Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

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

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

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

Roger N. Spitz - BofA Merrill Lynch, Research Division

Andrew W. Cash - UBS Investment Bank, Research Division

Bill Hoffman - RBC Capital Markets, LLC, Research Division

Christopher W. Butler - Sidoti & Company, LLC

Unknown Analyst

Gregg A. Goodnight - UBS Investment Bank, Research Division

Georgia Gulf (GGC) Q1 2012 Earnings Call May 3, 2012 10:00 AM ET

Operator

Good morning, my name is Theresa, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Georgia Gulf First Quarter Financial Results Call. [Operator Instructions] I would now like to turn the call over to Mr. Martin Jarosick. You may begin your conference, sir.

Martin Jarosick

Thank you, Theresa, and good morning, ladies and gentlemen. Thank you for participating in today's conference call to discuss Georgia Gulf's First Quarter 2012 Financial Results. There are slides available to you on Georgia Gulf's website. These slides are for your reference. We will not be speaking directly to the bullets on each slide. Participating on today's call are Paul Carrico, President and Chief Executive Officer; and Greg Thompson, Chief Financial Officer.

During this call, we will be making forward-looking statements. As you'll appreciate, any business projections and assumptions about future events are subject to risks and other factors that could cause actual results to differ materially from our current outlook. A listing of factors that could affect future results is included in our 2010 Form 10-K and subsequent SEC filings. Any forward-looking statements made on this call should be considered in light of those factors.

In addition, during this conference call, we may refer to certain non-GAAP financial measures. We have provided a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure in an appendix in the slides on our the website.

I will now turn the call over to Paul to begin the review of the first quarter. Paul?

Paul D. Carrico

Thanks, Martin, and good morning, ladies and gentlemen. We appreciate you joining us this morning. I'll go through the details of the quarter in a few minutes but before that, I'd like to outline some thoughts on why I believe Georgia Gulf is poised to deliver significant value to shareholders in the coming years.

First, as you all know and have heard many times recently, the development of shale gas resources in the United States continues to fundamentally change the landscape for global petrochemicals and for North America in particular. Nothing is changing that dynamic from our point of view. After a lengthy history of being marginally competitive to disadvantaged, North America producers are now at the low end of the cost curve. Based on the view of many experts in the industry, the advantage appears to be sustainable for many years to come.

As one example in our industry of this sea change, the major increase in the export volumes for PVC in the last year dramatically illustrates how we can now participate in world markets, while producing key materials for such a basic need as water management in countries expanding their infrastructure.

The global demand for our products will continue to grow because they are essential materials needed to provide the basic necessities of clean water and shelter, to developed and developing markets around the world. Many of these areas have per capita consumption well below current demand in North America and Europe.

Another key opportunity for Georgia Gulf lies in the U.S. housing market. New starts and renovation spending have been at unsustainably low levels for several years. We appear to be in the early stages of a recovery that should generate increased demand and margins across all 3 of our segments on a domestic basis. As this local pickup in consumption develops, we expect to begin to benefit much earlier in the next housing recovery than any prior recovery. The opportunity for this change is strongly supported by operating rates that are already in the mid- to high-80s for vinyl due to the export levels currently in place.

Also, there have been many companies in the building products space that have either exited the business or have had to shut down due to the financial stress caused by the downturn. This clearly should present new opportunities for the remaining players.

So given the backdrop of these fundamental shifts in the microenvironment and our vastly improved balance sheet, we have a unique opportunity to take advantage of these changes. The combination of growing our asset foundation on the chemicals side by increasing our chlorine integration level and improving our Building Products profitability due improvements in fundamental market opportunities is really exciting.

As we have discussed a number of times in the past, the management group and all of their team members have taken and continue to take steps to improve Georgia Gulf's cost structure. We've been doing this on the cost side, while at the same time, on the revenue side, we are moving into markets that provide a more diverse and sustainable long-term customer base. For all of these reasons, we believe that Georgia Gulf is poised to significantly outperform prior cycles and deliver significant value to shareholders.

