AdvanSix Inc. (ASIX) Q4 2018 Earnings Conference Call Transcript

AdvanSix Inc. (ASIX -1.04%)
Q4 2018 Earnings Conference Call
Feb. 22, 2019 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good day, everyone. Welcome to the AdvanSix fourth-quarter 2018 earnings conference call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions.

[Operator instructions] I'd now like to turn the conference over to Mr. Adam Kressel, director of investor relations. Please go ahead, sir.

Adam Kressel -- Director of Investor Relations

Thank you, Allen. Good morning and welcome to AdvanSix's fourth-quarter 2018 earnings conference 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 and subsequent quarterly reports on Form 10-Q.

This morning, we'll review our financial results for the fourth-quarter 2018 and share with you our outlook for our key product lines and end markets. And finally, we'll leave time for your questions at the end.So, with that, I'll turn the call over to AdvanSix's President and CEO Erin Kane.

Erin Kane -- President and Chief Executive Officer

Thank you, Adam, and good morning, everyone. Thank you for joining us this morning and for your continued interest in AdvanSix. As you saw on our press release, AdvanSix delivered a strong fourth quarter to close out a dynamic year. Mike, will detail the full results in a moment but overall we captured the benefits of favorable market-based pricing.

We drove improved plan production rate across our key manufacturing sites and our cash generation continued to improve. Cash flow from operations increased nearly 30% in 2018, helping to fund high-return investments in the business, debt pay down, and share repurchases. There were two one times considerations in the results this quarter to note, however. We had a $6 million pre-tax income charge to bad debt expense, which was partially offset by a $2.9 million benefit from business interruption insurance advances related to the first-quarter 2018 weather-related claim.

Taking these items in the consideration, underlying EBITDA would have been roughly $3 million higher in the quarter. As we enter 2019, there continues to be a great momentum across the organization. We strive to be our customers trusted partners across all their various product lines, delivering growth and value through excellence in all we do. As you may have seen in our fourth-quarter filings, we successfully renegotiated and extended our ongoing long-term arrangement with Shaw Industries.

We've also increased our presence at various industry events and conferences in recent months with members of our technical marketing teams representing each of our major product lines, presenting on our breadth of product offerings and capabilities. Operationally, while 2018 began with a significant weather event, which the organization successfully managed through, demonstrating our resiliency and grit. Our relentless focus on safe and stable operations culminated in fourth-quarter plant utilization rates reaching the highest level of any quarter since our spin-off in 2016. In addition, safety performance and compliance are core to how we operate.

We are pleased to have published our inaugural sustainability report in November, sharing our commitment in this arena and the many ongoing initiatives at AdvanSix. Reinvestment in the business continues as we execute on our high-return growth and cost savings capital project pipelines. The first two projects initiated in 2018 to further enhance our advantage integrated value chain are on track, and we've -- as we commission these projects into service, we expect to start seeing benefits in the back half of 2019. Cash flow generation this year has been a consistent and positive outcome of our focused efforts.

With increasing cash flow from operations, we're not only funding high-return investments but also maturing our capital allocation. You'll see in our press release, our board of directors authorized an additional $75 million share repurchase program. This authorization is an addition to the previous program announced in May of 2018. We are committed to delivering long-term value as we drive growth in the business consistent with the capital allocation priorities we have previously discussed, executing on high-return reinvestment, building out our inorganic pipeline and capabilities, and returning excess cash to shareholders.

We'll provide more color on the remainder of 2019 later in the call. And although there are some puts and takes across the portfolio, our outlook remains largely intact from what we have shared with you in November. Our priorities remain centered on continuing to drive safe, stable, and sustainable operations, enhancing our long-term growth capabilities and making smart investments in the business to drive higher returns. We are confident in our ability to build upon our advantage validation that will continue to position the company for strong, operational, and financial performance for years to come.Before handling the call to Mike, I would like to take the opportunity to provide an update on the ongoing Hopewell investigation.

As you'll see in our updated disclosures later today, we were recently notified that the U.S. attorney's [Inaudible] for the Eastern District of Virginia has closed its investigation with no further action required by the company. As a reminder, this investigation did have numerous State and Federal agencies involved and we do continue co-operate fully with the remaining narrowed inquiry by the U.S. EPA and the Department of Justice Criminal divisions.

This is certainly a positive development and will continue to keep youapprised with updates as we can.With that, I'll turn it over to Mike to discuss the details of the quarter.

Mike Preston -- Senior Vice President and Chief Financial Officer

Well, thanks, Erin. And good morning, everyone. Now on Slide 4, where I'll cover the fourth-quarter financial results. Sales came in at $387 million, and that's up roughly 4%, compared to last year.

