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Advansix Inc. (NYSE: ASIX)
Q2 2018 Advan Six Inc. Earnings Call
Aug. 3, 2018, 1 p.m. EDT
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the AdvanSix second-quarter 2018 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad.
To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Adam Kressel, director of investor relations. Please go ahead.
Adam Kressel -- Director of Investor Relations
Thank you, Steven. Good morning and welcome to AdvanSix's second-quarter 2018 earnings confeence call. With me here today are president and CEO, Erin Kane, and senior vice president and CFO, Michael Preston. This call and webcast, including any non-GAAP reconciliations are available on our website at investors.AdvanSix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today.
Those elements can change, and the actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K.
This morning, we'll review our financial results for the second quarter of 2018 and share with you our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So, with that, I will turn the call over to AdvanSix's president and CEO, Erin Kane.
Erin Kane -- President and CEO
Thanks, Adam. Good morning everyone. Thank you for joining us once again and for your continued interest in AdvanSix. As you saw in our press release, AdvanSix delivered another strong quarter, capping off a dynamic first half of 2018. Our results demonstrated the strength of our business model and our ability to perform, and what has been a rising input and energy environment.
We saw strong results across a number of metrics, including sales volume, income, and operating cash flow. Mike will detail the full results in a moment, but I'd like to highlight the following. Sales of $400 million, an increase of 11%, with higher volume and raw material pass-through pricing contributing to the improvement year over year. Earnings per share was $0.91 in the quarter, up 10% and our cash generation continues to improve with cash flow from operations increasing 12%.
In addition, we've initiated share repurchases in June, reflecting our maturing capital allocation strategy and confidence in continued cash flow generation. Through July, we purchased nearly 195,000 shares for approximately $7.5 million. Our end markets remain dynamic; in this quarter, we did continue to see favorable supply and demand environment. Global caprolactam and nylon pricing is favorably supported by generally balanced to tight supply demand dynamics in North America and Europe, as well as continued supply constraints in China.
We expect the current favorable nylon industry conditions to continue as we move into the second half of the year. In ammonium sulfate, we executed on a strong domestic demand we saw in the quarter, following a late start to the planting season. The fertilizer market environment in general has improved, and new season's fill pricing is expected to be up about 10% year over year.
However, we do expect the typical seasonality to drive normal sequential pricing decline in the third quarter. As to our chemical intermediates, global phenol end-market demand and operating rates have remained strong resulting in the production of additional coproduct of the acetone. As a result, we've continued to see elevated North America acetone imports pressure pricing in the industry. We'll share more detailed framework for the second half of 2018 later in the call.
Our operational excellence and safe and stable production discipline are critical to our performance. Safety performance and compliance is core to how we operate. Earlier this quarter, advances was recognized by the American Chemistry Council with Responsible Care Facility Safety awards. Several of our sites were given certificates of honor and excellence for their safety performance based impart and having no loss workdays to injuries or other incidents.
As evidenced by the robust outflow we saw, I'd hope for all this quarter, our proactive mechanical integrity program and the reliability improvements we're making are paying off. We completed our annual planning for a turnaround in second quarter safely and efficiently and we've been actively planning and preparing for the upcoming planned turnaround at Hopewell this quarter.
We do expect the third quarter plant turnaround impact to pre-tax income inclusive of repair and maintenance expense, fixed-cost absorption, and the incremental purchases of feedstocks we normally manufacturer ourselves to be in the range of $25 million to $28 million. We're also maintaining a capital structure that enables financial flexibility and optionality.
We see ample opportunities for incremental deployment of capital beyond our base capex. Importantly as we shared last call, we've developed a pipeline of projects with potential spend in a $150 million to $200 million range, focused on cost-savings, asset flexibility, and improving plant buffers among other benefits. While not all of these will come to fruition, disciplined execution of our pipeline will drive further value for the company. As discussed, we're progressing to high return organic growth and cost-savings investments for a total of 50 to $60 million that will further debottleneck specific areas of our operations, optimized quality, and improve our mix and cost position overall.
