Q2 2021 AdvanSix Inc Earnings Call
Can you supply condition.
Let me share a few highlights before Mike covered the details of our financials in a moment.
This quarter's significant year over year and sequential improvement furthers the momentum we've built since last year.
You'll recall, we generated double digit net income growth in full year 2020 in a very challenging environment.
<unk> in the quarter of the industries in which we participate we're presenting with supply chain of logistics disruptions escalating raw material inputs and inflationary costs and on the positive side underlying demand growth rates, we haven't seen in some time.
The strength of our business model and portfolio of diversity and the continued execution to our long term strategies.
Enabled us to both navigate the challenges and capitalize on the opportunities to deliver the results you see on page 3.
We are highly focused on executing what is in our control and when you look beneath the headline numbers. Our record performance is bolstered by the improved earnings base that we have been building since spin, which further provide the.
Again, the foundation for a sustainable long term performance.
Volume growth was supported by historically strong plant utilization rates at both our Hopewell in Chesterfield.
We converted a record of 66% of our ammonium sulfate into higher value of granular grades to meet the growing demands of our domestic customers.
Sales of our differentiated products accelerated in all focus areas of high value of the intermediate high purity applications and differentiated nylon as we're now reaching longer term mid teen revenue growth rates with profitability at more than 2 times the base business gross margin rate.
The investments we've made in high return capital projects continue.
Senior to generate strong returns at all of our 20% IRR targets in total.
We are delivering considerable improvement from our historical pre tax impact of planned plant turnarounds of approximately $35 million through efficiencies in our processes and execution and are now expecting an impact of 24 to 27.
Millions of dollars for 2021.
Finally, our balance sheet health provides flexibility and optionality for further value creation.
As we look ahead the outlook for our business remains favorable for.
Expecting continued strong execution amid robust industry dynamics overall to support record post spin earnings and cash flow in 2021.
There's a lot to be excited about across the organization as we continue executing against the focus strategy to deliver long term strong and sustainable shareholder returns.
With that I'll turn it over to Mike to discuss the details of the quarter alright, great. Thanks, Erin and good morning, everyone.
I'm now on slide 4 where I'll highlight the second quarter financial.
Results were.
We once again executed very well as Evan pointed out with strong volume growth pricing improvement margin expansion and robust cash generation.
It was really a terrific quarter really across the board.
Sales total $438 million, that's up 88% compared to last year.
<unk> sales volume in the quarter increased 32% driven by improved end market demand across our product lines.
<unk> was favorable by 56% comprised of raw material pass through pricing of 31% following of net cost increase in benzene and propylene and market based pricing of 25%.
The.
The improvement in market based pricing reflects higher pricing across each of our product lines I will note market pricing and volume were also up meaningfully from the first quarter of 2021.
EBITDA was a quarterly record of 76 million, that's up nearly 150% versus the prior year and up 38% sequentially.
Year to the first quarter of 2021 hour.
Ill walk through the key year over year variances all of the next slide.
Earnings per share of $1.53 increase the dollars 12 per share versus the prior year.
In the quarter, we saw a higher effective tax rate compared to last year, primarily driven by 2 items that reduced last years.
<unk> tax rate.
First was the impact of changes in geographical sales mix on state tax and second was additional research tax credits, which combined had a large impact of the tax rate last year due to lower income levels.
We continue to expect the full year tax rate to be approximately 25%.
And finally casual.
Can pay from operations was robust in the quarter, reaching $52 million, that's up about $43 million compared to last year, primarily due to higher net income partially offset by the unfavorable impact of changes in working capital cash.
Capex of $10 million was favorable by roughly $7 million year over year, reflecting.
Capital process efficiencies and timing of project execution.
Now, let's turn to slide 5.
Here, we highlight a few of the key drivers of our second quarter EBITDA performance year over year.
Pricing of raw materials was roughly a $26 million tailwind year over year.
Tracking our key variable margin drivers.
<unk> performance and kind of chemical intermediates reflected a continued favorable supply and demand environment for acetone over propylene spreads.
