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PolyOne Corp  (NYSE:POL)
Q4 2018 Earnings Conference Call
Jan. 29, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation Fourth Quarter 2018 Conference Call. My name is Crystal and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will have a question-and-answer session at the end of the conference. As a reminder, this conference is being recorded for replay purposes.

At this time, I would like to turn the call over to Joe Di Salvo, Vice president, Investor Relations. Please proceed.

Joe Di Salvo -- Vice President, Investor Relations

Thank you, Crystal. Good morning, and welcome to everyone joining us on the call today.

Before beginning, we would like to remind you that statements made during this conference call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They are based on management's expectations and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed and or implied by the forward-looking statement. Some of these risks and uncertainties can be found in the Company's filings with the Securities and Exchange Commission, as well as in today's press release.

During the discussion today, the Company will use both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the PolyOne website, where the Company describes the non-GAAP measures and provides a reconciliation for the most comparable GAAP financial measures.

Operating results referenced during today's call will be comparing the fourth quarter of 2018 to the fourth quarter of 2017 or the full fiscal year of 2018 to the full fiscal year of 2017, unless otherwise stated.

Joining me today on the call is our Chairman, President and Chief Executive Officer, Bob Patterson; and Executive Vice President and Chief Financial Officer, Brad Richardson.

Now, I will turn the call over to Bob.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Well, thanks, Joe. Good morning to everyone joining us on the call today. I am pleased to report full year record adjusted earnings per share of $2.43 for 2018 and that's a 10% increase over last year, and it marks our ninth consecutive year of adjusted EPS growth. Investments in our commercial team since 2014 have made performance like this possible. Excluding acquisitions this year, we increased our sales, marketing, R&D resources again by an additional 6%, which helped to fuel our organic revenue growth.

In addition to leveraging these new hires, we also continued to pursue complementary technologies and businesses through acquisition closing two deals in 2018, IQAP and PlastiComp, and we are excited to kick off 2019 by welcoming yet another specialty company to our family. Fiber-Line is a global leader in custom engineered fibers and composite materials that serves the fiber optic cable, oil and gas, industrial and consumer industries. Its customer first specialty culture and innovative product portfolio make it a perfect fit with PolyOne. I'll talk about this and Fiber-Line a bit more later.

And as many of you know at our Investor Day, last May, I discussed our historic past and inspired future with a goal to creating a world class sustainable organization. I emphasized the four cornerstones of our sustainability endeavors, people, products, planet and performance, the four Ps. And as we reflect back on last year, it's clear we've made some great contributions in each of these areas.

We started the year with the announcement of becoming an American Chemistry Council, Responsible Care Company and that is a direct reflection of our safety first culture. And in 2018, we achieved the safest year in PolyOne's history with 19% fewer injuries than in 2017. In fact nearly 80% of our facilities were completely injury free. Our focus on people also requires that we build a high performing diverse and inclusive company lead by women, as one associate Resource Group that sponsored numerous leadership development training sessions in 2018. Further, we expanded our leadership, development, and training, and these are rotational programs, where new associates -- associates collaborate and contribute in various roles within the Company.

The breadth of global experience they receive forms highly effective and diverse skill sets, bolstering our talent pipeline from the bottom up. And we also continue to invest in our in-house leadership with over 250 of our associates graduating from NexGen and PolyMasters helping us to truly build tomorrow's leaders today. And as a result of these and many other efforts, and for the first time in our history, we were honored to be recognized, as a Great Place to Work in the US by the Great Place to Work Institute. It is a significant milestone in our ongoing journey to become a top workplace. Great places to work not only take care of their associates, but also advance all four cornerstones of sustainability.

Two weeks ago, we announced that we joined the Alliance to End Plastic Waste as a founding member and appointed Walter Ripple to Vice President of Sustainability. Walter joined PolyOne in 2008 with the GLS acquisition and he has won our General Manager of the Year award twice. He's a trusted technical and customer focused leader, who will advance our sustainability initiatives, while coordinating our efforts with the Alliance to take better care of our planet.

And performance is the fourth cornerstone in our sustainability commitment, and we view it as both an enabler and a result of the other three. As I said 2018 marked the ninth consecutive year of adjusted EPS growth at PolyOne with record EPS of $2.43 that's an impressive accomplishment that we worked tirelessly to achieve and build upon each year, and we overcame some significant industry dynamics last year, including raw material inflation, rapidly increasing logistics costs, and more recently, a slowdown in demand in certain end markets and geographies in the second half of the year, with the fourth quarter being the most challenging of all.