We expect cash outflows against these projects to be $20 million to $30 million in 2018, with carryover into next year and benefits starting in the second half of 2019. So, in total, for the full-year 2018, we do continue to expect Capex to be in the range of a $110 million to $115 million. We're approaching the two year mark of being a stand-alone public company and I'm very proud of what we've accomplished and the evolution this organization has made and continues to make. I'm even more excited about what the future has to offer.
With our plants running at high utilization rates and strategies focused on operational and commercial excellence, higher-value product mix and a maturing pipeline of reinvestment projects, we are well-positioned to continue driving shareholder value over the long term. For the time I'll turn it over to Mike to discuss the details of the quarter.
Michael Preston -- CFO
Okay. Thanks Erin and good morning everyone. I'm now on slide four, where I'll cover the second quarter financial results. Sales came in at $400 million and that's up about 11% compared to last year. Volume was up 4%, we continue to high plant utilization rates and increases across our ammonium sulfate, chemical intermediates, and nylon product lines. Pricing was favorable by 7% due to raw material pass-through pricing following cost increases in benzene and propylene which are oil derivatives and inputs to our key feedstock cumene as we've previously shared. Market-based pricing was approximately flat compared to the prior year. We saw the pricing benefit of improved industry supply and demand dynamics in our nylon and ammonium sulfate product lines, offset by the unfavorable impact of elevated North America acetone imports on our chemical intermediates product line.
EBITDA of $53 million decreased $1.7 million versus the prior year driven primarily by increased manufacturing costs including purchases of feedstocks which we normally manufacture ourselves, partially offset by the favorable impact of higher sales volume. As we'll discuss further in a moment, Hopewell plant utilization rates in the quarter were very strong, and we continue to benefit from our investments in proactive maintenance and reliability programs. The impact of our planned plant turnaround this quarter was in line with expectations at roughly $10 million. EBITDA margin of 13.2% declined a 190 basis points from last year primarily due to the impact of higher raw material pass-through pricing and increased manufacturing costs just discussed, partially offset by a higher sales volume.
As a reminder, roughly 50% of our total revenue base is protected by formula and index-based pricing agreements. So, our sales will fluctuate with the price of key raw materials but our variable margin is largely protected. As you look at items below EBITDA, they came in generally as expected. Depreciation increased by approximately $1.7 million, while interest expense decreased by roughly 300,000 with lower debt levels versus last year. In terms of bottom-line performance, net income and EPS both increased by 10% versus the prior year, reflecting the benefit of tax reform. Our effective tax rate in the quarter was 25.2% versus 37.3% last year, and again, that's in line with our expectations.
Lastly, we continue to see the results from our focus on cash generation. Cash flow from operations reached $33 million, and that's up $4 million or 12% compared to last year. The increase year-over-year was primarily due to higher net income and unfavorable impact of changes in working capital, partially offset by a reduced benefit from deferred taxes. Capex of $23 million increased by roughly $8 million in quarter, and we also contributed roughly 6.6 million in cash to our pension plan in the second quarter, bringing the year-to-date total to $8.6 million. From a tax planning perspective, we do plan to make additional pension contributions in 2018 for a total amount in sort of the $10 million to $15 million range. On a year-to-date basis, free cash flow has increased by nearly $11 million as we continue to manage working capital levels efficiently.
Let me turn the call back to Erin to discuss what we're seeing in each of our product lines.
Erin Kane -- President and CEO
Great. Thanks, Mike. I'm now on slide five to discuss on nylon product line. Which includes our caprolactam, resin and films products and represented over 45% of our sales in the second quarter. As you can see from the chart on the right-hand side of the page, industry spreads reflect improved conditions globally year-over-year. As we've discussed previously, there were a number of planned and unplanned plant outages in the first half of 2018, which have kept global supply smog and supported industry spreads.
We continue to see generally balanced to tighter supply conditions across North America and Europe. In China, feed-stock constraints a heavy turnaround schedule and continued government-imposed environmental constraints are driving supply side dynamics. In addition, we are now monitoring a fresh round of inspections recently announced as part of a three-year anti-pollution plan that includes potential relocation of new and existing plants from populated areas to a designated chemical industry parks.