Caprolactam and nylon over benzene were up year over year as well, reflecting continued improvement in industry spreads supported by tight industry supply while the man has steadily recovered.
Ammonium sulfate on a net price over natural gas and sulfur basis was modestly down year over year, primarily reflecting the sharp increase in input costs in the quarter.
You'll recall, we benefited from historically low natural gas and sulfur prices for most of 2020.
In the second quarter of 2021, the price of these inputs.
Can you just spike higher year over year due to supply considerations and the strong agricultural environment overall sequentially.
Sequentially moving into the second half of 2021, we expect these input cost to stabilize and anticipate benefiting from recent ammonium sulfate price increases.
The improved volume and mix for approximately 20.
Continuing the favorable in the quarter as well.
We drove increased sales volume across all of our major product lines, reflecting our strong execution and a more favorable end market environment.
Lastly, other items were approximately $7 million unfavorable in the quarter increased planned spend to support volume growth higher incentive.
The compensation expense and an approximately $1 million unfavorable impact of planned plant turnarounds year over year were partially offset by roughly $2 million in favorability from initial insurance proceeds related to the 2019 shutdown of <unk> supplier of Philadelphia energy solutions or PFS.
So overall <unk>.
The 6 commercial and operational execution in the current set of industry conditions. I would also highlight that embedded in these results is a meaningful gross margin growth from differentiated products year over year.
Our investments into high purity applications high value intermediates and differentiated nylon of generating solid returns for the business.
Strong, let's turn to the next slide.
On the left side of page 6 we have highlighted the drivers of the robust $42 million of free cash flow generation in the second quarter supported by net income and lower capex spend rates.
Another very strong quarter from a cash flow perspective building on the $43 million of free.
Cash flow generated in the first quarter.
Working capital was roughly $10 million use of cash in the quarter with customer advances, representing a $17 million unfavorable impact primarily reflecting sales from our fourth quarter of ammonium sulfate pre buy program, partially offset by other working capital.
As we shared previously our Capex spend has come down in line with our targeted priorities for the year, we expect our capex run rate to increase in the back half of the year. However.
We now anticipate of full year 2021 range of $65 million to $70 million compared to our prior expectations of $70 million to $80 million, reflecting efficiencies.
Fees in our capital processes as well as timing of project execution.
Improved cash flow generation of enables more flexibility from a balance sheet perspective to create value for our shareholders and our capital deployment framework is depicted on the right side of this page.
The first starts with our operating cash flow and we continue to expect robust.
And for the remainder of 2021 and beyond.
We anticipate based Capex on a go forward basis of roughly $75 million per year on average to sustain the business.
That's the combination of our maintenance capital, which supports high plant utilization rates, plus health safety and environmental Capex supporting safe and stable operations.
<unk> as well as compliance and risk mitigation.
We will also maintain prudent leverage levels and closely manage our cash and debt and anticipate remaining within the target range of 1 to 2.5 times net debt to EBITDA.
As for discretionary choices to create value, we continue to favor of high return organic projects.
You'll recall, we spent over $100 million on high return growth and cost savings capex since the spin.
We started with the pipeline of $150 million to $200 million.
Executed against that targeting projects with an IRR of approximately 20% or more.
At current that pipeline continues.
The robust of roughly $50 million to $100 million of smaller projects from which we continue to refine and prioritize and execute against the.
The timing and size of these projects can vary quarter by quarter or year to year, but we would anticipate roughly $10 million of spend per year on average in these growth and cost savings projects.
<unk> next we are targeting accretive M&A, we completed our first acquisition earlier this year with Commonwealth Industrial services or Cif of packaged ammonium sulfate business. It was a relatively small acquisition, but as we've shared the integration and synergy realization are progressing well ahead of plan.
Although.
Although the timing of our next acquisition is something we can't predict we maintain a disciplined approach and an active pipeline with the focus on bolt ons that will provide growth and synergy opportunities.
Lastly return of cash to shareholders.
This can come in the form of more structural returns such as the dividend, particularly in the light of free.
Cash flow generation and conversion or more opportunistic in the form of share repurchases.
