Apr 29, 2015
Executives
Jason F. Thompson - Director-Investor Relations John A.
Luke - Chairman & Chief Executive Officer Robert K. Beckler - Executive Vice President & President - Packaging E.
Mark Rajkowski - Chief Financial Officer & Senior Vice President Robert A. Feeser - Executive Vice President, Global Operations
Analysts
Mark W. Connelly - CLSA Americas LLC Mark A.
Weintraub - The Buckingham Research Group, Inc. George L.
Staphos - Bank of America Adam Jesse Josephson - KeyBanc Capital Markets, Inc. Gail S.
Glazerman - UBS Securities LLC Mark Wilde - BMO Capital Markets (United States) Chip A. Dillon - Vertical Research Partners LLC
Operator
Ladies and gentlemen, thank you for standing by. And welcome to the MeadWestvaco First Quarter Results Conference Call.
At this time, all phone participants are in a listen-only mode. Later, there will be an opportunity for your questions.
Instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded.
I would now like to turn the conference over to Jason Thompson, Director of Investor Relations. Please go ahead.
Jason F. Thompson - Director-Investor Relations
Thanks, Gail, and good morning, everyone. John Luke, Bob Beckler and Mark Rajkowski are here to review MWV's first quarter results.
And we also have Bob Feeser here for Q&A as well. Today, we'll – we've scheduled 45 minutes for our call.
And the notification for this call was broadly disclosed and it is being webcast at mwv.com, where slides are also available. Our results and commentary are presented on a continuing operations basis and are correct as of today, but could include time-sensitive information that is subject to change.
In addition, any statements that are forward-looking are subject to known and unknown risks and are not guarantees of future performance. I'll now turn the call over to our Chairman and CEO, John Luke.
John A. Luke - Chairman & Chief Executive Officer
Jason, thanks very much, and good morning, everyone. MWV's first quarter results demonstrate that the fundamentals of our business are strong as is the forward momentum of our business strategy.
We delivered very solid performance in the face of external challenges including slower consumer demand in some markets and unfavorable currency exchange impacts. Our earnings improvement compared to last year reflects clear benefits we continue to generate from our commercial strategies, operating excellence initiatives and cost-reduction actions.
And our outlook is positive as we fully expect to carry this momentum into our merger with RockTenn. As we prepare to create the premier global packaging company, there is tremendous excitement in both companies and in our markets about the complementary capabilities and the opportunities before us to serve the growing global packaging marketplace.
Our engagement and planning over the last three months on both strategy and synergy matters further validate the strength of our combination, which is on track to be completed in the current quarter. On synergies, let me just note that we're making excellent progress toward our stated goals.
And as we work together, we've identified additional opportunities that I'm confident Steve will share at an appropriate time in the future. Overall, everything that we are seeing gives us great confidence that the combined company will generate very attractive long-term shareholder returns.
As we move forward, we remain very focused on driving continued improvement in our margin profile by strengthening our leading market positions, introducing new products, capitalizing on recent investments, improving productivity and further reducing other costs. I'll offer a few examples.
First, we recently announced the acquisition of Carolina commercial print business from International Paper. This is an opportunity for us to be the leader in a very attractive niche in the printing and specialty packaging market.
And we're very enthusiastic about the productivity advantages this will bring to our Covington mill. Second, we continue to make strong progress in Brazil, where we've outperformed the market because of the performance of our operations and the quality of the paperboard we are producing on our new machine.
As a result, our EBITDA margins were above 30% for the quarter despite anemic economic conditions in that country. Third, we achieved record EBITDA margins in Home, Health & Beauty during the first quarter in part due to the introduction of the innovative new products that are being widely accepted in the marketplace and we remain on track to spin off our Specialty Chemicals business this year.
As we do so, we continue to execute on our plans to expand our successful automotive carbon business by adding capacity around the world to fully capture the growth opportunities that exist. These activities and others not mentioned not only contribute to our near-term performance, but they'll be an important part of the value we'll create as we join forces with RockTenn.
While we're not immune to external challenges, our market participation choices have buttressed our present performance, and we believe firmly we will strengthen it further as we move forward. Before I turn to Bob and Mark for more detail on our performance and strategies in both Packaging and Specialty Chemicals, I'd like to reemphasize just how excited we are about our value creating merger with RockTenn and the value that we'll be creating for our shareholders with the spinoff of Specialty Chemicals.
