Innophos Holdings' CEO Discusses Q1 2014 Results - Earnings Call Transcript

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 |  About: Innophos Holdings, Inc. (IPHS)
by: SA Transcripts

Operator

Good morning, ladies and gentlemen, and welcome to the Innophos first quarter 2014 results conference call. My name is Vanessa, and I am your operator for today. (Operator Instructions) And I will now turn the presentation over to your host for today's call, Mr. Mark Feuerbach, Vice President, Investor Relations. Sir, you may begin.

Mark Feuerbach

Good morning, and thank you for joining us today for Innophos' first quarter 2014 results conference call. Joining me on the call today is Randy Gress, Chief Executive Officer; and Robert Harrer, Chief Financial Officer.

Randy will start with comments on our first quarter and progress in executing our strategic initiatives. I will then provide detail on our financial results and a look ahead to the second quarter and full year 2014. Randy will then conclude with some final remarks, before we open the call up to your questions.

During the course of this call, management may make or reiterate forward-looking statements made in our April 28th press release regarding financial performance and future events. We will attempt to identify these statements by use of words such as expects, believes, anticipates, intends, and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risks and other factors as set forth in the forward-looking statements section and in Item 1A risk factors in our Annual Report on Form 10-K as filed with the SEC that could cause actual results to differ from those in the forward-looking statements made in this conference call.

We will make a replay of this conference call available for a limited time over the telephone at the number set forth in our press release and via webcast available on the company website.

In addition, please note that the date of this conference call is April 29, 2014. Any forward-looking statements we may make today are based on assumptions that we believe to be reasonable as of this date, and we undertake no obligation to update these statements.

Now, I would like to turn the call over to Randy Gress, CEO of Innophos.

Randolph Gress

Thanks, Mark, and good morning, everyone. Before we discuss our results for the quarter, I would first like to introduce Robert Harrer, who has recently joined us as Vice President and Chief Financial Officer. Robert brings extensive experience in a number of key areas to help us achieve our strategic objectives.

Having worked in global financial leadership positions for more than 20 years, most recently as Chief Financial Officer and Chief Administrative Officer for Avantor Performance Materials. Robert will address you now and will join us for the Q&A portion of the call. Robert?

Robert Harrer

Thank you, Randy, and good morning everyone. I'm certainly very excited to join the Innophos team and also I've been only here, since the beginning of March. I can already feel the team's enthusiasm and energy for the opportunities we have in front of us to achieve above-market growth and generate long-term shareholder value.

Innophos' vision and strategy to grow through innovation and geographic expansion are features that attracted me to the company. I believe with my experience, I can help the team execute on our growths objective and deliver on our stated targets. I've already had the pleasure of speaking with a number of our investors and the analysts over the past few weeks, and I'm looking forward to meeting those that I have not in the coming month.

Now, I'll turn the call back to Randy.

Randolph Gress

Thanks, Robert. On behalf of the company, I want to say that we're excited to have you here and look forward to your many contributions to Innophos' long-term success. I would also like to thank Mark Feuerbach for a great job, filling in as CFO, during the interim period from July 2013.

Now, on to the results for the quarter. Overall, we are pleased with our results for the first quarter of 2014, highlighted by stronger performance at our Mexico operation, which continues to achieve greatly improved yields. The improved performance supported an increase in net sales for Specialty Phosphates on both a sequential and year-over-year basis, along with improved operating income and margins versus the prior year.

We delivered total company net sales of $216 million in the first quarter, up 1% from the same period last year and up 10% sequentially. We recorded diluted earnings per share of $0.64 compared to $0.60 recorded in the prior-year period, after giving effect to disclosed adjustments for the prior-year quarter.

Specialty Phosphate volumes grew 4% compared to the prior-year period, driven by improving operations in Mexico. In addition, we sustained margins in our U.S. and Canada business, while contending with unfavorable mix issues and challenging weather conditions in the period. Like most domestic manufactures, the harsh weather conditions in January and February affected customer demand, particularly in our U.S. and Canada business, and disrupt the transportation networks during the first quarter.