As a reminder, we have repurchased over 100 million dollars' worth of share since 2018 and have approximately $60 million remaining on our authorization.
So overall, a disciplined capital allocation strategy that we believe is of value enhancing.
Each of our core strategies and a key focus to support attractive total shareholder returns now let me turn the call back over to Erin.
Thanks, Mike and now on slide 7 for it included our typical pricing and spreads across our product lines.
Starting with nylon I was wondering we've seen spreads further improving through the second quarter.
Yeah.
Again this quarter was characterized by robust end market demand rising input costs and continued industry supply constraints.
The age of Caprolactam of of benzene spreads average roughly 10.50 per ton in the second quarter, which was an increase from just above $900 per ton in the first quarter of 'twenty 'twenty 1.
And up approximately $600 per ton in the second quarter of 2020.
Spreads have recovered from trough levels and a relatively in line with marginal producer economics, reflecting a more disciplined environment commensurate with the underlying supply and demand improvement.
The overall nitrogen industry pricing also.
Quarter increased both year over year and sequentially through the second quarter supported by strong agricultural fundamentals, including crop prices farmer profitability and planted acres overall.
We've seen consistent strong fertilizer demand from pre plant beginning of March through top dress applications here into July and.
In addition.
Also in the continued to attract significantly higher raw material input costs for the industry.
As Mike mentioned earlier natural gas and sulfur prices were substantially higher in the second quarter of 2021 versus historically low prices throughout most of last year.
And lastly industry realized acetone prices of refined.
The refinery grade propylene costs expanded further in the second quarter and the continued tight supply and demand balances in the U S with planned and unplanned downtime impacting supply across the value chain.
We've seen the continued expansion of the premium in the small medium buyer acetone prices over the large biomarker on a year.
The year basis the.
As a reminder of the small medium buyer price is reflective of roughly 1 third of the domestic industry, where pricing is predominantly really negotiated.
Small medium buyer of pricing has moderate as you can see exiting the quarter the remains rather robust relative to last year in prior cycles.
Let's turn to.
To discuss the outlook for our industry.
Have you been sharing we are experiencing improved end market demand across the industries, we serve amid tight industry supply.
The diverse end market exposure of supporting our expected favorable outlook overall.
In nylon, we've seen supply constraints across the industry value chain.
Slide the time when demand in North America has remained relatively strong.
Carpet and rug mill rates have been studying as residential and remodeling macro trends are supporting demand domestically.
The commercial construction activity has lagged residential in 2021, however, we expect improvement into next year.
And we also expect engineered plastics demand to remain resilient into auto consumer and industrial and electric and electronics applications, while food packaging demand for nylon is expected to remain steady.
Growth in our base business is also being supported by a ramp up in our differentiated nylon portfolio, namely wire and cable.
And our co polymer offerings, which we anticipate continuing.
Our nylon efforts remain focused on supporting asset flexibility, new product and application development and customer qualifications to optimize our mix.
And the ammonium sulfate a number of key AG of indicators continue to trend favorably as well as.
As we are now entering.
The next day cycle, we continue to expect strong agricultural industry fundamentals through the 'twenty 'twenty 2 planting season.
Underlying demand coupled with nitrogen industry supply tightness and rising input costs. All has supported increases in nitrogen pricing.
With software demand remaining robust and the key nutrients supporting crop.
We continue our efforts to drive the software nutrition value proposition down the value chain.
As we described at this time each of the last few years, we do expect typical North America.
1 of them sulfate seasonality to drive a higher mix of standard grade product sales into export markets in the third quarter as.
As compared to greater granular sales domestically at the height of the North American season in the second quarter.
Now historically, we've seen of sequential consideration of $10 million to $15 million higher Cogs on average in the third quarter.
However, in 2021, given the improved market dynamics and higher pricing environment.
<unk>, we anticipate the seasonality impact to be at or slightly below the lower end of the historical range typically seen.
Moving to chemical intermediates, we expect the strong demand to continue for our products, which serve a diverse set of end markets and customers across the building construction, Aldo paints and coatings solvents electronic.