Recall from our third quarter statements that we set in September, we saw weakening foreign currencies, demand slowdown in Asia and softening in certain North America end markets, namely building and construction and appliance. We've projected that if we continue to see these same trends, adjusted EPS would be flat in the fourth quarter and that's where we ended at $0.41 a share.

If we go back to our comments in October, we expect that the fourth quarter to be difficult for our Performance Products and Solutions segment, in particular due to the weakness in demand for appliance and building and construction, and that really played out as we thought. But we also experienced a decline in demand in Europe and Asia growth slowed as well, particularly in the consumer market space. And these two factors specifically impacted our Specialty Engineered Materials segment, which reported a year-over-year decline in operating income.

To put the European impact into perspective, in Q1 and Q2 of this year, sales were up 23% and 13% respectively. Third quarter growth slowed to 5% and in the fourth quarter, European sales actually contracted by 5%. Now, some of this was certainly currency related, as the dollar strengthened over the course of the year, but even so, we did see European weakness toward the second half and this weighed on Color and Engineered Materials.

Now again, as we go back to our comments in the fourth -- in October, we did have some things play out to the upside, where we had better than expected performance. Distribution finished the year very strong, as we got traction on freight surcharges and related pricing, and operating income increased 13% for the fourth quarter. Composites had a very strong quarter and did very well. Ancillary markets such as healthcare and packaging, which held up well despite the previously mentioned geographic weakness. And I'll add some more comments in a moment about what we think all this means, as we head into 2019, but for now, I turn the call over to Brad for some more specific comments on the fourth quarter and full year.

Bradley C. Richardson -- Executive Vice President and Chief Financial Officer

Well, thank you, Bob and good morning, everyone. As I can reflect on 2018, it really was a story of two different halves -- the tale of two halves. So strong growth in the beginning that tailed off at the end of the year, as Bob just described. But with this reflection, let me first start with our GAAP results.

GAAP earnings of $0.15 per share were reported. Special items in the quarter resulted in a net after tax charge of $21 million, and were primarily related to mark-to-market pension adjustment and environmental-related costs. Adjusted EPS from continuing operations for the quarter was $0.41 flat with the fourth quarter of 2017. Color, Additives and Inks finished the year with another quarter of growth expanding sales 8% and improving operating income 5% in the fourth quarter, despite weakness in Europe.

Ultimately, Color had an awesome year reaching a $1 billion in sales for the first time in our history. This represents a 17% increase in revenue and operating income also expanded by 14% to $160 million, resulting in over $200 million of EBITDA. We continue to see strong demand for our barrier technologies for beverage packaging in Europe and Asia. Color sales in this end market grew double-digit. The Europe Color business did experienced some slowing in the fourth quarter, particularly in the transportation and wire and cable end markets, which were down year-over-year.

Engineered Materials also experienced weakness in Europe during the fourth quarter, primarily in the transportation end market, as well as some impact from the economic and political instability in Turkey. In Asia, SEM saw softening demand in the consumer end market, as Chinese consumers appear to be more cautious in discretionary spending, in light of a slowing economy and other influencers affecting consumer sentiments.

End markets in SEM North America were more stable comparatively, including wire and cable, which steadied in the fourth quarter, as we are winning new business. This is a key milestone for this end market following tier two years of weakening conditions for these applications. Our composite business with SEM is performing extremely well. Our investments in commercial resources and technological developments are paying off and drove the platforms first ever year of positive operating income expanding over $3 million for the year. And as we continue to win new business with our composites solutions, we expect this business to be even more impactful to PolyOne's performance in the future.

And I'm happy to report that our integration of PlastiComp, which we acquired in June of 2018 is off to a fantastic start. Our investor growth strategy is under way, and we've more than doubled their sales funnel. Additionally, the material expertise, we gained from the acquisition is helping us close previously identified opportunities, where we couldn't fully meet the material requirements, but now we do. So for example, we are winning new business with a customer in the outdoor high performance industry to replace metal with a long fiber technology that offers design flexibility, enhance strength and impact resistant. PolyOne's track record of commercial excellence with this customer open the door and PlastiComp's technical know-how was key to locking down this win. In short, our enthusiasm for composites continues to grow. It's performing well now, and the value and upside is only going to increase.

As Bob said, Performance Products and Solutions had a very difficult quarter. Overall sales were flat, but margins were compressed due to unfavorable mix and higher raw material cost. PolyOne distribution finished the year strong increasing fourth quarter revenue 6%, and operating income 13%, as freight surcharges and other actions gained traction.

All of our segments combined to generate tremendous cash flow and we finished the year with over $400 million of adjusted EBITDA. We will remain centered on deploying cash in organic growth initiatives and accretive bolt-on acquisitions, the investments that have and will generate growth in the future. We will also continue returning cash to shareholders as evidenced by our announced quarterly dividend increase of more than 11% this year and share repurchases of 3.4 million shares, including 2.1 million shares in the fourth quarter.

