Q2 2020 Chemours Co Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the <unk> Company second quarter earnings call.
At this time all participants are in the listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this time you will need to press star plus didn't start number one on your Touchtone phone. If you require any further assistance. Please press star zero. Thank you I would now like to hand the conference.
Silver to your speaker today, Jonathan Lock, Vice President and Chief Corporate development and Investor Relations. Please go ahead.
Good morning, and welcome to the more company second quarter 2020 earnings Conference call.
Wednesday Executive Officer, Mark Newman, Senior Vice President and Chief operating Officer Infamy around on senior Vice President and Chief Financial Officer, I'd like to remind you that comments made on this call as well with the supplemental information provided in our presentation and on our website contain forward looking statements.
That involve risks and uncertainties, including the impact of coated 19 on our business in operation.
The other risks and uncertainties described in the documents can Moore's has filed with the FCC.
These forward looking statements are not guarantees of future performance and are based on certain assumptions and expectations a few Caribbean that may not be realized.
Actual results may differ and come worst undertakes no duty to update any forward looking statements as information.
During the course certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance.
A reconciliation that.
Non-GAAP terms than adjustments or this presentation.
I will now.
I'll turn the call over to our CEO, Mark Vergnano, who will review the highlights from the second quarter Mark.
And for joining us today.
Unprecedented times.
And the last three months have been somewhat.
It started with Cobiz 19 first in Asia, then in Europe in the Americas.
We have witnessed the incredible resilience of the human spirit and our collective response.
In late May we saw social Justice take center stage, and a suicidal weakening of tremendous proportion.
I'm extremely proud of this company's response to both of these dramatic events in the first half of 2020.
We have acted quickly on a global scale to face these challenges head on and will emerge stronger and more United as a result.
Regarding Cobiz 19, as I said in our first quarter call. Our response was swift and strong.
Early safety measures implemented across all our sites have proven effective and we have maintained operational continuity across all our global footprint.
We continue to manage through the current surge of cases in the United States with our internal health and epidemiology team fully engaged.
As a leadership team we have had to make many timely yet tough decisions as the pandemic has worn on.
Through it all we've maintained our true.
The customers first.
As a company we remain committed to come.
Coming out of this pandemic stronger and more competitive this.
The murder of.
Set off a firestorm of protest.
Generation.
It's unfortunate death put into focus many of the deep seated issues. Our society has and is cause all of us.
To rethink and re three in our behavioral norms and practice opportunity to reflect the in strengthening.
The number of our own internal practices in regards to inclusion.
This includes a zero tolerance policy towards any type of discrimination, including racism.
And expansion of our safety obsession value to include the holistic elements of emotional and site.
The logical safety.
And expanded training and education programs across the entire company.
These they along with our 10 by 30 corporate responsibility to amendments form the basis of.
New kind of chemistry company a company that is working to inspire our 7000 employees is better for all of us.
I would like to invite those interested in learning.
More about our commitments been programs information.
Moving on to the results.
The covert 19 driven weakness.
This which started in the first quarter and impacted nearly every end market.
In which we serve.
While the global macro was severely impacted by cobot 19, our second quarter cash flow prove resilient execution of our cobot 19 response plan.
Kobin 19 related headwinds resulted in a sharp drop in second quarter revenue with adjusted EBITDA of $166 million margins were impacted by low production rates as we manage working capital by idling several facilities across the company.
As I said on the first quarter call. We are focused on maximizing cash generation through this demand trough.
In the second quarter, our team jumped in the action with Swift cost cutting and cash conservation actions and helped to offset some of the headwinds in the quarter.
As a result, we were able to generate $50 million of free cash flow in the second quarter. This was an improvement of $167 million versus the second quarter of 2019.
We still have significant work ahead of us as we turn our focus to revenue growth, but I'd like to applaud each of our team members around the world for their contribution to this excellent result.
Our balance sheet remains solid with ample liquid.
Point $4 billion at the ended the second quarter, we maintained a cautionary 300 million dollar draw on our revolving credit facility.
Looking ahead, we remain limited in our ability to forecast beyond the coming weeks and while we are hopeful of an ongoing recovery the.
View from our customers is not.
Consistently clear.
Barring us large second wave global economy bottomed in mid May.
Since then order patterns have begun to stabilize with improvements each week in June and into July.
While a positive sign we do not yet have enough data to project the shape and trajectory of the recovery.
As a result, and consistent with our first quarter practice, we do not believe it is prudent to provide quantitative guidance for the second half.
Before I turn things over to Samir to review the financial results in detail I'd like to quickly cover the commitments, we made last quarter and our proactive response to covert 19.
We covered some of these items earlier.
But I wanted to use this chart to reinforce to all our investors that we have acted quickly and with purpose to create significant financial and strategic flexibility for the company.
