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A. Schulman (NASDAQ:SHLM)

Q4 2013 Earnings Call

October 25, 2013 10:00 am ET

Executives

Jennifer K. Beeman - Director of Corporate Communications & Investor Relations

Joseph M. Gingo - Chairman, Chief Executive Officer, President and Member of Executive Committee

Joseph J. Levanduski - Chief Financial Officer, Principal Accounting Officer and Vice President

Bernard Rzepka - Chief Operating Officer and Executive Vice President

Analysts

Dmitry Silversteyn - Longbow Research LLC

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Kevin Hocevar - Northcoast Research

Saul Ludwig - Northcoast Research

Christopher W. Butler - Sidoti & Company, LLC

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 A. Schulman Earnings Conference Call. My name is Kim, and I will be your operator for today. [Operator Instructions]

I would now like to turn the conference over to your host for today, Ms. Jennifer Beeman. Please proceed.

Jennifer K. Beeman

Thank you, Kim. Good morning, and welcome to A. Schulman's Fourth Quarter 2013 Conference Call. I'm Jennifer Beeman, Director of Corporate Communications and Investor Relations for A. Schulman. By now, you all should have received a copy of our press release, which was issued last night.

Joining me today is Joe Gingo, Chairman, President and Chief Executive Officer; Bernard Rzepka, Chief Operating Officer; and Joe Levanduski, Chief Financial Officer of A. Schulman.

Before we begin, I'd like to remind you that statements made during this conference call, which are not historical facts, may be considered forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the date of this live call. A. Schulman does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this call. For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to A. Schulman's quarterly earnings releases and periodic filings with the Securities and Exchange Commission.

I'd also like to remind you that for purposes of this phone call, we use non-GAAP measures of net income, including certain items or adjusted net income, as well as net income per diluted share excluding certain items. These financial measures are used by management to monitor and evaluate the ongoing performance of the company and to allocate resources. You could find a reconciliation of these non-GAAP measures to the nearest comparable GAAP results as an attachment to our fourth quarter earnings release.

Now, we will begin with comments and our prepared remarks and then we'll turn the call over to you all for questions. Now, I'd like to turn the call over to Joe.

Joseph M. Gingo

Thank you, Jennifer, and thank you, all, for joining us this morning as we update you on our fiscal 2013 fourth quarter and full year. In fiscal 2013, we continued to execute on our strategies, and as a result, experienced steady growth despite a stagnant global economy. We delivered the 2.5% increase in net sales and gross profit improved over the prior year. We have also remained financially strong. We generated $84 million in cash flow from operations for the year and combined with fiscal 2012, we have generated $183 million in cash flow over the past 2 years.

My only disappointment this year was that we did not deliver our goal of year-over-year adjusted earnings growth. The global economic conditions and the challenges we faced in Latin America during our consolidation of our Brazilian operations were too much to overcome. Our challenge is to renew the trend of earnings growth in fiscal 2014, and our teams are committed to getting back on track and delivering on the promise of continued growth.

Bernard will provide more on that in a moment.

But first, I'd like to turn the call over to Joe Levanduski to review our fiscal 2013 financials.

Joseph J. Levanduski

Thanks, Joe, and good morning, everyone. First, let's begin with a look at our full year fiscal 2013 results on a consolidated basis. Net sales increased 2.5% to $2.1 billion as sales increased in each of our 3 geographic regions. Incremental net sales from our recent acquisitions, Elian and ECM, accounted for nearly all the increase, while foreign currency translation did not have a significant of effect on the net sales for the year.

Excluding certain items, gross profit for the year was $279 million, up from $276 million for the previous year. Excluding the foreign currency impact, gross profit increased by $2.2 million compared with last year. The increase was primarily driven by the contribution of recent acquisitions, partially offset by additional costs that the company incurred in Latin America during the third quarter.

SG&A expenses increased $7.9 million when compared with the prior year on a non-GAAP basis. The increase was driven by incremental SG&A expenses of $7.1 million from recent acquisitions. In addition, we continue to support our global marketing initiatives, and we incurred cost related to a strategic filing project focused on our APAC region. SG&A expenses represent approximately 9% of net sales, which was consistent with the prior year.

