Axiall's (AXLL) CEO Paul Carrico on Q1 2014 Results - Earnings Call Transcript

May. 6.14 | About: Axiall Corporation (AXLL)

Axiall (NYSE:AXLL)

Q1 2014 Earnings Call

May 06, 2014 10:00 am ET

Executives

Martin Jarosick - Executive Director of Investor Relations and Strategic Planning

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

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

Analysts

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Maggie Cheung - Wells Fargo Securities, LLC, Research Division

Brian Maguire - Goldman Sachs Group Inc., Research Division

P. J. Juvekar - Citigroup Inc, Research Division

William Hoffmann - RBC Capital Markets, LLC, Research Division

Christopher W. Butler - Sidoti & Company, LLC

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

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

Hassan I. Ahmed - Alembic Global Advisors

John Roberts - UBS Investment Bank, Research Division

Aaron Weitman

Operator

Good morning. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Axiall First Quarter 2014 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mr. Martin Jarosick.

Martin Jarosick

Thank you, Rebecca. And good morning, everybody. Welcome to today's conference call to discuss Axiall's first quarter 2014 financial results. Joining me on the call today are Paul Carrico, President and CEO; and Greg Thompson, Chief Financial Officer.

There are presentation materials available for your reference on our website, and our press release issued last night with our first quarter financial results containing the 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 risk and uncertainties, which may cause Axiall's results to differ. Axiall does not undertake any obligation to provide updates to these forward-looking statements.

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

Now I'll turn the call over to Paul. Paul?

Paul D. Carrico

Thanks, Martin. And good morning, everyone. Thank you for joining us today. This morning, we'll provide comments on our performance for the first quarter and discuss our view of current market conditions. For the first quarter, Axiall generated $67.6 million of adjusted EBITDA.

As we previously outlined, the quarter was impacted by severe weather in a number of ways. First, the sharp spike in the natural gas price increased our cost by about $24 million. Second, storms slowed rail and barge traffic, and this reduced sales in the quarter and increased supply chain cost. Third, the cold temperatures at our Gulf Coast facilities negatively impacted operating rates. And finally, we believe the severe weather slow the seasonal sales ramp-up in Building Products.

In addition to the weather impacts, our first quarter operating rates were impacted by the outage at our PHH VCM facility. This was the first quarter since the merger that our chlor-alkali and vinyl assets operated below the industry averages. As we have entered this current quarter, we are seeing some relief from these headwinds. First, PHH has resumed operation, and we expect to be back to full rates later this quarter. Natural gas costs have come off the recent peaks, and PVC price increases announced for January, February and March have been implemented. We expect a meaningful expansion of vinyl margins in the second quarter to partially offset the lower ECU values compared to last year. Additionally, our Building Products segment is seeing the seasonal increase in sales volume that typically occurs during the second quarter. And we expect results in this division to reflect that increase.

On the call in February, we expressed our belief that the ECU value was at or near the bottom. Now 3 months later, we still believe that. The ECU value has fallen considerably since this time last year, mostly driven by heightened competitiveness in the market, as new capacity was moved to secure volume contracts for the 2014 supply. At this point, we feel this dynamic is largely played out. Based upon what we observe in the market, there is no material change to the amount of chlorine and caustic being produced in North America now, than there was at the same time last year. We believe inventories are low, as operating rates were limited by the logistical constraints and various industry outages during the first quarter. As we look to the balance of the year, the demand for chlorine should increase, driven by both the bleach and construction seasons. Industry operating rates will no longer be so much affected by the cold weather and should increase. Demand in caustic and vinyl should also see the increase that the industry typically experiences during this time of the year.

The supply-demand balance for the ECU will also continue to be positively impacted by the natural gas advantage North America enjoys, as this supports the industry's ability to export both caustic and PVC. These conditions should support an industry move to higher margins for the ECU, particularly as PVC and caustic demand increases.

