Neptune Insurance Holdings Inc. (NP) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is LaShanta, and I will be your conference operator today. At this time, I would like to welcome everyone to the Neenah Paper Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, August 8, 2013. Thank you. I will now turn the call over to Mr. Bill McCarthy, Vice President, Financial Analysis and Investor Relations. Please go ahead, Mr. McCarthy.

Great. Good morning, and thank you for joining Neenah's 2013 Second Quarter Earnings Call. With me today are John O'Donnell, our Chief Executive Officer; and Bonnie Lind, our Chief Financial Officer. I'll start with a few brief comments and then turn things over to John and Bonnie to review business activities and financial results in detail. As noted in our press release yesterday afternoon, adjusted earnings per share were $0.80 in the second quarter. Earnings were adjusted by $0.03, primarily for a noncash write-off related to refinancing our senior notes. Last year, adjusted earnings were $0.85 per share and excluded cost of $0.08 for integration of acquired Fine Paper brands. Earnings on a GAAP basis were $0.77 per share in both periods, and a reconciliation of adjusted earnings to corresponding GAAP figures is included in our press release. Finally, as a reminder, this call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties are described in detail in our SEC filings and in the Safe Harbor disclaimer contained on our website. And with that, I'll turn things over to John O'Donnell, our Chief Executive Officer.

Good morning. As Bill mentioned, adjusted earnings in the second quarter were $0.80 per share. That's not only exceeded our expectations but was our second highest income level ever, only bettered by the second quarter of last year. Technical Products operating income increased significantly versus the first quarter and was equal to last year's very strong results, despite a somewhat weaker but improving business environment in Europe. And our Fine Paper business continues to deliver mid-teen operating margins, supported by market-leading brands and a more efficient operating platform. Coupled with working capital improvements in the quarter, earnings translated into cash from operations of almost $28 million. Results also reflect the continuing progress against 3 strategic priorities. As I've shared before, at first, to build businesses in profitable specialty niche markets where we have a meaningful share position and right to win through improving the performance or the image of a product; second, to increase our growth rate and portfolio diversification as we invest and expand with high-value products in growing markets; and third, to operate in a disciplined financial manner that will deliver consistent and attractive returns for our shareholders. Let me update you briefly on our progress in each of these areas. We're continuing to build upon our meaningful positions in profitable niche markets. Some of these more sizable markets include transportation filtration, premium labels, specialized backings and branded fine papers. Transportation filtration is our largest Technical Products business, and the majority of this business is in Europe, where we hold a leading share. While economic conditions in Europe remains soft, our filtration business has continued to perform well, and volumes grew 5% this quarter. With 70% of filters going through the aftermarket, this provides a solid foundation in consistency and demand. Growth is being supplemented by an increasing international presence as we expand with existing global customers and increase sales to local filter manufacturers. In addition, the need for our highest-performing filtration media continues to grow at a pace greater than the market as engine requirements become more demanding. We are known and valued by customers for providing innovative and specialized products with high service levels, and we expect this positioning to provide us growth opportunities in the future. Premium labels is another attractive market. Here, our products span both business segments, with premium image levels delivered to our high-quality fine papers and with performance-oriented labels using our Technical Products capabilities. Sales of performance labels were especially good in the quarter, growing 8%, and led by increases in image transfer and durable papers. We also continue to find success in image labels with distinctive colored and textured labels for craft beers, wines and other food and beverage applications, where the label can influence trial or improve the perceived value of the product. Labels are a large and growing market. We are exploring solutions where our core capabilities allow us to successfully differentiate. Our third market is specialty backings, which is comprised of tape and abrasive products. In tape, sales were up more than 15% as we recovered share and continue to commercialize innovative new products with features such as water repellency, ultraviolet resistance and unique service characteristics. Partly offsetting this growth was lower abrasive sales in the quarter as customers, especially in Asia, reduced orders as economies slowed and inventories were managed. Finally, premium fine paper, where we are a clear market leader. Sales grew 4% this quarter as we integrated Southworth brands, further implementing our envelope go-to-market strategy and continue to support core premium brands like CLASSIC. Margins remain strong and are benefiting from manufacturing efficiencies, including production output records set in the quarter. So while this market remains challenging, our teams continue to find creative ways to grow in a capital-efficient manner through supply chain innovations, partnerships with others and expanded consumer and international distribution. In fact, an example is a recently announced distribution agreement with Gruppo Cordenons. This Italian company manufactures a number of uniquely differentiated brands that will enhance our portfolio of colored and textured papers and support our growth in luxury packaging. In the third quarter, we'll begin to offer our new design collection line to customers in North America, and we're excited about how nicely this edition reinforces and complements our existing offerings. In real forms, Neenah is a clear innovative leader in premium papers. While performance in core businesses is a priority, increasing our growth rate and portfolio diversification as we scale as a company follows right behind. We expect to do this both organically with high-value offerings in growing markets, as well as through thoughtful and value-adding acquisitions. Organic areas we are finding success include adjacent filtration markets, expansion of our luxury packaging and growth in our retail fine papers. In filtration adjacencies, we continue to grow sales of beverage filter media and more recently, began commercializing new industrial filtration products. While revenues from these new areas are still relatively small, they are in growing markets, and they utilize our existing filtration technologies. Luxury packaging also continues to demonstrate strong growth with both new products and new customers. Recent successes include packaging for some of the most popular smartphones as well as prestigious jewelry and cosmetic brands. As with premium labels, we set up customers with valuable brands, and our papers complement their image while validating the consumers' purchase choice. Finally, retail fine papers continue to grow with customers like Michaels and Staples and Target and more recently, Walmart. We're the share leader in our existing categories and are pursuing opportunities for growth in new channels like drug, crafting and club, as well as by expanding offerings with our existing customer base. These organic efforts are helping us to accelerate growth through high-value products with attractive returns. We expect to supplement this growth with acquisitions. We've dedicated resources to that end, and our process to identify and evaluate target remains very active. While we clearly have the financial strength to execute, we're very disciplined in our approach and will not invest unless an acquisition provides us the good strategic fit and platform for future growth that we're looking for. Finally, our expectation is to deliver consistent attractive returns to shareholders through disciplined financial management. Our businesses are profitable and well positioned, with pricing in both segments that has allowed us to offset input cost changes over time. Our teams are focused on achieving growth in a financially responsible manner, with active internal processes to drive good decision-making and return on invested capital as the prominent financial metric. Dividends are an important part of how we will deploy cash. In May, we stated our intent to grow our dividend yield to 3% to 4% and announced a dividend increase of 33%, our second increase of the year. We're committed to an attractive dividend as a way to provide our shareholders with a consistent and meaningful total return. As a measure of success and for incentive purposes, we compare ourselves to some of the best-performing companies in the Russell 2000 Index and expect to redeploy our strong cash flows in ways that continue to deliver against our high expectations. So in summary, we're pleased with the progress we've made in key strategic areas, how our businesses continue to deliver consistent and attractive returns. I will provide a few more comments later in the call, but now I'll turn things over to Bonnie to review financial results in more detail.