We also experienced the year-over-year sales decline in our nutrition businesses, as a few of our customers faced some challenges during the quarter, with changes in China import classification requirements, which caused product shipment delays. Despite these headwinds, U.S. and Canada sales were 5% higher on a sequential basis. Importantly, we experienced improved year-over-year demand in the asphalt market, which led through a recovery in our INNOVALT product line.

Naturally, we were pleased to take a step in the right direction with higher volumes in the first quarter of 2014 compared to the prior year, but the long-term prospects of this product line are even better, as we expect deferred projects to come back on line from local governments that are replacing and updating their aging road infrastructures.

Trials conducted in two states over the last two years continue to show good results and promise for approval, there is a paving trial scheduled for the summer in another state and a fourth just rewrote its specification to allow the use of INNOVALT. Export volumes for INNOVALT are up significantly this year, particularly in Latin America.

Operating income in U.S. and Canada was up $4 million compared to an adjusted first quarter 2013 and operating income margin was within our expected range for the quarter. Our profitability was affected by higher cost to purified phosphoric acid or PPA inventory and expected higher cost of merchant grade acid or MGA due to phosphate rock consumption variances at our supplier's facility.

In Mexico, sales were higher on both the sequential and annual basis, driven by improved operations, which are running more smoothly, generating higher yields and producing improved operating performance. As previously discussed, we invested a significant amount of time and resources in Coatzacoalcos last year to improve its efficiency, capability and future reliability.

While we had a few challenges along the way, we have now had four consecutive quarters of sequential improvement in phosphoric acid yields. In addition, our recently commissioned higher grade PPA operation in Mexico has performed well to date, providing greater efficiency and flexibility in Mexico, supporting our North American network and strengthening our product mix in Latin America.

Once again, export sales grew nicely this quarter, up 6% compared to the same period last year. Growth was primarily driven by a recovery in the Latin American region. We view the export regions as an important channel for growth, especially for the food and beverage markets.

Turning to GTSP, we recorded $21 million in sales and $4 million operating loss. The loss was $1 million worse than our expectations due to lower demand and selling prices than expected for the second half of the quarter.

Although, our market fertilizer prices increased 25% to 30% in the first six weeks of the quarter, they then stabilized after that and remained considerably below the year-ago levels. We expect profitability to return to breakeven in the second quarter of 2014 based on current market selling and raw material prices.

As I have said before, GTSP is roughly 10% of our business by revenue and is not a core focus. It is a necessary piece of our economic model that arises as a sellable co-product in our Mexico acid purification process that is a foundation for our Specialty Phosphates produced in Coatzacoalcos.

In summary, we are off to a good start to the year. We are seeing the benefits from the turnaround of our Coatzacoalcos facility in the form of better performance and greatly improved yields.

Although, we encountered some challenges within our U.S. and Canada segment, particularly due to weather-related issues, we closed the quarter on a high note. March was our best performing month of the quarter and we carry that momentum into April with solid demand, which is a good indication for what we expect to see in the second quarter.

We are reconfirming our Specialty Phosphate growth rate of 3% to 5%, which is in excess of market, and profitability targets of 14% to 15% operating income margin for the year. We expect continued strong performance in Mexico, as we begin to reap the full benefits of our investments to enhance the capabilities of the Coatzacoalcos facility. We also anticipate continued strength in export sales, particularly in Latin America, as we return to those markets with the improved performance of the Mexico operations.

The asphalt market should also continue to improve, providing a tailwind to our INNOVALT product line in the second quarter and the rest of 2014. And we expect our nutrition business to grow in excess of 6% to 8% projected market growth rates for 2014. The business remains an important part of our growth strategy and we will continue to look for additional opportunities that enable us to expand our position in the high-growth micronutrient ingredient sector.

Finally, our capital allocation policy remains focused on investing in our growth and returning cash to shareholders. Our quarterly dividend at $0.40 per share puts our yield at a healthy 3%, and we will continue to pursue opportunities in the market that are consistent with our growth strategy.