So 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 first quarter. We reported net loss attributable to Axiall of $11.6 million for the first quarter of 2014 compared to net loss attributable to Axiall of $3.5 million for the first quarter of 2013. In the press release, we list a number of adjustments related to purchase accounting, merger and integration-related activities. After adjusting for these items, we reported adjusted net loss of $5.3 million for the first quarter of 2014 compared to adjusted net income of $45.1 million for the first quarter of 2013.

In the first quarter of 2014, we generated $67.6 million of adjusted EBITDA compared to $133.4 million in the first quarter of last year. Taking a look at the Chlorovinyls segment and comparing this year's first quarter to the fourth quarter of 2013, we reported $76.2 million of adjusted EBITDA compared to $161.3 million in the fourth quarter of 2013. This decrease was driven primarily by 3 large factors: $24 million from higher natural gas costs, $27 million impact from PHH outage; and $30 million higher maintenance costs. Additionally, we did realize lower caustic prices, which were mostly offset by PVC margin expansion and increased synergies.

Relating to synergies, as you'll recall, we categorize synergies into 3 buckets: operating rate, procurement and logistics, and SG&A. The operating rate synergy is measured across the full year by comparing our operating rates for Axiall to the operating rates achieved before the merger by the separate companies. We achieved this target in 2013. The other 2 synergy categories are cost-based synergies, and in the first quarter, we achieved $22 million of these cost-based synergies. In February, we increased our run rate total synergy target from $115 million to $140 million, and we are confident we will meet this target.

Our Building Products segment reported improved year-over-year performance despite the weather impacts, delivering breakeven adjusted EBITDA in the first quarter of 2014 compared to negative $2.6 million in the same quarter of last year. U.S. volumes continued the trend from last year and were up 13%, while Canadian volumes declined 3% and currency impacts were unfavorable. On a constant-currency basis, total Building Products sales were down 1%. We continued to carefully manage our costs in this segment, as the pickup in volumes to date are still modest, compared to volumes experienced during normal housing cycles. The increase in adjusted EBITDA was primarily due to improved conversion costs and lower selling, general and administrative expenses.

For the first quarter of 2014, Aromatics generated $4.9 million of adjusted EBITDA compared to $13.3 million in the first quarter of 2013. The decline for this business in the first quarter was primarily due to lower export sales volumes of phenol, driven by significant new phenol capacity additions in Asia during 2013, which also resulted in lower domestic cumene sales volume.

Total SG&A expense for the first quarter of 2014 was $73.6 million compared to $68.3 million for the first quarter of last year. The increase was mainly due to SG&A from the merged business for 3 months this year compared to only 2 months last year. This was partially offset by lower compensation expense in the first quarter of 2014 compared to the same period in 2013. Our net interest expense was $18.3 million for the first quarter of both 2013 and 2014.

For the first quarter of 2014, we reported a benefit from income taxes of $7.7 million. The benefit from income taxes included the favorable resolution of uncertain tax positions. Excluding the resolution of the uncertain tax positions, our effective tax rate for the quarter was 29%. 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 in 2013, plus you need to add an incremental approximately $25 million due to a change in U.S. tax law reducing bonus depreciation.

The total FIFO impact during the quarter was a positive $16 million for both the first quarter of 2014 and the first quarter of 2013. The FIFO impact for both periods was primarily related to Chlorovinyls.

Now let's discuss working capital. We define controllable working capital as accounts receivable plus inventory less accounts payable. Compared sequentially, controllable working capital decreased by $4.9 million from December 31, 2013, to March 31, 2014, due to lower sales volumes tied to our PHH outage. Compared to the first quarter of last year, controllable working capital decreased approximately $102 million, primarily driven by lower sales volumes.

On the cash flow statement, you will note that we used $21.8 million of cash in operating activities for the first quarter of 2014, as compared with the use of $104.8 million for the first quarter of 2013, due to the lower working capital build in the first quarter of this year compared to 2013. Capital expenditures were $43 million for the first quarter of 2014 compared to $16.4 million in the first quarter of last year. For 2014, we expect to invest about $200 million in total capital expenditures for both maintenance and organic growth projects.