While we are cautious about the near-term outlook for select end markets, we certainly are optimistic about our future and Bob will make some statements about our outlook. So Bob?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. Thanks, Brad. Again, as we look back on last year, it was a year of many accomplishments that are helping us to create a world class sustainable organization. It was our safest year on record; we were recognized as an ACC Responsible Care Company; and certified as a Great Place to Work in the US; and we delivered our ninth year in a row of adjusted EPS growth. We hope this isn't overshadowed by current events, which unfortunately suggests weaker demand conditions to continue in the near term.

Our order rate for January suggests that organic sales for the first quarter will be up only slightly over the prior year. And if we include the Fiber-Line acquisition, sales will be up about 3%. We think this translates to roughly flat EPS in the first quarter unlike a lot of companies' seeing some weakness in the first half of the year. We think that the weaker foreign exchange itself is about a $0.03 headwind in the first quarter, and we do see some lower sales out of Europe. But we also see again continuing strength in composites, in healthcare, as well as other applications and packaging, which gives us a lot of encouragement for the upcoming year. And for all the attention, the economy is getting right now, I do think we should highlight the main markets and applications that are actually doing quite well.

Healthcare was up 8% last year. 25% of our distribution is in healthcare accounts. We have specifically invested in this end market over the course of many years. And I think as we mentioned with the results that we had in the fourth quarter, we're seeing some traction there with OI and distribution being up 13%.

Another highlight for us was in India, where our team celebrated their 10th anniversary this year. We started with just a small color master-batch operation in the region and are now expanded to produce, sell and innovate, color and engineered materials as well as TPEs. And since our 2013 investment to build a new plant there, we've nearly tripled our revenues with operating margins at 20%. It really is a remarkable story. And as you heard Brad talk earlier about our packaging business that was up 16% in 2018 largely in part to our color offerings and design expertise.

And lastly, our composites business is growing. It offers light weighting options, replacing traditional materials with equal strength or better composites, and these trends aren't going away. They're gaining momentum and so are we. This includes engineered and coated fibers, which is an expertise of our latest acquisition Fiber-Line. It will be immediately accretive to EPS and it is expected to add approximately $100 million revenue to our EM segment in 2019.

Fiber-Line is an innovative and specialty company that is doing incredible work in customized engineered fibers and composites. They primarily serve the fiber optic cable industry and they are a leading supplier being called upon to support the build out for the 5G network infrastructure. Fiber-Line products also serve oil and gas, industrial and consumer end markets. The leadership team is exceptional and the upside potential to help accelerate -- accelerate the great things, their employees are doing for customers is huge.

This acquisition is yet another example of our investing in composites, as a sustainable and hydro technology for our future. Help us drive this growth, we hired a composites expert in Chris Pederson to lead the SEM segment. Chris was most recently with Hexcel, where he joined the following 15 years with Cytec. He began his career with Boeing & Aerospace, where he spent 10 years after receiving a bachelor's in masters degree in chemical engineering emphasizing in composites. Innovation is at the heart of what we do and we are not too proud to go out and acquire technology or new leaders to help us achieve the success, and when we do we get the best.

At PolyOne, if you're (ph) building a world class sustainable organization as both a challenge and an opportunity. For years, we have been investing in and building a portfolio of sustainable solutions, such as barrier technologies that preserve shelf life and help to provide food and beverage and thinner gauge designs that use less plastic. Our light weighting solutions that replace traditional heavier materials right through Fiber Colorant technology that minimizes the amount of wastewater generated during the customer's production processes.

And we measure the health of our innovation capabilities and portfolio through our Vitality Index, which again in 2018 was over 35%. It's a testament to our innovation capability and a sign of confidence to our customers. Add Fiber-Line, the prior year investments we have made to upgrade our portfolio, and we've never been in a better position to navigate the short term dynamics I just described. In doing so, we can and will continue to deliver for our customers and shareholders for the long term.

That concludes our prepared remarks. We will be happy to open the discussion for any questions you have on the call.

Questions and Answers:

Operator

Thank you. The call lines are now open. (Operator Instructions) Please limit your questions to one question and one follow-up question. And our first question will come from Mike Sison from KeyBanc. Your line is open.

Michael Sison -- KeyBanc -- Analyst

Hey, guys. Nice quarter.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Good morning.

