GLT
#Sure.
So as we said earlier, our volumes were up 10% in the quarter in that market environment, and currencies are more stable.
It's still a recessionary environment, but if you compare it to 2015 when the Russian economy was down 4%, it's projected to be down 1.5% this year and maybe plus-1% next year.
So it's still tenuous and a bit volatile.
So I want to be measured in my comments that we're pleased with the progress we are making.
We are leveraging our leading market positions and the relationships that we have with all the major players.
We have expanded our product offerings to create greater optionality for our customers, and we remain positive about the longer-term growth prospects.
And we expect the demand patterns that we've seen to continue in the near term.
But it's difficult for us to be very specific about far out in the future based on what we see today.
I think margin-wise, it's certainly not at the level when we acquired it.
But it compares favorably to the average margins we have for the business unit.
So we have been able to manage the cost structure in a way that has continued pretty healthy margins, just not quite at the level where they were when we acquired.
From a capacity perspective, we are operating in the 80%-85% range of capacity utilization.
So we still have a fair bit of open capacity.
So maybe I will add a few comments, and <UNK>, you can give some guidance.
But the second quarter was actually a little bit better than we had expected.
So the destocking in many ways just shifted a quarter, so that's kind of what we are seeing.
And we do anticipate more normalized growth rates to resume in the fourth quarter.
From a year-over-year perspective, <UNK>, how would you like to guide.
We only provide guidance out for one quarter.
So we've said that we expect overall shipping volumes for composite fibers to be up slightly in the third quarter.
That would include some of this destocking in the food and beverage sector.
And as <UNK> said, we expect to get back to normal growth rates in the fourth quarter.
And we typically are using 3% to 4% as the overall growth rate for the tea and coffee products.
Last year, we had some downtime in the second quarter, both because of some weaker volumes and also because we had a maintenance project on a winder.
So we got a benefit from having more capacity utilization in the second quarter in the operation side, and we also had the record production in our Gatineau facility for the second consecutive quarter.
So that helped.
So from the volume mix, the $700,000 is where we came out with the 8% growth.
But we are able to take advantage of a better cost structure on the operating side.
Sure.
So you are correct that when we bought the business, the vast majority was feminine hygiene and the vast majority of that category was the absorbent core that goes into the various femcare products.
And in Q2, we had 8% year-over-year growth in our feminine hygiene business.
Our wipes are ramping up and we expect very strong demand in the second half as we manage the ramp-up process with our existing assets and bridge to the startup of Fort Smith.
And for the year, we expect wipes growth to be above market levels, which are 5% to 6%.
So as Fort Smith becomes more operational and that adds 22,000 tons to our existing platform, it will be 120,000, 130,000 tons per year total of total capacity in the airlaid business, depending on basis weight, etc.
But our modeling says we will push that closer to 130,000 tons, 129,000 tons.
So a big part of that growth and a big part of Fort Smith will be on the lower basis weight specialty wipes products.
So you will see a higher contribution.
And we're able to do this in a way that doesn't compromise our ability to meet the needs of our key femcare products customers today and into the future.
We will actually be able to establish Centers of Excellence and streamline our manufacturing processes and get greater production efficiencies as we allow certain machines to make products in certain basis weights that they are best designed to do.
Not too dissimilar to what we did with CFBU as we built that business over time and added scale.
So we are optimistic about how we are going to manage the broader platform, how we will establish Centers of Excellence, how adding Fort Smith doesn't cost us a lot of additional money from a G&A point of view and why we think this will give us a nice lift in terms of the overall profit profile and cash flow profile of the airlaid business, once we get into 2018 and 2019, when Fort Smith is generating EBITDA and bring a little of additional balance to the portfolio, which I think is a good thing.
And at the same time, sending a message to all of our customers that we are willing and able to continue to support their growth.
So I think it's a good story.
Sure.
So on the $60-per-ton increase that was announced on the range of products earlier this year, and I think this has been well reported, we expect we will get about a third, so about $20.
We began implementing that April 1.
So it gets phased in over the quarter.
So just round numbers, we realized about half in Q2.
We expect to realize the other half of the $20 in Q3.
