Axiall Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.20.14 | About: Axiall Corporation (AXLL)

Axiall (NYSE:AXLL)

Q4 2013 Earnings Call

February 20, 2014 10:00 am ET

Executives

Martin Jarosick - Executive Director of Investor Relations

Paul D. Carrico - Chief Executive Officer, President and Director

Gregory C. Thompson - Chief Financial Officer and Principal Accounting Officer

Analysts

Brian Maguire - Goldman Sachs Group Inc., Research Division

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

John Hirt

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Hassan I. Ahmed - Alembic Global Advisors

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Bill Hoffman - RBC Capital Markets, LLC, Research Division

Richard O'Reilly

Operator

Good morning. My name is Trinity, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Axiall Corporation Fourth Quarter Conference Call. [Operator Instructions] Thank you. Mr. Jarosick, you may begin your conference.

Martin Jarosick

Thank you, Trinity, and good morning, everyone. Welcome to this conference call to discuss Axiall's fourth quarter 2013 financial results. Joining me on the call today are Paul Carrico, President and CEO; and Greg Thompson, CFO.

There are presentation materials available for your reference on our website. And our press release issued yesterday afternoon with our fourth quarter financial results contains a forward-looking statement, which is incorporated into and considered a part of this conference call. The discussion during the call will contain forward-looking statements reflecting Axiall's current view about future events. These statements involve risks and uncertainties, which may cause actual results to differ. Axiall does not undertake any obligation to provide updates to these forward-looking statements.

The presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the earnings press release and in the presentation materials available on our website. For additional information, please refer to Axiall's filings with the SEC.

Now I'd like to turn the call to Paul Carrico. Paul?

Paul D. Carrico

Thank you, Martin, and good morning, everyone. Thanks for joining us today. This morning, we will be providing comments on our performance for the fourth quarter and full year 2013. Also, we'll discuss our 2014 views.

For the full year, Axiall generated $672 million of adjusted EBITDA. In Chlorovinyls, we generated $625 million of adjusted EBITDA in 2013. These results include 11 months of contribution from the merged business, as well as the synergies realized during that same period. And I'll come back to synergies in a couple of minutes.

Turning to the Building Products segment, I'm particularly pleased that this group generated $71 million of adjusted EBITDA for the year, a 23% increase over 2012. U.S. housing has continued to move on an upward path, and this is important to our businesses. However, this year's bottom line improvement was mainly a result of actions that we took that were more within our control. During the last several years and particularly in 2013, we have worked in a number of different channels to put Building Products in a better position to take advantage of the U.S. upturn and to strengthen our position in Canada. First, there's been a focused emphasis on growing our U.S. sales. These sales increased at a double-digit rate in the second half of 2013 compared to the prior year. We've made investments to improve efficiency of the plant, and at the same time, new and innovative products have been developed for the market. The manufacturing footprint has been further consolidated to take advantage of upgrades in our production rates. The combination of these investments and consolidations are keenly focused on moving our production costs and our product offering to an even stronger position in the future.

Looking to 2014, we expect sales and adjusted EBITDA for Building Products to improve compared to 2013. We anticipate that volume growth in the U.S. new construction and remodel market will overcome lower Canadian sales and the currency impacts of the weaker Canadian dollar. Specific to the first quarter, it appears that the severe winter weather felt across North America in January and early February will push some sales into the second quarter.

For the year, Aromatics generated $30 million of adjusted EBITDA compared to $66 million in 2012. The decline for this business in the fourth quarter and the year was primarily due to lower sales volumes. In 2014, we expect Aromatics to continue to face more pressure from lower volumes. This is mainly due to significant capacity additions in Asia. As a result, there are fewer export opportunities for North American producers.

Coming back to synergies associated with the merger, the synergies we gained by combining the businesses are very important step towards improving our competitive position within the industry. We're focused as an organization on taking full advantage of this area as these are items within our control. I am pleased to report that we now expect to achieve a run rate of at least $140 million by the year-end 2014.

