Good morning ladies and gentlemen and welcome to the PolyOne Corporation Second Quarter 2018 conference call. My name is Liz and I will be your operator for today. At this time, all participants are in listen-only mode. We will have a question and answer session at the end of the conference. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Joe Di Salvo, Vice President, Investor Relations. Please proceed.

Thank you, Liz. 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 be of current expectations or forecasts of future events and are not guarantees of future performance. They are based on management’s expectations 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 in the company’s filings with the Securities and Exchange Commission as well as in today’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 from the most comparable GAAP financial measures. Operating results reference during today’s call will be comparing the second quarter of 2018 to the second quarter of 2017 unless otherwise stated. Joining me on our call today is our Chairman, President and Chief Executive Officer, Bob Patterson, and Executive Vice President and Chief Financial Officer, Brad Richardson. Now I will turn the call over to Bob.

Thank you, Joe, and good morning to everyone joining us on the call today. I’m very pleased to report that PolyOne continued our strong start to 2018 with record second quarter adjusted earnings per share of $0.71, up 13% over the prior year. Our color, additives and inks segment led the way with a 17% increase in operating income. It was a comprehensive, broad-based effort by the color segment as organically every region improved their year-over-year results, and we benefited from the recent acquisitions of IQAP, Mesa and Rutland. Our engineered materials segment also delivered year-over-year operating income and margin expansion and did so for the first time since we began experiencing significant raw material inflation last year. In addition to seeing pricing gains, the segment benefited from operating income growth in our composites platform, which has been an area of significant investment for us over the last few years. Those investments have included organic expansion of our commercial organization as well as acquisitions, and they are paying off not only in engineered materials but across the entire company. For the second quarter, revenue increased 12% over last year with 6.5% being organic. We continue to emphasize both quality and quantity as our sellers, customer service reps and technical teams are collaborating to actively pursue new business opportunities, and oftentimes this has meant shrinking average seller territories to spend more time with existing accounts while not diluting the impact of prospecting. As our investors know, PolyOne specializes in niche specialty applications that are often smaller in size but higher in margin. To put things in perspective, we closed 2,500 new opportunities this quarter alone and oftentimes we are doing this by leveraging cross-selling across businesses at existing accounts. One great example last month was in engineered materials, which earned the…

Thank you, Bob. Good morning everyone. I’d like to first start with our GAAP results. In the second quarter, we reported GAAP earnings of $0.64 per share. Special items for the second quarter of 2018 resulted in a net after-tax charge of $6 million or $0.07 per share primarily related to environmental remediation and legal costs. Adjusting for special items, EPS from continuing operations for the quarter was $0.71 per share, up 13% from $0.63 in the second quarter of 2017, marking a new PolyOne record. As Bob mentioned, this improvement was driven by strong operating performance, particularly in our color business which delivered a 17% increase in operating income year-over-year. On the top line, color generated an impressive 22% improvement from 2017 with both underlying organic growth and contributions from acquisitions. I’m very pleased to report that our recent acquisitions - IQAP, Rutland and Mesa, continued to exceed our expectations. Orders for these businesses are very strong and integration is ahead of schedule. Key actions include improving safety performance, bringing our technology teams together, collaborating for our customers’ benefit, and implementing Lean Six Sigma and operational excellence. We’re also investing in new lines at their facilities to meet increasing demand and to help us pursue incremental business opportunities. As Bob mentioned, color’s organic performance shows impressive results across the board, with Europe leading the way. Given all the attention on plastic and our industry, and in Europe in particular, it may come as a surprise that this was one of our best performing regions for color. The team has closed 44% more opportunities so far this compared to 2017, many of which are going into beverage container applications. Engineered materials also had a strong performance in Europe this year, and this has been instrumental to driving OI growth in…

