreased revenue and operating income in 2012 by approximately 3% and 1%, respectively. In local currency, revenue increased 4.6% in 2012. Operating income was impacted by increased raw material cost and customer destocking. Revenue for the Flavors & Fragrances Group was $216.9 million in the fourth quarter of 2012, an increase of 5.6% from $205.4 million reported in the same period last year. Operating income was $28.7 million in 2012 and $31.8 million in 2011. Foreign currency translation impacted revenue and operating income by less than 1% in the quarter. Revenue in the Corporate & Other segment, which includes the company's operations in China and the Asia Pacific region and certain flavor operations in South -- Central and South America, was up 9.2% to $156.8 million in 2012 compared to $143.6 million in the prior year. For the fourth quarter of 2012, revenue was $40.4 million, an increase of 15.2% from revenue of $35.1 million in the fourth quarter of 2011. As Mr. Manning stated, we expect both the Color and Flavors & Fragrances Group to generate solid revenue growth in 2013 and benefit from our cost-reduction programs. As the result, Sensient expects 2013 diluted earnings per share, excluding the impact of the restructuring charges, to be between $2.64 and $2.72.

[Kenneth P. Manning:]

Thank you very much for your time this morning. We will now open the call for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Mike Sison, KeyBanc.

[Michael J. Sison:]

Just wanted to maybe get a little bit of a feel, you continue to grow your sales in Flavors & Fragrances really well. And operating income fell a little bit in the fourth quarter. Any color to that? Was that just sort of an anomaly and the cost savings programs you're undergoing should sort of -- should give you better leverage in '13?

[Kenneth P. Manning:]

Paul, why don't you take that?

[Paul Manning:]

I would say this. We had some raw material impacts in the fourth quarter, in particular in the dehydrated group. The bigger issue here was Flavors. And I think the changes that you're going to see, you'll start to see in 2013. We have got substantial upside in that business in terms of gross margin, operating margin, and I think, as you mentioned, the revenue growth has been fairly good. We think as we continue to upsell this portfolio as we did with the Color Group, there are a lot of analogies there. We will recover from the pricing components, but I think the bigger issue here is focusing on the value end of this market is going to overall raise the profit levels to a very sustainable and consistently growing level.

[Michael J. Sison:]

Okay. And then Paul, in terms of the timing of the cost savings that you're undergoing, the bulk of it will be in the second half and some of it in '14? Or will you be able to get all of it in '13?

[Paul Manning:]

Well, we just announced it today. Some of it will begin to be executed today. However, there are pieces in terms of some of these consolidations that will take a bit longer, in which case that would be several months of continuing operations until such time that we can consolidate into the new sites. So we would carry some of those -- we're not going to remove 200 individuals on February 8, and we're not going to consolidate all the facilities on the 8th. But I would tell you that we will substantially make progress, and we would expect to generate the full year savings starting January 1, 2014. But we will see a fair amount of savings this year throughout the reductions that we have globally.

[Michael J. Sison:]

Okay. And then, Ken, you mentioned acquisitions. It's been a while since you've undergone any major transactions. Are you looking for a third leg? Are there opportunities to maybe buy something that helps fill out the infrastructure on your cost, maybe optimize it from that standpoint a little bit better? Or maybe just give us a feel for what could be really attractive to you guys?

[Kenneth P. Manning:]

Sure. Well, Mike, actually, we have sprouted other legs, certainly in the Color Group. We feel the cosmetic business has great potential, particularly in a place like Brazil. We did that acquisition last year where we bought out our partner. We also feel that longer term, pharmaceutical will be quite good. And industrial inks is going dynamite in Europe. And we also -- across the food and beverage business. But I would say what we're looking for is technology, technology that we can commercialize rapidly. We're looking at a variety of pieces right now. I would guess in the next couple of months, you might hear of one or so. These would be areas that would be new for us in terms of product types, but they would be also new to us in terms of the technology capability it would give us. We have really a very good basic business. The business is looking good for 2013. We are going to add to the product portfolio, and we're going to add to our technological capability, and that's where the focus is. You will not probably see, I'll never say never, but you'll probably not see a big, big acquisition. You'll probably see smaller acquisitions focused on technology.

[Operator:]

Your next question comes from the line of Christopher Butler, Sidoti & Company.

[Christopher W. Butler:]

Looking at SG&A expenses, it was a little bit higher than where you'd been running with this restructuring being announced, is there anything else in that number, consulting costs or things of that nature that may not reoccur as we look to next year?