And pharmaceuticals to name a few.
We're supporting growth across the portfolio through investments in high value and high purity applications.
As we previously discussed our easy blocks of anti skinning agent for alkaloid paints as an example has seen great commercial traction we are currently executing capacity expansion.
For that oxy portfolio to support robust regulatory driven growth, particularly in Europe.
Acetone industry fundamentals continue to be an area of strength as I shared earlier.
We anticipate those dynamics remained strong and moving forward with continued balancing of supply and demand through the second half of this year.
So, let's turn to slide 9 to wrap.
China moving to Q&A.
Our strategic priorities and value creation road map remained consistent as we target sustainable shareholder returns over the long term.
We will focus on enhancing our day to day execution by strengthening our culture and core foundations of excellence.
Improving through cycle of profitability.
Up before and the superior operational and commercial performance.
Enabling sustainable long term growth by enhancing our portfolio of resiliency.
And enhancing value creation through disciplined capital stewardship.
In the current set of the industry conditions, we remain focused on delivering on our trusted partner promise for our customers.
<unk> by dry with terrific results for the first half of 2021 the outlook for the business remains favorable the.
Continuation of strong underlying demand trends across our core markets benefits from our high return capital projects and differentiated product portfolio and our operational agility are all supporting our expectation for the strongest annual earnings and cash flow.
And spin.
The collective efforts of our 1400 teammates have positioned the company for long term success and we are hopeful you share our excitement about the opportunities that lie ahead.
Look forward to sharing more about our ability to deliver strong and sustainable shareholder returns at our upcoming Investor day scheduled for September 28 with the.
That Adam.
So the move to Q&A.
For me, Thanks, Erin and Matt. Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
But anytime you question.
Adam, but the unaddressed and we would like to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Okay.
Okay.
Yes.
Our first question will come from Vincent.
<unk> with Stifel. Please go ahead.
Yeah, Thanks, and congratulations on the quarter.
Really thank you.
Yeah.
[laughter], Thank you for beating us over the head on the 3 Q ammonium sulfate pricing dynamics always helpful to have that reminder.
But maybe specific to this year I know, Brazil is it a little bit of of different agronomic environment in the U S has enjoyed and it also has access to Chinese am solve supply. So just given how strong the second quarter was should we be expecting maybe a more pronounced decline to <unk> the normal.
So.
No I appreciate.
The comment that you know just the kind of remind me you can get a getting caught up in the air So thanks for for noting the knee.
Need to take this into consideration, we would actually guide to the lower end of our typical range. We've seen so if you go back over.
Last several years of we've modeled we've typically talked about of $10 million to $15 million range.
Where we can see a really kind of the the mix between the domestic to the export views coming into play, but as we really look at the this next AG cycle.
You know the the export markets have firmed them, you know a bit here for for standard and supply them. We also.
We're seeing our fault.
Pricing reset them those level of here domestically have reset roughly 40% higher.
And then 3 Q of 2020.
So we would we would guide you to the lower end of that range of perhaps even slightly below.
Okay, Alright. Thank you I did not the didn't catch the full fill pricing. So that's the that's good.
Phil.
I know this is harder to kind of quantify on the nylon side, but when we think about your differentiated intermediates and some of the investments that you've made there from a capacity perspective, I'm curious if you'd be willing to start putting some numbers around that I know you're doubling I think you said your oxy and the capacity.
The what what does the doubling of that look like from an EBITDA contribution if youre willing to share.
Yeah. So you know again, we because we have the consolidated the P&L.
P and L. Here Vincent it's hard for us to pull out the the EBITDA as you know per per product and in that regard, but you know we kind of point.
To some you know factors.
For overall, you know we started out and you know I'm thinking about this the combination of both of them.
High value of intermediates, you know the target for the high purity applications and differentiate now in the overall differentiated products represented 8% of our.
Sales.
And in 2017, you'll recall, we had grown that to the 12%.
Last year in 2020.
At the conclusion of this year overall, you know, we would see them and are expecting something more like a mid teen low.
Long term CAGR, if you look at sort of a 4 year CAGR at that point.
