Cytec Industries Management Discusses Q3 2012 Results - Earnings Call Transcript

| About: Cytec Industries (CYT)

Cytec Industries (NYSE:CYT)

Q3 2012 Earnings Call

October 19, 2012 11:00 am ET


Jodi Allen

Shane D. Fleming - Chairman, Chief Executive Officer and President

David M. Drillock - Chief Financial Officer, Vice President and Chief Accounting Officer


David L. Begleiter - Deutsche Bank AG, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

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

Alina Khaykin

Neal Sangani - Goldman Sachs Group Inc., Research Division


Good day and welcome to the Cytec Industries 2012 Third Quarter Earnings Conference Call. Today's call is being recorded. For opening remarks and introduction, I would like to turn the conference over to Ms. Jodi Allen. Please go ahead.

Jodi Allen

Thank you, Brandy, and good morning, everyone. We appreciate your participation in our conference call. For our call today, Shane Fleming, Chairman, President and Chief Executive Officer, will provide an overview of continuing operations; and Dave Drillock, Vice President and Chief Financial Officer, will review the financial results, special items and discontinued operations. Shane will then finish with some commentary on our outlook for 2012.

This call is being webcast in listen-only mode and it will be archived in audio format on our website for 3 weeks. Throughout the call, we will be referencing the supporting materials which can be downloaded from our Investor Relations website under Calendar of Events, or you may follow the slides accompanying today's webcast, which are also available through the website.

Through the course of this presentation and in responses to your questions, you will hear certain forward-looking statements. Our actual results may differ materially. Please read our commentary on forward-looking statements in Slide #2 of our supporting materials or at the end of our news release or the statements in our quarterly and annual SEC filings.

In addition, our discussion includes certain non-GAAP financial measurements as defined under SEC rules. We have provided a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP measure at the end of our press release. A copy of our press release is available on our Investor Relations website.

As a reminder, we are now reporting Coating Resins as discontinued operations so all financial information will be discussed accordingly.

In addition to aiding your analysis, we have also provided restated 2011 results by quarter in the Appendix of our supporting materials, reflecting Coating Resins as a discontinued segment. One other final reminder is that our 2012 guidance is on continuing operations.

Now, let me turn the call over to Shane.

Shane D. Fleming

Thanks, Jodi, and good morning, everyone. I appreciate you taking the time to join our third quarter call.

I'll begin on Slide 3. Sales from continuing operations in the quarter were $455 million versus $363 million in the prior-year quarter, representing a 25% increase. Excluding the impact of the Umeco acquisition, sales were up 7%, with volume accounting for 5% of the growth. The year-on-year volume growth was driven by strong performance on our 2 growth platforms, Engineered Materials and In Process Separation. The top line growth was also supported by improved pricing across all our segments.

The third quarter net earnings from continuing operations were $42.8 million or $0.91 per diluted share, excluding special items which represents a substantial increase versus $0.52 per diluted share in the third quarter of 2011.

I remain extremely pleased with our ongoing progress to leverage sales growth and improve product mix into strong earnings for the company.

Slide 4 provides the summary of results for Engineered Materials, with sales of $224 million, an increase of 12% versus third quarter 2011. Selling volumes increased by 9% in the quarter, driven by higher build rates in the commercial transport sector. This includes large commercial programs, as well as volume growth in the business and regional jet sector.

Demand also remained solid for the civil rotorcraft market. As anticipated, we did experience slightly softer demand patterns later in the quarter as a result of some short-term inventory destocking in the supply chain but volumes still held up well despite this headwind.

Selling prices also increased by 3%, which resulted in operating earnings in the quarter of $40.5 million, up 35% versus $30 million achieved in the period a year ago.

Moving on to Slide 5. We completed the acquisition of Umeco in the third quarter and are reporting results for this business for the first time as a separate operating segment. Please note that results do not represent a full quarter given the timing of the close on July 20. Sales for the business were $66.8 million since the close. We saw a solid performance in the process materials product line despite some softening in the wind energy sector in North America later in the quarter. If you recall, this side of the business supplies specialty vacuum bagging consumables for resin infusion and prepreg processing and represents about 40% of the segment's sales. Demand in the structured materials portion of the business softened in the later half of the quarter, particularly across the industrial sectors in Europe and we are seeing some customers in this market begin to delay orders. As reported, operating earnings since close were $2.9 million, which was somewhat below our expectations, driven primarily by the softer demand for the structural material products.