[Richard F. Hobbs:]

We did have some onetime things that did hit it in some of our administrative costs, so there was a component of it that would be considered -- that we wouldn't expect to repeat going forward. Certainly, of the 60 basis points or so increase versus last year, a big chunk of that will be mitigated by the restructuring program. And certainly, the element that probably is the most important for the future, I think Paul was going to talk about this a little bit, is some of the people we've added and some of the things we've done in a variety of different locations around the world. Paul, do you want to add anything to that?

[Paul Manning:]

Yes, let me say a couple things, Chris, on that one. Flavors, we have been fairly flat. I think you're going to see that continue perhaps, there may even be a slight decline, but I think we're going to keep that fairly steady. In Colors, I think we're going to benefit obviously from this restructuring program to take down some of the SG&A costs. But I will say this, as we left 2011 and started into 2012, we really introduced a number of strategic initiatives to grow the Color Group. Let me just mention a couple of them. We obviously talked about the Brazil cosmetics business. We purchased that joint venture. We've made a lot of investments, and that is a very exciting market. That is one of the largest personal care and cosmetic markets in the world. And we have really made some nice investments to help us, not only within Brazil, but within Latin America at large. In addition, as you remember, we added the food color side in Brazil, where we've made substantial investments as well in terms of new technical and salespeople. These are both very good businesses, very good growth rates, and I would anticipate we will continue to generate those results into 2013. And as we do grow that top line, the SG&A will obviously be less of an impact in both of those. But in a couple other areas, pharmaceuticals, and specifically pharmaceutical excipients, coatings and colors, which we've really made some investments in, that's a slower burn. And I think that's a phenomenal business. We have created a new business to expand our coverage into Europe. And so those were investments that we made against strategic investments for which we did not anticipate a substantial return in 2012, but we certainly do, moving forward. And if I could just mention a couple other of those investments that we made, the industrial colors business, where we address everything from seed coatings to other nonfood applications, a very good market, very fragmented market, and so we have the ability to really make a good impact, as we have in North America in the last couple of years. We created a business to focus our efforts in Europe, Middle East and Asia Pacific for that business. So there are investments. And then, of course, you know very well the inks investment in Europe, where we're doing exceptionally well. And then, of course, our base business, the food colors business, where we've added a number of technical resources throughout the world to support ongoing innovation in R&D, where we've really had a lot of success already, and we will continue to have success there.

[Christopher W. Butler:]

With the optimism on the growth opportunities and the margin expansion in the Color Group, why only mid- to upper single-digits operating income growth in your 2 segments, and the seemingly relatively cautious EPS guidance?

[Kenneth P. Manning:]

Paul, why don't you...

[Paul Manning:]

Yes. Well, I would say this, Chris, we certainly -- there's always possibilities of great success. We want to -- we certainly don't want to disappoint anyone. We had a, what I would view as a fairly good year in the Color Group. We grew the gross margin 250 basis points. The operating margin, we grew. We grew the top line. We grew the bottom line. We did a lot of what I had been describing as trimming of the low-margin business, and I think -- we think there's a very positive year coming forward, but we simply don't want to disappoint.

[Kenneth P. Manning:]

Dick, you want to add to that?

[Richard F. Hobbs:]

Thanks, Ken. Yes, Chris, looking at the earnings per share for the year, we're looking, of course, at a range of 6% to 9% increase as a potential if you look towards the higher end of that range there. And we feel comfortable with that, certainly, when considering the fact that as we came out of 2012, we had roughly a 3% to 6% expectation based on the momentum of the costs and the situation of the business. With the restructuring, we immediately add another 3% to that. Now is there something beyond that? Right now, I think as Paul said and as Mr. Manning typically says, we don't want to disappoint. Certainly, all the right things are happening. The move of the flavor group will be completed later this year, hopefully by the time even get into the fourth quarter. We think there's going to be a lot of excitement by our customers. There's going to be a lot more opportunities to move customers in and out of that area. So there are a lot of things, as Paul has mentioned, very positive going on in the company, but we don't want to disappoint. So we're comfortable with our forecast range in the, roughly the 6% to 9% on the bottom line.