And again these have a gross margin that are really kind of tracking now at sort of 2 X. Our base business. So you can kind of see that that is the building to be meaningful.
The margin growth and you can kind of take a look at it from that perspective.
The 2 P O or the oxime.
The number of oxime, but that 1 in particular, we're investing in you know for instance, as you know.
Last year grew on a 3 year CAGR of 45%. So on an introduction of basis, we're coming up the curve if.
If you will flow.
Some of sort of asymptotic Leon on that introduction and have seen great adoption continued into the 'twenty 'twenty 1.
<unk> of these are assets. We've had we just had the sort of modify and sort of release capacity on the.
So really good investments for us here to continue reaching a of nice end market again of product thats going to lower the toxicology profile of the.
And the product as well so.
Kind of a win win on the sustainability front as well as profitability.
Alright, thank you.
So I know you talked it up the tiring, but when you're having a great year and Capex comes down anyways.
Is there anything more of that we should read into that whether it's just staying out of the way of your own assets. While markets are so strong or are you may be having trouble sourcing of equipment or.
In this market today.
Yeah.
Wouldn't read too much into it.
If you look at it from a year over year perspective last year.
This year, we're down.
We spent $25 million of Capex in the first half which is.
Hello, what you would expect from.
The typical run rate and the down year over year, because we were lapping some of the larger high return growth and cost savings projects.
The last year.
The scope of the turnaround this year is a bit smaller as well requiring less capital.
Of that is that is a factor of.
The other thing is our growth and cost savings.
<unk> still continue but the spend rate for those are closer to $5 million or less and really the reason for that is as we develop scope and drive efficiency in our execution, we've been able to bring those costs down on the returns up for those so thats actually a good news story.
We're not really slowing down projects.
Things probably were driving efficiencies in our process and our planning and our execution, but there was some project timing. So I will say in the second half.
As you can look at our full year expectation for Capex for the second half will be in that $40 million to $45 million range.
So it will be ramping up and Thats what.
I would anticipate as kind of on our ongoing run rate alright, if you will so.
So we will see that the pick up here in the second half.
Okay excellent Thats helpful and then I guess just.
Based on your results I mean, it doesn't seem like you had any issues handling.
Disruptions in logistics and.
Petrochemical production under Cumulus supply side, but was there anything specific that you want to call out there or anything to be mindful of and for the back half of the year.
Yeah. So.
Great that anyway, you kind of look at where we've been in the first half of them on.
On the Q means the pie obviously.
We talked about the the last.
Earnings call that we were well positioned we had anticipated you know of heavy turnaround.
The situation in in January so had pre bought that allowed us to navigate through.
The first part of the year here rather well.
Industry is operating with 2 current came in force.
During the day you.
You know again, we think our agility.
And our focus on our integrated supply chain and how we manage the risk on an ongoing basis is going to allow us to navigate this this well but.
You know I think it is mindful of that at least to 2 suppliers that current our in force majeure.
In the third quarter.
Gotcha.
I'm just kind of sneak 1.1 more in.
It's.
It's great to see residential construction.
Contributing to the nylon demand.
It's not really been part of the story in quite some time in your conversations with.
Customers as it.
Has it gotten to a point, where it's more than just the sheer magnitude of residential investment overall or are we actually starting to see maybe a little bit more penetration so to speak of of carpeting.
Yeah, It's an interesting question and 1 that we continue to.
You know as you would imagine kind of probe on with them and as they are trying to uncover some of the trends here as well because.
Certainly.
The macro trends of remodeling.
You know folks being at home have driven up.
The the demand relative to that also sort of resale is typically another.
You know triggering event for folks to look at replacement.
And 1 of the 1 of the considerations that you know we're trying to keep an eye out here is P. She had been snug as well you know and it's interesting sort of older nylon machines can't run polyester, but newer of polyester machines kind of on nylon.
1 of them. So you know, it's 1 of the things that I'm.
Probably more transitory but.
Certainly it's something that.
We're watching it and should again is all of the value chain kind of realign themselves.
Through the back half of the year.
