Carlisle Companies Incorporated (CSL) Q1 2017 Earnings Report, Transcript and Summary

Good afternoon. My name is Teeny [ph], and I'll be your conference operator today. At this time, I'd like to welcome everyone to the First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Chris Koch, you may begin your conference.

Thank you, Teeny. Good afternoon and welcome to the Carlisle Companies' first quarter 2017 conference call. On the phone with me this afternoon are Bob Roche, our Chief Financial Officer; Steve Ford, our Vice President of Investor Relations, Secretary and General Counsel; and Titus Ball, our Chief Accounting Officer. On today’s call, I will discuss our first quarter 2017 performance and 2017 outlook. Steve will review our segment performance, balance sheet, and cash flow. Before I begin my prepared remarks, I’d like to introduce everyone to call – on the call to Carlisle’s new Chief Financial Officer, Bob Roche. We are fortunate to have Bob joined the Carlisle team. His deep experience with acquisitions and integration, operational finance and strategic planning will be important as we enhance our focus on these areas throughout the Carlisle enterprise. Bob’s addition allows us to increase our capacity in M&A and finance and allow Steve Ford to focus on developing a world class Investor Relations function at Carlisle. Given our plans for growth these changes will helps for Carlisle’s strategic initiatives in the years to come. Before I discuss our results in more detail, I would ask that you review Slide 2 of our presentation entitled Forward Looking Statements and the Use of Non-GAAP Financial Measures. Reconciliations of U.S. GAAP to non-GAAP measures are provided in our earnings release and the Appendix to this presentation. Those considering an investment in Carlisle should read these statements carefully, along with reviewing the reports we file with the SEC, before making any investment decision. These reports explain the risks associated with investing in our stock, which is traded on New York Stock Exchange under the symbol of CSL. Now let's review our first quarter performance. Please turn to Slide 3 in the presentation. As announced after the stock market close today, Carlisle reported record first quarter sales of $857.3 million driven by outstanding performance of CCM or through continued focus on execution of their core initiatives. Growth exceeded the favorable non-residential roofing market growth rates. CCM also had a record first quarter margin performance. This performance was especially noteworthy as it was the fourth consecutive year of first quarter margin expansion. By San Jamar acquisition within the FoodService segment announced this past January contributed almost $20 million to the year-over-year sales growth and we were pleased to see sales growth in CBF for the first time since the third quarter of 2014. Negatively impacting sales in the first quarter was our decision at CIT to maintain pricing integrity, which resulted in a substantial sales decline within our in-flight entertainment connectivity or IFEC product category. The decline in IFEC sales will result in a volume headwind for the business in 2017, which will be mitigated by the increasing deliveries of our new SatCom product line. The commercial aerospace market is experiencing a technological shift from traditional Seatback entertainment systems towards SatCom based wireless connectivity. While this technological change will cause near-term challenges within the aerospace industry as a transition occurs. This is consistent with the wired to wireless connectivity evolution underway globally and will result in enhanced customer connectivity and the in-flight entertainment experience. This shift is more impactful in narrow body aircraft and we expect wide body aircraft will offer a combination of both traditional seatback entertainment systems and SatCom wireless products for some time. First quarter earnings per share from continuing operations of $0.94 included $010 of previously announced restructuring facility rationalization and acquired inventory costs. We are on track to complete these restructuring activities and are expecting significant EBITDA improvement from these investments beginning in 2018. Earnings performance in the quarter was well below our expectations driven largely by lower volumes experience in CIT. We recorded pre-tax charges of $5.2 million primarily related to the current facility rationalization and plant restructuring projects in the interconnect technologies and Brake & Friction segments. Along with pre-tax acquired inventory cost for the San Jamar and Arbo acquisitions, which totaled $3.9 million in the quarter. Our disciplined approach to deploying cash from operations continued in the first quarter returning $22.7 million in capital to shareholders through dividends, investing $30.4 million in capital expenditures, and approximately $226 million for the acquisitions of San Jamar and Arbo. As Steve will detail on his comments, we have ample liquidity available to pursue organic investments, acquisitions and return capital to shareholders through dividends and share repurchases. Please turn to Slide 4 I would now like to share some of our recent highlights including an update on the significant progress we're making on some of our strategic growth initiatives. At CCM conditions in the U.S. non-residential roofing markets remain favorable. Growth was better than expected despite tougher comparisons last year with the U.S. single-ply membrane market growth rates in the low single-digits. CCM experience growth across to almost all regions in the U.S. and Canada in the quarter with installation in TPO products outpacing overall growth rates. This business is positioned to capitalize on trends in energy efficient installation solutions and the growing popularity of TPO products with the contractor community. Project backlogs remained strong for roofers, however, tight labor conditions remain. Traditionally, a North American centric business CCM is strategically focused on international expansion through construction of a new production facility in Germany and the acquisition of Arbo. Additionally, we are actively pursuing European acquisition opportunities in the building envelope space to complement our existing footprint. As expected raw material costs that CCM increased by $3.6 million in the quarter and pricing was unfavorable declining 1.7% versus prior year. CCM announced 7% polyiso price increase and a 5% TPO price increase effective April 1. One other note, where the development at CCM in the first quarter was the approval of a new 40,000 square foot R&D technical center in Carlisle, PA. This high tech R&T center will almost triple our current square footage and allow CCM to maintain its technological leadership position in the building and construction industry. At CIT the sales decline from two large commercial aerospace customers had a greater impact than anticipated as we exited the fourth quarter of 2016. Offsetting this headwind going forward our sales related to the technology shift from traditional seatback entertainment systems to our new satellite connectivity products, which continue to gain momentum. The satellite connectivity installation kit market size is currently estimated at $250 million and is expected to grow at 10% to 15% CAGR through 2021. CIT remains well positioned to capitalize on the rapid growth for these products in both line fit and retrofit applications with our ARINC 791 solution and products – and the products we required with the Star Aviation purchase last fall. The current CIT SatCom pipeline to be delivered over the coming years is estimated at over $200 million with the pace of shipments accelerating later in the year. And industry expectations are the air to ground technology will be surpassed by satellite connectivity is the dominant technology in the coming years. With both IFEC and SatCom technical capabilities in products, CIT remains a market leader in the industry. And CIT’s medical business, the expansion of our state-of-the-art facility in Dongguan, China remains on track. This facility in addition to the capabilities of our medical technology development team is supporting a growing new product development pipeline of over 75 active projects with a value of approximately $50 million. The manufacturing capabilities in this facility will contribute to CIT’s position as an emerging global leader in the medical interconnect market. CIT remains diligent in their efforts to take cost out of business as evidenced by the current year restructuring and facility rationalization activities and we expect EBIT margins to improve as a result. At our FoodService segment, the team continues to successfully execute their sales growth and operational excellence strategies as evidenced by the seventh consecutive quarter of organic sales and earnings growth. The acquisition of San Jamar earlier this year has added to the sales momentum and we are very pleased with the San Jamar team's performance in the first quarter with Carlisle. Integration activities including the rollout of the Carlisle operating system are progressing well. The San Jamar management team is fully engaged and achieving the expected growth rates and will leverage the new tool COS has brought to the business. Steve will now review our first quarter segment performance, balance sheet and cash flow. After Steve’s review, I will discuss our outlook for the remainder of 2017. Steve?