Operating income before certain items was $82.9 million, a decrease of approximately 6% from a year ago, primarily caused by the third quarter events in Latin America. Reported net income for fiscal 2013 was $26.1 million, or $0.89 per diluted share, compared with $50.9 million, or $1.72 per diluted share, for fiscal 2012. Adjusted net income from continuing operations was $53.8 million, or $1.83 per diluted share, which exceeded the top end of our current guidance range for fiscal 2013.

Now moving on to the consolidated fourth quarter results. Net sales were up 4% to $537.3 million, compared with $517.7 million a year ago. ECM Plastics positively contributed $10.2 million in incremental net sales in the quarter. The translation effect of foreign currencies increased net sales for this quarter by $18.2 million compared with the same quarter last year.

Gross profit, excluding certain items, increased $6.3 million to $72.8 million for the quarter. Strong performance from our EMEA segment, owing to improved sales mix and savings associated with restructuring initiatives, benefited the quarterly results. SG&A expenses for the quarter were $45.4 million excluding certain items, which was flat compared to the prior year.

Operating income before certain items was $27.4 million for the fourth quarter, an increase of $6.5 million from a year ago, primarily due to the increase in gross profit. Net loss from continuing operations was $1.1 million, or $0.04 per diluted share, in the quarter compared to net income from continuing operations in the prior-year quarter of $11.6 million, or $0.39 per diluted share. The decline was largely due to a onetime income tax charge of $10.6 million in the fourth quarter of 2013, primarily related to the establishment of a valuation allowance against certain deferred tax assets in Europe.

Adjusted net income from continuing operations for the quarter was $16.1 million, or $0.55 per diluted share, for the quarter, compared to $14.4 million, or $0.49 per diluted share, in the fourth quarter of fiscal 2012. The year-over-year increase in adjusted net income from continuing operations was due to improved operating results, partially offset by higher income tax expense.

Taking a brief look now at our balance sheet and cash flow. We continue to be positioned well financially to pursue our acquisition and our organic growth strategy. At the end of the year, the company was in a net debt position of $81.8 million compared with $85.8 million a year ago. And our net leverage remains below 1x on a non-GAAP basis.

Cash increased to $134 million as of August 31, 2013, from $124 million at the end of fiscal 2012. Net cash provided by operations was $84 million for the year, which was used to support the acquisition of ECM Plastics, expenditures for capital projects, dividend payments and share buybacks. Collectively, these 4 cash outflows total $94 million. On an average basis, our working capital improved by 2 days. The net availability under our credit lines is $198.3 million as of August 31, 2013.

As reported, in September, we entered into a new $500 million credit agreement. The new credit facility expands our ability to pursue strategic acquisition opportunities while supporting our organic growth initiatives, share repurchase program and our long-standing dividend. As a reminder, our yield is approximately 2.5% based on yesterday's closing share price.

That concludes my prepared remarks, and now I'll turn the call over to our COO, Bernard Rzepka.

Bernard Rzepka

Thanks, Joe, and good morning. Last night, I returned from the K Show, so let's begin with our activities there. As you know, the K Show is the world's largest, oldest plastics and rubber trade show, held every 3 years in Germany. This year, we had, each day, over 60 associates participate and could welcome more than 4,000 visitors. Our theme, "Passion for Plastics" highlighted customer success stories and showcase our innovative products.

With sustainability in mind, we featured our specialty powder solutions, including the Cotene brand of coating powders that are 100% BPA-free and easily meet stringent drinking water and food testing requirements. We also showcased our Icorene coating powders, which conforms to new European testing standards that are for oil storage tanks. We highlighted an AC/DC charging plug system for electric vehicles that allows charging either overnight in a garage or within 20 minutes at special charging stations using a single plug. Our products from our trusted Schuladur line is the world's only commercial solution because it meets the unique combination of difficult-to-meet flame, chemical and pressure resistance requirements of this remarkable charging plug handle.

In fact, this product just won first place in the Electric Optical System category for the European Society of Plastics Engineers. This was 1 of 3 awards we won for our innovative products, and we continue to strive to meet our customers' most demanding requirements and bring real innovative solutions to market.