Thanks Brad. For those of you who weren’t able to attend our investor day in May, I invite you to review the webcast posted on PolyOne.com. You’ll hear more detail from each of our segment presidents, Brad and me about our long-term strategy to drive double-digit EPS expansion each and every year and improve return on invested capital. One aspect that unfortunately can’t be captured in a webcast is the excitement, buzz and experience of holding this live event in conjunction with the NPE Plastics Exhibition, which was a resounding success. We generated nearly 250 qualified leads over the four-day period, some of which have already passed through our sales qualification process and are entered in the PolyOne sales funnel. Investor day was only two months ago, and we are delivering on our commitments. We continue to invest in commercial resources which are up 3% from where we finished last year and 4% over the prior year, putting us well on track to deliver 6 to 8% annually. These resources, as you have seen, are crucial to generating our organic growth going forward. But these aren’t just sellers, and this is an important point because I think that is often assumed. The reality is that we have added more resources in technology than in any other category. We have done this because increasing the health and vitality of our products and solutions is absolutely critical to driving our long-term success. We continue to maintain or exceed a world-class vitality index of 35%, which drives specialization. But of course, we don’t have the market cornered on good ideas and we have and will continue to pursue attractive bolt-on acquisitions that bring us new or complementary technology. Finally, we’ll achieve our goals by developing future PolyOne leaders through our leadership development programs.…

[Operator instructions] Your first call comes from Mike Sison with Keybanc. Your line is now open.

Hey guys, nice quarter there. Bob, in terms of EM, engineered materials, it looks like you’ve turned the corner there. The growth looks good. Are you sort of caught up with raw materials and do you expect that business to continue to grow in the second half of the year in terms of EBIT?

Yes, I think that we did put a lot of pricing actions in play really at the end of last year, and on our last call we said that we’ve got another round of inflation, and I don’t see that going anywhere but up, so pricing continues to be an area of focus for us and believe that we did get ahead of it this quarter, but recognize that we’ve got a lot of work to stay in that position for the balance of the year. I think we’re a little bit ahead of where we thought we would be, but look at the second half as still having OI growth in Q3 and Q4.

Great. Then maybe just on acquisitions, maybe talk about the environment a little bit. It’s an area that really certainly could boost your growth longer term. Any thoughts in terms of size, multiples? Is your pipeline pretty active?

Yes, I think the pipeline is in really good shape. We continue to look at--the preponderance of those happen to be smaller bolt-on acquisitions. It’s not to say that we wouldn’t do something that’s larger in size, but it just seems that the ones that have a tendency to be actionable are smaller in size, likely family owned or entrepreneurial owned, but that fits really well with us and our invest to grow strategy. As you know, Mike, we really don’t look at--you know, if the primary investment thesis is cost synergies, that’s probably not a good reason to do a deal, and for us, we typically look at ways that we can add commercial resources to help drive growth. I’d expect to see more of the same, and right now that’s what the pipeline looks in front of us.

Great, thank you.

Your next call comes from Mike Harrison with Seaport Global. Your line is now open.

Hi, good morning. Just wondering if you could maybe address a couple issues around the raw material and freight costs. Number one, as you’re focusing on your pricing effort, how much do you feel like that’s dragging on your volume growth, to the extent that you’re prioritizing margin recovery over volume growth in some situations?

That’s a really good question, and I did feel that way for the majority of last year and the first quarter of this year. I felt like it eased a little bit but not much in the second quarter, and that’s something we have talked about internally. Look, as you know in PolyOne, our marketing organization is the one that sets prices, but our sellers are the ones that are out there every day face-to-face with our customers communicating, and that is, as you say, a drag on time and attention and energy. I do think that that can stifle growth. It’s not a missed opportunity, but I think what it means is that even our customers have a hard time focusing on new applications and application development in an environment where it just seems that there is no end to raw material inflation. So I can’t put a number on that, Mike, but I can tell you that’s a stress on the organization but it’s also a stress on our customers. I think everybody feels the same way.

All right. It seems like you’re mentioning with regard to raw material cost inflation that you’re seeing some supply shortages, so are the issues that you’re seeing right now related to incurring higher costs to get supply, or are you seeing situations where you’re unable to get supply, and if you’re unable to get it, how does that affect your business?