Thank you, Chris. Please turn to Slide 5 of the presentation, which is a recap of our sales results. Selling price is primarily at CCM had a negative 0.7% impact to sales. Sales volume was up 4.4% driven by CCM, CFS and CBF, partially offset by CIT and CFT declines. Organic growth in the first quarter was driven by strength in our U.S. commercial roofing, healthcare and off highway construction equipment markets. Acquisitions contributed 4.9% of sales growth in the quarter. Turning to our margin bridge on Slide 6, EBIT margin decreased 260 basis points in the quarter to 11.3%. The net impact of selling price and raw materials had a negative 20 basis point impact to our margin. Volume was positive 70 basis points and COS was positive 90 basis points. The impact of acquisitions made in 2016 and 2017 was dilutive to our margin by 110 basis points. Restructuring and facility rationalization costs in the quarter had a negative impact of 50 basis points. The category labeled other includes the impact of unfavorable product mix and increased investment in sales staff. Let's turn to Slide 7 to review the quarterly performance by segment in more detail. At CCM sales increased 10.5% in the quarter led by 14% volume growth in domestic commercial roofing sales. The Arbo acquisition contributed less than 1% of sales to the year-over-year growth. Selling price at CCM was lower versus the prior year by 1.7%. Importantly the stable sequential selling price environment we have experienced in the U.S. commercial roofing market over the past several quarters continued in the first quarter of 2017. CCM demonstrated another quarter of strong earnings performance as EBIT grew 12% and EBIT margin increased 20 basis points to a first quarter record 18.1% reflecting higher sales volume and savings from the Carlisle operating system. Please turn to Slide 8 to review CIT’s results. CIT’s net sales decreased 1.3% in the quarter with volume and selling price down 8.9%, partially offset by the Micro-Coax and Star Aviation acquisitions, which added 7.9% of sales in the quarter. Sales to the commercial aerospace market decreased 11.5% and sales to the medical market were flat in the quarter. CIT’s EBIT declined 39% due to lower sales volumes and $4.3 million of pre-tax restructuring and facility rationalization costs, partially offset by COS savings. As Chris noted earlier, the demand for satellite communication product solutions in the commercial aerospace market continues to gain momentum with the pace of retrofit activity accelerating. Demand for these solutions is expected to rise substantially over the next few years as airlines act to increase in-flight satellite connectivity and bandwidth. Please turn to Slide 9 to review FoodService’s results for the quarter. At Carlisle FoodService, our focus on operational excellence continued to yield year-over-year sales and earnings growth, now for a seventh consecutive quarter. FoodService’s organic sales increased 6% this quarter. Sales to the healthcare market grew 19% on higher equipment sales. Sales to the janitorial sanitation market grew 5% on further penetration of large accounts. San Jamar performed as expected in the quarter. CFS EBIT margin was 7% as current quarter included a pre-tax charge of $3.4 million of acquired inventory related to the San Jamar acquisition. Turning to Slide 10, CFT's sales declined 1.1% in the first quarter, representing an organic sales decline of 0.5% and the negative impact of foreign exchange of 2.8% partially offset by 2.2% growth from the acquisition of MS Powder. Sales to the transportation market declined 15.9% primarily in Asia Pacific, due to the timing of system sales. Sales to the automotive refinish market were down 3.8%. Sales to the general industrial market increased 3.9%. CFT’s EBIT declined 29% due to continued investments in sales resources, expanded manufacturing capabilities, in sourcing initiatives and consolidation of its global footprint. All of these investments are consistent with CFT’s stated growth strategy and are expected to lead to incremental margin improvement. Turning to Slide 11, CBF sales increased 1.7% in the quarter, reflecting an organic net sales increase of 3.6% partially offset by 1.9% negative impact due to foreign exchange. CBF experienced sales growth for the first time since the third quarter of 2014. Sales to the construction market grew 9%. Sales to the mining market grew 0.8%, reflecting growth for the first time since 2012. Sales to the agriculture market grew 11%. Sales to the aircraft market declined 48%. CBF’s EBIT declined $2.5 million as a result of unfavorable product mix primarily due to lower aircraft sales, higher raw material costs and expenses related to the previously announced closure and relocation of the Tulsa, Oklahoma manufacturing facility to our Medina, Ohio facility. Please turn to Slide 12 of the presentation, as we review our balance sheet. As of March 31, we had $134 million of cash on hand. On January, we used approximately $226 million of cash on hand to acquire San Jamar and Arbo. We increased our credit facility in the quarter and now have $1 billion of availability. We returned $22.7 million to our shareholders through dividends. Our balance sheet remains strong. At March 31, our net debt to capital ratio was 16%, our net debt to EBITDA ratio was 0.7 times, and our EBITDA to interest ratio was 23.7 times. As Chris noted, we remain extremely well positioned to pursue acquisitions and return capital to our shareholders. Turning to Slide 13, our free cash flow for the first quarter was $1.5 million compared to $90.3 million to prior year. With the decline attributable to lower net income, a greater usage of working capital to support organic growth and higher capital expenditures. And with those remarks, I will turn the call back over to Chris.