Both are on track and preceding as expected. I will now turn to Bob Beckler for commentary on each of our business segments.
Bob?
Robert K. Beckler - Executive Vice President & President - Packaging
John, thank you. This was another strong quarter of year-over-year performance extending a series of improvement dating back to 2013.
Over this period we have greatly improved the commercial and operating fundamentals in each of our businesses giving us sustained momentum despite economic challenges and softer demand in several markets. In our packaging businesses, over this period, we have achieved successive increases in EBITDA margins by executing on commercial strategies to differentiate and grow, and in many cases, outpace our end markets, by running well on our manufacturing operations and by making disciplined choices about costs.
On the commercial front, there are a number of examples in Q1 where we are winning with differentiated packaging solutions. In beverage packaging, we offset challenges in the carbonated soft drink and beer markets by winning positions with key customers with our innovative multi-pack and machinery offerings and by capturing strong growth in craft beer.
This helped us drive 2% growth ex-currency in our global beverage business, with solid contributions from volume and price mix. In Home, Health & Beauty, we achieved positive gains in dispensing systems, including global fragrance and trigger sprayers.
In Brazil, we captured 8% volume growth in corrugated packaging and strong regional sales of our premium differentiated linerboard in spite of the ongoing economic downturn in that region. And in paperboard, we achieved solid performance in key markets such as food service, tobacco, and certain food categories, offsetting weakness in other markets.
In particular, general food packaging in North America remains challenged as consumer preferences have shifted to specialty and fresh alternatives. Our operating performance in packaging has been just the strong.
In Brazil, we continue to capture significant productivity gains, leveraging the expanded mill and corrugated platform, increasing our output well beyond the original design of the mill investment. Once again, EBITDA topped 30%, giving us successive quarters at the top end of our targeted 25% to 30% range.
In Home, Health & Beauty, we had strong operating productivity with good mix and loading across the system. Combined with our commercial strategy and excellent cost management, EBITDA margin increased to nearly 19%.
In Food & Beverage, our mills and converting facilities ran extremely well. Reported segment EBITDA included an incremental $20 million of plant maintenance in Q1 versus prior year.
Excluding this maintenance timing, EBITDA margins improved year-over-year by 270 basis points. Overall, the combined packaging platform achieved over 18% EBITDA margin, adjusting for this incremental maintenance cost in Food & Beverage.
This is the progress we expect and are continuing to drive in packaging. The story is very similar in Specialty Chemicals, which has maintained earnings at or near record levels each and every quarter for some time.
Even with the sharp drop in oil prices, the resilient business model in Specialty Chemicals resulted in revenue growth and an EBITDA margin over 24%. This level of profitability is well within our expectations for this business as we continue to focus on growth.
There are several headlines for the quarter in Specialty Chemicals. Strong growth for activated carbon used in automotive evaporative emissions control, driven by regulatory activity and vehicle production around the world.
Robust demand for specialty products in asphalt, adhesive and printing ink applications. And a shift in mix across our flexible Pine Chemical system to offset weaker demand in our oil field services business.
During the quarter, we also continued with ongoing expansion projects across the business, increasing capacity for asphalt and adhesive products, building capabilities for our Pine Chemicals business in Brazil and expanding activated carbon capacity in the U.S. and in China.
Together, these investments position specialty chemicals for its next major wave of growth, part of the strategy to double this business again over the next five years to seven years. Of course, this next wave of growth will come as a standalone company as preparations are continuing for the spinoff of the Specialty Chemicals business, which remains on track for later this year.
So overall, we're heading in a very positive direction, executing on all fronts, commercially in our global markets and operationally. We expect our near-term performance to continue this trend as we move toward our merger with RockTenn.
Since our announcement three months ago, as John emphasized at the outset, we have made substantial progress in preparing for the upcoming launch, and today, we are even more confident that the new company we're creating will be unrivaled in its ability to grow with customers around the world. With that, I'll turn it over to Mark.
E. Mark Rajkowski - Chief Financial Officer & Senior Vice President
Thanks, Bob. I'm pleased with the strength and resiliency demonstrated by our businesses through the first quarter, a period with slower market growth and more volatility than anticipated.
