Q2 2022 Chemours Co Earnings Call
We generate to shareholders. We believe these four priorities will generate significant shareholder value over time.
With that Rob, let's open the line for Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
And your first question comes from the line of <unk> from RBC capital markets. Your line is open.
Okay.
Great. Thanks for taking my question. Good morning, I Hope you guys are well.
I guess, obviously, some very strong performance here your pricing in TSS was above our expectations and similar to <unk>.
The last quarter. So it sounds like that is persisting maybe could you just comment on that first.
Hey, good morning, everyone, yes.
We had a record setting quarter in our TSS business also established another new record in APM, which had a record quarter last in there in our Q1 results and candidly when I look at our performance.
We have industry, leading businesses in all three segments, which all contributed in various ways to our results this quarter.
Clearly the market remains quite dynamic from a refrigerant perspective.
We continue to see high demand.
A very dynamic environment.
And which.
We are obviously, taking advantage of supply demand dynamics in the market demand remained strong as I said in Q1 with a number of institutional users whether it's in the office space Hotel space restaurant space.
Coming back online in a post COVID-19 environment, and so demand remains strong and we're taking advantage of that.
Clearly as you saw in our TSS results. We also had volume growth and we continue to believe that we have a decade of growth ahead of us in this business as.
As we see the transition from <unk>.
Legacy refrigerants to low global warming refrigerants, and our <unk> brand in particular so.
Very pleased with the structural growth, we're seeing in our TSS and our APM businesses.
And then just I just wanted to 0.1 more thing too.
So just what Mark said is as you look at the pricing across our businesses, especially in TSS and APM.
As we've talked in the past is a big focus around driving the value in use pricing as well, but as you know our products are essential in driving lot of the secular trends.
And really enabling them so as we kind of look into that and the value that we deliver.
Due to our customers. So there's a big focus on the value and use pricing as well which is.
What youre seeing in the numbers now.
Great. Thanks, Sameer and Mark and I guess just for a follow up just on the cash flow uses could you just remind us of your priorities now.
We'll be funding for the P SaaS side as well.
Potentially some capital return thanks.
Yes, we continue to invest in our business for long term growth, especially in TSS and APM in TSS, We just announced the investment in corpus based on our projection of growth and the need for added capacity sort of beyond.
The 2025.
Timeframe based on our updated projections, we're investing for growth for example in APM around Semicon, where we remained sold out you just saw the chipset.
<unk> get passed so we expect even more demand coming there. So these are high return growth projects.
We're also investing obviously in run and maintain and sustainability as we move towards meeting our reduction of greenhouse gas target and.
Florida again it compounds. So we're investing in the business for long term creation of value and growth.
But based on our cash generation, we're also able to allocate.
And return the majority of our free cash flow.
To investors or to our shareholders and we're doing that through a stable dividend and a steady diet of.
Stock repurchases I'll ask Samir to just comment on the level of stock repurchases year to date.
Thanks, Mark Orban as you've seen we've made some pretty steady diet of share buybacks in the first half of the year.
Thats in line with <unk>.
<unk> outlined at the beginning of the year, we will expect to continue to do that and Meanwhile, as Mark said, we are investing in the growth and we will.
Strength of the free cash flow provides us the ability to even chipotle on the debt side, you've seen us our commitment to get our debt down gross debt down to $3 5 billion and we continue to make progress on that site as well, while putting money in the escrow as well to continue to strengthen the balance sheet. So.
Again, the strength of the free cash flow provides us the ability to execute and law firms.
Thanks.
Your next question comes from the line of Matt <unk> from Bank of America. Your line is open.
Hi, This is on a rock Hoffman on for Matthew.
My first question is so the EPA health advisory through <unk>, which I think.
We have brokers consideration for <unk> do you think that this is the first step to inclusion of generics and any pending a circular decisions to be made later this year.
Yes, we don't we don't see a tie in between the health Advisory and Cercla clearly we see.
Normal the normal process as I understand it is a health advisory precedes a mcl or drinking water standard.
And so.
Clearly we are challenging the health advisory.
Just on the on the science.
In our view.
Both the assessment from a toxicity perspective assessment from an exposure perspective.
And.
The due process that should have been followed in something like this.
So we've decided to challenge this particular thing from a legal perspective.