Volume was up about 4%, and that was primarily due to strong operating rates at our manufacturing sites in the quarter, as well as the unfavorable impact of the planned plant turnaround in the fourth quarter of 2017. As Erin mentioned plant utilization rates in the fourth quarter were the highest across our sites in any quarter since the spin-off and that is really reflecting benefits from our continued proactive maintenance and operational excellence initiatives. Pricing overall was unfavorable by about 1%, primarily due to a 4% unfavorable impact from raw material pass-through pricing, following cost decreases in [Inaudible], driven by benzene and propylene. Market-based pricing was favorable by approximately 3%, compared to the prior year with improved industry supply and demand dynamics in our ammonium sulfate, nylon, and [Inaudible] product lines.

Partially offsetting this was a softness in chemical intermediates pricing due to the lengthening of acetone supply globally as we've previously highlighted. EBITDA was nearly $43 million in the quarter. That's up $4 million versus the prior year. And overall, we saw the benefits from improved market pricing, offset by increased manufacturing costs, particularly utilities.

As you can see on the right-hand side of the page, we've highlighted some of the quarterly considerations that impacted our results in both periods. As a reminder, there were a couple of important considerations with respect to the fourth-quarter results in 2017, including an approximately $20 million unfavorable impact to pre-tax income from a planned plant turnaround, partially offset by a noncash $4 million favorable LIFO reserve adjustment. As Erin mentioned this year's results included a $6 million charge for bad-debt expense related to a Brazilian fertilizer customer filing for judicial reorganization. In addition, we recorded an approximately $2.9 million benefit in the quarter from business interruption insurance advances related to the first quarter of '18, a weather event claim.Now in terms of our bottom-line performance.

Last year, was -- our results reflected an approximately $53 million or $1.71 per share one-time net tax benefit primarily related to the remeasurement of the net deferred tax liability at a lower corporate rate pursuant to the 2017 Tax Act. Our diluted share count for the quarter -- for the fourth quarter of 2018 was approximately 30.4 million shares, driven by continued share repurchases. And lastly, we continue to see results from our focus on cash generation, and that's enabling us to fund our high-return capital projects. Cash flow from operations reached $46 million, up $10 million.

That's an increase of 26% compared to last year. The increase year over year was primarily due to the favorable impact of changes in working capital and the one-time net tax benefit in the fourth quarter of 2017, driving a decline in net income and offset setting increase in deferred taxes. CAPEX of $37 million was up roughly $17 million year over year as we execute against our pipeline of higher return growth in cost savings capital projects. For the full year of 2018, free cash flow of approximately $64 million increased by $16 million or 33% compared to last year.

That represented strong cash conversion to net income as we continue to manage working capital levels efficiently while funding the capital projects.Now let me turn the call back to Erin to discuss what we're seeing in each of our product lines.

Erin Kane -- President and Chief Executive Officer

Thanks, Mike. I'm now on Slide 5 to discuss our nylon product line, which includes our capital [Inaudible] resin and films products, and represented about 48% of our sales in the fourth quarter. As you can see from the chart on the right-hand side of the page, industry benzene to capital [Inaudible] spreads globally were relatively flat on a year-over-year basis and sequentially as well in the fourth quarter. Since our last update we've seen the following: first, benzene input cost has declined globally, tracking underlying oil prices.

As a reminder a majority of our capital [Inaudible] in nylon business is on formula or index-based pricing agreements. So our sales will fluctuate with the price of key raw materials with our variable margin being largely protected. And in the parts of the business without pass-thorough contracts, the industry often acts quickly with only a 30- to 60-day lag relative to the movement in input cost. Looking forward, we would expect capital [Inaudible] in nylon prices to move generally and with the changes in raw materials.

Second, we're monitoring signs of a more uncertain near-term auto and building and construction macro environment. In engineered plastics where auto is a primary end use, we're seeing weakening industry demand, particularly in Europe and Asia; [Inaudible] here in the U.S. which represents 55% to 60% of nylon demand domestically does have a tie to broader building construction growth rates, which have been impacted by cold weather in certain regions of the country as we began 2019. However, we continue to run our nylon assets at high utilization rates, given our low-cost position globally.

Industry spreads have been fluctuating in and around marginal producer economics. And for the marginal producers located in China, we expect a continued dynamics of supply and demand environment. We're also monitoring indicators following a seasonally low lunar new year period in the region. We'll stay focus on being the most reliable domestic supplier to serve our customers requirements while also advancing our product pipelines to serve higher-value applications.Let's turn to Slide 6.

In ammonium sulfate, which represented just over 20% of our total sales in the quarter, we successfully completed both our fall sale and fourth-quarter pre-buy programs to close out 2018. 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 neutral basis. As always, it's 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 sulfur nutrition to increase yields of key crops.

