KRA - Earnings call transcript Q3 2017

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Operator

Good morning and welcome to the Kraton Performance Polymers Incorporated Third Quarter 2017 Earnings Conference Call. My name is Luigi and I will be your conference facilitator. At this time, all participants are in listen-only mode.

Following the company’s prepared remarks, there will be a question-and-answer period. [Operator instructions]. recorded. being is conference Today’s

ahead. If you time. to disconnect this Please you Gene any will now objections, go Relations. I Investor over Director may turn Shiels, at of have the Mr. call

Gene Shiels

Kraton Thank you, Luigi morning on quarter Steve Good Executive morning are me Kevin earnings news With call release President Tremblay, Executive Corporation is and President quarter of Officer; Chief our to call. Chief we and XXXX Officer. the third welcome material [ph]. the Financial this available Investor Relations Fogarty, Kraton’s morning copy the Vice section website. A and will of Kraton’s and the this presentation related our third review in and

on for third use your the the I’ll release. in review of non-GAAP results we measures Before earnings presentation in the yesterday's information and forward-looking this included morning and the quarter, disclaimers the draw attention to

statements. of be there implied today. not and that forward-looking During from thus comments any that other to and Kraton’s the are may expectations stated forward-looking the make are different by may statements certain factors cause call, actual historical fact make we risks, uncertainties Investors performance statements significantly cautioned we constitute or are that

the of have statements they’re in Our speak only the to update forward-looking statements as made we future. obligation and date no such

is to outlook factors. a subject business Our number of risk

yesterday’s release morning. XX-Q our we’ll presentation most Investor website. to XX-K, in permit included was discussion the used financial of full and of non-GAAP the Forms measure our is does other of what these available a measure As please earning reconciliation to format With not morning’s factors, refer also this section in the financial to GAAP presentation non-GAAP each of regulatory this use Relations of risk provided regard comparable in view and its measures filings a the financial

acquisition references January listeners XXXX through that XXXX the I’ll our results January stub of from period, to are all date X, the excluding Xst chemical the Xth. to segment financial Lastly, December XXXX remind January for XX,

stub chemical Xst volumes million. to was approximately January the approximately sales period X.X January for For was the Xth kilotons and $X.X revenue segment

Following line call for now Fogarty. the to the I’ll turn over we’ll Kevin our prepared your remarks, open questions.

Kevin Fogarty

you and morning Thank everyone. good Gene

quarter XX% this quarter adjusted momentum Our $XX.X experienced up volumes X% And million. the in results the and to to perspective, million the of sales compared last continuation this third of and in EBITDA the third of $XX.X reflects compared in reflect the sequential and $XX.X our growth compared $XX was second quarter of we to quarter. To favourable quarter for segment, million resulted the positive in we quarter. million reported of the put XXXX polymer EBITDA XXXX or up third nearly growth adjusted margins nearly

marked adjusted the up in Chemical quarter This our third quarter third segment in XXXX. million we X% the the $XX.X segment company’s polymer for EBITDA history. positive of Likewise, quarter trends our posted EBITDA highest to was adjusted compared nearly where saw

in quarter of included quarter X.X% third for the compared both a the segment in recovery sales price volume products performance margin and the and continued the for second quarter of of to adjusted margin improvement a an represents third contributors sequential the Key EBITDA third EBITDA XX%. adjusted segment chemical The quarter the to XXXX and in return for this with increase XXXX. base volume over

of chemical $XXX year-end target cost our synergies our XXXX full EBITDA result consolidated adjusted In a year third million. of we anticipate and be approximately that we year-to-date XXXX, $XXX.X third of our on we quarter very that to reported of adjusted regard results I in now Cariflex year $XX the transaction our the USBC the EBITDA polymer actions As all improvements reset will achieved Brazil cost the XXXX. segment initial in targeted we By million. quarter at deliver $XX Last track. approximately our operational that and for pleased versus were for but end light shared we would year-end initiatives expect our say France as project our by am of million segment expectation XXXX expansion our at September this completed to $XX reset our have the we million to With realized XX. we completed $XX Bayer, million million for goal deliver balanced in conversion of in XXXX. remains segment, quarter cost Polenia

of we significant terms focus and the structure capital progress our made on reduction In debt during quarter.

credit $XX.X As and re-financings. reduced as result despite expected by on through charges a we generation the debt with third million quarter cash net the improved associated

during interest expect the quarter by net of dollar million debt U.S. the facility incurring On reduce $XX full a tranche to of a a despite expense. actions these basis our $XXX we $XXX fees and we year issued $XX million save our we euro tranche. now repriced approximately loan million on under expected During year. credit to third aggregate year million are financing In term to

turn Steve? Now in-depth with for Financial now financial Steve more I’ll that background, Trembley of Officer, call review Chief our over to a the the quarter.