Finally, I'd like to comment on our recent announcement that we are pursuing an ethane cracker in partnership with Lotte Chemical. Lotte Chemical has extensive operational and construction experience. Lotte Chemical is part of the Lotte Group, a Korean company with $60 billion in annual sales. They operate 2 crackers in Korea, and they are currently a partner and project manager of an ethane cracker under construction in Central Asia. We will begin the FEED study for this project shortly. If approved by both Boards of Directors, we would expect the plant to be operational as soon as 2018.

At this time, I'll turn the call over to Greg to review our financial results in greater detail.

Gregory C. Thompson

Thank you, Paul, and good morning, ladies and gentlemen. Let's look at our operating performance during the fourth quarter. We reported net income attributable to Axiall of $57 million or $0.81 per diluted share for the fourth quarter of 2013 compared to net income attributable to Axiall of $32.3 million or $0.92 per diluted share for the fourth quarter of 2012. In the press release, we list a number of adjustments related to the merger, financing and integration-related activities. After adjusting for these items, we reported adjusted net income of $62.3 million and adjusted earnings per share of $0.88 for the fourth quarter of 2013 compared to adjusted net income of $44.2 million and adjusted earnings per share of $1.26 for the fourth quarter of 2012. In the fourth quarter, we generated $165.7 million of adjusted EBITDA for the company compared to $98.3 million in the fourth quarter of last year.

Taking a look at the Chlorovinyls segment and comparing this year's fourth quarter to the third quarter, we reported $161.3 million of adjusted EBITDA compared to $151.5 million in the third quarter of 2013. This increase was driven primarily by lower maintenance cost in the fourth quarter due to shifting planned turnarounds into the third quarter, partially offset by lower caustic prices and higher natural gas costs.

As you'll recall when we announced the merger in July 2012, we outlined $115 million of synergies in 3 categories: procurement and logistics, G&A reduction and operating rates. These synergy targets were based on a comparison of the combined businesses' results for 2011 to those we expect to realize on a run-rate basis beginning in the year 2015. For the first 2 categories, procurement and logistics and G&A reduction, we achieved $17 million in the fourth quarter and about $50 million in total during all of 2013. If you annualize the fourth quarter synergies we realized, we achieved an annualized run rate of $68 million in these 2 synergy categories.

The third synergy category is operating rate improvements. In 2013, we ran above the industry PVC and chlor-alkali rates and well above the rate of the separate companies in 2011. This higher annual operating rate enabled us to also achieve our $35 million EBITDA target for operating rate synergies. So in total, we are on a $100 million annualized run rate for synergies at the end of 2013. As Paul mentioned, we now expect to achieve a run rate of at least $140 million of synergies by the end of 2014.

Our Building Products segment reported $13.9 million of adjusted EBITDA in the fourth quarter of 2013 compared to $4.8 million in the same quarter last year. Sales grew 2% on a constant-currency basis. U.S. volumes grew 21%, while Canadian volumes declined 7% and currency impacts were unfavorable. The increase in adjusted EBITDA was primarily due to lower raw material cost, improved conversion cost and lower selling, general and administrative expenses. A majority of the year-over-year increase for fourth quarter adjusted EBITDA is due to expense items that are estimated and accrued throughout the year and trued-up in the fourth quarter, such as employee cash bonuses, rebates and volume discounts. In 2012, Building Products adjusted EBITDA was negatively impacted by about $3 million due to these types of year-end true-ups. In 2013, the fourth quarter was positively impacted by $5 million for similar year-end true-ups.

Our Aromatics segment reported $6.9 million of adjusted EBITDA in the fourth quarter compared to $18.7 million during the same period last year. SG&A expense for the fourth quarter of 2013 was $79.4 million compared to $50.5 million for the fourth quarter of last year. The increase over last year was mainly due to SG&A from the merged business. I also want to point out that the fourth quarter SG&A expense was $14.5 million lower than we reported in the third quarter of 2013. This is due to the harmonization in the fourth quarter of distribution expense classifications with the 2 merged businesses to show these expenses in cost of goods sold rather than SG&A. In 2014, we expect quarterly SG&A to average about $85 million per quarter.