It starts with putting our employees in our customers first.
We have not back down on our PE and health requirements set our sights and continued to use procedures, social distancing and masks.
We have been fortunate to be in a position to help our customers and supply chain partners with advice pp in the other supplies. During this pandemic and we'll continue to help those in need across the communities in which we operate.
We took.
Ulster our balance sheet by eliminating disk.
Early reducing salaries and scaling down capex to conserve.
The cash.
These programs as we move cautiously off the bottom.
From a cost perspective mindful of the need to invest into the BRCA, Hungary and maintain momentum in key markets.
Finally on our first quarter call.
Oh I spoke about the resilience of Kumouri's, the grit and determination, which is defined our short history.
That resilience with on full display here in the second quarter and I have no doubt we are well prepared for whatever else comes our way.
I want to recognize the entire kumouri's team for their effort this past quarter, the shared sacrifice long hours and late nights.
I know, we will get through this together.
With that I'll hand things over to Samir to review the financial results.
Thanks, Mark I'll begin my comments on slide five.
Second quarter revenue was $1.1 billion as go at 19 impacted demand across most global end markets.
Lower volumes and high production costs across our two principal segments photo product and titanium technologies resulted in lower margins were GAAP net income was 24.
The net income was $30 million.
GAAP earnings per share came in at 15 cents per share while adjusted earnings per share was 18 cents per share.
Free cash flow was $50 million, an improvement of $167 million from the same quarter and 29 team.
Strong cash flow from operations, driven by working capital management combined.
The previous to the strong free cash the result.
Okay.
Finally, our board of directors approved the Q3 dividend of 25 cents changed from the prior quarter and the.
For the harvest 17.
Turning to toxic.
20, adjusted EBITDA was $166 million.
Under $83 million in second quarter 2019.
Lower volumes Unico in 19 impacted all three of our segments.
We also experienced lower average selling prices due to customer and product mix as well as the timing of contractual price down commitments and some product lines.
Improved operating performance and efficiency gains in.
Photo products.
And cost reduction efforts across the company more than offset idled production charges and lower ask escoto sales and for our products.
And high unit costs, and titanium technologies due to lower operating rates.
In total cost another world 43 million dollar improvement versus the same period a year ago.
Moving to the next chart, our liquidity position remains strong.
Our cash balance at the end of the second quarter was approximately $1 billion, including $642 million of us cash.
In the quarter, we spent $61 million on capex and determine $41 million to shareholders in the form of dividends.
As Mark mentioned earlier, we maintained a costly 300 million dollar drop.
Strong execution.
Our co at 19 response plan provides a significant financial flexibility any market disruption.
You will recall, we use the term.
Caught on our Q1 call to help lately and Levered position.
We continue to believe our balance sheet as a source of strength.
And we have ample liquidity considered and current market conditions.
In total we have approximately $1.4 billion up liquidity, but just over $1 billion of global cash, including 300 million dollar devolved withdrawal.
We maintain approximately $400 million of remaining revolver capacity.
Our current senior secured net leverage ratio up approximately one times as well below the two times maintenance covenant level.
On maturity towers on well balanced and space with our nearest maturity in 2023.
Of course, we will always look on new opportunities to improve our financial flexibility, but today I believe we are well positioned given the conservative actions, we took earlier in the year.
I'll now turn to call over to Mark Newman Dakota segment results compare before I cover segment, let me just underscore some of Mark's earlier comments that chemists team sprang into action around Covance 19, and we kept our people save our plants running and met our customer needs all while cutting.
Okay and preserving cash we also stepped up our efforts on inclusion and diversity all part of our commitment of being a new kind of chemistry company.
Our focus from this point is on profitable revenue growth in an uneven and potential gradual recovery.
The team is fully engaged and we are not daunted by the challenges ahead of us.
With that let's move to the results in the second quarter, beginning with for a products on chart nine.
Second quarter for a product sales reflect lower volumes across a number of Florida, chemical and Fluoropolymer product lines.
As Covance 19 impacted end market demand.
Order demand was particularly weak in the core though with most plants in Europe, and North America shut down for extended periods of time.
As a tier one supply of Opteon HFO refrigerants to auto Oems.
We felt this demand impact almost immediately interflora chemicals business.
Hey, Matt in far eponymous was less severely impacted by a reduced demand for automotive components.
And from industrial end markets in the second quarter, However, given where we sit in the automotive and other value chains on polymers, we expect demand weakness.
Price was a 3% headwind in the quarter impacted by product and customer mix.
As like.
In the first half.
In total adjusted EBITDA for the second quarter came in at $97 million with margins of 19%.
Our adjusted EBITDA.