Steve Trembley

you, Kevin. Thank

five, turn an to third begin with slide we our for I’d overview quarter. consolidated results like As of to the

million relates million higher $XX.X third segment Of to increase attributable Third XXXX. in $XX.X XXXX chemical impact associated higher revenue $XXX.X XXXX revenue the prices. charges. reflecting spread of remaining with between and $XX.X activities segment financing million, average quarter prices is to The compared quarter charge million and quarter which was $X.X GAAP our includes in ECRC the the from volume of million a increase, selling the average million $XX.X million volumes. a the higher million selling polymer The net and $XXX.X sales per and sales of $X.XX benefited $XX.X related the to negative FIFO X.X% increase a of third loss in of hurricane a of of share

growth of representing and represents basis with of XXX% compared in yesterday’s hurricanes today’s while the XXX we’ve of quarter over the an of EBITDA of release Panama third our the Irma of did of third in share to Excluding nearly quarter city production over of presentation, respect other per earnings assets Irma or reconciliation these XX% was Harvey EPS for and associated third and of $X.XX XXXX illustrated our XX.X%. adjusted items, EBITDA in XXXX damage, included to necessitate path third none million the points improvement $XXX.X adjusted quarter Adjusted margin to million which With $X.XX per shutdown share XXXX. Savannah the and quarter the increasing the plans. sustained $XX.X in

be of operations effect are may said, resumed and there upon short year While lingering QX which effects fundamentals. That currently contingent expecting demand a full on order, will all material cash a into not we locations results the in magnitude operating flow. additional

XXXX. per $XXXX the tonne in or in $XXXX part up growth driven in This associated speciality sales raw We of selling the volume begin of X% the increases ended XXXXX applications as compared quarter business the quarter the the implemented segment. conversion. provides our achievable. months a the business versus of XXXX. sustained polymer as X.X% nine first six the Polenia strong tonne connect first led to $XXX quarter impacted we’ll of performance in per up to the Polymer U.S. margins on that XX, natural with This adversely up demand after gross review, compared $XXX this material. segment our increase X.X% in of XXXX the the A nine XX.X% The down the products is for for margin the was subsequent improved to offset clearly third volume we in the ban the quarter margins XX.X% and profit these sales performance trends the compounding volumes sales XXXX in the in months demand for increases and with in segment tail XXXX the price prices $XXXX of of tonne by tonne EBITDA to by the trend Adjusting September quarter, polymer for quarter up compared saw of which was XXXX. profit in evidenced segment higher cost on continuing paving the our quarter per The to year increase compounding to is for prices first was latex Through our year-over-year polymer adjusted tonne or Sales particularly $XX.X was in volume polymer first third powdered the is term adjusted the flat we driven of volume nine of the the million the sale XX% XX% volume and for polymer per quarter reflects sales target particularly $XXX sale of price especially longer well compared the the volumes. indicative material up per improvement rubber and million forward now third further polymer unit the months being our slide was adjusted a of by realized segment $XX.X per of material in second the in increase impact of Cariflex sales significant with adjusted adjusting by Polymer results quarter this and of up cost raw residual driven and of gross tonne for EBTIDA in quarter. X.X% third of growth X.X% by overall or per in direct first XX.X Moving products kilotons pull advance strong in XXXX average for evidence quarter was year. X%. second of third X.X%, is first lower EBITDA to tonne is Cariflex experienced

volume of led chemicals chemical X.X%. XXXX an slide a in and $XXX.X year-on-year an to up was to by adhesive our up quarter performance with the chemicals and to healthy XXX.X a X.X%. kilotons adhesive takes X.X% X.X% of sales compared is which total sales of nine in seven, for the representing Moving third months This third volume first XXXX kilotons the of XXXX quarter X.X% increase kilotons of volume X.X% performance on sales increase segment up $XXX.X volume up