As the consideration, but if you look at the mill rates I mean the mill.
Our only recovered.
We looked at them.
Year over year, they're up 27%.
You know from the June basis.
But when you go back to June 2019, I'm, the only down about 4%. So if you kind of look at a 2 year basis, whereas we were seeing you know steeper sort of.
The rates of 10% declines you know prior to the pandemic.
Does feel that perhaps you.
You know things have certainly part of it if not picked up a little bit back on on the soft side.
Excellent alright, well thanks again.
Look on the rest of the year.
I appreciate it thank you.
Our next question will come from David Silver with C. L. King. Please go ahead.
Okay. Thanks, good morning.
Good morning, Good morning, Yeah, I I heard the question I. This is more like an anchoring question and it has to do with your use.
Use of the term record regarding this year's results.
I guess, maybe I just would like to focus on either.
You you pick the the metric, but revenues and EBIT, a maybe but.
When you talk about a record year.
The.
We're expecting.
Just wondering what the timeframe is there. So your company is coming up on your fifth anniversary and I guess 2.
<unk> 2017 was kind of a record year from the timeframe, but if you look back not too far beyond that I mean, I think in the prospectus.
There were some bigger.
Or years prior to win.
The advanced 6 was spun out 'twenty.
2012, 2013 I believe.
And you know Erin I'm, asking because I think you were directly in charge of the same assets at the time, so when when you saw the.
Net your performance this year is it.
In the 5 years or so since you are public or.
Does it extend kind of.
Further back and if you had any perspective I'm guessing you may have look back there, but what is the potential for the.
The.
The rent mix of assets and.
The market fundamentals to drive results the cause.
As high as the 2012.2013 levels. Thank you yeah, so to clarify a day, but we're talking when we say record a record outlook for this year. It is relative to the post spin.
The current financials. So it would we're not comparing against the financials prior to the spin.
Clearly those of a carve out financials under Honeywell.
Different structure at that time, so just want to clarify that.
Going forward.
And then in terms of the Revpar I mean I think.
<unk>.
Erin pointed out very very well and very clearly that a lot of the things that we're driving.
Across the business since 2017 are creating a very strong foundation for us to perform execute in a very favorable environment, but also setting ourselves up for.
For long term value creation, we've talked about the differentiated products the type of growth and returns we're seeing there.
We talked about the Capex investments, the $100 million and the 20% internal rate of return that we're achieving.
You know as well as some of the other operational improvements around of granular conversion.
Inversion.
The improvements.
Et cetera, So we feel very good about the underlying foundation of this company and how we've improved it since the spin and setting ourselves up.
For record earnings.
Since the spin and.
The strength and good tailwind.
We go forward.
[noise].
Okay. Thank you for that.
I have a couple of questions I guess about the volume growth this quarter.
And.
You guys are definitely accurate in your reporting, but youre may be doing.
When it does come.
Parison vs. The pandemic affected the conditions of the year ago.
And I was just wondering I was trying to scratch my head and look at the sequential trends to the universe is 1 of the queue.
Can you kind of maybe breakdown the 16% of revenue.
The growth the in the same manner that you.
Broke down the year over year, 88%.
How much of that was volume and in particular I'm just kind of wondering if the second quarter of reflected.
Excess volume above what you.
Revenue growth.
Sustainably produced in other words, where you may be borrowing a little bit of.
Sales volume from other quarters.
Just due to the exceptionally robust demand I mean, I didn't see it in your inventory numbers so much growth.
I think price.
Mike might be.
Okay.
You could even out of it so.
Kind of the price volume sequentially would be helpful. Thank you.
Yeah sure happy to happy to help the first of all I wouldn't characterize our performance as we think about the second quarter versus the first quarter as or our performance in the quarter as borrowing.
Cloud from any of any other quarter I mean, the quarter stands on its own.
You saw the inventories were relatively flat.
In the second quarter relative.
To the first.
But as you look at the sales growth from from the first quarter, we did grow about the 16%.
Good.
The percentage of that was was really in pricing a majority of that was in pricing and really favorable price across the board.