Slide 6 shows the results for the In Process Separation segment. Following record performances in the first 2 quarters of this year, the segment continues to deliver consistent growth with sales of $98 million in the quarter, a 9% increase versus the third quarter 2011. The selling volume increase of 4% came from continued strong demand from our mineral processing technologies including one new plant fill at a copper operation in Africa, accounting for over $3 million in sales. This demand increase was slightly offset by lower sales in aluminum markets as some customers have reduced output given high inventory levels and low aluminum pricing. Our assessment shows approximately 6 million tons of aluminum capacity or roughly 5% of the global production has been temporary taken offline.

Demand continues to be solid for phosphine chemicals particularly in North America. Selling prices in the quarter also increased by 5%. The combined strengths across the product lines resulted in earnings in the segment of $24.4 million versus $17.3 million in the prior-year period, driven by the strong sales of higher-margin, value-added technologies and the positive selling price impact.

Now onto Slide 7. Additives Technologies sales decreased to $66.4 million in the quarter, driven primarily by soft demand in the Specialty Additives product line, which supplies surfactants and specialty stabilizers into industrial markets. This product line continues to experience significant weakness in the Europe and the North American markets.

The Polymer Additives side of the business is holding up a bit better in this environment with some improvements in the automotive market offsetting weaker demand in agricultural film applications in Europe. Selling price increased by 1% in this segment. The business continues to stay focused on maintaining the operating margins, and despite the soft demand, has delivered earnings in the quarter of $9.6 million or 14.5% operating profit.

Now let me turn the call over to Dave who will review the financial results in the quarter.

David M. Drillock

Thank you, Shane, and good morning, everyone. We had a number of special items in the quarter, so let me cover the major ones first.

In continuing operations, under Corporate and Unallocated, we recorded a net pretax restructuring charges of $4.5 million related to reductions in the stranded costs of Coating Resins and achieving synergy cost reductions in the acquired Umeco business.

Also in Corporate and Unallocated is a pretax charge of $4.3 million for costs related to the acquisition of Umeco. Included in the Umeco segment is a pretax charge of $4.5 million related to purchase accounting. We are required to assign a fair value to the acquired finished goods inventory at the date of closing.

The $4.5 million is the difference between the fair value and the normal manufacturing costs. This was all fleshed out in the third quarter so this charge is behind us.

The major special items in discontinued operations include an estimated pretax loss of $25.4 million on the expected proceeds from the sale of Coating Resins versus our book value. There is also a pretax gain of $21.4 million related to the sale of our Pressure Sensitive Adhesives product line in July.

Also included is a pretax charge of $4.5 million for costs incurred in the sale process of Coating Resins and a pretax benefit of $19 million related to depreciation and amortization that are no longer expensed as Coating Resins is now reclassified to assets held for sale. More details on all of the special items can be found in the earnings release.

Now let's go to Slide 9 and review our operating results for the quarter. Just a reminder, that all amounts and percentages I discuss will exclude any special items in discontinued operations unless specifically mentioned otherwise. I'd also like to remind you that the 9 months prior year discontinued operations results include our former Building Block Chemicals business which was sold in the first quarter of 2011.

Overall sales were up 25%, and 18% of the growth resulting from Umeco acquisition. The remaining 7% including the volume growth of about 5% coming from a strong demand in our growth businesses as Shane just discussed. Selling prices were up 2%, with all segments up year-on-year, the majority coming from our growth platforms. Good work by our commercial teams in a tough market.

Our gross profit dollars increased 30% to $139.9 million while our gross margin percentage of 30.7% is 1 percentage point higher compared with the prior-year period.

Our gross profit benefited from good volume growth within engine materials and in, In Process Separation, as well as the aforementioned price increases which more than offset raw material inflation.

These favorable impacts are partially offset by higher manufacturing costs, mostly within the engine and material segment to support its higher demand.

Corporate and Unallocated expenses for the quarter, excluding the special items mentioned above, includes the stranded costs from Coating Resins of $15.7 million. As the Coating Resins segment is now classified as discontinued operations, continuing costs previously allocated to this segment have been reclassed to corporate unallocated.

The year-to-date amount is about $51 million. Continuing cost consist of corporate functions such as IT, HR, legal and finance serving the U.S., Europe and Asia. Let me repeat that we are on track to eliminate 2/3 of the cost within 90 days of the close. As you can see from our restructuring announcements in the second and third quarter, we are well on our way.