margins million sales second was adjusted million marks quarter the of chemical EBITDA and sequential the part or basis, and TOFA for compared compared for of continued XXXX. products. nearly adjusted XXXX second unit of increase to Third in since a X.X% first growth to adjusted quarter in quarter and price of of EBITDA with XXXX quarter higher due the This recovery reflects and stable EBITDA third adjusted was On quarter XX% third quarter in EBITDA $XX.X year. the adjusted segment margin sequential the to EBITDA up $X.X this in for overall recovery margin the segment $XX.X volume million the

for capture eight synergies slide ahead an said initiatives. cost end In call million expected quarter our XXXX improvement update to synergy July, on cost Turning second our operational would we to been by target one which have the achieve year late transaction reduction we schedule. year and of that and $XX

as pleased target We of actually achieved to are of we report million the the end now $XX that September.

of that of Relative improvements within Six want move and targeted balance on forward, by benefits. we end of on as in of expect which million As segment disclosed reduction the cost will deployment cost and for polymer expected first end achieve plan CapEx serve XXXX, approximately to anticipate this to to our according Sigma we we the by segment. these do Lean proceeding an the $XX XXXX. the update continued operation bank a effective to to catalyst the be $XX provide focus with million million the to initiative we realized future XXXX I $XX are

XX steady excellent associated approximately We a Overall, original the to months. would $XXX we an savings the our of state resulting $XXX cost XX% at target savings by that as work cost $XXX Our in entire approximately million estimate. operational to now payback improvements was team expect achieve now expect total original approximately be the of cost of synergies aggregate million. with the estimate and million transaction cost achieved

results. year-to-date nine Turning look for to a the slide at

first $XX.X costs or to million adjusted by in million adjusted input nine both chemical adjusted in margin an adjusted year-to-date segmented offset was of yielding nine XX.X%. of for segment EBITDA the of polymer is nine segment. up compared Year-to-date to overall revenue EBITDA to with EBITDA our of months with CTO. EBITDA billion of million the months $XX.X XXXX margin XX, $XX chemical nearly $XXX.X lower $XXX.X from with lower which growth million was margin $X.X which adjusted September ended quarter The of the comparison for adjusted first XXXX months XX.X%. This million For second of XX.X% XX% year-to-date is serving EBITDA the XXXX and benefitted an an the strong results of for compares XXXX consolidated of of results impacted associated associated EBITDA

remarks. discussion the call net as release was third slide quarter With to driven of net January we and quarter costs. our despite to of factors million, material debt in the of following segment debt we net Kevin? for as cash million In the XXXX, his Since segment. polymer of third expected Fogarty by refinancing inventory through by our closing the that, the Turning acquisition have raw $XXX.X of we generation $XX.X now moved I’d first as turn and XXXX, capital Kevin reduced nine, incurring Kraton in reduced well was like seasonal prices our chemical this the spike as million. by Kraton working $XX.X debt, liquidation normal in improved quarter

Kevin Fogarty

our longer reflect you Steve. enhancement and and quarter thank Okay, I in our potential continue polymer term see our third chemical for we margin businesses. to believe both results the growth

Although the quarter resilience polymer margin price in on first first quarter on inflation faced has delivered significant solid our the a polymer business raw segment illustrating growth and lows year, basis material this volume, continued these year-to-date our our polymer sales following discipline. expansion of segment of

acid pressure quarter improved for remained pricing to rosin likely the the we relative due fatty to is recovery Third chemical quarter quarter Tall both segment. under quarter, year in and oil quarter; the pricing however in sequentially the results will our we for margins ago through in fourth products. currently chemical weakness oil prices XXXX margins first continued the in and largely tall expect toll for segment continue believe and of most draw to

the all results The performance have few improving chemical overall, the segment our segment. pleased polymer our in we fronts. having year for have past at progress on a quarters year-to-date solid we are is Looking with we made and seen

the In fact, segment. for position we to to our base hub term full to growth continuous date. vitality $XX operational achieved of the business, leverage in a we should be And since organization. we in improvements cost have culture in long the potential remain confident the of of improvement the delivering million further our improvement the in benefit acquired the and with continued business, cost Furthermore chemical conjunction with in positive chemical the we improvements driven

move forward on we remain and our as a profitability. focus driving operational efficiency As reduction will cost key aspect of

in cash reductions the points term expense reductions far basis euro loan that have further The unwavering of of Finally Thus benefit worked we in have in to we diligently actions outstanding of are our debt. reduce our a These improve notes, reduced interest and our the XXX to issuance expense. XXXXX include tranche to to interest addition X% a repricings reduce term structure loan. commitment in by interest leverage. and free facilitate capital will flow

year year to in of conjunction to leverage reductions X less desired on debt call million well back the puts And achieving love $XXX reduction questions. the this tons. to with your for last $XXX of expectation to our turn XXX million our some in operator million now take than and way Our us Kraton we’d of