Our interest expense for the fourth quarter was $19.4 million compared to $13.6 million for the fourth quarter of 2012. For the fourth quarter of 2013, we reported a tax provision of $22.3 million and an effective tax rate of 28%. During 2013, we made cash tax payment of $131 million and had an effective tax rate of 30.5%. For 2014, we expect an effective tax rate between 28% and 33%. For cash taxes, we expect to pay a similar proportion of adjusted EBITDA as 2013, plus an incremental approximately $25 million due to a change in tax law, which currently eliminates the benefit of bonus depreciation in 2014.

The total FIFO impact was a positive $10 million for the fourth quarter of 2013 and was mostly related to Chlorovinyls. In the fourth quarter of 2012, the FIFO impact was a positive $14.5 million primarily related to Aromatics.

Now let's discuss working capital. We define controllable working capital as accounts receivable plus inventory less accounts payable. As you know, we historically invest working capital in the first half of the year and recover most of that working capital in the second half due to the seasonality of our businesses. Compared sequentially, controllable working capital decreased by $81.2 million from September 30, 2013 to December 31, 2013.

Our fourth quarter working capital release was smaller than fourth quarter of 2012 due to several factors. First, we ran at higher operating rates and had higher sales levels in the fourth quarter of 2013 as a result of achieving our operating rate synergy objectives. Second, we built inventory in several areas in anticipation of higher sales and planned turnaround activity by both ourselves and our suppliers. Compared to the fourth quarter of last year, controllable working capital increased approximately $246.6 million, driven by the net working capital associated with the merged business. From a working capital days perspective, days were unchanged.

On the cash flow statement, you will note that we generated $169.7 million of cash and operating activities for the fourth quarter of 2013 as compared with $165.5 million for the fourth quarter of 2012. Capital expenditures were $87.6 million for the fourth quarter of 2013 compared to $24.5 million in the fourth quarter of 2012. For the full year, we invested $196.1 million in capital expenditures.

For 2014, we expect to invest about $200 million in total capital expenditures for maintenance, productivity improvement and organic growth projects. We are evaluating additional growth opportunities which may increase our 2014 capital expenditures or those could fall into later periods.

For 2013, when excluding merger and integration-related costs, we generated approximately $193.5 million in free cash flow compared to $171.8 million last year. Free cash flow generation in 2013 reflects a higher level of CapEx for the combined company, as well as the higher operating rate synergy and resulting higher working capital impact I previously mentioned.

Before we open up the call for Q&A, let me comment on our outlook for the first quarter. For the first quarter, we see 3 significant headwinds: the PHH incident, severe winter weather and a sequential increase to normal maintenance spending. First, as we discussed earlier in February, we expect the recovery from the PHH incident to negatively impact first quarter adjusted EBITDA by approximately $25 million through both higher costs and lower sales volume.

Second, winter weather so far in the quarter has been extreme and has pushed up natural gas prices and impacted our operations. Natural gas prices have moved higher so far in the first quarter, which impacts our quarterly cost by approximately $19 million for each $1 increase in natural gas cost. Earlier this week, the first quarter natural gas price quoted in the market was about $1.40, higher than the average of the fourth quarter of 2013, which would increase our natural gas cost by about $27 million in the first quarter. Additionally, our operations have been impacted by the severe winter weather, which has reduced operating rates and disrupted our supply chain.

The third headwind will be the sequential increase in maintenance spending in the first quarter. As you may recall, in the third quarter, we accelerated several turnarounds that had been scheduled for the fourth quarter, reducing maintenance spending in the fourth quarter. This increase to more normal maintenance levels in the first quarter will be about $20 million.

