PX
#So your ---+ the answer to your first question, of the 50 basis points improvement that we saw in operating margin across the top of the house, I would say most of that probably was lower natural gas.
Now that doesn't take away from the great performance that we've had from everybody around the world to be able to grow operating margins in environments where volumes are weak.
So we feel pretty good about that performance.
But I would say probably most of that 50 basis points, 30, 40, something like that, where you could attribute to lower natural gases.
To your question, yes, we've taken out a lot of costs.
We're still taking out costs as we go into next year, which will help, obviously, from an earnings per share standpoint next year.
As volumes come back, and I think those of you who have followed us back to 2009, you know that we're pretty stingy in terms of how we add costs back.
And I think that's ---+ because of that we're able to get pretty good leverage, or very good leverage on any kind of incremental volumes on a very lean cost structure, and we're very conscious of that.
So obviously, volumes start to pick up quickly; we can respond quickly.
So nothing we've done is going to take away from our ability to capitalize on any recovery we see.
But we will be stingy in terms of how we had add those costs back.
For us, it was heavily impacted by the pull-back in oil well services.
And we do provide a lot of hard goods into those regions, both in the north-central and the south-central.
I ---+ this lead lag kind of question has come up before.
I went back and looked at some of our history, and I would say that most quarters I looked at, it looked to me like hard goods and gases moved pretty much coincidentally, and that in a few quarters, it looked like hard goods might have led the gases decline maybe by a quarter or so.
So, I don't anticipate any big drop-off in gases as a result of the hard goods becoming weaker.
We could still see some pressure going forward, but basically as I look at Q4, I'm pretty much expecting the same thing that I saw in Q3, both from a hard goods and gases standpoint.
Yes, I'm sure could I give you a sense of it.
I would say in the US, which are luxilon, two primary products are around mid-70%s.
Argon would be a higher utilization and Brazil looks like about low 80%s, luxilon.
Europe would be in the high 60%s, 70%ish, let's call it.
China, I talked about.
India would be low 70%s, mainly because we just started up a large plant there and we had some merchant loading to go through.
And then Korea looks to be low 80%s.
A lot of that is going to be a function of what happens to the top two ---+ the numerator, which is operating profit.
Normal operating profit after tax.
So if we get some volume recovery around the world, obviously, we're well positioned to take advantage of that, and we'll get nice leverage, and that will move the ROC up.
The capital base is affected as we've had some large projects that have been ramping up, anything that's had merchant liquid and a lot of projects in Asia have had merchant liquids; it has been slow to ramp so that affects the ROC.
And also we did a large acquisition, UCO2, in 2013, and with acquisitions like that, you're looking at the better part of 10 years before you're able to get the return on capital neutral to the corporate average.
And I think going forward, as we do some of these acquisitions, we're not talking about a ton of money, maybe $500 million, $600 million, or so.
That does have a bit of weighing down of that on the overall return on capital because, again, acquisitions take longer to become neutral to the ROC than capital projects do.
Al right.
So your first question is about next year.
Now, we're going to be going ---+ getting into the planning process next week, and certainly, we'll give guidance in January for next year.
But we are going to have some project contributions, that's for sure.
I think you could have negative run rates on volume in the first half.
And of course, the second half comps would be better.
So I'll wait and answer that question in January, but it looks to me like we're certainly going to have pressure on the first half, but large projects are going to help for 2016.
With respect to backlog, is there a point with which it's no longer healthy.
I think $1.6 billion is fine from a backlog standpoint as we look at contributions from the backlog going forward in the future.
A lot of it is based on project timing.
Maybe this year is 1% or so next year is a couple percent.
Then as we get into 2017 and 2018, 3% lacks more reasonable to me in terms of contributions of ---+ from the backlog.
Again, I think that I'm not too worried about it dropping much below that.
Again, this is just a function of the amount of activity that we are seeing today in the Gulf Coast, and all those projects are large.
So hydrogen supply, carbon monoxide supply, they tend to be very large capital projects, and there are half a dozen or so that we are ---+ that we're working on today.
With respect to what's going to happen out in 2018, 2019, I don't really know the answer to that, <UNK>.
I just know that what we're working on today is going to carry us certainly through 2017 and into 2018, and then the projects that we were to close, it would be probably second half of 2018 before we would have chance to start anything up.
More likely, it would be out into the 2019 time frame.
So that's about as far out as I'm willing to project, but to me, looking at the activity for the next three or four years, I think we'll be in pretty good shape.
Obviously, today, we're very much hunkering down, taking cost actions, taking advantage of some good growth opportunities in areas like healthcare, food and beverage, environmental.
There are some acquisition opportunities, both in Brazil and the rest of South America today, and this is where we talk a lot about the negative effects of the strong dollar, but this is actually where the dollar helps, when we start looking at some of these acquisitions.
I've said that pretty much in the worst of times, we can still hold around a 20% operating profit quality business.
I think when they can see some growth ---+ first of all, they've got to get stability in the political arena.
They need to get the fiscal house in order.
But as I look at kind of Brazil long term, you have a lot of people that were lifted from the lower rungs of society, say, into the middle class.
I don't think they want to go back.
The institutions there are democratic.
They have a democracy.
They have pretty sound institutions.
They're transparent.
They have a lot of resources.
They have some industries that are competitive on a global stage.
What I really think Brazil needs long term is to have more Embraers.
More companies like JBS Meat Packing, companies that can compete on a global stage.
They just need more of those kind of industry champions long term.
But as far as people ask me when I think Brazil is going to turn, my answer would be, I think the next logical inflection point would be the 2018 election, because the current party will not be in power when that takes place.