Michael Sison -- KeyBanc -- Analyst

Bob in terms of your outlook for 2019, the -- acquisition momentum is increasing here. How much earnings growth can you get from acquisitions this year? And then, how much growth can you get on an organic basis?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. I with the -- the start of the year obviously being as uncertain as it is, it's really challenging to predict that for the full year. We are excited about Fiber-Line, which we think can add $0.02 to $0.04 to the bottom line, and of course we bought back 2 million shares in the fourth quarter of last year, which helps us as well. The real unknown here, I think is just some of the weakness, we see in these end markets and geographies like Europe.

Michael Sison -- KeyBanc -- Analyst

Okay. And then just a quick follow-up on the Performance Products and Solutions. Margins have improved well over the last couple of years and when you think about the decline you saw in the fourth quarter, how much of that do you think is structural versus just you can overcome that as -- as 2019 and beyond unfolds?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. I mean, look as we start the year, we would do so, first of all looking back on the fourth quarter and say hey, really makes mix hurt us quite a bit with appliance being down as much, as it was, as well as building and construction being weak, sales were roughly flat, as we offset that with some lower margin contract manufacturing business. But going into 2019, I think there's an opportunity for margin expansion here, Mike. And I think we can do that with a little bit of recovery in one or two of those end markets, as well as hopefully a better traction on pricing.

Michael Sison -- KeyBanc -- Analyst

Great. Thank you.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. Thanks.

Operator

Thank you. And our next question comes from Frank Mitsch from Fermium. Your line is open.

Frank Mitsch -- Fermium -- Analyst

Hey, good morning, folks.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Hi, Frank.

Frank Mitsch -- Fermium -- Analyst

Hey Bob, if I could get a little more granular with respect to the 3% organic sales growth in the fourth quarter. Can you talk about how the pace progressed through the quarter and you're forecasting 0% organic growth in Q1. I mean are you expecting, I'm just trying to get a picture or the shape in my mind, as to how that -- how that is progressing in terms of how we did in fourth quarter and what your expectations are here in -- here in January?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

With respect to that progression question, are you asking that about the fourth quarter?

Frank Mitsch -- Fermium -- Analyst

Yes, sir.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

All right, and then go into the first. Sure. Look, as we know coming out of September, September was very weak and sales were down. October was a little bit better than September, but up probably only 1% or 2% if you will versus where we were in 2017. So the months effectively played out kind of like we thought, which was roughly flat with what we saw in October. The only thing that I'd say kind of weighed on fourth quarter results more than we expected was the decline in Europe, which we all -- we believe really was primarily associated with the auto industry, which made December weaker than October and November.

So as we stand here today and we look at the order rate for January, organically sales are up about 1%. If we add acquisitions, they are up about 3% and that's inclusive of that currency headwind that we said which is about 3 pennies in the first quarter. Little early to say what March looks like, as you know in our quarters, March has a tendency to be a strong month, but right now we've got visibility probably into January and February.

Frank Mitsch -- Fermium -- Analyst

Got you. Got you. And as I -- you look at the year-over-year 2018 as a full year versus 2017 obviously margins off a bit. You've obviously been making some progress in terms of price for the -- for the higher raws earlier in the year. Where do we stand on that interplay between your ability to raise prices versus -- versus raws and expectations for margins?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

And so I -- I -- obviously see we saw some really good progress on the distribution side and I think that gives us momentum going into 2019. We've had really a very good year all year long with respect to Color. There is some weakness in PP&S that we project to continue here in -- in the near term. Look as I kind of shape things up, it's -- look as you know, it's challenging to try to forecast what we see beyond our current order rate. I think with strength in composites, with strength in healthcare like we're seeing, and if packaging holds up, there's an opportunity to meet or beat last year's EPS in the first quarter. We've just got some big challenges to overcome on our currency in Europe.

Frank Mitsch -- Fermium -- Analyst

Go it. Very helpful. Thanks. Thanks, Bob.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Colin Rusch from Oppenheimer. Your line is open.

Colin Rusch -- Oppenheimer -- Analyst

Thanks so much. As --if you think about the -- the European auto opportunity in the composites business, how big an opportunity is there for replacement? And -- and how soon might we start to see those products roll through?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Well, look for -- the most part the investments that we have made in composites have been North American based. These are the businesses that we have acquired and where we've innovated, and so this is part of our strategic plan. We have a huge opportunity to expand that outside the US, which includes European auto. Presently we're not doing very much at all with respect to composites in European auto or Asia for that matter. So I kind of view that market as wide open, Colin.

Colin Rusch -- Oppenheimer -- Analyst

Okay. And then from a timing perspective that kind of a 12 month, 24 month, 36 month opportunity or is it beyond that?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

No I mean, I think that's a pretty long sale cycle if you think about getting into next generation of plants and platforms for the automotive industry, where we've had outstanding traction and composites to-date has been and outdoor applications, as well as in industrial are now growing, some of these fibers for wire and cable applications. So fortunately, there is a huge growth opportunity that exists outside of automotive and that's where we've been capitalizing on for the last year or two.

