Q1 2021 AdvanSix Inc Earnings Call
Yeah.
Good morning, and welcome to the Eaton Vance six first quarter 2020 One earnings conference call all participants will be in a listen only mode.
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I would now like to turn the conference over to Adam Creswell Director of Investor Relations. Please go ahead.
Thank you Betsy and good morning, and welcome to advanced <unk> first quarter 2021 earnings Conference call with me here today are president and CEO, Erin Kane and senior Vice President and CFO, Michael Preston This call and webcast, including any non-GAAP reconciliations are available on.
Our website at investors Dot advance ex dot com.
Note that elements of this presentation contain forward looking statements that are based on our best view of the world and of our business as we see it today those elements can change and the actual results could differ materially from those projected and we ask that you consider them in that light.
We refer you to the forward looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance and our SEC filings, including our annual report on form 10-K, as further updated and subsequent filings with the SEC.
This morning, we will review our financial results for the first quarter of 2021 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the and so with that I'll turn the call over to advanced six as President and CEO Erin Kane.
Thanks, Adam and good morning, everyone. Thank you for joining us and for your continued interest and advance ex we do hope you also remain healthy and safe.
As you saw in our press release advantage delivered robust first quarter results to start 2021.
Our collective organization contributed to generating significantly higher earnings and cash flow and the quarter.
<unk> strong execution amid a tightened supply and demand environment overall.
Mike will detail, our financials and a moment, but as you can see on the left hand side of slide three we've highlighted year over year variances for some key metrics and the first quarter.
I won't mention them, all but you can see the significant improvement and performance, particularly our ability to nearly double our EBITDA compared to last year, which as you'll recall was largely unaffected by COVID-19 and to generate $57 million improvement in free cash flow year over year.
Our first quarter 2020, one EBITDA was the highest we've seen since the first quarter of 2017, and our second highest quarter since spin.
Importantly, we captured pricing achieved sales volume growth and expanded margins, while further reducing leverage levels.
Across the board and was a terrific start to 2021, and we are looking to continue building on that momentum.
Early in the first quarter, we announced the acquisition of certain assets of Commonwealth Industrial services or C. I S, which enables us to expand our offering to directly supply packaged ammonium sulfate to customers.
The acquisition also Diversifies and Optimizes our offerings.
And include a spray great adjuvant and to support crop protection, a fire retardant and installations as well as other specialty fertilizers and products for industrial use.
And I'm proud to say that the integration and synergy realization are progressing well ahead of plan and we are excited to extend our industry leading value chain for ammonium sulfate.
And we look ahead the outlook for our business remain favorable and nylon and we expect robust customer demand and improved pricing as we execute our portfolio optimization and experience and improved global economic recovery.
And chemical intermediates were targeting differentiated product growth and expand production of oxy and been made on as well and cultivate our storefront on those chemical marketplace, while capturing and continued pricing favorability and a tight acetone industry supply and demand environment.
Agricultural fundamentals are also improving overall with robots planted acres and crop prices and multi year highs.
Supporting and expectation for strong Balkan package ammonium sulfate customer demand and our plant nutrient business as we enter the heart of the North American growing season.
While we are focused on mitigating continued higher raw material input costs, including freight and logistics and our investments and differentiated product growth coupled with a targeted record year of production output in 2020, one are supporting higher earnings and robust cash flow.
And Theres a lot to be excited about we cant always predict what the markets will do but we're highly focused on executing what is in our control every day and confident and our ability to create value for our shareholders.
We are executing against a focused strategy to deliver strong and sustainable returns over the long term as we support continued operational excellence and improving through cycle profitability.
Enhancing our portfolio resiliency through differentiated product growth and mix optimization and.
And being strong and disciplined stewards of capital with that I'll turn it over to Mike to discuss the details other corner, okay. Great. Thanks, Erin and good morning, everyone. I'm now on slide four where I'll cover the first quarter financial results.
We once again executed very well as Aaron pointed out with strong volume growth pricing improvement margin expansion and robust cash generation.
Sales totaled 376 million, that's up about 24 per cent compared to last year sales volume and the quarter increased roughly 8% versus the prior year, driven by improved and market demand across our product lines.
Recall sales volume had also increased about 8% in the fourth quarter of 2020 year over year. So a continuation of the strong trends, we've seen exiting the year pricing.
Pricing was favorable by 16% comprised of raw material pass through pricing of 11% following a net cost increase and benzene and propylene and market based pricing of five per cent.
The improvement and market based pricing, primarily reflects continued strength and chemical intermediates, particularly acetone.
EBITDA was 55 million and the quarter virtually doubling prior year levels I'll walk through the key year over year variances on the next slide.
Earnings per share of <unk> 98 cents increased 67 per share versus the prior year.
And the quarter, we saw a lower effective tax rate compared to last year, primarily driven by two items that drove up last year's rate first was the tax impact of equity compensation vesting and second was the federal carry back claim associated with the cares Act and.