Operator

instructions] SunTrust. Thank Jason the you. from question-and-answer first question Our session. comes now Freuchtel [Operator from being We'll

open. now Your is line

Jason Freuchtel

guys. morning good Hi

Kevin Fogarty

Jason. morning, Good

Jason Freuchtel

is savings capacity stand environment? your program Can complete projects expected a on elaborate of each relative or where operate the you different normalized where your pieces to currently at to including to utilization of on completed each the the of and global expect of on you where you you also construction cost projects when

Kevin Fogarty

take and Steve, you to one. that in want jump

Steve Trembley

we the is CapEx we is that mentioned new with area customer on our Polenia capital to construction than Cariflex in are our capital call more that what that of second to quarter the refer our in against is we completed. facility currently capability. deployed million deploying connect plant direct we is the project facility, and been $XXX applications original which of which estimates. in the that a has for which as going as capability customers Jason, overall $XXX to to that the the million that is Asia are continuing portfolio, transition speak of process The for that Asia to in improve We

know pretty utilization strong activity reasons our commented especially high indicate effect. related that we team, our business the quarter quarter of in work of we in of achieve the on The actually you the to the year. in the enter as that is see posting volume on is those frankly could quarter completed and months end we facility overall expect by days growth target the third the that our the the first fundamentals first and volume lingering of outage fourth that one segments. is would large It’s currently all you demand and that doing our good nine to relatively are the to and France job segments, customer are utilization, of have both some some next $XXX tranche both be demands fourth as have that The of CapEx for have of do first to which then and to And by at in to meet of is quarter several in a to the million Bayer, of the of to of chemical in the and commencing the trying impact next we all capacity ensure Relative indicated. we year. offset cost can part year it storm

Jason Freuchtel

projects early and very stages the Taiwan sounds you're Okay. you're to stages are of of in It early in and that ramping follow-up of as but that completed, a JV answer. that. kind like It Is Polenia the is correct? the up completed. And that still just like sounds

Kevin Fogarty

construction I in deployed. the a early Again, very in grades produce customers. volumes, to We’ve was demanding where the – opportunity the CapEx number A had facility in The is necessarily. on going a commercial which portfolio wouldn't further in significant our fully our Taiwan, of year. sales volumes stage that But we our product commercial I is Polenia completed stage that's much got at to early for is We’ve mean facility Yes. grades supplied of first available is along say been great portfolio. early most already stages the to terms Cariflex nominal slates got HSBC customers. commercial have in number customers. quarter. in this

have to expect We significantly sales year. more next

Jason Freuchtel

you in the and remain which Okay. possible entirely announce synergies. is Are period through in And can in you benefit clarify that progressed for benefits time? those quarter cost of inventory Or benefits your of P&L? the savings the some it

Kevin Fogarty

expectation nine the we this are those inventory, achievement year, relative of of $XX the the to and benefits Relative to where are of $XX flowing the in none all P&L. are up hung million those the months and million transaction-related to to

Jason Freuchtel

Okay, notes your senior to as well how about refinance great. XX.X% ability the to utilize should as potential U.S. next NOLs? And your we the think year,

Steve Trembley

desire the job our at than structure. reasonably question they’re Kevin the refinance offset the last expire The structure ability the first. of say our company don't rates think so range question U.S. delever. rather good ability, for to then in that maybe to relentless in to we've we capital income your year of I’ll interest million the late take taxable look XXXXs, end the around – overall U.S. where to the were years until We fully If of a addition lowering NOLs say available that we $XXX can. mid And of first number to those at a I'll said, done future in pursuit come. the but indebtedness last They capital

haven't next the able cost because screen. been the structure [Indiscernible]. tranche on been radar has of the capital on We to our of Clearly that's that's

and The look October with so the very, that paybacks at to to cost structure something opportunities next of interest lower do first very provided is call the on we’re there. year, those piece capital overall of keen

Jason Freuchtel

volume the main XQ, and for Okay. What XXXX? increase your segmented the question driver And XX% me. polymer was of in last in paving

