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Schweitzer-Mauduit International Inc (MATV 1.91%)
Q4Â 2018 Earnings Conference Call
Feb. 22, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Welcome to SWM's Fourth Quarter and Year End 2018 Earnings Conference Call. Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer. He is joined by Andrew Wamser, Chief Financial Officer; and Mark Chekanow, Director of Investor Relations. Today's call is being recorded, and will be available for a replay later this afternoon. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions, following the presentation. (Operator Instructions) It is now my pleasure to turn the floor over to Mr. Chekanow.
Sir, you may begin.
Mark Chekanow -- Director of Investor Relations
Thank you Victor. Good morning, I am Mark Chekanow, Director of Investor Relations at SWM, and thank you for joining us to discuss SWM's fourth quarter and year end 2018 earnings results. Before we begin, I'd like to remind you that the comments included in today's conference call include forward-looking statements.
Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings, including our quarterly reports on Form 10-Q and our Annual Report on Form 10-K. Some financial measures discussed during this call are non-GAAP financial measures. Reconciliations of these measures to the closest GAAP measures are included in the appendix of this presentation and the earnings release. Unless stated otherwise, financial and operational metric comparisons are to the prior year period and relate to continuing operations.
This presentation and the earnings release are available on the Investor Relations section of our website www.swmintl.com.
I'll now turn the call over to Jeff.
Jeff Kramer -- Chief Executive Officer
Thank you Mark, and good morning everyone. Yesterday, we reported fourth quarter and full year 2018 results with a full year adjusted EPS of $3.48, exceeding the guided range we provided last February. We'll cover the details shortly, but simply put, while 2018 presented substantial cost headwinds, a variety of actions drove solid earnings and free cash flow of nearly $110 million.
We finished the year strong with fourth quarter adjusted EPS of $0.90 benefiting from good performance within both businesses, as well as a lower tax rate than we had anticipated. The business fundamentals are healthy, exiting the year. Within AMS, we delivered accelerated organic sales growth in 2018 and completed several key strategic growth and optimization projects.
And within EP, we have improved our sales mix and continue to drive efficiencies. Now, shifting to our operating segments. AMS achieved 9% organic sales growth in the fourth quarter. Transportation films, driven by robust demand for paint protection products delivered rapid growth, while filtration momentum continued, led by nearly 20% growth in our RO water business.
AMS segment adjusted operating margin expanded during the fourth quarter, reversing the margin pressure trend we had experienced throughout the year. While higher sales were part of that equation, we also completed our Austin site closure project during the fourth quarter, reducing our fixed costs. Of note, some of these savings were temporarily offset by expected inefficiencies, as the final volumes from that plant will transition to other sites. We also saw less pressure from higher polypropylene resin costs in the fourth quarter compared to the prior year.
Though, we caveat, it is still early in the year, resin pricing appears to be moderating and could be favorable versus 2018 average levels of recent polypropylene pricing holds. Taking our fourth quarter results in the context of the full year, we were pleased with 6% organic growth in AMS with solid gains across several of our end markets, and we believe we are set up for improved results in 2019, after a choppy year for margins.
Importantly, the return of the replenishment cycle for our water filtration products was a positive theme throughout 2018 and we see continued healthy long-term demand, supported by the need for better quality drinking water across the world. We also see continued strong growth for transportation films as consumer awareness is increasing, particularly in Asia, where we have been successful in tapping into expanded distribution channels.
We also made good progress on several strategic initiatives during the year. In addition to the Austin site closure, which was a major undertaking for optimizing our operations, we also expanded into a new greenfield facility in China, which will serve as our backbone for growth in Asia. This expanded and enhanced state of the art facility was designed to accommodate growth across our key product lines, and end markets. Furthermore, we completed our first international film line in Europe, leveraging the unique capabilities of an existing site to provide additional capacity for our rapidly expanding transportation films business.