I would say in very limited cases that we’ve been unable to get supply, and what’s happened though of course with limited supply in areas like nylon or fluoropolymers, it just means we need to do a better job of planning in advance to make sure that we have what we need. When you combine those supply chain shortages with challenges around shortages in trucks and truck drivers, that really just makes the entire supply chain more complicated, and so where we’ve seen an impact this year is that our on-time delivery has fallen from 95% to 91%, largely because we’re just not getting stuff in when we had planned. So I don’t believe that we missed any business as a result of these supply chain shortages, but I do think it added a lot of complexity to our ability to deliver for our customers. We managed through that very well and I continue to see that to be a challenge for the second half of the year.

All right, thanks very much.

Your next call comes from Colin Rusch with Oppenheimer. Your line is now open.

Thanks so much. I guess we want to start with the PlastiComp acquisition. Can you talk a little bit about how you see that platform helping to build out the advanced composite portfolio and what the timeframe is around lightweighting and metal replacement opportunities that you’re seeing on the market right now?

Yes, for the most part when we have talked about composites at PolyOne and our advanced composites platform, we have done so around really two technologies, being thermosets and thermal plastic composites, which primarily exist in the form of tapes that can be shaved and formed. What PlastiComp brings us is long fiber technology, which can be injection molded, and it’s something that we had partnered with PlastiComp in the past for application development, so we’ve got a long history with them. But I really must defer to them in terms of their area of expertise because they are far better at it than we are, so I feel like it just adds an extra dimension of composite offerings to our portfolio in terms of how the three work together. I think your next question may have been around maybe just the near-term advancement of that platform and strategy. As you know, we’ve made a lot of investments over the last two or three years with respect to composites and have effectively about breakeven results primarily as a result of those investments. In the second quarter, we did earn a profit on our composites platform, and that’s partially due to a little bit from what we got from PlastiComp, but mostly with improvements in Polystrand and Gordon. So I think all signs are pointing in the right direction, and what I love about composites overall, as you know, is it really does represent the next generation of material replacement or reinforcement for metal, glass and wood.

That’s incredibly helpful. Thank you so much. Then just looking at the incremental opportunities in EM around cost management, can you talk about areas of focus? I want to think kind of in a couple different avenues over the next three to six months and then over the next 12 to 18 months, if you could talk about specifically where you think some of those areas are that you can really drive some incremental reduction.

Well as you know, Lean Six Sigma is a huge part of our culture and the underlying basis for formal process and efficiency improvement. There is always work for us to do in that regard. I think over the last 18 months, though, we have been consumed with really two singular or two areas of cost increases, which has been on the raw materials themselves and ultimately the trade and logistics costs to get material to us and to our customers. Those are the two areas where we’re focused on most, and the reality is that we’ve had to spend a lot of time with our customers having pricing discussions, so I think we’re turning a corner here with respect to showing some margin expansion, but it’s early. We’ve still got a lot of, I think, inflation ahead of us here for the balance of this year that we’ll need to work on, so it’s a little difficult to say how that plays out for the near term. But what I would tell you that matters more than anything else is ultimately the products and services that we provide and focusing on specialty niche applications. If we had more commodity products, I think we’d be in a worse situation than we are, but I think it’s our focus on specialty that allows us to actually advance and grow in this environment.

Perfect, thanks so much, guys.

Your next call comes from Bob Koort from Goldman Sachs. Your line is now open.

Good morning, this is Dylan Campbell on Bob’s team. You guys have talked a lot about SEM and the improvements you’re making there. Can you just give us a little bit more context of in 1Q, you saw a greater than 200 basis point decline year-over-year, but 2Q margins were actually up. You mentioned pricing initiatives at the end of 2017, so can you walk us through the differences between 2Q and the successful improvements you had there as compared to what happened in first quarter?