Before we open up the call for Q&A, let me add to Paul's comments on the second quarter. Compared sequentially to $67.6 million of adjusted EBITDA we reported in the first quarter of 2014, we see 3 positives: increased sales volumes due to the restart of PHH and the spring ramp-up in Building Products sales, modestly lower natural gas costs and PVC margin expansion from the 3 announced PVC price increases the industry implemented in January, February and March. However, when you compare conditions today to conditions in the second quarter of last year when we reported $197.9 million of adjusted EBITDA, we see 3 negatives: ECU values are materially lower, natural gas costs are materially higher, and our VCM volumes in the second quarter will be lower as we ramp up PHH VCM compared to Axiall operating rates that were well above the industry average in the second quarter of 2013.

We expect to offset a portion of these significant negatives during the second quarter through the capture of greater synergies and higher PVC margins based on the PVC prices we see today. Given these factors, we believe our second quarter results will improve significantly over the first quarter 2014 results. But the magnitude of the decline in market conditions compared to this time last year, particularly looking at the caustic price deterioration, will keep it measurably below last year's second quarter results.

The recovery in margins for the ECU will be significantly influenced by the supply-demand balance, as the industry moves through the next 2 quarters. Now we will open up the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Alex Yefremov from Bank of America.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Did you get any benefit after you see increases in the first quarter? Or should the increases in the benchmark flow through entirely in the second?

Paul D. Carrico

There was a modest increase in the first quarter, as those increases were phased in over the quarter, and then sometimes, they take a few days to actually be -- or impact the margins. So I would say modest for the first quarter. The bigger impact occurs in the second quarter.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

On Building Products, could you comment on your volumes? It seems like Canada was down 3, U.S. plus 13. If both businesses are about equal size. I just wanted to understand why sales in general, excluding FX, were down 1%? Was there a mix effect or perhaps something else?

Gregory C. Thompson

It is a mix difference in the U.S. compared to the Canadian business. That's -- we have, of all of our different business units segments within Building Products, while it's roughly half and half in total, there's a different mix in terms of the focus in each of the different business units. And so that's what causes that result.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And maybe sticking with Building Products, can you provide outlook separately for Canadian volumes for the rest of the year? And for the U.S., do you think these double-digit volume gains are sustainable based on what you see in April?

Gregory C. Thompson

I think at this time of the year, it's always a bit of a challenge to understand how the year is going to develop, particularly with the kind of the severe winter we've had. So it's hard to say. I think we -- as we talk to our dealer channels and our customers, there's a lot of optimism out there, particularly so in the U.S. related to housing starts, as well as repair and remodel. I think on the Canadian side, it's a bit more muted when it comes to -- still positive, but muted housing starts. And still generally positive on the repair and remodel side. But we'll just have to see how it plays out as we work through this kind of, the unusual weather that we had this year.

Operator

Your next question comes from the line of John Roberts with UBS.

And your next question comes from the line of Frank Mitsch with Wells Fargo.

Maggie Cheung - Wells Fargo Securities, LLC, Research Division

This is actually Maggie on for Frank. So I was just wondering what your thoughts are for the caustic market in terms of pricing for the second half of the year. Do you think it will pick up, given seasonality, or supply issues might be a problem?

Paul D. Carrico

Well, I'm not sure that supply issues will be the issue. The question is, what's the robustness of the demand side? And there's certainly, as we've alluded to previously, that there's some momentum to move the caustic prices to a higher level, and we're seeing some of that right now. That supply-demand balance, particularly as we go through the normal seasonal uptick in the second quarter and third quarter, will determine what kind of pricing we eventually get out of both caustic and the ECU in general.