But in the quarter as you saw we we took a charge related to the connection between the health advisory.
And the consent order in the state of North Carolina, So we believe.
The science is flawed.
We're challenging it on that basis, but given the connect in our consent order.
It gave rise to the charge in the quarter.
Thank you.
Just a quick follow up.
Okay.
So.
Excuse me.
If we look at something like <unk>.
It is in Europe and <unk> is.
Driving a lot of volume for your business and is that commenced responsive to weather in general.
So typically.
It's a great question typically when you have a really warm summer it can extend the.
This is the season in terms of either retrofits or upgrades or simply just replacement of refrigerants and existing equipment clearly, we see a long term growth projection.
In refrigeration as a class.
Given rising global temperatures, but we also see obviously the transition to a more sustainable refrigerants, where we are a market leader so.
The point that you're raising may not create.
And increased demand, although it will extend the season somewhat.
That we normally see.
It really speaks to the long term growth of refrigerants and our ability to deliver a decade.
Mid single digit growth high mid single digit growth in this in this business.
Great. Thank you.
Your next question comes from the line of John Mcnulty from BMO capital markets. Your line is open.
Yes. Good morning, Thanks for taking my question so.
Obviously, some really chunky margins in the APM segment, given your shift towards.
More value high value solutions was there anything unusual about this quarter strength that maybe we shouldn't necessarily assume continues and I guess also in your prepared commentary.
You kind of highlighted look you're in year, one of a multi year journey and transformation in this business can you give us maybe a little bit of a peak at year, two and the type of actions.
That may continue as we look on the growth and on the margin side for the business.
Hey, John Thanks for the question and when you think of where APM came from a little over a year ago.
It's become a real contributor.
The total earnings of the company. So we're very excited about where we go from here.
And the ability to sustain.
Double digit margins going forward.
We've said historically about APM is it has very high operating leverage so clearly we're sold out on many product lines. So we are having really great demand.
And as a result really great mix.
With the business, so I wouldn't point to anything unusual in the quarter.
But I think if you look on a full year basis, our guide would still be in the low twenties EBITDA margins on sort of a more modest.
Volume print with normal seasonality so.
Clearly.
The journey continues in transforming an accelerating this business.
And we're really proud of what the team accomplished but I'm not ready we're not ready at this point to sort of change the margin profile Zamir do you have anything else nothing modulate up pretty well and John as you know this is a business in which we have the most operating leverage so as we look at the volume as it came in the second quarter and especially in the first half.
That drove the margin, but as we move into the second half with some of the planned turnarounds coming and some of the seasonality seasonality that typically comes into Q4 I think overall for the full year, you'll still see us in the low <unk> and that's the target that we have as mark outlined.
Got it fair enough.
And then on the on the TSS segment.
The pricing was obviously really strong up 39% almost 40%.
Was this largely the op beyond side really kicking in or can you speak to the HFC side or was it both like I guess, how should we think about the dynamics that drove kind of that that really high level of pricing.
Yes, I'd say, yes.
I would say it's both.
Seeing really good demand strong demand for our refrigerants.
Clearly as you know a lot of the install base today is based on a legacy refrigerant platform, but we're also seeing increased strength of adoption and speed of adoption of opt in which you would expect as as base refrigerant prices are higher I mean, thats basically how the quota mechanism.
<unk> works.
And John maybe with that.
We felt it was time.
To add some incremental capacity at our corpus facility.
It is.
In our view the lowest cost facility in the world.
<unk>.
As we project out the adoption beyond 25, we thought it was the right time.
To add some incremental capacity there to that facility. So.
Again this speaks to the thesis of refrigeration as a whole is.
Growing class.
Product class and obviously within that the trends for two low global warming refrigerants Israeli.
Benefiting our business and we wanted to be ready to support our customers in that regard.
Got it thanks very much for the color.
Your next question comes from the line of Mike <unk> from Barclays. Your line is open.
Great. Thanks, Good morning, guys.
First one just on the.
Bill environmental remediation charge at <unk> can you just help us with what the cash spend ROE earlier to that wasn't <unk> and just how we should think about related cash spend over the next 12 months there.
Yes, Mike this is sameer.
I'll take this one.