Steve Trembley

add with seeing nice product America what Although generally Kevin gains offering. especially very, infrastructure but more in some very nice in HiMA some South color, spending we’re is including

Kevin Fogarty

the know vote Yes. had I North into America robust an be you markets. because element going we’ve say I think way But always going would weather portfolio and season we pretty there's we which talked right it just into in about of our those just news pretty, that to project Europe that that, although needs never a taken into had of in account. because we the positioned in activity

good closing So, the we we and think could season good industry, a on I both had Kraton. season certainly summer now expectation a was as it say pretty we but the that for for

Jason Freuchtel

you. Okay. Thank

Operator

Chris comes question Kapsch from from Loop next Capital Our Markets.

now Your open. line is

Chris Kapsch

the Good thank all for morning and you disclosure.

is this could mix what and to you the differentiated from good so some ship of a port much reaching, rosin are the in the the -- but product it ago. versus more to was then juggling to Or this question what getting is XX polymer look I described given about this guess products? the per X, way benefit that gross should the costs just you of raw pricing -- look answer be How to of Does commercial that And at at said I profitability obviously to wondering year you metric. the that the you just just call if ECRC XXX there's the but your profit particular inflated roughly it, improvement XXX portfolio still ton addition months as nine here ton if efforts about a think material regardless toward compared improvements? I per and if gross at it. volatility way morning, you profit your given thought butadiene follow-ups on normalized the had in And what I comments I a characterize structural little kind And And in segment. point? the bit

Kevin Fogarty

you. thank Chris, Well,

with the response that answer is first terms you in say itself focus. I last always that's I You Steve which in and commitment will part a product HiMA mix part for innovating asked was do and be fact the for made that's paving, with the in sales to were and a sales. customers this it will growing of that. what in around our our base of innovative just my the we of question of with the particularly came, think for year the America, example, met we us our And South of positive working team one to allowing about, – comment penetration and do who

the quarter. going fact achieved we fourth ton we long-term respect certainly butadiene two, what the it's and with of portfolio. in $XXXX this think achievable kind in So absolute think that's what probably is, been way your question, Kraton’s per don’t gross our last, how mean, your about ton to the about that three gross per of performance to an and the in performance that focus. And good But beginning indicative that Steve today portfolio I the sustainable. year-to-date quarters think a is $XXXX for but it years. profit to four can year is back metric long-term where at in take here talk two real with not long-term to guess I look quarters, what not the we think where metric I the quarter, we’ve year point it sustainable, is We is year we we reference make and one want to interesting that profit light Its results performance we now evolved

Chris Kapsch

below the as last the a number first that real point when XXX the XXX with butadiene. above the you that So, quarter in the business in given the well spike a this quick just follow-up, of do for think for in but for at two one months? was quarters, Is normalized that's sort XXXX obviously first nine

Steve Trembley

and it think hat you ourselves for given to nine the might end. want markets first the number I that's that If the growth normalized the bit it months, we we little low probably as be volume on think of found

Chris Kapsch

just side, CX is the could pine of more follow-up encouraging there bit obviously the so the a first had the we margins tackifiers hinted corroborates thought any you around over on given dynamic just the involving Thank trough just in with describe sort in on supply provide view, issue, be details there. pricing, around a you. that market? that chemical that’s maybe then And guess more in but with at the keys in good. and rosin comments you quarter But competing on that of with color that little that question you segment, pricing sequential the I – the alternative far non-pine momentum respect alternatives thought trough or a might TOR Okay, if dynamic improvement I of to

Kevin Fogarty

Yes.

the Steve it. think well comments comment in we made as contain my think bolt-on I as I reference

– but today our and this know to price will the is year our a And customers make continue watching understand is we’re value to that refinery closely product to of with always respect your using stay customers pine to the when demand products we close not part point this pressure is what have each probably very very ones end were the against. said, by sensitive some very have compete robust therefore to to TOFA our making viewed being alternative close of of bit about sure introduce know, the expected be that up are competitive and very sure have commitment. where invasion though there’s I as very to we’re to we as still start and lines means with exactly continue feeling carefully. individual create performance CX thinking and for that We chemical little just you all now dynamics, the family. substantial TOR that We’re time of through continue space anyway business very you respect – major with a you’re one project But that the themselves those we charge in very a balances and alternative. in so to reference going starting a that as watch you is to you to stream in know stream CX driven probably up now that a just in alternatives, that you needless so of our of I’ve that our staying our alternative the plotted beyond where like another what believe to to view year or we what performance overall do we under free pressure We one in our to of That’s balance say we’re is business And this the the team. the the they called customers. sensible do think we more Singapore those words,