Based on third-party data we've seen more modest ammonium sulfate industry price moment as compared to recent nitrogen pricing. While urea is the largest nitrogen fertilizer by total consumption, it does have -- tend to have an underlying influence on all other nitrogen nutrient products. Urea pricing again has been more dynamic with sharp increases in the early part of the fourth quarter. However, nitrogen pricing was under pressure exiting the year due to seasonally slow demand following a weak fall application here in the U.S.

For ammonium sulfate particularly industry pricing has been increasing in recent months to help offset rising sulfur prices, which is a key input cost for us. And we've seen those input price stabilize and began to soften as we have started here in 2019. As we look forward to the rest of 2019, we do expect fertilizer pricing to strengthen seasonally into spring with the second quarter being stronger than the first, particularly given the weather limited web window in the fall of 2018. We're monitoring several factors impacting the overall global nitrogen environment, including China, urea utilization exports, the expectation and increased planted acres for key crops like corn and wheat.

And crop prices have also edged up versus where they were just a quarter ago. However, global uncertainty around trade and tariffs is something we're keeping a close eye on. So while we've been able to increase -- to achieve some increase in ammonium sulfate pricing and are coming off another successful pre-buy period, we continue to attract both supply and demand fundamentals for any shipment sentiment. And as always, we'll stay focused on delivering on a value preposition of sulfur nutrition for our customers globally.Let's turn to Slide 7 for an update on chemical intermediates.

Our chemical intermediates product lines represented over 30% of our total sales in the quarter. As a reminder, acetone represents half of our chemical intermediates portfolio or approximately 15% of AdvanSix revenue. The chart on the right-hand side of the page shows refinery grade coupling cost and U.S. acetone basis -- prices based on third-party data.

Overall, acetone remains on an oversupplied position. Elevated levels of imports into the U.S. as well as aggressive trading activity have put continued pressure on regional pricing and spreads. As you've likely seen, we along with other domestic producers of acetone, have filed antidumping duty petition with the International Trade Commission and U.S.

Department of Commerce. These petitions cover imports of acetone from Belgium, Korea, Saudi Arabia, Singapore, South Africa, and Spain, and we expect this investigation process to be completed over the next 12 to 14 months. Acetone prices have moved lower, given supply and demand dynamics but also reflects declining refinery grade propylene input costs. Following significant increases, through most of 2018, we've more recently seen a reduction in input costs supported by rising propylene inventory levels in the U.S.

From a demand perspective, there were several industry turnarounds over the last several months occurring in the MMA or the methyl methacylate space. As MMA is the second largest end use for acetone globally, this reduction in demand supported a continued lengthening of supply for acetone as we enter 2019. For the remainder of the chemical intermediates portfolio, we've seen tight supply conditions for phenol, particularly in the U.S. following competitor force majeure announcement.

Demand remains relatively healthy across the broader portfolio with continued favorable growth trends associated with our oximes and other derivatives. So overall, chemical intermediates performance continues to be impacted by historically high levels of acetone imports into the U.S. and excess global inventory continuing to pressure of regional pricing. Given the lengthening in supply position, we anticipate that price of raw compression will continue.Let me turn the call back over to Mike to discuss our capital investments and outlook.

Mike Preston -- Senior Vice President and Chief Financial Officer

Thanks, Erin. And I'm now on Slide 8, where we've highlighted our CAPEX outlook. Following $109 million of cash outflow from CAPEX in 2018, we're expecting 2019 to be in the range of $140 million to $150 million, followed by a reduction in 2020 back to levels generally in line with what we saw in 2018. Now the increase in 2019 and subsequent decline in 2020 is a result of two factors: the first relates to the previously announced $15 million of incremental CAPEX associated with the relocation of our R&D facility from its current location leased from Honeywell into our own Chesterfield, Virginia site.

The second consideration relates to approximately $20 million in spend for planned plant turnarounds. Now this increase has been driven by the scope of the 2019 turnaround as well as the timing of the 2020 turnaround scheduled before the spring, requiring CAPEX spend in 2019, which I'll explain in a moment. Spend in 2018 and '19 includes the two high-return projects we've initiated focused on debottlenecking specific areas of our operations, optimizing quality and improving our mix and cost position overall that will drive future earnings and cash flow. As a reminder, we'll begin to see the benefits from these projects in the back half of 2019 with the full-year benefits starting in 2020.

We continue to prioritize organic investments and are executing against our multiyear $150 to $200 million, high-return project pipeline, focus on growth and cost savings, asset flexibility, and improving plant buffers among other benefits. We've set a hurdle rate of approximately 20% in terms of an internal rate of return, and we have a healthy pipeline of investment opportunities. As we've discussed on our last earnings call, the relocation of our R&D lab will enable an improved configuration of our labs to drive productivity, increase connectivity with our specialized resin manufacturing and more effective collaboration with customers. We're also continuing our base investments in safe and stable operations as well as health, safety, and environmental spend to reduce our risk profile, improve security and maintain regulatory compliance.