Going back to my top 3 priorities: safety, smart sales and savings. We have made good progress on our initiatives, as we aim for profitable growth by focusing on what really matters. At A. Schulman, we believe that high achievement in safety also encompasses high achievement in quality and productivity. We have a keen eye on keeping our safety and quality standards high and ensure improvements and productivity in all facilities.

We are driving smart sales through our marketing and purchasing initiatives by finding better ways to increase sales, meet customers' needs and create industry-leading products and services we can win and win in the marketplace. We are investing in new tools, trading and are encouraging new levels of collaboration to quickly bring our technology to customers locally and globally. We have seen encouraging results in terms of product mix and growth at regional and as well as local accounts and are well pleased by the efforts of our global purchasing team.

Savings received focused attention. We continue to successfully manage our costs, examine the return on all of our investments and use our cash efficiently to support growth. We prudently restructure when appropriate and write the concept of savings throughout all levels of our organization.

Speaking of restructuring, let's cover that in more detail. Despite a weak third quarter in the Americas, we have evidence that our actions are already effective, as we have seen volume improvement and better mix sequentially. Our plant in Brazil will be operational at the end of the month.

During the year, we executed several restructuring plans in the EMEA in response to the economic climate. In fiscal 2013, we realized $5.2 million in incremental savings from these plants. In addition, we recently told you about consolidations in the Americas to better align capacity with demand. These actions resulted in incremental savings of $7.3 million.

Moving on to our raw materials. As always, the law of supply and demand will govern. Despite what you might read, our data indicates major raw materials are expected to stay relatively flat throughout this calendar year. While suppliers are without surprise increases in 2014, in our judgment, demand will only support modest increases at most.

Now, I would like to turn the call back over to Joe Gingo.

Joseph M. Gingo

Thank you, Bern. Our successful acquisitions have played an important role in our growth strategy. Early in the quarter, we acquired the Perrite Group, a thermoplastics manufacturing business with operations in Malaysia, the United Kingdom and France, for approximately $52 million. Expansion of our custom performance colors in engineered plastics business in our APAC region is a key component of our growth strategy. And the addition of Perrite's manufacturing facility in Malaysia is important as we look to enhance our ability to serve key customers in the region, as well as globally.

Perrite holds leading positions in attractive markets such as electronics, appliance and niche automotive and offers well-established and respected brands. In addition, Perrite will help us expand our presence into adjacent markets with Perrite's highly profitable insulation materials for the subsea flexible oil pipe market. Although it is only a small portion of the current portfolio, it is an exciting and growing area for us. We anticipate that Perrite will increase the revenues in our APAC segment by 35% and will double the size of our existing engineered plastics business in the region. We expect it will deliver approximately $2 million to $3 million in annual synergies, including initial savings and procurement, followed by more significant savings in operational efficiency.

As a reminder, in May, we have reached an agreement on principle with the Board to acquire Network Polymers, a leading U.S. provider of thermoplastic resins and alloys. We expect to finalize this transaction before the end of this calendar year. Again, this acquisition will be another step in our continued efforts to transform our U.S. operations from commodity products to a business-driven-by-niche engineered plastics, custom performance colors, masterbatch solutions and specialty products. Our strong balance sheet and solid cash flow generation continue to position the company well to pursue its acquisition strategies.

Our goal is to further strengthen our company's leading position in our core markets and position the company for sustainable growth. And as we have demonstrated with our attempt to acquire Ferro Corporation, we are also open to transformational acquisitions that will provide another growth platform for future sustainable growth. We will remain aggressive in pursuing this strategy, as well as the many opportunities we are seeing globally for bolt-on acquisitions.

We are encouraged that the momentum generated by our 2013 fourth quarter has continued into fiscal 2014. Order books continue to look reasonably solid and customer settlement reflects a cautious optimism. However, we expect to see only modest global growth for the year in what we anticipate will be a fragile macroeconomic environment. Under that scenario, our goal is to control what we can control, execute on our acquisition strategy and organic growth initiatives, and return to year-over-year growth in earnings. As a result, we anticipate that our fiscal 2014 adjusted net income will be in the range of $2.08 to $2.13 per diluted share.

With that, let's open up the call for your questions.

