Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Mike Harrison with First Analysis.
Mike Harrison – First Analysis
Looking at the material margin that you guys showed, I know creative is responsible for part of the improvement there, but $0.37.9 I think is the highest you’ve ever shown, at least according to my, the information I have. Can you give us a sense for how much of that improvement was related to the improved pricing approach versus how much was related to low margin business that you’ve been walking away from?
Myles Odaniell
I can’t give you an exact breakdown of that, but I would say the following: We’ve worked pretty hard to realign the organization with a focus on gross profit rather than exclusively on material margin and what that’s really cost us to do is focus on the overall quality of our mix, which is driven much of the improvements. If you look at the areas where we in fact have walked away from business, it’s been low or no profit business, much of it centered in our color and compounding business. So inherently that business wasn’t generating gross profit and in many cases, believe it or not, it wasn’t even generating a contribution at the material profit line, so we’ve got that.
Clearly, we’ve also got the impact of what’s happened in the third quarter with raw materials. As I referenced, we so an enormous slug of additional increases in raw material in the third quarter, and I think we kind of had mixed results in terms of our success passing that through. Some goes through pretty readily in the market, others we’ve had to fight out on it and then the third segment we still got some formula lags and things like that, so we’re still? We will cash those up over the course of the next quarter, but we didn’t get those. But I would argue if I was trying to estimate it, I think there’s maybe a 50/50, but we could certainly hunt that down and let you know specifically.
Randy Martin
Yes, Mike, in particular there’s seven to eight-tenths related to the creative mix that you mentioned; so that’s a portion of it, almost a penny. Then you definitely have the better mix from what Miles was referring to and a little bit of catch-up on some of the pricing where we had fallen behind earlier on in the year.
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