Element Solutions Inc

NYSE:ESI

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Platform Specialty Products Corporation's Second Quarter 2018 Results Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded.

I will now turn the call over to Carey Dorman, Corporate Treasurer and Vice President, Investor Relations. Please go ahead.

[Carey Dorman, executive]

Good morning, and thank you for participating on our second quarter 2018 earnings call.

Joining me this morning are our CEO, Rakesh Sachdev; CFO John Connolly; Ben Gliklich, our EVP of Operations and Strategy; Scot Benson, President of Performance Solutions; and Diego Lopez Casanello, President of Agricultural Solutions.

Please note that in accordance with Regulation FD, or Fair Disclosure, we are webcasting this conference call. Any redistribution, retransmission or rebroadcast of this call, in any form, without the expressed written consent of Platform is strictly prohibited.

Before we begin, please take note of Platform's cautionary statement regarding forward-looking statements in the earnings release and supplemental slides issued and posted today in connection with this conference call. Some of the statements made today will be considered forward-looking. All forward-looking statements are based on currently available information, and Platform's reported results could differ materially from those predicted. Platform undertakes no obligation to update such statements as a result of new information, future events or otherwise. Please refer to Platform's SEC filings for a more detailed description of the risk factors that may affect Platform's results.

Please note that in the earnings release and the supplemental slides, Platform has provided financial information that has not been prepared in accordance with U.S. GAAP. In accordance with Regulation G, Platform is providing reconciliation of these non-GAAP measures to comparable GAAP financial measures in both the press release and the supplemental slides, which can be found on Platform's website at www.platformspecialtyproducts.com in the Investor Relations section under Events & Presentations.

For the purpose of this call, Platform will, in some cases, be comparing the same periods in 2018 and 2017 on a non-GAAP constant currency basis and provide non-GAAP organic sales growth, as management believes that these figures provide a better comparison and understanding of the underlying business's results for its operations. Please review the press release and the web deck for further information and reconciliations.

In addition, Platform will present certain information, including pro forma information related to Element Solutions Inc., which excludes Arysta and assumes a closing of the Arysta sale on January 1, 2018, and includes the anticipated benefit of an estimated $25 million in annualized run rate cost savings expected to be achieved in 2019.

This information is provided for informational purposes only and is not necessarily and should not be assumed to be indications of results that would have been achieved had the transaction been completed on January 1, 2018, or that may be achieved in the future. The pro forma information may also not be comparable to the pro forma information required to be provided in connection with the closing of this transaction.

It's now my pleasure to introduce Rakesh Sachdev, Platform's CEO for opening remarks. Rakesh?

[Rakesh Sachdev, executive]

Thank you, Carey, and good morning, everyone.

I'm very pleased to report a strong and productive second quarter for Platform. Our Performance Solutions and Agricultural Solutions segments both saw solid organic sales and constant currency EBITDA growth in the quarter. Revenue grew 9% on a reported basis and adjusted EBITDA grew 10%. Both segments benefited from generally supportive end markets, and both price and product mix helped improve the overall margin in the face of some continued raw material inflation.

Before delving into more specifics regarding our quarterly results, I would like to touch upon the announcement we made 2 weeks ago regarding our agreement to sell our Agricultural Solutions segment, Arysta LifeScience. On July 20, we announced that Platform had signed a definitive agreement to sell Arysta LifeScience to UPL Corporation Ltd. for $4.2 billion in cash, subject to certain adjustments and customary closing conditions, including regulatory approvals. The closing of this transaction will mark the culmination of Platform's initiative to separate its 2 businesses, and we believe this will be a great outcome for both Platform and Arysta.

As we previously announced, effective at close, we intend to rename our company Element Solutions Inc., and refine our organization and strategy to reflect a more nimble and efficient business profile. Overall, we are very excited about this transaction and subsequent transformation. Going forward, we expect Element's best-in-class portfolio and strong competitive positioning to result in compelling value creation for our shareholders. Ben will provide more detail on the transaction later in the call.

Moving now to Slide 4. We reported second quarter 2018 net sales of $1.02 billion and adjusted EBITDA of $226 million, representing an adjusted EBITDA margin of 22.1%. Reported net sales grew 9% year-over-year or 7% on an organic basis.