Actually, I think you did a pretty decent job of summarizing it right there in terms of there wasn’t any magic to the quarter or unique item or event that I would point to. I think that we started diligently working on pricing actions in the second half of last year and not to the extent that we were offsetting those raw material costs, and we did have some pretty significant spikes from an index standpoint that really were sort of announced in Q1, Q2 that impacted us in Q2 and Q3 last year. The reality of that was still a lot of that was rolling over, and I think you just saw the tail end of that in Q1. Now, there were other areas of inflation, and I’d say this is probably the change, which was that we really saw a steep increase--as Brad mentioned, a 34% increase in nylon, so I think a new wave of inflation was upon us, but we already had so much momentum and action around pricing that it just made it easier for us to deal with that then we did last year. So I really just look at it as continued execution of the actions we put in place at the end of the year, but I also think that the market is really actually starting to realize this isn’t going to change and that inflation is here to stay, and that we’re all going to bear the burden of these higher costs.

Got it, that’s helpful. For PolyOne consolidated, can you just help us--I mean, there’s $90 million or so of incremental costs of goods sold in 2Q18 versus 2Q17. Can you just provide a dollar amount or a rough breakdown on how much of the increment was raw material inflation versus higher logistics cost?

Yes, if I just looked at what was maybe a pure inflation around raw materials, because we obviously had growth this year, right, so this is taking that into consideration, probably about $20 million to $25 million of raw material inflation alone, and then freight costs in total were up $4 million or $5 million for the quarter, but probably $3 million of that was what I would describe as pure inflation, to help put that in perspective.

Got it, thank you.

Your next call comes from Kevin Hocevar with Northcoast Research. Your line is now open.

Hey, good morning everybody. Bob, to that last answer, $20 million to $25 million of raw material inflation this quarter, what would be the expectation for that going forward based on the different moving pieces in the commodity baskets you’re seeing out there?

I don’t think that’s going to change. I mean, predicting the future is always, of course, a very difficult thing to do, but with what we’re seeing entering the third quarter right now, I don’t think that’s going away anytime soon. Everything else held equal, we’d probably be talking about similar numbers.

Got you, okay. Curious too, so a decent chunk of your products are designed to replace things like steel, metals, things like that, and some of those are seeing quite a bit of inflation. Obviously you’re seeing inflation as well, but kind of curious how that dynamic is playing out with your customers. Are some customers more open to discussing changing materials given the dynamics that are at play? Wondering if that’s helping at all.

Well, I think to the extent that other materials become more expensive, that helps our case and our cause. One of the questions we often get is, well, if tariffs impact the price of metals, for example, does that make your offerings more attractive, and I think that it certainly can. This is longer term kind of stuff we’re talking about, and I think that it’s a great opportunity for composites to step up and play a bigger role in replacing glass, metal and wood, or reinforcing those materials ultimately so our customers can spend less on them. I do think that there is a really good opportunity and that composites plays very well into that trend.

Okay, got you. Thank you very much.

Your next call comes from David Katter with Baird. Your line is now open.

Morning guys. Thanks for taking the question. First of all, can you remind us on the dynamics for pricing increases? Once you kind of get the ball rolling, is it easier to implement there, and what are your expectations going forward how easy is it to implement?

I don’t think that I would ever describe a price increase as easy under any condition. One comment that I may have made just a few moments ago is that I do think that the market is much more aware that inflation appears to be a longer term trend, so when we saw some spikes at the beginning of last year, there might have been some perception this will pass or go away, and in one or two cases, like maybe butadiene that was true, but in all other areas in base resins and nylon, that has not been the case where they continue to go. I wouldn’t say it’s ever easy, but maybe the market understands that we seem to be in a permanent inflationary environment, at least for the near term, which might mean that the conversation is less of a surprise, but it isn’t easy.

Right, understood. Then maybe quickly on the global trade environment, how do you guys position for that and how are you guys viewing a potential tariff situation?