We expect to get up to 75% of those costs eliminated within 24 months and are going forward with the rest to support our growth platforms.

Operating expenses were slightly higher compared with the prior year in terms of dollars, but lower in terms of percent of sales owing to strong sales growth in both Engineered Materials and In Process Separation plus the addition of Umeco. Interest expense net is down about $1.6 million, mostly due to higher capitalized interest, which is in line with our higher CapEx spend this year.

Our overall underlying annual tax rate for the quarter was 31.5%, which is flat versus the prior-year period. Included in income tax expense for the quarter of 2012 is a benefit of $8.5 million related to the reversal of certain tax reserves due to the completion of U.S. tax audits for the years ended 2004 through 2008. This is a very good result and many thanks to our tax group and all those who has assisted them in those ordered reviews.

And the result of all the above plus the lower share count resulted in adjusted diluted earnings per share from continuing operations, 75% above the prior-year period.

Now let me cover Coating Resins segment sales in earnings on a basis prior to classifying it as a discontinued operation. During the quarter, sales were $364 million, operating earnings were at $24.3 million. Sales are down compared to prior year quarter sales of $415 million. However, operating earnings are much improved and compares very favorably to the prior-year quarter of $19.5 million. This owes to the benefits of lower raw material costs and lower expenses resulting from improvement initiatives implemented last year.

As noted in our press release, we did not provide a statement of cash flows for the quarter. Due to the complexity and time required to report Coating Resins and discontinued operations plus record the Umeco acquisition, we will provide statement of cash flows in our quarterly 10-Q filing which is expected to be filed on or about November 7, 2012.

I'll move on to working capital, which will be excluding Coating Resins and including Umeco. Our average net working capital days were up 12 to 96 compared to the second quarter of 2012. Average accounts receivable and inventory days were up 2 and 6 to 47 and 94 days, respectively. Average accounts payable days were down 4 days to 45. Our inventory days in Engineered Materials and In Process Separation of higher inventory days is due in part to a longer supply chain and longer lead times. Umeco days were also higher than our average, which all spell opportunity for future cash flow generation. We've done a great job over the past few years optimizing our working capital processes, and we plan to apply the same good principles to our new business to improve on these metrics.

Our capital spending for all of Cytec in the quarter was $49 million. Our outlook for 2012's full year capital spending remains at $200 million for total Cytec, with 80% of the spending related to announced investments in our growth platforms.

In connection with the Umeco acquisition, we borrowed $170 million on our $400 million credit facility. Our balance at the end of the third quarter was $25 million as we are able to reduce this borrowing with our internal cash generation and proceeds from the sale of the Pressure Sensitive Adhesives product line. In addition, we are pleased that our the investment grade rating were recently reaffirmed by Moody's and Standard & Poor's.

We had no stock buybacks in the quarter. In October, we announced our expanded share repurchase program, with a total authorization of $650 million, which represents an increase of $452 million from the prior authorized level.

We expect to fund the repurchase program with a portion of cash proceeds from the sale of our Coating Resins business, which is expected to close in the first quarter of 2013. We are fully committed to quickly returning proceeds from the sale of Coating Resins to shareholders via stock buyback, which will offset some of the dilution from the sale of Coating Resins.

With our expanded authorization effective immediately, we will conduct repurchases from time to time through open-market repurchases or accelerated share repurchase transactions beginning with this quarter. Our timeline is to be completed in the first half of 2013.

Please note that we have not factored in any stock buyback in our implied Q4 guidance, which simply means that this would be an upside to earnings per share.

So we are pleased with our solid third quarter results. Our portfolio transformation progress and are excited about the megatrends that enhance our growth businesses. This, plus our strong balance sheet, enables us to continue to invest in our future, creating long term value for our shareholders.

Thank you. And now I'll turn the call back over to Shane.

Shane D. Fleming

Thanks, Dave. And now I'd like to update you on our outlook for 2012, which we have summarized on Slide 13.

In Engineered Materials, strong demand for advanced composite materials continues to drive our growth in the aerospace market. In the large commercial transport sector, build rates for single body and new wide body programs requiring higher levels of composites continue to ramp up and we are also seeing growth in business and regional jets. In the short term, we expect to see some carryover from the third quarter inventory adjustments into the fourth quarter and therefore, have tightened our full year 2012 outlook for sales to be in the range of $895 million to $905 million, up about 14% over 2011 full year sales.