From a maintenance CAPEX perspective, we expect an additional $20 million of cash outflow in 2019 related to planned plant turnarounds. More specifically, this will manifest itself in a couple of areas. First, we typically open a turnaround activities between our sulfuric acid plant and our Kellogg ammonia plant each year. Both of those units -- unit operations within Hopewell tend to be a bit more complex with larger-scope plant turnarounds.

And based on the equipment being replaced in our sulfuric acid plant in the fourth quarter of this year, we'll see an increase in our capital spend. Now to be clear, there is no change to our expected turnaround expense impact of $35 million to $40 million, which is what we've highlighted previously, but we will see a higher level of CAPEX in 2019 related to repair and maintenance spend. The second driver of the year-over-year increase is based on a cash outflow in 2019 related to equipment purchased for our spring 202 plant turnaround. Based on the proximity of our turnaround schedule with activities in the first quarter of 2019, and then early in the second quarter of 2020, there will be a higher amount of cash outflow this year for equipment being commissioned in next year's turnaround.

So based on the timing of the spend versus cash outflow we will see an outsized amount hit this year. Overall, we should see a majority of the $20 million replacement CAPEX impact revert back in 2020. Turnarounds are critical to the success of our operations, our plant uptime in general, and are essential, given our low-cost position and ability to run our plants at disproportionately higher utilization rates.Now let's flip to Slide 9. Now, before turning to Q&A, we'd like to recap our outlook for 2019.

As we've discussed, there are some puts and takes across the portfolio from a commercial perspective. In the nylon space, we would characterize the macro demand environment as more uncertainty near term, given recent trends in building construction, as well as auto. However, we continue to expect solid capital [Inaudible] in nylon plant utilization rates at both Hopewell and Chesterfield as we navigate through this environment and remain focused on value pricing, our a more differentiated products based on their performance characteristics, and higher value applications. In ammonium sulfate, we expect fertilizer prices and mix to increase seasonally into the second quarter.

Overall, we continue to expect an improved nitrogen fertilizer environment to the spring planting season. As for chemical intermediates the outlook their remains largely unchangedas we expect continued global acetone oversupply to pressure industry spreads. As Erin mentioned earlier, we're awaiting a preliminary investigation on antidumping duty petitions filed with the International Trade Commission and U.S. Department of Commerce.

Operationally, no change to our planned plant turnaround schedule for 2019, as I mentioned, but that remains in the $35 million to $40 million range from the pre-tax income impact nd it will be heavily weighted toward fourth quarter of this year. We expect continued strength in utilization rates in 2019 supported by our proactive maintenance and reliability programs. As we mentioned earlier from a CAPEX perspective, we're expecting a $140 million to $150 million for the full year, including the execution of high return growth and cost savings projects, and an increase in maintenance spending due to the scope and timing of planned plant turnarounds, as we discussed, and we continue to expect our effective tax rate to be approximately 25% in 2019 with our cash tax rate of roughly 15%, reflecting full expensing of CAPEX from a tax perspective. Lastly, as we think about the quarterly linearity for our earnings throughout 2019, we do anticipate underlying results, excluding the planned turnaround impacts, to be stronger in the second half of the year compared to the first half.

That includes initial benefits from a high-return capital investments toward the back half of the year, and a continued improvements in underlying operational performance. Within the first half, we expect our ammonium sulfate results to be seasonally stronger in the second quarter compared to the first, given the timing of domestic fertilizer application. So overall, we'll continue to monitor developments in our markets while driving strong operational performance and redeploying capital to create long-term shareholder value.Now, with that, Adam, let's move to Q&A.

Adam Kressel -- Director of Investor Relations

Thanks, Mike. And, Allen, you can open the line for questions. 

Questions and Answers:

Operator

Thank you, sir. [Operator instructions] well first go to Chris Moore with CJS Securities.

Chris Moore -- CJS Securities -- Analyst

Hey. Good morning, guys. Thanks for taking some questions.

Erin Kane -- President and Chief Executive Officer

Sure. Good morning, Chris.

Mike Preston -- Senior Vice President and Chief Financial Officer

Good morning.

Chris Moore -- CJS Securities -- Analyst

Good morning. Start with just on the nylon, you talked about the macro uncertainty relating to end markets like auto and building construction. Is that something that you're starting to feel now or more of a reference to kind of certain macro indicators that you're tracking?