And finally cash flow from operations was robust and the quarter, reaching $57 million, that's up about 37 million compared to last year, primarily due to higher net income and and and and approximately $12 million cash tax refund as we anticipated partially offset by the unfavorable impact of changes in working capital.
Capex of $14 million was favorable by roughly $20 million year over year, reflecting execution against our 2021 capital priorities and <unk>.
Following the completion of several high return growth and cost savings and investments in the prior year, let's.
Let's turn to slide five.
And here, we highlight a few of the big drivers of our first quarter EBITDA performance year over year.
Pricing over raw materials was roughly an $18 million tailwind year over year.
Tracking our key variable margin drivers performance and chemical intermediates reflected a continued favorable supply and demand environment for acetone over propylene spreads.
Caprolactam and nylon for benzene were up year over year as we saw continued improvement and industry spreads off the trough levels. We observed in 2020 supported by industry supply constraints, while demand improves with economies reopening around the globe.
Ammonium sulfate on a net price over and natural gas and sulfur basis was down year over year, primarily reflecting the sharp increase in input costs in the quarter.
You'll recall, we benefited from low natural gas and sulfur prices for most of 2020.
And the first quarter of 2021, the price of these inputs significantly spiked higher year over year due to supply considerations and the strong agricultural environment sequentially.
Sequentially moving into the second quarter of 2021, we expect ammonium sulfate on a net price over natural gas and sulfur basis to improve reflecting a strong industry fundamentals and recent price increases.
Volume and other items were approximately 16 million favorable and the quarter, we drove increased sales volume across all our major product lines.
And the impact of planned plant turnarounds to pre tax income was only $3 million and the first quarter of 2021 versus approximately 2 million and the first quarter of 2020, representing an approximately $1 million increase year over year.
And lastly, we had and approximately $6 $6 million unfavorable noncash LIFO inventory reserve adjustment in the quarter.
This adjustment reflects the reduction in inventories from 2020 year and resulting in the expensing of higher cost inventory layers from prior years now lets turn to the next slide.
On the left side of page six we've highlighted the drivers of the robust $43 million of free cash flow generation and the quarter supported by net income lower capex spend rates and and approximately $12 million cash tax refund as anticipated.
Working capital was roughly a $7 million use of cash and the quarter with inventory reduction representing a $39 million favorable impact, reflecting the dynamic supply and demand environment for the first quarter and low acuity purchases offset by working capital accounts.
Accounts receivable increased with the 11% jump and sales compared to the fourth quarter of 2020, while accounts payable was also a cash headwind based on the timing of raw material payments and purchases, notably queuing.
And as we've shared previously our Capex run rate has come down in line with our targeted priorities for the year.
And as we drive efficiencies in our capital process.
On the right side of the page, we've once again show and our leverage ratios or net debt over trailing 12 months adjusted EBITDA going back to the end of 2018.
Both net debt and adjusted EBITDA calculated in accordance with the terms of our revolving credit facility.
As expected our leverage was further reduced and the first quarter of 2021 supported by continued robust cash generation improved earnings as well as debt pay down.
We exited the quarter at a leverage ratio of one four times, which is comfortably within our target range of one to two and a half times. We continue to expect a robust cash flow outlook for 2021, supporting a further reduction and leverage towards the lower end of our target range now, let me turn the call back to Erin.
Thanks, Mike and now on slide seven where we've included pricing and spreads across our product lines.
Starting with nylon.
We've seen spreads further improving on the back of the industry supply constraints and demand improvement with economies recovering around the globe.
This quarter, we've also shown the resin spread over the upstream benzene input versus comparing for caprolactam cost, which we believe is a better indication of industry performance, particularly for integrated producers like ourselves.
Although the industry remains an oversupply and position globally, we continue to be encouraged by the recent improvement and demand and pricing.
And the cap rate of benzene spreads average about $900 per ton in the first quarter.
Highest level, we've seen since the second quarter of 2019 and reached nearly 11.
Excuse me $1150 per ton in March.
We are managing rising benzene input cost, which we would expect both caprolactam and resin prices to closely follow moving forward.
However, all and nitrogen industry pricing continued to move higher and through the first quarter supported by improving agricultural fundamentals, including crop prices farmer profitability and planted acres overall.
As a reminder, urea is the largest nitrogen fertilizer by total consumption and tends to have and underlying influence on other nitrogen products.
However, ammonium sulfate does have its own and supply and demand dynamics influencing that premium earned for the software nature and nutrients.
So while urea pricing did move sharply higher in the quarter other nitrogen fertilizers, including ammonium sulfate did lag this improvement.
In addition, we're tracking significantly higher raw material input costs for the industry in.
In particular, the Tampa software market recently doubled from last quarter, settling nearly $200 per long ton in the second quarter, but that is by far the highest level, we've seen since our spinoff in 2016.