The underlying improvement we saw in the quarter is a testament to the durable profitable growth strategies we've established across each of our businesses. Our continued commercial and operational execution and cost savings progress not only delivered solid performance in the first quarter, but also provides us with good momentum that we expect to build on throughout the year as part of our new company.
I'll provide a quick rundown of our first quarter performance starting with the top line. MWV's revenue excluding currency and portfolio actions was up over 3% in the first quarter, with roughly equal contribution from volume and pricing mix.
We've continued to demonstrate that our commercial strategies centered on differentiation are working well and generating outperformance across our targeted markets. Our adjusted operating income in the first quarter increased by more than 8% to a $106 million or 8.3% of sales, which is a 90 basis point improvement compared to the year ago quarter.
This performance includes $19 million of negative currency translation and lower non-cash pension income of $13 million. Further, the $20 million of incremental annual maintenance was essentially offset by the recovery from last year's adverse weather.
Despite the negative impact from currency and pension, we continue to grow earnings and expand margins in the quarter by executing on our commercial and operational plans and delivering significant additional cost reductions. While adjusted gross margins during the quarter were essentially flat year-over-year, there were several factors that offset what was good underlined operational performance.
Gross margins benefited approximately 100 basis points from price and mix improvement and the 190 basis points from operating productivity and cost savings. Largely offsetting these improvements were higher year-over-year planned mill maintenance cost, which reduced margins by 140 basis points and lower non-cash pension income and negative FX which each reduced gross margins by 70 basis points.
There was no net inflation impact as the benefits of lower input costs were essentially offset by wage and benefit inflation. Adjusted SG&A declined 70 basis points year-over-year to 10.9% of sales and was down 8.5% on an absolute basis.
Benefits from our cost savings program in the quarter were $19 million, bringing total program savings to $104 million and putting us on track to achieve our targeted program savings goal by the end of 2015. Cash flow from continuing operations in the quarter improved by $94 million year-over-year, largely due to lower tax payments associated with the 2013 sale of forestlands.
As we look ahead, we're excited about the performance momentum and the financial strength that we're bringing to our merger with RockTenn. We expect the combination to be completed in the second quarter following approvals from the SEC and both companies' shareholders.
Since this will be our last quarterly report as a standalone company, we aren't providing specific outlook information by segment. That said we do expect MWV's businesses to continue their trajectory of earnings growth and margin expansion throughout 2015 and beyond.
With further commercial successes in our end markets and additional benefits from operating excellence and cost reduction initiatives. I'll now turn the call back over to John.
John A. Luke - Chairman & Chief Executive Officer
Mark, thanks very much. As Mark mentioned, we expect this to be our last quarterly call before merging with RockTenn.
All of us at MWV greatly appreciate the support that we've received from our shareholders and others in the investment community and the time, interest and attention you've dedicated to understanding our strategy and performance. We look forward to advancing that strategy as part of a new stronger company that will be the true leader in the global packaging marketplace.
We'd now be happy to answer your questions.
Operator
Our first question will come from Mark Connelly with CLSA. Please go ahead.
Mark W. Connelly - CLSA Americas LLC
Thank you, John. Two things.
First, can you talk about how you're thinking about the Health & Beauty portfolio in the context of this reluctant consumer? You've got – you've got some high end stuff and you've got some lower end stuff.
I'm just wondering whether you're shifting your priorities to roll things out into the market to catch the consumer that's actually opening their wallet?
John A. Luke - Chairman & Chief Executive Officer
I think you can – there is a very strong focus, Mark, with the leadership we've had in place in that business to do exactly what you're saying. They're very in-tuned with the market working with customers that are in tune with the market focusing, as – as I've commented on innovative solutions.
And the results for the quarter reflect a trend and speak for themselves. Obviously, we're all assessing consumers in a variety of categories, but I think the momentum there is strong and the market is well understood.
And I think you've heard – you and others have heard Steve Voorhees speak to the power of this business as being a part of the overall consumer packaging business in the new company.
Mark W. Connelly - CLSA Americas LLC
Okay. And just one more question.
How are you thinking about beverage carrier these days? We listened to Nestle saying that consumers are going to be drinking flavored water, but not Coke and Pepsi.
