Q3 2022 AdvanSix Inc Earnings Call
Yes.
[music].
Good day and welcome to the advance Inc. Third quarter 2022 earnings Conference call.
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Please note. This event is being recorded I would now like to turn the conference over to Adam Kessel, Vice President of Investor Relations and Treasurer. Please go ahead.
Thank you Betsy and good morning, and welcome to advanced <unk> third quarter 2022 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 advanced six dotcom.
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 in our SEC filings, including our annual report on Form 10-K as further updated in subsequent filings with the SEC.
This morning, we will review our financial results for the third quarter of 2022 and share our outlook for our key product lines and end markets.
Finally, we'll leave time for your questions at the end 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 in advanced Tech.
As you saw in our press release Atlantic delivered third quarter results consistent with our update in October that reflect the resilience of our business model and our ability to navigate challenging conditions.
Let me share a few highlights on slide three before Mike covered the details of our financials in a moment.
Despite the unfavorable impact of the previously announced extended plant turnaround our sales grew year over year as our commercial execution captured higher pricing, particularly across our ammonium sulfate and nylon product lines to also continued higher inflation and lower production output.
Our healthy cash flow performance continued to support smart and disciplined deployment of capital in the quarter, including reinvestment in the business approximately $17 million of cash returned to shareholders in the form of dividends and share repurchases as well as further debt reduction.
With the turnaround is complete our facilities are now focused on operating at our typical high utilization rates, which we expect to continue into 2020 three.
Looking forward, we expect strong underlying agricultural fundamentals to support robust nitrogen and sulfur fertilizer industry demand into the heart of the 20th twenty-three domestic planting season.
Nearly a third of our portfolio is in the agricultural sector, including add chemicals and.
And our position in this attractive market has extended even further through our acquisitions of U S. It means as well lets see I S.
We know this space well and we continue to invest for growth.
As we have shared previously we are today, producing more high quality granular grade ammonium sulfate to meet the growing demands of our customers.
Overall this is a core and critical product line for our business.
Like every company. We are also closely monitoring the heightened macro uncertainty and concerns of an economic slowdown or recession and any potential impacts on the industries we serve.
We would now characterize the north American demand for nylon and chemical intermediates as mixed overall, well some end markets like commercial construction and solvents are holding up we are seeing softness in consumer durables and residential applications.
We've consistently demonstrated our ability to navigate perform and execute in a multitude of environments.
Our low cost position diverse portfolio significant exposure to the North American region in terms of sales and operations and our ability to stay highly discipline around costs provides us with a solid foundation and proven track record to perform through all conditions.
In this environment, we continue to be highly focused on executing what is in our control, including driving superior operational and commercial performance to meet the evolving needs of our customers.
Building capabilities to strengthen our innovation and portfolio resiliency and enhancing our capital deployment.
For the fourth quarter of 2022 we expect performance to rebound towards results demonstrated in the first and second quarters of this year and remain confident in our ability to build sustainable long term shareholder value.
With that I'll turn it over to Mike to discuss the financial details of the quarter. Okay. Great. Thanks, everyone and good morning, everyone.
Now on slide four where I'll provide a summary of the third quarter of 2022 financial results.
Sales of $479 million in the quarter increased approximately 7% versus the prior year.
Market based pricing was favorable by 18% compared to the prior year.
Driven by higher pricing across our ammonium sulfate and Ireland product wise.
To a lesser extent raw material pass through pricing contributed two 4% of topline growth following a net cost increase in benzene and propylene.
The acquisition of U S amines added approximately 3% of sales as well.
Sales volume decreased approximately 18% driven primarily by the unfavorable impact of the extended plant turnaround and lower production output compared to the prior year.
Adjusted EBITDA was 33 million.
And I'll walk through the key year over year variances on the next slide.
Adjusted earnings per share was 43 cents or effective tax rate was 21, 4% in the third quarter versus 23, 8% in the prior year period.
And finally free cash flow reached $37 million.
Cash flow from operations of $59 million in the quarter decreased $18 million versus the prior year, primarily due to lower net income partially offset by the favorable impact of changes in working capital.
Capital expenditures of $22 million in the quarter increased 9 million versus the prior year.
