POL
#Yes, sure, <UNK>.
On the first question relative to pricing pressure in the specialty segments, I don't believe that is a direct correlation or reflection on where oil prices are.
But, it is a very competitive environment right now.
And I do believe that when macroeconomic conditions are flat and/or down, and companies are going through a long period where you're just not getting any kind of tail winds, that increases competitive pressure on all products.
I believe that the margin, the pull back that you see in Color and EM, for example, are actually more of a reflection, really, of the declining sales in the end-markets that were reflected versus a pure price reduction.
And I think that's been the biggest effect.
That being said, I don't think that erodes our ability or our confidence in getting to our Platinum Vision.
I don't think those markets are going to stay down forever, for the most part, and hopefully we've characterized our feelings on that with respect to this being a short-term phenomenon.
Absolutely.
First of all, I am proud of our team for delivering and accomplishing what we have through the third quarter.
That represents seven years of really outstanding performance.
At this point in time the fourth quarter is always the most challenging to predict.
What we have seen in prior years is that when end-markets are challenged or macroeconomic conditions are slow, that typically leads to a weak December.
I've always said you can't judge a year based on December or January results because of many of the things that happen at the end of the year in our industry.
However, if I believe that December shakes out like what it has in prior years when times have been tough, then I think we would get to an EPS number that I mentioned on the call previously.
With respect to October, I haven't seen that yet and it really probably is more of an end-of-the-year effect.
So, at the moment, October is probably more of a carry forward from what we saw in the third quarter.
But a lot can happen in November and December.
Yes, I think that's fair.
As you know, we don't have a backlog, and we have short lead times.
So, our visibility, when you reference orders and looking out into the future, is pretty short term.
So, I think that's a fair characterization.
And the way we see things right now, if I had to call it, around that EPS I referenced earlier.
Yes.
And, really, I'm very optimistic about that being the case.
This has been a year of challenging pricing and, in fact, it goes back to earlier in 2015.
And it hasn't always been the same underlying resin where price deflation has existed but it seems like it's played out over that time frame.
That's why margins have compressed.
When you look at a distribution business we really do have, effectively, a material margin over SG&A.
So, when you think about leverage you don't have the traditional type you would get with a manufacturing facility.
But what I do think will happen is that, if we get into a stable-price environment and/or you start to see modest increases, we would see margin expansion as a result of that, and I think it would be significant.
We have continued to hire in 2016.
And if I look at the net, and this is an organic comment, so it doesn't include acquisitions, if I look at what we have added across sales, marketing and technology, we are up about 5% this year.
As you know, end of 2014 and in 2015 we added more significantly.
That was a number closer to 10.
So, we continue to invest in those resources.
I'd say that you don't have to look any farther than what we've accomplished in distribution to see the productivity gains from them.
But admittedly, in our specialty segments, that productivity takes longer to realize as we drive toward specification and the longer sales cycle that those businesses are in.
I'd also say following close behind distribution is PP&S, where we have had some good early wins and feel very confident in the productivity of these additional resources.
I think we're doing an outstanding job from a service perspective and that is a real differentiator in a distribution business.
It goes beyond just on-time delivery.
And, as you know, <UNK>, oftentimes the customers that we serve do need advice and counsel on material selection and I believe that we offer that.
We have done an outstanding job of doing that.
We have also in the last couple of years launched and grown impressively an inside sales organization that is doing the same thing, but just not hitting the street in an automobile.
And we're seeing some gains there, as well.
And that, really, honestly, <UNK>, comes down to more people making more calls and getting back to basics with respect to how we go to market.
It's working.
I think it's going to be broad-based.
Historically, if you look at December, it's our weakest month of the year for all of our businesses.
If the question is getting towards, if there is an additional anomalous or unusual reduction in demand, I think that would go across all the businesses, as well.
I don't know that there was one that I would point to outside of potentially PP&S or distribution where customers may think, I'll wait for January or February, simply just based on pricing dynamic.
That's probably the best way I can answer that, <UNK>.
I wouldn't point to one specifically and say that's where you're going to see it more than any other.
I think we have an outstanding foundation in four out of five of our segments and we're building one in DSS.
The investment that we made in commercial resources is already paying off in POD and PP&S.