I will now turn it back over to Mark, for additional detail on the financial results in the quarter. Mark?

Mark Feuerbach

Thanks, Randy. Net sales of $216 million for the first quarter of 2014 consisted of $195 million from Specialty Phosphates and $21 million from GTSP and other. This represents a $2 million increase compared to last year, with higher sales of Specialty Phosphates more than offsetting lower sales of GTSP and other. Diluted earnings per share for the first quarter of 2014 were $0.64 compared to $0.55 from the year-ago period.

Included in the prior-year quarter was a gain of $0.24 per share related to Mexican water duties, more than offset by $0.29 per share of elevated costs of good sold, as detailed in last year's filings. Giving effect to the prior year adjustments, first quarter 2014 diluted EPS of $0.64 compared to $0.60 for the first quarter 2013. Earnings growth was driven by better U.S. margins and improved operations in Mexico.

Specialty Phosphates revenue was 3% higher compared to the prior-year period and 5% on a sequential basis. Our higher volumes partially offset by slightly lower prices, both of which are attributable to Mexico.

U.S. and Canada Specialty Phosphates recorded sales of $151 million, up 5% on a sequential basis, but flat from the prior-year period due to the severe winter conditions in January and February. Actual ton shipped increased by 2% year-over-year, however unfavorable mix contributed to a flat volume and mix comparison.

Mexico Specialty Phosphate sales of $44 million were up 4% sequentially and 14% compared to the last year, primarily on higher volumes. Our Coatzacoalcos plant continues to run well, as illustrated by the volume growth and strong yields and has us well-positioned from an operational standpoint for 2014 and beyond. Volume growth was partially offset by a decline in selling prices.

Total Specialty Phosphates generated $26 million of operating income, down $1 million on a sequential basis, but up $14 million over the prior year, primarily due to improved U.S. margins and Mexico sales volumes. After giving effect to the disclosed adjustments for the prior-year quarter, operating income was up $6 million.

Overall, operating income margin in Specialty Phosphates was 13%, in line with our expectations. This represents a 730 basis point improvement compared to the prior-year period and 290 basis point improvement, after giving effect to the prior period adjustments.

Operating income in the first quarter 2014 for U.S. and Canada Specialty Phosphates was $20 million, up $9 million versus the year-ago period. After giving effect to the disclosed adjustments for the prior-year quarter, operating income was up $4 million.

Operating income margin was 13% for the quarter, up 630 basis points from the year-ago period and up 260 basis points against the adjusted prior-year level. On a sequential basis, operating income declined by 100 basis points reflecting higher cost PPA inventory and higher MGA costs caused by phosphate rock consumption variances at our supplier's facility.

Operating income for Mexico Specialty Phosphates was $6 million, up $5 million compared to the same period last year and up $2 million after adjusting for elevated costs in the prior-year quarter. Year-over-year operating income growth for Mexico was driven primarily by improved sales volumes and lower costs.

Operating income margin was 13% for the first quarter, up 1,150 basis points from the year-ago quarter and up 430 basis points against the adjusted prior-year level. Turning to GTSP and other, we reported a $4 million loss for the quarter, down $10 million from the prior-year quarter and lower by $4 million against the adjusted prior-year level, due to lower selling prices.

Our effective tax rate for the first quarter was 30%, which was below our expectation, due primarily to favorable tax benefits for state R&D credits and changes in provisions for uncertain tax positions, which essentially offset the negative after-tax effects of translation expense. We expect an effective tax rate between 33% and 35% for the remainder of 2014.

Depreciation and amortization was $8 million for the quarter, $1 million lower than a year ago and flat sequentially. Capital expenditures were $6 million in the first quarter, about half the previously expected 2014 run rate for an average quarter. Given the slower than expected start, we now expect full year 2014 capital expenditures to be in the $35 million to $40 million range, about $10 million below previous expectations. This is due solely to the phasing of our projects.

We continue to focus on capacity enhancements through our U.S. and Canada and Mexico specialty ingredients facilities, and further improvements of Mexico's capability to process multiple grades of rock and to manufacture a more diverse mix of products.