Essentially when you look at the charge rate overall, if you just zoom up and look at the overall spend of the Fayetteville site roughly $250 million will be spent over the next three years from a free cash flow perspective, and big chunk of that frankly is the construction of the wall.
And as you know that 250 is subject to the 50% recovery from Dupont and <unk> Mou agreement that we have with them and beyond that.
$260 million.
It's really a long spend thats really.
Maintenance monitoring and operations.
Of the Offsite and onsite operations or over the next 20 years. So there is a very slow burn on that one and as we are going to leave that out thats roughly $16 million per year amongst all of us and half of that is recoverable from Dupont and cordero per Mou, so roughly $8 million a year. So it's really the upfront the construction of the ball, but beyond that as these are pretty small numbers.
Okay.
Got it makes sense and then secondly for Joe too.
You talked about or constraints through the fourth quarter I guess, if we just take a step back bigger picture in a world where we're probably.
A bit constrained in or can you just talk about your comfort in your availability and sourcing for or over the next few years for <unk>.
Yes.
We continue to look for opportunities to strengthen our ore sourcing clearly we're the largest commercial buyer of available at night. So we do have a significant market presence, we work with all the strategic or suppliers. We also work with some of the more.
Junior miners in the space so.
Sure.
Sitting here today, our view is the orkin Straits will relieve.
In Q4, consistent with our prior outlook and again, we remain confident that.
So a whole host of market mechanisms, we can bring on more ore supply.
As I said in Q1, the world is not short of titanium bearing ores.
But clearly we need more more mining to be brought online and we are confident given the market dynamics and given our presence in the market that is very achievable.
Great Okay.
Your next question comes from the line of Josh Spector from UBS. Your line is open.
Yes.
Yeah, Hey, guys. Thanks for taking my question.
Going back to TSS and focusing on the volume side at least versus our estimates that's over there with some of the bigger surprise. So curious if you could comment on the 15% growth where you saw the biggest opportunity there by by market.
Especially given automotive down year over year, that's a pretty impressive number.
And how do you think the second half develops at this point were there some earlier selling or anything else you kind of note that youre seeing in the second half of may be similar or different.
Yeah, I'd say the second half we've reminded folks all year.
Subject to normal seasonality you'd normally see a lot of demand in Q1, and Q2 as I said earlier with a hot summer that could make Q3 marginally better, but clearly we expect normal seasonality in the second half where it would be weaker.
<unk>.
An audio which you mentioned.
We see auto consistent with IHS forecast being up slightly year over year, I think IHS is around three or 4%. So our full year is based on that outlook the auto industry remains.
Very challenged from a supply chain perspective, so that's baked into our numbers.
But.
The big driver of volume for US is really the transition on the stationary side.
As I said in Q1, we have signed up with in a major Oems of stationary equipment from Chillers too.
Cooling equipment for four supermarkets.
To air conditioning, and so that adoption.
Is going quite well.
Clearly with both F gas in Europe , and now aim in the U S.
Oems have two very large markets to serve that are moving to a low global warming. So Australia on that basis that we're seeing this kind of growth and again that kind of growth is implied in the investment we're making at corpus.
Where we see a decade of growth related to this transition.
Thanks, So just on the cost side when you guys talk about higher raw material costs with second half is that in some of your back integrated products or is that some purchase products I'm curious if you could comment on how.
Do you see second half transpiring is there another step up we should be considering into 2023.
Or is it more transient than that.
Hey, John just let me let me just take that one mark was dumping essentially when you look on the cost side.
Into the second half, yes. Some of it is just really.
Thanks, moving to the inventory.
Beef through the autumn own manufacturing or are some of the components that we purchase from other places and that youre going to see that dynamic you can receive frankly in both of the DSS and APM side as well with the supply chain is tend to be little longer right. So as we kind of told in the past.
In our polymers materials can sit through the inventory as they go through different components, almost six months or more right. So youre going to see some of the stuff on the raw material inflation side that happened early in the year really channeling through the system and showing up in the second half. So that's a dynamic for both the segments.
Yes.
Okay. Thank you.
Your next question comes from the line of Vincent Andrews from Morgan Stanley . Your line is open.
Hi, guys.
So through ABN contract correctly and.
And you've talked about that kind of being at the right level in the past.
My question is that kind of given the uncertain macro outlook desire to possibly increase that portion or.