Thanks, Steve. Please turn to Slide 14, as we discussed our updated 2017 outlook. We expect our 2017 consolidated sales growth to be in the high single-digit range. By segment, we expect CCM to achieve mid to high single-digit sales growth, leveraging a favorable U.S. non-residential construction environment. CCM will continue to operate with the same commitment to maintaining price discipline in their markets, and by driving increased use of the Carlisle operating system throughout the business. CIT is expected to achieve mid single-digit growth for the full year, reflecting our price discipline on legacy IFEC products and the corresponding impact of the customer in sourcing initiative. We are optimistic that our growing backlog and increasing ramp up of SatCom product sales will contribute to sales growth in the latter half of 2017. The sales growth estimate includes sales contributions from the Micro-Coax and Star Aviation acquisitions. Demand for CIT products remains strong in the commercial aerospace and medical technology markets, and we are excited about the significant operational improvement underway. At FoodService, we expect organic net sales growth in the low-to-mid single-digit range with continued earnings leverage and a significant positive contribution from the recent San Jamar acquisition. At CFT, we will continue to invest in the previously noted key initiatives to drive improved financial performance and add scale to this platform. These investments are expected to provide returns beginning in 2018 and put us on track for significantly increased operating performance in the coming years. The outlook across CFT’s largest global end markets remains positive, and our expectations for sales growth are in the mid single-digit percent range. At CBF, we remain cautiously optimistic that we have seen the bottom of the cycle on our key end markets of mining, construction and agriculture. At this time we would expect CBF net sales to be slightly positive for 2017. Throughout the prolonged downturn, CBF has aggressively addressed its challenging markets by realigning its cost structure. As noted, with the Tulsa closure, the CBF team has and will continue to position this business for a rebound in global mining, agriculture, and construction markets. Corporate expense is expected to be $65 million and depreciation and amortization expense is expected to be $155 million for the year. We expect capital expenditures will be approximately $125 million to $150 million for 2017. And we're expecting free cash conversion to be approximately 100%. Interest expense is expected to be $27 million. And our tax rate is expected to be approximately 33% in 2017. We're pleased by the record sales performance in the first quarter and look to build on the positive momentum. We have as we continue through 2017. This concludes our formal comments on the first quarter results and 2017 outlook. Teeny, we're now ready for questions.