Our first quarter 2012 net sales and adjusted EBITDA came in above what we had internally expected. The largest positive impact came from Aromatics. We did record a $20.5 million inventory holding gain in Aromatics, caused by a larger-than-projected increase in benzene and propylene prices during the quarter. If you adjust for that gain, Aromatics delivered approximately $17.4 million of EBITDA for the first quarter of 2012. This business has suffered for many years with excess capacity and modest demand. With the significant changes in the past couple of years to the supply-demand picture, we're pushing hard to return to reasonable levels of profitability. Anticipating these improving market conditions, we planned our maintenance over the last couple of years to sustain these new levels. To that end, we have secured contract volumes that are at record highs for us versus the past decade.

Also during the first quarter, we experienced stronger sales in EBITDA in Building Products compared to the same quarter last year. There is no doubt that part of this improvement can be attributed to the unseasonably warm weather across much of North America during the quarter. But we also believe that we are improving our share and benefiting from the full integration of Exterior Portfolio into our siding business. The Royal brand continues to gain momentum and prominence in the marketplace, and we will be working to leverage this as the market improves. We are adding new products and we'll continue to emphasize innovation in our portfolio to bolster opportunities in this area.

The global downturn in confidence during the last 6 months of 2011 resulted in inventory corrections and pricing pressure on PVC. The start of 2012 has shown a recovery of that slowdown with strong industry demand for PVC and that's been both domestically and export-wise. We saw PVC price increases in both the domestic and export markets during the first quarter, reflecting the improvement in the supply-demand balance.

The positives were partially offset by loss caustics sales of about 11,000 tons in the first quarter due to the unplanned outage at our Plaquemine site in late December that we discussed with you in February. The lost production at that time was followed a by significantly improve operating rates in March and April.

As we also mentioned in February, our chloralkali plant has a scheduled turnaround in the second quarter, that will be one of the more substantial turnarounds we've taken in this unit in many years. This turnaround will reduce Chlorovinyls EBITDA by about $30 million to $35 million in the second quarter.

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. Good morning, ladies and gentlemen.

Before we get into the details of our quarterly performance, I wanted to remind you of the change in presentation of long-term debt on our balance sheet we made at year end.

Historically, we have included our $112 million lease financing obligation with long-term debt. We are now presenting it on a standalone basis in a separate line item on the balance sheet as lease financing obligation. These lease financing obligation, which is not really debt in the normal sense, includes operating leases for certain of our manufacturing facilities for which we pay rent. Part of these rent payments are collateralized by a $5.9 million secured letter of credit.

As a result of the $5.9 million secured letter of credit, U.S. GAAP treatment requires that this $112 million lease obligation and corresponding real estate remain on our balance sheet until the terms of the collateralized rent are satisfied or a letter of credit is no longer required. We are only obligated for the payments of the rents for these operating leases, which are approximately $7 million to $8 million per year for another 5 years. Due to the underlying accounting for this lease financing obligation, the operating lease rent payments are classified as interest expense in our income statements in our current and historical presentation of adjusted EBITDA has excluded these rent payments.

Beginning with the 2012 adjusted EBITDA guidance we provided in February, we changed our methodology to present adjusted EBITDA numbers that reflect the approximately $7 million of annual interest on the lease financing obligation as rent expense. The net result is a $7 million annual reduction in 2012 adjusted EBITDA paired to how we would have presented it using our old methodology. Starting with this earnings release, we will show the current periods and prior periods with this new methodology.

Now let's look at our operating performance during the first quarter. We reported operating income of $68.3 million for the first quarter of 2012 compared to operating income of $36.6 million during the same quarter the previous year. The increase in operating income includes a $12.4 million net benefit from gain on sale of assets, restructuring expense and other.