Numerous sectors beyond just our value chain have been impacted by the government and focus. So, while we do continue to track potential capacity additions in the region that seem to be balanced against continued lower utilization and other impacts associated with these environmental controls. But despite the market being structurally long, overall global and nylon industry spreads have held up and transability throughout the year. As we look toward the second half of 2018, the current favorable nylon industry conditions are expected to continue.
Our downstream indicators are showing nylon and market demand is remaining healthy across the various applications we serve and we've also seen severely constrain nylon 66 supplies associated with feed-stock and other production shortages. So, as a result of the end-market growth increased pricing and supply constraints, this can create a modest substitution opportunity for nylon six in areas such as engineering plastics. But as we know this can take several months to work its way through the value chain associated with end customer projects. We'll continue to track the market fundamentals and work pricing to mitigate raw material price movements through both our formula-based and fully negotiated pricing model.
Let's turn to slide six. Moving to ammonium sulfate which represented over 20% of our total sales in the quarter, we saw very strong domestic demand following a somewhat slower start to the planting season due to the cold and wet weather. As we've shown previously, the graph on the right-hand side plots urea and ammonium sulfate industry retail pricing in the corn belt on a nutrient basis. Again, it's always important to normalize pricing as urea contains 46% nitrogen whereas ammonium sulfate contains 21%. Our ammonium sulfate price is positioned with the added value proposition of software nutrition to increase yields of key crops.
Based on third-party data, we've seen relatively stable but upward movement in Corn Belt ammonium sulfate industry pricing as compared to recent nitrogen pricing. Urea again, is the largest nitrogen fertilizer by total consumption and does tend to have an underlying influence on all of the nitrogen nutrient products but do have their own supply demand dynamics. Corn Belt granular ammonium sulfate prices in the industry increased roughly 4% in the quarter on a year-over-year basis. Urea pricing again has been more dynamic in industry pricing for Corn Belt urea showed an increase of over 20% from the second quarter 2017 when prices dropped significantly on the back of capacity additions particularly in the U.S.
A number of factors that contributed to former global nitrogen pricing, we've seen ongoing reductions in China urea utilization largely as a result of environmental policy considerations we've been discussing which has impacted urea exports and helps balance out supply additions in other regions. Higher energy costs globally have also pushed up costs for certain producers in various regions influencing the cost curve. And we're monitoring tariff on crops to export markets which may have an impact on next season's planting decisions.
As we look toward the remainder of 2018, we do expect to see the normal seasonal pricing decline sequentially in the third quarter as compared to the second which I will further dive into in a moment. However, the fertilizer market we're operating in is stronger than where we were this time last year. We're monitoring key indicators ahead of the new season sales including crop prices, supply demand fundamentals and global trade flows but expected new season saw pricing to be approximately 10% above last year. And as always we'll stay focused on delivering the value proposition of proper nutrition for our customers globally.
Let's turn to slide seven. If that will be helpful to spend a moment or two here discussing ammonium sulfate seasonality. We've been discussing seasonality over time but are now entering really what is our third fertilizer season since the spin. And we wanted to ensure that the sequential considerations were explained and understood if they're not always so intuitive particularly as we're appear to be point through the turn in the larger nitrogen cycle.
As we described at this time last year, ammonium sulfate prices are typically strongest during the second quarter fertilizer application here in North America and then have a seasonal pricing decline into the fourth quarter as the new season began. Meaning that we are now in the new 2018-2019 North America fertilizer season which runs from July through June.
To better illustrate the sequential considerations to this seasonality, the chart on the left-hand side of the page depicts the average price change for corn belt ammonium sulfate as published by Green Markets by quarter over the period from 2010 through 2017. As you can see, the trend reflects prices that typically strengthened into the spring planting season, and then declined ahead of the new season's fill. On average, we've seen industry prices in the corn belt decline 12% from the second to third quarter over that time frame.
While there are ranges of results across the quarters depending on the environment any given year, we have seen sequential declines in third quarter every year since 2010. The third quarter sequential declines over that period have ranged from low-single digit decline to decreases of over 25%. So, we are able to mitigate the seasonality as we've talked about from a volume sales perspective given our ability to efficiently sell into both our North America and South America regions. So, our volumes actually remained relatively steady on a quarterly basis. However, we do expect to have a higher amount of products sold to our export markets in the second half of the year, particularly into Latin America and Brazil.