Erin Kane -- President and Chief Executive Officer

Great question, Chris. And I would articulate and maybe clarify, it would be the latter. We're certainly seeing, as I would say, signs relative the macro trends a few data points that we've been watching. Certainly China auto sales as you looked at 2018 over 2017 fell 3%.

I mean, certainly been highlighted that's the first decline in 20 years, followed by the China Association of Automobile automobile manufacturing releasing basically our forecast for 2019 with no growth, right, on weak market sentiments. In Europe, we've seen certainly Ford have challenges and -- from that perspective and here in the U.S., we're seeing dealer inventories had -- they've rhythm with the projected sales to far below 70 million vehicles, and that's kind of for the first time since 2014. So those are just more, I think, mileposts out there that our general sentiment that we have to watch for relative to potential for destocking through the value chain.

Chris Moore -- CJS Securities -- Analyst

Got it. That's helpful.

Erin Kane -- President and Chief Executive Officer

And in housing construction, I think it's the same, right. We've had some challenges relative to weather. Certainly we see a deceleration potentially in housing starts and then the non-residential construction spending had been revised down as well with growth slowing. So it's just -- it's a watch out for us certainly as we enter into 2019, which is I think -- I would anticipate should be commensurate with what others are saying just relative to the macro view.

Mike Preston -- Senior Vice President and Chief Financial Officer

Yes. And, Chris, what I'll say is given our cost position though, we're going to expect to continue to run at high utilization rates at our sites. And it's just the question of how we place the product where, what region, what application, and we'll continue to drive the best outcome for the business.

Chris Moore -- CJS Securities -- Analyst

Got it. Thank you. Maybe on the acetone side. I know Q4, you talked about that kind of 4% unfavorable impact on that raw material pass through.

So, I'm just trying to understand kind of looking forward the and the the balance between kind of the input costs and the acetone. I know there's a 30- to 60-day lag you had talked about. Is acetone pricing weak? Is it still declining and is it -- that kind of 4% unfavorable impact, is that something that's -- that will likely continue to see or will it normalize as we head into '19? Just kind of understanding [Inaudible] going to be leading the way.

Mike Preston -- Senior Vice President and Chief Financial Officer

Yes, I mean, overall, Chris, I'd say our outlook really hasn't changed on that front. What we saw in the fourth quarter is continued oversupply of acetone globally, high inventories as well as some of the downstream demand for acetone in terms of the MMA plants being offline. So we're continuing to see discounting off of some of the industry benchmarks and, therefore, we expect the oversupply to continue and margins can -- continuing being challenged going forward. So really not a whole lot of change there.

Chris Moore -- CJS Securities -- Analyst

Got it. OK. And last one for me, just on the --

Erin Kane -- President and Chief Executive Officer

And 4% -- maybe just to clarify, the 4% is overall in total, right. So that will be inclusive of really the benzene and the [Inaudible], all the raw material pass-through, associated with the formula, which again is about 50% of our sales that heavily -- more heavily weighted to nylon and intermediates for about two thirds of the sales there would have that impact.

Chris Moore -- CJS Securities -- Analyst

Got it. And just in terms of kind of your sulfate -- ammonium sulfate view. I know that we're heading into kind of seasonally stronger pricing. Has your overall view of the industry changed much over the last three to six months?

Erin Kane -- President and Chief Executive Officer

No, think our sentiment is that we're still anticipating a strong spring. I mean, certainly in general, right now the last couple months, you tend to be in a lull between seasons at this time and with not much demand. So there's been a fair amount of nitrogen that wasn't applied in the fall. So inventories are collectively kind of fall through the distribution chain and all are sort of waiting for the start of spring.

But certainly with the lack of the fall application, we do expect solid demand once the season begins. Sulfur is a growing nutrient as well, so there's positive demand from that perspective and acres should be up as well. I mean, both for corn and wheat. Corn should be in that 92 million to 93 million type acres, which is up over the last season of around 89 million.

So again all signs continue to point to a stronger spring, as we had anticipated.

Chris Moore -- CJS Securities -- Analyst

Got it. Got it. Appreciate it. Thanks, guys.

Erin Kane -- President and Chief Executive Officer

Sure.

Operator

Next will go to Charles Neivert with Cowen.

Charles Neivert -- Cowen and Company -- Analyst

Good morning, guys. Couple of things.

Erin Kane -- President and Chief Executive Officer

Hey, Charles.

Charles Neivert -- Cowen and Company -- Analyst

When I'm looking at the CAPEX number, sort of that '19, '20 combined -- I mean, realizing that because it's just timing thing, you get one or the other. But is the thing is the work being done in '20, if it were sort of all contained in '20, is that -- would that be a larger-than-normal year? I mean, is this sort of like a "big turnaround" or is this something that sort of the normal turnaround then it's simply a timing issue? Or is this something that's sort of more major and then more extensive type of turnaround that's a little bit more costly?