Our Performance Solutions segment saw growth in all verticals with particularly strong performances from the Industrial, Offshore and Alpha businesses. Our Ag segment benefited from strong selling seasons in North America and Latin America, which were partially offset by continued poor weather patterns in Central Europe.

It was a challenging year for crop protection overall in Europe across the industry, but strength in other markets has helped us manage through that.

Key drivers for growth in Performance Solutions this quarter were healthy industrial and automotive end markets and the return of some offshore drilling and production due to the stability of higher oil prices. The segment also benefited from an FX tailwind with the euro and Chinese yuan being the primary drivers.

Ag Solutions saw higher sales in Latin and North America due to new product introductions and selected price increases, which helped mitigate the impact of inflation in active ingredient pricing and a weaker Brazilian real. We reported a GAAP diluted earnings per share of $0.04 this quarter, which compares to a loss per share of $0.21 in Q2 of 2017. This improvement is primarily attributable to a higher operating profit, a reported income tax benefit and lower interest expense in the quarter. Our adjusted EBITDA grew 10% in reported dollars and increased 8% on a constant currency basis in the quarter over Q2 of last year. We delivered adjusted EBITDA margin expansion of approximately 100 basis points on a constant currency basis in Performance Solutions. This was offset by modest margin pressure in Ag Solutions from persisting inflation in raw material costs due to both China supply constraints and the currency environment. We expect adjusted EBITDA margin improvement in Ag for the second half of the year.

On Slide 5, you will see our Performance Solutions segment reported second quarter net sales of $502 million and adjusted EBITDA of $117 million or $124 million, excluding corporate cost allocations. Organic sales growth was 5% year-over-year with the strongest performance being our Industrial, Offshore and Alpha businesses.

Industrial saw benefits from expanded sales in Europe and healthy end market trends. Our Offshore business benefited from higher energy prices. However, this production demand can be lumpy as oil production comes back online.

Our Alpha Assembly Solutions business saw sales growth year-over-year, primarily due to increased volumes, driven by generally healthy demand trends in Asia and the Americas.

We also completed the acquisition of HiTech Korea in this quarter. Though small, we believe this business brings exciting new capabilities in nonconductive adhesives, with the potential to expand globally once we complete integration.

Our core Electronics Solutions business grew in the low single digits versus prior year. This growth would have been more meaningful had it not been for a recent slowdown in the high-end mobile market in Asia, specifically Korea. While we believe this slowdown to be temporary, it partially offset the otherwise solid growth we saw in the semiconductor and memory disk markets, as memory chip growth and data center investments continued. We expect the high-end mobile market in Asia to recover in the second half and drive positive organic growth in both Alpha and Electronics Solutions.

Performance Solutions adjusted EBITDA increased by 14% in the quarter or 10% on a constant currency basis versus Q2 of last year. Product mix in Alpha and operating leverage in Offshore were major contributors to this quarter's margin improvement. We expect to see better demand in Electronics and the benefit from procurement-related margin expansion saving initiatives in the second half. Overall, this was a strong quarter for the segment.

Now turning to Slide 6. The Agricultural Solutions segment reported second quarter net sales of $521 million and adjusted EBITDA of $109 million or $117 million, excluding the allocation of corporate costs. Net sales increased 10% organically over Q2 of 2017 due to strong sales and demand in Latin and North America, partially offset by softness in Europe. The strong performance in Latin America was supported by robust demand as well as successful new product introductions, primarily in Brazil and Mexico. Soybean farmer economics in Brazil are better because of currency movements and tariffs. Stable pricing for fruits and vegetables is also helping. These dynamics have all supported our ability to increase product pricing in the face of inflationary raw material prices and transactional FX pressures due to currency volatility.

Our North American region also benefited from favorable demand for raw crops that drove sales growth across our herbicide portfolio and seed treatment products, particularly in the U.S. as well as in Australia. We have introduced several next-generation products in the past year that have demonstrated good momentum and good uptake with distributors and farmers.

Following a prolonged winter and short spring season, Central Europe experienced dry weather patterns, which shrank the crop protection market this season. Nonetheless, we believe our business proved resilient and outperformed the market.