Maggie Cheung - Wells Fargo Securities, LLC, Research Division

Okay. And then can you just discuss the M&A pipeline? Is there anything you're particularly interested in? Some competitors have been commenting that valuations, kind of frothy right now. So are you interested in anything in that respect?

Paul D. Carrico

We're keeping our options open for the future. We are always looking at those options or investments or other choices as far as our portfolio goes. So nothing of specifics to mention at this point in time.

Operator

And your next question comes from the line of Brian Maguire with Goldman Sachs.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Greg, I appreciate the color on the second quarter outlook. I was wondering if you might quantify the dollar impact you expect from the PHH outage in the second quarter.

Gregory C. Thompson

Yes, we don't have a specific number on that, Brian. As we said, we do expect the unit to come up during the second quarter, so it will be a negative. I wouldn't expect it will be as significant as it was in the first quarter, certainly, given that kind of timing.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Okay. And what -- and maybe you could comment it on a different way. Maybe what were your PVC operating rates in the first quarter, and how much of that capacity do you think you'd have available to you in the second quarter?

Paul D. Carrico

In terms of the PVC capacity, we were below the industry. In some cases, a little bit equal to, in some cases, depending upon which period in the quarter you were looking at. For the second quarter though, we would expect to go back to our more typical, being above the industry rates as we move through the second quarter.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Okay, great. And then I guess Dow had one of their JV partners peel off of their cracker project. Just wondering if you might have any interest in that and maybe being able to get ethylene a little bit sooner in 2017. Is that something that you'd be interested in, in general, just trying to accelerate when you would get some ethylene cost economics.

Paul D. Carrico

Yes, I don't think I'll comment specifically on Dow or really any of the others. But as a general comment, ethylene integration has been an important factor for us going forward, and we'll continue to look at all the options that are out there in that area.

Operator

And your next question comes from the line of P.J. Juvekar with Citigroup.

P. J. Juvekar - Citigroup Inc, Research Division

Paul, a couple questions on ethylene. As ethylene prices are coming down, do you think there is enough strength in the PVC market that PVC can hold up?

Paul D. Carrico

Well, the drop in the ethylene price is just recouping what was increased late last year, early this year. So it really went up a little bit and then came back down to where it was before. In terms of that ethylene price's impact on PVC, the vinyl chain in general, it is an important factor as to what that normal net transaction price is as well as the spot. Because in some cases, people are depending upon spot to move those incremental pounds in PVC. I would say at the current level, you're still going to see PVC operating at a fairly good rate. There is much more in the way of supply limitations at this point with the Evangeline pipeline and other things going on. So all said and done, the PVC vinyl chain could operate at the current values of ethylene. Although, it's clear that ethylene is getting a somewhat disproportionate share of the total margin on a vinyl molecule where we stand right now.

P. J. Juvekar - Citigroup Inc, Research Division

Okay. And then secondly, on your announced cracker with the Lotte, a lot of companies are complaining about rising construction costs. How does that impact your decision? And is there anything you can do to hedge your cost increases?

Paul D. Carrico

Well, as you pointed out, the labor costs are one of the more difficult things to predict going forward in terms of a project of this size. And as we said before, we're still focused on working through the FEED study and getting all that spelled out later this year or early next year. And so we'll know what that percentage of the total cost is and we'll put our best estimates on it at that time, which will be a better time, at least we'll have more history under our belt at that point in time to make those estimates. In terms of how you hedge it, it's not something you can hedge totally. But you can do certain things that help it, such as an example, using modular construction rather than built on site. So there's various things that we can do, and that will all be defined later this year, as we work our way through the project economics.

P. J. Juvekar - Citigroup Inc, Research Division

And just lastly, you mentioned earlier that Evangeline pipeline is coming back but there are some spring turnarounds. Just give us the lay of the land of what's happening in the ethylene market in Louisiana.