In the quarter reflects limited Afghans coda sales and the impact of shutdowns and production line idling, primarily on the floor a chemicals side of the business.
These factors.
More than offset improve productivity and cost efficiency efforts across our sites.
Going forward toward the demand outlook remains mixed.
While there has been some recovery in auto OEM volumes starting here in July we have yet to see a sustained cross industry recovery in demand.
We believe that volumes likely bottomed in me and we are on a path to recovery over the coming quarters.
As we move more fully into recovery, we expect for chemicals demand and margin to rebound more quickly given our auto OEM exposure as a tier one supplier.
On the other hand, we expect fluoropolymers to lag given that we're further back in the supply chain and the unevenness in recovery of other polymer markets.
Longer term, we continued to have confidence and growth potential of our polymers, which will be essentially in areas such as next generation financing networks.
Fuel cells and hydrogen infrastructure.
Let's turn to our chemical solutions segment on the next chart.
Sales in the second quarter were $82 million down, 37%, reflecting the lower revenue from the sale of our M.A.P. business and customer mine shutdowns across the Americas, which impacted mining solution.
Adjusted EBITDA in the quarter rose, nearly 20% and $19 million from $16 million in the second quarter of 2019.
Adjusted EBITDA margin was 23%.
Reflecting an 1100 basis point improvement in margins from 12% in the prior year.
This improvement reflects timing of cost reduction efforts and portfolio management actions.
For the balance of the year, we expect demand to normalize as customer mines returned to full operation.
We continue to focus on our full year cost reduction actions cash generation and operational readiness.
Finally, as part of our efforts to continuously improve our operating efficiencies and manage our portfolio. We made the decision to shutdown our animal in business effective at the end of the year.
Let's move ahead to our titanium technologies segment on chart 11.
Our sales in the core, though a $488 million for down 14% compared to last year.
The decline was driven primarily by lower volumes due to soft demand in Europe, Latin America, and Asia Pacific North America has been relatively stable as the de Iwai trend has helped bolster end market demand.
Overall volumes were down 20% on a sequential basis.
Consistent with the low end of our expectations headed into the quarter.
Despite this decline price was flat on a sequential basis and down 5% on a year over year basis, a testament to the resilience of our TV a strategy the benefits over a flex E commerce channel and the value our customers see in their partnership with.
Kim ores.
While the quarter as a whole reflected significant demand headwinds related to covert 19, we experienced a modest recovery as we exited June with weekly sales trending more favorably and the first two months of the corridor.
In the second quarter, we continue to add aviate contract customers as T. I go to buyers were attracted to the value of supply certainty and market share based contracting offered through Tvs adjusted EBITDA of $94 million was down 26%.
From the second quarter of 29 teen.
Margins up 19% reflect the impact of lower fixed cost absorption due to our low production levels.
Looking ahead.
We believe we're in the early stages of our market recovery weighted regional differences emerging based on patterns of disease around the world.
Downstream.
Architectural coatings plastics and laminates demand will follow the path of their regional end markets ahead of a more coordinated global recovery.
We continue to believe that we are well position with our broad portfolio of aviate contracts.
Hi, pure flex and distribution customers.
We will continue to help our customers meet their pigment needs to this incredibly dynamic period.
I'll now turn things back over to Mark.
Thanks, Mark I'd like to close my prepared remarks with a few observations on what we've seen early here in the third quarter and also some thoughts on the global recovery.
Our order book patterns in conversations with customers indicate that Q2, mark the bottom of the pandemic related demand downturn.
We have yet to see a synchronized global recovery, but are hopeful that the regional and sector specific recoveries. We are experiencing continued to gain strength over the back half of the year.
We do believe the trajectory from here will be positive barring a major second wave of closures across major segments of the economy.
One critical area will be the impact of stimulus in particular infrastructure stimulus, which we believe will play a meaningful role in restoring growth.
The recent stimulus announcements in Europe and prospects for additional measures in the U.S. Our welcome news in many of the markets in which we participate.
Until then we will continue to run the business to maximize cash flow, while doing everything we can to support our people and our customers.
This strategy will allow us to emerge from this period are stronger and well positioned for growth in our core markets.
With that operator, please open the line for questions.
As a reminder to ask a question you will need to press star one on your Touchtone phone.
To answer your question press the pound key.
Please limit yourself to one question and one solid follow up question only thank you. Your first question comes from John Mcnulty.
Hi, I'm, Dan I'll capital markets. Your line is open.
Yeah. Thanks for taking my question.
So I guess the first won't be on the aviate contract. It sounds like you had a decent uptick in a in signings. This past quarter I guess, when you think about the tone of the discussions around those signings would you say, it's more about the of your ability to consistently deliver on the supply side or.