Jennifer K. Beeman

Thank you, Joe. Kim, we're ready for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Dmitry Silversteyn from Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

Just got a couple of questions, if I may. You've seen a pretty good improvement in profitability throughout the year in Americas, and obviously Europe was very strong this quarter. As you look towards fiscal 2014, are you seeing enough out of Europe in terms of stabilization or bottoming out or maybe even beginning to improve, however you want to qualify it? But is there a feeling that this is a sort of a sustainable development into 2014 and you can look forward to some growth in the region, aided by what you're doing internally? Or are you still somewhat cautious in expectations for your -- for 2014?

Joseph M. Gingo

This is Joe Gingo. From my standpoint, honestly, the right words are cautiously optimistic. As we look to the end of the calendar year, we're fairly comfortable with what we see in our order books and what Bernard learned at the K Show. As we talk to customers about 2014, they're not unoptimistic, they're just concerned. I think the -- as we described it, it's still a fragile environment and people are worried. But we're encouraged. We have now seen through September a continued momentum in Europe. And as you know, we made a lot of cost reductions. So just slight improvements in volume are very significant to us because of what we've done on our cost structure. So we remain optimistic about Europe, but we have to remain concerned regarding the macroeconomic environment.

Dmitry Silversteyn - Longbow Research LLC

Okay. I understand. If you look at the -- your Asian business, you delivered a very strong quarter in August, almost $4 million in operating profit. Is that -- should we see improvements from this level in 2014 as a result of all the restructuring you've done then and the closure of the Australian business? Or is -- was there something unusual, some unusual items in the quarter that as we look forward to 2014, we should not be expecting double-digit margins in that level.

Joseph M. Gingo

I think that there's 2 things. One, you were totally right. The closure of the Australian operation was a significant benefit to us. And the sale, we actually closed it, but then we subsequently sold the operation. That was very good. We have integrated Perrite as well. The Malaysian operation from Perrite is going to increase our revenues by approximately 1/3 in Asia. We're confident we're going to integrate it well, but we have to execute on that. And I anticipate that we can continue with the type of margins that we are seeing in Asia. And, Joe, do you want to add something?

Joseph J. Levanduski

Yes, Dmitry, just to add that, we've added capacity in certain parts of our Southeast Asia operation, and we're expecting to implement more capacity expansions towards the tail end of fiscal 2014 that will be positioning ourselves well for '15.

Dmitry Silversteyn - Longbow Research LLC

Okay. So if I'm looking at the operating margins for Asia, again, I may not necessarily be -- want to be modeling 12% that you guys delivered in the August quarter, but I could certainly comfortably model an increase versus 2013 overall.

Joseph M. Gingo

I think that would be a reasonable assumption.

Operator

Your next question comes from the line of Rosemarie Morbelli from the Gabelli & Company.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

How much help did you get from Europe in Q4? I'm sorry, I haven't had the chance to go through all of the numbers, but if you could give us a better feel as to what was happening and where you are helped versus where demand is still declining.

Joseph J. Levanduski

Yes. And, Rosemarie, in Europe, we saw revenues up about 4.6% for the year. We had a very good mix of products, less distribution, more engineered plastics. And I think the mix improvement, as well as the restructuring savings that we experienced that Bernard mentioned in his talking remarks really benefited us in the quarter.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Didn't -- weren't you helped by acquisition? And if you take out the acquisition, what was the actual growth rate?

Joseph J. Levanduski

Not in the fourth quarter, Rosemarie. The Elian acquisition, there was somewhat incremental benefits for the full year, but we acquired that in February of the prior year. So the only incremental benefit that we recognize was the fourth quarter in the Americas for the ECM acquisition.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

So if you take that out, what was the revenue for the company as a whole and for North America, if you take out the acquisition?

Joseph J. Levanduski

For the Americas, fourth quarter ECM added about $10 million of revenue. So not a significant amount.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Right. So, sounds as though it declined if you take that out, doesn't it?

Joseph J. Levanduski

For the Americas?

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Yes.

Joseph J. Levanduski

It would still be slight increases in revenues if you take out the ECM acquisition.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Okay. You are talking about the fact that the customers are very cautious, especially in Europe. We just attended another conference call and it sounded, listening to them, as though at the K Show in Germany, actually people were rather optimistic. What -- wasn't that the impression you thought? And if not, why do you see the difference between their customers and your customers?