The reason increase reflects a reduction in supply from lower refinery operating rates and find the winter storms and the first quarter and expectations of a strong spring AG planting season.
Despite this we expect strong ammonium sulfate performance during the season peak and the second quarter with robust demand and recent price increases.
And lastly industry realized acetone prices a refinery grade propylene costs continued to expand and the first quarter amid continued tight supply and demand balance in the U S with planned and unplanned downtime impacting industry supply.
We've seen the continued expansion of the premium and the small medium buyer acetone prices over the large biomarker on a year over year basis.
And as a reminder, the small medium buyer price is reflective of roughly one third of the domestic industry, where pricing is predominantly freely negotiated.
This is coming at a time when propylene costs have also continued to surge higher although I'll have backed off a bit exiting the first quarter.
Let's turn to slide eight to discuss some industry considerations for 2020 one.
Overall, we are experiencing improved and market conditions across the industries, we serve and many other key things we discussed last quarter remain in place.
We've seen steady carpet mill rates since rebounding from last year is due to COVID-19 trough and there's a lot of strong residential construction data, particularly with healthy remodeling demand.
And all of our commercial construction continues to lag, which we expect to continue in the near term.
We've also seen demand remained resilient into auto and consumer and industrial and electric and electronics applications.
And number of key AG and indicators continue to try and favorably as well.
Lowered expectations for ending stocks, including corn and soybeans and translated into increased crop prices, which have remained at multi year highs while the profitability outlook for growers continues to improve.
Expectation for planted acres overall remain relatively high.
Coupled with nitrogen industry supply tightness coming out of the first quarter and rising input costs and all have supported increases and nitrogen pricing thing nitrogen pricing.
With software demand remaining robots as a key nutrients and supporting crop yields and.
We continue our efforts to drive the soft for nutrition and value proposition down the value chain.
Non acetone is evident that the recovery from the 2018 2019 low has been a positive story for us.
We expect a favorable acetone industry supply and demand balance to continue and the near term.
Well well look for supply availability to increase as we progress through the year with expected higher phenol industry utilization on the back of improving demand.
We're supporting growth across the portfolio through investments and high value and high purity applications as well as and our differentiated and nylon products.
Our easy blocks of anti skinning agent for paints as an example has been a great commercial traction and is expected to grow roughly 50% in 2020, one compared to last year and the area of targeted Capex investment and for expansion this year.
Our nylon efforts remain focused on supporting asset flexibility and new product and application development and customer qualifications to optimize our mix. We continue to see strong double digit growth and our wire and cable offerings, while our co polymer sales are expected to double in 2020 one versus last year.
Let's turn to slide nine to wrap up before moving to Q&A.
Our strategic priorities and value creation roadmap remain consistent as we support sustainable shareholder return over the long term.
First enhancing our day to day execution by strengthening our culture and core foundations of excellence.
We are targeting a record year of production output in 2020, one supporting higher earnings and robust cash flow.
We also continued to make meaningful progress on our sustainability initiatives and performance.
We are strengthening and empower and high performing culture and are supported by our engaged workforce guided always buy our core values of safety integrity accountability and respect.
We've assumed published our annual sustainability report, which highlights many of the ongoing initiatives happening around the organization integrated with our overall strategy I encourage you ought to take a read through it and when we publish it.
And I'm proud to share. This week, we were awarded a platinum rating for corporate social responsibility by Echo Bottas and independent and CSR Assessment Agency does.
This follows our gold rating in 'twenty, and 'twenty and ranked US now among the top 1% of all companies assessed.
Second on our core priorities is improving through cycle profitability by driving superior operational and commercial performance.
We're focused on driving improved earnings and cash flow through cost optimization and asset productivity, creating strong operational leverage we have.
A number of efforts in place across the organization targeting improvements and rate cost quality and yield as well as efficiencies and our capital engineering and plant and planned turnaround programs.
We continue to expect the impact of planned plant turnarounds to be and a range of $25 million to $30 million in 2020, one which is a reduction compared to approximately $31 million and 2020 and $35 million and 2019.
For maintaining a rigorous focus on productivity and cost savings with approximately half of the 2020 cost savings living through based on structural and permanent actions taken throughout last year.
Commercially we continue to perform well, reflecting the strength of our business model global low cost position and diversity of our product portfolio and made a tightened supply and demand environment overall.
In addition, we're focused on mitigating and expected higher raw material input cost in 2020 one.
Our third priority is enabling sustainable long term growth by enhancing portfolio resiliency.
And you talked more about our differentiated products, which are focused and that areas of high purity applications high value intermediates and differentiated and nylon.
These products represented approximately 12% of our total sales in 2020 and increase from approximately 8% of our sales in 2017.
I would note that this does not include our granular ammonium sulfate product, which represents nearly 20% of our total sales last year and is viewed as a high value for the premium it burns.
Although building off smaller bases, we've continued to see strong growth across these products and.