Ag Solutions' adjusted EBITDA increased 7% in the quarter or 6% on a constant currency basis over the prior year. As mentioned, we saw some margin pressure due to increased active ingredient costs in Europe and Brazil though product price increases helped moderate some of that pressure. We also continue to focus on cost-saving initiatives which have helped offset the raw material inflation and transactional FX pressure we faced.

As has been the case for several quarters now, we continue to invest in boots on the ground and are seeing the positive impacts of these investments already. The success we saw in India this quarter is one encouraging example of growth in new markets. These initiatives are now focused on areas in Eastern Europe, India and China and will remain an important part of the story going forward.

I would now like to turn the call over to John to talk about cash flow and the balance sheet. John?

[John Connolly, executive]

Thanks, Rakesh, and good morning, everyone. I'm now on Slide 7 where I will provide an update on our cash flow and balance sheet for Q2.

We saw $74 million of free cash flow in the second quarter despite a higher-than-normal seasonal working capital investment for the year-to-date period. The geographic mix in Ag was the main contributor where we saw higher receivables in Latin America due to the strength in our business year-to-date and higher inventories in Europe given the softness in the region. Were we not to be separating our businesses, we would be expecting full year cash flow in line with our previous outlook. The timing of the separation and sale of Arysta could change that dynamic.

Our outlook for net CapEx, interest and taxes are all unchanged. From a tax perspective, we would point out that the first half of the year is typically higher for cash taxes than the second half of the year. But the first half was only $2 million higher than it was in the first half of last year despite significantly higher earnings. This shows progress on cash taxes.

Platform's net debt decreased by more than $100 million from Q1 to $5.2 billion, as we saw a translational benefit of a weaker euro and the benefit of free cash flow generation.

Our cash balance was $442 million and the revolver was drawn at $60 million at quarter-end.

Final note, we invested about $50 million in the quarter to fund our 2 announced acquisitions.

With that, I would like to turn the call to Ben to provide an overview and some additional color on the Arysta transaction. Ben?

[Benjamin Gliklich, executive]

Thanks, John and good morning. We'll keep this update brief, as we touched on all of these points when we announced the transaction 2 weeks ago.

As Rakesh mentioned, we are pleased with the outcome and think it will benefit all stakeholders. We've heard the same from many of our investors and are actively working towards a successful close and preparing for what follows.

As highlighted on Slide 8, the enterprise value for the Arysta transaction is $4.2 billion on a cash-free and debt-free basis, subject to certain adjustments. The purchase price is fully committed and there are no material conditions or contingencies other than regulatory approvals and customary closing conditions. We still expect to close in late 2018 or early 2019.

Effective at close, Platform plans to change its name to Element Solutions Inc. and reorganize to a one-company structure. While Platform has historically operated with a portfolio management approach, in the context of this transition, we intend to migrate to one single and more efficient operating unit.

We anticipate about $25 million of estimated annualized run rate cost savings from this reorganization, which we expect to implement promptly following closing.

In addition, this transaction will position Element for improved cash flow generation and provide the company with a more conservative balance sheet. We expect Element to generate annualized adjusted EBITDA in the range of $450 million to $470 million. This range is based on Platform's consolidated 2018 guidance of $870 million to $900 million, excluding any contribution from Arysta and including the $25 million of anticipated run rate cost savings just discussed. With anticipated net debt of less than $1 billion post the completion of the sale, Element's net leverage is expected to be less than 2.5x adjusted EBITDA. Our target leverage on a go-forward basis will be 3 to 3.5x adjusted EBITDA, which would allow us to opportunistically execute our approved share buyback of up to $750 million and consider measured inorganic growth opportunities. We believe this leverage range is optimal, as it represents a lower risk capital structure and allows us to generate significant cash flow to invest in compelling high-return opportunities.

We wanted to clarify one comment from our announcement call, which relates to debt post-closing, specifically our expectation of less than $1 billion of net debt. Several factors will affect our net proceeds at closing and therefore our net debt position post-close, which is the reason why we spoke of this in somewhat general terms. These factors include, but are not limited to: expenses associated with the transaction and associated financings; accrued interest on our debt, which could be as much as $50 million depending on when the transaction closes; Platform's second half 2018 cash flow; and a potential working capital adjustment pursuant to the purchase agreement. This working capital adjustment is typical in this sort of transaction and is designed to ensure we deliver the business with an average working capital. Given the seasonality of working capital, this could be a meaningful number, as much as $100 million in or out. If we were to deliver the business with a lower-than-average working capital, and therefore have to pay for a working capital adjustment, we will have generated cash from operations to fund it, and vice versa. This would more likely be an outflow if we close at year-end but could easily be an inflow if we close in early 2019.