Joseph M. Gingo

Well, as Bernard returned from the showed last night, I'm going to ask him to address that.

Bernard Rzepka

Yes. Thank you. Yes, that was one reason why I went down there, to take a look myself. Yes, the customers were very optimistic, but it's, in our view, a big difference. And we saw a couple of times in the last year where people say to you, "Yes, it's good, it's great," and you just then turn around and say, "Fine, could we please talk about orders and how did they increase and what kind of additional business we do?" Our impression is that most people are feeling now more comfy and are very focused down in Europe on closing their business here, which is the current [indiscernible]. And if you then turn the discussions into new projects of what we're going to do and what kind of growth we see in 2014, they get very cautious about that, especially if you talk about certain projects and certain products. So we hope to see what you just described and maybe others are seeing. And we see some of the optimism too. But if you ask me, to say this in really certain dollars and certain contracts, I have to disappoint you. I think we need another couple of weeks in the marketplace and to see what we, by the end of November, beginning of December, what is really the order inputs, which customers give us some orders for January and February, and then we will have a solid output, not before.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Okay. Now, That is very helpful. I was wondering also if you got any help from the housing recovery in North America during the quarter.

Joseph M. Gingo

One, housing is not a huge market for us, but we did not see anything significant in house.

Operator

Your next question comes from the line of Mike Sison from KeyBanc.

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

In terms of your outlook for 2014, as I recall, when you take a look at '13, some of the pain year-over-year was the issues you had in Latin America. Given those are resolved, you've got cost savings heading into '14 and you've got some acquisitions in your back, curious why the outlook wouldn't be literally more poignant relative to 2012, since a lot of the issues you had this year were sort of behind you, if you will.

Joseph M. Gingo

Well, as you well know more than most, 65% of our operations comes out of Europe. And although we're working -- when I came here, 107% profitable of the profit came through Europe. It's now down to a balanced equation. But that's still 2/3 of the company. And I think Bernard well explained what we're seeing here. There seems to be quite a bit of confidence through the calendar year end. Now noting that the November and December is historically softer months, but well in line with what you expect. So as we get to talking to these individuals about 2014, we're seeing a little uncertainty. Now, again, it's like Bernard said, it's our hope that, that uncertainty doesn't materialize. I don't think, Mike, it well could be that after we see January and February, we might look at things differently than we're looking at them today. And I'll use the tone cautious optimism to you as to what's guided our guidance.

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Okay, great. And then I wanted to get a little bit more color on sort of the thoughts on the transformative potential in terms of acquisitions, moving more into the specialty chemical area over time. Can you talk about the size and maybe more characteristically, what you're looking for? What makes a good fit? Where would be on a transformative side, what would make sense for Schulman to move into?

Joseph M. Gingo

Well, I think to be transformational for us, we have to be 2 things. We have to be in a different chemistry, okay? I mean, if I stay in the same chemistry, it can't be considered transformational. Second, there has to be enough of a presence that made a difference. And to me, that's around $0.5 billion. I mean, you'd have to have enough substance to be a factor. You don't got to be $2 billion. You don't have to be. But you have to be enough that you're factor in whatever new markets you're going to go into. What we're doing right now, and Bernard is leading this, with the help of this whole operations team, but in particular, his Chief Marketing Officer Patty Mishic. They're looking right now at what areas might be the most attractive to us, we're going to probably wrap that up by the end of the year and then do some focused work on where we'd like to go. But right now, I'd say we are in the analysis phase. We felt very comfortable about Ferro. Sorry that didn't come about. But we haven't given up the transformational route.

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Okay. And then last question. A couple of years ago you gave a sense of what type of growth you'd like to see and profitability you'd like to see by, I think, 2015, or sort of long-term goals. Maybe just characteristically, do you still think you're on that right path? Any areas that you feel you can see a catch-up here in 2014?

Joseph M. Gingo

Look, I definitely feel we're on the right path and the setbacks that we had in the third quarter, I personally believe, and the data reflects, is behind us. Too, some tremendous work by Gustavo Perez. But I'd say right now, we're looking at doing an Investor Day. Jennifer?