This geographical sales mix also has a product mix consideration as we tend to have higher standard product sales in the quarter as it relates to the strong granular sales domestically at the height of the North America season. As a reminder, we've discussed in the past that granular product sales are on a premium over standard of around $50 a ton. So, in total, when you look at the impacts of the seasonality, and in consideration that ammonium sulfate sales are treated as a netback to the cost to produce caprolactam, we typically see a sequential consideration of $10 million to $15 million to higher COGS, on our cost of goods sales, on average in the third quarter. Importantly, as I mentioned earlier, the fertilizer market environment is in a better place than we were just a year ago.There are initial signposts for monitoring for continued improvement as we head into 2019.
So, with that, let's turn to slide eight for an update on chemical intermediates. Our chemical intermediates business which represented about one third of our total sales in the quarter provides revenue diversification from a variety of co-products we sell. As we've done in the past, we've shown prices on the right-hand side of the page for refinery-grade propylene and acetone based on third-party data. Prices for acetone, which represent roughly half of our chemical intermediates portfolio, will move with its own supply demand dynamics but can also be influenced by the underlying moves in propylene prices. The inflow prices of propylene continued to increase in the second quarter, rising over 30% on a year-over-year basis due to tight supply conditions.
During this time, as you can see, the acetone [inaudible] by a marker has widen the increases in the underlying raw. Coupled with this phenomenon has been global [inaudible] on demand, which has continued to strengthen across polycarbonate, epoxy resin, and nylon applications and further factored into acetone supply and-demand dynamics. Operating rates globally remain high resulting in production additional acetone co-product. Given global trade flows, we've continued to see elevated levels of acetone imports into the U.S. pressuring regional pricing. So, while we had talked about domestic capacity rationalization which occurred earlier this year, we continue to closely monitor import levels which we do see leveling off but they do remain high on a historical basis.
So, we continue to expect end-market demand overall to remain favorable which means that right now we don't see utilization rates coming down in the near term. So, let me turn the call back over to Mike to discuss our operational performance and framework for the second half of the year.
Michael Preston -- CFO
Okay, thanks, Erin. I'm now on slide nine. As we've previously shown, the chart on the left-hand side of the page shows our planned production rates on an annualized basis. Although our total utilization across the asset base in the second quarter wasn't as robust as the near-record levels set last year, production did increase roughly 3% over our historical average. Importantly, the performance at our Hopewell site this quarter modestly improved on the upper 90% utilization that we saw in the second quarter of 2017. So that's further proof that our maintenance and mechanical integrity programs are providing benefits both for the near term and also over the long term.
We are mitigating risk across our operations through our asset risk matrices and reliability control plans. These programs are in place to monitor critical assets and drive improved uptime and output. Our culture of continuous improvement also plays an integral role in that success. Our detailed turnaround programs are also an important element of our operational performance.
We've implemented dedicated teams assigned to continue improving the effectiveness of our plant turnaround efforts from the start of the planning process through the restart of the asset. As Aaron mentioned earlier, work including our 2018 plan turnaround schedule in the third quarter. We expect a $25 million to $28 million impact to pre-tax income in the quarter. In this particular turnaround, given the unplanned weather event from the first quarter and the shift in timing of activities throughout the year, we're seeing a higher portion of the total impact related to purchases of feed stocks that we normally produce ourselves.
Most notably, that would include ammonia purchases that allow us to continue running our plants at relatively high utilization rates even during the turnaround efforts. Our leading cost advantage position supports these high utilization rates and we're making smart investments to improve performance and debottleneck our operations. So overall, we expect to sustain or bus operational performance for the remainder of this year and beyond. Let's turn to slide 10.
Now, before turning to Q and A, we'd like to spend a little more time recapping our expectations for the second half of this year relative to the first half. As we've discussed, there are some puts and takes across the portfolio. In the nylon space in particular, we expect the current favorable industry conditions to continue. We're monitoring any developments related to the environmental policy driving China's supply and price dynamics.
As we've seen in the past, market pricing can react quickly the shifts in supply. Some of our key raw material inputs are also moving around a bit. But as a reminder, a good chunk of our capitalized MNL and sales are on formula price agreements representing the pass-through of those key feed stocks and we'll remain focused on value pricing on more differentiated nylon products based on their performance characteristics in higher value applications.