In vinyls, the industry has announced $0.03 price increases for January, February and March. We see good momentum in achieving these increases as the tightness in the market and higher ethylene settlements in December and January add to the upward pressure on domestic and export PVC prices. Margins, however, are not likely to see the full benefit of price increases until the second quarter. As Paul mentioned, we expect to continue to realize additional cost synergies as we continue to leverage the combined organization.

I will now turn the call back over to Paul.

Paul D. Carrico

Thanks, Greg. Just a few comments as we close our prepared remarks. The strength of our fourth quarter results demonstrate the potential of the combined company. While we expect lower first quarter results due to the challenging conditions Greg mentioned, this does not change our long-term view of our business. Recently, we've seen indications in market activity that lead us to believe that the disruption from new chlor-alkali capacity may be settling down as the assets find their place in the market. To be clear, our current view is that ECU values have either bottomed or are very close to bottoming.

As we've said before, Axiall is well positioned to take advantage of a number of macroeconomic and industry trends. We continue to have a bullish view of North America's cost advantage over oil-based economies in other parts of the world. We expect this advantage to last for many years, and this will allow us consistent access to growing export markets for caustic and chlorine in the form of PVC. In addition, U.S. housing and remodeling improvement appears to be in the early stages, and this should continue to drive domestic consumption of resin and building products in the near term. Specifically for Axiall, our integration and breadth of products put the company in a unique position to take advantage of these developments.

Now we'll open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from Brian Maguire with Goldman Sachs.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Lots of numbers, and I appreciate the help trying to quantify a lot of the moving pieces in the fourth quarter and the first, so I just wanted to make sure I got them all right. It sounded like in the fourth quarter, you had about a $10 million FIFO benefit in -- most of that was in Chlorovinyls, and then within Building Products, about an $8 million positive year-over-year swing. Is that the right way to think about it?

Gregory C. Thompson

That's right.

Brian Maguire - Goldman Sachs Group Inc., Research Division

And then just thinking about the first quarter impacts, you talked about the $25 million from PHH, increased maintenance around $20 million and then, if nat gas prices stay where they are, kind around $27 million or beyond that. Is that about right?

Gregory C. Thompson

That's right.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Okay. And then on the PHH outage, just trying to think about the impact on the second quarter, and I know at this point, you think you'll have the plant back up and running by the end of March. But how should we think about the operating rates on it initially and into the second quarter and how long it might take to rebuild some inventory there, what impact that might have on the second quarter volumes?

Paul D. Carrico

Well, we currently expect that unit to be back up towards the end of March. And so at that point in time, it starts ramping up. And there clearly is a little bit of an inventory rebuilding effect, and we don't have a number for you on that. But we expect it to get to fairly high rates in the near term when we get into April.

Brian Maguire - Goldman Sachs Group Inc., Research Division

And one last one, if I could, just related to the PHH outage. I think you're probably constrained a bit on your VCM production. I'd imagine that translates into lower PVC volumes, and presumably, that's incorporated into the $25 million penalty. Does that also allow you to shift some of that PVC production to your own Building Products business or to higher-margin regions such as the U.S. market? In other words, is there kind of a positive impact on overall PVC margins just because of the mix from that?

Paul D. Carrico

There may be a little bit of a difference there, but it's not significant in the sense of putting a number on it. We clearly have the opportunity to pass on incremental optional sales that are lower-margin, and we're doing that. But as you said, it does reduce our volumes a bit for the first quarter.

Operator

Your next question comes from James Sheehan of SunTrust.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

Just wondering if you could give us your outlook for caustic soda pricing towards the second half of 2014.

Paul D. Carrico

I think the best place to get an estimate on that is to look at some of the forecasters out there that are providing indications of what that is. I guess we prefer to think a bit more about the ECU in total because there's going to be clearly a push on the chlorine side. And the give and take between chlorine and caustic as we go through the year is a little bit, I'll say, difficult to forecast at this point. But as I did say in my remarks, we think that the ECU is at the bottom or near the bottom, and so from an ECU point of view, we expect strength as we go through the latter part of the year.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

And could you also give us any more clarity on your ethylene contracts, what the changes are this year and how that will impact you?