Net debt decreased sequentially by $18 million in the first quarter of 2014 to $112 million on solid earnings and working capital reductions. We maintain a strong balance sheet and strong free cash flow. We continue to focus on maximizing shareholder value, as evident by our dividend payout, which remains at $0.40 per share, after being recently increased by 14% in the fourth quarter 2013.

For the full year 2014, we continue to expect market growth rates of approximately 1% to 2% and we remain confident in our previously announced outlook for Specialty Phosphates of 3% to 5% volume growth and 14% to 15% operating income margins. Growth is supported by continued strong performance at our Coatzacoalcos facility, above market growth rate for our nutrition business, expected asphalt market demand recovery and continued success in our geographic expansion efforts.

Fertilizer market prices increased 25% to 30% in the first six weeks of 2014, but then stabilized for the remainder of the quarter, remaining considerably below the year-ago levels. Raw material prices rebounded as well in the first quarter, with market sulfur prices increasing by nearly 50%. This put sulfur prices somewhere between second and third quarter 2013 levels. Sulfur market prices are expected to increase another 20% in the second quarter 2014.

Market phosphate rock prices were recently reported up about 15% from first quarter 2013 levels and are expected to increase slightly in the second quarter. To mitigate the impact of rising raw material costs, we have already announced selling price increases. On GTSP, we continue to expect breakeven operating income for the second quarter of 2014, based on current market selling and raw material price indications.

Now, back to you Randy.

Randolph Gress

Thanks, Mark. I am pleased with our first quarter performance, in spite of the severe winter conditions that affected our business. We made good progress on our annual growth targets, demonstrating continued strong performance in Mexico, improving asphalt market demand, which led to higher volumes for our INNOVALT product line and continued success in our geographic expansion efforts.

We exited the first quarter on a strong note in March and have seen demand levels remain strong into April, which is encouraging. We are maintaining our outlook for 2014 that our Specialty Phosphate business will outperform the market growth rate for the year.

As we look to the second quarter and beyond, our focus remains on the following: growing export sales by expanding geographically across numerous regions in Latin America, Europe, Middle East and Africa and Asia-Pacific; investing in research and development to enhance our product offering; taking advantage of the recovery and asphalt market demand; building on our position in the high-growth micronutrient ingredient space; and maximizing value for our shareholders through our quarterly dividend and share repurchase program.

Thank you for listening, we will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we have our first question from Larry Solow with CJS Securities.

Larry Solow - CJS Securities

Randy, could you maybe just -- I know you gave some good detail about some of your product lines. Could you maybe discuss the macro trends you guys are seeing, obviously, like the weather in the first couple months impacted that, so what's the general food industry volumes and what not?

Randolph Gress

Sure. Let me talk about the weather impacts first. That impacted us primarily in the January, February timeframe. And as we saw with announcements from some of our customers, there was one food customer that said that the impact on the food business was down 1% from that impact of the weather. And another distributor indicated roughly a loss of two days in total from that impact. So that would have an impact there of roughly I think 2% to 3%.

But overall, we are seeing some recovery there, as I said in the INNOVALT product line, that was up 3% year-over-year. I think the food trends in general, I think demand is fairly solid. I think what we're seeing within in the baking industries, we expect to have some continued solid strength there. We do have our Cal-Rise product line, which is a good formulation or good for the baking industry and formulation for a lot of our sodium products and we expect some solid demand there.

I think what we're doing within the food business, and this is probably more along our efforts, is some of the improvements on innovation and application side to continue to strengthen the business for the food ingredients and beverage side of things going forward, so fairly optimistic about what we can deliver there and some of our focus.

Larry Solow - CJS Securities

And you mentioned a couple of your products, did you just happen to know VersaCal and Cal-Rise today, as now they have been driving some of your growth, were they up in the quarter?

Randolph Gress

For Cal-Rise I think it was up some in the quarter and the VersaCal I think we're showing some positive results there. But again, it's off of a smaller base of the business there.