Do you think it's more about concerns on price hikes coming as we look to 2021 and as the market maybe gets to a more stable footing how would how would you characterize all that.
Hey, good morning, John I would say.
We continue to see steady increase in in our.
Maybe contracts, but you got to remember 88 contracts play extremely well I'm in a period like this when we.
We don't require commitments to volume we required commitments took market share.
And so that allows this flex to occur when you when you have an economy like we're seeing right now so I think that's the biggest draw here is a once you get the price stability to you get those surety of supply to your points, but you also are asking somebody to commit to volumes when when things turn down an economy because its relationship.
To how we do the market share calculation. So I think it it all plays in a positive way to our customers leathers price, whether its surety of supply or whether it's the way be frame contracts from a from a a volume standpoint.
Got another milestone Oh, if I could just said the hair event.
So having the flex and the aviate channels are very complementary. So we we build a relationship and the flex channel and from that people as Mark said move to Avi.
So where we're adding a few contracts in that way I I think what's also very important is you know a number of folks said you know cynically predicted that in a stressed market. You know we would we would see people you know walking away from maybe a contracts and I'd say just the opposite.
This is this is what.
Our aviate contracts were designed to allow our customer to modular volumes in these markets. So I think the wisdom of our TV a strategy is playing out and the proof is here and folks are seen the benefit of both the flexibility of our flex portal, where they can begin.
Our relationship with cameras as well as as as.
The wisdom and they aviate contract design. So I think we're very encouraged by what we saw in the quarter.
Got it now that that's absolutely makes sense and then I guess, it's done. The second question. Just you know you indicated you had a number of plants idled throughout the quarter. I guess can you can you quantify somewhat at what that financial impact was into Q and then can you give us an update as to proportionately have you brought many of the.
Those plants back on like how should we be thinking about you know how that that headwind there around the cost side may maybe dipping as we as we look to the third quarter.
Yeah, John I think you know when we assumed what second quarter was going to look like airplay likes. What we said was that we were going to probably have some idling of facilities and the thought was it would be across the whole network of floral.
It turns out when it was mostly the fuel chem side, because refrigerants were way down primarily because of the automotive downturn.
So thats why you probably saw the margins a little bit higher than what we had anticipated in Florida. So I would say as we go into the third quarter Youre going to continue to see those margins about the same levels. Because we're we're now going to be shifting to probably idling some of our fluoropolymer.
Assets versus our refrigerant assets and really because of marks comments from before we have a lag interflora polymer change to our customers, where we're probably three months out in terms of seeing the effect of of the upturn that we've seen in automotive that is immediate because of tier one supplier and refrigerants, it's going to be a lag.
The floor polymer side, so you'll probably see some of our idled production.
In Florida polymers today, we haven't had much more idled production anywhere else.
Got it thanks very much for the color.
Sure.
Your next question comes from Duffy Fischer from Barclays. Your line is open.
Yes, good morning.
Three questions just on the floor or side first did I hear you are right that you said that HFC pricing in Europe has turned up.
And if so kind of how much and what's driving Nam.
And then [laughter] has HFC weakness in pricing in Europe over the last are impacted HFO pricing at all as you would look at it.
Yes.
Haven't seen any each any relationship with HFC and HFO pricing.
From that standpoint again most of the HFO.
Sales, our contractual and their contractual with the automotive industry.
And then the the blends which really are.
Going into this.
Act from a pricing perspective, I wouldn't say, we've seen HFC prices turned up I would.
So you I think we've seen a bottom.
And when I think we've seen less imports from China at the end of the quarter.
From that standpoint, so we haven't seen us a significant uptick in HFC pricing, but we have felt that we probably seems the bottom of that pricing.
Okay, and then could you dig in a little deeper I, just I wasn't quite clear what you were trying to communicate around auto ramp and what that's going to do for volumes in your fluoropolymers versus volumes in your floor cam's.
You know the lead lag there is that inventory that needs to be worked down as they start to ramp back up could you just flesh out how we should think about your volumes.
Ramping backup in both those parts of Florida, Vis-a-vis, you know and auto ramp.
Sure. So first of all on the flow Chem side, we're a tier one supplier. So you see that immediate impact.
Well as facilities start coming up on the Fluoropolymer side.
Probably roughly 20% of our volume is an automotive so you're in automotive your industrial a wire and cable electronics, there's a bunch of areas that were in in the automotive side of our floor polymer side. It's primarily were just way back in the chain. So yes, there's probably inventory.
<unk> in there that has to flush through.
One but to that as that order patterns starts it gets stronger as production starts to happen, we usually see that delay, but think of it as primarily inventory that's already in the channels that has to work its way through.
Terrific. Thank you guys.
Sure Yes.
Your next question comes from Bob acquired from Goldman Sachs. Your line is open.