SG&A expense for the first quarter of 2012 was $47.7 million compared to $38.5 million for the first quarter of last year. The increase was mainly due to a $4.4 million non-income tax benefit in the first quarter of 2011 that did not repeat this quarter, $1.3 million higher SG&A from the Exterior Portfolio acquisition we completed in mid-February 2011 and a $1.2 million increase in our bad debt expense. Our net interest expense for the first quarter was $14.4 million compared to $16.5 million for the first quarter of 2011.

For the first quarter of 2012, we reported tax expense of $18.4 million for an effective tax rate of 34%. For 2012, we expect to make cash tax payments of approximately $40 million to $50 million, and have an effective tax rate in the range of 25% to 35%.

Turning to our segments. In the first quarter, we generated $45.6 million of adjusted EBITDA in Chlorovinyls compared to $52.2 million in the first quarter of 2011. The decline was driven by lower sales volumes for caustic and PVC and higher ethylene costs that was partially offset by higher caustic and resin sales prices and lower chlorine natural gas costs.

Our Building Products segment generated $3.3 million of adjusted EBITDA in the first quarter of 2012 compared to a negative $4.2 million for the same quarter last year. This improvement was the result of improved conversion costs and the adjusted EBITDA contribution from the Exterior Portfolio acquisition, partially offset by higher raw materials and SG&A costs.

Our Aromatics segment reported adjusted EBITDA of $37.9 million in the first quarter of 2012 compared to $20.1 million in the first quarter last year. This significant increase was driven by inventory holding gains Paul mentioned earlier, higher sales volumes and the improved supply-demand balance. The inventory holding gain in the first quarter of 2012 was $20.5 million compared to $13.3 million in the same period last year. Our operating rate in Aromatics was 94% for the quarter compared to 84% last year.

The total FIFO benefit for the first quarter of 2012 was $11.1 million composed of a $14.7 million benefit in Aromatics, partially offset by a negative $4.1 million impact in Chlorovinyls. This compares to the first quarter of 2011, where the FIFO benefit was $18.4 million, with Aromatics contributing about 2/3, and Chlorovinyls and Building Products contributing the remainder.

Now let's discuss working capital. We define controllable working capital as accounts receivable plus the 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 business. Compared sequentially, controllable working capital increased by about $116 million since December 31, 2011. This sequential increase was driven by normal seasonal increases in AR and inventories.

Compared to the first quarter of last year, controllable working capital was flat, driven by continuing focus on working capital management. Flat levels of working capital were achieved even with higher sales volumes and the prior-year acquisition of Exterior Portfolio. Compared to first quarter last year, our net days of investment in controllable working capital was reduced by 5 days.

On the cash flow statement, you will note that we used $85.5 million of cash in operating activities as compared with the use of $76.6 million for the first quarter of 2011. Capital expenditures were $13.5 million for the first quarter of 2012 compared to $10.9 million in the first quarter of 2011. We expect full year 2012 CapEx to be between $80 million and $90 million.

Now I will turn the call back over to Paul for our 2012 outlook.

Paul D. Carrico

Thanks, Greg. Before we begin the question-and-answer portion of the call, I'd like to comment on our current view of 2012. First, it is clear that Aromatics' profitability improved materially in the first quarter even after adjusting for the large inventory holding gain. This reflects an improved supply-demand balance in the industry and our focus on putting Georgia Gulf in a position to be a good supplier in these conditions. We expect the basic industry fundamentals to continue to be positive for the year.

Second, natural gas costs have dropped below $2 per million Btu recently and appear likely to remain below our original assumption for the full year. We do hedge a portion of our needs on a short-term basis, so this will temper the benefit somewhat in the first half of the year.

Third, U.S. housing starts increased year-over-year in the first quarter, and a portion of it is likely due to the favorable weather. We are cautiously optimistic, but have not increased our expectations for housing starts for the full year. Fourth, PVC operating rates, exports and pricing are all improving in line with our assumptions.

So given our strong start to the year, we are increasing our 2012 adjusted EBITDA expectation to a range of $255 million to $285 million. As Greg described earlier, this guidance includes the $7 million downward adjustment associated with the annual lease financing obligation interest expense going forward.