Larry Solow - CJS Securities

And just, STPP and PPA have been -- I heard you guys have noted much lower margins for phosphates. Have those sales begun? It was not mentioned in the release. Have those sales begun to at least flatten out?

Mark Feuerbach

Larry, you may have seen in the report, the overall for the business, the PPA volumes and demand were up. I think some of that certainly attributable to the strength and the recovery within the Mexican operations as well as STPP business was up and show on some pretty solid demand. Although in both areas we did show some price decline, overall. But I think with some of the strength within our Mexican operation and the improvements there, we've been able to deliver and also participate in some of the export markets there for those key products.

But I think longer term, I've said before in prior calls, with the STPP market there is some announced deformulation by one of the customers that affected over the next couple of year, although we don't expect that to negatively impact us this year. And then, what we have to try do is turn that into an opportunity for us.

Operator

Our next question comes from Mike Sison with KeyBanc.

Mike Sison - KeyBanc

In terms of Mexico, could you just sort of step back and give us a heads-up of where you're at in terms operating rates, how you feel about sort of the turnaround efforts there? And then what the potential you think is when we think about that facility two to three years out?

Randolph Gress

For Mexico, as far as where we are, I think the improvements that we've made, certainly indicative of what we have recorded in the yields. Last quarter, we showed a significant improvement in the yields. And this quarter, the first quarter, we again showed some improvement in yields, although not as great as what we saw in the fourth quarter, but still some steady improvement.

I think that what we have implemented as far as improvement process at the site and some of the additional resources on the technology side as well as the investments, I think we're at a good level today with certainly some opportunity to improve, both in the operations and efficiency with a continuous improvement effort that's been implemented.

So I think as we stand today, there is some expectation that I have that we're going to continue to improve there. And that will also be exhibited as far as some additional improvement in capability, capacity, and also building on the PPA investment that we've made last year to further differentiate the product. I guess, it's difficult to look out two to three years, but I would hope that we'd be able to continue to invest and make further improvements as we go forward, because I think it's a good site. I think the turnaround that we've had there has been pretty strong.

Now, one thing we will continue to have, I think I've reported last earnings call, that we were going to have a turnaround starting in the second quarter. What we expect now for the turnaround and it's a light of turnaround to start at the end of the second quarter, and bridge into the third quarter.

Mike Sison - KeyBanc

And then, Randy, this sound like your nutrition business is coming a little bit stronger here in 2014. Is that more of a function of stronger market demand or have you picked up maybe more winds or market share or new products to roll out. Can you just give us a little bit of a background of why that's coming in better?

Randolph Gress

Well, actually for the quarter we had some challenges there with the nutrition business. As I pointed out, the impact on some of our customers, a few of our customers who were exporting some of their products to China, they ran into some challenges on a regulatory basis for how they were exporting into China.

And however, with our acquisition of Chelated Minerals in the fourth quarter combined with the other three acquisitions we had over the past two-and-a-half years, I expect some continued strength of that business and also some good projects that they're working on, so that they could deliver in excess of that 6% to 8% market growth that we're expecting for that overall market.

Mike Sison - KeyBanc

And then, Robert, maybe just give us feel for what you think you want to work on, I know you've only been there for a couple of months, but sort of what you think that your focus will be this year as it get rolling?

Robert Harrer

Well, as Randy already indicated looking at return to shareholders is one of the key priorities this year. So we have said and talked about the dividends and the share buyback program, so that deserve certainly some of this early attention given the market dynamics as of today, but if you ask me we're mostly excited joining the company and then what I have done in my past life is really alone product innovation and geographic expansion. I mean that's what I have seen working beautifully to make significant shareholder value, to create significant shareholder value on the long run.

And so certainly, I've already tooled our lab facility to get a better understanding on which products we are working to yield the innovative products with higher margins. And then last but not least, I think I've done in my prior life, a number of M&A activities. And so reviewing that pipeline, together with the team here is probably the third basket, I would say, that that represents a priority.

Operator

Our next question is from Edward Yang with Oppenheimer.