Now, let's turn to slide five.
Here, we highlight a few of the key drivers of our third quarter adjusted EBITDA performance year over year.
Pricing over raw materials was a $49 million benefit.
Trucking, our key variable margin drivers performance in caprolactam and nylon over benzene was up year over year.
Reflecting balanced north American industry supply and demand, where we primarily participate.
Ammonium sulfate on an air price over natural gas and sulfur basis.
Also continued its positive trend year over year.
Reflecting the strong underlying AG environment, as well as our ability to drive our sulfur nutrient value proposition.
In the quarter, we saw a roughly $16 million unfavorable impact from increased plant's been primarily driven by higher natural gas utility prices and an increase in non raw material inflation, primarily on transportation costs.
Volume and all other items were approximately 34 million unfavorable in the quarter.
Early due to lower production output versus the prior year.
As a reminder, in the third quarter of last year, we had roughly 2 million of proceeds related to the P. S insurance claim.
Lastly, the impact of our plant turnarounds was a known headwind to our year over year performance as we did not have any turnaround activities in the prior year quarter.
The overall impact of third quarter 2022 was approximately $44 million.
This was $15 million higher than expected, primarily due to additional required maintenance at our Frankford phenol plant, which contributed to reduced production across our integrated value chain and a delayed ramp to full operating rates at our Hopewell and Chesterfield sites.
Now, let's turn to the next slide.
On the left side of page six we've once again highlighted our third quarter free cash flow generation.
This was driven by a $39 million favorable impact of changes in networking capital.
Accounts receivable represented approximately $59 million of that total as a result of lower sales in the third quarter compared to the second quarter.
This was primarily partially offset by an approximately $19 million use of cash from accounts payable as anticipated due to higher raw material costs in the prior quarter and timing of payments.
I would highlight that over the last 12 months, our free cash flow yield is roughly 13% and our free cash flow conversion is 97%, which reflects the healthy cash flow generation and quality of earnings of our business our business model delivers.
On the right side of the page we've once again depicted our capital deployment since 2020.
We have ramped up our deployment in 2022.
Including an increase in organic capital investments the.
The acquisition of U S amines, which is tracking to plan.
And a meaningful step up in cash returned to shareholders through share repurchases and dividend payments.
Year to date, we've returned a combined $35 million to shareholders.
Our quarterly dividend of 14, and a half cents per share will be made payable on November 29th and we repurchased an additional $5 million of shares in October .
Our balance sheet remains quite strong a benefit heading into an uncertain macro environment and providing flexibility with respect to capital allocation.
We continue to execute a disciplined and balanced capital allocation strategy that we believe is a value enhancer to our core strategies and a key focus to support attractive total shareholder returns.
So with that let me turn the call back to Eric.
Thanks, Mike I'm now on slide seven to discuss each of our key product lines.
Starting with nylon, we've seen the global composite price raw spreads modestly improve in the third quarter year over year led by North America.
China and Asia have continued to see volatility from a feedstock perspective, it's all weakened demand overall.
In Europe , while we have seen some producers returned to production from temporary shutdowns amid historically high input costs.
Third party industry sources are citing utilization in the region remaining around 50% and resulting in a shift towards more imports into the region.
The North American supply and demand dynamics, while rebalanced have continued to support pricing and spreads which has outperformed the global benchmarks.
We have seen softness in consumer durables and residential end markets with commercial construction and packaging more resilient.
We know this portfolio is more sensitive to consumer demand, particularly for engineered plastics resins. So we're keeping a close eye on any further changes in customer buying patterns.
Moving to ammonium sulfate elevated energy input costs, alongside a resilient underlying AG fundamentals fundamentals drove higher nutrient values in the third quarter on a year over year basis.
On a sequential basis, we did experienced quarterly sales seasonality, reflecting both geographical and product sales mix considerations.
Given the pricing environment and demand dynamics coming off the weather impacted and compressed second quarter planting the seasonality impacted this year was above the higher end of the historical range typically seen.
Well, we have observed some cautious buying behavior and given the macro environment.
Overall underlying agricultural industry fundamentals remain favorable heading into 2020 three.