Certainly. [Operator Instructions] And your first question comes from the line of Jim Giannakouros.

Hi, Good afternoon everyone.

Hi, Jim.

Hi, Jim.

Great stuff in CCM, would love a little bit more details on how you guys can drive that type of volume in a seasonally soft period against extremely tough comps. Can you call out anything that moved the needle there, a large project or a weather event in the certain region? Or maybe how much of that would you attribute to any pre-buy activity ahead of the price increases that I believe all big four manufacturers instituted in early April.

Thanks, Jim. They did an excellent job with CCM. And as you noted there might have been some pre-buy, we’re thinking something less than $10 million, but I think that's a good number an approximation. And then really the weather again just like last year, the weather was favorable. We saw nice increases across all the product lines EPDM, TPO, PVC [indiscernible] even Europe some nice growth there. So just a really good job all the way around, and then a little bit of growth in Canada not a lot of dollars, but a nice percent and that just new products and continued focus on the CCM experience. We continue to see CCM improve their deliveries, their customer service interaction and I think that has a lot to do with the performance they're driving.

Okay, thank you. And if I can follow up on just what you're seeing so far to the extent that you can comment on pricing. How much of that is what you put in place in early April. How much of that is sticking and was it just on those areas TPO, polyiso, where accessories also priced up and then I guess as a tack on, because it we're all trying to figure out the price cost equation. Any updates on to that $7 million to $10 million EBIT quarterly headwind that you anticipated several months ago for this year. Thanks.

Yes, I'll let Steve talk about the price to rise. As far as the price increase though, it was implemented April 1, we typically see a pretty good a lag there, 30, 60 days on the bulk of the price increases. So we’re – it's still playing out, we are seeing it has some effect. So let to get back to you had more information and obviously in the second quarter. And then it was just on the polyiso and TPO product lines. So, Steve you want to answer the question.

Yes, so give a little more color in the first quarter price was negative about $7 million and raws were negative about $3.6 million. So a little over $10 million on a combined basis, sort of the guide that we gave coming into the year was that on a net basis, we would be negative about $40 million, that's where we still see it. We still see over the course of the year negative about $40 million maybe getting a little bit more price, but having a little bit more raw material pressure, but overall for the full year negative around $40 million.

That's helpful, thank you.

And your next question comes from the line of Kevin Hocevar.

Hey, good afternoon, everybody. Happy draft night. Can you – you called out the greenfield plant in Europe, so I was wondering if you can describe for CCM, what you're doing there? What product line that, that for within CCM. I guess my understanding Europe is it different than here. I think its more asphalt based and you guys kind of have the solely EPDM manufacturing there. So I wonder what you're building over there, what product lines? And if you could kind of frame up the market for us, how much is asphalt, how much is EPDM? And that would be helpful.