Beer can trends aren't all that great. I assume that means you are pushing more of your CNK tonnage into the food markets in overseas, but I'm just wondering if you could help us think about how you're strategically approaching those secular shifts?
John A. Luke - Chairman & Chief Executive Officer
I'll make a few comments, and I'll invite my colleagues here to comment as well. Mark, I think that clearly there have been some changes in those markets that we've talked about for many quarters, but on a global basis, we're seeing good steady growth, importantly even in the United States where we've seen some differing trends.
We're seeing very keen demand for carrier base packaging, multi-pack and we've seen good steady growth in the craft beer market that is also very appealing. So here and around the world it's very attractive.
The other thing that I would also note, I think that bodes well, is that there is a recognition in the battle for brand recognition that paperboard based multi-pack stand out much more effectively when put to the test on consumer shelves here and around the world. And for that reason they're getting a growing preference.
Clearly, there is more opportunity for us in markets outside of beverage and that's a reflection of opportunities around the world, but I think on the question about beverage, we continue to feel positively and are working in that direction. Bob Beckler, Bob Feeser, any comments?
Robert A. Feeser - Executive Vice President, Global Operations
John, I would just add quickly that it just takes laser focus on the participation strategy in the market. And we've been quite successful at it over the last couple of years as the market has come under some pressure in certain sectors.
And that includes the global piece that John mentioned. I would just add that a key part of our beverage strategy in which we believe we're winning is in how we are bringing innovations and machine placements into the market that lock us into the growth trends that we're seeing in certain sectors.
And that would include the craft beer segment as well. That for up – for us is up double-digit growth.
Mark W. Connelly - CLSA Americas LLC
Very helpful. Thank you.
John A. Luke - Chairman & Chief Executive Officer
Thanks, Mark.
Operator
Our next question comes from Mark Weintraub with Buckingham Research. Please go ahead.
Mark A. Weintraub - The Buckingham Research Group, Inc.
Thank you. I want to actually delve a little bit into Specialty Chemicals, and in particular you referenced the goal of doubling in the next five years to seven years?
And first off, is that kind of a revenue or volume or growth – I'm sorry, or earnings EBITDA should we say target? And then layered into that if you could, when you – the new facility that's starting up in 2016, if you could provide a little bit more details what that will encompass and how much is that a part of taking you to the next level in this business?
John A. Luke - Chairman & Chief Executive Officer
Sure, Mark. Bob Beckler is poised to answer.
Robert K. Beckler - Executive Vice President & President - Packaging
Hi, Mark. That doubling of the business which we pointed to earlier in the year, when we announced our plans to spin the business is something that we've had our eye on for quite some time actually.
And a big piece of that will come from the organic growth potential of the business, the inherent business that we're in today. And the spectrum of expansion projects that we have underway in the business are actually not something new, but are part of a long term strategy to time our expansion investments as we see the opportunity developing in the global markets.
And we mentioned in the prepared comments several of these, but just to expand a little bit around, just continued opportunity for our high-end specialty products, for example, in the asphalt sector, adhesives as well has been running very strong for us. So, we continue to invest in our ability to take the feedstocks from our Pine Chemical platform, derivatize them and place them into high-value markets.
We're also investing modestly in our position in Brazil where we are the only producer of pine tall oil chemicals in the region. And we see a lot of opportunity there to shape that market overtime.
And so, we're very excited about the long term potential there. And then in the activated carbon area, we are investing broadly as we just continue to see a great opportunity created through more stringent regulations in the automotive sector, certainly in the U.S.
that continues to happen, but also in Europe, in many parts of Asia as well. So we're continuing to invest on top of the existing manufacturing presence that we have both in the U.S.
and in China, where we've been manufacturing for about a decade. And we just continue to see great opportunity, particularly in that Asia-Pacific region to drive future growth for the next decade.
John A. Luke - Chairman & Chief Executive Officer
And Mark on the top line, bottom line question, I mean, we think about it from a top line perspective, but all of these initiatives that Bob has talked about, certainly we would expect to not see any significant diminishing in our margin profile.
Mark A. Weintraub - The Buckingham Research Group, Inc.
Great. And specific to that new facility starting up in 2016, can you give us a sense of how much capital is going into that and given current pricing or what have you, roughly the revenue potential of that new facility would be?