Edward Yang - Oppenheimer

The reduction in CapEx that was pretty significant, $10 million, maybe some color there? And you mentioned phasing of projects, but when I look at your historical, you always tend to spend fairly low amount of CapEx in the first quarter?

Randolph Gress

For the capital spend, we did reduce it by $10 million. And I think we have a wealth of capital projects for improvement, debottlenecking to also help the growth of our business. And I think our look at the end of the year was I think a little bit more optimistic in what we thought we could do for the year. But still I have the same number of projects in the pipeline. And it's, as we stated, more a timing and phasing of projects going forward.

Edward Yang - Oppenheimer

Are there any particular areas that you would call out, Randy, where you pruned?

Randolph Gress

Well, we'll continue -- certainly, we've highlighted before, our maintenance capital is in that $20 million to $25 million range. And I think we have historically spent a good portion of that in the Coatzacoalcos facility. I would expect that we'll continue to spend on the improvements, on the capability at the site, probably half of our overall capital, in rough terms, for the year, in the Coatzacoalcos facility for improvements as well as continued maintenance of the site.

Edward Yang - Oppenheimer

And when do you expect to see that CapEx spend go down to that more typical $20 million to $25 million, I mean I've seen some years where you've been as low as below $10 million, but with your shares outstanding, that's almost an extra $1 per share of free cash flow.

Randolph Gress

I don't remember the low-$10 million, but your memory maybe a little better than mine, Ed, but I think the $20 million to $25 million is more of the days with what we had. I expect with our focus on the business, on the growth, we'll continue to look at opportunities there.

I think what we've highlighted was more of a $40 million spend over a couple of years, two, three years going forward. And I think what I am hoping for and expecting is that on top of that $20 million to $25 million, we look at continued growth and improvement opportunities that may surface.

Edward Yang - Oppenheimer

And that sub-$10 million spend that was in 2004, I think that was when you were a private company, but the $7 million in spending?

Randolph Gress

That may have been just highlighted from a partial year, because that was the year that we were spun off.

Edward Yang - Oppenheimer

And what's the good target leverage for you, at this point? Obviously, when you were private, it was as high as 5x net debt-to-EBITDA. Currently you're maintaining a very conservative balance sheet at below 1x net debt-to-EBITDA. What's the level of leverage that you're comfortable with long-term?

Randolph Gress

Mark, do you want address that?

Mark Feuerbach

Sure. So yes, I feel very well. And I'd add, as you know, given the current levels and as we've said in the past, we certainly wouldn't be against raising the leverage to maybe 2 or 2.5-type number, if it came along with a growth opportunity. We're certainly not ever interested in getting back to the 5-type of number that we were at one time.

Edward Yang - Oppenheimer

Just finally, you're obviously focusing a lot on R&D and introducing new products. But I was wondering if you're also growing in other customer areas, like private label. That seems to be a market that continues to grow above the overall food and consumer market. What's your exposure there and what kind of margins do you see? Normally other companies have lower margins in private label versus branded, but what's your experience there?

Randolph Gress

I can't give you a specific number on the private label and our exposure there. But we certainly offer products to support customers' development across all the specific market areas. I think as some of these innovative products take hold, their acceptance across the board become more like spread.

So I think again back to some of the emerging trends and what we're supporting there with some of the low-sodium efforts as well as some of our innovations that we're certainly excited about, and granted as we've seen in the past, all of bunch of singles, but in total support what we've outlined for our strategic growth initiatives.

Operator

Our next question is from Christopher Butler with Sidoti & Company.

Christopher Butler - Sidoti & Company

I wanted to ask about price increases that you would discuss with rising raw material cost. With the fourth quarter release you had indicated that you'd be looking to raise prices. Did you have success sequentially and we just don't see that in the annual numbers with contracts et cetera going on?

Randolph Gress

What we did was within the first quarter, start to increase prices primarily in the Latin America and Mexico area that would take more effect with the second quarter, and announced recently an increase effective in the second quarter for more the U.S., Canada area. But I think as we're increasing prices to cover the raw materials, I think again what we try to do is capture the value for our products, focus on the value and use on an individual basis and continue to drive in that direction as well.