We now estimate operating earnings to be in the range of $163 million to $168 million, up about 32% over last year's results. I remain very positive about the shorter and long term outlook for the aerospace business, as well as our ability to grow our position in the market and we expect to deliver strong revenue and earnings growth in this segment next year and beyond.

The structural materials portion of the former Umeco business will remain challenged through the end of the year due to the soft demand across the industrial sectors in Europe. We have a number of customers that have delayed orders 1 and even 2 quarters, due to the slowdown in demand in their end markets. As a result of the anticipated continued soft demand for processed materials and wind energy applications and for structural materials in Europe, we estimate July 20 through December 31 sales to be in the range of $155 million to $160 million and operating earnings through the same period to be in the range of $7 million to $9 million.

This translates to $0.13 to $0.16 per share accretion for the year versus the $0.20 per share target we announced earlier.

Despite these initial challenges, I remain very positive about our ability to capitalize on the future growth opportunities in the industrial materials markets. As I have visited our newly acquired sites over the last several weeks, I've been extremely impressed by the high quality people and the product and applications technology in this organization. I also see opportunities to realize additional future synergies through further integration of these operations into Cytec, including moving to common business processes and systems, which would drive productivity and expand operating margins in the segment. Accordingly, despite the disappointing demand outlook through year end, we remain confident in our ability to deliver our $0.65 per share accretion target for 2013.

In Process Separation segment sales are expected to remain strong through the year, particularly in the copper market which supports infrastructure growth and industrialization in emerging markets. We have factored in continued softness related to the aluminum market as we do not anticipate customers who have idle capacity to resume in the short term. We continued to be successful at penetrating new geographies and we are working with customers to capture new opportunities for next year.

Sales of phosphine chemicals should also remain steady through year end and we are therefore increasing our full-year sales estimate for In Process Separation to a range of $385 million to $395 million, and increasing our operating earnings guidance to be between $92 million and $96 million. This represents a 30% increase of our full-year 2011 earnings, an excellent result.

In Additives Technology, demand softness in the Specialty Additives product line is expected to continue in the fourth quarter and we anticipate customers will be managing inventories carefully at year end. Therefore, we are reducing our estimate for full-year sales to a range of $270 million to $280 million from $290 million to $300 million. Operating earnings are now expected to be between $37 million and $39 million, down from our prior estimate of $40 million to $45 million.

We will continue to work hard to maintain the good operating margins through this period of soft demand.

The guidance for Corporate and Unallocated expenses is approximately $85 million for the year, which now includes approximately $68 million in cost previously allocated to Coating Resins. Other expense is forecast to be $2 million and interest expense net is expected to be $30 million.

Our forecast for the underlying annual tax rate is expected to be in the range of 30.5% to 32.5%. This translates the full year 2012 adjusted diluted earnings per share for continuing operations estimated in a range of $2.84 to $3.03 versus our second quarter guidance of $2.65 to $2.90 per share. As a reminder, the updated guidance now includes the $8.5 million tax benefit that Dave discussed earlier, which equates to $0.18 per diluted share.

In closing, I remain extremely pleased with our performance through the year, as we have delivered segment operating earnings of $226.6 million, a 38% increase over last year's 9-month result while in the midst of a major portfolio transformation. This has required tremendous effort, focus and commitment from our entire organization, and I couldn't be more pleased with or proud of this team.

While we still have some work ahead of us to complete the integration and separation activities, with our announced share buyback, stranded cost reduction actions and solid revenue growth expected from industry-leading growth platforms, we are poised to deliver substantial earnings growth in 2013 and beyond despite the uncertain economic conditions.

Now, let me turn the call over to our moderator, Brandy, so we can respond to your questions.

Question-and-Answer Session


[Operator Instructions] Your first question comes from David Begleiter with Deutsche Bank.

David L. Begleiter - Deutsche Bank AG, Research Division

Shane, just on the share buybacks. Given where your stock price is, why wouldn't you do some form of accelerated repurchase with the proceeds of the divestiture?

Shane D. Fleming

I'm sorry, Dave, why would we not or why would we?

David L. Begleiter - Deutsche Bank AG, Research Division

Why would you not do something in a much more expedited fashion on the buyback front?

Shane D. Fleming

Well, I think our plans are to be relatively aggressive through year end. I think the limiting factor for us right now is just actually receiving the proceeds from the Coating Resins sale. So as Dave said in his comments, we intend to start some buy back activity immediately, that could be more open-market purchases or some sort of an accelerated program. We'll look at what makes the most sense based on our view of future share price and where we're trading. So I guess my short answer to your question is, yes, we would consider doing that.