Operator
Yeah, Mark that capital has – it's included in the – the outlook that we provided in terms of our 2015 CapEx. So, we really haven't broken that down and – that will – that will all be coming out in the – on the financial statements that will be provided as a part of the Form-10 in the not too distinct future.
Mark A. Weintraub - The Buckingham Research Group, Inc.
Great, well, good luck to all of you and your new positions and roles as they shape out in the coming quarters?
John A. Luke - Chairman & Chief Executive Officer
Thanks, Mark.
Robert K. Beckler - Executive Vice President & President - Packaging
Thanks.
Operator
Next question is from George Staphos with Bank of America. Please go ahead.
George L. Staphos - Bank of America
Thanks, everyone good morning, and also echoing Mark, wish you all the best for the closing and it's been a pleasure working with you all, good luck about your transition.
John A. Luke - Chairman & Chief Executive Officer
Thank you, George.
George L. Staphos - Bank of America
I guess the first question, I had – can you talk a little bit more about, what the opportunity with Carolina, what you're purchasing from International Paper will afford you, actually can you comment in a forum like this? And then, broadly, can you comment on what you see as kind of a current pace of change and supply demand in the Box ford markets and how some of this reduction capacity may help in relation to obviously growing capacity around the world?
John A. Luke - Chairman & Chief Executive Officer
We'd be happy to and Bob Feeser is here, and he and Bob Beckler would be happy to address that?
Robert A. Feeser - Executive Vice President, Global Operations
Hey, George, Bob Feeser.
George L. Staphos - Bank of America
Good morning, Bob.
Robert A. Feeser - Executive Vice President, Global Operations
I'd tell you, we're excited about the opportunity with Carolina, that has been a segment for us, that has been very profitable and one that we've really enjoyed a nice position in, so, combining that brand with our strong brand, we think it's going to create good opportunities to extend our position with key customers. And there is also significant operational benefit as you might have imagined, across our mill system Covington in particular.
So, from an overall commercial perspective and opportunity to drive our strategy in this very important niche for us, it really helps extend that position.
George L. Staphos - Bank of America
Is there a way to size what the profit opportunity might be over a two year or a four year period? And relative to demand trends in Bristol, what have you seen in these markets, do you risk maybe doubling down in a market where volume growth is actually dissipating and how do you deal with the risks there?
Robert A. Feeser - Executive Vice President, Global Operations
Yeah. As we've looked at the overall demand having participated in this market for many years, the demand profile has been relatively flat and in some of the more commodity aspects of commercial print, definitely pressure on some of those markets.
We have been very successful in continuing to grow in that market again being very selective about our participation strategies within this market has really enabled us to continue to grow share. And again, we're bullish about adding the Carolina offering to our line and continuing this expansion in the market from a share standpoint.
But clearly, it comes down to being very selective about where we play in the market, because it's a relatively large market that, from our perspective, still affords attractive and profitable growth.
E. Mark Rajkowski - Chief Financial Officer & Senior Vice President
And from a profitability perspective, obviously it's very attractive. And we're still working through that as we look at how we optimize the platform across NewCo.
So that's work that's underway, but it is a very attractive opportunity from a profitability perspective as well.
Robert A. Feeser - Executive Vice President, Global Operations
Yeah. And just to build on Mark's point there, the timing of this actually couldn't be any better with the expanded SBS system that will come as a result of the merger with RockTenn.
We have many more opportunities to fully optimize the system with the Carolina opportunity.
George L. Staphos - Bank of America
Okay.
Robert K. Beckler - Executive Vice President & President - Packaging
George, this is Bob Beckler, to your other question around...
George L. Staphos - Bank of America
Good morning, Bob.
Robert K. Beckler - Executive Vice President & President - Packaging
Around packaging markets, I'm just taking up from Bob's point about SBS. I think what you're hearing from us is overall what we see is a healthy dynamic in SBS long-term, and I would say the same goes for the CNK board as well.
Clearly there are some near-term challenges particularly with the shifts that we're seeing in food packing, but there are also opportunities within that as well as we've mentioned over previous quarters, there was a continued shift from Styrofoam to paperboard for more sustainable options in cups and plates, for example that's helpful. And we just continue to see opportunity in the more specialty packaging that's going into fresh and convenient forms of food alternatives.