Really across all product lines, and we did have sort of low low to mid single digit growth in volume as well.
So that gives you the primary drivers of the sequential performance from <unk>.
And maybe if I can just add because I think it's something we talked about is the of recovering through the pandemic from Q2 of last year day was was the mix, particularly in nylon and as you recall that we had not.
Any sort of the the volume hit them relative to the largest impact occurring in the nylon market, but as we recovered that put us in an exposure of consideration to to export to meet demand where it existed.
So if you think about.
Revenues in Q2 of.
For the last year of 26 per cent of our nylon revenues went to export this.
This year. It was 7 right. So you know again being able to bring our value proposition to our customers here in North America.
Demand has recovered having that value proposition of being the.
<unk>.
Not all of our of our high 6 concentration co polymers is playing out so I think theres also consideration here on the mix year over year that.
It plays into that sort of.
That picture as well.
Okay. Thank you for the.
<unk> question would be regarding the.
Logistics and shipping costs and the.
Total costs and logistical reliability and I think.
Other supply chain issues, so I think Vincent touched on it from acumen perspective, but I was hoping.
My next expand that.
2 of broader view of how you're viewing your logistics and supply chain.
Comfort or your confidence and then just real quick but the.
You know I've had about 10 companies report and my joke is theres been an unprecedented.
You might use of the term unprecedented.
As described.
Supply chain.
<unk> chain challenges.
And I didn't hear any of the from.
Mike or Erin in the opening remarks, so so maybe just the broader comment on how.
The then you see yours.
Your supply chain and any challenges that you anticipate and kind of meeting your internal targets over the next quarter or 2 thank you very much sure. Yes, I mean, certainly days things have been tighter and you think about.
How we transport of lot of.
How <unk>.
Domestically and also in the export markets, you think about containerized Ocean rail trucking, we've certainly have felt things are.
Being very tight really across the board and in the the amount of capacity available of probably where we felt that the most.
<unk> is in trucking.
But again, we we have very good strong channels to market. We view this as 1 of our advantages and our strength as we as we deliver products to the customers.
Things have been tight there have been limits in capacity, but my sense is.
Of our material as we look back.
In the first half of the year, we've managed it very very well we've been able to.
Secure the transportation, we need to get the end to deliver to our customers and frankly, we're very we're very proud of that we've seen some inflation in logistics over.
Overall, but we've been working hard to mitigate that through productivity projects, but also.
Passing that through as as we've demonstrated we're very we're very good out so in terms of the second half of the year, we expect things to continue to be tight, but we're going to manage it.
As well as we could and we anticipate that not being a hurdle to us to meet our objectives in the second half.
Yeah.
Okay, great idea of 1 or 2 other questions I don't want to kind of.
Pickup of too much time, but will there be.
To.
In Q.
That's true yeah.
Okay, I'm going to stop there and I'll get back in queue. Thanks very much.
Okay. Thanks, Dave.
Yeah.
Again, if you of a question. Please press Star then 1 of our next question will come from Charles Neibert with per.
Piper Sandler. Please go ahead.
Good morning, guys.
Hi, good morning.
It's been a little while so that'd be back.
1 question back and the current price.
For the shares which are obviously elevated from their lows for awhile back in.
Is it reasonable to be.
Buying them back versus looking at the acquisitions I mean, you know obviously that's always the case of do you have a certain amount of money you can spend on either acquisition, which would bring.
And or buying the shares which may be of great value as well.
Where the share of sit now is.
Is 1 of the other sort of have the lead on use of cash going forward.
I mean, assuming they you know the chairs generally sit in the range. They are right now.
Yeah.
Yeah, I mean, it's it's a good question Charles and that's part of the reason I think why we wanted to be very clear on our capital deployment framework and why we've shown.
You know the prioritization of that.
In the presentation.
You know the first of which we've talked about in the past as is.
The funding our growth and cost savings projects, which we are.
But we're also very active with respect to evaluating M&A opportunities and we did our first 1 here in the first quarter of that 1 is paying off.
It's performing very very well ahead of expectations.
And in terms of return of cash to shareholders.