Paul D. Carrico

Yes, the comment about the pipeline coming back is strictly what I see in published reports. So I don't know anything more about it than that. There's outages certainly planned here in this quarter. But for the most part, I think those were prepared for by either exports or other inventory adjustment that people made well ahead of those. The bigger question is how plants come back in the third quarter and the fourth quarter, and of course, there's some capacity additions coming on during that time.

Operator

Your next question comes from the line of Bill Hoffmann with RBC Capital Markets.

William Hoffmann - RBC Capital Markets, LLC, Research Division

Just a quick question on the Building Products side, just curious what you guys are seeing, sort of month-to-month trends. You still said it's generally muted. I was curious if -- any exploration in trend? Especially here in the U.S. But I also was curious about Canada, whether you see any change in the pattern there. Obviously, it was a lot weaker in the first quarter, but just curious if they've bounced back at all.

Paul D. Carrico

Yes, and certainly as you might expect, the cold weather in Canada was even more a factor than in North America. And it certainly was a late fall, if you want to call it that, as we worked our way through the last 3 or 4 months. What we see is the seasonal uptick but it is still too early to call what the magnitude of that uptick is. We do think that the U.S. will continue to outpace Canada in terms of the rate. And, of course, everybody is interested in hopefully seeing that being at a double-digit rate versus a single digit. But that remains to be seen, as we go through this quarter -- in the third quarter.

William Hoffmann - RBC Capital Markets, LLC, Research Division

And Paul, just any thoughts on M&A in that space? I know you've sort of -- look at things sort of all the time. I just wondered if butene valuations come down, just because of the change in pace of expectations here.

Paul D. Carrico

My observations of what people are talking about there is valuation's still fairly optimistic in the sense that I think people do believe we continue to get closer and closer both on a recovery in single-family housing as well remodeling. So I think that's what people are looking at in those valuations now.

Operator

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

Christopher W. Butler - Sidoti & Company, LLC

Sticking with sort of the building outlook that you just touched on. Could you talk about what you're seeing this year in comparison to the last year at this time, when we saw good housing starts, but not the normal correlation with vinyls demand? Is there anything different you're seeing this year that would indicate that you'd have a more typical correlation even if the starts aren't growing quite to the same degree?

Paul D. Carrico

Nothing we can speak to with definitiveness. The operating rates in vinyl were fairly low for the first quarter due to all the weather constraints, not only for ourselves, but for the rest of the industry. And so it was more or less flat, which is kind of what you'd expect in that environment. And yes, we're maybe a month in this -- the start of warmer weather but it's too early to call what that percentage is going to be. So no, I wouldn't venture a guess at this point of what we might wind up over the next couple of quarters.

Christopher W. Butler - Sidoti & Company, LLC

And how about on the export market? It sounded like you were more optimistic on that. And last year, it didn't quite follow through to expectations as well.

Paul D. Carrico

Yes, on exports, the industry has been limited by their ability to produce, is my observation, for the first 4 months or so. So exports actually dropped, and that export market remains there for people that can produce. So if people get rid of -- if the industry gets rid of some of the ethylene limitations and other things, the outages, then I would say at this point in time, export market is available and pricing is maybe ticked up slightly over the last couple of weeks.

Operator

Your next question comes from the line of Jeffrey Zekauskas with JPMorgan.

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

When would you know whether you would or wouldn't go forward on the Louisiana cracker?

Paul D. Carrico

It's still our objective to complete that FEED study in late this year, early next year, and that's when we'll take it to the board for a decision. So that would be the point in time where I'd say we would have at least made the decision that we're comfortable with the economics and the cost of the project.

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

So we should know, say, by the end of the first quarter of next year?

Paul D. Carrico

At the current time frame, that's -- that would be my estimate, yes. Unless something changes in terms of our work, that would be the objective.

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

Dow is selling all kinds of chlorine derivatives. If you -- leaving aside whether you're interested in them or not interested in them, do any of them fit with your business portfolio?