Before I open the call to questions, I'd like to point out that we will not comment on the unsolicited Westlake proposal during the Q&A session. So we ask that you please limit your questions to Georgia Gulf's financial results and business outlook.

Thanks. And now I'll turn the call over to the operator so we can take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Brian Maguire.

Brian Maguire - Goldman Sachs Group Inc., Research Division

What was your effective natural gas purchase price in the first quarter? I think spot price maybe averaged around $2.50 per million Btus, but with your hedging in place, what was kind of the effective realized price in the quarter?

Gregory C. Thompson

Yes. We are around $3 effectively in the first quarter, Brian, because we were, I guess, we were probably around 50% or so hedged, with some hedges that we put on -- put in place late last year and some right at the beginning of the year.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Okay, $3. So in the second quarter, would it be kind of a similar hedging outlook, or would you expect to get a little bit closer to what the spot price was or will be?

Gregory C. Thompson

It will be -- come down from there given what natural gas pricing has done. But I think our hedges were 40%, 50% range in the second quarter as well with hedges that we put on earlier in the year. So we won't fully participate in the big move down.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Got it. And then the strength in Aromatics, even with the -- even excluding the holding gain was pretty impressive. Just wondering how much of that you think is a restock after the weak fourth quarter versus -- and also how much of a factor you think the uncertainty customers have with Sunoco maybe playing in to that? Are you already seeing a benefit from that now, or do you think that that's maybe more in the future quarters?

Paul D. Carrico

It's kind of a tale of 2 different aspects of the Aromatics business. The phenol part of the equation is not that robust compared to history last year, particularly on the export side. On the cumene side, that is a bit more substantial for us in the sense that we have an extremely large plant on the Gulf Coast and are well-positioned to be a supplier in the future. So we've consciously sought to get to a higher level of contracting in that area and that's been the biggest driver of where we are there.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Got it. And then one last one if I might. Would you expect the excess holding gain above and beyond the $16 million hit in the fourth quarter to be a bit of a headwind than the rest of the year if benzene and propylene prices were to fall a little bit?

Gregory C. Thompson

Yes. We think it could. It's -- as we know from experience it can move around a bit, so it wouldn't be surprising at all to give back a little bit of that big gain that we got in the first quarter.

Brian Maguire - Goldman Sachs Group Inc., Research Division

And is that kind of incorporated in the new EBITDA guidance?

Gregory C. Thompson

Yes.

Operator

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

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

If you could talk a little bit about the Chlorovinyls, the operating rates that you saw in the first quarter and how it was trending in April. And then perhaps paint a little bit about what are you seeing in terms of an impact of a competitor's VCM outage is having in the marketplace in this year, in the second quarter?

Paul D. Carrico

Well, in terms of the operating rates, I think, in general, they were perceived to be in the high-80s, something like that for the first quarter. And we were a little bit above that, just because that's where we've been since we rationalized some of our plants a couple of years back. What we saw was, as most people have talk about really, the domestic demand pickup Q1 of this year versus last year was certainly measurable. And likewise, exports dropped a little bit because of that. That increase in demand over and above last year, I'd say, as we move through April and May, is not the same percentage, it has dropped back some. So in general, we're getting closer to last year's numbers for the second quarter. That's not necessarily a bad thing because we're not getting back at this point so much what we had gained in the first quarter.

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

Okay. Great. And then you talked about your turnaround in the second quarter is going to have a financial impact of $30 million to $35 million, can you talk about -- how many days are you guys going to be out? And can you quantify that in terms of volume, what the negative impact will be through to Georgia Gulf?

Paul D. Carrico

Yes. Our outages in that area typically are several weeks or so, I'll call it, plus or minus some on that. And volume wise, you can just kind of do a number on our capacity using that kind of a number put you in a ballpark.

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

All right. Is it currently down, or is it coming down later this month?

Paul D. Carrico

Yes, we started.