And lastly, we completed initial customer qualifications for our new specialty filtration paper and exciting opportunity that leverages our paper engineering capabilities within EP, and our deep AMS commercial relationships in the filtration end market. Moving to engineered paper, fourth quarter sales increased 3%. Another quarter of positive price mix performance provided an 8% lift, more than offsetting a 4% volume decline.
Our sales mix was strong during the quarter with several factors driving our performance. First, LIP volume was up, as well as most of our cigarette papers portfolio, and battery separator paper was another strong performer. Second, we continued to de-emphasize certain high volume, but low margin non-tobacco products such as printing and writing papers, replacing a portion of those lower margin products with more attractive papers, including tipping papers and non-tobacco products such as greaseproof paper for food service packaging.
EP segment adjusted operating margin, though, remain pressured during the fourth quarter due to higher cost for wood pulp, which was up more than 25% and other input costs such as energy as our wood pulp price escalators were not yet effective. For the full year, we delivered 4% segment sales growth with the key takeaway being positive price mix performance, more than offsetting lower volume. We continue to focus on our mix, gaining share in attractive categories and de-emphasizing lower margin volumes.
As referenced, raw materials were a significant headwind for margins, with release expected in 2019, through price escalators. At this time, though, there is limited visibility on wood pulp prices heading materially lower in the coming year. Regarding our 2018 strategic priorities, we believe we have gained some share in LAP and other cigarette papers, and while inflationary pressure masked some of the cost improvements we have made within our operations, we continued our focus on efficiency, as a way to help offset tobacco industry pressures.
Lastly, our heat-not-burn volumes increased versus 2017, as we continue to partner with several firms. However, as we have said, the roll out of new products by our customers will remain lumpy. Recently, consumer adoption rates have moderated, while our customers introduced next-generation products. We continue to provide valuable support in this innovative product category and consider ourselves well positioned when sales growth accelerates again.
I will now turn the call over to Andy.
Andrew Wamser -- Chief Financial Officer
Thank you Jeff. I'll now review our financial results. In the fourth quarter, AMS net sales increased 9% to $108 million with no acquisition benefit, as our transportation and filtration businesses posted solid gains. Adjusted operating profit grew 16%, as margin expanded 90 basis points. Sales growth, more than offset moderating pressures from the Austin closure project and higher resin costs. Market prices for resin were up, more than 5% during the quarter, compared to last year, though that marks a notable easing of the year-over-year pressure, we saw earlier in 2018.
For the year, AMS sales grew 8% or 6% when excluding the benefit of the Conwed acquisition. Our diversified revenue base in AMS continues to provide strong organic growth.
Filtration and transportation were the key drivers, with our medical business also delivering solid full year results. Infrastructure, construction and industrial sales were generally flat for the year. Segment, adjusted operating profit declined 5% as margin contracted 220 basis points for the full year, again reflecting the anticipated Austin closure expenses and higher polypropylene costs, which were up more than 20% compared to 2017.
We expect operating profit in AMS to experience strong growth in 2019, and Jeff will expand more on our outlook shortly. For EP, fourth quarter sales grew 3%, with price mix providing an 8% benefit, which more than offset a 4% decline in volume. As Jeff detailed, the positive mix shift was due to a combination of factors, including good LIP volumes, and a more profitable mix of non-tobacco papers.
Unfortunately, the contractual lag on price increases overshadowed other positive aspects of our EP performance, as adjusted operating profit was down 12% in the fourth quarter with margin contracting 330 basis points. Wood pulp costs were up more than 25%, on average, during the fourth quarter and accounted for 190 basis points of margin contraction.
For the full year, EP sales increased 4%, with similar trends of a 5% positive impact from price and mix, offsetting a 3% decline in volume. Currency provided a 3% benefit, to the full year top line results as well. Adjusted operating profit was down 2% with margin contraction of 150 basis points, as wood pulp prices were the primary source of pressure. We know wood pulp price indices were up more than 30% compared to full year 2017.