Paul D. Carrico

Well, the -- Dow's size in this whole area, chlor-alkali, Chlorovinyls and whatever, being such a large producer, makes them a clearly important piece of what the landscape is in the industry. And how that may match up or not match up with our assets is things that we just have to look at as we look at all the different opportunities out there as we go forward. And you got that, you got investments you can make internally. You got different parts of the chain you can focus on. So it is certainly a period of time where there's a lot more activity than normal in the industry compared to some of the history in the last 10 years or so. But how that all shakes out is a story yet to be written, I would say.

Operator

And your next question comes from the line of James Sheehan with SunTrust.

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

I was just wondering if you could describe your pricing strategy in Building Products. Do you normally try to give price increases in alignment with PVC changes? Or how does that lag, or how do you do your pricing in Building Products?

Paul D. Carrico

Pricing kind of varies all over the map, not only as Building Products in total but by the different industry segments. So as an example, pipe is one that typically more often moves quickly with resin prices, and that's not a secret, that's just the way it's always been. The other businesses -- cost are always a factor, but so is supply-demand. So you put all those things together and that's how pricing tends to play out. It's clear that the margins in Building Products have been somewhat muted over the last 2 years versus the history prior to that point in time when housing was more robust. So the supply-demand balance and cost will be factors in the pricing going forward.

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

Great. And in terms of your operating rates, you mentioned earlier that operating rates in PHH are going to be above the industry average. Just wondering if you could comment on overall chlor-alkali. Do you expect operating rates this year going forward to be above industry averages as well?

Paul D. Carrico

Well, first of all, let me clarify the comments you made about PHH. What I was referring to was our vinyl, which is PVC assets running at rates above the industry. And so yes, that's somewhat back to where we were before, still a little bit of limitation but clearly, above industry rates is our objective at this point for the quarter. In terms of chlor-alkali, we expect to be back above industry rates in that area too. Now how that plays out for the whole year still depends upon that normal industry supply-demand balance for chlorine and caustic.

Operator

Your next question comes from the line of Hassan Ahmed with Alembic Global.

Hassan I. Ahmed - Alembic Global Advisors

You spent a fair bit of time talking about or addressing questions pertaining to, I guess, a recovery in chlor-alkali pricing. And you rightly talked about how that's obviously going to influenced by supply-demand fundamentals going forward. So my question is more about how we should think about, call it flow pricing, for caustic. I mean, where do you think marginal production economics are for caustic in particular?

Paul D. Carrico

Well, it's difficult to say for just caustic because it goes back to the ECU. Everybody producing in other parts of the world are looking at both the chlorine and the caustic piece...

Hassan I. Ahmed - Alembic Global Advisors

Sure. So be it even on an ECU basis?

Paul D. Carrico

I would say that we periodically are bumping along that point now. We don't have any reason to think that many of the assets in the rest of the world, to include Europe and China and such, are really making much margin or profit off of the prices we're at, at this point. So it seems like we ebb and flow. And either the price of caustic or the price of chlorine, adjusting the ECU price when that happens. And I would say at this level, there is a bit of pain to go much lower than where we were or have been. So that's another reason for saying that we expected, as a general comment, that we were at the floor of ECUs at this point in time.

Hassan I. Ahmed - Alembic Global Advisors

Fair enough. And as a follow-up, a fair degree of raw material pricing volatility in Q1, be it on the benzene side or the ethylene side or nat gas. You historically have talked about, in a bunch of presentations, an $850 million plus normal EBITDA figure for the company. In light of what you've seen now on the raw material side, are you still comfortable with that sort of normal view?

Paul D. Carrico

Well, that was the mid-cycle EBITDA number that we have alluded to, and we still think that's something that we should be able to achieve under normal conditions. But the last quarter certainly was far from normal, when you look at the weather impacts in particular. And then of course, we had our outage at PHH. And the other factor I guess I would say is that ethylene is getting, as I mentioned earlier, a somewhat disproportionate share of the overall profitability at this point in time. So things will ebb and flow in that area. And there would be nothing like an improvement in demand across multiple different fronts that would help the situation. And we certainly didn't quite see that as much as we expected last year. And as I was commenting earlier, it still remains to be seen how robust it gets to be in the second and third quarter when they're all ramped up this year.