And the first quarter of 2021 sales of these products increased nearly 30% on a year over year basis.
And we're bolstering growth through investments and our NATO and and axiom product line, serving these high purity and high value applications, while continuing to optimize our nylon offerings.
Our final priority is enhancing value creation through disciplined capital stewardship, we have reduced our expected range for capex to $70 million to $80 million in 2020 one and.
And that is down about $10 million from prior expectations, reflecting efficiencies and our planning and execution.
And this year. It does include spend towards high return growth and cost savings projects and.
And you May recall, we originally and targeted a targeted a 100 and to $50 million to $200 million pipeline of projects. Shortly after the spin.
That pipeline continues to be robust at $50 million to $100 million and smaller projects for which we continue to refine and prioritize and execute against.
We expect leverage to try and near the low end of our target range by year end and have approximately $60 million remaining under our share repurchase authorization.
And as I mentioned earlier and the call. We've also had success inorganically with the recent bolt on acquisition of C. I S and we'll continue to assess other opportunistic acquisitions and so would have strong portfolio coherence with our product lines and technologies.
We are leveraging all of the momentum being built as we execute against this focus strategy and continue to strengthen our ability to deliver long term value for all of our key stakeholders.
With that Adam let's move to Q&A.
Great. Thanks, Erin Betsy.
And that's it can you. Please open the line for Q&A.
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Okay.
Our first question comes from David Silver with C. L King.
Please go ahead.
Okay. Thank you and good morning.
Good morning day.
And and what was sort of a number of questions here, but.
And maybe if we could just drill down on the LIFO layers kind of issue that cropped up for them this quarter. So.
Maybe if you could just provide a little background on.
And the Genesis or the origination of those.
LIFO layers that would be great and then more to the point would you anticipate.
Further.
Adjustments and coming quarters in other words will you.
Touch on even more of.
And of those older LIFO layers going forward. Thanks, Yeah, well, it's a good question Dave So we are on LIFO accounting.
And we did have to make an adjustment of $6 6 million and the quarter as we communicated as a result of a reduction in inventories from 2020 and you saw the reduction and.
And the quarter and simply what that means is you need to go back to prior year layers and.
And evaluate the cost of those layers and some of those layers were at roughly a 20% higher costs and arc that our current standard costs and as a result, you have to absorb that.
Into the P&L as you reduce the inventory levels going forward, we don't anticipate inventories through the year by year end to change a whole lot for where we are today. So we don't anticipate.
Another adjustment going forward, but we'll obviously continue to monitor and.
Our inventories as we go forward here.
Yeah.
Okay.
Thank you for that.
Our next question I guess on the.
The sales trend this quarter and ammonium sulfate.
So when I do the math the percentage of sales that's allocated to them and you.
Your total revenues.
And it seems like it was a very modest increase year over year and ammonium sulfate revenue.
And actually it was a decline from the fourth quarter. So I know, there's certainly price and volume and and a whole bunch of arms and legs, there but I.
And I confess and thinking about how the market has improved both demand and price wise I confess I'm a little.
Curious why the year over year increase was only you know.
So modest.
Relatively speaking and in a market that seems to be quite robust right now. Thank you.
Yeah, Yeah, and in that and certainly we have as they communicated here and David good expectation for the peak of and the.
The season here in Q2, if you think about that.
How you progress throughout the year, you know the AG cycle, right and sort of July to June and North America.
In the fall there is.
Prep that fall fill right for some fall application and North America, but then leading to basically and you know building inventory levels for you know for the spring plus the second half also has.
The contribution of our selling export them into into South America, as we sort of bridge the the the two growing seasons other producing non.
Maloney and Sulfates and year round.
So it's always difficult to sort of no.
<unk>, how that will play out.
I think that we are staging material and selling material into the heart of the season and and again on a full July to June AG season, and this will be a stronger season.
Annually versus what we saw last year.
And so there could be some timing considerations for mix.
And my God, we went out and so but I wouldn't reflect it more on.
You know a view that we're not a we're not going to see the benefits of the strong season coming through and our numbers on here in Q deal yesterday. They the only thing I'll add as a low last year. We did have high export standard sales due to some sales timing and we had some shifts of those.
And those sales they can be a little bit lumpy from the fourth quarter of the prior year to the first quarter of last year and.
And we didn't see that repeat of the timing this year, so and so as a result.
And the of that timing.
Net debt impact impacted the year over year variance. So it's more of a sales timing consideration really.
Okay very good.
I have a question here on your income tax accrual rate.
So you know it was right around what I expected and the first quarter, 2005%, but.
My assumption is that your earnings your <unk>.
Pre tax earnings should be significantly higher this year than last year.
And sometimes in cases like that.
Net income tax accrual rate.
And tends to creep up and other.
The words, there might be a handful of discrete tax benefits that you now have a certain percentage effect when earnings are at normal levels are slightly below normal, but when earnings ramp.
Those discrete.