[Paul Manning:]

Yes. And Dick, if I could just add one more thing, and Chris, to give you a little more background, we obviously -- we're doing a lot in flavors right now. It's clear we need to address flavors. I know that there has been some concern about that segment. But I can tell you this, we're fixing flavors and we're fixing it big time. I said the last time, we're going to shake the organization up and we're going to start directing them towards a very strategic view of the market, focusing on value selling and taking advantage of these very strong core capabilities that we have in flavors. And so on this next call, we're talking about consolidating, we're talking about removing costs, we're talking about make it more efficient. Along with that, though, is a lot of these -- the changes in the commercial mindset of the flavors group. As I said earlier, there's a huge upside in this business, not only on the top line, but also in gross profit, operating margin. This is a good business with all the potential of the Color Group, if not more. And I think that we're going to see the benefits in the short term. I don't think this is going to take a great deal of time. You'll start to see the effects this year, but I want to make sure we don't disappoint you.

[Operator:]

[Operator Instructions] Your next question comes from the line of Edward Yang, Oppenheimer.

[Luis Amadeo:]

This is Luis Amadeo for Ed. Just to clarify the $10 million to $12 million you identify for the restructuring benefit, that's only for the headcount reductions and manufacturing consolidations? And if so, what are kind of the benefits or additional benefits you could expect from just the kind of the relocation of your headquarters, and just having better access to your customers and that kind of thing?

[Kenneth P. Manning:]

Well, Paul is probably the right guy to talk about the relocation of flavor. He's been the key driver in much of that.

[Paul Manning:]

Yes. And so I would say this, number one, I think Chicago offers the opportunity to have far greater access to our customers versus a city like Indianapolis. Chicago is, by any definition, one of, if not the food capital of the world. So there's a huge talent base available in that marketplace. And as we begin to really transform the flavors group and build that into a much better business with much more consistent growth and sustainable growth, we're going to really need to continue to add to our business and have that talent available to us. And so that's going to go a long way towards helping us grow the top line. Similarly, I think Chicago being accessible to all parts of the world, makes it much more realistic for customers to come to your site, for us to showcase technologies. And I think that, that accessibility is very important. When customers come, you get projects. You get items in your pipeline that you can grow the business from. You can showcase your capabilities to a far greater degree. So those are the benefits with respect to Indianapolis. As now we expand and talk about the rest of the restructuring, I would tell you that number one, eliminating redundancies and improving efficiencies goes a long way toward simplifying the operation. And where we can do that, we can create critical mass in certain production areas, simplify the operations, improve supply chain, all of the things that you would expect. And so with these consolidations, I think you're going to see a much more rationalized and streamlined organization, which is going to support our success moving forward.

[Luis Amadeo:]

That's very helpful. And so I mean if you can -- I don't know if you can answer this, but what kind of operating margins you expect in kind of post restructuring? Is there a range that you're looking at or…

[Kenneth P. Manning:]

Paul, do you want to...

[Paul Manning:]

Yes, I'll take that one. Well, the Color Group, we really crossed into the 19% threshold for the operating margin in 2012. I think with the restructuring, with the investments we've made, the very strong pipeline, the very good sales coverage and all the other things we've been doing over the last 3 years, very much investing in the business with an eye towards the future, you're going to see operating margins certainly crossing the 20% threshold. I would tell you that right now, in January, it already exceeded 20%. And I think you're going to start to see that on a very consistent basis. Certainly, the SG&A cost reduction is going to help as well. And so as I've said for the last 12 to 18 months or so, 20% is very achievable and consistently getting 20%. So this will not be a 20% this quarter and something substantially lower the next and something different the quarter after that. We're really driving towards consistency. Now within the flavor group, as I mentioned, we've got a lot of upside there, a lot of upside. We have a big gap to catch up with the Color Group. But again, it's very achievable. And I think the big emphasis there, we'll take out some SG&A costs and that's good. But the big emphasis is the top line growth of the value end of our portfolio. That's going to be the biggest impact, and you're going to see improvements in operating margin as we move forward.

[Luis Amadeo:]

So the 20% in Color, that's achievable in 2013 or just after the restructuring?

[Paul Manning:]

It's already been achieved, and we're going to be -- I think you're going to see us operating consistently within this 19% to 20%, perhaps even in excess of 20% as we move forward.

[Luis Amadeo:]

Okay. And lastly, what is your current expectation for CapEx and tax rate for this year?

[Kenneth P. Manning:]

Dick, why don't you take that?

[Richard F. Hobbs:]

Thanks. Yes, looking at the CapEx, I'll start with the CapEx. We spent just over $100 million in 2012. I would describe 2013 as more or less barring any significant opportunities beyond the ones we've already identified. I would see it peaking as far as CapEx. And our initial expectation was around in the neighborhood of $120 million for 2013. That's going to move up because of the restructuring. We will have capital expense relating to the -- very little relating to the restructuring, but a bigger component relating to moving the flavor group headquarters. So we see...

