Ashland Inc. (ASH) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Ashland Inc. Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Jason Thompson, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Ashland's Fourth Quarter Fiscal 2014 Conference Call and Webcast. We released preliminary results for the quarter ended September 30, 2014, at approximately 5 p.m. Eastern Time yesterday, November 5, and this presentation should be viewed in conjunction with the earnings release. Additionally, we posted slides and prepared remarks to our website under the Investor Relations section and have furnished each of these documents to the SEC in a Form 8-K. On the call today are Jim O'Brien, Ashland's Chairman and Chief Executive Officer; Kevin Willis, Senior Vice President and Chief Financial Officer; and Luis Fernandez-Moreno, Senior Vice President and President of Ashland Specialty Ingredients. As shown on Slide 2, our remarks include forward-looking statements, as that term is defined in securities laws. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please also note that we will be discussing adjusted results in this presentation. We believe this enhances understanding of our performance by more accurately reflecting our ongoing business. Now I will hand the presentation over to Kevin.

Thanks, Jason, and good morning. Yesterday, we reported a loss of $0.35 per share from continuing operations. When adjusted for key items, earnings per share were $1.42, a 10% increase from prior year. We saw good volume and sales growth across Ashland with each region of the world posting solid year-over-year sales gains. Overall, volumes grew 3% and sales grew 5% despite pricing headwinds negatively affecting intermediates and solvents within Performance Materials. Ashland grew EBITDA 8% from the prior year, driven by strong volumes, mix, and margins in Ashland Specialty Ingredients. Performance Materials posted sales gains in composites and elastomers, more than offsetting price declines within the BDO market. And Valvoline posted another solid quarter with year-over-year EBITDA growth of 5%. In total, Ashland's adjusted EBITDA for the quarter exceeded the guidance we outlined in our June quarter earnings release. Ashland continued to make good progress on our global restructuring program. Through the fourth quarter, we have achieved more than half of the targeted $200 million run rate savings. Savings to date from the restructuring program have largely offset the previously disclosed headwinds of stranded costs, incentive compensation and merit increases. We expect to see net savings from the restructuring program beginning in the December '15 quarter. Now for a few corporate items. Our effective tax rate for the quarter was 23.4%. We had several favorable discrete tax items that lowered the effective rate. We expect our 2015 full year tax rate to be 22% to 24%. Capital spending in the fourth quarter totaled $97 million, bringing the full year total to $248 million. We expect to increase capital spending next year to $275 million to $300 million. Free cash flow in the fourth quarter totaled $79 million, bringing the full year to $332 million. For fiscal 2015, we expect free cash flow of $290 million to $340 million. This includes approximately $60 million of cash costs related to the global restructuring that is expected to deliver the $200 million in annual cost savings. On a normalized basis, this would equate to free cash flow of $350 million to $400 million. We also returned a significant amount of cash to shareholders during the fourth quarter under the $1.35 billion share repurchase authorization. We continue to view Ashland's stock as a good investment alternative and plan to complete the current authorization by the end of December 2015. Jim will elaborate on this in a few moments. But first, I'll hand the presentation over to Luis to talk about some of the accomplishments ASI achieved in 2014.

Thanks, Kevin. Fiscal 2014 was a pivotal year for ASI as we implemented the steps to drive profitable growth. We redesigned the business and improved our ability to serve our customers through improved manufacturing and supply chain management. We streamlined our decision making and increased our speed to market. And in the process, ASI generated over $60 million in run rate savings through the global restructuring. As you can see in the chart, we made good progress in both sales and profitability when compared to prior year. During fiscal 2014, we worked at getting the operating model right, focusing on our strategic markets and the core technologies and building sales momentum. We were able to accomplish just that. EBITDA margins increased 3 consecutive quarters, growing from 19.1% in the first quarter to 23.1% in the fourth quarter. While I am pleased with what we accomplished last year, we have more to do in realizing the full benefit of the strategic actions we have taken. Let's turn to Slide 5 and I'll highlight what we aim to achieve in fiscal 2015. As we enter fiscal 2015, our focus is on consolidating the benefits of our 4-step program and driving operational excellence. This includes driving profitable growth in our core businesses, expanding our innovation pipeline through new product introduction, optimizing our product and business portfolio and taking a disciplined approach to deploying capital. We have key competitive advantages in our strategic markets and core technologies, driven by unique product and process technology, manufacturing and commercial footprint and applications expertise. These technologies represent nearly 85% of our sales and even higher proportion of our EBITDA. And the markets we serve with these technologies are growing at a faster rate than global GDP. While we have a strong core of products and technologies, we must continue to leverage the R&D taking place across our network of global centers of excellence to develop breakthrough solutions to the market needs. Process improvements in this area are already leading to faster new product introductions and new innovation for our customers. In addition, we're developing detailed plans to optimize our product and business portfolio. This will likely include some pruning of our current technologies and product lines and some addition of new technologies and product lines. Ultimately, we want to be the best possible supplier to our customers, offering a suite of value-added products and services with unmatched technical expertise. At the same time, we're taking a more focused approach to capital investment to support growth and productivity of our core technologies, targeted at the right opportunities in the right end markets and regions. Our success in achieving these objectives in fiscal 2015 should drive core sales growth above GDP and improve EBITDA margins by 150 to 200 basis points compared to prior year. I'll now hand the presentation over to Jim for his closing thoughts.