Colin Rusch -- Oppenheimer -- Analyst

Okay. That's super helpful. And then just with --the -- the new sustainability role. Can you talk a little bit about what -- how much of that time is going to be focused on operations? And how much of the time is going to be really focused on business development opportunities and sustainability front leveraging the technology platform that you guys have?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. So most of Walter's time is going to be focused on you know, the portfolio of sustainable solutions that we have and leveraging that to help drive growth and support our customers, who are all looking for ways to take material out of packaging for example, is probably the best area, where Walter can be of help, as well as on the initiatives to participate in programs like Alliance to End Plastic Waste. So we've got a team of folks that are dedicated, as you know to improving operations here, great Lean Six Sigma program, awesome safety culture and all those things, which are being run by them. So I really view Walter's focus being on again sort of the portfolio of the products we sell and these alliances we're creating in the industries.

Colin Rusch -- Oppenheimer -- Analyst

Great. Thanks so much guys.

Operator

Thank you. Our next question comes from Mike Harrison from Seaport Global Securities. Your line is open.

Mike Harrison -- Seaport Global Securities. -- Analyst

Hi, good morning.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Hi, Mike. Good morning, Mike.

Mike Harrison -- Seaport Global Securities. -- Analyst

Bob, I was wondering if you could talk in a little more detail about the PP&S business, the sales were flat. What was the volume and pricing break out? And can you maybe talk about how -- how the destocking is progressing in building and construction and maybe other areas that were offsetting the weakness that you're seeing there?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. From an end market standpoint, appliance was down significantly. It was down about 16% in the fourth quarter for us. Building and construction was down about 2% or 3%. Building and construction is a bear end market that we serve there, so that has kind of a larger effect. Now, some of that business was offset, as I mentioned by lower margin contract manufacturing that kind of put almost volume into a push if you will, but margins were impacted by that being again deleterious to the fourth quarter. So that's kind of how that played out, Mike with respect to that plus we had some raw material inflation in the fourth quarter.

Mike Harrison -- Seaport Global Securities. -- Analyst

All right. And then on the composites business. Can you give us an update on where we are in terms of profitability and maybe what your expectations are for OI contribution in 2019?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. So overall we think we generated $3 million of additional operating income this year from composites, which puts us into positive territory. I think we really crossed over that in -- toward the end of the second quarter of this year, we've been there ever since and with the growth rates that we have and projects in place, they see that continuing into 2019. I know it does sound like small numbers and they have, but you know with all the investments that we make, I think there's a huge leverage equation here and a really good opportunity for us in '19.

Mike Harrison -- Seaport Global Securities. -- Analyst

All right. Thanks very much.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah.

Operator

Thank you. And our next question comes from Bob Koort from Goldman Sachs. Your line is open.

Dylan Campbell -- Goldman Sachs -- Analyst

Good morning this is Dylan Campbell on for Bob.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Hi, Dylan.

Dylan Campbell -- Goldman Sachs -- Analyst

I just want to -- just want to want to go a little bit deeper on kind of margin and raw material discussion. We've seen a couple of the -- your key raw materials, it's polyethylene and polypropylene or Ti2 (ph) pricing set to come in. Can you talk a little bit about your ability to hold on to price when raw materials are declining?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

I mean, historically if you look back over time was done very well in that environment. As you know, we've had some frustrating times, as well with respect to -- in some cases pricing not keeping pace with inflation. But I think that if raw materials do pull back and we see some easing there, there's a real opportunity for margin expansion. And so I think that's an opportunity for '19.

Dylan Campbell -- Goldman Sachs -- Analyst

Thanks. That's helpful. And you mentioned earlier that freight charges and distribution is starting to gain traction. Can you give a little bit of color in terms of heading into 1Q '19, how much benefit it is left over to gain from freight charges or passing through the freight charges.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

I think if you look at sort of how the fourth quarter played out against itself last year that probably gives you a good indication, the kind of momentum we have going into 2019. Again, in terms of benefit on pricing, I think that will hold in the first part of the year. Those -- those price increases really went into effect in the middle of August of this last year, so we've got every expectation that's a good guy for us in the first quarter, you know, except for the fact that we continue to see logistic costs be a challenge for us. So to the extent they go up, we may have to increase those surcharges.

Dylan Campbell -- Goldman Sachs -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from David Katter with Baird. Your line is open.