Thank you very much good morning, guys.
Hey, Bob.
And Mark.
One question that sometimes get some clients when they think about investment income Moore's is.
Whether the.
The price stabilization strategy might take away some of the upside relative to playing other cyclical.
Company. So can you talk a little bit about how you see the trajectory of incremental margins as you start to regained volume and then kind of price response, you might expect in the future of the world does start to tighten up again for you relative to maybe what the market would do.
Sure.
Let me start there and maybe Mark Newman can add my second but.
I'd say as we look at the third quarter right now we're seeing volumes start to increase I'd say, you know a low to mid teen volume increase we seeing price stability.
From that standpoint, that's going to help margins just because we're now going to have more utilization on our assets, So where I've read a we're at a place where you want to have some more utilization on your assets to really get your margins up independent of price from that standpoint, as we move forward.
Obviously, our aviation contract customers, which is the majority but still not.
Somewhere in the 50% to 60% range today, maybe goes up to 70% at the.
At the very Max.
We'll have price protection NPV I will be driving that from from a standpoint at what price happens, but we have to flex channel right in the flex channel allows us to move price wherever it needs to be based on what the market conditions are so we can participate in a price move up.
At that time, but we also part of our value proposition or customers is to give them those who were on the 88 contracts to give them. Some weblogs price stability, but don't forget the effect of utilization on our assets in terms of margin.
I'd say in the mid term that probably has as much impact is anything from a from a margin perspective market will help you have anything else you want to add up.
Yeah, Mark I would just reacting to the point that you know the big they obviously, we have a lot of room to grow to meet future demand you know based on our utilization today and you know that has significant operating leverage we continue to have you know the you know the significant or at van.
Which you know as we run our plants you know across the circuit and you know with both flex and a distribution channels. We can take you know price as as it becomes available in the market. So you know Bob I I like our options here from this point.
As we move forward and you know believe that you know we have significant volume and the ability to take price in several of our channels. Obviously you know there is real married to our customers in the aviator agreements and those provide no real stability to.
With us and our customers.
Thanks for that Mark you mentioned or costs and others, a little skirmishes one of your suppliers can you tell us what you've done in this downturn.
In terms of the mix of your or supply I guess traditionally we would expect you to go to lower grade cheaper wars when demand wasn't as high.
Well, you've also done some acquisitions to bolster your own supply can you just give us a sense of how that has changed that worse laid over the last year and then in an upturn of it would change some more.
Yes larger.
I had my it no go ahead Mark sorry.
Hi, I was going to say, Bob you know, obviously chloride ilmenite as our advantage.
We try to utilize that advantage all the time from that standpoint, so we're going to utilize as much chloride ilmenite in our in our network as we can.
We can operate at much lower or levels and others, Ken So we want to be able to do that all the time, especially in a time like this so that that that's for sure is a is a key strategy for us as he is how do you take advantage of our ability to utilize CLO.
Right Ilmenite, obviously, we we have a process that basically beneficiaries in process from that standpoint. So so we're always going to be looking at ways to be able to do bats, yes, yes, we're having a issue with one of our suppliers right now, but we feel that that's a contractual issue that is very straightforward.
From from our standpoint as something that's the contract allows us to do so.
There's nothing don't read anything into that except just normal way of how we operate our business day to day.
And Mark the only thing I might add is the you know we made a great investment in in southern Ionix down in Georgia and that continues to go very well and you know has the potential to increase our internal a supply you know with with further investment up to about 20% of our requirements.
Your next question comes from Josh Spector from you, Yes. Your line is open.
Yeah, Hey, everyone. Good morning, Thanks for taking my question.
Just back on borrow I was wondering if it's possible to get quantitative in terms of volume decline in the quarter by chemicals purses polymer. It's just so you can kind of frame the sequential improvement in those segments as well.
Our did you want to talk.
I didn't hear the first part of the question I'm sorry.
Sorry, just asking about if you could break down what the volume declines were year over year by Fluorochemicals and floral polymers.
Yeah. So you know overall, you know year over year right you know our volumes are down.
You know closer to 23%.
I'd say the way you should think about that as you know we talked about you know order being down really significantly I think 40% to 50% ought to volumes being down a again they impact directly as a tier one supplier.
And then you know polymers being down more in line with industrial demand being down year over year, you know kind of in that 10% to 15% range, our 10% to 20% range depending on the product line year end. So yeah I think of this as a tale of two very different businesses are.
Though is down you know both in North American and Europe significantly, 40% to 50% based on the outages. We saw in Q2 that snapped back in July and in fact, we see oddo being revised upward you know as we come into this quarter.
Polymers on the other hand is down in line with industrial you know kind of mid teens.