When we look at our own manufacturing footprint, for the most part we make what we sell into those markets where our customers exist, so for example when we’re serving customers in China, in all likelihood we’re making that product in China, so when we look at the direct impact on our own supply chain, I don’t see a whole lot of risk there. But we always have to look past ourselves and say, how does this impact our customers, because I think many of them are impacted by tariffs and that could be a bigger potential issue and/or opportunity. I just think as this tariff thing plays out, companies are going to spend more time thinking about where they’re going to manufacture, and for us, serving our multinational OEMs well wherever they need us to is a part of our differentiation. So however this plays out, I think we just need to stay nimble and make sure our customers get the service they need.

Thanks, that’s helpful. Maybe last one from me, on the acquisition front, would you ever consider using stock for an acquisition, or is that always going to be something that you do in cash?

Not for these bolt-on acquisitions. We have ample liquidity and cash flow to fund those. It’s really a great source of pride for us, candidly, as we look over the last six or seven years when you see how many bolt-ons we’ve done and bought back shares and increased our dividend, and done all of that with a relatively flat net debt to EBITDA ratio of 2.6 or 2.7, so in the near term, I don’t ever see that being a possibility. In the event of a significant or much larger acquisition, that would be the case, but as I’ve commented earlier, such a deal is just not in the pipeline right now.

Understood, thank you.

Your next call comes from Lawrence Alexander with Jefferies. Your line is now open.

Hi, good morning. It’s Dan Rizzo on for Lawrence. How are you?

Hi Dan.

You mentioned strength in Europe being a little surprising. I was just wondering if--I know the changes with potential bans on single use plastic or just the changing environment overall, is there any impact on you or your customers, either positive or negative?

Yes. Absolutely, and right now as you know, plastics are I think under attack or certainly a great deal of scrutiny. When we see the images of marine litter or marine life that’s entangled in debris, we all shudder at that and recognize we have a responsibility to take better care of our planet. I think there’s a lot of work that all of us in this industry need to do to help. I think that the proposed ban in Europe is aimed at trying to accomplish that. When we look at the three categories that are identified for market restriction, we don’t participate in those. Where we do see some potential changes coming is in beverage containers, which as you know is a significant end market and application use for our color and additives business; however, that’s not targeted for restriction, it’s presently targeted for redesign, and that means things like caps and lids must be attached to the bottle or the beverage container, and that separate waste collection, management and recycling awareness initiatives need to take place. At present, we’re doing what we can to help the industry improve awareness around recycling, and as those type of changes take place for beverage containers, we think we’re well positioned to take advantage of that. I think we’re in pretty good shape in that regard, but probably more changes to come in the future.

Okay, thank you for that. Then just one other question. You mentioned just now that net debt to EBITDA has been at 2.5, 2.6. With a potentially rising interest rate environment, would you look to move that lower, or are you comfortable with where you are and you’ll just keep doing what you’re doing, so to speak?

Yes, we have had additional interest expense this year on our floating rate debt, and that’s one of the things that impacted the quarter. That doesn’t change our perspective on leverage, and I’d say to the extent that we had the opportunity to use cash for a bigger deal, as we’ve said all along, we could see that leverage ratio going past 3 and being quite comfortable with that. I don’t see the changes in interest rates really impacting our view on leverage at this time.

Thank you very much.

Your next call comes from Dmitry Silversteyn with Longbow Research. Your line is now open.

Good morning, guys. Congratulations on a good quarter. A couple of questions. First of all, I just want to understand the gross margin cadence in your distribution system or distribution business. Inflating resin pricing typically tends to be a positive for margin, but your margins have been comping on the gross margin line negative for both quarters this year so far, so I’m just wondering if it’s a mix issue, if perhaps I’m wrong and the inflationary environment is not positive for margins in that division. Can you talk a little bit about how we should be thinking about margins for the distribution business going forward?