David L. Begleiter - Deutsche Bank AG, Research Division

And secondly on Umeco. Any disruption from the acquisition do you think, that impacted the results either for this quarter or next quarter? Any lost people or lost business?

Shane D. Fleming

On the lost people side, no. I mean, you get a little bit of turnover beyond expectations but I think it was relatively modest and I don't think that was a significant impact on the business. It's hard to really say if this had an impact on business, did a customer here or there switch or delay an order or did we miss an opportunity because of the integration activity, it's possible. I don't think it's a major driver, though. I think the biggest difference between the quarter results and what we expected was related to the slowdown particularly in Europe and just the orders being pushed forward a little bit. But as I said in my comments, I think this is a temporary situation and we do expect to see the business pick back up again next year from a revenue standpoint and we also expect to deliver that $0.65 earnings target that we set out earlier.

David L. Begleiter - Deutsche Bank AG, Research Division

And just lastly, in your own core Composite business. How confident are you that the supply-chain issues will be done by year end and not flow into Q1 next year?

Shane D. Fleming

I would say pretty confident. I think the only reason we're seeing carryover into Q4 is just because we're at the end of the year and customers tend to try to manage their inventory levels at year-end. I think it's going to be relatively modest. You can see from our sales guidance, that we're not expecting a significant fall off in Q4. But again, we would expect this to be wrapped up by year end and start next year off with strong sales in January.


And your next question comes from Laurence Alexander with Jefferies.

Laurence Alexander - Jefferies & Company, Inc., Research Division

I guess, 2 questions. First on Engineered Materials, can you give us a sense for how you're thinking about the shape of the cycle? A few years ago, there was sort of -- it seems that this -- there was a window to actually have a super cycle with 10% plus top line growth in the middle of the decade. Now, do you think anything like that is still feasible in 2013, 2014, or do you think that's getting pushed back? And then ...

Shane D. Fleming

No, I think, I'm sorry, do you want me to respond to that and come back with a second question?

Laurence Alexander - Jefferies & Company, Inc., Research Division

Well, I'm just going to tie in like the more broadly, could you then tie that into at least, an early glimpse on how you're thinking about momentum into 2013 in what you know you have versus what was still up in the air?

Shane D. Fleming

Let me first respond to the macro question. I would say that we are still confident in the cycle over the next several years. So in the short to medium term, I think everything still points to continued growth, ramp up rates on new programs will continue and I think the announced build rate increases on the legacy programs will continue. I think the super cycle question as you get out beyond that, would potentially be impacted by continued uncertainty in the global economic environment. So I think we've got a couple of years that are pretty solid, when you start talking about looking out '15, '16, '17 and beyond, if the world does go into a crazy meltdown and we see a significant slowdown in global GDP, ultimately, that's going to hit revenue passenger miles and freight and will have an impact. But short of that, I would expect the growth to continue, even beyond '13 and '14 at a fairly high rate. So, still pretty bullish on the macro market but the economic uncertainty today is putting a little bit of pressure on that. In terms of Cytec's view, our position is that we're poised right now with our share on existing legacy programs and new programs that are ramping up to be able to deliver double-digit revenue growth over the next couple of years, and that's -- I think that's how we look at this market through '13 and '14.


Your next question comes from Mike Sison with KeyBanc Capital.

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

In terms of Umeco, as I recall, you talked about the structural materials and there's another part of the business, the processed material side, any update on how that business is doing and the outlook going forward?

Shane D. Fleming

Yes. The processed materials business held up better in the first couple of months that we've owned the Umeco operations and the structural product side. So the processed materials are vacuum bagging, the vacuum bagging consumables that are used across a wide variety of composite applications including aerospace and automotive and other industrial applications. We did see some softening later in the quarter in the wind sector in North America and in Europe but overall, the process side of the business held up pretty much as expected so we weren't really too disappointed by the results. On the structural materials side, we did see more of an impact from the uncertainty in Europe. We did see some demand softening there. In particular, we saw some orders being pushed out into Q4 or even into Q1 2013. So in balance, the process material side did perform better. The structural material side, we think suffered from some shorter-term demand softness and our expectations are that, that will pick back up as we move into 2013.

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

Okay, great. And when you think about -- I'm encouraged to hear that the accretion outlook that you looked for, for Umeco is on track for 2013. Can you help us understand what type of growth you need to get from that businesses to sort of hit that bogey or is it more just integration and such?