Operator

And your next question comes from the line of Silke Kueck.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

Can you talk about what the [indiscernible] of like the exiting cost changes were in the first quarter, what the headwind was? And what percentage of your ethylene contracts have changed so far and will change in '12?

Paul D. Carrico

Well, the contract changes for the year are along the lines of what we talked about last year. Those changes have already occurred and they really start at the beginning of the year. So it's nothing that's continuing to change as we go through 2012. In terms of the pricing of ethylene, as you know, it stayed fairly strong and it's in that 50s, mid-50s range with a much higher export price. So it seems like that pricing is being held up in particular, even though ethane has dropped so much by the outages and all that are going on in the industry right now. And I think most of those outages are tending to finish up here in the next couple of months, so we'll see what kind of effect that has on pricing at that time.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

So do you then expect to have like a FIFO benefit in Chlorovinyls in the second quarter?

Gregory C. Thompson

We don't. We don't really try and forecast that actually, Silke. I mean that does move around a bit. I mean as the numbers I went through identified in the first quarter, it was actually a little bit of a negative FIFO. And most of that was driven by, partially driven by natural gas but more of it was driven by -- we do that on a quarter end to -- in this case, beginning of the year basis looking at our inventory. Most of it was driven by $0.01 or so decline in ethylene costs for March 31, as compared to December 31. So I don't -- I mean we're not looking at anything big for the second quarter.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

And in terms of caustic prices, are there still more price increases on the table, or do you expect caustic prices to flatten out in the second half of the year?

Paul D. Carrico

I think the forecasters out there are saying that they will drop off a bit. Those increases are still out there, we don't see the market pushing them hard at this point. So I think the fay [ph] of those couple of increases that are out there still remains to be seen.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

And lastly, how much share gain did you have in Building Products, if you can quantify that?

Paul D. Carrico

I think from an approximation point of view, of course, the Exterior Portfolio added the biggest chunk and then we had some modest improvements above that, but I don't think we want to get into the specifics of that.

Operator

Your next question comes from the line of Roger Spitz.

Roger N. Spitz - BofA Merrill Lynch, Research Division

Can you say how much natural gas you consume at capacity?

Gregory C. Thompson

It's 28 million MMBtus per year at capacity.

Roger N. Spitz - BofA Merrill Lynch, Research Division

Perfect. And what did you mean when you said you secured record-high cost products during the Aromatics turnaround? Does that mean that you effectively purchased product to support your contract of sales while your plant is under turnaround and therefore, margin will be adversely impacted due to this?

Paul D. Carrico

You're talking about Aromatics?

Roger N. Spitz - BofA Merrill Lynch, Research Division

Yes. I think -- maybe I misheard, I thought...

Paul D. Carrico

Yes. I think what I said was that they were record-high contract volumes for the quarter, and for the year actually. So we went into this year knowing that the supply-demand balance would be altered in the industry and so we've sought to be at higher operating rates for the year more so on cumene than phenol.

Operator

And your next question comes from the line of Andy Cash.

Andrew W. Cash - UBS Investment Bank, Research Division

A couple of things. First of all, you mentioned $85 million in CapEx for the year, maybe you could break that down. Is that all maintenance-related? Does that add any capacity, and is this sort of a normal ongoing level?

Paul D. Carrico

The biggest chunk is associated with our Chlorovinyls or chloralkali spend for sure. And then associated chemical so the -- just chemicals, in general, takes more than 50% of all that. There is some modest improvements in capacity in various areas in operating performance improvement in the Building Products side.

Andrew W. Cash - UBS Investment Bank, Research Division

So some potential savings associated with that $85 million?

Paul D. Carrico

Yes.

Andrew W. Cash - UBS Investment Bank, Research Division

The -- you mentioned in your release your integrated chemicals and Building Products business, and I know in the past, you've talked about some of your ethylene contracts and -- with some of those rolling off. Have you guys made any progress? Are you getting closer to -- maybe inking a deal actually becoming virtually backward integrated to a degree on the feedstock side?