Yes. Kevin, we have our – we made our two EPDM acquisitions a couple of years ago. One instance we bought an older factory. We are bullish on the European prospects. This is just an opportunity to invest in the greenfields new production, new technologies, new equipment. And we just think it's going to sort of – allow us to sort of reduce our cost and position ourselves for future growth in Europe. So this is just really an enhancement of our current to EPDM. And you're right. There is sort of a retrofit – the Retronix is the brand, and then we use over there it's a combination of EPDM or other and asphalt. And that is the production that will be in our new European facility. So that's – again it's just an effort or a chance here to really renovate and take advantage of we expect it to be a future growth in Europe.

Got you. Okay. It was encouraging to hear CBFC sales growth here for the first time in a while. What is your – and its sounds like expectation is you'll get some very modest sales growth for the year. What is your visibility in this segment? How far out can you see – how far out your order books look? And I guess is what you're seeing there essentially what supporting the – if there is exactly low-single digit or some type growth there in CBF for the year?

Yes. Ken we're seeing about – we see 30 to 60 days out. And indeed what we're seeing at some of the orders with I think we've had five or six months of increasing bookings within CBF and that's giving us some positive feedback and good feeling for the remainder of the year.

And then in CIT, how should we think of the margins here as we go through the year, because even if you strip out that $4.3 million and restructuring charges, margins were down 500 basis points here in the first quarter. So is that kind of how to think about it going forward or is there a different way to think about it. And also on the restructuring charges, I think last quarter you called out there would be $4 million in restructuring charges in CIT over the next six quarters and that’s how much you incurred this quarter. So are the restructuring charges done at this point?

Yes. So I think what we called out Kevin was specific to China, so there was more in the first quarter than just China. So where there will be continued restructuring charges in subsequent quarters here in 2017. I think our Q2 is going to resemble our Q1. I think some of the challenges that we have in Q1 will continue into Q2. And we see a bit of a recovery in the second half of the year, margins improving as we exit, and we feel good about where we're heading for 2018.

Okay, all right. Thank you very much.

Thanks, Kevin.

And your next question comes from the line of Neil Frohnapple.

Hi, good evening, guys.

Good evening, Neil.

For CFT, you indicated that sales volumes increase in Asia-Pacific. I'm sorry, decrease in Asia-Pacific, primarily due to timing of system sales. And I think Steve, you mentioned that in the commentary with regard to the transportation side. Any way to quantify this impacts of the quarter and I guess really what gives you confidence that growth will accelerate for the remainder of the year to hit sales growth in the mid-single digit range.

Neil, I'll let Steve take the quantification, but in terms of the second half, this business is a little bit longer in terms of visibility than say our CBF business. These projects are significant projects and automotive assembly and paint shops. And so we'll – we already have visibility into projects in the third quarter. And so I would say that the project pipeline is what's giving us confidence that they will have a solid second half of the year. Steven if you want to try to quantify the first quarter.

Yes system sales were down about $2 million in the quarter. And again they tend to be lumpy, they tend to be more back half of the year loaded and based on out ordered book we feel pretty good about the way the second half is filling for system sales.

Okay great. And then Chris you've obviously communicated some heavy lift in CFT for this year just kind of wondering is that kind of persisted through the rest of the year and it may be can spill over to 2018 I mean just any thoughts there would be helpful.

Yes we'd like to get to the bulk of it here in 2017 and that's been the plan. To add on around things like sight consolidation in the heavy lifting. And then we may have some vertical integration and some sourcing initiatives, as well as the sales initiative we've put together where I think we've put in 33 new salespeople in 2016. And really they don't come to full potential for us till about the third year. So that would spill over into 2018 as well. But we like to get to the bulk of the heavy lifting in 2017.

Okay, great. And just one final one if I may. Brake & Friction, obviously with the slight revenue growth now, any thoughts just kind of on margin progression there, I mean should we still kind of expect 35% to 40% incremental as you talked about historically there?

I think we can expect that as the volume gets to higher levels than we've got now. Right now with the aircraft drag persisting through the year, I think what you're seeing right now in terms of margin impact may improve a bit on the volumes, but I don't think we'll be at that 40% level till we get maybe into the high $20 million and $30 million a month range.

Okay great thanks very much guys.

Yes.

And your next comes from the line of Joel Tiss.

Hi guys how is it going.

Hi. Jeol.

Good evening

Just the size of the satellite opportunity I thought you said earlier that the size of the market was only $250 million but then you said your backlog is $200 million over the next couple years, did I hear that wrong?

Well the $200 million in total, in revenues over a several year period.

That's your backlog, right.

Yes.

Yes.