Shane D. Fleming

Yes. I think we don't need a lot of top line growth to be able to deliver improved margins and with the improved margins and owning the business for the full year, that's what gets us to the $0.65. So I would say, a significant top line growth, it would be an upside to that number.

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

Got it. And then lastly in terms of additive technology as I think it's clear across different -- several types of businesses are slowing these days, do you see it lingering into the first quarter?

Shane D. Fleming

Yes, I think we're not likely to see the bounce back there that we would expect in a situation where you're just seeing destocking because I think this is more than destocking, I think there's some underlying demand reduction, the stabilizers portion of the Specialty Additives product line provides a product, phenothiazine that is used in the production of acrylic acid and ethyl acrylate and if you look at the global production for those materials, particularly Europe and North America where we're largest, that's had a significant impact on it. So until you see acrylic acid use pick back up again, that business is going to stay soft, and even some of our industrial surfactants that are used in adhesives and coatings don't look like there's going to be any short-term bounce back there. A little bit more positive on the Polymer Additives side because we're in some areas where there's more growth. The automotive portion of that business is doing well here in the U.S., as well as particularly in Asia, so a little bit of a tale of 2 cities where I think we should see some improvement on the PA side from a demand perspective, but it's unlikely the underlying demand is going to improve in Specialty Additives in the short-term.


Your next question comes from John McNulty with Credit Suisse.

Alina Khaykin

This is actually Alina Khaykin sitting in for John. Engineered materials, how long do you guys expect the destocking to last in 4Q and what platforms are you seeing it most in?

Shane D. Fleming

I would say from a platform standpoint, it's pretty general across-the-board. So it's not so much destocking at the OEM level, it's a step back in the value chain, so it's the people, the Tier 1s that are building parts from our materials. So wherever they've got ahead a little bit of the OEMs, they're slowing down. And in terms of how long that will continue, as we indicated in our prepared comments, I expect to see some of that linger into Q4, but our expectations are by year-end, that should be cleaned up, and we should be in a good position to start 2013 with positive results.

Alina Khaykin

And then also on Umeco, what is the profitability difference between the Structural Materials part and the vacuum bagging part?

Shane D. Fleming

It's actually pretty similar, not a significant difference, at least at an operating profit level. At the margins, it might be different, but at the operating profit level, it's been historically pretty similar.


Your next question comes from Bob Koort with Goldman Sachs.

Neal Sangani - Goldman Sachs Group Inc., Research Division

This is actually Neal Sangani on for Bob. A question on Umeco, as you look at the early technology overlaps, what type of revenue opportunities are you seeing potentially evolving as that business has been on for a few months now?

Shane D. Fleming

Yes, it's probably a little bit too early for us to provide you a whole lot of detail. I think our views going in that a big growth driver within the industrial segment for us would be automotive, that's been confirmed, that's where a lot of the business sits and that's where a lot of the activity is for new development. We've recently announced collaboration with Jaguar and Land Rover to help them develop a high composite content car and there's a lot of interest by other OEMs, particularly in Europe, to collaborate with the carbon fiber composite producers for those types of applications. So I think generally, the most attractive shorter-term market for growth is automotive but there are a lot of other industrial applications, including recreation, wind energy, et cetera, that do poise growth. I think for us, we want to be selective, we want to participate in markets where our products provide a performance advantage, and we're able to convert that advantage into higher pricing and more value.

Neal Sangani - Goldman Sachs Group Inc., Research Division

And looking specifically at the wind energy market, is that something that's anticipated to rebound in the forecast or is that something that's going to take some time?

Shane D. Fleming

I think that's really pretty much a political question, it's driven a lot by the wind energy, it's driven a lot by the government credits, tax subsidies, et cetera. So I think it depends on what the programs are going to be in the U.S. Are they going to continue -- some of the states and federal government going to continue to support those programs or not. I think, just to be clear, our structured business, so the composite sales we have, are pretty modest into wind energy, actually quite modest. Our exposure to the wind energy side is more on the vacuum bagging portion of the business and while it's an important part of the process material segment, it's not a big piece of the total for us.


[Operator Instructions] At this time, there are no further questions. Are there any closing remarks?

Jodi Allen

Yes, we'd like to thank everyone for your participation in today's call. And if you do have any follow-up questions, please contact me directly at (973) 357-3283. Thank you, and have a good afternoon.


Thank you. This concludes today's conference. You may now disconnect.

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