Jennifer K. Beeman

Early April.

Joseph M. Gingo

Early April. And, Mike, what we're focused on between now and then, part of it is this analysis I just mentioned, with Bernard, about where we could possibly go from a transformational standpoint, with bolt-ons might be more attractive to us. And, in addition, we're relooking at all of our numbers and we're going to give a reforecast of 5-year plan. Joe, do you want add?

Joseph J. Levanduski

I just want to point out, Mike, as you look at the fourth quarter, putting the third quarter behind us, the fourth quarter in EMEA, the operating profit per pound rose to about $0.055 a pound. So I think it shows that we have momentum going in our favor. The economy in Europe continues to not hurt us going into the future. I think we'll make continued progress towards those goals.

Operator

The next question comes from the line of Kevin Hocevar from Northcoast Research.

Kevin Hocevar - Northcoast Research

I was wondering if you could give us some color on, it sounds like the Brazil facility is going to be up and running at the end of the month. Kind of wondering if you can update us on how quickly expect that to ramp-up and kind of move operations back from Mexico into Brazil, and kind of how you expect that to go and when we should see that facility fully ramped up by?

Bernard Rzepka

Yes, we -- this is Bernard Rzepka speaking. We will need another 2 to 3 months to get fully ramped up, but we are very, very encouraged. In fact, the first [ph] productions, we did already almost 10 days now ago, so it will be another 2 or 3 months, and then we are up and running.

Kevin Hocevar - Northcoast Research

Okay. And it sounded like -- I think you mentioned in the press release you were able to leverage some of the new customers that you brought on from the Elian acquisition that you've talked about in the past, that, that was a big opportunity for you. So I'm just wondering if you could elaborate on that, maybe give us some examples of some success that you've had with that, leveraging those -- that new customer base.

Bernard Rzepka

Yes. In fact, that will be in the part of my K Show visit to welcome the Perrite team, too, because they had a booth, a tent, and I was able to meet, as well, customers on the booth and tent. And one particular customer which we were very interested in is the Dyson Group, and they're operating out of Malaysia but has R&D and development in Europe in the U.K. facility. So that's really a true global effort. We are very, very strong and give them a lot of support in colors. And as we have a strong part of all business, which is growing from simply. So that was important for us. Plus the Malaysia plant is very well situated in Southeast Asia to cover, as well, the electronics and automotive industry in this area. And this is another focus of our work together with the team there in Malaysia.

Kevin Hocevar - Northcoast Research

Okay. And then I guess finally, in terms of your raw material outlook, Bernard, I think you said expectations were to be kind of flat going forward. But I think, like polyethylene, I think has moved up a little bit, come back down a little recently. But could you kind of give me the basket there? What's moving up? What's moving down? But ultimately, you expect it to be kind of flat, if I heard that correctly, the rest of the year?

Bernard Rzepka

That's correct. That's what we see for the rest of the year. There's one exception that we see, is polypropylene, but, as you know, we are not really very strong in this area so it doesn't hit us so much. And so our expectation is, and you've heard what Joe Gingo said, and that's what I'm seeing too, looking at the world economy and what I've seen in the K Show, that the demand was sure to be sluggish in most of the markets. And as the raw material suppliers still tried to increase prices and they tried to see a couple of cents too and failed because, again, that's what I said in my speech. The demand is this just not wonderful, and this will govern it. So we expect this year is -- there will be not price increases, significant ones. And next year, it depends really in the demand in the marketplace. And we don't see a huge demand.

Joseph M. Gingo

Kevin, to some extent -- this is Joe Gingo. I don't mind seeing prices rise rapidly because if they were, it would suggest that demand was there, and that would help a lot of people. But we, as Bernard said, I'll just reiterate it, we're just not seeing that yet. At this point in time, demand is not outweighing supply. Supply is still in excess.

Operator

Your next question comes from the line of Saul Ludwig from Saul Ludwig Consulting.

Saul Ludwig - Northcoast Research

I got 2 questions. The one significant thing that stood out for me in the fourth quarter was your operating profit per pound jumping 30% was very significant. Did that come about because you had an improvement in your price relative to raw materials or did it come about because there was an improvement in fixed cost reduction per unit sold?