Christopher Butler - Sidoti & Company

And shifting over to GTSP, it sounds as if the quarter didn't play out the way you expected, especially on the pricing side of the equation, yet you maintained your breakeven guidance for the second quarter. It didn't sound apparent that there was a significant change going on that was going to get from lower expectations in the first quarter back to where you were. Could you kind of bridge that gap for us?

Randolph Gress

Sure. The given co-product, nature of the GTSP business, we locked into some business earlier on in the quarter at the early quarter pricing, which was higher sequentially from the fourth quarter, but not as high as the mid-quarter levels and this was what had driven the $4 million loss. I guess with mid-quarter selling prices supporting roughly a breakeven operating income and our expectation for higher selling prices in the second half of the quarter to offset some of that early quarter did not materialize. So since we were roughly at the breakeven level, we expect that to be the result through the second quarter here.

Christopher Butler - Sidoti & Company

And just finally, could you speak to acquisitions with the geographic expansion as a good opportunity before you do acquisitions play in there now? Or do you continue to target acquisitions as a way to expand the product portfolio and organic growth outside of the U.S.?

Randolph Gress

We're open to doing both. One with the expansion of the technology, with the bolt-on acquisitions we've already achieved, we'll continue to look for bolt-ons in that area primarily in the nutrition and food and beverage ingredient side of things. And then for geographic expansion, we started up the investment that we made in China as one-route.

We'll continue to look for opportunities in that area, but also have to continue to be successful with exporting from our North American system and see what the best supply chain is and best rep to satisfying those other geographies. But I think are still successful in exporting from our base here. But we'll look at those opportunities.

Christopher Butler - Sidoti & Company

Seeing as you seem to place greater emphasis on returning cash to shareholders and your early statements, can we read into that that the pipeline for acquisitions isn't as robust as it has been?

Randolph Gress

Well, I think we have an active pipeline. And again, I think the priority for our capital has been and will be the growth in the business. As we move forward, we'll continue to discuss with the board what the best use of that capital will be going forward.

Operator

Our next question comes from Chris Shaw with Monness Crespi.

Chris Shaw - Monness Crespi

Just first, clarify on the weather impact. Was that all on the sales line or was there some additional costs because of weather, maybe transportation and such?

Robert Harrer

That was really just on the sales line.

Chris Shaw - Monness Crespi

And then a question on GTSP. I mean knowing given where raw materials are headed and I know that's been one of the big issues there in terms of margins. What you see now when looking at the second half, I know you're seeing 2Q breakeven, but I mean where according to the start where you would think higher raw material prices would flow-through the income statement. Would you be breakeven or above the second half now on GTSP?

Randolph Gress

Mark, do you want to address that.

Mark Feuerbach

The fertilizer price environment is always much more difficult to see out very clearly beyond the quarter or so. So at this point, we're very comfortable in the breakeven for the second quarter, really hard to tell if they're also going to stay where they are or if they're going to move, I would say, if things remain status quo, certainly breakeven makes sense. But we have to see what happens and how those market prices develop over time.

Chris Shaw - Monness Crespi

And then on the turnaround, you characterized, Coatzacoalcos, you turned it lighter, and I know it's lighter than I guess to the other turnaround number, but is it still sort of the $2 million to $3 million cost impact that you were planning before?

Randolph Gress

Yes, I think what we have said is we expected it to be certainly lower than last year's turnaround. But that's probably a good range to use for that turnaround.

Chris Shaw - Monness Crespi

And then looking at the margin guidance, does that include the $2 million to $3 million or the impact to the turnaround or do the margin guidance sort of exclude that?

Randolph Gress

Yes, that includes the turnarounds within that those guidelines.

Operator

Thank you. We have no further questions at this point. I will now turn the call over to Randy Gress for closing comments.

Randolph Gress

Well, I'd like to thank everyone for joining us today. And we certainly appreciate your interest in Innophos. And we look forward to speaking to you next quarter when we report our second quarter 2014 results. Thanks and have a good day.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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