And my response to one of the questions that I think <UNK> had about pricing within POD, certainly if we saw a little bit of an uplift there, I think you'd see some margin expansion within distribution.
And while we're delivering new business gains inside of EM and Color, it's not offsetting, and hasn't at this point, just some of the macroeconomic declines that we've experienced, particularly in oil and gas and certain packaging end-markets.
I think the foundation is there, <UNK>, for growth.
The investment certainly is to help drive and push that in 2017.
And we really are looking for some of these end-market recoveries, I think, to get us back up into that higher level of EPS growth that we're looking to achieve.
We're continuing to look at a number of deals.
I'm personally spending more time on that with our Head of M&A.
At the moment, they are really more bolt-on type deals like you've seen us do in the last 12 months.
As you know, I can't comment on any specific names or things that we're looking at, but a good pipeline.
That's fair.
It's a combination of things with respect to probably knowing that those markets are down, believing that we still have the amount of share that we have, we have enough out there that we should be able to offset some of that.
So, in fairness, it's a combination of things, <UNK>.
One was that market being down, and, two, was us not ultimately delivering on the gains over the course of the last year to help offset that.
So, it's probably better said to say it's influencing from both of those factors.
And, quite candidly, we probably just under-estimated the degree to which those markets would ultimately be down and stay down.
Yes.
In the last quarter, we did close one facility, which we had announced earlier in the year.
We don't have any plans to close any additional facilities at this time.
In fact, we're really doing the opposite with investing in new lines, for example, at our Greenville facility.
I think if you were to go there and look at it today, it's night and day compared to what it was three years ago.
That is the best evidence that the operational improvements are taking hold and that we are building this foundation, as I described it, for <UNK> <UNK> in the earlier comments that I made.
But it's just very frustrating to not see that go through to the bottom line because, candidly, you've got to have the additional sales to have that hit the operating income.
I would say, in summary, we're going to continue to make improvements in operations, but we have come a long way, and we're at a point now where we really need to see the sales pick up in order to deliver that to the bottom line.
A few questions in there.
One is I don't believe we lost anything on the PET-specific applications where we play in those beverages, which is primarily with liquid Color and additives.
But I do believe that the overall market is down and certainly weak as demand for carbonated beverages is declining.
So, to answer your question on that, no, I don't believe we've lost any business or shares specifically on the PET or packaging.
But in other packaging applications there have certainly been a lot of competitive pressure outside of the US, and there are some onesies and twosies and things out there, for example, with some of the business that we inherited from Spartech, that we haven't been able to hold on to.
That certainly ended up in somebody else's hands.
There's no doubt that we're making some gains from a consolidated perspective.
When you look at that underlying growth ex the selling price declines, it's there, it's happening now.
It is low single digits.
A lot of that, as I said earlier on the call, is some new business gains.
You're not seeing a whole lot from a macroeconomic tail wind, really more down than anything.
So, difficult to answer that question exactly for what the future looks like.
But certainly in terms of what we're doing that is under our control, I think that's in that low single-digits number, <UNK>.
<UNK>, I think we have been pretty consistent with our cash deployment strategy.
We have been keeping our balance sheet preserved, so to speak, been deploying that for M&A and also for share repurchases, all the while keeping our net debt to EBITDA in that 2 to 2.5 times range.
So, I think, as we go forward, again, as <UNK> mentioned earlier, we are actively looking at M&A and we'll continue to look at that pipeline and evaluate it relative to where our share price is and execute accordingly.
We look at our overall success from an innovation standpoint, <UNK>, with our vitality index, which measures the percent of current-year sales from products introduced in the last five years.
Our goal is to be over 35% and we're at 40%.
So, I feel very comfortable with what we have been accomplishing from an innovation perspective.
We are right where we want to be and feel also very good about the mix of innovation with respect to that, which I'd say is directly invented by PolyOne versus originated by a customer or done in collaboration with them.
So, I can't say enough positive things about what we've been doing from an innovation perspective.
Yes, I think when we went back to the last quarter and made some projections on that they are holding true with respect to the weaker pound, probably playing out to be closer to $0.025 or $0.03 for the full year.
So, that is maybe disproportionate here coming up in the fourth quarter.
They are all very short lead times.