Paul D. Carrico

The ethylene impacts this year are much more oriented towards the actual moves of NTP. And you've probably seen that NTP has moved up, so I think we, in the industry, are experiencing that kind of a situation. In terms of the contract changes, the percentages are smaller, on the smaller side, and so the more material effect is the moves of NTP.

Operator

Your next question is from P.J. Juvekar with Citi.

John Hirt

This is John Hirt sitting in for P.J. today. On the 50-50 JV with Lotte to build the 1 million ton ethylene cracker, which, I think, you said would cost Axiall about $1 billion. When do you foresee beginning to spend that capital? When would you see that level of spending ramp up? And to what extent do you think you'll need to flex the balance sheet to help fund that?

Paul D. Carrico

In terms of the spending, we're clearly going to start spending some money related to the FEED study in the not-too-distant future. That takes some number of months, and then you may wind up ordering equipment during that process. So there's a little bit of an increased spending later in the year or early into next year. Probably, if you look at the total spend, there's a larger number that's much more associated with, I'll say, 2 years out, 3 years out than it is in the next 1.5 years. You get into the mode of doing this FEED study and getting the permitting. You can't really do too much work until you get that permit completed. In terms of the balance sheet, we think we've got lots of opportunities to make a planned move into the expenditures if the board decides to approve that project and we go forward. As you know, we have good cash generation every year based upon our expectations for this business. And so we have to make those choices between how much of that gets put towards the ethylene, how much may be capital expenditure or dividends or other capital investments. And so we're very mindful of looking at that as we go forward and making that work out to a reasonable balance sheet implication for, say, 4 years out.

John Hirt

Okay. And then just a housekeeping question. I just want to confirm that you didn't have any of your natural gas hedged in the fourth quarter and that you don't have any hedges in place for 2014.

Gregory C. Thompson

That's correct. We do not.

Operator

Your next question is from Alex Yefremov of Bank of America.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Paul, Greg, as you advance your ethylene cracker project, could you talk a bit more about your expected economics, either in terms of IRR or EBITDA contribution or whatever terms you can give us?

Paul D. Carrico

Well, from a return point of view, we like to think that our projects hit that 15% mark or so. For us, it's clear that the current economics would give you a much higher number than that if you were getting the kind of margins that are in ethylene today. We don't expect those margins to sustain themselves 4 years out or 5-year-out period, when this project may come on. We do expect, with the shale gas advantage that North America has, that the margins will be attractive. And for us, even -- I mean, importantly is that having a 50% integration of our requirements on ethylene, we more or less can guarantee that that operation for our consumption will operate 100% of the time. So not only do we have the normal expectations on margins in projects, but we can get that higher operating rate. And that higher operating rate builds into the calculations for ethylene, as well as vinyl and PVC, because then you completely insured yourself related to export and options, particularly on the vinyl and the PVC molecules.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And then I think Greg mentioned during prepared remarks that you're evaluating additional growth opportunities that may increase CapEx this year. Could you maybe elaborate on that?

Paul D. Carrico

Well, we've got numbers of different things to consider. We like the general direction of where Building Products is going. And so there's incremental investments that we can continue to make should the business volumes support that or the market activity. We've talked about the imbalance we have between VCM and PVC and other area. And then, of course, we've got this ethylene question as to what we decide to spend on that. So those are the kind of things we're talking about there.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And a final question, if I may. In your Building Products business and in the building products industry in general, how do you see current pricing environment? And do you expect sort of the building products industry to be able to pass through higher PVC prices in the first quarter or in 2014 in general?

Paul D. Carrico

Yes, I don't think there was much opportunity to do that early in this year with the way the year started, having the New Year's Day break in the middle of the week and then such cold weather. It's been a pretty slow start out there in terms of construction activity, so very challenging in that kind of environment to get your prices up. But based on things we hear from our customers, based upon the activity we see, for instance, in places such as the National Homebuilders Show and all that, we think activity's going to be pretty good this year. So in that kind of environment, there should be price increases, particularly as these materials, the supply materials on the resin side and all increase.