Benefits kind of feed and importance and as a result.
The accrual rate that we should be applying to your pre tax income kind of can be higher than originally anticipated. So.
As.
Your company starts to swing into a higher level of earnings and pre tax earnings I mean, how should we think about for full year.
Accrual rate for income tax purposes.
Good question, Dave and I would.
I think still 25% is a good target to assume going forward and and we are anticipating higher earnings as we've talked about.
This year relative to last year. The one thing that we've done a nice job with as you've seen in the past is driving credits and and doing a lot of planning to mitigate any of the creep, we could see from and effective tax rate.
And so we continue to push the envelope there.
And I still think 25% sort of target and planning number from an ETR perspective is good.
And I will say to is with the sort of bonus depreciation on capital expenditures, we're still going to see cash tax benefits from that.
As well.
Our cash tax rate will probably be right around the 10% to 15% range that.
And that excludes the cash tax refund, we got by the way and the first quarter.
And more normalized for the year excluding that.
So we continue to see those benefits as well.
Yes.
Okay, and then maybe one more question and I'll get back in queue.
But this would be for for Erin and its capital.
<unk> question.
And with your cash.
Cash flow generation kind of picking up here and and I think with a pretty bright outlook for a couple of quarters, I mean, youre going to have incremental I guess flexibility and my opinion.
And I'm just wondering if you could.
Say.
Which there was a little bit of share creep this quarter for instance, but how.
How does.
And how those are the priority for buybacks or the inclination to two.
Deploy cash for share repurchases kind of shift here as.
Maybe your flexibility grows thanks.
And thanks for that David and and certainly consistent with that and you know our communications and past we are committed to delivering strong and sustainable shareholder returns.
And returns over the long term and obviously enhancing and.
Our value creation through capital allocation is a is a lever for us and and a core core strategy as we drive growth and the best business and you know our allocation priorities and.
You know it has been aligned with one right as we've as we've already started to demonstrate and getting our debt leverage levels into our target range and certainly as he has come through and you know two.
<unk> 2020, and navigating the pandemic and executing.
Executing on high return investments and the business and again, we still have opportunity and we continue to refine and prioritize and execute against and he is our strong water line projects for US right. We're targeting a 20 plus returns type levels.
And we believe as well that the opportunity as we demonstrated with Cif, which for an acquisition is tracking to achieve.
And those levels that we would set for ourselves for our for capital project, which is a great low opportunity will continue to build out those inorganic pipeline and capabilities and as you note and we recognize that returning excess cash to shareholders.
And you know it is in that mix for us as well and you know as we progressed for the year and.
We will continue to assess that we still have our authorization in place and our you know we'll continue to think about what our long term strategy should be here as well.
Yeah.
Okay and thank you for that so I'm going to get back in queue, but I do have a couple more questions for for later thank you.
<unk>.
Great. Thanks, Dave.
As a reminder, if you have a question. Please press star then one to be joined to the queue.
Our next question comes from Vincent Anderson with Stifel.
Please go ahead.
Yes, good morning, great great job to start the year off.
Thank you for thanks.
Good morning.
So, let's just start and get out of the way.
What.
Specifically did you have to deal with and the first quarter from a logistics.
<unk>, particularly with important Q mean and export cap row.
And then how are you positioned into <unk>, both from a cost standpoint, and a working capital standpoint.
And then only and the fact, we do.
Recognize that we left you all off and our last earnings call in the midst of.
Winter storm and and supply chain disruptions and not sure. If that's exactly you know maybe to get some context, there and and and how we see the supply chain and sort of stabilizing here.
Through the quarter and into next into Q2.
And I think certainly the results show that we performed well and a difficult period for the industry and I mean now that we didn't have any direct physical damage to our facilities and as you know it was really you know how do we manage the disruption to the raw materials side.
And there are components of factors right to the industries in which we participate.
Plant rates being offline available other raw materials.
You know what led to the transitory items.
And the tightness and demand and which which really the industry is still working through.
And we were one of the few producers that remained running consistently during that time.
And that certainly supported and performance in the quarter.
We did take our largest utilization reduction and and Frankfurt and Chesterfield, while our Hopewell rates remained.
Relatively dry and consistent with <unk>, and 2020 performance and near.
And in line with fourth quarter and as we.
Look to to move things around and protect that value chain.
And as you know, we did draw down inventories and you know.
Mike noted that a significant reduction in the cord that played into the ultimate LIFO consideration.
And we worked hard to meet our customer demands and.
And customer needs and and to support the industry going forward. So.
You know the U S demand continues to recover and it has been strong I think our presence here and help so.
Do you mean supply chain is it stabilizing back out and you know through Q2, and that's our expectation and.
And you know I think there there's still a supply side tightness and eat.
And when you think about the the height of it.
70% of the female acetone supply was off and in the U S.
Significant amount of cyclohexane, and even and other than that and the camera and island chain were impacted so.