Unallocated expenses declined 24% in the fourth quarter, essentially driving the 9% full year decrease. One particular item that skewed this year-over-year results was stock market volatility. As a result, our fourth quarter stock market declined, which pressured many other companies in our sector and also SWM's share price, our deferred compensation expense was reduced. This was not business related, and absent further volatility would expect this benefit to reverse in 2019.
This singular item accounted for benefit of approximately $2 million, in the fourth quarter. From a consolidated view, sales were up approximately 6% for the quarter and for the full year as well. Adjusted operating profit was up 6% in the fourth quarter, with flat margins, and for the full year was down 2% with 130 basis points of margin contraction. Adjusted EBITDA was $42 million in the fourth quarter, up 3% and was $197 million for the full year, essentially flat with 2017.
All told, given the significant headwinds on raw materials, which were approximately $20 million in wood pulp and resin alone, we were pleased with our EBITDA performance. Shifting to consolidated earnings, fourth quarter 2018 GAAP EPS was $0.23 compared to an $0.89 per share loss in the fourth quarter of 2017. In the fourth quarter of 2018, we recorded a $0.50 per share non-cash impairment to one of our Chinese joint ventures. This (inaudible) based business in China, a 50-50 partnership with the governing body of the Chinese tobacco industry delivered a modest profit in 2018.
However, its multi-year results have lagged the original business case, due to unique characteristics of the closed Chinese market. This staged investment was made between 2011 and 2014, and that's been impacted by increasing overcapacity of RTL, as multiple of regional players have built excess production capabilities for internal China demand. We have shared our concerns about the long-term market dynamics and the Chinese recon market, periodically on our earnings call. And while we expect the venture to contribute modestly to earnings, the tempered outlook, now warrants the accounting impairment.
Please note, this Chinese joint venture is unrelated to our more global recon business, within the EP segment. Regarding the fourth quarter 2017 GAAP loss, recall, we incurred a non-cash charge of $1.29 per share, primarily related to the changes in the US tax laws enacted in late 2017.
For the full year 2018, GAAP EPS was $3.07, up from $1.12 in 2017. In addition to the joint venture impairment, 2018 GAAP results were affected by two positive items, a $0.25 gain from a contingent liability revaluation and a $0.43 gain related to tax adjustments, driven, mainly by tax law changes in the US. Full year 2017 GAAP EPS, reflected the large fourth quarter tax charge as well as the $0.21 of restructuring expenses.
While, we want to be clear regarding our GAAP results in the items they reflect, when adjusting for these one-time items, as well as our typical purchase accounting adjustments, adjusted EPS may provide a more meaning -- a more helpful view of our year-over-year earnings comparisons. We encourage you to review our non-GAAP reconciliation to see the detailed review of our non-GAAP adjustments.
For the fourth quarter of 2018, adjusted EPS was $0.90, up from $0.64 in the fourth quarter of 2017 and full year adjusted EPS of $3.48 was up 9% versus 2017. We are pleased by the strong growth in performance, which is a result of a number of items. First, our tax rate (inaudible) 2018 lower than we had originally expected. Recall, we originally projected a several hundred basis point decline from a 30% normalized rate in 2017. When adjusting for unusual items, the full year, 2018 tax rate finished at approximately 21% after tracking at approximately 24% through the first three quarters of the year.
In addition, despite the previous discussion, our Chinese joint ventures delivered, higher fourth quarter profits versus the prior year period, though that performance did not falter our impairment test.
Outside of the tax rate benefit and strong joint venture finish, two other factors drove strong EPS performance. First, the fourth quarter and full year benefit by approximately $0.05 each, from the lower, deferred compensation expense which I referenced earlier. Second, an adjustment to the tax treatment of our purchase accounting expense add backs when calculating adjusted EPS, benefited the fourth quarter and the full year adjusted EPS by approximately $0.05 each. These factors combined for a $0.10 benefit to our fourth quarter and full year results that were not directly business related.