David Katter -- Baird -- Analyst

Hi, guys, thanks for taking the question. One more here on -- on raws. You talked a little bit about the trend heading into next year, which ones are you focused on specifically that may come in more than others or which are you particularly constructive on?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

I mean, for us, if I look back on the last couple of years, there's no doubt that nylon pricing has probably been one of the biggest challenges we've had particularly inside of our Engineered Materials platform. So we'll be watching that closely maybe with some of the -- with autos slowing down a touch, there's a little less demand for that and that brings some ease to that one. I'd say that's at the top of the list. But obviously, if you look across the board, look we're a formulator and we formulate around base resins. We don't make those, but they're a big part of the input cost on the carrier side. So polyethylene, polypropylene et cetera are still big factors too.

David Katter -- Baird -- Analyst

Great. That's all I had. Thanks, guys.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Laurence Alexander from Jefferies. Your line is open.

Laurence Alexander -- Jefferies -- Analyst

Good morning.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Good morning.

Bradley C. Richardson -- Executive Vice President and Chief Financial Officer

Good morning.

Laurence Alexander -- Jefferies -- Analyst

First one is on the Engineered Materials business. How do you think about lapping -- the timing of lapping margins on a year-over-year basis before the impacts of acquisitions and what the impact for the acquisition on the margins -- on the segment margins for the -- for 2019.

And then secondly, you mentioned the pace of new hires and training in 2018. What are your targets for 2019 and I don't know if you -- you have it yet for 2020, but how are you thinking about expanding the technical sales force?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. So I mean with respect to margins for Engineered Materials, I would say that with what we see right now they'll be down in the first half of the year, a lot of that actually being driven by this weakness that we're seeing in Europe right now. On our underlying business, I do think we're making -- underlying business and markets outside that, I do think we're making traction with pricing and seeing opportunity there, but it's probably in the middle the year before you'll see that on a stated basis increasing.

Next with respect to those investments look we have -- I think we have invested a lot over the last four years in sales, marketing and technology and as we've said every chance we had the opportunity too last year. We also want to do a better job of becoming more efficient with the resources that we have and given the challenges with the economy that are here near term that's going to be a primary focus for us. I expect that we'll continue to invest in those resources over the course of '19, but probably with a heavier focus on -- on technology and sales, than the other areas.

Laurence Alexander -- Jefferies -- Analyst

Okay. Thanks.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yep.

Operator

Thank you. Our next question comes from Rosemarie Morbelli from G. Research. Your line is open.

Rosemarie Morbelli -- G. Research -- Analyst

Thank you. Good morning, everyone.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Good morning.

Rosemarie Morbelli -- G. Research -- Analyst

Brad, I was wondering if you could give us a feel regarding building and construction. Is this slowdown mostly weather related or do you actually see a longer type of secular issue?

Bradley C. Richardson -- Executive Vice President and Chief Financial Officer

I mean, obviously there's a lot going on right now with respect to interest rates and concern about people having access to cash in the same way that they wanted (ph) to buy homes, so that's probably playing a factor there. I wouldn't cite the weather. I don't think that we saw that in particular, others have mentioned it, and there may have been some destocking that took place in the fourth quarter, just with respect to -- on an inventory levels. So that really remains to be seen. Usually, the first half of the year is the strongest and right now, it's starting out weak. So we'll see how that plays out over the next few months.

Rosemarie Morbelli -- G. Research -- Analyst

Okay. And when you are talking about destocking, in your mind was that in the fourth quarter, was it larger than -- than usual or more or less in line? And is it continuing in -- in January? I mean some companies and especially in Europe have taken long vacations, so I am not too sure they are back in January quite yet.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

I mean, look when we saw the results in September, I would say that was probably the steepest decline of what we saw in the year, and then things never really picked back up in the fourth quarter. So I don't know that I would say that Q4 was like that the pace of it increases the quarter went along. But I just think flat out, all of our customers are really aware of how much working capital they have and why and almost being (ph) very cautious, as they start this year. So I don't see January as a further reduction, but perhaps in absence of an increase for a better explanation.

Rosemarie Morbelli -- G. Research -- Analyst

Thanks. And if I may ask one other question regarding maybe you could share a little more details on the Alliance working on Ending Plastic Waste, I am assuming that translates also into selling less plastic in addition to recycling. Could you give us a feel for the impact -- the potential impact on PolyOne?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. Look I think it's all of the above and look we're really excited to be a founding member of this Alliance. There are obviously some really big name companies that are in there as part of that, that have helped to create the organization, and we're proud to be a member organization with them. I cannot give the -- you know, the Alliance mission, as having a couple of different missions, one of course is just to simply help expedite an outreach program to clean the waters around us and the land in which we live. I mean we, I think can lend a helping hand to help do that cleanup and so there's going to be infrastructure projects that are invested in to do that.