And I think that is probably about the time that we're going to start seeing more confidence in the future.
And a lot of what Brazil is suffering through today is a crisis of confidence.
So it will happen.
They will come back.
They always go through cycles, and they always come back very strong.
And when they do, obviously, our volumes - you'll see in that our volume, you'll see that in pricing, you'll see a much stronger currency.
We'll get tailwind from that, the and we'll be operating around a mid-20%s, I would say, operating profit to sales.
But that's not going to happen for a few years.
Maybe I get surprised on the upside.
I tend to be a skeptical kind of person.
That's kind of how I see Brazil.
Well, I think as far as the macro factors that I described, I think we're going to see that for awhile.
I think long term, US ---+ you have to be bullish on the US.
It's hard for me to be bullish on anything, but I think ---+ I would say bullish on the US for a couple of reasons.
Number one, if you look at investors around the world today, the US is the emerging market, compared to all other so-called emerging markets.
And the US obviously has much lower risk.
So the US market is very attractive.
Energy costs are very low, and I look at electricity rates in the US compared to other parts of the world that we participate in and the power rates, electricity rates are lowest in the US.
You would expect that at some point, the US is going to start building out its scale ---+ or upgrading its infrastructure, and that's going to be very positive for the economy.
So I would say medium term, long term, you've got to be a bull on the US, but short term, we've got some macro factors that we have to deal with.
I talked about energy.
I've talked about the effect of the strong dollar.
We certainly are affected by that.
I'm going to turn that over to <UNK> and let him answer.
Hi, <UNK>, how are you.
Believe it or not we've actually modeled exactly what you're saying back in history.
What you tend to find, the CPA, to your point, will reduce the denominator.
But remember, you also have translation reducing the numerator.
And while the timing may be different, because the numerator will be average rate, the denominator will be end of rate balance sheet; over time, they catch up.
So what we tend to find is in a longer period, a couple quarters strung together, currency impact tends to be washed.
You will see it on an instantaneous metric, and you will see it in a sort of quarterly metric.
When you do like we do an average over five quarters, currency works its way out.
So I still think it's a valid metric.
But as <UNK> said, the best way to grow this for us right now is to grow the numerator.
We've been doing, I think, a pretty good job to keep the denominator in check.
We've been doing a good job to mitigate in the numerator some of the headwinds on the volumes, but we're looking to try and grow this out in the next few years to get this number up.
80%.
80% fixed, 20% variable.
it's pretty close to that metric.
We have some swaps that are maturing here that will put us a little more fixed in the next four months, but right now we're probably 80/20.
You're welcome.
Well, it's ---+ If I were to split the activity level in North America, I would say it's probably 20% refinery hydrogen opportunities and 80% chemical based.
And the chemical-based opportunities would be for acetic acid; they would be methanol; it would be MDI, those kind of opportunities.
And what's interesting about them is they seem to take a long time to get the closure.
It seems like we're always looking at them, and they're going back and refreshing their feeds and so forth.
It is possible that some of these people in the Gulf Coast are a little bit more concerned about cash today, even though they have very good projects on the drawing boards.
But it's our sense that several of these projects are going to break loose.
We feel very good about how well we're positioned, and that's why I say I think the backlog can stay up around current levels on the strength of what's taking place in the Gulf Coast, predominantly in the chemical industry going forward.
Well, there's ---+ we have quite a few customers ---+ and I don't know; it's not a huge number.
Maybe a handful or so of large steel producers in places like Brazil that clearly are operating below take-or-pay levels, but they are paying, and that has been our history.
Good morning.
I'm going to answer it that I think the returns are holding about the same as what we have seen in the past.
The activity that I ---+ that we're mainly engaged in today in North America, what I like about all these projects is they have very solid terms and conditions, very high guarantee cash flows.
So they've been de-risked to a large extent.
But again, I'd answer the question by saying I think the returns are pretty steady with where they've been, and it seems like all the competitors have areas that they're focused on, somewhat different than each other.
And I think that's a pretty healthy thing.
It's a bit of mixed bag.
I think when you looked at, obviously, soft drink sales are down, carbonated beverages are down.
However, any time somebody opens up a restaurant, they need a carbonation service, and that's where CO2 comes in.
Even though CO2 volumes themselves could be lower as a result of weaker soft drink sales, the fact that every new location needs a carbonation service means that we're able to grow that business.
It is true that the craft brew business continues to grow double digits so that's been a positive for us.
We've been a bit disadvantaged in recent years that in we haven't had strong sources of CO2 as we would like.
We've solved that all within the last year, so we feel very good about our CO2 business from a source standpoint, which is critical to being successful.
And then I look at the food freezing business itself is growing with CO2, and also dry ice.
Dry ice is an area that we haven't focused on historically, but that's a market that's growing pretty nicely, and market segments like bio pharma are helping to drive the growth in dry ice.
Yes, <UNK>.
This is <UNK>.
I can answer that question.
When we make these investments, like any investment, they're very long term.
So we always model currencies, as I'd imagine all bidders do, in terms of what the long-term outlook.
You tend to source and sell in the same currency when you do these projects.
You're building a lot of assets.
Half of it is built in local currency for the construction.
And then you receive the revenues in the local currency.
We use things like inflation protection and sometimes we'll index to other currencies.
So we've done that in all currency environments, high and low.
So the long story short is, I don't think it's affecting it at all because all of us have considered currency risks and effect in our investment process throughout our history.
So I wouldn't say there's any material change on any respect.