And so from a ---+ and that's on a limited amount of our volume, about 500,000 tons over an annual period.
From a info cost perspective, the largest driver here is wood costs.
So we tend to start to purchase more wood in the third quarter, both because our annual maintenance outages are behind us and because we begin to build some inventory for the winter months, where it's harder to source wood during the cold weather periods.
And so we expect prices to move up a little bit on wood.
And then softwood pulp prices increased as we went through Q2, and we expect they might be up a little bit, maybe flattish in Q3.
But when we compare a full Q3 versus Q2, we expect it to be up a little bit.
And so those are the two primary drivers of the cost increase.
Sure.
So yes, so we will take some downtime, and we've had a long track record of using our continuous improvement initiatives to help drive down overall costs.
And so we will continue to do that.
So this is a combination of some project-based work.
It's also very closely managing other costs in the business.
And so as we take some downtime, which has a fixed-cost penalty, as we look through the third quarter, we expect that that cost penalty will be offset by those cost initiatives that, again, are part of our ongoing continuous improvement program.
As we get to Q4, that is ---+ our view there is still being developed.
We will expect to take some downtime in Q4 as well and we are working towards how to offset that.
So our guidance for composite fibers for Q3 was volumes up slightly and then raw material selling prices and raw material and energy prices overall to be in line with Q2.
So that would imply slightly higher earnings in Q3 versus Q2.
Sure.
So the incentive comp, we are talking about a quarter-over-quarter view ---+ I'm sorry, a year-over-year view.
So Q2 of this year versus Q2 of last year.
You may call that we had a pretty difficult Q1 of a year ago and we had ---+ so we had the boiler issue in Pennsylvania.
And so from a short-term incentive comp perspective, we were not forecasting to hit the internal targets.
The situation is different this year.
We have talked about the improvement in overall profitability.
So both Q1 and Q2 profits were up compared to a year ago.
And we are projecting that we will achieve the incentive payout.
So that is a cost that we didn't have a year ago because of lower profitability.
As far as pulp production, we had record pulp production in the second quarter of last year.
We had some issues with water quality that affected the pulping operation after we started up from the annual outage in Ohio.
And that took a couple bit of time to resolve.
It has been resolved and production got back to normal levels in the second half of June.
But it did impact the full quarter.
Certainly we are working hard to make sure that we produce as much pulp as we can.
It's a significant driver of the overall profitability of the business.
So we are looking to improve on that in Q3.
But that's what impacted it from a Q2 perspective.
So the remediation work is not planned for 2017 this point.
There is only broad outlines of what the work will be.
And so it's a little bit difficult to give real clear guidance.
But based on our view of the situation and what we think is our responsibility at this point, we would expect 2017 to be similar to 2016.
We do have the trial coming up in March and there are a number of different legal issues that could have an impact on who pays for remediation in the near term.
But based on what we see today, we expect 2017 will be a similar type view as 2016.
Sure.
So the total project costs estimate that we have has not changed.
It's just a little bit of timing between 2016 and 2017.
So in our last quarter, we had guided 2016 to be $40 million to $45 million and 2017 to be $7 million to $17 million.
So we have essentially just shifted $5 million from 2017 into 2016 based on the timing of work.
So that's all that's happening there.
That's right; we have 8,000 acres in Delaware.
We sold most of the rest of our land last year.
There's not a whole lot of activity in Delaware.
It's still pretty difficult market from a land perspective.
So we continue to stay close to the market and our understanding of what the pricing is and the opportunities.
And if we are able to get what we think is a fair price, we will sell the land.
But we just haven't gotten to that point in.
So again, it's a little bit difficult market.
And we intend to hold it until we get what we think is an appropriate price.
Sure.
Yes, we do have two facilities in the UK, one in England, one Wales.
It's still very early and there's a lot of negotiation that's going to take place over the next couple of years.
But we don't expect an impact on our business or our markets based on what we see and know today.
Right.
Yes, to my knowledge, there's no new announced capacity coming to the market.
So our announcement of Fort Smith is the new capacity.
So things remain pretty stable in the other regions of the world.
Okay.
Well, thanks, everyone, for joining us on our call today.
And we look forward to speaking with you next quarter.
Have a good day.