Operator

[Operator Instructions] And your next question comes from the line of John Roberts with UBS.

John Roberts - UBS Investment Bank, Research Division

Paul, could you give us an update on where we are with the inventory of unfinished lots in the U.S.? Or how far away are we from where we might start seeing pipe demand accelerate again for infrastructure activities?

Paul D. Carrico

Well, the talk of our customers in the industry is certainly that there's plenty of jobs out there to be executed on with the weather improving and clearing. I don't think inventories are overly robust. You just look at the operating rate for PVC in the first quarter and the domestic poll, you can see that there -- it doesn't appear that there was a lot of inventory build. So if, in fact, those jobs that our customers are talking about there are really there and they're really starting to execute, then that will help this demand situation we've been talking about a couple of times today.

John Roberts - UBS Investment Bank, Research Division

Okay. I thought there was a survey or an index of unfinished lots or unfinished housing developments that you track.

Paul D. Carrico

If you're talking about lots for homes, no, I don't. I just -- all I can say is that anecdotally, people are saying they're running out of lots in developed properties. And people are now, even here in Atlanta, you get construction people talking about well, where is the next lot going to be or do they start opening up those new lots. And I don't have a general index though for you on that.

John Roberts - UBS Investment Bank, Research Division

And then secondly, it's still a ways away. But for your ethylene cracker, would it be open to an MLP-type structure? Or because you've got 2 parties involved in here, that governance and who would be the GP and so forth, would just be too complicated to think about that kind of structure for the project?

Paul D. Carrico

Yes, I don't think we would address that question directly at this point. It's clear that there's been 2 of them now out there and so it certainly makes you think about that for the future. But that's a number of years away, as you point out, and I think a lot of things to be studied between now and then to make the case one way or another.

Operator

Your next question comes from the line of Aaron Weitman with Appaloosa.

Aaron Weitman

Just to try again on the VCM outage for Q2. Is it fair to say that ballpark it is around about $15 million to $20 million?

Paul D. Carrico

On Q2? No, I would think that level to be -- be below that...

Aaron Weitman

So probably ballpark $10 million to $15 million?

Paul D. Carrico

I don't think we're going to put a number on it today. We -- the plant is up and running. The biggest factor is in the VCM production area for all the different things that we do. And we would -- I would say at this point, wait until later this quarter to see where we are. And I just don't -- $15 million to $20 million is too high. That's all I can tell you at this point.

Operator

And your next question comes from the line of Alex Yefremov from Bank of America.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

I just had a follow-up on your guidance, just trying to understand year-over-year changes. If your VCM unit was running under a normal rate, do you think you could have been close to flat year-over-year on overall company's EBITDA?

Paul D. Carrico

I think we've identified in the words we gave you earlier what the factors were. And so there's too many moving parts for us to comment on that. There's PVC margins. There's natural gas. There's just all sorts of things that would come into play to make that analysis.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And maybe a second follow-up. Do you think the current sort of spread between export caustic prices and domestic caustic prices are sustainable?

Paul D. Carrico

Sustainable is probably unlikely. Things are going to change. Even the export price is moving up somewhat in the current market, in the current environment. So I would think that over time, that the interest in getting a better profitability in other parts of the world that are producing chlor-alkali, to include chlorine and caustic would be encouraged to get to a higher level. So that's the dynamic I would see going forward. Nothing seems to stay the same. So it's going to be more about, again, the overall supply-demand balancing. Importantly, what's the world economic activity out there in these different areas.

Operator

And there are no further questions at this time.

Martin Jarosick

Thanks, everyone. And we look forward to speaking with you again in the second quarter call.

Operator

Thank you for participating. This does conclude today's conference call. You may now disconnect.

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