All told, excluding these two non-business items, our fourth quarter adjusted EPS would have been $0.80 and our full year would have been $3.38, in the middle of our originally guided range of $3.30 to $3.45. 2018 free cash flow was $109 million, up from $90 million in 2017, due in part to lower capital spending. CapEx was approximately $30 million for the year, down about $11 million, due mainly to timing of capital projects with some spending pushed into 2019.
From a leverage perspective, for the terms of our credit facility, we were at 2.5 times, net debt-to-adjusted EBITDA at the end of the fourth quarter, down from 3.0 times at year end, 2017. And we would expect that leverage will trend lower in 2019 as a function of free cash flow generation.
Now back to Jeff.
Jeff Kramer -- Chief Executive Officer
Moving on to our 2019 outlook, we are guiding to an adjusted EPS range of $3.40 to $3.60. We anticipate sales, adjusted operating profit and EBITDA to all increase slightly higher than adjusted EPS, due to higher projected interest rate expense from our bond financing, and a slightly higher tax rate than the 21% normalized from 2018.
We also expect free cash flow to again exceed $100 million with CapEx expected to be between $35 million and $40 million. For modeling purposes, we would suggest using approximately 5% as an average interest rate on our total debt.
Our range reflects strong profit growth in AMS, modest pressure in EP and several million dollars of increased IT spending, in support of our ongoing growth expectations, which we know will be classified primarily within our unallocated expense bucket. Generally speaking, inflationary pressures continue and while we see some early signs of relief in polypropylene, wood pulp remains elevated as do freight costs. More specifically, in AMS, we expect continued sales momentum and improved margins, as a result of pricing actions, potentially moderating resin costs and benefits from the Austin closure.
We plan to reinvest in the business as well, deploying some of those savings into additional marketing, commercial development and product innovation initiatives. We will also be strategically adding global capacity to support our growing transportation and filtration businesses, and pushing to ramp-up sales of our new filtration paper products. Within EP, we expect to come back industry attrition through a variety of means, including further positive shifts in our sales mix, with potential share gains in LIP and other attractive product categories.
Of course, we will continue our companywide focus on innovation and operational excellence to drive value to support long-term top and bottom line performance. In closing, I just want to reiterate some key themes regarding our business fundamental. 2018 overall results were encouraging, with good performance from EP, organic growth in AMS, investments in new capacity and innovation projects around the world, solid free cash flow and stable EBITDA, despite inflationary pressures exceeding $25 million.
Our diversified portfolio in AMS has healthy underlying demand and with a potentially less volatile cost environment, in terms of raw materials, and with our Austin project behind us, we believe we are set up for a solid 2019 growth. EP continues to perform admirably, against the challenging industry backdrop, as evidenced by only modest decrease in adjusted operating profit, despite a $13 million headwind from wood pulp prices.
From a longer-term perspective, we've made great strides in transforming the business with AMS having enough scale to balance out the inherent industry pressures of the EP segment.
As we push to further grow the company, through both organic initiatives and potential M&A, we have ample liquidity to pursue our growth ambitions and further rebalance our portfolio toward growth businesses. We appreciate your continued interest and support. That concludes our remarks and Victor, please open the lines for questions.
Questions and Answers:
Operator
(Operator Instructions) Our first question comes the line of Dan Jacome from Sidoti. You may begin.
Dan Jacome -- Sidoti -- Analyst
Hi, good morning. I'll start with the EP segment first, I think you noted some share gains in LIP. Can you elaborate a little bit on that, how much, if possible, was an exiting player (ph) or how much was just an industry mix change from one producer to another?
Jeff Kramer -- Chief Executive Officer
I think it's a combination of factors. I think Dan, as we always talk about, we believe we're the leading supplier of LIP, and because of that, I think our customers really value our participation in their supply chains. And so, I think we gained some share, just because of performance in our capacity capabilities. I think also, there was an exit of a smaller player that has been participating in the marketplace, and I believe we achieved some share gain from that as well, but it's really a combination of both, it's not a single item.
Dan Jacome -- Sidoti -- Analyst
Okay, great that's helpful. And then to AMS, it looks like the water filtration side is getting a little bit more robust finally. Can you elaborate on that and what do you expect in the next year or two? Should we expect a more smoother, linear up cycle or to realistically maybe some fits and starts here and there, but other than that, more bullish?