So overall very healthy dynamics there, we continue to do well with our exports in particularly the premium end sectors, such as tobacco board going into Asia Pacific. One last point on this again related to the merger that we're excited about is this opportunity that we will have with NewCo to really have all of the major paperboard substrate, and have an opportunity to manage that portfolio substrates holistically to the benefit of our customers but also managing it in regard to the trends that we see happening globally around capacity.
George L. Staphos - Bank of America
Okay. Listen, I'll turn it over out of fairness.
Thanks for all your thoughts and good luck again with the closing.
John A. Luke - Chairman & Chief Executive Officer
George, many thanks.
Operator
Next question comes from Adam Josephson with KeyBanc. Please go ahead.
Adam Jesse Josephson - KeyBanc Capital Markets, Inc.
Thanks, good morning, everyone. And just want to second George's wish, that wish you all the best of luck in your future endeavors.
And Bob Beckler, just one – one follow-up question on boxboard, your largest domestic SBS competitor talked this morning about, global – they're being some global over capacity in boxboard. I mean would you disagree with that characterization?
And specifically in terms of the threat from FBB capacity in Europe and Brazil, I mean, does that pose a meaningful threat to you?
Robert K. Beckler - Executive Vice President & President - Packaging
Good morning, Adam. I would not disagree with the global perspective, but I think how you win in that environment is as we're doing through a highly targeted commercial end of market focus and where to participate.
And we believe that's the game that we'll need to play well into the future.
Adam Jesse Josephson - KeyBanc Capital Markets, Inc.
Sure. And thanks, Bob.
And just one on Specialty Chemicals, can you just talk about the slowdown in oil and gas exploration, the impact that it had in the quarter. And worst case scenario, oil prices stay at 50s or lower.
What would be the worst case scenario in terms of the impact on your business given the substitution that you have available to you, et cetera?
Robert K. Beckler - Executive Vice President & President - Packaging
Well, Adam, it's – I mean it's a great question. It's – I mean it's an impact that I think we have probably seen the greatest slug of in the first quarter.
Just to break it down for you a little bit more, our oil field business is about 60-40 drilling and production of which the production side remarkably is quite strong for us given the mix of products that we offer. So there has been really great resilience there.
Where we've seen some falloff is on the drilling side. And as I said, a good slug of that came through the supply chain early in the first quarter.
And while there's still some volatility there, we think we're now at stabilized – at a new level. And throughout the quarter, we've been working to rebalance the mix across our Pine Chemical platform.
And there's still some more opportunity there to do that. But as you can see from the margins that we reported, the business has done just an outstanding job in managing through the change.
E. Mark Rajkowski - Chief Financial Officer & Senior Vice President
I think, Bob, you think about that from the perspective of year-over-year performance despite that dramatic falloff in oilfield services that the team did do a great job shifting mix. But the impact to the segment's earnings were really modest, I mean low single digits.
And if, you'll look at the quarter performance year-over-year, ex-currency, ex some of the expenses for the startup of our new carbon facility, we're up in the upper – upper single-digit. So, pretty, pretty solid performance overall.
So it's – we'd like it to be going the other way. I think as Bob said, we've – we think it's reached the trough, probably similar levels of impact throughout the rest of this year.
But it's relatively modest and the guys have done a great job shifting the mix of the business.
Adam Jesse Josephson - KeyBanc Capital Markets, Inc.
Thanks a lot, Mark and Bob. I appreciate it.
Operator
Next question comes from Gail Glazerman with UBS. Please go ahead.
Gail S. Glazerman - UBS Securities LLC
Hi. Good morning.
John A. Luke - Chairman & Chief Executive Officer
Hi, Gail.
E. Mark Rajkowski - Chief Financial Officer & Senior Vice President
Hi, Gail.
Gail S. Glazerman - UBS Securities LLC
If I remember correctly, you had something in the neighborhood of a $25 million hit from weather in the first quarter of last year. Do you have any sort of estimate of how much of that you might have gotten back this year?
I assume not all of it.
E. Mark Rajkowski - Chief Financial Officer & Senior Vice President
Gail. Yeah.
We got – we probably got in the high teens back. There was a big chunk of it that was – that impacted the cost of fiber which we continue to see.