Clearly, we're going to be continuing to evaluate of more of a structural return.
Specifically of dividend and we will view share repurchases as more opportunistic going forward.
And we've done quite a bit historically, we've repurchased $100 million worth of the company.
Which was over 10% of the company since 2018, so we feel very good about what we've done.
And we will continue to evaluate that on an opportunistic basis.
Okay. Thanks, Yeah, obviously share.
Forward.
Share repurchases.
Parts of the center.
The less of them.
The lower profitability of that given especially the success, we've already had an acquisition and other question, you're keeping while youre heading towards the fairly conservative like net debt to EBITDA.
Between 1 and 2.5 and.
I think most would consider that fairly conservative, but given the time.
Being at the low.
In that range of loss.
And that range is sort.
Sort of a reasonable, but if things keep going the way they are and how you're starting in the other anymore cash use the clinical hit the cliff is it more reasonable the things you might sort of tend towards the <unk>.
High end of the range and then give yourself a little bit more financial flexibility to work day, I know that being of cyclical industry, 2 and a half can quickly turn to.
The 3 and a half before if you get 1 of the cyclical downturn, but are you guys going to start.
If things continue as they are do you think you'd feel more comfortable at the upper end of the range of that's just the.
The range you want to keep ongoing no matter what.
I mean look with it will we'll continue to evaluate the range I'd say right now we're comfortable in that range of 1 to 2 and a half and.
Being at the low end of the range, where we are today offers us a lot of flexibility around what we can.
Can do with respect to creating additional value whether it be through M&A or or return of cash to shareholders. So.
So very good I wouldn't say are being where we are we will make us more comfortable to go way above that range.
We still feel very good about that range and again feel very.
Where we are and again affording us the the flexibility and the Optionality as we go forward.
And Julian I would just characterize that as for for how we look today right. Obviously as you know we enhanced the size of free cash flow profile of margin stability.
Over time right that range of look very different to your point.
Comfortable you know what the portfolio looks like in the future and as that as they continue to enhance the resiliency of those kind of core.
For core of valuation metrics.
Yes, I mean, clearly the whole of as things get for the point, where you feel comfortable let's say at the low end being 2 to 2.5 because.
As to upper end really doesn't of course, you beyond the and in a position where it gets very uncomfortable and issuance of sort of the low end of the current range.
Just get a little of the really ended up at the high end of range or maybe it is.
Smith cash above it but it really does put you in any of the company.
Another.
Question for me is.
The propylene cost of the seem to be all over the place of the last year or so I mean, they've been really volatile is there anything you guys are doing the try them.
Deal with that volatility or is there anything you can do it all day.
Deal with that volatility or do you end up since you have price pass through for you don't really care.
Okay.
Sure.
You know look I mean propylene has been the.
<unk> as you mentioned that things got very tight in Q1 with with the winter storm and we saw of propylene price is really spike up in Q1, and then sequentially as we got into Q2 or the moderate and actually had gone down 1 of the few raw materials.
Is that sequentially went down in the second quarter versus the first quarter.
But the way we protect ourselves is through our formula based contracts and as we've talked about in the past half of our business is on formula contracts and so we pass that through and for the remaining portion of Thats not on Formula We do a great job getting out there.
We're getting those price increases in if raw materials go up in <unk>.
Make sure we recover any any exposures and that as you can see has been demonstrated quarter after quarter here.
Given the inflation that we've seen across a lot of the raw materials that we buy we have been successful in doing that so.
Hard to control the price of propylene overall, obviously, we track it and we keep close eyes on on the supply and demand and how things are progressing but feel very good about how we respond and how we recover and really again, a testament to our business model and the fact that we protect.
Our variable margin.
Okay.
Thanks, very much guys. That's it for me today.
Perfect. Thank you for calls.
Thanks Al.
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 very proud of how our organization continues to support our customers while delivering terrific results.
The outlook for our business remain favorable as we were executing the focus strategies within our value creation roadmap and we are confident in our ability to create long term and sustainable total shareholder return.
With that we'll look forward to speaking with you again next quarter stay safe and be well.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.