In ammonium sulfate, Aaron highlighted the expected 10 to $15 million sequential impact in the third quarter driven by normal seasonality in that market. Although we do expect pricing to be up 10% year-over-year in the third quarter and volumes to be steady compared to the second quarter of 2018. We also expect to see some level of pre-buy cash advances rather in the fourth quarter for the sales plan in 2019 as is common in that business.
As for chemical intermediates, Phenol end-market demand is expected to remain robust in the second half of the year. We expect this to result in continued pricing headwinds associated with ample supply of acetone imports into North America. Operationally, we remained focused on the flawless execution of our third-quarter plan to turnaround. We expect high utilization rates for the remainder of 2018 supported by our proactive maintenance and reliability programs.
The upgrades and investments in our manufacturing sites provide a sound foundation for sustainable output and higher returns as we enter into 2019 and beyond. The second half of this year will also see us begin executing on our pipeline of high-return growth and cost savings capex projects that will drive further earnings and cash flow. In total, we're expecting capex in the range of 110 and 215 million for the full year which includes $20 million to $30 million toward high-return capex that will debottlenecks specific areas of our operations, optimize quality, and improve our mix and cost position overall.
Lastly, cash generation continues to be a key focus area for us, we've seen a steady improvement as operating cash flow has increased nearly 15% through the second quarter on a trailing 12-month basis. As we move into the second half of 2018, we expect ongoing strong working capital performance and tax reform benefits to have a favorable impact on net income and cash flow. Overall, we'll continue monitoring developments and pricing in our markets while driving strong operational performance for the remainder of the year. So, with that Adam, let's move to Q&A.
Adam Kressel -- Director of Investor Relations
All right. Thanks Mike. And Steven if we can open the line for Q&A.
Operator
Thank you. We will now begin the question-and-answer session. To ask a question you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time we will pause momentarily to assemble our roster. Our first question comes from Charles Neivert with Cowen. Please go ahead.
Charles Neivert -- Cowen -- Analyst
When looking at nylon you talked about the Nylon 66 situation and how tight that's gotten. Can you talk a little bit about the typical GAAP between Nylon 6 and Nylon 66, and where it is today? Have they expanded significantly, and have you guys gotten at least the beginnings of some inquiries about customers who might be switching out or using more 6 instead of 66, in that regard, you get some picture about how things might progress over the next couple of quarters?
Erin Kane -- President and CEO
Charles, great question. Chosen to maybe help frame it a bit. To start, when you look at the total Polyamide in the market place so, 66 and six. The first part, I would just want to try to understand is PA66 is about 60% smaller than the PA6 market. When you look across the application space, our estimates as we try to triangulate with third-party experts here with adjusted about 15% in the [inaudible] up to 20% are in application areas where six [inaudible] and for those 66 type of application.
But in a frame where you can think about the focus on and against, probably the engineering plastics arenas pause maybe some industrial yarn. When you look at where pricing has gone, I mean we now see pricing nearly 45% to 50% higher U.S. for 66 and six as high as maybe 70% in Europe as it pertains to some of the local consideration, this has been a tough year for that market place with fortune [inaudible] and constraints. That certainly, I think folks are looking we have had increase, I would say we've had one customer typically compounding arena or the convert one project. But as you can imagine, as you think about having to expect these end down LEMs, so there is some time that it would take but I think it's a fair. Perhaps hypothesis that folks maybe actively working through the substitution. Particularly, just given the long-term constraints, at least over the next several quarters.
Charles Neivert -- Cowen -- Analyst
Then barring, even if there is no substitution given that the GAAP has opened up between the two, something that's normally much smaller definitely always 66 at premium, is there any opportunity just to raise prices in certain risks? I know certain contracts would might preclude it, but there are others that might allow for some price movement that might not have otherwise been available. Do you think that's something that might be coming out you guys, or is already being seen at all?