Mike Preston -- Senior Vice President and Chief Financial Officer

No, no, no. Yes, it's just more of the timing issue related to the fact that the proximity of the turnaround in 2020 is early in the spring and it's very close to the fourth-quarter turnaround this year, resulting more of the CAPEX outflow occurring for the 2020 turnaround in 2019. And that's why there's no a significant change in the scope of that turnaround. It's more of the timing issue.

Charles Neivert -- Cowen and Company -- Analyst

OK. I mean, is there a time when we should look -- any time whether it was -- especially going forward, is there a really a larger scale turnaround in the future that we should sort of be aware of -- it might come -- it might be '21. I mean, it doesn't matter what year. I'm just trying to figure that there is sort of the normal scope of turnaround.

And then typically there are bigger ones for certain types of units that come less frequently. Is there anything in that going going forward we should be looking?

Mike Preston -- Senior Vice President and Chief Financial Officer

So, really, yes, I think the way you want to think about -- yes, the larger-scale turnarounds is really at our Hopewell site and they relate to either the ammonia plant or the sulfuric acid plant. And we typically rotate those every other year, right. So those are the ones that would be associated with the larger impacts we'll see on a quarterly basis but those are unchanged. I mean, those have been large-scope turnarounds in the past, and we don't expect any change in that going forward.

Erin Kane -- President and Chief Executive Officer

And as we spoke about last time, I mean, we have a tremendous amount of focus, as you can imagine, on turnaround excellence both on derisking them, focusing on using techniques to drive down wrench time as well as mitigating the raw material purchases that we have during those times, where we would otherwise have made our own raw materials. So again, I think the view here is just a matter of the timing. But going forward, we continue to have this as the key focus of the organization, recognizing that they are annual events that are critical to the sustainability of the business.

Charles Neivert -- Cowen and Company -- Analyst

Got it. On ammonium sulphate as you go into the sales going forward for the next few months. They're now largely U.S. sales, whereas sales toward the tail end of the year and such a move to Latin America.

Are these better -- if the pricing was the same, is this generally considered going to be a better net back period and for the U.S., meaning same price but better margin or similar margins?

Erin Kane -- President and Chief Executive Officer

Yes, I think [Inaudible]

Charles Neivert -- Cowen and Company -- Analyst

Forgetting the price issue.

Erin Kane -- President and Chief Executive Officer

Yes -- with you for sure. Certainly in second quarter will be better than first quarter but when you think about -- we spoke last time I think in last quarter, certainly on the seasonality associated with the mix of being domestic versus export, volume does, as you point, tend to be rather flat across the board but certainly in Q2 we have higher granular oriented sales domestically here, which is at a premium from, to your point, and from the net back perspective, whereas the back half of the sales tend to be export in standard.

Charles Neivert -- Cowen and Company -- Analyst

Got it. Last, you mentioned something about getting the investigation around the EPA. So can you go through that again for me, please? I mean, what's been taken off the board, what's still to come or what's left to be dealt with. Obviously, it was a big step to sort of say no more action but I just need to know sort of what's out there still and what's finished.

Erin Kane -- President and Chief Executive Officer

Yes -- no, no, understood. And certainly from the start of the investigation, there were a number of federal and state agencies involved relative to the underlying investigation. What has occurred here recently was that we were notified by the US Attorney's Office for the Eastern District of Virginia that they have concluded their portion of the investigation with no further action required by us. So that's a positive development.

However, we do have ongoing dialogue in cooperation -- on a narrowed interim with the EPA and the DOJ Criminal division. So again over the last several months narrowing a scope, narrowing a view and certainly the exit by the US Attorney's Office.

Charles Neivert -- Cowen and Company -- Analyst

Got it. OK. So one down, two more to go, I guess, is one way to look at it. All right.

I think that's it for me this morning. Thank you.

Erin Kane -- President and Chief Executive Officer

All right. Thank you, Charles.

Mike Preston -- Senior Vice President and Chief Financial Officer

Thanks, Charlie.

Operator

And next will go to Vincent Anderson with Stifel.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

Hello.

Erin Kane -- President and Chief Executive Officer

Hey, Vincent. Good morning.

Mike Preston -- Senior Vice President and Chief Financial Officer

Hey, Vincent. How are you?

Vincent Anderson -- Stifel Financial Corp. -- Analyst

Good morning. Thanks. So I just want to get a feel for the cadence heading into next year. With the decline in raw materials that we've seen over the last few months and the lag effect on the pass-through portion of your business, if we hold everything else equal, which is tough to do, should we expect margins to improve sequentially into the first half of next year on your spread products?