We expect you know a as Mark said earlier that the recovery in polymers to demonstrate a one quarter lag. So we thought we'd actually see some decline in polymers as we go into Q3 overall, our floral business and it will be up slightly in Q3, but it'll be.
Very different mix.
Businesses, and then are our expectation will be you know it continued economic recovery, we would see polymer starting to show a you know a strength so our recovery starting in Q4 sets kind of just a one quarter lag on the polymer situation.
Okay. Thanks, that's helpful and just on a kilo solutions I mean, obviously pretty good performance in this quarter, just wondering as money kinda demand improves you see margin holding where they were or was there anything unique in this quarter. It be at licensing income or anything else that would have drove margin missing.
Yet when higher this quarter.
Yeah, I think the way you should think of chemical solutions is you know we've guided to this being you know a roughly 20% EBIT that business, where obviously you know better in this quarter, though I think that relates both to the actions. We took on you know our M.A.P. business.
All your perspective as well as the timing of some cost actions we took in the core now.
You know last year, when we announced the closure of our Methylamines business. We did get some second half sales that that were helpful that we won't get this year, but I'd say they they offsetting impact as we think of the second half. This year is we expect you know mining solutions to you know to start to recover I would say when.
As you sort of net everything out you should think of this as you know being somewhat close to a 20% EBITDA margin business and you know will have cortez, where were slightly above and cortez were slightly below.
Okay.
Your next question comes from Laurence Alexander from Jefferies. Your line is open.
Good morning can you put in context sort of the total Matt headwind you've had from the legal refrigerants.
To give us a sense for if there were effective.
Regulation or what the step up in that.
Business area would be.
Hey, Lawrence you know last year I think we were very clear that it was a probably about $125 million EBITDA headwind for the year.
So I think thats a good gauge for you to see what that really is that negative would be from that standpoint.
That's probably the best way I can I can explain it. So obviously there is there was an uptick in an uplift for us going forward.
And.
When volumes start to recover MTO too for the industry.
How much of the industry volume growth, that's come or is expect to capture given.
The.
Stabilization strategy has played out in the way to customers have navigated this.
Well you know we've been we've been very clear and hoping that we want to gain back our are at least to get to our rightful market share. So we believe we will.
Gain you know a lions share of that have that grows so maybe a little bit more than what the industry grows and we we also recognize that a as things were looking like in the second quarter.
We weren't going to be driving that.
Marketshare recovery during a during a period, where we would create instability. So.
Now that we see our volume growth is is coming back as I said in the third quarter, we're anticipating.
Somewhere in the range of low to mid teen kind of volume increase.
With price stability I think coming from that we should start to be able to gain market share again as we end the year. So we will continue to go down our path to smartly and targeted lead go after market share at the same time.
Is there or is there a charge of sushi.
There is since American can give you the number it's it's fairly small just just to put it in context. It for the for those who have been with us for a while if you remember back in 2016, we basically sold the handling business to Dow. This was the last asset it couldn't be part of that sale for complicated reasons of the spin.
So it's a it's a very small charged to smear I think it's in the range of $7 million, but you can answer that better.
Yeah and them, while Laurence it's is roughly $12 million charge this type of Pascagoula shutdown.
The majority of that as essentially is tied to the asset NASA piece and a couple of million tied to severance.
Perfect. Thank you.
Your next question comes from I. Runes. These are not in from RBC capital markets. Your line is open.
Great. Thanks, good morning.
I'm just wondering about the inventory situation and go to maybe could you comment on or what you're seeing I guess my across geographies as well as maybe the export situation out of China.
Yeah, maybe can you just how that help us on those two items. Thanks.
Yes, one like kicking off in Marquis antennas or when I would say that.
Do you sort of walk through the re aegions.
North America continues to hold up fairly well that's been driven primarily by the coatings.
Side in D., I, why but contract type obtaining so.
I think that's that's starting to resume Asia is improving we've seen Europe, and Latin America, improving Latin American maybe a little surprising that that's improving so coatings overall seems to be on an improving trend across plastics has been slower in recovery we play in the.
Packaging play on Polyolefin Masterbatches wells PVC, a packaging has held up PVC and construction has lagged.
The structure.
And any.
At Laminates has been probably the most sluggish segment of the Threed.
From a segment in a in it.
Region point of view, China, I've, most positive region from an economic direction remember China is the largest user of T. Two at the same time. So I think a lot of excess capacity that was coming out of China from exports is now starting to get consumed in country. So I think you're gonna see less.
Yes, China exports because of that MSR at least our thought so I would say, we don't see a big inventory.
Bill build.
Channels, and with our customer channels and as things improve we think.
Our third quarter volumes, I think you're going to see that immediately start passing through.