As you can see, many of these variables depend on the time of close. But in all cases, we expect the cash proceeds and cash flow from operations to move in lockstep. After this transaction, Element should have far less cash flow seasonality than Platform has had historically.

I'll now turn the call back to Rakesh to provide more detail on Element's outlook as well as closing remarks. Rakesh?

[Rakesh Sachdev, executive]

Thanks, Ben. Going to Slide 9, which shows the outlook we showed at the announcement of the transaction. It outlines our longer-term goals for Element's financial performance and cash flow conversion as well as the pro forma outlook if we were to exclude Arysta for the full year. These goals are: growing our top line above GDP; converting sales growth at high incremental margins and converting profit efficiently into cash flow. All of these would drive meaningful shareholder value creation.

Excluding Arysta, we expect annualized adjusted EBITDA to be in the range of $450 million to $470 million, which includes the anticipated benefit of the estimated $25 million in run rate cost savings targeted in 2019. This would translate into as much as $300 million in cash flow generation on a full year basis, which we would note is greater than our 2018 Platform free cash flow outlook, despite Element being close to half the size of Platform.

On Slide 10, we discuss the key factors expected to drive our adjusted EBITDA for the Platform business, excluding Arysta. For the balance of 2018, we anticipate our Performance Solutions business will grow organically in all verticals as we continue to see a supportive macro backdrop. Improving demand and the recovery in the Asian mobile phone markets are also expected to be tailwinds to sales and margins. While we saw a tailwind from translational FX impact in the first half of 2018, we expect FX to be a modest headwind in the second half. We have provided a pie chart here showing 2017 sales by currency for the Performance Solutions business to provide some context on our currency exposures.

When we think about the second half of 2018, phasing is also an important consideration. Based on end of June rates, FX reverses from the tailwind it was in the first half to a headwind. So earnings from the first half will be a slightly larger portion of the year than they are typically. With regard to quarterly phasing, we expect Q3 to be slightly lower than our fourth quarter.

Finally, as you can see on Slide 11, our priorities remain unchanged. We will maintain our momentum going into the second half of 2018 and continue to focus on margin improvement and generating free cash flow. Our announced agreement to sell Arysta was a big step forward for us and we are now working towards a successful transition and close.

I will conclude by repeating how excited we are about the future of our business. We look forward to sharing more with you about the compelling future of Element Solutions and I would like to also take this opportunity to thank our global teams who continue to deliver while we reshape the company. We are well positioned for our new chapter.

With that, operator, let's open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Ian Bennett with Bank of America Merrill Lynch.

[Ian Bennett, analyst]

In the Performance Solutions business, what level of cost savings from the integration of these businesses and procurement do you expect to achieve in 2018?

[Rakesh Sachdev, executive]

So, Ian, we are on track. I think, as you know, we announced earlier this year that we were going through a transition. We had some inefficiencies. I think a lot of that is behind us. We have been getting more efficient on our supply chain. And while our margins have been expanding, we fully expect that these savings will allow us to continue to expand margins in the second half. And you can expect the margins in our Performance Solutions to expand. But I don't know, Scot's on the phone. Scot, would you like to add something?

[Scot Benson, executive]

The only thing I would say, Rakesh, is, I think that we are on track to hit the targeted savings we had talked about earlier this year. We have programs in place around our manufacturing efficiencies and supply chain efficiencies to hit our targets.

[Ian Bennett, analyst]

Okay. And for my follow-up, just on the growth potential in this business from bolt-on M&A. This recent acquisition of HiTech. Could you talk a little bit about what opportunities are out there that are attractive? Are these more product line where you're acquiring a player that's dominant in a local region and using the distribution to move it into other regions or adjacencies? And what type of multiples are you looking at on a post-synergy basis?