This is supported by crop prices stock to use ratios constrained nitrogen fertilizer supply as well as continued duties on ammonium sulfate imports from China.
Well raw material input costs have seen reductions recently costs remain relatively high in other regions, mainly Europe steepening in the industry cost curve and supporting tight overall nitrogen fertilizer supply.
But altogether the fundamentals support continued robust fertilizer demand and pricing going forward into 2020 three.
And lastly, turning to chemical intermediates industry realized acetone prices of refinery grade propylene costs improved sequentially in the third quarter.
Propylene costs have trended lower on ample supply over the last few months.
This is coming at a time when acetone imports into the U S have remained stable and phenol operating rates globally have come down on softer demands, particularly into building and construction and other industrial applications.
Pricing and spreads overall remain at healthy levels relative to prior periods and will continue to monitor any changes in downstream demands.
Let's turn to slide eight.
Our outlook for the remainder of 2022 remains largely consistent to what we have shared previously.
Again, while we would now characterize North America demand for our nylon and chemical intermediates product line to be mixed overall.
We continue to expect a favorable underlying agriculture and industry fundamentals should continue.
Operationally, we continue to focus on safe stable and sustainable performance, while driving less variability and utilization rates, which in turn drives improved customer experience and higher returns for the business.
For the full year 2022 capex is tracking to approximately $95 million.
With the planned turnarounds complete we do not anticipate any fourth quarter turnaround costs and are targeting our facilities to operator, our typical high utilization rates moving forward.
We expect the pretax income impact of planned plant turnarounds to be in the range of $28 million to $33 million in 'twenty twenty-three.
Compared to approximately $50 million for the full year 2022.
Next year, we expect the larger of our planned plant turnarounds to again occur in the third quarter.
And lastly, we expect our effective tax rate for this year and next year to be approximately 24%.
We anticipate cash pension contributions to be approximately $20 million in 2020 to <unk>.
Including a 5 million dollar contribution in the fourth quarter, which we expect will bring our defined benefit plan to a nearly fully funded status.
Let's turn to slide nine to wrap up before moving to Q&A.
Consistent with what we shared last quarter. We continue to believe that advanced six offers a compelling investment thesis is there a number of factors supporting robust performance and attractive returns for the business and our shareholders over the short medium and long term.
Our leading north American position and advantaged asset base, coupled with our efficient and lean business model provide inherent competitive advantages.
As the industry cost curve steeping globally, we are in a strong competitive position with significant exposure to the advantaged North American region relative to Europe and Asia.
Roughly 90% of our sales are in North America, 100% of our manufacturing and primarily all of our raw material purchases are located in the region as well.
And as a reminder, approximately 50% of our business is on Formula or index based contracts, where changes in raw materials are contractually passed through to customers with minimal lag.
Our leading product portfolio is aligned to a diverse set of end market applications. We are more than just a nylon company in fact, our chemical intermediates and ammonium sulfate product lines are a significant portion of both our sales and buy them.
Not only are these products contributing to top line results, but they are very important drivers of profitability for the company.
And that is precisely why we have dedicated sales marketing and technical resources focused on serving customers and developing product line strategies to both drive performance and capture growth opportunities.
The diversity of our end market exposure also helps insulate the company from significant variability in any one product line as demonstrated by our results in several environments.
Supplementing our exposure to diverse end use applications, we have enhanced our sales mix through our differentiated product portfolio, which represents over $200 million in annual revenue with margins that are twice our average base business gross margins.
And we continue to make smart and disciplined investments in our assets to sustain and improve throughput and profitability.
Importantly, we have substantially increased the earnings power of this business with our focus on through cycle profitability.
Since 2017, we have structurally added a net $50 million plus of annual incremental EBITDA benefit to the base business with significant contributions from those differentiated products, our high return growth and cost savings capital projects.
Improved operational performance with respect to ammonium sulfate granular conversion and the current performance of our two recent acquisitions.
Lastly, our enhanced capital allocation framework provides upside and optionality for further value creation.
Healthy balance sheet, and we'll continue to maintain prudent leverage levels in the current environment.
We are targeting accretive M&A for bolt on opportunities providing growth and synergies.
Citing our confidence we've also stepped up our return of cash to shareholders with our recent dividend increase alongside our opportunistic share repurchases.