Mark anything you want to either yeah, Mike I'd say some comparisons have been made you know to the global financial crisis, and I'd say the difference one of the principal differences is last year. You know we had a lot of de stocking in the industry. So you know we are coming into this with I think you know different inventory levels then.
Parents in the global financial crisis.
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You know I think you know North America and China.
Our showing you know resilience our strength H T X, China was quite weak, but again starting to show strength in places I know like India.
And you know Latin America continues to be weak, but is there relatively small market for us. So we're very encouraged by the signs that we see you know across both our channels our product mix and geography is and you know that really drives the volume increase that we talk.
How about going into Q3.
And I guess, how do you think about pricing and those you know regions I guess, given what you just said I mean, it's possible that you see a you know increases potentially in North America, but not in a Asia or Europe or how should we think about.
Yeah. They what I would say is certainly you know pricing fell pretty dramatically in China in in Q2 and were seeing that start to reverse you know as as market demand picks up there. So we think that you know globally is is a good phenomenon.
As you saw in our Q2 results CNR sequentially, our price was stable in the core though in our outlook or even with the volume increases that were seeing you know going forward is for prices to remain stable you know as demand picks up could there be you more pricing pressure shore, but I think as well.
Sit here today in our view is prices globally, a remained stable other than if in fact in China, They talked about where prices had fallen pretty dramatically in the corridor and are now starting to rebound.
Okay. Thanks, I'll turn it over.
Thank you.
Your next question comes from P.J. Juvekar from Citi. Your line is open.
Yes, good morning, everyone.
No more than two judge and you mentioned about demand photo fill returns in fiveg and hydrogen fuel cells.
[noise] Kennedy committed and just tell us exactly what that if we hit and sort of used made before he does management.
Or what kind of discussions are you, having with customers or <unk> and have you actually seen any orders here. Thank you.
Yes, so its floor polymers not refrigerants. So remember we have a very high end Mel polymers.
Primarily rps say polymer line.
That goes into the electronics industry in Semicon. It goes into two big areas in Semicon. One is the most of the two being most of the line or is most of the equipment. When you make a a semi calm fab uses our polymer to fabricate those because that's very very important.
Juice contamination, so when a new fabs built we have those orders directly so we had that for years and we continue to have bad.
Surgeons in North America, and semi Clinton industry is a huge positive for us. So we're looking forward to being able to work with our customers there from that standpoint.
It also goes into into a materials as well so as you go to Oh, Gee and you have to have the high level of frequency that fiveg requires traditional polymers like liquid crystal Palmer's don't work right. So you have to use for polymer. So that's that's the area of the applications.
Development that we sell one today and we think we'll have high growth potential in front of us. The hydrogen side is really about membrane. So think about maybe on the membranes pets we have.
Nathan Isbee membrane of choice for fuel cells and for hydrogen generation. So we sell.
We think that's a huge growth area.
And just talking about Ohio, M. deal update and your lawsuit with Dupont I guess my question is is that a way to collaborate to really work with Dupont do come up with a solution and have you had any discussions regarding that then going to just give us.
An uptick.
So you didn't make sure I just elaborate on what part what coupon.
Collaboratively come up with the solution for pendulum Trust fund or something like that in the future.
<unk>.
We continue to work with them.
And well you know one thing.
I'm convinced that we will come up with its with something that that makes sense for as I've always said, whether we go through arbitration or whether we go through litigation is the endpoint is probably going to be a settlement between the two companies. We continue to talk these are just as a hard.
It's hard to get the right answer for both set to shareholders, but I believe we will find a way to do that.
Thank you.
Your next question comes from Jim Sheehan from Suntrust. Your line is open.
Thank you good morning.
Could you talk about why you are confident that legacy ever refrigerant prices and.
You say imports are down is that due to recession or is it do more too.
Yeah Southern company, you should know the to to be honest closely with the Oh.
The regulators in Europe and they are.
Stepping in to try to help us because remember they had to step down in quota that has to happen at the end of year and they recognize that Doug. This is very important for them to get their hands on us. So so enforcement I would say is is probably the primary driver here.
Again, we were just seeing prices have a slight uptick toward the ended the quarter I wouldn't have victory yet.
But.
It's it's slightly promising.
Mark if I went to side you know obviously during the height of covert 19 in Europe with many facilities shut down offices, you know retail facilities you know there was.
Quite a softness in the market. So you know both here in North America.
With that hot summer, we're having as well as in Europe, you know as as its facilities reopened then there's you know more things getting back to sort of one new normal.
We are we are seeing you know the bottoming of of of you know refrigerant prices from an enforcement perspective, you know we continue to work in Europe on this issue and you know I expect that to continue to move into right direction in the second half. Obviously you know during the height of covert 19, you know they.
I want to work, we could do on the ground hour in the fee perspective was less than but those those efforts are our regaining strength as we move into this.