So there were some – certainly some impacts this year from the weather, but it was a $1 million here $1 million there. But – and that's why I said in my prepared remarks around the gross margins that while we had incremental year-over-year planned mill maintenance cost of $20 million, most of that was offset by some of the reduction in the weather effects.
Gail S. Glazerman - UBS Securities LLC
Okay. Thanks.
And earlier in the quarter we see reported price declines in those SBS or at least folding portion of SBS and CNK. Do you think they got the market right?
And how much of that if so has flown through your business already than what we saw in the first quarter?
Robert A. Feeser - Executive Vice President, Global Operations
Gail, it's Bob Feeser. I think the – I think it was a bit of a overreaction to some softness certainly that occurred in those segments in the fourth quarter.
And no doubt there was some spot discounting that was going on. But it was, I think, a late reaction to that fourth quarter and we've actually seen as we've gone through the first quarter and particularly as we've gotten into March and then into April, the market fundamentals, at least from our perspective, have improved significantly.
So that would be our perspective on, I think, the overall situation.
Gail S. Glazerman - UBS Securities LLC
Okay. And just one last quick one.
Can you talk a bit about the trajectory of your exports both in terms of board out of the U.S. as well as maybe board out of Brazil, and maybe both year-on-year as well as sequentially.
Have you seen any sort of adjustments as the dollar strengthens?
Robert K. Beckler - Executive Vice President & President - Packaging
Gail, this is Bob Beckler. I'll take the Brazil question first and then pass to Bob.
So the FX impact in Brazil is somewhat of a two-edged sword as we've talked in the past. It obviously hits us on translation back to dollars from a reporting standpoint quite a bit.
But on the other hand, it also contributes to the attractiveness of the premium paperboard that we're producing in Brazil in terms of the export market. So we've had really great success in placement of the board in those markets.
Having said that, I mentioned that our corrugated business grew in Brazil substantially in the quarter from a year-on-year standpoint. And so actually, we slightly reduced our exports of paperboard in the quarter, because we were more highly integrated, which was a good thing for the business.
Robert A. Feeser - Executive Vice President, Global Operations
And I would say from a U.S. paperboard perspective that the demand in the international markets has held up relatively well.
And again I think it's attributed to the participation strategies that we focus on around the tobacco markets and liquid packaging in particular where our board is largely specified in those applications. So we tend to not necessarily feel the pressures of FX, and that it's more of a translation impact than a demand impact.
Gail S. Glazerman - UBS Securities LLC
Okay. Thanks so much, best of luck to everyone.
John A. Luke - Chairman & Chief Executive Officer
Thank you Gail.
Robert K. Beckler - Executive Vice President & President - Packaging
Thanks Gail.
Operator
Question comes from Mark Wilde with BMO Capital. Please go ahead.
Mark Wilde - BMO Capital Markets (United States)
Yeah. Great to see you go out on a strong note here.
Couple of questions, one back on SBS, I wondered if you can give us a sense of just what your tobacco volumes have been, because when I think about Covington historically, I think about tobacco being a very important market up there?
John A. Luke - Chairman & Chief Executive Officer
Bob?
Robert A. Feeser - Executive Vice President, Global Operations
Mark, actually, we continue to enjoy very good success in the tobacco market. I think, as you know, again we positioned ourselves at the highest end of that market, AND in a number of the markets, that we participate in, China in particular, there is a continued demand for tobacco packaging still moving from soft pack to hard pack.
And also focus on premium paperboard for the brands that are continuing to grow within China. So our volumes have actually grown over the last three years or four years, and we fully expect that to continue based on how we're positioned in the market.
Mark Wilde - BMO Capital Markets (United States)
Okay. And then Bob, also on SBS, I just wondered, down at Evadale, are there still opportunities to improve the mix, because I remember when Temple built that last machine, I mean, they were really trying to commit some of Westvaco's legacy markets.
I don't think they ever had a lot of success at that. And I don't know what you guys have been able to do down there over time in sweetening the mix?
Robert A. Feeser - Executive Vice President, Global Operations
Yeah. We are very optimistic again about the opportunities to continue to improve the mix, not only at Evadale, but frankly across the entire system.
And certainly the Carolina opportunity that we mentioned earlier represents a great opportunity for the entire system, but certainly Evadale will play an important role as we continue to integrate that business into our portfolio.