Chris Kapsch

Thank the color. you for

Operator

comes next of Spector Josh Our question from UBS.

open. Your line is now

Josh Spector

Hey, Thanks my taking question. guys. for

on for of or But were Just paving where down slightly flat was at the look and quarter? rest to surprises I’d the just the very a products, the say, If to of you I negative about the segments, balance the maybe must growth growth. rest out strong. around other question positive to obviously segments there performance XX% segment be talk the

Steve Trembley

copolymers copolymers performance Well, the we from I just from still still business [ph] like torching piece a you a offering, think is customer's we’re your block are But encapsulate imagine specifically into question we products can really market styrene it and in here. adhesive combined important to about a just spoke. that's you indeed if of that we're in three market rosin and our record perspective. our how perspective a products our styrene businesses block as performance go because But pieces,

in what We’re to which adhesive the still the done the space alternative. seeing a that CXs of dynamic availability and SIS of because serves is competitive rather competitive our

the job has performance performance we’re one you business overall associate portfolio SIS to carefully. seek right very the can Clearly we done correct markets continuing there tremendous watch which be is out not nevertheless are with team truly that that products you're ourselves, the where try while because is pocket positioning adhesive the and to very of to give been sales in good. the so And I’ll the has improving. but differentiate

Josh Spector

was specialty, anyone they more I significantly broke you markets if facing different similarly up just or were kind or generally industrial of up flat? on And down in guess consumer it the both versus Great. just

Kevin Fogarty

talking about specialties? our you Are

Josh Spector

polymers, Specialty yes.

Kevin Fogarty

Yes.

through Kraton also substrate what typical markets encouraged segments where done we’re we a in Kraton in very of thing in another some diverse typically application and I with certainly synthetic sales roles well a as the benefit utilize where fundamental improve that stands position couple polyethylene, has the polymer polypropylene blended to but work making a in at base, and look space of modification pretty model again years growth, last serve we’ve out probably viscosity very performance. that one one that some sure a we that And at is the we’re grown that couple seen think we’ve the associated our the polymer the a that the we’ve is segment automobile of of nice had healthy examples by we've Kraton modification role our proud to offerings. and nice maintain of area innovation a with in important very rather Polystyrene, clip strong got seen

Josh Spector

great. there? expectations last thinking your with of guess, that the Or one you specialty line what little growth in it disappointing? was sales polymers. And quarter, in and where growth Okay, a what volume global for is were terms flat, terms I on in just of

Kevin Fogarty

robust the quarter was time think -- comparing we’re I it last to pretty this year.

in undergoing the laid at look throughout nine we year, the we where at look a months about pipeline. tough that for encouraged by comp of as are course over that I have But always sense. think we activities business we’ve seen development and market we’re if first the and year next projects as you calendar growth the the the So that certainly

to team new been has got But of mentioned to we’re very like the negative which all. of important of handful customers. the Taiwan are that that we us drive that’s with to startup in And and key the a our our see absolutely us as get earlier has tremendous helping in a in business, vital new done this grateful these sure in year. so the these products at work that also in that startup don’t because that product approved or We’ve of the asset customers getting have I for Steve attract attention space very any the make us success patience say transitions through by this trend facilities is ultimately whole that been like growth and future. I’d So, to are the lot Mailiao that to

Josh Spector

Great.

Operator

question comes Our next Citi. from James Finnerty from

Your line now open. is

James Finnerty

Hi. Good morning.

Steve Trembley

James. Hi,

James Finnerty

Hey.