[Rakesh Sachdev, executive]

So we have both expansion opportunities on the product side as well as geographic expansion. So when we bought the business in Korea, which is a very regional business in Korea, it's going to give us capabilities to take that and take it around the world. There are lots of small bolt-on opportunities that we continue to look at in our Performance Solutions business. Scot and his team have a process by which we identify these, we prioritize these. And we're going to continue to focus on those. Scot, probably you can add some more color on that but this is a highly fragmented industry with lots of opportunities for bolt-on acquisitions.

[Scot Benson, executive]

Yes, Rakesh. I think, to follow up briefly, there are really a couple of things we're working on, Ian, in that regard. The small acquisition in Korea is designed to leverage our global footprint, so we can take a small regional player around the globe and expand that presence in that marketplace. And then there are market drivers that we're focused on. If you think about the automotive market, for example, like electronic vehicles and some of our product lines that will continue to grow with high-growth sectors within our existing businesses is also a focus. So we're trying to do both, both of the things that you discussed.

[Operator]

And our next question comes from the line of Dan Jester with Citi.

[Daniel Jester, analyst]

Just a big picture question. It's -- a lot of focus on tariffs and potential changes in electronics. Obviously, you have a big exposure to Asia. So I was just wondering, can you maybe comment at a high level how you're thinking about that and what your customers are thinking about in terms of potentially making changes to their supply chain if these tariffs stick around?

[Rakesh Sachdev, executive]

So in the near term -- and this statement is true for both Performance Solutions business and our Ag solutions business. The direct impact of tariffs that are being discussed is fairly small, right? Because we tend to buy and sell in the same region. So there's very little cross-border sales of material from China to the U.S. and vice versa in both our businesses. Obviously, the question is, okay, so the direct impact is small, how is it going to impact our customers? And is there going to be any indirect impact to us of that? I think it's too early to say. We're obviously in conversations with our customers. And this whole conversation on tariffs is still very volatile. But I think in the near term, we're not seeing any negative impact of this to our business.

[Daniel Jester, analyst]

Okay. And then on the oil and gas business. Obviously, that was tough for a couple of years. It had a strong second quarter. Can you just maybe talk a bit about the sustainability of the growth in that business if we're at stable energy prices? Is that something that could be a pretty substantial tailwind to margins over the next couple of quarters?

[Rakesh Sachdev, executive]

Yes. I'll I let Scot add some more color. But what I would say is, obviously, Q2 was very strong for our Offshore business. And it's coming both from greater sales for production but also I think, there's more new rigs now that are starting. So we are filling those as well. This business tends to be lumpy. So while we saw a very strong Q2, it doesn't mean that we see the same level of strength in Q3. But overall, this is very sustainable. I think as long as the oil prices stay around $70 or more, I think this business is going to continue to remain pretty robust and healthy. Scot, did you want to add something?

[Scot Benson, executive]

No. I would just echo what you said, Rakesh. We've seen some cautious optimism on the part of the major players in that space in terms of CapEx investment in the future. And we've also seen a slight return to positive growth on the drilling side, which is encouraging. So we expect some modest growth to continue in that space.

[Operator]

And our next question comes from the line of Neel Kumar with Morgan Stanley.

[Neel Kumar, analyst]

On the Performance Solutions margin, I was wondering if you can just break down how much of the 100 basis points' improvement was from mix versus cost savings? And do you think you'll be able to achieve a similar level of improvement in the back half of the year?

[Rakesh Sachdev, executive]

So I think if you look at the margins in the first half of the year in Performance Solutions and you look at the margin improvement in the second half, they'll be about the same. I think we were helped in the margin expansion a little bit in the first half because of FX. We're not going to get that help in the second half. So I think that's the only thing that's going to be different in the margin story in our Performance Solutions business is, in the first half we had a tailwind from FX that helped the margin. In the second half, it's going to be a modest headwind. So it's going to have some impact. But I would say that the mix should improve, as I said in my prepared remarks that in the electronics business, we had a soft Q2 in Korea, mostly on the mobile phones. We expect that to recover in Q3 and Q4. And so I think that will help our margin story. But on the negative side, we have the FX.

[Neel Kumar, analyst]

That's helpful. And then in terms of the 4% organic growth expectation for Element going forward, can you just talk about how you view the relative growth profile for each of the businesses?