Yeah, I think the logistics and the U S and the supply side is sorting itself out.
When it comes to export.
Considerations you know we have to watch that we do see container ships Rolling you know availability of containers and we're trying to get ahead on pre bookings were where we need to but that is something that certainly you know well.
And we will continue to monitor and and I think we talked about this mix shift as well I think as we continue to see that mix shift back into the U S that alleviate a little bit of our.
I'd say our exposure on the export levels that perhaps where were evident and our 2021 excuse me 2020 numbers versus what will transpire in 2020, one and the only other thing I would add is that if you recall, we started the year and a very good position from an inventory perspective, the QE and into the raw material inventories overall.
<unk> was up $25 million last year was up $9 million and the fourth quarter and we knew certain suppliers, we're going to take planned turnarounds and the first quarter, so that put us and a very good position to weather through some uncertainty and the first quarter as a result of Uri.
Okay perfect I appreciate that.
And then just thinking about.
Kind of the capital markets outside of the U S. I just wanted to get at.
Check from from your point of view, when we looked at China, and the first quarter and kind of just eastern Asia in general they had a pretty wild start to the year in terms of gas prices and and sulfur over there as well do you feel like any of that had contributed to spreads internationally and the first quarter or was it too short lived and what we're seeing right now.
And just really a good old fashioned recovery.
And they certainly are and.
You May think Q1, there were supply side disruptions and and a number of places around and Nick.
All of them and tell them you had them here Europe and you know at some point loss and ALAE 2025, plus percent of it caprolactam capacity with some force majeure.
You had your and typical sort of.
You know I think ramp ups and in China, and and dislocations potentially of raw material availability to and we've seen some stabilization and in Asia and it did come in to April.
And on pricing on spreads that we're watching and he didn't think there was a quick start to textile demand that.
Has you know, perhaps plateaued a bit here too.
So we'll be watching that into the second quarter, but I think be the greatest and zinc.
Zinc opportunity set here are certainly.
And that'll be seen as of late is again that the demand side has stayed and.
And and improvement trend with with recovery.
And you know, whether it's housing construction and automotive had posted strong numbers and.
And every region.
And as he worked for us through some of these disruptive and.
You know I think that will play out as we head forward too.
Perfect.
And then I wanted to spend a little bit of time and capital allocation I know David brought it up but maybe looking out a little bit further.
As you become more confident that we are.
That we're facing a more sustained recovery.
First off on the share buyback front.
Is there a percentage of shares outstanding where you think it would make more sense to start curbing repurchases and start thinking about and modest dividend.
It may look.
First of all.
As you are aware of what we've done so far from a share repurchase perspective.
And just over $100 million and.
And more than 10 per cent of the company. So we've done a lot.
We still have $60 million remaining on the authorization.
And we've navigated through more challenging times last year from a leverage perspective and gotten the leverage down.
Quite significantly here down to the bottom of the range and we expect that favorable trend.
To continue going forward. So we don't necessarily target a specific share is outstanding I would say as leverage.
Continues to improve it just gives us more opportunity and more flexibility to create value for shareholders and that could be either through share repurchases other ways too.
<unk> capital.
Certainly you bring up dividends and that's something we haven't done yet but that is something.
We would continue to evaluate but also M&A.
As we get further down in terms of leverage and improve our cash flow generation. We have a very active pipeline. We have opportunities identified in every single one of our product lines. We did our first one this year there are opportunities out there we continue to vet and.
And we'll look to deploy capital there as well.
So it's really across the board and again and getting the leverage levels down and gives us the opportunity to evaluate those.
Even more robustly going forward.
Perfect for what you're kind of has dropped off a couple of my follow ups to that but I'm going to ask in many ways.
So when you think about the debt levels are obviously improving drastically.
You think about maybe.
No.
Asset base that you have is in such a strong position operationally do you think about may be targeting a lower gross debt level overall to position yourself, a little bit better for you to be opportunistic and a future downturn or are you just very comfortable with where we are right now.
You know again, we we've communicated the range and certainly we're comfortable we can operate within that range.
We have plenty and ample liquidity within our credit facility that we're very very comfortable with and and so as we as we look at opportunities going forward.
And again way leverage the outlook for cash flow generation, which we've proven we can we can execute well out.
And compare that to and consider that as we evaluate all those opportunities for additional value creation. So.
And I wouldn't say, there's a specific gross debt level, we would target we would look at it in terms of more of a sort of a range of leverage ratio but.
And again very focused on creating value.
Okay.
And then so to drill into M&A.
Assuming that we can maintain them.
And improving and and maybe even getting back to an ideal macro backdrop would you expect to prioritize really more incremental downstream add ons like we've seen so far or are you starting to feel more comfortable.
Thinking about expanding the asset base and product mix a bit more significantly.
And when you think about and we've talked before Vincent and I think when you are.
And you have one way you know and historically.
We have represented and the accompanying the linear fashion right as one value chain.