Thanks, John. As usual, I'll cover our business segments first, starting with Technical Products. Sales of $106 million were in line with last year despite the challenging global conditions in Europe and slowdowns in Asia. We were able to do this with growth in filtration, labels and tape that helped to counter declines in the more economically sensitive industrial and other product groups. Our mix improved in the quarter with growth in higher-value products, and we also benefited from translation gains due to a slightly stronger euro. Operating income of just under $12 million was similar to last year's pretty strong level and up significantly from $10 million in the first quarter. While operational performance is improving, it continues to be below last year, and plans are in place for further improvements in the second half. In the second quarter, the impact of higher manufacturing costs was largely offset by a more profitable mix and decreased selling, administrative and other expenses. Moving on to Fine Paper. Quarterly sales topped $100 million and were up 4% versus last year. Increased revenues reflected growth from acquired brands and increases in luxury packaging, retail and international market. Net prices were also higher, reflecting price increases and an improved mix of higher-value branded products like our business papers, envelopes and other specialty grades. Operating income was $15.5 million compared to $13.3 million last year. After excluding integration costs in both years, adjusted income grew from $15.2 million to $15.6 million. Increased income resulted from higher average net prizes and improved manufacturing efficiencies, partly offset by almost $2 million of higher input costs and added selling, marketing and distribution costs associated with the increased sales. Advertising expenditures were also higher in the quarter due to timing of launches and promotions, and this should decline in the second half of this year. Our Southworth brand integration is ahead of plan, and integration costs in the quarter were less than $150,000. We expect to incur $350,000 in the third quarter, at which point we're done. With total costs of around $600,000, we'll end up well under original estimates as our team has found ways to optimize integration activities and reduce costs. Turning next to unallocated corporate and other results. Sales of non-premium grades in the second quarter were $6.5 million compared with $8.5 million last year. As a reminder, these grades of companies are ASTROBRIGHTS brand acquisition and included grades that were important to some of our customers for a smooth transition. We expected to lose some of this business following the purchase, and our run rate over the past few quarters has been $6 million to $7 million. As you would expect, profits have declined with lower volumes in the second quarter, including additional costs associated with the disposal of obsolete products. However, this nonstrategic business will continue to provide incremental variable profit contribution and positive cash flow, and at current volume expectations, EBIT is projected to be around breakeven. Unallocated corporate costs were $4.2 million, both this year and last year. After excluding costs related to early debt retirement and pension settlement charges, costs were approximately $0.5 million lower this year. Even with a growing top line, we have maintained a run rate of around $4 million per quarter, about where it's been for the past 3 years as we leverage our infrastructure and gain efficiencies. These efficiencies can also be seen in SG&A, which as a percent of sales, is 9.4% so far this year. That compares to 9.6% in 2012. In dollar terms, consolidated SG&A of $19.2 million was almost identical to last year. Increased spending in Fine Paper related to the higher sales was offset by reductions in other areas. We expect ongoing spending of $19 million to $20 million per quarter. Let's move now to a few corporate financial items. Our effective tax rate increased earlier this year due to additional repatriation of cash and a change in German tax law. We work to respond to changes in the law and now expect a full year rate of around 36%, down from 38% in the first quarter, though still above last year's rate of 30%. In the second quarter, the rate was 34% as we trued up expenses to reflect the new projected full year rate. Our cash tax rate remains below 15% as we used net operating losses to offset cash tax payment due on North American income. As of June, we had $39 million of federal NOLs remaining that we expect to use by the end of 2014. Cash flow from operations was $28 million in the second quarter, primarily due to earnings but also included a $3 million decline in working capital. Cash flow was up significantly from last year when we increased working capital to support acquired Fine Paper sales. Capital spending was $5 million in the quarter compared to $5.8 million last year. For the full year, we expect to be within our $25 million to $30 million targeted range. And the second half of the year will reflect the planned increase in spending, in part due to the timing of our annual maintenance down in the third quarter. Cash payments for defined benefit pension plans are expected to be $18 million this year, about the same level as the last few years and about $10 million more than expense. Based on these contribution levels and projected discount rates, we expect our U.S. pension plans to be fully funded by the end of 2014. This timing is in line with when our NOLs will be consumed, minimizing the net impact on overall cash flow. Turning to capital structure. A significant accomplishment during the quarter was the refinancing of our long-term notes. In May, we issued $175 million of 8-year bonds with an interest rate of 5.25%. Proceeds were used to retire the remaining $90 million of notes due in 2014 that carried an interest rate of 7 3/8 and were also used to pay up all other U.S. borrowings. In addition to locking in a fantastic rate, we were able to derisk our balance sheet by refinancing with new long-term debt and secured terms that gave us added flexibilities for the plans to grow and provide increasing cash returns to shareholders. Debt was $192 million at quarter end, up $6 million from March, while cash balances increased by $23 million, reflecting our strong cash flow. Debt was comprised of $175 million from the new bonds and $18 million of debt in Germany. Interest expense in the quarter was $3.1 million, down from $3.5 million last year. Due to timing of the refinancing, we had 1 month of added interest expense in the quarter equal to about $500,000. Based on June ending debt levels, quarterly interest expense should be approximately $2.6 million for quarters going forward or a little over $10 million a year. I'll close with a few comments on cash deployment. Reinvesting in attractive organic growth projects is always our first choice, and we actively prioritize capital for growth and cost savings with good returns while keeping total spending within a prudent range. We had a strong balance sheet with debt-to-EBITDA of 1.7x. This is at the low end of our targeted range, so further reductions are unlikely. John spoke earlier about how an attractive dividend is an important part of our capital deployment strategy and the actions that we've taken this year. Current annual dividend of $0.80 per share represents about $13 million of our cash flow. This is a very manageable amount, and we have ample flexibility to increase our payout as we move toward targeted dividend yield over the next 3 years. At the same time, we also have a program that allows us to buy back shares if the opportunity is compelling. With our current capital structure and cash flow generating ability, we're in a great position to take advantage of opportunities that deliver incremental value while continuing to provide attractive returns to our shareholders. With that, I'll turn things back to you, John.