Fair point I'd, just remind folks is.
Here you are seeing the impact of of low acorda sales in the quarter, which we've called out you know approximately 12 million delta year over year. So you know I'd say setting the coda issue. Aside you know we don't really see this issue around illegals as being worse and in fact.
The efforts that were taking as we move into the second half should continue to you know improve that result, as we move forward.
And just to make make sure. We're we're speaking clearly with yes, we're seeing volumes start to come back demand in volumes start to come back in our base refrigerant business, usually prices will follow that so you got to get the demand back first.
Which were starting to see happen.
Thank you and then T. I have two could you give us a flavor for your July or demand how much is demand in July 2020 relative to July 2019.
Yes for sure June was stronger than me a July has been stronger than June in the order book in August just looking solid from that standpoint, So I would say that we feel we feel very good about where the volume trajectory.
It's going right now from from that standpoint.
Quarter sequential quarter.
Quarter versus second quarter bites.
It's kind of an idea from that Steve.
Can you give me a definitive yet about the month.
A year on year, but but sequentially, we're seeing nice improvement occurring.
Thank you very much.
Your next question comes from Roger Spitz from Bank of America. Your line is open.
Thank you good morning, Hi, Hi, I don't think you said you idle than your key our two plants, but.
Not yet probably operating them at lower rates can you comment on your average operating rates in Q2.
Yeah, We don't we don't talk openly about what those rates are they aren't they are fairly low in their different across the circuit, depending on customer demand. The products that are being requested in parts of the world and as I mentioned earlier, you know when we get our utilization rates up.
It is when you'll see a real positive effect on our margin from that standpoint. So it is very as I've mentioned in the past its very difficult to idle a a T. Two facility for a short period of time. So you really have to if you're going idle a tier two facility usually just.
I have to do that for a longer period of time, because you have the ability to to move things around to other other assets. So I'd say right now they are at a fairly low utilization norm versus normal, but as we get our demand signals coming through in volume comes through.
That is gonna be additive as we move so I would say steady progress on that.
Got it.
Mmm Hot stack.
I can progress and getting back some of the market share loss last year gives a sense of sort of where you are like how do you gain back you know.
10%, 25%, 50% of the market share you lost I recognized in Q2, it's very hard we gain a lot of market share.
Yeah.
Yeah, we would probably installed our oh yeah.
Go back third quarter fourth quarter, and the first quarter, we talked about gaining share during those periods second quarter.
That was shares we felt that it was not the right time to be able to do that but you know we're we're working our way back to what we believe is the rightful capacity share that should happen I think that's the way you should think about it is what's the rifle capacity share that's come more should have versus the industry. That's that's what our goal.
It is to get to that kind of a level.
Thank you very much.
And your last question comes from Vincent Andrews from Morgan Stanley <unk>. Your line is open.
Thank you I'm just a couple from me a first normally we think of Fourq you as being a a seasonally a weaker quarters in Threeq you you didn't that's going to happen this year or just because this is sort of a very peculiar year with co bid and customer inventory levels are already quite low that that fourq fuel won't have that typical fall off.
Sure how are you thinking about it at this point.
Yeah, that's the magic question.
And really what keeps us from a <unk>.
You are able to get to give guidance a sports you because I think we're getting a fairly good picture now is three to.
For Q still is not a clearer picture for US as you said normally that would be a weaker quarter, but we think that twoq could be the weakest quarter the year, depending on how the demand does shapes up so I would say all bets are off I'm thinking about them normality of a port costs.
Right now because I think there's still much.
Potential from a from a demand standpoint, and I go back to one of the earlier points with made around the stimulus I think stimulus, especially stimulus into infrastructure to change that dynamic.
Significantly so very hard right now for us to calls fourth quarter, because I think there's a lot of dimensions. There you also have the other side of this which is our people going to be.
Trying to conserve cash for the year at the same time, so lot lot of factors here I think we'll learn more him in the next few weeks, but right now some things we can't call. All I would say is I don't think you should think it as a normal fourth quarter.
[laughter] I know I know I got that was in Super helpful. As well [laughter] right now it is lobby for us at this point.
I I believe me I understand thank you for the comments I appreciate it.
Sure.
Kinda no further questions I'll turn the call back over to Mark from.
Yeah.
Thanks, and thank you all for joining today, you know the Gritten and the resilience of this team hopefully show through we made some tend to go calls, but I think we had a.
A positive result in our quarter because of the actions. We took very early around this and I think we're starting to see.
Some demand coming back towards the third quarter, and we are poised and ready to be able to respond to that as revenue comes our way. So again. Thank you for your support of the company and we appreciate Oh, all our investor support during this time, please stay safe and stay well. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Uh huh.