Paul D. Carrico

Yes. We keep talking with people in the industry about that. Those kind of discussions are still going on. And as you know, those are a number of years away from being completed, so I don't know that something like that will be in the real near term.

Andrew W. Cash - UBS Investment Bank, Research Division

So that just begs the question, so what are you going to do with all of your free cash flow over the next few years?

Paul D. Carrico

Well, we stated the 2 focus areas. Chloralkali is certainly a chunk of cash requirement there. And the ultimate expense of getting involved in some sort of ethylene position will be another reasonable tack on to that. But in addition to that, we certainly want to think about dividends and such to see if there's an opportunity to give something back to shareholders, too.

Andrew W. Cash - UBS Investment Bank, Research Division

Just speaking about the dividend side of things, when do you think you might be in a position to pay a dividend given some of the debt covenants that you have?

Gregory C. Thompson

Yes. I mean we'll continue to look at that and discuss that with our board initiating a dividend. We do have some, I mean, under our bond, bond covenants, we have some flexibility really without any builder baskets for a, I'll call it, a modest, modest dividend. So as our results continue to improve, we'll continue to look at that.

Andrew W. Cash - UBS Investment Bank, Research Division

And just one final thing. Did you mention what the impact was on the chloralkali outage in terms of EBITDA in the first quarter? Do you have -- can you range that for us?

Paul D. Carrico

First quarter?

Andrew W. Cash - UBS Investment Bank, Research Division

Yes. The first quarter, the chloralkali outage?

Paul D. Carrico

Yes. It wasn't that significant. You're talking about the one at the beginning?

Andrew W. Cash - UBS Investment Bank, Research Division

Yes. Was that $5 million? Was that $10 million?

Gregory C. Thompson

Yes. It was probably -- I don't have that number in front of me, Andy, I'd say it's probably in the $5 million to $7 million kind of range from the outage. And I think you're speaking of the outage that we had, actually, it was late December that carried over into the beginning of the year.

Andrew W. Cash - UBS Investment Bank, Research Division

Okay. So $5 million to $7 million?

Gregory C. Thompson

Yes. Something in that range.

Operator

And your next question comes from the line of Bill Hoffman.

Bill Hoffman - RBC Capital Markets, LLC, Research Division

Paul, can you just talk a little bit about the Building Products side? Maybe sort of the monthly order flows, sort of what you're really seeing there trend wise. Obviously, we're all trying to get a handle on whether there was some pull forward due to the nicer weather in the first quarter, especially now that we're getting into May.

Paul D. Carrico

Yes. That certainly is the magic question in the industry these days. Everybody's wanting to know the answer to that. All I can tell you is that, anecdotally, our guys still feel confident about the spring and the summer, but that confidence is not at the same level as it was in terms of the improvement we saw in the January, February time frame. So we think that still moving off the bottom in housing, but the steps are still, I'll call it, modest at this point .

Bill Hoffman - RBC Capital Markets, LLC, Research Division

And any differential with the Canadian assets?

Paul D. Carrico

No. I get the sense in talking to our business managers that they're both kind of in a range of reasonable step up and you don't see one strongly different than the other. Other than in the U.S. out of the equation, of course the Exterior Portfolio puts us in a little different spot from improving our business integration there.

Gregory C. Thompson

Yes. I would say at the current rates, Bill, the housing starts assumptions that we used for both the U.S. and Canada in setting our budget and our guidance for the year, it's looking a little bit better then that, not a huge, hugely better, but it's a little bit favorable compared to what we set our numbers on at the beginning of the year. So we'll see how much of it is, in terms of first quarter, was pull forward due the weather versus real sustainable.

Bill Hoffman - RBC Capital Markets, LLC, Research Division

And then just a question on the cumene side. Paul, as you were talking about the contractual volume, I just want to get a sense of what percentage might be done in these contracts. Are they sort of like one year-type contracting, or how is it structured?