Operator

The next question is from Hassan Ahmed with Alembic Advisors.

Hassan I. Ahmed - Alembic Global Advisors

I wanted to dig a bit deeper into this growth CapEx question. Obviously, there are a bunch of chlor-alkali assets coming to market probably through the course of this year. I'm thinking in terms of Dow Chemical, maybe even OXY. I just wanted to hear your views about whether you are satisfied with your current chlor-alkali footprint or would you even consider sort of further sort of increasing your capacity base there via sort of any acquisitions.

Paul D. Carrico

Yes, anything that's, I'll call it, available in the market as we go forward, and I think there's a lot of uncertainty still about what those assets are, who those folks might be. We're going to, for sure, look at how that fits with our strategy and all the other options we have and put those on the table and say, "Okay, which is the most advantageous from a shareholder value point of view?" So we're not wedded to any particular pathway other than we want to be consistent with the strategy that we've developed, and we want to make sure that shareholder value is achieved as we go through the process.

Hassan I. Ahmed - Alembic Global Advisors

Fair enough. So let me just ask it this way. I mean, where do you -- if you were to consider chlor-alkali assets, just the way you're thinking about your portfolio, would you want, let's say, the chlorine to be fully integrated into PVC? I mean, meaning do you just -- as you see the company going forward, do you want a fully integrated company, or would you be happy being sort of net long something upstream like chlorine?

Paul D. Carrico

We don't at all speak towards getting fully integrated on the vinyl side alone. We really like the portfolio we have now, where it's a mix of vinyl and we have a number of derivatives, plus we sell the merchant chlorine. So we like a spread in our portfolio, a mixed, diverse portfolio, and there's no reason in our minds to change that. You have such different market changes going forward, both globally and domestically, that you want to be able to react to any of those different changes. And having choices in the market there helps us in terms of how we get to higher operating rates and maintain rates that we are targeting. So there's no mission either now or if we did anything else to be fully integrated on vinyl.

Operator

The next question is from Frank Mitsch with Wells Fargo Securities.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Paul, I wanted to come back to your comment regarding ECU bottoming or being close to a bottom. Where do we stand on the chlorine price initiatives? I noted a few folks were out there with a $50 increase, but I don't believe that that's been fully supported by other producers. What are your thoughts on that side of the molecule?

Paul D. Carrico

I'm not -- you said a few. I'm not sure. I guess I know at least one. I'm not sure if there's 2, but there's not clearly not a full support of that. I think in terms of where things are at the moment, that's got to have, more or less, full support as competitive as the market is, and we just don't see that in the market right now.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

All right, great. With the startups of Westlake and others, are you expecting -- or what do you expect in terms of volume disruptions for chlorine? How do you think that plays out?

Paul D. Carrico

I think that was part of the undercurrent of what I was trying to speak to in my prepared remarks in that chlorine, specific chlorine that's been either displaced or moved around is past the beginning of the year, so most people have their supply agreements in place. So whatever people have at this point sort of sets the table for 2014 in my mind. And what happens from here is merchant chlorine has only a limited space it can go to in North America, and so then you get back into pushing chlorine into the vinyl chain to move it out of the market. And of course, that's got a limited capacity there. So I think just from a chlorine point of view, things are more or less set for the year. And then we'll just see whether or not the industry supports better pricing in that area as we get into the spring and the fall, which -- the biggest change, of course, in the coming months will be the warmer weather and the seasonal uptick in chlorine demand.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

One can only hope that we will, in fact, see warmer weather. You had a nice increase in your synergy target, so what specifically were you guys seeing that led you to bump it by $25 million?