We've been continuing to.
You know re refine that but we really are much more diverse and.
And then just that representation that in fact, we have streams of technologies and Chemistries.
Wider variety of application sets and end markets that we are exposed to.
And you know the really thinking about the business more diversified into plant nutrients and you know sort for nutrition as it is an area of continued growth.
And as you know Sharon area of interest we've got a growing intermediates and you know platform that is continue to before and while it is getting investment this year as we think about those.
Those higher value.
New application sets and.
And to coding.
The electronics space, whether it's pharma either.
And and intermediates and it's a nice franchise that continues to.
<unk> growth investments.
And and in areas, we think about it you know chemistry for either to for.
<unk> integrated in and around or or expand.
You know across the target application sets and then obviously and nylon and we continue to focus organically at the time right as we think about that portfolio optimization.
And that's one of the the end market application space. So.
You know I see US you know and our.
And our disclosures have a represent ourselves into the three.
Main segments and digging out from that standpoint, and you know while not reportable, but really how we are operating in and driving discrete strategies around them and.
And where are those the targeted growth areas could be so.
And that's been our focus.
No it makes perfect sense.
Appreciate it and and so I'll just I'll finish up with a couple more focused M&A questions and then.
Tying into exactly what the strategy sounds like so first when I think about the nitrogen imbalanced and Brazil.
They are restarting some urea capacity and then as capital utilization rates kind of tick higher with demand overseas you know, maybe a little bit more incremental items saw competition. There specifically are there any acquisition opportunities like the one that you just stated here and in the U S that could help for them up your footprint in that country.
Yeah, I mean, so when you think about Brazil, I mean, just in general.
The framework here. There are there are very few sort of independent players and the space that where we sit today right and Brazil is a large and part of it some of its raw material add considerations and you know again I will leave my remarks, where he thought said before that we continue to explore.
For all of these avenues right and we're looking for a portfolio coherence how do we continue to yeah. We can increase our margins weekend, you know dampens cyclicality right. There there are trades that we're looking to to address both with our organic and our inorganic investments and the business and and again, we can go and a number of avenues accordingly.
With that and so.
Okay and last one this one comes from other places maybe a little bit more ignorance on the acetone side, but just given how tight and it has become and the U S. I know you've always felt really really good about the mix and quality of the different grades that you offer but is there a potential that any of your and you.
<unk> may be struggling and this price environment and confirms presents an opportunity to go downstream there.
Yeah.
Yeah, you know the end markets and which I'm. The acetone goes into are all very robust and you know.
And I think as evidenced by the the demand and <unk>.
Got large.
And BPA consumers, you've got folks who are making methyl methacrylate you know all of which are benefiting from you know and consumer demands here.
You've got strength and in paints and coatings and you can look down and that value chain and how those and customers are doing so.
And you know I think right now certainly there are you know.
You know and pressures here on pricing I think again as we noted.
We would expect supply availability to to ease throughout the year.
And you know certainly there about 12 K T of imports that have arrived this month and and we do need imports to to help balance out.
And the marketplace, but I would say that the strength of that value chain value chain right now its rather robust just given the end market demands.
Demands and and considerations.
Alright excellent.
Thanks.
Our last question comes from David Silver with C. L. King. Please go ahead.
Okay. Thanks, Thanks, a lot.
I think I would I have kind of a question about the the turnaround.
Activity for your company kind of a two part question, but could we get an update I believe and the second quarter. You are scheduled for one of your major pieces of equipment and sulphuric acid to undergo its annual turnaround.
And you know first of all I'm just wondering.
If you could kind of update us on the progress there.
And then secondly, I mean kind of somewhat related but.
Should I assume that.
There won't be any.
Interruption or any reduction and your planned.
Shipment capability during the second quarter in other words, I see the inventory levels coming in to the second quarter and.
Theres a certain amount of production you'll be able to do before you have to take equipment offline, but.
Based on kind of your product availability and also the timing and execution of the turnaround.
Could you just give us an update on on how that aspect of your overall operations is progressing through what I consider the peak spring selling season and for some of your products. Thanks, Yeah, No I'm happy to David and I'm. Just you know maybe it is on a positive right. If we think about.
And the full year impact rate of turnarounds.
Continuing to expect $25 million to $30 million you. If you look at that on a comparable consideration for you'll likely the same type of turnaround and we took was it would be and 2019 at 35. So I think we continue to focus in on our execution and.
Delivery of our of our turnaround and and creating value here now as you as you may recall, we take two outages and.
In the year.
And at Hopewell, typically one and the spring and one in the fall when it's smaller and the spring and in this case, our turnaround for the soft play and our sulfuric acid plant will be in the fourth quarter. So if you think about that.
That consideration and the second quarter, we were taking more of our lighter turnaround and hope while we also have.
And the remainder of our Frankford turnaround and the complete we did pull as much we could forward Tom.
In Q1, as we were navigating and.