Thank you, Bonnie. Let me start with a few comments related to our employees as success doesn't happen without their commitment, engagement and accountability. We recently finalized new 5-year labor agreements at all of our U.S. facilities and entered into new multiyear labor contracts in Germany. Relationships with our unions are productive, and with their support and ownership of results, we continue to work together on our common objective of safely providing the products and quality our customers value while never losing sight of the importance of continually managing our costs. Safety is a top priority, and our performance remains substantially better than the industry average. Our teams throughout the company are focused on this area, and our goal remains that no one be hurt in the workplace. I'd like to recognize employees at our plant in Munising, Michigan, who've reduced their rate of injuries by 2/3 this year, and also at our Bruckmühl facility in Germany, which has now operated injury-free for the majority of 2013. Next, let me briefly talk about expectations for the second half of the year. As a reminder, demand in the second half reflects normal seasonality with some holidays in Europe and year-end holiday downtime at many of our large customers. In the third quarter, we take annual maintenance downs at most of our plants. Higher spending and other costs related to downs are typically $3 million to $4 million, and our teams are focused on managing those costs and working safely through the down periods. With lags in our pulp contracts, we're expecting book costs in the third quarter to increase by about $1 million from the second quarter levels. Most of this will be related to hardwood prices used in fine paper. For the full year, the largest increases have been in hardwood and in specialty pulps. As we've demonstrated, both businesses are able to offset input cost variations over time through market pricing and cost reduction activities. Moving to the economic outlook. While our global conditions are not robust, we are starting to see some optimism in Europe, and our teams continue to move ahead with initiatives across our businesses that drive future value. Investments to expand capacity to support filtration growth are on track to start up in the fourth quarter at our [indiscernible] Germany facility and our technical products mill in Michigan. Our investment in a soft-nip calender supports our efforts to lower operating costs and provides capabilities for new products such as super smooth, abrasive backings and our entry into the growing market of stored value gift cards. In Fine Paper, we'll complete the transition of converting for Southworth grades this quarter, helping to deliver costs and supply chain efficiencies with integration costs well below plan. Our teams is focused on what they could control with the improvements that will benefit us, regardless of external conditions. But with that said, I'm still encouraged that these conditions appear to be moving in the right direction. Let me wrap up with how I began. We're very pleased with how our businesses performed in the second quarter. We're doing what we said we would, and our shareholders are benefiting from our actions. Our financial footing is strong, and we're excited about what this allows us to do as we deliver on our strategic initiatives, act on attractive opportunities and reward our shareholders. Thank you for your interest. And at this point, I'd like to open the call up to questions.