Just time on expect the target was leverage to and get target, frame just could there you the you what by? what reiterate

Kevin Fogarty

the of the the is supported we leverage debt business. the excluding target three than at which look by Arizona back at leverage at JV. JV I'm turns. the leverage less acquired when speaking of targeted the We that's long We've

stated at So alone, we debt close three desire leverage transaction at we or the Kraton we’re below. that point turns would and X.X our that of when be about

trailing at XX X.X off the of look balance taken coupled months with of in $XXX XXX. turns if with we at we at EBITDA million a sheet leverage around September, deleveraging stand improvement the As the

of back So where below XXXX. in points about started XX journey we January this

will have we So a XXXX, our get that in confident trajectory three to to With it very still to turns planning below. three that certainly turns. be but be near-term going beyond it or we’re

James Finnerty

in you And just about M&A room target once prior you and that get if think you getting the Great. to came leverage consolidation further presence would at do look for something terms hydrocarbon in space? of to

Steve Trembley

same out opportunities balance that longer-term deliver off. we but of you going be of there, of the in M&A or mindful cover other that flow terms to clearly not our that Kevin to but I’ll may strategy. it are can at turn cash the Kevin say free though time over will briefly be may to that I first our use know is sheet,

Kevin Fogarty

fact share still with From across on. we focus acquisition XXXX which had in with in board the But terms we to one gone well in substantially going of future consistently forecast. how to we’re when with to and did the we originally got track the XXXX, course execution as Kraton transaction want We’ve Arizona do important well. Thanks, were number targets priority are businesses is cost fully lot has the we XX on of also portfolio of achieve actually capture investors and to the synergy and that achieve we’re but Steve. We equally very in less integrate beginning with those that we do plan, cost of had vital believe areas a we XXXX the talk a proud year to Kraton the that think that certainly case of than work respect part recent to well there initiatives equally one. we I this about pleased was always we’re the new cost legacy that as of an overall the were that to ahead

in you integration now what look of the still line these great of new have Arizona in the the acquired do terms think work and to due we businesses we we when we product potential can the So, future we terms to to in of with here that do tell business.

excited sharing to we’ll those robust that going about for with in are, some the session of more more XXXX time about they’re are a directly investors, some talk suspect I information initiatives We’re need some business. really be of to our have able development. the under what innovations what we’ll

Never was but of what this possibility is good a the course rule deleveraging priority being of we integrating execution our time the the business pleased not for we’re and this that fit coming and never I that possibility be we’re working acquisition. scale, – on. think So girlie out, out might on one rule number with along one

James Finnerty

just or And on growing it polymer the would pine a great. side focus to be of situation? the the on Okay, chemical more depend be side it qualitatively, would or

Kevin Fogarty

Yes.

has to dependent, generalize, customers of although that new lot lot legacy say new we always markets, -- will I the great but these but thought can't portfolio. and so businesses doors where really of would maybe a certainly You two about XX:XX] most that it helpful of combination where [Indiscernible to open that's day down existing to we’ve we road extend want one position experienced want thinking that might firsthand, the we the had now and been the portfolio

James Finnerty

Great. very great much. the on quarter. Congratulations Thanks

Kevin Fogarty

Thanks James. Appreciate it.

Operator

KeyBanc question next Markets. Curt Siegmeyer from Our from Capital comes

line is open. now Your

Curt Siegmeyer

good Hey, morning, guys.

Kevin Fogarty

Hey, Curt.

Curt Siegmeyer

the could end on clarify leverage to of say but by XXXX, did thought XXXX three said, long-term I goal, get to the the you…? the you by know of you Just you end did what target, you is

Kevin Fogarty

significant We’ve firm on of to cash will that post long amount seven provided Arizona, any these that that think first flow. we I up conviction but a great guidance I think the quarter stated we've Curt, two transaction with XXXX, not combined companies have throw

our guidance. we we demonstrated any kind considering of we to in out February that, I we’ve about we’ve that continue as think not to but guidance reason there’s year-end XXXX suggest and specific I can suspect that be report no give. do what think we’ll forward-looking provided

Curt Siegmeyer

Got it.

you given well mentioned the for Do you to margin year's to driving next levels level could just what then your the wrapped XXXX would margins And takes sort and last up about it's where obviously margins Okay. get on XXXX segment, that puts chemical that. think targets there to back you into schedule, cost and as you relative ahead happen you heading have of synergy are year, to could EBITDA think of occur?