The impacts of winter storm, but we still have some work that has to be completed at the in AR and the second quarter. So that's what the second quarter represent them.
And and these these times we also.
Leverage you know the ability of the plants are still running right, albeit at reduced rates, but those were taken into consideration and certainly as we think about how we meet our customer demands and and continue to navigate through and so.
We plan very well for these and I think that's shown and the targeted expectations for for impact them and we continue to you know to.
To drive forward, you know not just and we're in we're executing right now and in the second quarter, and then obviously and strong.
And strong position for for good execution, as well and the Sop plant. So and again I think you know from a full year perspective, and even in the height of and Q2, and we think we're still very well positioned and we've moved material into the value chain into warehouses for that peak of the ammonium sulfate season as you asked about that particularly so.
And again I think we've pulled all the levers and preparation and I'm you know.
And I expect that we will navigate through this well as we has and we hadn't done it.
Okay. Thanks.
And I had one question I guess about the engineering resins and part of your nylon business.
So I was listening to our conference call from another firm and engineering resins producer with big interest supplying the auto industry.
And during their conference call a few days ago. They cited shortages of nylon and one other product PBT and.
And that was disrupting the supply of engineering resins to their customers and I know, there's several types of nylon.
Might be used and engineering resins and.
They are a mix, it's not just nylon typically.
But from your perspective, I mean is that.
And isolated incident is that something youre seeing and that part of your business in other words.
Maybe just some color if you can share it on how that aspect of the nylon market might be.
Supply and demand wise relative to the broader market. Thank you.
Yeah sure and then and also you have to.
Amongst others and you have a significant demand for nylon 66.
And as well as the nylon six.
Nylon 66 has had you know once again and some significant supply shortages.
No it happening.
You know right now with it certainly there were implications of the storm here for several players.
But there also is a rather significant force majeure.
And you know happening in Europe, right now as it pertains to our in some key raw materials into that value chain with a number of players out announcing sort of indefinite and force majeure. So.
And that has certainly crimp the supply side in it and a key nylon.
Nylon resin and for that space.
And I.
I think what we saw here in North America again, and it transitory with you know tropical storm Barry we did see and continue to see and sharing classics growth for our portfolio as an area of focus you know for.
For us as we think about that you know application.
Right. So, we certainly had and and worked hard right to meet the industry demand here and support it and right through it through a challenging time over the last couple of months.
I think theres a number of factors, mostly all supply side, driven as you likely noted but yeah.
I would say is equally if not more of a sort of impacted by P. A six six as it is six at this time.
Yeah, no. Thank you and I kind of suspected that but I didn't want to make to our assumption. So thank you and then maybe just last one very quickly, but you know I'm used to reading line charts.
And when a line goes up like someone I don't know I don't want to say anything for someone who is a medical condition and aligns spikes up on medical diagnostic piece of diagnostic equipment and that kind of reminds me what's happening to the acetone price chart.
You have been providing quarter after quarter. So I mean from your perspective internally I mean, I'm sure you're enjoying.
Very robust pricing and margins right now on that part, but for planning purposes, I mean would you expect some imports or some.
Adjustments and the market I mean, how persist for planning purposes, I mean, how persistent or how you know what duration do you think these elevated spot market or small buyer.
Acetone prices can and can continue one on this trajectory and remain at this level.
And over the last.
Couple of months here, David right. There the family is the supply side considerations, but theres also been a significant inc.
Cost consideration here.
And that has played through the market and and influence.
Underlying pricing as well.
You know on the raw material side, we have seen you know propylene ease off trade as one consideration and then to your point relative to.
Underlying supply availability as I noted in our materials.
And started to flow back and acetone availability throughout the World has has improved and we do need them.
And let's call. It 10 to 15000 tons give or take you know to help balance out the the market on a monthly basis about 12 came in.
This month, so again, we're going to see that and continuing to trend as you know utilization globally rebound.
As you may recall sort of you know.
And that phenol and and nylon recovery with something we were looking at you know from the impacts of COVID-19 and those were certainly.
Hit hard and you know I think as we look to the back half of the year.
Certainly those are mileposts that we're watching and phenol demand is improving.
Underlying trends for.
For for a number of its applications and yeah. So again, it's it's supply availability and eases and yeah. We would expect the moderation as you as you point out.
And any cycle here and stuff.
Okay, great. Thanks, that's it for me I appreciate it.
Thanks for all.
Good question.
This concludes our question and answer session I would like to turn the conference back over to Erin Kane for any closing remarks.
Great. Thank you all again for your time and interest this morning, and the current set of industry conditions, we are driving best possible outcomes for our business, we delivered terrific results and the first quarter of the year and are hopeful you share our excitement about the opportunities that lie ahead, we are confident and our ability to create long term and sustainable shareholder value as we continue to execute our strategies.
Across the portfolio, so with that well look forward to speaking with you again next quarter and stay safe and be well.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.