Joseph J. Levanduski

Yes, I think a big driver around it was the cost dropping down. Obviously, we've been working very hard on the things that we can control. And so all the successful activities that we've been working on have really benefited us. And I think I had mentioned earlier as well, we had a little bit of improvement on the mix, with less distribution in the mix for the fourth quarter as well.

Saul Ludwig - Northcoast Research

And then the second question is, you began, I think, with the hiring of Patty more than 1 year, 1.5 years ago, one initiative was cross-selling. And is there any way that you could quantify maybe in terms of pounds or in any way, success that you've had in taking products that are sold in one region and selling them in another region or products that ICO had that they sold in one region that you now sell in multiple regions. Just talk about the marketing success and how you measure whether that is working or not working.

Bernard Rzepka

Yes. So here is Bernard speaking. We're still working on it to figure out the details. We see improvements in some areas. We track it by project, so we've seen several projects between the use or between customers moving, and we try to put enough of some financial metrics. So this is in progress and in the months, we can report more solid numbers certainly on that. What we see a very good improvement, though, is in the pricing activity, which we started to make everybody aware, and educate us about one of the biggest levers we have to get the paid for our services and our product properly. And we installed now the software, Vendavo, which is helping us tremendously in Europe and currently rolling out this project into the market. And we see already very public tendencies [ph] because we didn't talk about yet this, but the market is still very, very competitive in Europe. So we have to do a lot of more work in pricing. We have to do a lot of more work in purchasing to keep our share and to stay more profitable there.

Joseph M. Gingo

Saul, we have empirical evidence, but I think what we're faced with now and we're working on and we think we have a workaround is with 12 ERP systems, for example, customer coding is not the same. So there's a lot of difficulty to say, if the customer's name -- and Schulman is one thing and the customer's code in ICO is another, there's a lot o manual work that has to be done to capture all that. Now we're looking at some systems now that could capture that. But empirically, we know it's happening. We know. We're following it from that standpoint. To give you a really quantifiable numbers that we could stand to buy today would be very difficult for us. But as Bernard said, we are developing the systems that are going to give us that capability.

Operator

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

Christopher W. Butler - Sidoti & Company, LLC

Could you talk to some of the growth initiatives that you had and successes there? And give us an idea of how much that moves the needle for you, especially in Europe where you pointed that out?

Bernard Rzepka

Yes, one of the big growth initiatives of the last years we had that we focus ourselves around more on colors and more on markets, outside shares of automotive where we have been successful in the past but these markets are under pressure. So colors has been a very, very positive area, which we focus our team with. We actually -- and I think you followed that perhaps on our own division, which is focusing now on this, and through our acquisitions and organic growth in this area, we have now data which tells us that a couple of years ago, we had 2%, 3% of the color market in Europe, now we are very close to 10%. And this is what we will continue. Additionally, what has been a success story for us, not only in Europe but globally, is agriculture. And we still see a huge potential in agriculture because that's what [indiscernible] get us to. We have very good overview about in which markets we already take by percentage and which products, so we see about 6%, 7% of our products we sell in the agriculture market. But if you look really at the products which we can offer, we have to do far better. So this is what we are really focusing on now too.

Christopher W. Butler - Sidoti & Company, LLC

And shifting gears, we've now just finished fiscal 2013 and the expectation from the Elian acquisition was about $2.5 million of synergies. Has that all been captured at this point or is there still more to come because of sluggish demand or other reasons?

Joseph J. Levanduski

I think there's more to come. Obviously, we've been working very hard on different categories of that. It's not just one area. There continue to be ways that we can improve our efficiency operationally, as well as through our synergies of procurement. So we continue to work and strive to achieving our goals.

Christopher W. Butler - Sidoti & Company, LLC

And just finally, could you help us out with depreciation, CapEx and tax rate, with the acquisitions expected to have an impact early here on fiscal 2014?