[Operator Instructions] And your first question comes from Jon Tanwanteng from CJS Securities.

My questions. Gross margins were pretty nice despite what was a pretty tough macro headwind. I'm just wondering how sustainable you expect them to be?

Well, as you look across our business, I think we've demonstrated on the Fine Paper side, even through notable acquisitions, that they've got the -- both the market position and the brand positioning to maintain their margins. So feel very comfortable with the strength of our fine paper business. As we've talked in the past that our ability, not only from the economic position but the input cost changes, we play in the very high end of each of the categories in the niche, so our products continue to deliver differentiated capabilities and values. And that's been able to enable us to protect those margins. So I feel very comfortable about where we are from a margin standpoint.

Okay. And then just a clarification on your outlook as it pertains to revenue. Did you expect Q3 to be a sequentially lower quarter as per your historical norms? It seems that there haven't been major improvements in markets like back-to-school, Europe or anything like that?

Yes. The seasonality of our Technical Products business in the third quarter probably is not going to overcome any -- of any improvements with our back-to-school and some of the other areas. So I would expect no unnatural acts here that we're be going to be more in the traditional seasonal, with the front half representing typically 52% of our annual sales in the back half, 48% kind of a rough, and Technical Products having a much more seasonal business than our Fine Paper.

Okay. And then just on the Cordenons partnership that you announced, can you talk about the P&L impact of that at all?

Well, I will suggest this -- and again, that will be rolling out in the third quarter, we'll be talking about that a lot more as we move forward. But I would tell you that the revenue from the Gruppo Cordenons association isn't as significant as the partnership is to the strategy of growing luxury packaging in the Fine Paper business. You might liken it back if you follow -- we, a number of years ago, brought on the CRANE brand and was able to double our revenues in that. Our expectation is that with our distribution capabilities in our commercial markets and our focus on growing the very high end, this will be a very complementary piece of business for us. But I will also highlight, Fine Paper business has been -- and as you know, better than I than anybody that secular declines since 1997. And they have a headwind of about 3% a year of decline. This is a great example of some of the creative things that the Fine Paper business is doing to continue to offset. So the last 3 years, we've demonstrated growth in this business. Here's one more addition of the brand management as well as the envelopes and some of the other things we're doing to try to offset that. So, but we'll talk about it more in future calls as we bring that in and really get the market reception from our customers.