But then the next level of course is, being more innovative with respect to how we get perishable beverages food et cetera to people in this world with less material and candidly that's been a sustainable solution of ours for years, right, which is I look at what our ColorMatrix offerings has with respect to oxygen and carbon scavenging, additives use lighter weight materials that plays right into what we do, and it's a big reason why we've never been obsessed about the volume game. We're obsessed about revenue, margins, and I think there's an opportunity here with respect to the portfolio of sustainability solutions to do just that even if it is less pound.

Operator

Thank you. And our next question comes from Dmitry Silverstein from Buckingham Research. Your line is open.

Dmitry Silverstein -- Buckingham Research -- Analyst

Good morning. Thank you for taking my call.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Good morning, Dimitry.

Dmitry Silverstein -- Buckingham Research -- Analyst

Good morning. Just trying to understand a little bit sort of your comments on inventory and customer potential destocking. You know, you talked about the possibility of raw materials declining in the back end of the year. If we -- if you have not seen destocking in the fourth quarter or not seeing it in the first quarter, do you expect your customers at some point to start lighting up their inventories in preparation for lower prices maybe toward the back end of 2019 or 2020. Or is this sort of -- it's the risk that you take every quarter and then toward every year and you're not really that concerned about it for 2019.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah, I don't know that's going to play out any different than it has in the past and customers -- look it depends on what they're buying from us, If it's you know a distribution customer and the pricing really is a pass through from what our suppliers said, you can sometimes see those types of moves, where people are trying to buy ahead or delay. I don't see that impacting Color, Engineering Materials really at all. I think what's going into those markets is being bought as it's needed when it's needed. And I don't think that there was such a move or a change in inventories related to those that -- that it makes '19 appreciably different than what we've seen in past years, Dimitry. And candidly, what we see with distribution right now is -- is pretty good momentum. So I think that's a positive sign.

Dmitry Silverstein -- Buckingham Research -- Analyst

Yeah. Absolutely. So would you say that -- that to the extent that any sort of big destocking or slowdown has happened that -- that's more in a preparation for a slower growth environment expectation rather than lower pricing expectation?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

I think that's fair. Yeah.

Dmitry Silverstein -- Buckingham Research -- Analyst

Okay. Okay. And then just trying to understand your comments around the composites profitability, so it was -- composites did about $3 million more EBIT this year than last year or in 2018 and for 2017, which put them a slightly positive EBIT for the year and you expect that pace to continue. So if I read this sort of -- it sounds to me like you're kind of expecting mid to high single digit millions of EBIT from this business in 2019. Is that the -- is that the right way to think about that?

Bradley C. Richardson -- Executive Vice President and Chief Financial Officer

If I were using terms like low, medium and high, I would probably use lower to medium or lower to mid, if you will on their profitability level having just sort of gotten past that break even point. But look we've got $100 million sort of up or $100 million of composites business today, and I think the leverage is really big on that. So even if we get to medium that's still a good increase in '19 over '18.

Dmitry Silverstein -- Buckingham Research -- Analyst

Sure. Sure. Okay. And then finally --

Bradley C. Richardson -- Executive Vice President and Chief Financial Officer

And on within that, the -- the last thing, I was just going to say, but I'm not (ph) really excited about composites and I think there's a really good revenue growth opportunity in '19 despite what's going on with the economy.

Dmitry Silverstein -- Buckingham Research -- Analyst

Got it. So -- so that could actually help you with the overall growth. So that's great. And then final question both the Engineered Materials and Colors and Additives saw, what I would call a widening of the year-over-year negative delta on margins. Is that just a case of demand in Europe falling off basically and some of these end markets you mentioned that might earlier require (ph) some of raw material doing something different.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Almost entirely about what happened in Europe. It really was. And like I said, I mean Europe was down 5% for us in the fourth quarter and that's where our -- our most profitable region. So that really is a story on margins for those two businesses in that quarter.

Dmitry Silverstein -- Buckingham Research -- Analyst

Got it. Okay, Bob. That's it. Thank you.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah. Thanks.

Operator

Thank you. Our next question comes from Jason Rodgers from Great Lakes Review. Your line is open.

Jason Rodgers -- Great Lakes Review -- Analyst

Yes. I wonder if you could discuss any change in the competitive environment you might be seeing given the current end market weakness?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

I'm not sure that I've seen anything out of the ordinary or unusual. If I look back on '18, I mean it was a year of such sort of significant inflation and freight costs increasing that felt like everybody was experiencing the same types of things. If I went back to 2017, I probably had some more frustrations around the competitive dynamics and not seeing competitors trying to go out aggressively, as we were. But I really felt like '18 was a better year for that. And right now, I think it's probably the same. I think with a year behind us candidly and seeing all this inflation, people realize that that's here to stay. And what we're really trying to get our arms around is this demand side of the equation.