Gregory C. Thompson

I guess we've always thought that we had opportunities to improve the synergy target on the procurement and logistics side. And so we continue to believe that. We've seen some really good traction as we take and centralize purchasing across, really, what's almost around $1 billion worth of annual purchasing. And so we're seeing some good results there, and that's certainly the biggest area that we see driving further synergy capture.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Terrific. And then lastly, Greg, you had indicated that you'd expect your tax rate to come in '14 between 28% and 33%. Frankly, the number on the lower side was a bit of a surprise. What specifically do you think would allow you to drive to a rate below 30%? And then lastly, are you available offline to offer me some advice for my own personal situation?

Gregory C. Thompson

On the second question, no. On the first, it's no one thing. We've got a number of different -- we've kind of looked at our tax planning strategy going forward putting the 2 businesses together. We're certainly looking for various tax credits and all kinds of things that we're looking to maximize, particularly so with accelerated depreciation, bonus depreciation apparently going away for 2014. So it's no one specific item.

Operator

The next question is from Jeff Zekauskas with JPMorgan.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

There was a negative $45 million outflow in taxes in the fourth quarter. What was that item?

Gregory C. Thompson

So the way to think about that is for the full year, the deferred tax adjustment was $55 million, so $45 million in the fourth quarter. I think as we went through the merger and the fine-tuning purchase accounting and identifying all the different timing differences, more of that fell into the fourth quarter but -- so going forward, I'd look at the $55 million as a full year kind of impact going forward into 2014. At the end of the day, though, that's all noncash, Jeff. It's just related to things like the carryover basis. In the RMT, we don't get the -- we didn't step that up. We don't get to step that up for tax purposes. And so that, along with other things like that, is that negative impact on the cash flow statement when we get income benefit. But it doesn't. There's no cash that flows through.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Secondly, can you give me an idea of what happened to contract caustic through the course of the fourth quarter if you compare, say, your price at the end of September to your price at the end of December -- or the industry price at the end of September to the end of December?

Paul D. Carrico

I guess the only thing we can say is there were clearly contract negotiations that changed the terms of the contract -- contracts starting into the new year, and there's some pluses and minuses. There were some movement around the different supplies. So now I can't really give you an overview other than directionally speaking it was more or less tracking the published information out there about some decrease, so...

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Okay. When you think about the FEED study that you're doing and getting -- putting permits in place for the cracker, all things being equal, is the probability that you will go ahead with the cracker more than 50% or less than 50% as best as you can tell, or can you not tell?

Paul D. Carrico

I think the response to that, really, is that we're doing all the diligence that we need to do via the FEED study and getting the estimates and understanding. We got more time to study the market, so it just all depends upon when all those things come together and how we view the project at that point in time. We're not deeply into the capital spend at this point nor would we be through the rest of this year. So we have time to study that further, and we'll continue doing that. Then we'll make a decision at that point.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

I guess lastly, I mean, it looks like the PVC price increases are going through in January and February, but at the same time, you talked about demand being hampered by difficult winter weather. So do you read the price increases as a function of various outages in the industry, or do you see some other factor less than prices?

Paul D. Carrico

I think ultimately, the prices will be driven, certainly, some by the cost increases of the materials going into the resin side of the equation. But I think importantly, we still see the demand headed in the direction that's higher than where we were a year ago. And so that's one of the more important drivers -- would be the most important driver as things hopefully thaw out, as we suggested earlier, and people actually get back into building new houses and remodeling.

Operator

The next question is from Bill Hoffman with RBC Capital Markets.

Bill Hoffman - RBC Capital Markets, LLC, Research Division

Paul, just on the prior question, I just wondered what you're seeing from the industry standpoint as far as inventory building just those guys produce and demand is sort of off what the prior expectations have been coming into the first part of the year here.

Paul D. Carrico

On resin or building...

Bill Hoffman - RBC Capital Markets, LLC, Research Division

Yes, resins in downstream, just really all the way through the chain there.