Steve Trembley

our talk to targets at about XXXX specifically going point. not I’m this

discussion day three components; get this really to are through a we general along expansion mix goes that it working diligently which margin seek on the sales in we differentiation in sales. know trying quarter. of outside, just is you types the that through clearly that But every one We’re the with of some that is of sense

to markets a control, we those be team and through vital there’s the absolutely seeing and bit both Secondly, has dynamic. believe able but our line markets fixed to and we little as initiatives business less improve you with costs and impaired base have respect a because our a And real perhaps in and are at enhancement these is job variable with productivity of piece our recognize market flows which cost-out continue bottom will the done fully. last been element bit stability we’ll to to day is tremendous taking at of the these net little the clearly of competitive those end a also and then the is if out see too drive

of field oil for of time. from the state TOFA steady as activity in we supply elements period resulting alternatives the about and out over but CX the with have is fairly dried those myself, We which well we But CX drive margin issues the driven availability adhesive the so spoke repeat that's coming three of a have now but situation sill talked fundamental improvement. just by we how -- of business earlier, up then expansion. a associated to I’ll First,

question. working we’re every diligently So do no that, there’s to day

Curt Siegmeyer

you. Great. Thank

Operator

question next from UBS. John Our from comes Roberts

Your line is now open.

John Roberts

Good nice and guys quarter. morning,

Kevin Fogarty

Thanks, John.

John Roberts

assumptions, the million. they’ve estimate quarter It's $X where consultant moving Or just think assuming you on which the are? Steven, up down since small been of is Even they’re and continue and ECRC fourth the in quarter spread stable, of what kind Are X though stable. when averaged the up fourth anything are estimated number they materials hurricanes a they that million it but normally raw just the flat in third in I modeling but they XXXX only appendix average between FIFO until is kind quarter. moving forecast is they you're that were assuming the then? think the I

Kevin Fogarty

is plus does tail and of million for is of going to into in slightly did pretty in October stabilize in sheet plus minus September down expectation in the our it we’re the did of modeling a plus $X is morning, seeing September will into million. began minus bit roll been QX. a November little client and raw is including a good John. benign the about material and the the the or provided kind assumptions we've then material What Hey, $X talk that minus the peak to decline which a we potential in and million therefore but be prices, balance December frankly $X or or expectation effect effect We began that

John Roberts

you. Thank

Operator

from comes Jason question next from SunTrust. Freuchtel Our

line Your now is open.

Jason Freuchtel

my talking for Thanks guys. follow-ups. Hi,

very Singapore the typical here. capacity the is was nature that so on in under so specialty minimal typically of I that the fairly impact First if the your offerings, ultimately products result your in more in could than a new coming Is maybe And CX the price impression adhesive specialized CX margins? online correct? capacity that’s adhesive

Kevin Fogarty

But certainly the and it in a That’s great think of described could the until to I put introduced of I it no marker potential just major less, as that we’re the we last you a mean, makes it there, -- is see a capacities Jason, is a some over no years way were the how question if that that do very certainly and I out nature its assuming just marketplace Yes. want new the through terms there facility. see out way say its way going impact effect couple be more in of which it that not way. to other but were you the it

Jason Freuchtel

facing lapped XXXX also given volumes of some year. last XXXX? And growth after demand the difficult in Cariflex the due of are double pull-forward comps Okay. rates Do at impact resume will believe that digit to Cariflex occurred you we normalize volumes

Kevin Fogarty

had consider came it Certainly, from. well. of kind very a that There’s unexpectedly it in power we marketplace, the when because you elimination of may of which the benefited in comp latex difficult XXXX somewhat some describe of a growth we

growth regard, impact difficult whether it yes, to target high which mainly that double-digit Europe that at Cariflex a still kind acceleration support just healthy made in new can nice to So comp. of last really market that everything them that a But year saturation has on single how our this low is shipped quickly case being business that digit. material. you the we that look economies the if achieved we’re is a business of is the now specifically and for in occurred because doing use of that U.S. for markets or we because describe said, a it's to key being customers the think the in XXXX these We rate fairly certainly

multiple that customers the a we that to have of hopefully growth. on continue in activities market past, but with GDP successful enjoyed to our growth So still those all should have the very get at development part this of of rates types back business minimum can we

Jason Freuchtel

next Thank you luck Okay, and great. quarter. good

Kevin Fogarty

Thanks Jason.

Operator

further show questions at time. We this no

Kevin Fogarty

A investor will accessed We particular replay that can morning and concludes be morning. the be in who kraton.com our want section. ask available [ph]. is and a also will this morning. of Thank through later remarks this Luigi at relations you, Thank replay call website be to participants listeners the thank this questions you. of That telephonic that There’s our access the this under XXX-XXX-XXXX. our and to number available all

Operator

third Kraton conference This XXXX call. quarter Performance concludes Polymers Incorporated earnings

You may now disconnect.

Kraton (KRA) 25 Oct 172017 Q3 Earnings call transcript