Right, so directionally, you’re correct and on point, which is that in an inflationary environment, typically you would expect to see that we would see a little bit of margin appreciation as a result of selling lower cost inventory into that higher price environment, but not all pricing is the same on our distribution business. Really, what you have this year in terms of comparing Q2 this year to Q2 last year is that prices went up last year on businesses where we’ve effectively got the ability to what I just described, but this year prices have gone up where we’re effectively earning a fixed cents per pound, if you will Dmitry, so it is a mix issue but it’s not because of selling one or more of the other. It’s because of just how the pricing evolved, and last year in the second quarter I think we had very high margins. Seven percent, for us I think is a really good quarter and pretty high, that reflects that, and we’ve just really kind of had the reverse impact this year, even though prices have gone up. So as I think about the balance of the year, I think the distribution business is going to be challenged with additional freight costs and those dynamics, and I think you’re going to see it being flat at best for the balance of this year with respect to OI compared to prior year.

Got it, thanks. That’s helpful, Bob. Then just on the composites business, you made a lot of deals there, and this latest one obviously expands your capabilities even further. You’ve got long fiber, you’ve got short fiber, you’ve got thermal plastics, thermosettings. Your composite business, does it have now all it needs to have or a lot of the things that it needs to have to be turning the corner more convincingly in terms of growth and profitability, or is there still investment to be made and it’s still a little bit of a green banana at this point?

I still think we can benefit from additional investments. I’d tell you, we’re diligently focused on those from both an organic and an M&A standpoint. As it happens right now, I think with the addition of PlastiComp, we just completely accelerated our ability to deliver LFT solutions for customers where we couldn’t in the past, so that’s a real home run for us from an offering standpoint. When I look at the investments now, it’s really about expanding those technologies that we have, and so that’s not to say that we couldn’t do something different from an M&A standpoint or add something else, but we’ve made really good strides here, I think, with those recent acquisitions. But in fairness, there’s markets that we don’t really participate in, like aerospace, for composites, which other companies really kind of own that space. We don’t, so when I look at the universe of composites, there’s certainly additional capabilities that exist out there that we don’t have.

Let me ask the question a little bit differently, Bob. What is preventing this business unit within your engineering materials from being a profitable operation before the end of this year?

Okay, so that’s really just a time question. We invested a lot, as you know, in Gordon and Polystrand, and Glasforms before that, and that’s really all about driving sales growth, so we’ve put a lot of resources into it. If you took those three, so I’m excluding PlastiComp from this equation, if you took those three alone, in total we had a commercial team of probably 10 to 14, and now we’ve got 45 to 50. What I really love about where we are is we’re identifying a lot of applications and these are applications that require specification and time to ultimately bring to fruition. This is a revenue play right now, Dmitry, so it’s just all about time with respect to driving those specifications. When we do, I think we’re going o see pretty serious expansion in profitability. I was happy to see us go into the black here on that business in the second quarter of this year, so that’s a major step forward.

Okay, so basically we just need now revenue or volume leverage, if you will, through that cost model to get your profits to become visible?

Correct.

Okay, thank you.

Your next call comes from Jim Sheehan with SunTrust. Your line is now open.

Thanks. In distribution, could you comment on where you see customer receptivity to the surcharges you’re putting in place to offset the freight inflation, and also what percent of that business is on fixed margin per pound?

Well, I guess the comment on customer receptivity is probably the same as I made earlier on the call about pricing in general, which is that nobody says thank you for a price increase. Unfortunately it’s a distraction for our team, it’s something that we have to do, and I recognize that it’s a challenge, so I don’t know how to describe that environment as being good or bad. It’s always tough. At this point, I’d say we’re probably looking--when I look at the underlying business within distribution, probably 25 to 30% of that is probably based on cents per pound.

Great, thanks. On raw materials inflation, you called out fluoropolymers as a particular area where you’re seeing some supply shortages. What are you seeing in terms of pricing and tightness in that market in the second half of the year?