And Joel those are really the opportunities that about identified and we were working with those organizations in very different levels of implementation as we get their approvals and those kind of things. And actually that's been one of the impacts or drags on the SatCom performance in the first half of the year was some delays beyond our control with the FA and different installations. So a lot of these are going on in line fit, but all the certifications do need to be received before we can go forward.

Yes and Joel this is Bob that included pipeline as well as backlog and orders so it wasn’t all true orders those pipeline are progress to come.

So you're basically going to have the whole market, is that what I'm missing I guess?

I think it's 250 this year Joel and if we were – let’s take the 15% CAGR on the market, we're going to be growing somewhere $20 million the $10 million to $15 million, somewhere between $20 million and $40 million or $35 million a year. So as we roll that out if you go we said to 2021 let's take four years hit $30 million, that’s another $120 million. But yes I mean we don’t want to get too specific on market share but our market shares are very good, especially looking forward in our relationships with the different both OE aerospace manufacturers and the airlines.

Okay and then great. And then on the CFT is this turning out to be a little bit of a bigger project like integration, indigestion or whatever you want to call, is it a little bigger project that when you guys originally expected or this is all sort of – this was the original plan?

No I think in order to get the margins we wanted and to drive the kind of the sales growth that we knew we had to make these investments. And when we looked at the vertical integration initiative is much as we want to be optimistic, it takes time to buy the machines, install them, improve them and in source the product. And in terms of producing factory size and footprint, it takes time and some of those things are beyond the control of the team in terms of the order in which they are dealing with the local authorities on layoffs determinations and those things. So I think it's about what we expected, but by no means is it an easy task. It does – it is a lot of heavy lifting.

Yes, sometimes times it's kind of nice to be on this side of the table, I just have to be tired listening to all bunch of companies reporting their earnings I don’t have to actually do anything. And then the aerospace drop in CBF. I didn't hear what was behind that is that just you guys maintaining your price discipline.

No that was a little bit different situation there we had Maker pay contracts that have our expiring and there's less demand today for the steel brakes on replacement aircraft then there was a number of years ago. And that's just sort of a decline in the overall markets and we're seeing that. We started seeing that last year and we're seeing some more of it this year earning and that will impact us again next quarter.

Okay. And then lastly in terms of acquisitions just kind of where you’re head is at in terms of – do you need more pieces that kind of fortify the segments you already have? Or are you going to be more opportunistic and just find maybe potentially other businesses or that can be a creative to earnings. Or just give me a sense what you're thinking about there.

Yes. Joel, a little bit of both in CCM two things we want to do as we mentioned in the call we want to find a way to grow geographically specifically in Europe. But also find additional building products to kind of create that building envelop concepts. So we want to add that great presence that CCM has within the distribution channel and the loyalty they have with customers and contractors and specifiers. CIT we still think there is opportunity within the aerospace specifically with this wire to wireless conversion if we saw opportunities there we would do those also within the medical segment that really within CIT is what we've talked about for a while and we’ll have to acquire a significant – they have a acquisition within medical. When we look at CFT we've talked about that as well as part of the original plan you asked, it was going on schedule we would really like to see acquisition opportunities within the sealant and silver finishing or protective coatings or pumps businesses within that CFT segment we continue to work hard to find those. CFS FoodService is going to be a little bit more opportunistic, we've talked about options first FoodService we continue to improve the business. And when we see an opportunity like San Jamar where we've got a great brand name and it can add to that portfolio we probably act on it but we'd be very opportunistic. And then I think with CBF we need to get through this Tulsa consolidation we need to work on improving our sales position and our market share at different end users and grow that business. So I think for now that one it would be hard for me to imagine we'd make an acquisition in CBF.

Okay. That's great. Thank you so much.

Thank you.

And you have a follow-up question from the line of Kevin Hocevar.

Hey, everybody. Just another quick one, you mentioned [indiscernible] were $40 million of raw material net price raw headwinds for the year. Is that all gross essentially flattish pricing and $40 million of raw material headwinds or is there an assumption that pricing will move up throughout the year? And the raw material headwind would be bigger than that.

Yes. Right now it's just as you described Kevin, it's more or less flat pricing for the full year and $40 million of negative of raw materials. And I think to the extent raw materials become more unfavorable we feel better about getting more price. So we're still looking at a net negative of $40 million.

Got it. Okay, thank you very much.

And there are no further audio questions at this time.

Well thanks today. That concludes our first quarter 2017 earnings call. Thanks everyone for your participation. And we look forward to speaking with you at the next earnings call.