Mike Preston -- Senior Vice President and Chief Financial Officer

Yes, so just to reiterate a couple of points here. As you may already be aware, 50% of our business is on formula-based contracts. But when you take out ammonium sulphate, which is all all spot business, a disproportionate amount of nylon, capital [Inaudible], and intermediates is on formula pass-throughs. It's about two thirds, and many of that -- many of the pass-through elements of those contracts are pretty real time.

And that leaves about a third of nylon and intermediates to be subject to more of the spot movements and lags, which we may see. What I will say is when you look down on the chemical and intermediate side, the -- as we discussed earlier, the acetone oversupply is continuing and that's resulting in some discounting relative to some of those markers. And some of that being driven by also soft demand from MMA plants, which are offline in the fourth quarter. So we don't expect there to be much of a benefit there going forward due to that and we expect the price raw spreads to be challenged on a continuous basis.

The other portion that I will point out is when you look at for the portion that is spot business in the nylon business set, is exported. There is a bit of a squeeze in terms of resin spreads going forward as well globally. So that did further pressure margins there as well. So we don't expect there to be a significant uptick or benefit relative to price raws as we go into the first quarter.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

All right. That's very helpful. Thank you. I might have missed this in your earlier comments but the 2019 growth and efficiency CAPEX, is that all related to your prior announced projects? Or if there are new projects, could you provide some additional detail on those?

Mike Preston -- Senior Vice President and Chief Financial Officer

Yes, so when you look at the growth and cost savings projects, the two projects that we had talked about, the large ones that Hopewell and total were in the sort of $50 million to $60 million range. Half of the spend in 2018, half in 2019. And the new project that we had discussed is the R&D lab of $15 million dollars, which will be incremental in 2019, so that's kind of the new one. And then we continue to evaluate accelerating other opportunities in the pipeline that we talked about $150 million to 200 million pipeline that we've identified of some really interesting and nice return projects that we'll continue continue to evaluate going forward.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

OK. So that 2020 preliminary estimate could move up if you accelerate some of those other growth projects?

Mike Preston -- Senior Vice President and Chief Financial Officer

Yes, we have some scoping engineering work, business case development, too, to further vet some of those projects. But for now, as we said, we expect in 2020 to revert back to 2018 and aggregate, pending further evaluation of those growth projects.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

OK. Excellent. And then one more, so we've seen Chinese capital [Inaudible] prices come down with benzene b ut I haven't personally seen much in the way of relief on cycle hexane availability. Is that also your view? And if cycle is still tight, would the better interpretation of this decline in capital prices really be that it's a headwind to Chinese profitability because they're pricing off of benzene but can't get the [Inaudible]?

Erin Kane -- President and Chief Executive Officer

Yes, I mean, certainly raw material feedstocks whether it's cycle hexane, cycle [Inaudible], even to some case phenol pricing went up drastically as well through 2018, all of which would be impacting availability to the Chinese producers as our feed plates have grown with the latest investments. So while we have seen the compression -- I think what's happening is certainly that marginal producer economic view still holds. I think it's moving around a bit. It could be plus or minus $50 to $100.

But the availability certainly of feedstocks has constrained production in addition to the environmental constraints that we saw through the last several quarters as well. So I think it's one that we'll have to continue to watch. There's a small number of plants slated to come back on. So again, I think we we still view that region in the world to be very dynamic relative to their ability to perform and be profitable.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

Great. Thanks. Actually, if I could sneak one more in could you remind us the status of your nylon co-polymer and when you hope to be in the market with that?

Erin Kane -- President and Chief Executive Officer

Yes, so certainly both products have been launched. And just as a reminder, we have a high viscosity packaging co-polymer that really is being launched to drive value for profitability at film [Inaudible] and driving counter resistance and clarity for end users. And we have had our first sales in the fourth quarter of that product. So we continue to drive the customer qualifications and growth.

So that was a real positive for us as we ended the year. And then likewise we have the enduring plastics version, which again as we've talked about, has a value of improved surface finish, lower [Inaudible], and higher impact for reinforced parts. And again, that product came into the market mid-year but again it's out being tested again typically in these -- and that's based because we're looking at automotive and other types of parts have longer qualification periods. But both are out there now commercially and it's really now around how do we promote market and ramp those up.

Vincent Anderson -- Stifel Financial Corp. -- Analyst

Great. Thank you.

Operator

All right. [Operator instructions] We'll take our next question from Bill Dezellem with Tieton Capital.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you. I have a couple of different questions. First of all, just for clarification on some of your earlier comments, did you reference building an inorganic pipeline and capabilities, meaning an acquisition pipeline and capabilities?