[Rakesh Sachdev, executive]

Yes. So as you know, we've got exposure to 4 general markets, right? So we are exposed to electronics. And in electronics, we've got both -- we're exposed to PCBs, but we have a growing presence in semiconductors, which has a pretty high growth profile. We are also in industrial markets. And a big part of our industrial market growth is in automotive. And in automotive, we are growing comprehensively, not just on the electronics side but also on the mechanical side. We have exposure to oil and gas, which has been subdued but it's coming back, hopefully, online. And then we are also in the graphics and packaging business. I think when you look at the mix of all these end markets, we feel pretty comfortable that we can grow 4, maybe even 5%, which would be about 1% or 2% above the overall market because Scot and his business has been very focused on the faster-growing segments, which is why we've been investing quite significantly on the semiconductors side and several other markets. So we feel pretty comfortable with the guidance of 4% to 5%.

[Operator]

And our next question comes from the line of John Tanwanteng with CJS Securities.

[Jonathan Tanwanteng, analyst]

Rakesh, maybe you can start by giving us a 3- to 5-year vision for the Performance business. Growth above GDP or on an organic basis, pretty good incremental margins. What's the upper limit for EBITDA margins in this time frame? Number one. And number two, how much do you think you can get from M&A given that you're going to generate more than $300 million in annual free cash flow. Do you still see yourself as a broader consolidator using that cash? Or how else do you plan to accelerate value for -- value creation for shareholders?

[Rakesh Sachdev, executive]

Yes. Listen, I think there's a lot of runway in this business. The addressable markets are large. It's a fragmented industry. We are a leader in many of the businesses that we are in. We have been gaining share, as you guys know, which is also leading us to grow faster than GDP. And as I've said, if we continue to grow in the mid-single digits, our top line, we will grow our earnings in the high single digits. That's what we've been doing. And I see that for the foreseeable future organically that continuing. Now we can absolutely fortify that story of high single-digit organic growth by the right inorganic moves. We don't have to make major transformational moves because as we had this discussion earlier in the call, I think there's some great opportunities for us to acquire companies. Whether they are regional companies and take them global, or fill some product gaps, I think we are in a great position. And we'll talk more about Element Solutions. And I think in the third quarter earnings call, we'll give a lot more color. But what to expect where we will take Element, we'll hopefully give you some guidance over the next 3, 4 years. But I can say certainly at this time that we are pretty optimistic about the growth profile of Element Solutions.

[Operator]

[Operator Instructions] And our next question comes from the line of John Roberts with UBS.

[John Roberts, analyst]

Since Carlyle acquired the Atotech business, have you seen any change in the dynamics of the circuit board chemicals market?

[Rakesh Sachdev, executive]

I'll let Scot respond to that.

[Scot Benson, executive]

Not really, John. The markets are adjusting, I think. We still see the same competitive pressures from our normal competitors. And we don't really see any impact from Carlyle's purchase of Atotech.

[John Roberts, analyst]

Okay. And then secondly, Kodak has put its flexographic printing consumables unit up for sale. Is that something ESI would be even interested in? And even if you were interested, would antitrust be too high for you to possibly look at that?

[Benjamin Gliklich, executive]

So -- this is Ben speaking. We have a really nice flexo business, which we like a lot and have invested behind in the past, there is obviously opportunity for us to grow in that into a larger market leader. We're not going to comment on any specific potential transactions in that space. But we do see that as an area where we could consolidate over time.

[Operator]

And our next question comes from the line of Joseph Reagor with Roth Capital Partners.

[Joseph Reagor, analyst]

Most of the stuff I wanted to ask have already been touched on. But just kind of on the G front, are you guys expecting additional G&A costs in the second half of the year related to the sale of Arysta? And if so, can you kind of give us a ballpark qualification on that?