Okay, great. And one final one, you obviously increased your dividends substantially over the last 6 months. You have a very attractive target range over the next couple of years. I'm just wondering, does that mean you guys have seen less opportunity in M&A, which is your first option for cash deployment? Or is it you're just that much more confident in your cash flows?

Yes, I would -- first of all, we've said that growth and diversifying our portfolio is an important part of our future, and growth through M&A is an important part of our future. And if -- I think if you look at the robustness of our cash flows, especially when we step-change with some of the Wausau and some of the others, you'll see that even with the expectations that we've outlined to the market, it's not an onerous amount of cash being utilized for the dividend. And our -- by all means, acquisitions will continue to be a part of our view of how we can diversify and then -- and bring greater value. So we don't view them as mutually exclusive or one or the other. We really view that one as demand [ph].

Your next question comes from Mark Weintraub with Buckingham.

First, I just want to -- you just had mentioned kind of diversifying the portfolio being a priority. And wanting to understand, when you say that -- I know that in particular, filtration has been an area of potential. Are you -- which I guess, I wouldn't have thought of as being a diversification? Or would that be included in the notion of diversification if you're expanding geographies or going into adjacencies? What exactly -- can you just help me out a little bit, what do you mean by diversifying portfolio?

Sure. Some of -- and in fact, some of our Technical Products categories aren't -- they don't accompany significant growth opportunities. So what we're really after, either they can be finding new growth categories, they may be filtration-oriented and take advantage of technologies we have, they might be other performance-oriented products. So when I say diversify, really, some of the categories we're in don't have strong growth characteristics with them. I'm thinking of [indiscernible] to least -- for the least liner in the past. So when I'm talking about diversification, I'm really saying looking for performance-oriented growth markets. And that can be geographically. It can be a product category.

Okay. And can you give us perhaps a little bit of an update on what's happening in, for instance, the industrial, that some of the tape markets, which I know have been a bit more difficult competitively and hopefully, though, they'll be -- that the competitive dynamics might improve? What are you seeing in those markets?

Yes, we definitely enjoyed that. We even mentioned in the transcript that we've recaptured some of our share. But I'm as excited about the specialty products that we've rolled out and to recapture a big portion of that growth. So yes, we have seen that pick up. It's up significantly, I think 15% for our tape business. And as people have moved in and out of that business or as capacity has changed, continues to have our customers think hard about continuity and consistency and supply, and then who they want to line up with for their long-term growth and we've had great success both out of our Bruckmühl, Germany facility as well as out of our Munising, Michigan.

Okay, great. And just one -- real quick one. Bonnie mentioned targeted dividend yield. Could you just remind us again what is the -- how do you think of the targeted dividend yield?

Mark, we -- as you know, we benchmark ourselves against the Russell 2000 value. And when we say an attractive dividend yield, we say attractive relative to other players in the Russell 2000. And as we said in the transcript for it, we want to have a dividend that's attractive relative to the better performers of the Russell.

Your next question comes from Larry Stavitski with Sidoti & Company.

I'm just -- if you can kind of detail the environment, I guess, you spoke of Europe and Asia. And I mean, I guess the economically sensitive industrials kind of took a little bit of a hit. Can you kind of, I guess, elaborate on what you need to see for the industrials to start picking up to where you would like to see them?

Sure. And the way we'd like to see them always is up and to the right. As we've said in the past that a large portion of our Technical Products business, 2/3, resides in Europe. So from that standpoint, just the economic position of Europe is critically important for some of those products. We've actually enjoyed when we talk about the 5% growth in transportation filtration because our customers continue to find growth as they export outside of Europe. So our view of -- as China picks up, as Europe picks up, where we've seen some strengthening here in the U.S., those are going to help those products and the recovery of those products, which I think we felt a little heavier in the first half of this year.

Yes, we had the timing impacts on some of our durable papers.

Okay. You mentioned that the 5% growth rate in the transportation filtration segment, and you said it's, I guess, ahead of the greater market. Where do you see, I guess, long-term growth rates for that market and for you guys, specifically?