Paul D. Carrico

The contracts vary from customer to customer depending upon what their objectives are. Plus as you know, we need a fair, sizable percentage of it internally for our phenol production. So those -- I guess, we expect would continue to be reasonably available in the market just because, we've talked about this, but the cumene and phenol balance has finally come back into a bit more alignment than what it was for the last 10 years or so.

Bill Hoffman - RBC Capital Markets, LLC, Research Division

And could you talk at all about how much of that product is exported?

Paul D. Carrico

I don't have a percentage for you right now. It certainly has dropped off a bit from last year. Last year was pretty vigorous in terms of export, both on some phenol and some cumene, and it's back down a bit this year from that point. There's more like a situation these days of opportunistic sales when they come up with either outages or some other dislocations in different parts of the world.

Bill Hoffman - RBC Capital Markets, LLC, Research Division

And just as sort of follow-up, with the export side of the equation, I mean, obviously, we all know what's going on. The Asian markets are somewhat soft. What are you guys thinking about the export markets this year? Do you think the markets will come back in the back half of the year?

Paul D. Carrico

On Aromatics, I think the jury is still out on that. You probably could judge whether China is going to come back as much as I could on that area. In terms of PVC, we tend to think that exports will still be available just because of the North American cost position. In PVC, even $0.005 a lot of times makes a winner versus a loser. And so with where we are on cost, as long as the industry continues in the position it's in now, we should be export capable for the duration of the year.

Operator

And your next question comes from the line of Christopher Butler.

Christopher W. Butler - Sidoti & Company, LLC

Looking at the outage that you're expecting here for chloralkali, any lingering impact into the third quarter from that, or is that purely a second quarter event?

Paul D. Carrico

Just second quarter.

Christopher W. Butler - Sidoti & Company, LLC

And in the release, you had pointed out professional fees of $5 that were relatively unusual. As we look to the second quarter, do we see fees of a similar amount, more or less, how does that work?

Gregory C. Thompson

Well, a part of that I guess depends on the activity level related to that. So I would, certainly, I would -- you can make your own assumptions as to what that might be in the second quarter.

Christopher W. Butler - Sidoti & Company, LLC

And as far as working capital. It looked like you did a pretty good job with inventories, but accounts receivable was up significantly and you did mention that bad debt expense was up as well. U.S. seems to be doing pretty well overall, any concerns that that's -- receivables are dragging out a bit?

Gregory C. Thompson

No. On a days basis, when I said that we, actually, on a total net working capital basis, we improved by 5 days, accounts receivable was actually flat on a days basis with last year. And so the growth that you see is all that added volume. So -- and our aging's continue to look really, really good, I think overall. But we are cautious with a number of customers because there are some that -- and that's why we increased the bad debt expense just given some of the -- some of our customers continue to struggle a little bit with housing, in particular, at the low levels that it's at.

Operator

And your next question comes from the line of Bill Young [ph].

Unknown Analyst

Can you give us an idea of the differential right now between PVC export prices in the pipe grade versus domestic?

Paul D. Carrico

They're in the same general range maybe domestic being a bit higher, but they significantly closed the gap from the beginning of the year.

Unknown Analyst

Okay. Which was roughly how much?

Paul D. Carrico

Well, on the export side, they moved up from about, I call it, $775 a ton to close to $1,000 something like that, so I think that's about $0.10 a pound or something like that.

Unknown Analyst

Okay. Great. That's big help. Second, on the chlorine integration, what types of projects or ventures are you considering at this stage of the game?

Paul D. Carrico

Yes. We're still looking at multiple different options. One includes the possibility of building our own facility and the others look at doing something with existing players, such that we can get existing capacity that would be available and put it to more effective use in our current operations.

Unknown Analyst

Okay. Great. And lastly, you mentioned the improved supply-demand in the Aromatics area. To what -- what are the main issues there that you attribute this to?