Erin Kane -- President and CEO
I think when you look at just the price differential the market and the length that exist in Nylon 6 versus 66 in general, I think everyone is always looking at pricing, there's probably more to do with regional and dynamics in the 6 side of the world. Certainly there are raw material lines of pricing mode, we're seeing modes associated with higher logistics, costs at our inciting moves on price as we'll stay focused certainly on the value-added applications to ensure that we're staying ahead there. Nylon 6 imports have increased this year into the U.S., so, I think when you look at spreads here versus regional considerations that's always a factor as well as we've been discussing over time how the regions can actually perform.
Charles Neivert -- Cowen -- Analyst
Okay. Then one last on a different subject, you're looking at your beginning to start to spend on the project pipeline. In 20 to 30 of this year and then I assume there's some flow over into next year on the projects that you're currently going to go to work on. Can you bracket it all what those might be ultimately worth to the company going forward. I mean 20 to 30 is going to bring whatever the total number will be is going to projects that might be worth how much?
Michael Preston -- CFO
Yes. So, the way we think about these things as we evaluate moving forward and funding growth and cost savings projects, as we talked about in the past we look at our hurdle rates of sort of a 20% internal rate of return. So, those are the kind of returns we expect to see going forward associated with those investments.
Those investments will carry through. We have $20 million to $30 million year. Will probably have another carryover of call of 20 to 30 in 2019. As we conclude those projects in the first half of the year, you start seeing benefits in the second half of the year, and then you will start seeing full year benefits as you get into 2020.
Charles Neivert -- Cowen -- Analyst
Got it. To so these are basically, these are going to take. Typically months to complete obviously. Maybe not quite on either but-.
Michael Preston -- CFO
Yes. As you know with our business and the types of investments, and the capital-intensive nature of them also tying them to turnarounds as well, and the engineering and a lot of these sort of upfront work when need to do. They typically take 18 months to two years to execute.
Charles Neivert -- Cowen -- Analyst
Got it. So you're getting into that physical work so that you've already done the front end of it meaning all the paperwork, OK.
Michael Preston -- CFO
Yes. That's right correct, yes.
Charles Neivert -- Cowen -- Analyst
Okay, thanks very much.
Erin Kane -- President and CEO
No, thank you.
Michael Preston -- CFO
Okay. Thank you.
Operator
And as a reminder if you have a question please press star then one one your telephone keypad. Our next question comes from Chris Moore with CJS Securities. Please go ahead.
Chris Moore -- CJS Securities -- Analyst
Hey good morning guys.
Michael Preston -- CFO
Good morning.
Erin Kane -- President and CEO
Good morning.
Chris Moore -- CJS Securities -- Analyst
Start on the plant turnaround so just want to make sure I understand the numbers so you had talked about the total impact for the year being $30 million to $35 million, $10 million impact from [inaudible] in Q2. Q3 is 25 to 28-.
Michael Preston -- CFO
That's right.
Chris Moore -- CJS Securities -- Analyst
We're at, is that 30 to 35 expanding a little bit or is it more in the 35-.
Michael Preston -- CFO
That is correct and if you recall, Chris, when we talked about the weather impact in first first and sort of the impact to our operations there we used that as an opportunity to pull forward some spend in the first quarter, too and execute some of planned turnaround in the first quarter. So there is a couple of million impact there. So when you look at those numbers you look at sort of the full-year range and sort of that 37 to 40 estimate now on a full-year basis which is above our original guidance in terms of that range. And really when it comes to it, it really comes down primarily to purchases of some of the feedstocks that we normally make particularly ammonia which are increasing. Not only to support the high throughput of our capital plan going forward but also we've seen the pricing of the ammonia increase as well. So with that impact that it sort of increase the range.
Chris Moore -- CJS Securities -- Analyst
Got it. Thanks. It helps. An acetone, maybe I'm just talk a little bit for the kind of the belief is that North American imports will begin [inaudible] this kind of talk about the assumption behind that why you think that will happen.
Erin Kane -- President and CEO
Certainly that comment is going to be based on what we've seen over the last several months, right? Or maybe as we talk about this, last call, we had seen imports coming in through trading activity. Quite candidly. That were multiple over what the North American market needs, right? North American market has moved into a net import positions that we do need to have inflows. But there was some aggressive, I would say moves on trying to get more material in what was seen as a favorable regional environment that has leveled off.