Thanks, Luis. Ashland's fourth quarter was a strong finish to a year of marked overall improvement. Sales grew 5% from the prior year period and EBITDA margins expanded 60 basis points to 17.7%. We redesigned the company, and in the process, identified $200 million in cost savings. Through the September quarter, we have captured more than half of these savings on a run rate basis. These cost savings, combined with good volume and sales growth, enabled each of the commercial units to deliver against the earnings estimates we laid out at the beginning of the fourth quarter. Ashland Specialty Ingredients recorded its third consecutive quarter of sequential margin improvement. Strong sales in both consumer and industrial specialties, good business mix and continued cost discipline drove the results. ASI grew year-over-year sales in each region with particular strength in Europe and Asia, and EBITDA margin increased 310 basis points to more than 23%. All things considered, Ashland Performance Materials performed better than we previously expected. Sales grew 2% versus prior year despite declines in the BDO market. This led to better profitability than we had expected at the beginning of the quarter. However, Performance Materials faced a number of headwinds in the quarter, which resulted in the year-over-year decline in earnings. At Valvoline, sales and volume gains, coupled with product mix improvement and cost savings from the global restructuring, helped cap off a record year for operating income. Valvoline Instant Oil Change posted another solid quarter with same-store sales in company-owned sites growing 5%. Strong sales in fast-growing emerging markets were somewhat offset by weaker sales in Europe, leading to low single-digit percentage gains for the international channel. Product mix continued to improve with premium lubricant sales volume increasing almost 400 basis points from prior year to 37.8%. We also continued making good progress in our global restructuring. As part of this program, we have captured in excess of $100 million in annualized run rate savings through the fourth quarter. We remain on course to achieve substantially all of the $200 million in savings by the end of the second quarter of fiscal 2015. Additionally, Ashland has returned a significant amount of capital to shareholders over the past 2 quarters through share repurchases. To date, we have retired approximately 8.9 million shares of stock under the accelerated share repurchase in 10b5-1 programs. We have roughly $270 million of unused capacity under Ashland's current share repurchase authorization. We continue to see our stock as a good investment for our shareholders and intend to complete the program over the coming months. I will elaborate more on this on a few moments. On a broader note, I am pleased with the steady progress we have made over the past year in positioning Ashland for long-term sales and margin growth. The strategic actions we have taken toward improving our business have created a stronger, more nimble organization with a clear focus on specialty chemicals. We are seeing good growth in many of our businesses and the benefits from Ashland's restructuring are helping to drive margin expansion. As we enter fiscal 2015, we have a firm foundation in place to drive revenue and earnings growth. In the year ahead, Ashland's focus can be summarized to one word: execution. More than anything else, Ashland's future success will be measured by how well we execute against the plans we have outlined today. Please turn to Slide 7. As I approach my retirement at the end of December, I want to take a moment to reflect on the accomplishments we have made over the course of my tenure as CEO of Ashland. When I moved into this role, our goal was to create a company with excellent growth opportunities, improved earnings power and higher margin. As you can see on the chart, we have transformed the company by divesting lower-margin, highly cyclical businesses and acquiring higher-margin, growing businesses. As a result, Ashland's EBITDA margin has improved dramatically. Prior to the transformation, our EBITDA margin was in the low single digits and EBITDA was approximately $360 million. Since 2008, Ashland's margin has quadrupled to more than 17% and EBITDA has grown to nearly $1.1 billion. Next slide. The transformation has clearly rewarded Ashland shareholders. As you can see on this chart, Ashland's stock has significantly outperformed the S&P since 2003. During that period, Ashland stock posted a cumulative return of 573%. This return includes growth in share price, distribution of Marathon shares in 2005, our special dividend in 2006 and our regular dividends. Over that same time frame, the S&P 500 returned approximately 208%. Next slide. We've shared this slide with you in the past, so I won't go into great detail. But I did want to take a moment before we open up for questions to highlight a few key elements to the investment thesis in Ashland. First is growth. Despite concerns over a slowing global growth, our expectations remain unchanged. Over the long term, we expect Ashland's revenues to grow in excess of global GDP with peak growth at roughly 1.5x global GDP. With our geographic diversity and considerable exposure to consumer-oriented markets such as pharmaceuticals, personal care, coatings, automotive and adhesives, our business should hold up well through the cycle. Second, our margins. As we showed on a previous slide, our EBITDA margins have expanded dramatically over the past several years, increasing to 17.6% 2014. The structural improvements we made last year should lead to EBITDA margin in excess of 18% in 2015. This puts us well on our way toward our target of 20%. Third is free cash flow. Over the past 3 years, we have generated approximately $900 million of free cash flow. Over the next 3-year period, which runs through 2017, we expect to generate more than $1.2 billion of free cash flow or an increase of more than 30%. We'll continue to deploy this cash into opportunities that generate shareholder value. This could include further investments in high-growth projects, additional returns of capital to shareholders and attractive bolt-on acquisitions. Fourth is value. Despite Ashland's successful transformation into a high-performing specialty chemical company with expanding margins, we continue to trade at a discount to the broader specialty chemicals group. As I mentioned a moment ago, we have approximately $270 million remaining under the current share repurchase program. At the current valuation, we believe investing in Ashland stock yields the greatest return for our continuing shareholders. We intend to complete the share repurchase program prior to the expiration at the end of calendar 2015. Before we open up for your questions, I'd like to share a few closing thoughts. First, it has been a true privilege leading the Ashland for the past 12 years. During that time, we have transformed the company from what was essentially a conglomerate into what is, today, a specialty chemical company. To achieve this end, we completed more than 3 dozen acquisitions and divestitures. Although each of these transactions played a role in shaping Ashland's future, they also contributed to Ashland being viewed largely as an event-driven stock. My hope for the future is that investors recognize Ashland for what we are today: a dynamic, innovative company focused on delivering consistent earnings growth. I am excited by the opportunities that lie ahead for the company and its next CEO, and I am confident Ashland has the right plan in place to ascend to the upper echelon of specialty chemical companies. Now I hand it back to Jason to begin Q&A.

Thanks, Jim. [Operator Instructions] Open it up.

[Operator Instructions] Our first question comes from the line of John McNulty from Credit Suisse. John P. McNulty - Crédit Suisse AG, Research Division: First, Jim, congratulations on the retirement and all the great work you've done. You've truly transformed Ashland. So best of luck to you.

Thank you. John P. McNulty - Crédit Suisse AG, Research Division: I guess, a question. I know there are a lot of moving parts and I know you're not giving specific EPS guidance. But if I kind of take kind of a stab at how to think about things, we're starting out with 2014 at roughly a 5 70-ish [ph] kind of base, which would pull out water and -- et cetera. But so if we add in the cost cuts and just the share repurchases, it seems like it's getting us to roughly kind of in the 7 30 [ph] , 7 40 [ph] kind of range and then I guess a lot of it beyond that will have to depend on growth, FX, oil prices, that kind of thing. But I mean is that the right base to start with before we start factoring in those things that maybe you can't control?

Well, I tell you since I won't be here to tell you if we hit that number or not, I'm going to let Kevin answer that.

Yes, while we don't really tend to give longer-term guidance. Based on what we know today, including our visibility into our businesses, their end markets as well as some of those macro factors that you mentioned, and there are puts and takes in those, the full year Street estimate as of yesterday is within -- certainly within a reasonable range of what we'd expect to achieve for fiscal 2015. John P. McNulty - Crédit Suisse AG, Research Division: Okay, great. No, that definitely helps in terms of the clarity. And then as the follow-up question, can you just give us an update as to what you're thinking in terms of the incremental cost saves in '15 versus '14 for Specialty Ingredients and Valvoline?

Well, at this time -- John, this is Luis. We are at a run rate of about $60 million when it comes to ASI. There is still a little bit more to go in the fourth quarter. And in 2014, we had about $19 million that actually hit the benefits in the year, so we should be seeing significant benefits moving forward, obviously, compensated by inflation. And as you probably saw, there was getting back to normal incentive compensation. So as the year moves on, we should have more favorable comparison when it comes to incentive comp. That's for ASI. Kevin, I don't know if you want to talk about Valvoline.

Yes, I mean, Valvoline should see some incremental savings come into play in 2015. Really, a lot of the program that's left to execute on is more corporate-related and some structural items around some corporate areas. What we've said and what we still believe and are committed to is substantially all of the savings should be achieved on a run rate basis by the end of the March quarter, which would mean that what you should see rolling through the P&L in 2015 would be the impact of what we've already achieved in 2014, along with, call it, roughly 50% of the remainder. And sure, there'll be some inflationary headwinds, merit increase, et cetera. But as we've said, it's really all about execution from here forward and we are extremely focused on managing our cost structure. We're committed to SG&A, as a percent of sales, at the 15% level. You should see us driving toward that metric throughout the course of fiscal '15 as we continue to capture more savings, as the business continues to grow, creating that leverage that we talk about. And so we're committed to that and we have very specific plans in place to achieve that and that's what you should expect us to do over the course of the year.

Our next question comes from the line of Brian Maguire from Goldman Sachs.

Looks like you're making very good progress on the margins with the restructuring program. I'm just curious, any impact you're seeing on the top line from that either from customer service levels or any dissatisfaction that the customers might have? Or conversely, if maybe the streamlining of the organization is leading to any new opportunities or being close [ph] for the customers?

Brian, this is Luis. Yes, definitely, we're starting to see significant benefits on the growth side as well as the cost side. As I've discussed, one of the things we did is we simplified organization and allowed a lot closer decision making close to the customer, the regions and also with our global customers. At the same time, we have reenergized innovation. So some of the new products that we have ready are hitting the market and that's also helping us. So what you saw in Q4 is actually that our growth definitely started to kick in, in the quarter. And when it comes to the customer service, I mean, we definitely have improved some of our customer service, especially versus what we had after the SAP implementation last year and that obviously is helping us in terms of getting our customers much more willing to work with us. And just as a perspective, I mean, in this quarter, we also improved our new products by 100 basis points versus where we were in the past. So fundamentally, customer intimacy, innovation and service are working towards good growth and that's what we saw in Q4 of 2014.

Okay, great. And then just shifting gears to Valvoline quickly. Base oil costs have come down quite a bit recently and it looks like they may be a little bit more to come out there. I was wondering how much -- how many million gallons of base oil you buy a year and how you sort of expect that impact to -- or that benefit to impact you? And how quickly do you think that prices for your products adjust down to meet that? And how much of it do you -- are you able to retain and for how long?

Yes, we buy roughly 150 million gallons base oil per year. And clearly, the decline in base oil cost will provide -- should provide some help from an earnings perspective. It's a very dynamic marketplace that Valvoline operates in and there are puts and takes to that. Just as there are lags going up, there are lags coming down and we don't tend to offer up a number that we expect. And again, generally, we would expect there would be benefit in a declining base oil cost environment. But at the same time, there are times we don't always hold on to all of that, and for the most part, we don't. So ultimately, we'll get some benefit and we'll give some of that back as well. So it's a mix.

And the guidance for the year for margins of Valvoline to be up maybe 0 to 100 bps and how much of that do you think is due to base oil versus the restructuring program and other efforts?

It's a mix of the 2, probably leaning more toward base oil, I would say, than restructuring. I'd say Valvoline is mostly done with their restructuring. There may be some incremental things that happen there, but they're largely done.

Okay. And Jim, good luck in retirement.

Thank you.

Our next question comes from the line of David Begleiter from Deutsche Bank.

And first, Jim, congrats to you as well. Kevin, just on Valvoline again. Just on the guidance, it seems awfully conservative. Given what's happened to base oil, how would you have flat margins year-over-year given where current base oil prices are?

Well, what we've tried to do is give guidance -- again, as you know, we don't tend to give full year guidance. So -- but given where we are in restructuring that's been going on and kind of how we expect that to play out, we've put kind of longer-term numbers out there, also taken a stab at providing you what we believe will happen for 2015. What we've put out is what we have and what we know to the best of our knowledge based upon our view of the markets -- end markets we play in, geographies we play in, et cetera. And I think what you should expect us to do is, as the year progresses, if the view changes -- as the view changes, we will -- we'll take a fresh look at that. And I think it's probably best to take sort of a midpoint point of view of what we expect the business to do. And again, as we proceed through this quarter and prepare for the next conversation we have about earnings, which will happen in January, if we have a different point of view, we'll update you.

And can you remind us how much of your oil is sold through your own stores versus other parties?

Yes, I don't have a gallons number to put to that. But...

Is it roughly 1/3 through your own stores, 2/3 through other parties?

Yes, roughly, that's -- directionally, I think that's right. That's right. And that would include both company-owned and franchised units.

Our next question comes from the line of Mike Sison from KeyBanc.

Congrats, Jim. Hope you have a lot of fun things planned for retirement. In terms of your outlook for 2015, can you help us with the seasonality with the new Ashland? It does seem like earnings in the first half will be a little bit weaker than the second half. Can you help us bridge some of that gap and layer in the cost savings?

Yes, I'll take a stab at that, Mike. I mean, the winter quarters are seasonally weaker for us. I mean, you look at each of the businesses, start with ASI. You have a lot of exposure to coatings, construction, energy and those -- there tends to be a little less activity in the colder months in the Northern Hemisphere than in the warmer months. With Valvoline, typically, fewer miles driven in the colder versus the warmer months and Performance Materials also has exposure to some end markets that tend to be slower in the winter than in the warmer months. And so that's really what it comes down to. But in terms of what we expect for the full year, we expect year-over-year improvement. And if you think about top line growth, don't know that we've actually put a number out there, but what we've said is we expect our business to grow on an overall Ashland-wide basis, granted there's a mix in there between the 3 businesses, somewhat north of global GDP. And so depending on your assumptions around global GDP, you should think about Ashland's growth in relation to that being somewhat north of that outcome.

Okay, great. And then, when you take a look at the EBITDA margin outlook for ASI, 22.5%, 23.5%, can you get to the top end with just the cost savings? Or what degree of volume growth or sales growth do you need to hit the top end of that range?

Yes, I'll let Luis take that question in terms of his expectations of the business.

Yes, I mean, clearly, the things that are impacting our EBITDA is all of the actions that we're taking to improve our cost position, but it's also relevant to growth. And then, as you know, for our business, we expect to grow definitely north of GDP. Our target is for our core markets, which represent 85% of the business, to grow at 1.5 to 2x GDP and we still see that going on. And what will -- if we are able to deliver closer to that range, close to 2x GDP, of course, we'll be at the higher end of the range. If, on the other hand, we're growing closer to the lower end, our EBITDA growth will still be there, but closer to the lower end. And of course, the other key component that will impact us next year is overall activity in Europe and specifically the impact of the euro to the U.S. dollar. When it comes impacting to growth, about 33% of our sales go into Europe and a lot of those are denominated in euro. So again that may impact somewhat impact our growth, not significantly our EBITDA though.

Our next question comes from the line of Laurence Alexander from Jefferies.

This is actually George D'Angelo on for Laurence. Can you guys provide any update on the hiring process for a new CEO?

Yes, the process is continuing. I think it's going according to plan. We have a board meeting next week and I would anticipate that, that board meeting will be heavily oriented toward concluding that process. So I would expect that sometime within the next several weeks, we will have that concluded and an announcement made.

And just a follow-up. In your guys' prepared comments, there was a -- supply chain was one area that you highlighted for improving operational excellence next year. Can you give some more detail on what are the issues there and how you plan to improve?

Yes, I mean, this is very specific, I guess, to ASI. And we have a very long supply chain when it comes to our products. We export a lot of products either from Europe or from the U.S. and sometimes from China to other parts of the world. So the ability for us to supply the materials to our customers very effectively is something that we've made a lot of improvements with our systems, making sure that we have the right inventories in the right place, making sure that we have the right planning. And at the same time, we reduced costs. You probably remember that, last year, we were actually incurring into expedited freight, things like that. So the 2 things that we expect to get from that operational excellence when it comes to supply chain is overall lower cost of shipment, but most important, improved delivery service to our customers. And it's just the normal things that you would do in a normal supply chain around demand planning -- by planning and having the right infrastructure in the right place and really partnering with your customers in predicting their demand, which will deliver those 2 things, improved service and overall lower costs.

Our next question comes from the line of James Sheehan from SunTrust.

On Valvoline, does your guidance for EBITDA margins in 2015 assume that base oil prices remain at current levels?

That would be an appropriate assumption, yes.

And on the BDO headwind for next year, could you give us a flavor for how that trends through the year? Do we expect most of the impact to be in the fiscal first quarter? Or more spread across first and second quarter?

Yes, we think most of it's going to be kind of in the first half of the year. I mean, our expectation for the BDO market is that most of the capacity that's coming either is or will have arrived by kind of the middle of the year. There could be some expectation, although I couldn't give you a specific because I don't know that marginal capacity will probably likely come out of the system as well. And on an overall basis, we're expecting '15 to be the trough of this cycle and to start to climb back up the curve after '15. That's our current view. We try to stay as close to that market as we can, but obviously things can change. But that's our point of view right now.

Our next question comes from the line of Mike Harrison from First Analysis.

Luis, you mentioned that most of the markets on the consumer side of ASI were up in the double digits, but I know that in some of those you had weak comps in the prior year related to the new IT system going in. Can you walk through where you're seeing underlying strength? And what's driving it in each of those markets in consumer?

Sure. And you're absolutely right, Mike, in terms of the fact that we had some easy comps because of the SAP implementation last year. There's really strength in a couple of places. Obviously, personal care continues to be an area strong for us and even in Europe. But once again, that doesn't mean that the market itself is very strong as we're just seeing the introduction of our products and the areas, specifically, where we're playing that are growing faster than market. We continue to see strength in pharma and in nutrition and that would be across-the-board all of the regions, but, again, I would say it's a combination of both. The market has been, I wouldn't say not very strong, but growing and our products being in the right places with the right customers. And that's the one thing that I always highlight. Our customer composition is both large, global enterprises and small or large regional companies, country companies, and we have participation with both. And in some cases, what is happening, especially in emerging markets, is those large, regional companies are growing even faster than the global companies. And our ability to play with both and introduce products with both is what's allowing us to be growing at a higher rate than market.

And then you mentioned that about 85% of your products have some key competitive advantages. You also mentioned there's some pruning potentially ahead. So is it fair to do the math there and say that maybe 10% or 15% of the ASI portfolio is in line for potential pruning? And what types of products are in that basket? I assume powdered guar is one of them and you've already announced that that's something you're getting out of.

Yes. Well, a couple of things. Powdered guar will continue to be a headwind, not only as it was in -- will be in first quarter, it will be a small headwind for us in the second quarter. But fundamentally, we're out of it. We are, today, out of that business. We were out of it in Q4. What is remaining, we obviously have not been willing to say which product lines we're working on. What we've been very actively saying is we target technologies where we have a competitive advantage and that includes things like cellulosics, things like our cellulosic derivatives like PVP and vinyl ethers and our biofunctionals businesses and our adhesives, both acrylates and polyurethane businesses, which are clearly part of the core and part of that 85%. As we move forward, we will analyze that 15%, and yes, they're candidates for possible either divestitures or doing something with them and we will be announcing them as we make those decisions. The good thing about it is, again, that 85% of our sales are in the core markets and technologies and a much higher proportion is -- of our EBITDA is in those technologies. So even as we go with that process, there should be very minimal impact to EBITDA dollars and obviously an accretion to EBITDA margin as we evolve through that thinking. But for obvious reasons, I'm very reluctant to say which are those that we're looking at.

All right. And congratulations, Jim.

Thank you.

Our next question comes from the line of John Roberts from UBS.

Just as well, Jim, I assume the Albemarle board is going to keep you pretty busy in the near term. Give us your view of the M&A environment and opportunities for bolt-ons?

The M&A environment continues to be tough because of the valuations and the reluctance of many companies to rebalance their portfolio because they have so much cash on their balance sheet. They just don't look at trying to monetize something to have even more cash on their balance sheet. So I think the real question on M&A on some of the things that we're looking at that we would like to own, it's going to come down to a point where some of these opportunities that we think will come ultimately, the person or the company that needs to make a decision around it decides this is the portfolio they're going to commit to, these are the assets they're going to keep or not keep, but we continue to work and put our interest forward with parties that we think ultimately will do something. So we know what we want to buy. We're actively trying to position ourselves to be in the right place at the right time when they become available.

Okay. And then just an accounting follow-up. What's the foreign exchange effect embedded in your outlook if rates stay at current rate -- current levels, the 2015 effect?

Yes, the euro is probably the single currency that you should pay the most attention to because of our exposure there for really all the businesses. And the way to think about it is that each point the euro moves against the dollar is between $1 million or $1.5 million of op income impact one direction or the other.

Our next question comes from the line of Jeff Zekauskas from JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: In the early part of the year, I think, you said that you expected the drag from lower BDO prices to be about $50 million. What did it turn out to be? And is there something incremental to come in 2015?

That's about where it was. It's a little less than that, Jeff. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: And do you expect any more drag next year or no?

Yes, $20 million. $20 million. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. And then, lastly, when BDO prices go down, does that improve -- obviously, it reduces the margin in Performance Materials. Does it increase the margin in Specialty Ingredients? Or is it margin-neutral for Specialty Ingredients?

Yes, overall prices of BDO in the marketplace really don't impact us since we're basic in the materials and that's part of the reason we need to be basic is because it provides a fair amount of stability to the earnings of our downstream businesses and it gives us the assurance of supply for our customers, which is absolutely key for them. So as the prices of BDO go up and down in the marketplace, we really see very little impact to margins downstream for ASI.

When the BDO business was embedded within ASI, the BDO that was used for downstream polymer production was transferred at cost and that product today is transferred at cost from Performance Materials, so it really is margin-neutral. The only thing that's going to change the margin around the ASI side of the house is really how effective we are at maintaining the cost to produce the product and we've had very a good run with that. We feel like we have a good cost position relative to marketplace when it comes to our production of BDO at our facilities. And so really it's the volatility in Performance Materials earnings as the price in marketplace goes up and down. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: And lastly, back in 2008 and 2009, when oil fell during the recession, what happened in the lubricants industry is the lubricants companies kept their prices pretty flat and the margins structurally improved. Just philosophically, would you expect a repeat of that? Or has the business changed such that it's more natural that there's a lead and a lag and then the prices for lubricants really come down to reflect the new raw material profile. That is, just philosophically, is it one where we sort of widen out and then come down? Or we can't tell? Or it's like the old days?

I would say your observation in '08, '09 is correct. In today's environment, we see crude as being a commodity that will go up and down. And we price our products according to the market value. So it isn't really perceived as the cost of crude. It's more of the market value in the marketplace. So as crude comes down, there's no question there will be a short-term benefit. But the reason why we're not baking that in for the long range for the year is we don't know what crude's going to do tomorrow, nonetheless 6 months from now. So for us to give you an indication that we think there's a huge benefit coming this year would be perhaps accurate, perhaps not. So the way we view it is just keep a neutral view and we'll take the variance around it based upon what actually happened in the marketplace, but we're not predicting it.

Our final question comes from the line of Chris Shaw from Monness, Crespi. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: Do you know in Valvoline, for the full year and maybe outlook for '15, how many stores you either added or -- if it's been more of an impact not on owned stores, but actually on your franchisees adding -- consolidating and adding franchises themselves. I mean, what sort of numbers in terms of stores have you guys added and what would that outlook be for 2015?

Yes, we've added about 20 stores in fiscal '14 on a base of roughly 900 and that's probably going to be also true over fiscal '15 based on, again, current -- just current view. And clearly, if other opportunities present themselves that are attractive, we'll look at those as we have in the past, but that's, yes, that's kind of what you should think around. It's about 20 stores. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: And are those owned or are those franchised?

A combination.

The one good news is, on franchise, is that we had a franchisee acquire a large operator in California and that was 2 years ago. They acquired this operator. And it was a low-price position operator, and they turned around the customer mix over a period of about 18 months. And this past year, it performed outstanding. So the power of the Valvoline brand out there and the power of that operator moving that business forward has turned into a very nice contributor to profit, for both us and the franchisee. Those are the kind of things that we want to continue to do, is find operators that are underperforming, incentivize our franchisees to buy them and then help them turn them around and using the Valvoline brand to make them an outperformer versus an underperformer. So we're really excited about that model and we'll continue to follow that into the coming months and throughout the year to find opportunities like that.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Thank you for your interest in Ashland. Have a good day, everybody.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.