Erin Kane -- President and Chief Executive Officer

Yes. As we have talked about in previous quarters, certainly as we continue to mature our capital allocation priorities and our long-term growth vectors for the business, we do believe that we have a foundation of which we can build upon inside this organization and that certainly, as we've talked about, are we are prioritizing organic investments through the form of high-return, growth in cost savings projects. But as we as we look to really assess the potential for our -- for long-term growth, there are opportunities across the landscape of each of our product lines, where we believe over -- longer range, we can broaden our customer base, enhance our technology, and product offering portfolios, and look to, ultimately as well, improve our financial profile and free cash flow and margin stability. So again, that's consistent, we believe, with our comments previously and something that is in the works.

Bill Dezellem -- Tieton Capital -- Analyst

Great. Thank you, Erin. And then apologies for this next basic question, but would you please discuss the steps between now and the preliminary ruling relative to the anti-dumping suit? And what then happens with that preliminary ruling if there is a finding that there was some form of dumping taking place?

Erin Kane -- President and Chief Executive Officer

Just give me second so we can actually pull up the timeline because, as we said, the investigation process will be completed over the next 12 to 14 months. Right now we're at the phase where it was [Inaudible] all this week the case. The next step really is for that case to be accepted, which then once accepted will be a series of actions and steps associated with questionnaires and responses as well as hearings and briefs that work their way through the ITC. And ultimately from a timing perspective, the earliest you could see a preliminary determination would be late summer in the late July time frame.

It could be extended up to September and then that is a preliminary determination of which then optimally because there is a view here of whether there is material injury to the industry. And then ultimately this will conclude in roughly a year from now. So again, every case is a little different. There -- sorry.

Bill Dezellem -- Tieton Capital -- Analyst

After you, please.

Erin Kane -- President and Chief Executive Officer

No, no, please. I'm sorry. Let's start with the timeline. That's how far I can reiterate.

Bill Dezellem -- Tieton Capital -- Analyst

So one of the perceptions that we have had with these type of cases is that once the preliminary ruling is made, if there are -- if it is concluded that some form of dumping did take place, let's just pick a number, if it was a 20% discount, that that number begins to be collected at that time. And and so it's almost, even though the investigation is not complete, it's -- the industry begins to behave as though it was complete. And then if -- when the findings are finalized, those collections then are adjusted. Is that how you perceive this taking place or am I not remembering this process correctly?

Erin Kane -- President and Chief Executive Officer

No, you are you are correct. Relative to the process, once a preliminary determination is made or should a preliminary determination be made, on in which case the timing on this case would be into the fall, somewhere between the end of July and mid-September, those preliminary duties do become active. And then it gets carried forward optimally to a final determination several months later.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you. And then I think earlier I cut you off with something else you were going to add that it was not going to be helpful in understanding this process.

Erin Kane -- President and Chief Executive Officer

Oh, no. Just from the standpoint that each one takes on -- they're unique relative to each case is different and certainly that I was just going to comment that while there's no assurance of a particular outcome in this case, we do feel that it was important and a positive first step in a process for us and the others, who joined in the petition to restore fair competition, right, ultimately reflects our commitment to the acetone industry.

Bill Dezellem -- Tieton Capital -- Analyst

And then finally, I recognize it's very early for this question but have you seen any change in behavior in the marketplace as a result of this?

Erin Kane -- President and Chief Executive Officer

It's only been about 24, 48 hours and certainly everyone is just understanding the process, the next steps, and -- from that perspective but I appreciate the question.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you, Erin

Erin Kane -- President and Chief Executive Officer

You bet.

Mike Preston -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

All right. And it looks like we have no further questions at this time. So I'd like to turn the call back over to Ms. Erin Cain for any additional or closing remarks.

Erin Kane -- President and Chief Executive Officer

Very good. Thanks, Allen, and thank you all again for your time and interest this morning. We remain focused on successfully executing against our strategies concentrated on operational, commercial, and functional excellence, higher value product mix and smart, disciplined, capital deployment. We are excited by the opportunities ahead of us and we remain confident in our ability to drive value creation for our shareholders over the long term.

We'll look forward to speaking with you all again next quarter. Have a great day.

Operator

[Operator signoff]

Duration: 48 minutes

Call Participants:

Adam Kressel -- Director of Investor Relations

Erin Kane -- President and Chief Executive Officer

Mike Preston -- Senior Vice President and Chief Financial Officer

Erin Kane -- President and Chief Executive Officer

Mike Preston -- Senior Vice President and Chief Financial Officer

Chris Moore -- CJS Securities -- Analyst

Chris Moore -- CJS Securities -- Analyst

Charles Neivert -- Cowen and Company -- Analyst

Charles Neivert -- Cowen and Company -- Analyst

Vincent Anderson -- Stifel Financial Corp. -- Analyst

Bill Dezellem -- Tieton Capital -- Analyst

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