Jeff Kramer -- Chief Executive Officer
Yes Dan. This is always that question, I would love to have a nice linear play in all marketplaces if I could. And if you could indicate, how I could get to that I'd appreciate it. But, yes, we are seeing very positive trends in reverse osmosis. We told you earlier that there's two main drivers, one is a little bit lumpier when they bring on a brand new plant, a new capacity and one is the replenishment cycle. Some new capacity has certainly been coming on, but a lot of this benefit has been that delayed replenishment cycle that we've been seeing over many years.
When we talk to our customers, it had been something that they've been able to extend with low energy prices, but after a period of time that just needs to come back to roost, and so we think that trend should continue, relatively smoothly over the coming year and hopefully for several years to come.
Dan Jacome -- Sidoti -- Analyst
Okay, terrific. And then last question, kind of two questions, buried into one. So the Europe, the new film capacity, how much is that going to cost, generally speaking, and then I think on Asia, you may have said on the consumer film side -- expansion of your distribution channels, any color, if possible on either of those or both would be fantastic.
Jeff Kramer -- Chief Executive Officer
Yes, sure. So, we don't usually announce how much it costs us to install a line, but this capacity was reasonable for us, for two reasons, one, we're able to take advantage of a site that already had capable individuals and capacity on. So, we're able to slot align, right into that, and so it was a very reasonable investment for us and we've already gotten qualifications for it, so we're excited about it. Again, each one of our lines, while still significant investments are not like $50 million investment that you need to put into a greenfield site. I mean, we could easily move lines into sites for very reasonable capital investment.
Moving through distribution channel, so two things that are happening. So, we continue to focus on Asia for all our product lines. We indicated, we've built that new plant in Suzhou. We've built that with capabilities for expansion, and for multiple product lines and so that's great. But, as we've expanded our manufacturing presence, we've also become -- and raised our profile in Asia with our customers and there are a number of customers throughout Asia, both in China, but also Korea and Japan, et cetera that are really starting to look to us as a quality film supplier for surface protection films. And so, we're hoping that, that trend continues as the marketplace becomes more aware of transportation films.
And I think we've mentioned before, we think it's a mega trend as rising middle class, investing in automobiles and for infrastructure, they're looking for ways to protect and this kind of film worked really well, and so we're very positive in that.
Dan Jacome -- Sidoti -- Analyst
That's terrific. I'll get back in to queue.
Jeff Kramer -- Chief Executive Officer
Okay. Thank you Dan.
Operator
Thank you. (Operator Instructions) Our next question comes from the line of Kurt Yinger from D.A. Davidson. You may begin.
Kurt Yinger -- D.A. Davidson -- Analyst
Thanks, and good morning, Jeff, Andy and Mark.
Jeff Kramer -- Chief Executive Officer
Good morning.
Kurt Yinger -- D.A. Davidson -- Analyst
I was wondering, if you guys could start off with maybe talking about your medium to long-term margin expectations for the AMS business, and I know you guys don't guide to specific segments or anything on an annual basis, but a high level what might be the puts and takes versus that expectation and your own internal plans for 2019?
Andrew Wamser -- Chief Financial Officer
Sure. So, when we look at for 2019, we would expect the AMS business to have some margin expansion, I think you could pencil in anywhere in the order of magnitude of at least 50 basis points to 100 basis points. When you look at the contributing factors for that, it's really a couple fold. One is, we are seeing some of the benefits of resin prices today and that's if it holds where spot prices are today, but we don't predict forward curves.
The second impact would be, the closure of the Austin facility, which we talked about all of last year. The one though, I would mention though, at least as it relates to Austin is, if you recall, we moved -- from Austin, we moved several lines to four different facilities, and for those facilities, they are familiar with the products in each of the locations, but it will take them some time, to get the learning curve to be as efficient as it was for that team in Austin to run those lines. So, between those two factors, we would expect about anywhere between 1,500 basis points of margin expansion within AMS.