[Rakesh Sachdev, executive]

Well, now going forward from the next quarter on, we're going to be focused on Performance Solutions. As you know, we're going to put Arysta in our discontinued operations. And we're going to run Arysta the way we have been running it. And the outlook for the Ag business, Arysta's business is very solid in the second half. We haven't talked a lot about Arysta, obviously, for the reasons because it's being sold. But I would tell you that, that business is going to do great in the second half of the year. The Latin America business looks strong. And so that's -- as far as G&A, there is nothing abnormal in our businesses. We are steady as we go. When it comes to G&A, there are no big investments on the horizon. In fact, we have got programs to actually cut back on G&A, both in the Ag Solutions business, which Diego and his team have been doing a great job to offset the inflationary pressures. In fact, in Q2, a big part of the recovery against the inflation of raw materials was in G&A. We lost gross margin in the Ag business because of these inflationary pressures. We made it up entirely because of reduction in SG&A. And so what I would say is that we have -- we are managing our G&A costs very closely as well.

[Joseph Reagor, analyst]

Okay. Fair enough. And then as a follow-up to that, what is the G&A level we should expect for just the Performance Solutions segment going forward?

[Benjamin Gliklich, executive]

So -- Joe, this is Ben speaking again. As we've articulated, we've got a plan to reduce our overheads in the context of the separation. We're targeting $25 million for the reorganization. That's all we've really communicated at this point. We can walk through the multiple drivers of that and sources of that off-line. We feel good about our opportunity to reduce G&A on an ongoing sort of continuous improvement plan subsequent to the transaction. But the business as it is right now has opportunities to become more efficient, but we wouldn't point to anything specific or quantify any target in that regard.

[Operator]

And our next question comes from the line of Jim Sheehan with SunTrust.

[Peter Osterland, analyst]

This is Pete on for Jim. Given the weakness you saw in Electronics in the second quarter, what gives you confidence that the mobile electronics business will rebound in the second half of the year?

[Rakesh Sachdev, executive]

Well, first of all, Pete, I just want to clarify, even though we say it was weak, it was weaker than the other segments, we still grew in the Electronics segment. So you shouldn't walk away thinking that we actually decreased. We grew in the low single digits. Now in the mobile market, obviously, we are very close to what's happening with our customers, all the mobile manufacturers. You probably heard both Apple and Samsung talked about recoveries. So we are obviously relying on what we are hearing from our customers, and they're saying that they will see a recovery in the third quarter and fourth quarter.

[Peter Osterland, analyst]

Okay. And just as a follow-up. With organic growth of 5%, above average relative to your 4% target, as Electronics rebounds, do you expect that organic growth can accelerate further in the back half? Or are there any other areas that you believe will decline to offset this?

[Rakesh Sachdev, executive]

Yes. I think right now, our guidance is still in the mid-single digits in the back half of the year in terms of top line growth. If any of the markets show a little more strength, we will revisit that. But for now, I think we're comfortable with being about mid-single digits.

[Operator]

And our final question comes the line of Aleksey Yefremov with Nomura Instinet.

[Matthew Skowronski, analyst]

This is Matt Skowronski on for Aleksey. Just following up with that question before. Are you seeing trends in July that kind of jibe with your expectation of rebounding in the second half?

[Rakesh Sachdev, executive]

We rarely use 1 month to be a predictor for like the second half. I think there's nothing that we have seen in July that would've -- if we had seen something, we would be telling you something different in this call, obviously. And we have reasonable visibility of the next several months. So I would say that what we're telling you in this call is what we think is our best outlook.

[Matthew Skowronski, analyst]

Got it. And then following the close of the transaction, what -- how should we think about the cadence of the $750 million buyback? Is there like a maximum amount of time you would expect that to occur in?

[Benjamin Gliklich, executive]

So we'll see what the market serves up and just because we've authorized that doesn't mean we're necessarily going to do it. We're going to be prudent about capital allocation on a go-forward basis. And if the stock represents a good buy, we'll be buying. But with regard to a specific plan for that, we're still 6-plus months out. So hard to have visibility at this stage.

[Operator]

Thank you. And that does conclude today's Q&A session. And I'd like to return the call to Rakesh for any closing remarks.

[Rakesh Sachdev, executive]

Thanks, Sandra. And again, I just want to thank everybody for joining us this morning. Again, to recap, we are all very, very pleased with the progress we've been making on several fronts. The Q2 results speak for themselves and the recent announcement about the sale of Arysta was also a major milestone, and we look forward to keeping you updated.

So with that, thank you, all, and have a great day.

[Operator]

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