Paul D. Carrico

Yes, on resin, I don't think there's been much inventory building because the industry's had opportunity to export if they wanted. And we hear some people controlling volumes a bit in the marketplace at this point in time. So even though there's been weather disruptions -- and other people probably experienced weather disruptions with the cold weather we've had. So I think all in all, there's not any large inventory out there nor was there opportunity for downstream users to build that inventory even if they wanted to. So whatever we see -- as a result of weather warming up, it should be what we see. In other words, it should be a pretty direct reflection of whether the business is picking up or not.

Bill Hoffman - RBC Capital Markets, LLC, Research Division

And then you guys also -- you continue to talk about building U.S. growth sort of in the downstream and the Building Products side of the business. I just wondered, any thoughts on more aggressively investing organically and/or making additional acquisitions to expand the footprint in the U.S.

Paul D. Carrico

Yes, we've always said on the acquisition side that we would be open to tuck-in type acquisitions. But every year we get into this, we see more opportunities to grow organically. And we have a lot of opportunities now, particularly as we've developed some new products and looking to get into different markets and such. So if I had to look at it going forward, certainly, we're going to focus on those organic moves as much as we can. And then if something plays out that makes sense strategically and fits, we may go into a tuck-in type acquisition.

Bill Hoffman - RBC Capital Markets, LLC, Research Division

Okay. So was it on the organic side that's built into this CapEx number currently at this point?

Paul D. Carrico

Yes, there's some organic, but there's more that we could choose to do if we so decide it. All along, for the last several years, we've waited, waited and waited for this infamous housing recovery to come. It appears it's coming now. Hopefully, that's the case.

Operator

[Operator Instructions] Your next question is from Richard O'Reilly with Revere Associates.

Richard O'Reilly

Just a quick question. Paul, when you were discussing the first quarter outlook, you had said lower first quarter results. And I just don't know if you meant sequentially or year-over-year or both.

Gregory C. Thompson

This is Greg. Those references were as compared to the fourth quarter, so fourth quarter sequentially comparing to our outlook for the first quarter.

Richard O'Reilly

Okay, fine. Quickly looking at the 3 items, it's possible to even be below a year ago. Would you want to make a comment on that prospect?

Gregory C. Thompson

Yes, I think that's correct based upon those items that I went through. That's certainly the case.

Operator

The next question is from [indiscernible].

Unknown Analyst

Greg, you mentioned U.S. sales growing at 21% in the Building Products sector; in Canada, negative 7%. Did that growth come from market share gain or overall market growth?

Gregory C. Thompson

I think it's sum of both. Paul talked about the new products that we're rolling out. I think those are going very well in the U.S. But also, the U.S. market has been recovering, unlike the Canadian market. The Canadian market in 2013 actually contracted a bit, driven by their housing starts down.

Unknown Analyst

Do you see that volume gain, dollar volume gain is real volume gain poundage if we could measure it that way...

Gregory C. Thompson

Yes, I mean, that's the way we measure. The volume is in pounds now. There can be all kinds of different pricing levels and mix of different levels of different types of products in that. But yes, the volume, you should think of as in pounds.

Unknown Analyst

Do you see that trend continuing through the balance of the year?

Gregory C. Thompson

Yes, and it's a little hard to see right now, given the winter we've had and things in the first quarter. But yes, I mean, consistent with what Paul said earlier, I mean, we certainly expect Building Products overall to improve in 2014 again over 2013. And while I guess we're hopeful that in Canada, it won't see as much contraction in 2014 as it did in 2013, I don't think Canada likely -- it doesn't look like it's going to be much of a contributor to that. The real growth story will be on the -- on half of the revenues that we currently sell into the U.S.

Unknown Analyst

If you can say, is the margin contribution in Canada and U.S. comparable, or are they disproportionate?

Gregory C. Thompson

Yes, it really varies by product. We have a whole different types of products with various mix and various profit levels. So that's not -- I wouldn't get into the overall margin contribution in either compared to the other.

Operator

At this time, there are no further questions.

Paul D. Carrico

Thanks, everyone, for joining us. And we look forward to seeing you at various conferences and speak again in May.

Operator

This concludes today's teleconference. You may now disconnect.

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