Nevertheless, I would say three or so months right with normal in-flows coming in as expected to what we structurally need. Coupled with it, we've got a propylene consideration as well that is influencing the net for a variable margin that's coming from the product line as well with propylene being tight here in the U.S. that's moved up cost. We've also seen Asia propylene move down in what has more of a lengthy environment there so that's created some interim considerations as well relative to that. I think in any case where there are imbalances it takes time to flush through for a global trade [inaudible] and again I think we're seeing the signs that's we serve over the last several months that we're getting there and now they have this consideration of that length also pressuring a bit of the compounding what is the propylene consideration as well.
Chris Moore -- CJS Securities -- Analyst
Got it. Maybe you could just remind me in terms of formula-based side of it. My understanding was roughly half of your sales. Formula index pricing about two-thirds on the nylon and about half of the Chemical Intermediates. Is that right?
Erin Kane -- President and CEO
Yes. Let's say, you also have a half to two-thirds depending on the mix certainly on the pheno side, you have benzene, influence, and then on the acetone side you have the propylene but it's also indicated through indices. So, long as we put up the large buyer indices, pricing may go through that which has an implication to how propylene goes but really not necessarily a one-to-one.
Chris Moore -- CJS Securities -- Analyst
Got it. I appreciate it.
Erin Kane -- President and CEO
No. Thank you.
Operator
Again, if you have a question please press star then one. Our next question comes from Jed Nussdorf with Soapstone Capital. Please go ahead.
Jed Nussdorf -- Soapstone Capital -- Analyst
Hi Erin. Quick question for you on acetone business stuff out there. I know with Shell idling the Deer Park facility, I guess earlier this year, there was some thought that the market would tighten as a result. What have you seen particularly in the gulf coasts as it relates to pricing there and is that, has the imports changed the mix to more you would have expected given the idling of that facility?
Erin Kane -- President and CEO
Yes. So, if you maybe can elaborate a bit more. So, from a net importer position, if you go back through last year prior to the shutdown and then look at import statistics, I would say we're in and around the range of maybe 12KT coming in to match that monthly import demand either when Deer Park shut down the one mine inherently that meant we need more to come in because the U.S. market has continued to be robust from a demand perspective. So, that would have had to increase maybe closer to 17 each maybe 20 depending on how things are moving out. So, we needed more. But when you look at what happened really late December up to January, even to March, traders brought in I would say multiples of that need which then created a situation where that had to flow through the market.
Some has been reexported but some of it came here and in a position that has pressure of price here in the first half. So, again I think into the notion that structurally they should rebalance. There's new phenol plant that are coming onstream that have come on stream that are lining that out Phenol demand as we've said has been extremely robust on the Epoxy and polycarbonate and even global nylon side. So, it's just a matter of rebalancing where the acetone goes into to set those dynamics but we have seen the pressure as indicated in the chart certainly the large buyer settlements have not kept up both on the propylene as a result of the flanks and again I think it's just a bit more time. It's hard to have the crystal ball to say when do we reach a point of some more structural stability.
Operator
As a final reminder if you have a question please press star then one. Showing no further questions this concludes our question-and-answer session. I would like to turn the conference back over to Erin Kane for earning closing remarks.
Erin Kane -- President and CEO
Thanks again for everyone's time and interest this morning and for the good dialogue here in the Q&A. Again, our results this quarter we believe again demonstrate the strength of our business model. We have a focused strategy that we're executing against built on a rigorous commitment to operational excellence, continuous enhancement of our long term growth capabilities, and making smart investments in the business to drive higher returns. While there are some puts and takes across our end markets, we are focusing on executing what is in our control and driving that possible outcome. Our vertical integration and global cost advantage position, continued to give us the confidence of flexibility to drive value creation over the long term and we'll look forward to speaking to you again next quarter, thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation, you may may disconnect.
Duration: 37 minutes
Call participants:
Adam Kressel -- Director of Investor Relations
Erin Kane -- President and CEO
Michael Preston -- CFO
Charles Neivert -- Cowen -- Analyst
Chris Moore -- CJS Securities -- Analyst
Jed Nussdorf -- Soapstone Capital -- Analyst
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