Yes, we're -- especially on -- when we talk about the 5%, we're oftentimes comparing it to the other product categories where we participate. I -- the shorthand for us is 2x global GDP as where we see the -- our filtration performance, where we've historically been and where we think we've been. The history doesn't always anticipate nor predict the future, but we've had an 8% CAGR over the last 8 or 9 years. And we believe that given the focus and investments on the high-end technology side and the innovative role that we play with many of our customers, we -- that's the level of growth expectation we have for our transportation filtration business.

Okay, got you. And I'm sorry, Bonnie, can you just go over the debt on the NOLs again? I kind of missed. Is it $30 million by the end of '14? Is that what you said?

No, we have $39 million as of the end of June.

$39 million, okay. And you'll expect to utilize those by the end of '14?

By the end of 2014.

Correct.

Okay, great. And I don't know, finally, if you could, just on the Cordenons licensing thing...

Sure.

I don't know if you can elaborate. But is -- are those distribution capabilities only in Italy or will that be throughout Europe?

No, and that's a great question. Thank you for having me elaborate. We said production is in Italy. The unique characteristics, whether it's in incredibly thick products for packaging or a plastic feel, plastic-like product that's paper or a soft-touch type of a product, they're produced in Italy. But we'll represent those products with our market-leading distribution in the United States and Canada. So that's what we're talking about when we're talking about that association. Obviously, success with that continues to look for ways of more international growth. But they are producing the products. Those types of capabilities aren't worth investing in our system, and our system, as a reminder, is loaded with high-end products for our domestic business. So this will be an additional revenue associated with that. North America is really what we should be thinking about as the geographic portion.

Your next question comes from Stuart Benway with S&P Capital IQ.

Yes. In Technical Products, it would seem to me that if volume fell in your lower-margin categories and rose in your higher-margin businesses, that your overall margins would rise but they fell a little bit instead. Can you tell me why?

Yes. I think some of the product categories that we have -- and I don't want to give you the answer of mix, but I'm going to talk you down the answer of mix a bit here, which is, I did reference abrasives as we talked about it from an overall product category. And it's a fairly decent-sized category portion, and it was down significantly for some of the things that we've talked about here. I also referenced, may have been this transcript, but our manufacturing performance in the first half of the year and our Technical Product business has been more challenged. I know I sung the praises of our Fine Paper business as they continue to set records. But in our -- on our Technical Products business, we've been more challenged from a manufacturing standpoint. I expect -- and we saw some progress as quarter-to-quarter -- expect that to improve as we go into the back half of the year. So it's not all product mix-related as much as it is the combination of the above. I know it sounded convoluted, but that's the best answer I can provide you.

Okay. And in the -- what you call industrial businesses, I guess you talked about it to some extent just recently there. But I mean, do you think there's any secular decline going on in that business or share loss? I mean, like your people not using wallpaper either commercially or residentially?

Yes, I think there's a variety of things in that industrial group. We have a variety of products in there. Some of them are, in fact, experiencing decline, some of the pre-masked tapes and some of the other products. From a wall covering standpoint, we participate in a unique segment of the wall covering. So not in all segments of overall wall covering. There are a lot of individuals who are moving into wall covering. You see a lot more competitive environment, and then the biggest part of the growth of that is Asia and Russia. And both of those markets have fed the pressures. So some of it, I would say, are economic conditions that are more temporary. There are some products inside of there that are faced with secular decline, and I talked earlier on the call about diversifying the portfolio. It's really finding performance products that have the growth elements to it, and there's many in that industrial ones that while they're very profitable, have -- they'll demonstrate a lot of top line growth overall.

Yes, one last one. With the Gruppo Cordenons, do you see any possibility of going the other way? I mean, can you sell some of your products through them?

Yes. I wouldn't rule out anything. As I mentioned before, from a creative stand, I think the first one is demonstrate the level of success that we can have here in the United States. And I'm very comfortable that our group's going to be able to demonstrate that. And then like any unique and creative decision, it opens up a lot of different alternatives, and I think that's what's critically important. It's so hard to reinvent a business that's been in decline, but the focus on the luxury packaging for this group and the focus on premium labels, we're seeing a lot of traction, and I'm excited about that. Yes, so we may be talking about other future revenue streams that we hadn't maybe talked about in the past.

I'll now like to turn the call over to John O'Donnell for closing remarks.

Okay. Once again, thank you, all, for your participation today. We look forward to the opportunity to talk to you again in November. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.