Keep in mind that’s a really small business for us, but one that is also a really high performing business. For us, it’s about doing colors, so we’re doing colors for fluoropolymers and ultimately we get the floral polymer as really the base resin or carrier, if you will, to bring color to our customers, who are then themselves manufacturing a product with a floral polymer resin. So it’s impacting them with their ability to get the fluoropolymers and us, but prices are up across the board. The most significant increase, though, for us really in the second quarter, as Brad mentioned, was really around nylon, which was up about 35%.

Thank you.

Your next call comes from Jason Rodgers with Great Lakes Review. Your line is now open.

Yes. To what extent did pricing offset raw material and freight costs in the quarter company wide, and how should we think about that pricing cost dynamic in the second half of the year?

I think that pricing did offset raws, and it really does vary by segment because the reality is I think we probably got there in color and engineered materials, but we did not in distribution, for example, and also had margins contract a bit in PP&S. So I think when you look at those margins, that helps to tell that story. Then forgive me, your second question was what?

The pricing cost dynamic in the second half.

Yes, I don’t think that this is going to change much, and I hope that I’m wrong and it goes down, but at this point as we go into the third quarter, it seems like inflation is here to stay. Certainly diesel costs are going up and there is a shortage of trucks and truck drivers which is making things more complicated for all of us, so at the moment I don’t see any change in those dynamics.

The target for EPS, is it still around that 15% level for the year?

I’d say the only thing that’s really changed since we talked at the last quarter is the change in--I’d say everything has pretty much held equal with the following adjustments. I think distribution is down some, as I just described. That’s being offset by a little bit better performance from EM, but let’s call that a push, and so what we’re really left with is weaker foreign currencies, because when we were on the call at the end of the first quarter, the euro was at $1.24 and we’re roughly at $1.16, so in cents terms that’s probably about three cents a quarter for the balance of the year. But otherwise, we’re still on pace to do what we said.

On a net basis, I guess--

Six cents in the second half.

Okay, thank you.

Your next call comes from Rosemarie Morbelli from Gabelli & Company. Your line is now open.

Thank you. Good morning everyone. Bob, you mentioned some challenging markets, and I was wondering if you could give us a little more details as to which ones and why are they more challenging than others.

If I said that, I think I was just referring to the dynamics that we’re experiencing with supply chain and raws. That was not a comment about end markets or anything that we’re seeing specifically in that regard. Overall I think the economy is actually doing pretty well, and that’s true for all regions and across our businesses, so for the most part, I think I’m positive on the markets that we play in and participate in. If I said that, then I think it might have just been related to that, not on the end markets.

Okay. Staying with that particular topic, looking at competition, you are raising prices more or less catching up with the raw material cost. You need to get over those increases in order to see a margin improvement. What is the competitive environment? Do you see your competition doing the same thing? Do you feel you are losing business because others are happy to sell the pounds at a lower price?

I do think that the competition is experiencing the same inflationary factors that we are. Companies oftentimes say, we’re trying real hard but the competitors are not, and I think everybody right now is probably doing their best to try to get price increases to help offset the raw material dynamic. I’m not always sure I can say that when you experience a spike like we did in maybe the first or second quarter of last year, because different companies have different ways of reacting to something that they may perceive as temporary; but I think with inflation and everyone’s perception now that it’s here to stay, that you’re seeing a lot more acceptance by that in terms of competitive dynamics as well as how customers are perceiving that. I don’t know if that’s a good way to look at things, but it seems like more people are kind of on board that inflation is here to stay.

Looking at your freight surcharges, are they--I mean, shouldn’t they be fully affecting the higher cost in that particular category?

Well, they should be. I will let you know how that goes at the end of the third quarter, as for many of our businesses, the increases are effective August 1. We’re a little behind where we should have been, I think, but that’s also something I think around the market perception that it’s really here to stay and not a short-term dynamic. I think we’ll have more to say on that on our next call.

Okay, and if I may, one quick one. What is the size of your composite business currently?

As you know, we presented it roughly about, I think, $80 million at our investor day, and you can pick up in the 10-Q how much revenue we had from PlastiComp in the month and kind of extrapolate from that. That’s about where we are.

Okay, thank you.