So, you’re going to see that run through, right?
Mike Sison: No, I understand. Okay.
Ed Woodcock: But we don’t — from an EBITDA perspective, these are not our ongoing primary operations. So, it’s not included in EBITDA. This is not our — a business that we’re in, right?
Mike Sison: Right. Right. No, understood. And then I apologize if I missed this, but for Performance Materials, what do you think the sales growth is going to be this year?
John Fortson: Well, we don’t break it out by — but I mean, I think we expect sales. I mean, you can look at the first quarter, you can look at what we did last year. We expect our sales to continue to grow at a pretty healthy clip, right? Maybe not as strong as last year, but certainly from–
Mary Hall: We tied to auto production.
John Fortson: But we tied to auto production and we see that improving.
Mary Hall: And Q1 actually auto production was a little bit softer than had been originally expected. So, as a result definitely benefited from that price increase that we talked about as well. Going forward, the auto estimates are expected to strengthen throughout the year. Production is expected to strengthen throughout the year and we should see the benefit of that.
John Fortson: I mean, we’ve sort of — we’ve said this before, Mike, I mean, we sort of directionally track IHS. And we obviously look at a lot of different sources, banks, economists.
Mary Hall: Customers.
John Fortson: Customers being the predominant input, right? And then we look at a calculation of ICE/hybrid production by region, right? And then that kind of gives you a direction of what we think things are going to look like, right?
Mike Sison: Got it. And then last one on APT, do you think we’ve bottomed here and start to get some sequential improvement in sales or we still got a little bit of a headwind in 2Q before hopefully things get better in the second half?
Mary Hall: So, we did see two quarters actually in a row sequential improvement. So, we are hopeful that we are at the bottom. I’d like to see another quarter or so and see that momentum continue. But clearly they did take a hit from the global slowdown, industrial demand weakness, but they have been able to generate two quarters of sequential improvement.
John Fortson: Right. And the other thing like I would say is we are very proud of the margin because we have these kind of falloffs in volume. Getting your cost structure to reflect that and get your margin in position is not a simple undertaking. Now obviously they were benefiting from energy, but I would argue that might have been an artificial negative a year ago, right? So — but for them to be able to kind of grapple with this and keep their margin percentages where they are, that took a lot of hard work. With regards to the industrial economy, look, we look at it and we’re encouraged, as Mary said, but we’re also just not going to call it until we see a little more time, right? It’s been fragile, it’s been bouncing around the bottom, looks good, feels good, but we’re just not going to call it till we get a little more time under our belt.
Mary Hall: And it was volume improvement, which is what we’ve been keying off of to try to assess whether we’re seeing a healthier demand environment going forward.
Mike Sison: Got it. Okay. Thank you.
Operator: The next question comes from Chris Kapsch from Loop Capital Markets. Chris, your line is open, please go ahead.
Chris Kapsch: Yes, good morning. I have a couple of follow-ups. First on inspect. So, the business that you’re exiting, I understand the losses and obviously the ability to get pricing there is just not great and it’s probably the most competitive. But could you just characterize your ability to get pricing in the Inspect business that you’ll be sticking with because you still have this CTO inflation?
John Fortson: Yes. So, I mean, the biggest issue really centers around rosin pricing, right? Chris, rosin, as you know our rosin is mostly in sort of what I would call Industrial Applications and highly vulnerable to substitution, right? It doesn’t help that some of our competitors in traditional crude tall oil-based rosins have a better cost structure than us, but we have to respond to that and we have to deal with that, right? And that’s because of the CTO, but most of the stuff that we exited and this is predominantly a function of DeRidder. DeRidder was really run as a rosin site, right? I mean, that’s really where it made its money. And then it also had the advantage of selling some TOFA into the oil field markets, right, because it’s obviously producing TOFA.
But when you look at that in the aggregate, you have to kind of ask yourself when you run a ton of CTO and where it’s end markets are positioned, does it make economic sense for the enterprise, right? We feel like what the footprint that we have today is more in balance, right? That’s predominantly because the Charleston plant’s primary end market is road technologies, right? And so those are the markets that it’s serving. It does have some rosin that comes out that aren’t needed in those markets, but things like Ozark help with that because they use rosin, right? But generally speaking, it makes that rosin problem a lot smaller relative to the value that you get from the TOFA. That’s the best way to describe it.
Chris Kapsch: Yes, I got it. Makes sense. And then the follow-up on the PM segment was around the hybrid discussion. I’m just curious if to the extent you’re getting mix lift, is there any way to characterize how much benefit you’re getting from your products for the new technology where you have IP, the low-purge engine technology? I think that’s at play both in hybrids as well as maybe just advance model of your platforms.