Kurt Yinger -- D.A. Davidson -- Analyst
Got it. Thanks Andy. And in the release, you touched on some trade uncertainty and the potential risk of slowing growth in Asia, yet it seems like transportation films, was again, a big growth driver and in the past, I think China has been a pretty big part of that. So, could you maybe talk about which products you may already be seeing pressures on, or what you think might be at risk going forward?
Jeff Kramer -- Chief Executive Officer
Yes. Kurt, that's more of a general commentary, I think, it would be wise for every company to be saying, we are not seeing the slowdown in growth in any of those regions now, but the -- just the sheer number of trade topics that are in development from Brexit to the trade tariffs, et cetera, we always feel it's just prudent to talk about it, because it could have an impact. We're not seeing it, we're hopeful that the government will be able to resolve all the issues. But, I think one of the key things that's also important is that we have capacity throughout the world. And so, we have global capacity in Asia, we have it in Europe, and we have it in the US, and so I think that'll insulate us from a lot of the activities as well. So, there's nothing specific where we're pointing to other than, we tend to be cautious about the global macro trends overall.
Kurt Yinger -- D.A. Davidson -- Analyst
Okay. Okay, that's good to hear. And switching over to EP, with some of your price escalators on the cigarette paper side tied to pulp, is there any way you could sort of quantify what kind of revenue tailwind that might be for 2019?
Jeff Kramer -- Chief Executive Officer
What I'd say to that is, we're projecting the EP business to be largely flat, maybe some declining -- marginal declining pressure there. You look at the impact of pulp, and the impact of the escalators, we'd say the first half of the year certainly could be a little bit more challenging, I think than the second half -- as you saw -- rise throughout all last year. There certainly will be an impact in elevated pulp costs, again for the first half year-over-year, but the pricing escalators that we have, we expect to be caught up. But, as a net benefit even by taking some additional share, we would expect it to be largely flat -- maybe slightly -- maybe a modest decline.
Kurt Yinger -- D.A. Davidson -- Analyst
Okay. And then, I know Dan touched on this a bit. But looking at the 8% price mix benefit, I understand that some LIP share gains probably benefited that figure, but were there any pure price increases that flowed in from either the US or Europe and is -- are those share gains that you benefited from, something that can be sustained going forward?
Andrew Wamser -- Chief Financial Officer
Sure. So, on some of the non-tobacco papers, we were able to increase price immediately until then, the other benefit we had in the fourth quarter to the back half of the year is that we saw less of sort of, I'd say lower margin filler paper that we would have, and then we were able to replace it with some of the more higher margin cigarette papers, so that was really what helped offset. What Jeff talked about, we did have $13 million of headwinds in raw material inputs and those are the key reasons why we were able to overcome that.
Jeff Kramer -- Chief Executive Officer
Yes. Kurt, and really, again, we do have good products in our non-tobacco, paper segment as well and we have some good mix effects from there. So, it's a combination of multiple factors, a little bit of price, a little bit of share gain in LIP, a little bit of good performance in our battery separator business, which is what we talked about and then a mix effect as we've been able to replace lower margin products with higher margin products. So, it was actually just a good solid quarter across a number of sub-segments within our EP business.
Kurt Yinger -- D.A. Davidson -- Analyst
Okay, makes sense. And then could you expand a bit on the specific applications for the filtration paper you've qualified? And any information you could provide, maybe on market size or a near-term opportunity set would also be really helpful.
Jeff Kramer -- Chief Executive Officer
Yeah. We're still a little cautious in how we're talking about it, because it's the brand new product from a competitive reason. It is in the filtration paper marketplace, and we hope to be able to give you more color as the year progresses. We just want to share about it, because it's something that we've talked about in the past, we made a major investment in capacity to be able to manufacture this in our EP side and we've reached some good qualifications -- initial qualifications and new customers. So, I think that's something you'll hear more about in the future, but I'm a little resistant at this particular phase.