Paul D. Carrico

Well, there's been at least a couple of cumene plants that shut down over the last few years and that got rid of the excess capacity on the cumene side. And then, of course, there is the uncertainty about the Sunoco refinery, everybody is still wondering about that. But basically, the key variable there was the cumene excess being eliminated because of plant shutdowns.

Operator

[Operator Instructions] You have a follow-up question from the line of Silke Kueck.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

When I look at the EBITDA guidance for the year, is the change related to mostly higher-than-expected EBITDA in Aromatics and Building Products, and maybe Chlorovinyls is roughly flattish from what you thought early in the year? Or meaning like the expectations didn't change for Chlorovinyls from what you had earlier in the year, where actually outlooks for Aromatics and Building Products looks better.

Paul D. Carrico

Yes. Aromatics certainly is a factor. We started off a bit stronger than we expected beginning of the year. Natural gas will be a bit of a positive, so those are probably 2 biggest areas. Building Products, we're still being -- waiting and watching. We -- we're hopeful that will be a contributor, but we're waiting and watching at this point.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

So your outlook in Chlorovinyls for the year is -- this now better than it was in the beginning of the year because of natural gas prices?

Paul D. Carrico

Yes.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

And despite the turnaround? Okay.

Paul D. Carrico

Yes.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

Okay. Secondly, when do you think you'll be fully integrated into chlorine? Is that like a 2-year prospect or a 3-year prospect? And how much capital do you have to spend to achieve that?

Paul D. Carrico

Well, if we were to build, that's on the range of a 3-year type of project, 2.5- to 3-year type of project. We've already done a significant amount of engineering work there, so we've got a big head start on it. If we do something else, it will be much sooner than that. The order of magnitude of the capital and the build is in excess of $400 million. So the capital required to do some other venture should be probably there or less, something like that.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

And are you leaning more towards building yourself, or you're more leaning towards looking for other opportunities to integrate?

Paul D. Carrico

I don't really have a position to share with you at this point. We're open to whatever works best for our shareholders and so we're trying to maximize that in the analysis.

Operator

And your next question comes from the line of Gregg Goodnight.

Gregg A. Goodnight - UBS Investment Bank, Research Division

The May $0.02 PVC increase, have all producers supported that announcement?

Paul D. Carrico

It's my understanding that they have. I couldn't absolutely [ph] that, but I believe that's the case.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Okay. Great. Second question, if the markets hook, Sunoco markets hook refinery goes down, what sort of opportunity would that present for your cumene business? Could you -- I know it's a supposition, but could you try to size it for us? Would it be a moderately large opportunity, small opportunity, no opportunity at all?

Paul D. Carrico

I think it's kind of neutral at this point. We, as I was mentioning earlier about the contract situation, we've tried to really optimize our situation this year plus we always like to have a little bit of availability on opportunistic things that come up. So we're kind of in the spot we want to be at this point .

Gregg A. Goodnight - UBS Investment Bank, Research Division

Isn't your cumene unit in Pasadena running at a low percent of design capacity? I mean, couldn't you ramp up cumene production if the opportunity was there?

Paul D. Carrico

Well, that situation, the way it's been for about 10 years, but it's not that way anymore. It's in fairly a little bit -- fairly high rates these days.

Gregory C. Thompson

Gregg, we said we were running at -- we ran at 94% in the first quarter.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Okay. That's on the cumene side?

Gregory C. Thompson

That's Aromatics in total.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Okay. Because I thought you had more cumene capacity than you had phenol capacity because of the Pasadena plant shutdown for instance.

Paul D. Carrico

Yes. The cumene operating rate is definitely higher than the phenol operating rate. And the cumene operating rate is in the 90s. And if you look back in the last 10 years or so that was more like in the, I'll call it, 60% range or something like that.

Operator

[Operator Instructions] And there are no further questions in queue at this time.

Martin Jarosick

Okay. Thanks everyone for joining us on today's call and we look forward to seeing you in upcoming conferences and also speaking you again in August.

Operator

That concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Georgia Gulf's CEO Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts