Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation First Quarter 2014 Conference Call. My name is David, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Isaac DeLuca, Vice President, Investor Relations. Please proceed, sir.

Thank you, David. Good morning, and welcome to everyone joining us on the call today. Before beginning, we would like to remind you that statements made during this conference call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statement. Some of these risks and uncertainties can be found on the company's filings with the Securities and Exchange Commission, as well as in yesterday's press release. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the PolyOne website, where the company describes the non-GAAP measures and provides a reconciliation of them to the most comparable GAAP financial measures. Operating results referenced during today's call will be comparing the first quarter of 2014 to the first quarter of 2013, unless otherwise stated. Joining me on the call today is our Chairman, President and Chief Executive Officer, Steve Newlin; Executive Vice President and Chief Operating Officer, Bob Patterson; and Executive Vice President and Chief Financial Officer, Brad Richardson. I will now turn the call over to Steve Newlin.

Well, thank you, Isaac, and good morning, everyone. We have outstanding news to share with you this morning, as we delivered very strong results across all of our business platforms, demonstrating significant progress toward our 2015 targets. We achieved record first quarter adjusted earnings per share of $0.44. This is a 42% increase over last year's $0.31 and it also marks our 18th consecutive quarter of strong double-digit adjusted earnings-per-share growth. During this period, our adjusted EPS compounded annual growth rate has been 26%, with the trailing 12-month EPS growth accelerating to 34%. These strong results build on the momentum from the second half of 2013 and set the stage for another superb year in 2014. We achieved year-over-year revenue improvement in nearly every region, including Europe, which grew organically revenue by 6%. During the last 3 months, I've met with customers in Europe, Asia and North America and came away extremely proud of what we've been able to accomplish for them. Our long-term growth prospects are even more encouraging. Several top-level customers articulated their appreciation for the value of our uniqueness and our ability to collaborate with them to help them succeed. Our record-setting performance again this quarter is a product of years of dedicated investment and always putting the customer first. We have a laser focus on becoming an extraordinary specialty company, viewed among the top performers in the chemical and material industries. I want to direct my comments this morning toward 2 critical elements that drove our performance: our world-class sales force and the global associates who support them and our robust innovation pipeline. I've worked with and led commercial organizations nearly my entire 38-year career and I've never seen more energy and enthusiasm than I did at our global sales meeting held 2 months ago. This…

Well, thank you, Steve, and good morning, everyone. It's a real privilege to share our first quarter results this morning, as we started off the year with a very strong performance, which positions us well through the remainder of 2014 and beyond. We reported first quarter revenue of just over $1 billion, up from $801 million last year. Adjusted net income was $41.9 million versus adjusted net income of $28.9 million for the first quarter of 2013. Adjusted EPS expanded 42%, to $0.44 per share versus $0.31 per share last year. Sales increased 25% overall principally driven by the acquisition of Spartech, as well as gains in transportation, health care and consumer end markets. Special items in the quarter resulted in a net after-tax charge of $12.5 million, or $0.13 per share, principally related to our manufacturing realignment efforts and other Spartech integration activities. We believe the fundamental financial strength of an organization lies with a strong balance sheet. Part of my objectives for PolyOne are to continue making measurable strides in improving our financial positions, enabling investment back into the business, pursuit of our M&A strategy and returning cash to shareholders. Since 2009, we have freed up over $235 million in cash through our award-winning Lean Six Sigma projects focused on improving working capital. For the first quarter, working capital was 10.9% of sales on a trailing 12-month basis. Our exceptional working capital management has contributed to our strong liquidity. From a cash perspective, we ended the quarter with a cash balance of $238 million. Including our asset-based revolver capacity, total liquidity at the end of the first quarter was $566 million. During the quarter, we repurchased approximately 1.4 million shares at an average price of $35.42 per share, bringing the total buyback since April 2013 to 6.4 million shares. We remain on pace to repurchase the 10 million shares issued in conjunction with the Spartech acquisition, by the first quarter of 2015. Second, we also continued to invest on our Specialty Platform, with targeted investments in CapEx totaling $17.5 million, with the largest investment going to our manufacturing realignments, our new Global Color facility in India and investments to expand our capabilities at our Innovation Center in Avon Lake to meet our growing customer demand. We continue to expect CapEx spending of approximately $100 million for the full year to support the continuation of our Specialty transformation, completion of our manufacturing realignment and organic growth. Even with these cash outflows, our net leverage remains less than 2x EBITDA, giving us the flexibility to pursue M&A and reinvest in this Specialty Platform. As you can tell, we are off to a great start and our future looks very bright. I look forward to reporting on our continued progress as we make our way through the year. At this time, I'll turn the call over to Bob, who will review our segment performance. Bob?

Thanks, Brad. There's certainly no better way to begin the year than talking about record-setting results like we had in the first quarter. As it has been in the past, our Specialty Platform led the way, but I am also pleased to report that our Distribution business achieved record sales and operating income for the quarter. Specialty revenues increased by 38%, driven by the acquisitions of Spartech and gains in our legacy businesses in nearly every region of the world. Mix improvement and new differentiated product introductions drove a 44% increase in operating income in Specialty to $60 million, a first quarter record. To put that profitability growth in perspective, in 2005, our Specialty operating income for the full year was only $5 million. Global Color led the way during the quarter with an impressive performance. Sales increased 7% versus the prior year to $220 million, reflecting growth in ColorMatrix, North America and Asia Color, as well as the addition of Spartech. Mix improvement was at the core of Global Color's strong results, with all of our businesses and regions improving operating income year-over-year. Notably, our North American Color business improved operating income 20%, while Asia grew 67%. These strong results contributed to a 26% increase in operating income to a record $30.4 million for the quarter. The Global Color delivered a record return on sales of 13.8%. This is 200 basis points better than last year, and 2 years ago when we established our 2015 goals, Global Color had a return on sales of 9.5%. Today, Global Color is now inside the range of the 2015 goals, with a very realistic possibility to reach or exceed the high end. New and recent innovations, such as InVisiO Color and Design Services, anti-counterfeit technology and novel additive technology for packaging are…

Well, thanks, Bob. It's always great to hear about another strong quarter that created value for our customers and shareholders. And that's been our hallmark for the past several years, consistently exceeding expectations and delivering value well above our perceived peers and the overall market. At PolyOne, we know what it takes to succeed. Our core values of collaboration, innovation and excellence are part of the very fabric of this company. With these points in mind, we expect continued strong double-digit growth for the balance of 2014 and we reaffirm our stated target of $2.50 per share in adjusted EPS by 2015. It's up to us to deliver, and those of you who know us, well, that's what we do best. As you know, this is my last earnings call as Chief Executive Officer of PolyOne. And in 2 weeks, I'll turn over those reigns to the very capable hands of Bob Patterson. I shared some of my thoughts and reflections of my time at PolyOne during our call in March, so I'm not going to go into a long retrospective here today. But I must say, these calls have gotten a lot easier in the last 18 quarters, and that's not because of me, it's because we have an exceptional team that executes relentlessly on a strategy and vision despite headwinds or external factors. And like anything that's worth achieving, it was not easy. There were many days when it was difficult, extremely difficult. Yet, we persevered, stuck to our strategy, executed and continue to deliver. But what's even more encouraging about the PolyOne success story is that it's far from over, and our best days are ahead. In fact, we are proud to announce that effective with today's market open, PolyOne is now part of the S&P 400…

[Operator Instructions] Your first question comes from the line of Robert Koort at Goldman Sachs.

Congratulations, Steve, on a terrific run. And obviously, we know you'll be watching closely. The -- 2 questions for you. One, I didn't hear any excuse about the weather. And I would think with a big portion of revenues from the U.S. in the distribution business that might have clipped you a bit. You talk about that? And then secondly, in your chart sizing, at where you stand on your '15 goals, there's obviously a very clear line of sight on almost all of them. The one that appears farthest away is the return on capital goal. I was wondering if you could speak about your expectations and how that might improve towards that target.

Thanks, Bob. This is Steve. And I'll first of all address the weather and I'll ask -- the weather issue and I'll ask Bob to talk about ROIC. We really are a no-excuses company. And I will tell you that weather impacted us in certain ways, most notably it did affect our delivery rate. Our on-time delivery performance, which was still great by our industry standards, dropped to a point we haven't seen in a few years. It was in the low 90s from our 96% rate. And that was just a logistical challenge that we had to deal with. But in terms of slowing us down or moving a lot of shipments out to another quarter, we didn't experience that. We kept our customers in supply. And we just dealt with the adversity that Mother Nature threw at us, and I think that's again part of our culture. Now, Bob, you want to tackle the ROIC question?

Yes, I think that ROIC is obviously a function of where we get to relative to margin expansion combined with sales growth and any capital decisions that we make along the way. Our focus is on hitting the 250 bps next year. We've got line of sight to doing so with margin expansion, all of our segments in modest growth. And if return on capital comes at or near that 15%, we'd be really happy with those results.

So, Bob, this is Steve again. I just want you to know I'm still acting as CEO. I took the easy part of the question and handed off the hard part.

Your next question comes from the line of Frank Mitsch at Wells Fargo.

This is Sabina in for Frank. Okay, first, Steve, congrats on a terrific run. We'll definitely miss you on future calls. It looks like you're leaving the company in great hands, though. So hopefully, you won't be too worried.

Not at all.

Just wanted to ask a question on Global Color. It looks like pricing gains were really impressive, but volumes were down about 6%. Was this dynamic more a function of continued pruning on your part or actual weakness in the industrial end markets?

Really, we didn't see any weakness in industrial end markets or any region, to speak of. So it is an ongoing improvement in mix that continues to drive operating income expansion despite what you might see as lower volumes.

Okay, so on that front, have we reached a more optimized portfolio with the pruning actions or would you say there's still x percent to go before you hit sort of what you would feel is ideal?

Sabina, I wouldn't -- I really wouldn't categorize it as a certain specific percentage that we'd want to go. I would categorize it as it's an iterative process of high grading your business and concentrating your products to add more and more functionality and customer benefit into them. And then potentially and usually selling them at not only a higher price per pound, but at a higher profit margin, because we're creating some additional value for that customer by reducing processing, et cetera. And we have this ongoing process that you know very well, and that's always improving the accounts. But a lot of this is done by, for example, a conversion from a dry to a liquid color, which would reduce revenue, would reduce tonnage but would improve profitability. So that's -- we're just continuing on that march. There's a, I guess, more intense element of that going on in Spartech right now, which I expect will continue at a more brisk pace there for the next 3 years or so. But it is a chronic, I think, aspect, an important aspect, of our ongoing strategy even in our core business. We just don't really map it out and say we're going to take this percentage out this year. A part of it is driven by the technology development pipeline and how robust that continues to be.

Okay. And on that pipeline, can you just comment on maybe the M&A environment? We're hearing from your peers that multiples are still frothy, but curious if you're seeing any opportunities out there?

I still believe that it is price, consistent with comments I've made on the last couple of calls that I think it's a seller's market in the sense that prices -- I'm not sure frothy is the word I'd use -- but they're high relative to where multiples have been historically. We have seen occasions where private equity firms have come in with a very strong initial bids during auction processes that we chose not to participate in any further. And so I guess there's a lot of money chasing deals right now, and that might be what's causing it.

The next question comes from the line of Mike Sison at KeyBanc.

Steve, really nice run there. Congratulations. But in terms of a question for you as you are move on here, when you take a look at where you're leaving PolyOne here, is there anything in particular that maybe you didn't accomplish? It seems like you're running on pretty good momentum here. Is there anything in particular that you might have wished you could have done?

2 things, for sure, come to mind, Mike. And the first one is I haven't done a good job of leading us in our South America operations. I think we probably, in retrospect, should have thought through potentially going greenfield versus making some acquisitions, and we're not pleased with where we are there. The good news is it's a small component of our business. But I'm not satisfied at all with what we've done in that region of the world, and we have a lot of work to do down there. The second thing is -- relates to, I think, the process of getting the kind of recognition for our company that results in the kind of multiples you would expect for a high-growth Specialty company. I think we're still not yet viewed as the Specialty company we've become. I think we've had a great progress on our stock price. But I think time will prove this out and, again, it's a marathon, not a sprint. But if there's any other thing besides South America, I would say it's more -- has more to do around my inability that I think properly convey our position, the strength of this company as a true Specialty company when you kind of compare us to a group of companies, that I would consider more our peers today. So those are the 2 things. I'm sure there are probably some others that I haven't done a good job with. But overall, I'm really happy with the condition of the company that I'm going to be exiting from.

Great. And then, Bob, in terms of acquisitions. Certainly, it seems like PolyOne is well positioned to tackle maybe another one here and there. Can you maybe frame up in the event that prices do comes to a level where you think it makes most sense, what do you think the best next step is? You've sort of done 2. One -- one set being more growth-minded; one set being more turnaround-minded. What do you think the most logical next step for PolyOne will be?

Well, I think that -- we've done 3 blockbuster deals in GLS, ColorMatrix and now Spartech. And you characterize, I think, one group is maybe already having higher margins, Specialty oriented to begin with in GLS and ColorMatrix, whereas Spartech had more turnaround aspects to it. I think that either one of those types of deals would fit very well in our portfolio. And we'll just try to find the best value that we can going forward. To Steve's point about Brazil and our experience there, I guess what maybe is different about our perspective on acquisitions is that I think we're going to spend time looking at bigger deals, probably even emphasizing those over some of those smaller deals that we might have done in the past.

Okay. Great. And then last one last question. On GSEM, margins there really made a nice improvement on a year-over-year basis sequential, whatever you want to look at, so it's really close to your 2015 goals as well. Can you keep that -- was there anything in that, that maybe isn't sustainable as the year unfolds?

No, I think it's all sustainable. And in previous quarters, I've really talked about 3 things that have weighed on GSEM margins historically, which is really our regional performance in Europe, Asia, and Brazil being below that of where we are in North America. And Europe had a great quarter. I think that's sustainable. It's going to continue to improve, with Asia and Brazil following. So Steve mentioned, Brazil is still a challenge for us and weighs on those margins but it's something that can be improved in the future.

Your next question comes from the line of Kevin Hocevar at Northcoast Research.

Steve, again, congrats on a great run as PolyOne CEO. I wanted to ask, on -- in Spartech, as you invest in the R&D and you leverage your existing additive and Color technologies. I think you threw out there that leveraging the oxygen scavenger and ColorMatrix now. How is the Vitality Index for that business changed since you've taken over? And have you been pleased with the progress that it's made from an innovation standpoint during that time frame?

Kevin, this is Bob. I'd say, during the diligence process and in the early integration phases of Spartech, we were really pleased with what we discovered as a relatively high Vitality Index inside of the portfolio that we acquired, being close to 40%. And in the packaging space, there is a lot of turnover of products, and it lends itself to a high degree of innovation and being able to introduce new products quickly. By combining ColorMatrix, additive solutions with DSS, we expect that only improves, because it's going to allow us to bring new market -- or new products to market where we've previously couldn't

Okay. And then, Steve, you mentioned it in your commentary, over the next 12 to 18 months, some significant innovations to be commercialized. So I was wondering if you could -- if you can tell us anything in that pipeline? Or also what type of financial expectations we can have from these new product introductions?

Well, Kevin, first of all, we're pretty guarded about what we can share for some obvious competitive reasons. And first-mover advantage is a terrific plus. If you have IP technology and patented technology, that's a different story. But we're really pretty careful about this until we really can unveil and unfold these. But I can tell you, we have a lot of statistics around expectations. We map these out. We do an NPV on every one of these lunches before they go. We follow up and have ourselves held accountable for the results when they're finished. And I know we'll go into more depth in this in New York later this month. But, Bob, do you want to make a couple of comments right now about the forecasted sales growth from some of the products in the pipeline?

Yes, I mean, I would just -- well, I hate to steal the thunder from our May 29th Innovation Day. I encourage everyone that can attend to do so. It's going to be a great opportunity to participate really in an interactive understanding of our new products. And where we see that growth coming from in the future. You're going to see an array of opportunities, some of which I classify as sort of singles and doubles in baseball parlance, where it's maybe $2 million to $5 million of revenue, $10 million of revenue. And then we have things out there that are real game changers. And these are opportunities that we see adding $100 million of revenue to our business 5 years from today. And we'll specifically go in to what those are on the 29th.

Okay, great. And then, I guess, just 2 things that stood out to me, too, was growing earnings by over 60% in Asia in Global Color; and Europe, sales up 22% in GSEM, with operating income doubling. I was wondering if you could just go into just for what the key drivers were, particularly for those 2 pieces of business?

Well, with respect to -- maybe I'll take Asia first. As you look, Asia is just doing a great job of continuing to improve their mix of business. Much the same way that our North American Color Legacy Masterbatch sort of led a similar type of transformation. So it's for number of different things that I would categorize in improving mix, as well as embracing Lean Six Sigma and driving operational efficiencies. All of that's true for Europe as well. We're winning new business there. And I would say, to some extent, we're just helped overall by the leverage of the revenue that we have there. In Europe, we have an overall, I'd say, higher lever of cost, with respect to the jurisdictional nature of being in so many different countries. And with our revenue coming up, there's a lot of leverage that we can gain from the cost there, and that's what we're seeing on the EM side.

The next question is from the line of Laurence Alexander at Jefferies.

Two quick questions. First, if you're looking at the last few times that GSEM has managed to have such a sharp spike in margins quarter-over-quarter, you've usually given it back over the next several quarters. Can you talk a little bit about that dynamic and whether you expect this 11.5% operating margin to be like a high watermark for the year or do you think you can do better in the back half? And secondly, just as you look longer term at the -- what's in your innovation pipeline. How do you see the end-market mix footprint for your business changing over the next, call it, 5 to 7 years?

I'll take the first question. If you're referring to how margins for GSEM evolve over the course of a year, there's a really important aspect of seasonality to appreciate, and that is that our European business actually has its strongest quarter during the first quarter of the year. Historically, if you look back at PolyOne consolidated results, you would see that for a company as a whole, the second quarter is the strongest quarter. While I still expect that to be the case, there is an influence on seasonality in Europe. And that's why, to some extent, you'll see margins being lower in, let's say, the second or third quarter than what you saw in the first. There's a possibility that you could see some of that this year as a result of seasonality. But nothing like what you might have seen back in 2010, for example, when we had a really significant spike in the third quarter, which I would have described as difficult to maintain because of what was going on in Europe. So hopefully that answers your question on the margins. For Engineered Materials, we believe it's sustainable. We got great momentum. And on an annualized basis, it's going to continue to improve.

So I think I'll tackle the second part of your question, Laurence, was about end markets and the evolution of those over the next 5 to 7 years. 7 years is a pretty long time in industry today. But I can tell you this directionally, health care will continue to be, I think, our preeminent market. We'll continue to -- we have invested and we'll continue to invest in that marketplace. We love the marketplace and abundant opportunities exist there. But we also see great opportunities in consumer, in packaging, in electronics. We're really fortunate that most of our markets have a lot of upside. I would say, if there's one that will diminish a bit over time, it's probably housing. And I'm going to take out any ebbs and flows of housing starts because that's cyclical and really unpredictable, in my opinion. But if you look over a 7-year cycle, we'll probably go up and maybe come down a little bit again in housing. So what we've really worked hard at doing over the last several years at PolyOne is to move into markets that are far more consistent and growth-oriented and have a much lower degree of cyclicality, with really one exception, and that's automotive. We can't ignore the opportunities for lightweighting and for some of our great technologies that go into this market, and we have to penetrate it further around the world. But we will have to deal with the ups and downs of the automotive market as a cyclical end market over time. And that's just fine with us because the share that we have in that space is very, very small and the opportunities for us to create new products in that market is quite rich. So I would say, look at our health care, packaging, our electronics, if you will, a lot of the gadgets that you're seeing today, a lot of these sort of fit devices that are on people's wrist, et cetera, it's a very complicated process of developing the right kind of TPE technology around these electronics. We're really good at this. There's a lot of growth in those markets. I would see that continuing, if you will. And I would also say, expect more from us in automotive. Hope that answers your question, Laurence.

Your next question is from the line of Dmitry Silversteyn at Longbow Research.

Steve, we'll be missing you on the future calls, although I'm sure Bob is going to do a great job. Couple of questions. First of all, on your PP&S business, I think you've lapped the divestiture that you've done about 1.5 years ago or maybe a little bit less than that, and now the Spartech acquisitions. So as you look at this business and you referenced that the cyclicality of housing and, obviously, we know that PP&S is exposed to the housing market, what you view for the -- sort of your outlook for this business for 2014?

Well, I mean, from the seasonality standpoint, I think you're going to continue to see that in PP&,S, with the second and third quarter -- the second quarter being the strongest, followed by the third. So I think that will play out for the course of this year with no change, even with the business that we've added from Spartech. And so I guess with respect to how I view things for the balance of this year is I think we are going to make great progress towards our 2015 goals. I can't say specifically where margins will end, but we've got line of sight to get inside the range in 2015.

Okay, fair enough. In Europe, you delivered, I think you said, 6% growth organically, which is the first time we've seen growth in Europe, certainly of this magnitude, in a while. Was it particular end markets or regions or countries that seem to contribute it, or is it a pretty broad-based geographic recovery? And what's your outlook for that region as you get into 2014?

Well, I mean, for -- I wouldn't -- I'm not sure I would cite any one particular market in general as experiencing a better recovery than others from a macro economic standpoint. Our presence in Europe, though, our largest end market there is packaging. And we have seen an improvement in packaging with respect to our Colors and Additives business. And then on the Engineering Materials side, a lot more applications going into electrical, electronics and automotive.

Okay. So it's your exposure to those markets and obviously them doing a little bit better, particularly the automotive part, I guess, that's driving the results.

And I guess from a -- maybe to answer the last part of your question, it seems like we've got great momentum there. A lot of it, I believe, is actually, our own doing, with respect to winning new business. But the economy seems to be improving as well. I don't want to take anything away from that and I don't see any reason why that is going to slow down this year.

Got it, got it. Switching gears really quickly on the M&A. You talked about sort of your appetite for larger deals, and you continued to look at that, obviously, bolt-ons. You had a little bit of a, I guess, success or at least experience with additives both from the Spartech and the ColorMatrix deals. Is Additives or tangential businesses something on your horizon, or are you looking to really sort of complement your Color and Engineered Materials portion of the business?

We love Additives. We find it's a great way to create customer value. And you really -- our sales team understands better than ever how to remove steps from customers' processes, and remove complication, and remove -- reduce scrap rates. And Additives help do all of those things so, therefore, they create a tremendous amount of value at customer's site. We will continue to look at Additives applications and opportunities. But really, I mean, it's going to be in Bob's hands there so you should be answering the rest of this question.

Well, I agree with that. I think that there's obviously a lot of opportunity in adjacent materials spaces as well, but Additives is certainly one where we'd like to see a lot of focus. I'll tell you, over the course of the last year and looking at the pipeline, there haven't been very many to look at. I'm not sure why that's been the case, but it has. And that's unfortunate.

Your next question is from the line of Mike Harrison at First Analysis.

I'll add my congratulations to Steve. I'm guessing that we're going to hear from you again. I know you love these calls.

Thanks, Mike.

Just looking at the DSS business, compared to the fourth quarter, there was a little bit of a decline in gross margin in the SG&A cost trajectory compared to what we had been seeing over the past few quarters, since you've owned Spartech. Is that negative weather impact that we're seeing that may be disruptive the progress there or a situation where maybe we're getting close to as low as those SG&A costs can go on a dollar basis at something around $15 million a quarter?

That's a great question. I'm glad you asked it. I just didn't get a chance to address that earlier. It's really seasonality more than anything else in the sense that certain of our DSS products really are heavily purchased in -- from a packaging standpoint, in the November, December time frame, ahead of the holidays. There's some effect there from a mix standpoint in terms of how that impacts margins in the first quarter, as well as just, I'll tell you, mechanically, we had a vendor rebate in the fourth quarter based on total purchases, and that was something that influenced margins in the fourth quarter that didn't replicate in the first.

All right. Let me ask maybe another question on DSS. It looks like the heavy truck Class 8 sales have been pretty strong recently. Is that heavy truck market still an area that you participate in through the Spartech business? Or is that something that you've paired back on compared to Spartech's historical exposure?

We don't have a lot in that. We actually -- interestingly, we used to do an application with Glasforms and don't have that right now. I think all of those are opportunities for us, but that's not something that we have a significant exposure to today.

And then I was just hoping you could comment a little bit on what you're seeing in terms of the raw material outlook and your ability to kind of keep pace with changes in that over the rest of the year?

I mean, I think we've done a very good job of staying ahead of it and keeping pace. We did see some increases in costs. Some of the larger ones were in PVC in the first quarter, as well as plasticizers. Oftentimes, I think sometimes the larger base resins get the predominance of attention, but we've always got to focus on those ingredients that I call sort of the secret sauce. And 1 or 2 of those had higher-than-expected costs in the first quarter, but it didn't impact our margins.

And for the rest of the year?

I think it could be up slightly for the balance of the year. We're not predicting anything that's a major swing one way or the other.

The next question is from the line of Rosemarie Morbelli at Gabelli & Company.

[indiscernible] Most of my questions have been answered, but I was wondering if you could help us a little bit, Bob, in terms of what you think you can do in terms of turning around Brazil, South America. Do you have a plan already in place or is it yet to come?

I said, first of all, look, with respect to our specialization strategy, we really have got to improve the mix. And I'd say, looking back on the acquisitions that Steve referenced before, unfortunately, the mix of business that we acquired is just taking us longer to improve and to get a foothold in the Specialty. There are things that we can do from a cost standpoint that are in process right now in terms of rationalizing back-office functions. But that really is a requirement to sort of combine some of these smaller businesses that we have together, and I think that will help in terms of improving margin in the near-term. But longer term, it's all about selling more products down there that are higher margin. For example, we just recently installed a GLS TPE line there and expect to do the same thing for our echo wire and cable products.

And you think that you have enough of a sales force, of a technician base in order to gain some business over the next 12 months, let's say?

Yes.

Okay. And in terms of weather, I understand that it did not really affect your operations and you were able to supply customers, but you did add any cost which would have resulted in maybe another $0.01 to the bottom line if you have not had those issues?

No, we didn't see any incremental costs that are material in anyway, due to the weather in the quarter.

And lastly, If I may. On the PPS side -- PP&S side, I mean, you are still further away from your 9% to 12% margin. Is housing helping today or I know you're at the end of a project, or is it yet to come?

So when we laid out those goals, we did quantify the housing expectation for that time horizon and, I believe, it was 1.25 million housing starts. And we're still quite a ways away from that just yet. So I think, our goals had -- for PP&S, specifically, are predicated upon that degree of rebound.

There appear to be no further question. At this time, I would turn the call back to Steve Newlin for closing comments.

Thank you, David. And it does concludes -- time is perfect, concludes our first quarter 2014 conference call. I want to thank you all for your continued interest in PolyOne, and for joining us today, and good investing to all of you. Thank you.

Thank you for joining today, ladies and gentlemen. You may now disconnect.