Is that still your target for now.
No clearly.
As we've said in the past we have what we consider to be our best bulk of contracted business.
<unk>.
We target a level of about 70%.
And that allows us in a tight market like we've been experiencing.
The ability to ensure we can meet all of our customer needs and I'm.
I'm really proud of our team and how they've.
A very very high rates of delivery to promise in the upper ninety's to be to be honest. Despite some of the or challenges. We've had this year.
Going forward I would expect that number to remain around the target and clearly it will modulate depending on demand from contracted customers and demand in the spot market. So.
I think we our view is this is a really prudent level.
Going forward and I don't see any fundamental change.
The point, you mentioned about seeing some potential weakness.
Clearly this is a strength for the franchise as we go.
If we see any further weakening we are seeing some weakness today and in parts of Europe and in AEP, especially in China.
But to have this strong book of business.
If you see any any global macro weakening from here.
Really great thing and the team is very focused on how we modulate the circuit to optimize the needs of the market going forward with this contract book of business in place so.
It's a great franchise and.
We're really proud of what we've built here.
Got it and then I guess.
Just I guess a little follow up.
Coding players have kind of talked about destocking opportunity.
Broker for retailers as well as within their own inventories on the TRP side, which kind of I guess seems to run opposite to what you and others.
We've been talking about for the past few quarters could.
Could you give us a little update on how you guys are thinking about the channel inventory situation right now.
Yes.
So read some of the comments around Destocking, I would say, particularly in EU and Asia.
Clearly the way we supply our customers.
Is there they don't have an incentive to build.
Build massive inventory given our commitment to supply and the pricing certainty that they enjoy so our assessment is inventories are still relatively level. They.
They may be better than they were at the beginning of the year.
And the consumer.
We look at the data around U S. Consumer remains relatively strong even though they may be spending a little bit more money on travel at the moment. So.
Net net we feel really good about.
The strength of our contracts.
And the relationships that we have with a large number of strategic.
Huge users of our pigment both in the coatings segment and in the laminate space.
Got it thank you.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Our next question comes from the line of Laurence Alexander from Jefferies. Your line is open.
Hi, Good morning. This is Kevin asked like on for Laurence.
I know you guys touched a little bit on your end markets, but I guess I was wondering specifically, maybe where you see the greatest changes happening.
Currently and.
Recessionary risk rise, which ones do you see maybe deteriorating the most.
Obviously, the recovery in channels and sort of tepid with the reopening I'm just curious what youre seeing there as well and how it's impacting them.
Dan.
Yes.
Listen.
We read all the same global macro data that you guys read and obviously, we've seen the recent print on U S. GDP I would say in our business most of the weakness we've seen to date has been in Europe and parts of Asia, specifically China.
I would say beyond that not much more to report at this point.
Clearly an APM, we remained sold out.
In several product lines, we have seen some fade in some of the less strategic parts of our business around consumer recordings for example.
But we've been able to reuse that capacity.
For for higher value applications in use.
In TSS, we've seen a very robust first half we expect normal seasonality in the second half and I would say in <unk>. We also expect in a more normal seasonality.
As we go into Q3 and Q4 so.
I'd say.
The team has.
He has done a really nice job through.
The expansion, we saw coming out of Covid and I expect the team to do a great job as we go into the back half of the year. Even if there are some changes from a global macro perspective, Sameer I don't know if you have any other thoughts I think Mark you said it right.
It's really around the European issue and in pockets frankly, I mean, the AP and <unk> businesses TSS businesses continued to execute well execute great and we see tremendous opportunities.
Watching the macro like everybody else as you said.
Thank you.
Okay, great. Thank you.
And there are no further questions at this time, Mr. Mark Newman I turn the call back over to you for some closing remarks.
Well listen thank you all for your interest and continued support at <unk>.
Immensely proud of what the team has accomplished especially in the last year.
As I look across our three businesses, how we have met the challenges on the ore side for example in TT.
But also the long term growth that we're seeing in TSS and APM and we've talked a lot about this to you in our investor meetings, and we're delivering against that commitment to drive growth in those two businesses. So we're immensely excited about the future and where we can take the business from here.
<unk> and look forward to meeting with you in the coming weeks as we get out on the road take care.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.