Jason Rodgers -- Great Lakes Review -- Analyst

And are you planning on maintaining the same level of investment in sales and marketing research -- resources this year that you did in 2018?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Well, one of these we got was Fiber-Line brought in a new set of folks and so we'll think about incorporating them into our commercial resources first and as a result of having them on board, we may not have to hire at the same organic pace that we have. And also as I mentioned maybe a few moments ago, we're really driving hard toward increasing efficiencies for the resources that we have added, where it's not so much about just adding people for the sake of adding people, but candidly driving more sales dollars per associate. So it's a balance there. I think that headcount will go up this year, but it may not be at that 6% pace.

Jason Rodgers -- Great Lakes Review -- Analyst

And I know you don't give full forecasts for the year, but just given the comments around the first quarter, is double digit EPS growth off the table for 2019?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

I think that there is a lot to be seen with respect to what happens from a demand perspective, as the year plays out and it's really too early to answer that question. That's one of the reasons why we don't try to. Look as I was answering questions about the first quarter or even giving some preliminary comments on that, there are certainly things that you know our weaknesses from a demand standpoint and foreign currency is a headwind, but we got some really great traction in healthcare and composites. We bought back 2 million shares in the fourth quarter and you know, there's an opportunity to meet or beat last year's EPS number, as early as the first quarter. And I think if we can get there that's a good sign for us to get to double digits this year.

Jason Rodgers -- Great Lakes Review -- Analyst

All right. That sounds good. Just a numbers question. CapEx and tax rate estimate for '19 that you might have? Thank you.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Sure. Thanks.

Bradley C. Richardson -- Executive Vice President and Chief Financial Officer

Yeah. Jason, I mean I think the tax rate was just 24% in 2018. I think that's a good placeholder for 2019. As we look at CapEx, certainly if you look at historically last few years, we've been spending about $75 million a year. We certainly have good long term growth and we're looking at some additional capacity in order to be able to support that growth in particular, in Asia. So I would think next year -- excuse me 2019 would be maybe more in the neighborhood of $85 million.

Jason Rodgers -- Great Lakes Review -- Analyst

All right. Thanks again.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

All right. We got time for one more question.

Operator

Thank you, sir. Our final question will come from Jim Sheehan from SunTrust. Your line is open.

James Sheehan -- SunTrust -- Analyst

Thank you. So you -- you clearly bought some more shares in the fourth quarter than usual probably given the share price weakness. Can you talk about how you view the share buyback opportunity going forward. Would you tend to be more aggressive with -- with valuation, where it is right now or would you try to space that out more evenly throughout the year?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah, I think it's -- it's -- we never give any specific guidance on how we're going to be buying back shares. You are correct with what you said about the number of shares we bought back in the fourth quarter and why, I mean that's spot on with respect to where the share price was. Obviously with the acquisition that we just completed with Fiber-Line consuming a $120 million in cash really start to take that into consideration as well. So we'll see how the year plays out with respect to M&A opportunities and quantifies that more to say about that when we get in the first quarter.

James Sheehan -- SunTrust -- Analyst

Great. And you highlighted weakness in your transportation end market. Could you just parse out how much of that was automotive versus RV and outdoor type of transportation?

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yeah, for most part that was automotive. So we really were commenting on that when we said -- if we said broadly transportation, we really meant auto.

James Sheehan -- SunTrust -- Analyst

Thank you.

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Yep. Okay. Thanks everyone for joining us on the call today. We appreciate your time and attention. Look forward to updating you following our next call, after the first quarter earnings release. Take care and bye for now.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.

Duration: 58 minutes

Call participants:

Joe Di Salvo -- Vice President, Investor Relations

Robert M. Patterson -- Chairman, President and Chief Executive Officer

Bradley C. Richardson -- Executive Vice President and Chief Financial Officer

Michael Sison -- KeyBanc -- Analyst

Frank Mitsch -- Fermium -- Analyst

Colin Rusch -- Oppenheimer -- Analyst

Mike Harrison -- Seaport Global Securities. -- Analyst

Dylan Campbell -- Goldman Sachs -- Analyst

David Katter -- Baird -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Rosemarie Morbelli -- G. Research -- Analyst

Dmitry Silverstein -- Buckingham Research -- Analyst

Jason Rodgers -- Great Lakes Review -- Analyst

James Sheehan -- SunTrust -- Analyst

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