Mark Wilde - BMO Capital Markets (United States)
Okay. And would you ever see that potential of bring any of that idle capacity down at Evadale back into the market or is that kind of off the table?
Robert A. Feeser - Executive Vice President, Global Operations
We're continuing to monitor that and look at the overall system certainly with the RockTenn merger. We're bringing in to the Demopolis mill into the overall SBS system, so that's certainly another factor that we'll be looking at.
But certainly if it makes sense economically for the system for us to go ahead and bring that machine back into paperboard, that will be something that we'll definitely take a look at.
Mark Wilde - BMO Capital Markets (United States)
Okay. And then the last question I had is just for Bob Beckler over in Specialty Chemicals.
Bob, you've kind of talked about the issues with kind of oilfield volumes and the fact that those have held up pretty well. The other question I had in Specialty Chemicals, is whether there's been any knock on effect from lower cost petroleum and petroleum derivatives to the extent that they would compete with those Pine chemicals?
Robert K. Beckler - Executive Vice President & President - Packaging
Hey, Mark. We are always seeing some of that in the markets in which we participate.
But at the end of the day, our maneuverability in those end markets just outweighs the, I'd say, the puts and takes of hydrocarbon effects on those end markets. So while the answer is yes, we see some of that, again the answer is we continue to manage quite well in that environment.
Mark Wilde - BMO Capital Markets (United States)
Okay. All right.
That's great. Thanks, Bob and good luck guys.
Robert K. Beckler - Executive Vice President & President - Packaging
Thank you.
John A. Luke - Chairman & Chief Executive Officer
Mark. Thanks very much.
Operator
Our final question today will come from Chip Dillon with Vertical Research Partners. Please go ahead.
Chip A. Dillon - Vertical Research Partners LLC
Yes. Good morning, and again, great working with all of you.
Good luck on the transition.
John A. Luke - Chairman & Chief Executive Officer
Sure. Thanks, Chip.
Chip A. Dillon - Vertical Research Partners LLC
I had a question for – thank you, for Bob Beckler. As you look at the combined system for a packaging solutions that both you and RockTenn have, one thing we see is a lot, I believe, a lot less of vertical integration in the folding cartons.
If you compared it to, say, containerboard and corrugated boxes. And could you just update us on where you all are in that process at least in the U.S.
in terms of how much of your board is integrated into folding carton plans? And do you think that there are opportunities to further forward integrate profitably?
I know that there are smaller competitors that are doing just that.
Robert K. Beckler - Executive Vice President & President - Packaging
Yeah, great question, Chip. Obviously, that's something that we're looking at very carefully as we prepare for the launch of the new company.
Let me just say that one thing we're – we're gaining more confidence in is our ability to leverage the combined platform that will come together of material substrates and converting capabilities in the new company, that's just going to increase our efficiency in terms of utilization and I would just say more efficient leverage of the converting assets across the system. We also see that it's going to create some commercial opportunities for us as well with materials capabilities and technologies that we have around paperboard crossed with the converting capabilities of RockTenn and the excellent market channel that they have.
And so this is just part of the synergy opportunity that we see in putting the company together that we're just increasingly bullish about as we go forward.
Chip A. Dillon - Vertical Research Partners LLC
Got you. And it's fair to say though that I guess starting out that if you look at your board shipments to – in the in U.S., whether it's CRB, CNK or SBS, that less than half are being in essence converted by RockTenn or Mead MWV facilities, is that fair?
Robert K. Beckler - Executive Vice President & President - Packaging
That's fair.
Chip A. Dillon - Vertical Research Partners LLC
Okay. Got you.
All right, thank you.
John A. Luke - Chairman & Chief Executive Officer
Chip, thanks very much.
John A. Luke - Chairman & Chief Executive Officer
All right, Gail, if you could please give out the replay information and we look forward to talking with you guys in the future. Thank you.
Operator
Ladies and gentlemen, this conference will be available for replay after 12:00 P.M. Eastern Time today through May 29 at midnight.
You may access the replay by dialing 1-800-475-6701 and entering the access code 356-602. International participants may dial 320-365-3844.
Again those numbers are 1-800-475-6701. International participants dial 320-365-3844, entering the access code 356-602.
That does conclude your conference. We thank you for your participation.
You may now disconnect.