I'll tell you that with respect to certain end-markets and specification, you'd probably get better visibility into healthcare and medical devices, for example, that are less immune to recession and/or challenges in the economy.
So, those are probably easier to look out and predict, even though you don't have a backlog on those either with respect to orders.
And then certainly, if I look at distribution, oftentimes those are same-day calls and shipments, so very short lead times.
I'm going to try to get to all those.
First, the question about margin expansion, I believe, as it correlates to sales growth in 2017, as you've seen, <UNK>, with the improving margins in EM and Color over the course of the last year or so, we've been very consistent in saying that to get to that Platinum Vision, we needed sales growth to help push us in that direction.
This is a year when you're seeing that really play out as flattish because of the absence of that sales growth.
And I believe that when the growth returns and we get to even something as modest like low single-digit growth, you can see us adding a point to margins next year.
That's my view overall on the specialty side, and clearly not quite the same level of expansion in PP&S or POD.
The second question I think that you had was around what was going on with some of the end-markets, but I may not have understood that one so well.
Hit me with that second one again.
I'm sorry.
Sometimes that might be the case in the sense that, when you look at consumer electronics, for example, everything hinges on product launches, and you just haven't had the level of degree in 2016 that we had in 2015.
I guess that's not churn in terms of lost business or lost sales, but it certainly explains some of the declining revenue that we've seen in that space.
But that picks up as those new launches start to take place.
That's probably where I see, maybe some of that linkage greater than in other.
And then your third question again, I'm sorry.
Asia.
Thank you, <UNK>.
Asia was actually a very strong performing region for us and probably didn't get enough positive attention on this call.
I appreciate you bringing that up.
The underlying growth rate in Asia absent FX was 6% to 7%.
So, that's one of our best performing regions and continues to be.
I think you are right that does warrant additional investment.
We have specifically added, and most recently announced, the additional engineered materials manufacturing in India.
But also believe that we should be driving additional investment in China and Southeast Asia where we think there are bigger and better opportunities to serve some of the local customers than what we have done in the past.
So, I'm completely aligned with that statement.
No.
That always is in the Q too, but that was down slightly for the quarter.
Absent FX I think it was down about 2%.
That really was mostly volume with respect to the consumer electronics as well as some other personal care applications.
We have obviously done very well with respect to handheld device accessories like covers.
The same thing is true for iPads and any of these electronics that are pick up and carry with you.
And I think there is some lapping effect going on this year where those sales are below where they were in terms of our customer sales.
And then, as a result, the accessories and things we play in are down.
So, like I said, I don't think that we've lost any business.
I just think that without the additional or new handheld devices coming out, it's not driving the related accessories market that we're in.
That's absolutely my expectation and we're driving towards that.
As you see this quarter, our expectation was to get there by the end of the year.
Operationally, I believe we've done the right things and that was a very first and necessary step in order for us to confidently and reliably go back to our customers to deliver.
At this point, it's really a sales phenomenon.
We've got to drive the additional sales and new business gains to make that happen.
And I believe if it does, then we'll see profitability expansion in 2017.
We had an incredibly strong start to the year this year.
And that wasn't isolated to just January.
That was actually even a stronger effect in February than January.
I'll tell you, historically, it's not unusual to see, if you've got weak demand in December, to have that offset by stronger demand in January, and vice versa.
So, I think it's a natural and appropriate conclusion that if December is weak, that January should be, everything else held equal, better as a result.
But I'm not sure that necessarily you find yourself in a situation where it's better than where we were in January of last year because, like I said, incredibly strong start to the year.
So, really too early to tell how that's going to play out, <UNK>.
As I think as we said, the combination of the two businesses is roughly breakeven results.
That's right where we expected it to be.
So, that helps you to put into perspective the margins in EM.
Yes, it will help us out with respect to, again, some of the accessories that we supply into that market such as iPhone covers, etcetera.
I think we can see an uplift from that as those sales improve.
I think we'll be somewhere between 31% and 32% for the fourth quarter.
That is probably a good proxy for where we see 2017 at this point.
All right, thank you very much.
And also to everyone who joined us on the call today, we appreciate your support and continued interest in PolyOne, and look forward to speaking to you at the conclusion of our fourth-quarter results.
Thank you.