Kurt Yinger -- D.A. Davidson -- Analyst
All right. Fair enough. And lastly, in your view, what are kind of the biggest needle moving items when we look at the 2019 guide that can maybe drive us toward the lower end versus the upper end? And what sort of things should we be monitoring on that front?
Jeff Kramer -- Chief Executive Officer
Yeah. I think, we all have to watch inflationary cost pressures, right. So, we talk about resin, we talk about pulp, we also have energy costs, we also have transportation costs, particularly in the US, as trucking is becoming cost. So, I think the inflationary cost question is always going to be important. I think we have a good outlook on it, but those things can move in anytime. So, I think those would be the biggest issue on a downside if they moved very rapidly in the direction we haven't predicted.
I think the upsides are really around the mix effects that we have, in both EP as well as in AMS and really that core organic growth that we've been promising on AMS at the higher margins, if we can deliver on that, I think that can give us some of the upsides that we have. I think we've giving you some good guidance around where we think we'll be and we'll be able to keep reporting every quarter around some of those key strategic initiatives to show you how we're progressing.
Kurt Yinger -- D.A. Davidson -- Analyst
All right, great, thanks, Jeff and good luck in the upcoming quarter guys.
Jeff Kramer -- Chief Executive Officer
Thank you.
Operator
Thank you. And our next question comes from the line of Dan Jacome from Sidoti. You may begin.
Dan Jacome -- Sidoti -- Analyst
Hi, just wanted more -- and more of a housekeeping question. So, you gave us a guidance on the CapEx, which it looks, if I'm not mistaken, a step up from this year to the tune of $11 million. So, assuming you were targeting a free cash flow number for 2019 that was in line with what you reported in 2018, you need about an $11 million swing in operating cash flow. Just trying to get a better sense of how you're looking at the working capital line in the next couple of quarters? Thanks.
Andrew Wamser -- Chief Financial Officer
Yes. On the CapEx side, we ended the year at $30 million and some of that had -- is a little bit lower than what we had expected and some of those projects will be pushed into this year. Our guidance for 2019 is between $35 million and $40 million. So, if we ended the year at $109 million and free cash flow for 2018, I think the degree in terms of what we would exceed or beat around that level will be dependent, obviously on what the final CapEx number is obviously, and then what happens on our working capital side.
On the working capital, it really largely will depend on where unanticipated or higher sales or lower sales come from. To agree that, some of these sales are going into markets like Asia, the terms are a little bit longer, and so it could be a little bit more of a (inaudible), it could be a benefit. So, that's kind of a (inaudible) we think, in and around what we did last year is a good ballpark for what we think 2019 would happen for this year, but I think pluses and minus will depend on absolute CapEx spend.
And we're also -- as we indicated, we're expecting strong growth in our AMS segment with higher operating cash flows from that, as margins increase and we have organic growth and so some of that will help offset some of that capital spend as well.
Dan Jacome -- Sidoti -- Analyst
Okay. For sure. Very helpful, thank you.
Andrew Wamser -- Chief Financial Officer
Sure.
Operator
Thank you. And I am seeing no further questions in the queue, I'd like to turn the call over to Dr. Kramer for closing remarks.
Jeff Kramer -- Chief Executive Officer
Well, thank you everyone for staying with us during this call. I think as we indicated, we were pleased with how we ended the fourth quarter, it was a bit bumpy as were our material costs throughout the year, gave us some headwinds, but I think the business performed admirably, and I think that's a good indication as we move our strategic transformation of the company of our forward momentum and we're hopeful that we'll have a nice positive year-to-talk about at the end of the year of 2019 as well. So, thank you again for all your support.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.
Duration: 39 minutes
Call participants:
Mark Chekanow -- Director of Investor Relations
Jeff Kramer -- Chief Executive Officer
Andrew Wamser -- Chief Financial Officer
Dan Jacome -- Sidoti -- Analyst
Kurt Yinger -- D.A. Davidson -- Analyst
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