[Kenneth P. Manning:]

To the building in Chicago.

[Richard F. Hobbs:]

To the building in Chicago. The headquarters and the U.S. people, the U.S. heads of the businesses and the technical and R&D people are moving to this location. So we would see the number going up in the neighborhood of $140 million for 2013. But we would expect it to fall off from there. And ultimately, as I say, barring any major opportunities, we would see it coming back down under $100 million probably in the next 2 to 3 years. Regarding the tax rate, right now, as we look ahead to 2013, we're roughly seeing around 32%. We're hoping certainly that we might have some opportunities for some credits along the way, but we're also hoping that we might be able to shave a bit off that. So 32% is our official number that we're using, but we're working to shave that a bit if we can.

[Operator:]

Your next question is from the line Garo Norian, Palisade Capital Management.

[Garo Norian:]

I just wanted to see if I could understand a little better what kind of stuff in the restructuring you're expecting to do in Europe. I just have experiences with companies, with the works councils and other things over there, typically it's longer and more expensive than maybe initial expectations.

[Kenneth P. Manning:]

Well, we certainly have a lot of experience with work councils, and we have pretty much laid this out. So I'll pass this initially onto Paul.

[Paul Manning:]

Yes. I would say this, we've got a few sites in Europe that will be consolidating. We do not anticipate that we will have issues with any particular works council. In fact, initial reads are all very positive in that regard. The costs that we have built into this program are all consistent with respect to severance and notice periods and all other requirements within the European Union. We certainly met those expectations, and we would not expect a substantial difference in terms of the costs that we have already estimated for those. In most cases, I think the sentiment that I could share with you is that the individuals at these sites understand very well the decision, and it makes very good sense. We have had very little surprise in that regard.

[Garo Norian:]

Great. And one of the question I had was, you had mentioned about some of the raw material impacts on the Flavor & Fragrances side in the quarter, and I was curious as to how you kind of gotten through that period? Or is that going to linger through the first part of this year, or how to think just about that?

[Kenneth P. Manning:]

Paul, you want to take that?

[Paul Manning:]

Yes. I would say we've got some in the dehydrated division, the onion and garlic side, that we have gotten a substantial amount of price in certain markets. However, we do anticipate a little bit of trickle into 2013. With respect to certain other products affected during the year 2012, we have addressed those substantially in terms of price in the flavors group. And then when you look at the Colors group, we have, as has been our practice over the last couple of years, we have certainly covered our raw material increases with pricing and cover them in an effort to preserve gross margin and not just simply gross profit dollars, but the actual gross margin that we are earning on those products.

[Operator:]

You have a follow-up question from the line of Christopher Butler, Sidoti & Company.

[Christopher W. Butler:]

It probably ties in with the last question a little bit, but if we're looking at what you were guiding to for 2012 at the end of the third quarter, you came in at the bottom end of that range. Is this a pricing scenario that didn't play out the way you thought that would've gotten you to the top end of that range?

[Kenneth P. Manning:]

Chris, let me give you a kind of a high-level view on that initially. The fourth quarter was really an anomaly. There were certain situations such as destocking. There was a lot of economic uncertainty, I guess that may have been driven by the cliff, and even Sandy created some problems. And we had a very, very unusual December. The thing was extremely unusual. It's not going to get repeated. The first quarter is going very, very well. We're optimistic about the 2013. And all I can tell you is the fourth quarter, particularly from the end of November and December was a real anomaly. And Dick, if you want to add anything to that.

[Richard F. Hobbs:]

Thanks, Ken. Yes, we did have a little bit of a gap on the pricing, and as Mr. Manning has noted, Paul has noted, we're mitigating that and things look very good as we come into 2013. And we look at, for example, how things are going in January. We're very comfortable with how things are going in January, as it relates to looking at our plan for the year.

[Kenneth P. Manning:]

Paul, do you want to add anything?

[Paul Manning:]

Yes, and this would be an interesting data point for all those who are on the phone right now. But on a sequential basis, Q4 to Q1, Q4 2012 and now going into Q1 2013, the operating -- I'll give you one data point here. The operating profit of the Color Group between January and December is up more than 60%. So Q4 was an anomaly. We do not see that in 2013 and we're certainly not seeing that right now. We expect the results to continue to be positive.

[Operator:]

As there are no further questions, I will now turn the conference back to the company for closing remarks.

[Kenneth P. Manning:]

Okay, that will conclude our call for today. Thank you to everyone who participated. If anyone has a follow-up question, please feel free to call the company. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.