Joseph J. Levanduski

Yes. Let's start from the bottom up. Tax rate is probably going to be for 2014, probably in the low 20% range, consistent with the prior years. It picked up a little bit at the end of the year just due to some mix of profitability around the globe. But based upon our expectations, I think about 20% range would be fine. From a CapEx standpoint, we finished this year about $26.5 million. It was about $33 million, I believe, the year prior. So yes, I think looking forward in our CapEx plan, we continue to look for investments in growth. I mentioned about some of the capacity that we're adding in Southeast Asia that will benefit us into '15. It takes a while for them to produce and deliver the compounding mines that we need. And even within Europe, looking for areas where we'll take advantage of shifting from equipment that was -- older equipment to new, higher and more efficient equipments. So more process efficiencies in these areas to improve our bottom line. So yes, I think our CapEx should be expected to grow next year, but it's not a significant number comparative to our top line number. From a D&A standpoint, our depreciation is relatively constant. So there really won't be a significant increase over what you see in the cash flow statement and in our financial results. I think this past year, our depreciation is about $30 million, and it should probably be the same or thereabouts for '14. Our amortization will probably pick up a little bit with our acquisition -- our expectation to increase our acquisition pace with luster, or Network Polymers. I apologize, that was the code name I gave you. So for Network Polymers, acquisition as well. So our amortizations is about $11.5 million for this fiscal year, we'll probably pick up most of it next year.

Operator

The next question comes from Rosemarie Morbelli from Gabelli & Company.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Just a couple of follow-up. You are talking, Joe, about EPS growing next year. You didn't give us any feel on the revenue lines. What are you expecting there?

Joseph J. Levanduski

We don't provide guidance on the revenue line, Rosemarie. But you see when we finished up this year and our expectations with earnings growth will be a combination of both operational efficiencies, as well as incremental sales coming from our acquisitions.

Joseph M. Gingo

Rosemarie, I think that if you take at least my look at the macroeconomic environments, I anticipate that there's going to be modest organic growth. We'll have whatever acquisitive growth we get. But there will be significant profit growth. There's a couple of reasons for this. One is our mix. We are improving our mix. Bernard talked about it. Better products, higher margins on these products. Number two, Joe talked about the fact that we've cut our costs, and we continue to cut our costs. So all those items -- I mean, I think organic growth will follow the GDP growth of the world. But I think the profits that we generate from that growth will be better because of the mix we have and our cost structure.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

And so as you introduce new products, you don't think that you would grow a GDP plus something?

Joseph M. Gingo

Rosemarie, typically, there'll be some slight growth in that. And this is based on may experience. A lot of people have different views with it, okay? Even in my own company, Rosemarie, okay? But my view is this. Typically, when I've improved a product, I tend to replace the product. So if I was providing a product that was flame retardant and it gave so much protection and I develop a new product that gives even better protection, I typically can sell that, I can typically sell it at slightly higher price, and in addition, I can gain more margin from it because it's a higher price. And generally, I've managed my cost structure better. So that's why I think income grows disproportionately to revenue. This is my opinion. As I say, there's not everybody in my own company agrees with me, let alone outside.

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Okay. Now that is helpful. And just quickly, you have taken your cost down. You partially answered the question actually right now by saying that you are going to continue. And so the initial question was, is that new level sustainable? And I guess it is.

Joseph M. Gingo

I think we feel that we definitely are sustainable. We're comfortable that Latin America has done what it needs to do. Now we have to grow it, and we're confident we're going to be back on that track. In fact, I think the fourth quarter illustrated that we're back on the track. As I talked about Europe many times, we're cautiously optimistic. It's a big part of us. We cannot -- we would be silly to be overly optimistic about 2/3 of the revenue and income of this company. So we have to cautiously optimistic until we see more. Asia, yes, there is reduced growth in Asia, but fortunately for us, in the high-value market that we're in, we've not experienced it. As Joe said, we're adding lines. The Perrite acquisition for us was excellent. We're going to increase color, but we're also going to increase engineered plastics. We've been supplying engineered plastics out of one line that is in China. We will be now supplying engineered plastics also on Malaysia, which will free up capacity to take more on in China. So, again, let's use the words, Rosemarie, I'm cautiously optimistic about next year. We think it is sustainable.

Jennifer K. Beeman

Do we have any further questions?

Operator

No, there are no questions at this time.

Jennifer K. Beeman

Okay. Well, thank you, everyone, for joining us. We look forward to updating you next quarter, and that concludes our call for today.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

Jennifer K. Beeman

Thank you.

Operator

No problem.

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