We feel very good about the strategies, we've implemented which continue to support expectations for advantage is long term sustainable performance with that Adam let's move to Q&A.
Great. Thanks, Erin Betsy can you. Please open the line for questions.
We will now begin the question answer session.
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The first question today comes from Vincent Anderson with Stifel. Please go ahead.
Thanks, Good morning, everyone.
Good morning.
So just with regard to the <unk> outlook I think the topline drivers are fairly well understood, but when I'm looking at sulfur gas and propylene prices and what they've done recently.
What kind of keeps the first half earnings target for <unk> and not the floor for <unk>.
Yeah, and then there is a you know a number of things and a great question as always here Vincent and you know, we're obviously you've got sort of sequentially. The considerations I'm coming out of the outage and then you have the dynamics really across all three.
Three businesses so in our ammonium sulfate, obviously, where you know moving into the season and you know as we were coming off of the filling Q3 moving towards.
The first half of next year, which will be the the height of the season as you know as we get into Q2.
Right now as we see the markets in ammonium sulfate.
There's a there's a lot of emotion that we have to continue to watch you know I think it's a the underlying long term fundamentals are sound, but there is.
Some cautious buying behavior as we continue to as we see every year right. When you think about.
The timing of how purchases and in sales come in you have folks that are continue to watch and in time their purchases as we go but again, we anticipate that this will be our typical seasonal move forward on in the fourth quarter, but obviously, we have to wait until we get into the first half of next year.
See sort of the peak performance in that particular product line.
And as we noted in nylon in chemical intermediates here again, we have the mix.
But from a consideration well spreads continued to hold up and as we see them.
Certainly the residential applications coming off with mortgage rates those areas are continuing to see softness we see that both in nylon as well as in do it yourself applications through you know our acetone chain and other intermediates.
And then you have the resiliency in packaging as well as areas into acetone distribution for direct solving you. So there is quite a bit going on in that space and as you know our utilization rates. You know this is how we target the operating model of the business. So volume can can be consistent perhaps on a.
On a year over year basis, but that pricing dynamic will play out as we see how demand continues into and throughout the quarter. Yeah. Vincent I. The only thing I would add is when you're thinking about a rebounding back to the first half performance.
The a S. A I would say value is the greatest in the first half of the year, particularly in the second quarter, where you are in the peak of the season and we sell the most of the domestic granular products. So that is definitely a consideration here in the fourth quarter. When you compare to the results and in the first half of the year right you need to factor that in.
As well.
Yeah, no that makes that makes sense.
And then you ask.
The the dividend.
It was a nice increase I'm just curious.
If we should read anything into that in terms of maybe you're seeing something.
More incrementally positive over the course of this year that gave you the confidence to underwrite that.
Kris or did you originally declared the dividend at a level that.
You would be able to grow for some time before you have to reevaluate.
Yeah, well it was about a year.
Over a year ago that we had announced and initiated a dividend we felt given the.
You know free cash flow conversion in the outlook. It was an appropriate time after about a year to reevaluate the dividend policy, and hence which resulted in a 16% increase.
Which we feel very comfortable with and and provides a very competitive yield to our shareholders.
As we go forward here, we'll we'll continue to evaluate the dividend policy, we're very comfortable with the 16% increase and we'll continue to evaluate our based on our outlook and our free cash flow generation. So yeah. We've definitely stepped up the return of cash to shareholders are you now in terms of the dividend.
Well the share repurchases. So we feel very good about our path forward here and look to continue on that path going forward. So feel very good about it.
Great and just one last quick one.
I know for the base assets.
The same no matter, what but if we do move into.
So down next year.
Do you have any rainy day projects that you're already thinking about pulling forward maybe on USA means maybe some derivative products that there's work that you can do in a weaker demand environment.
Yeah, but it's a great question on U S amines and you know as we looked at that acquisition one of the core value drivers was to be able to expand and grow that business and a number of projects are being formulated coming through engineering and again we've.
Started to trigger some investment there as well it would be yet another avenue for us to continue to bolster our pipeline I'm in the high return growth and cost savings efforts and and certainly as we you know put a finer point on our planning for next year. We will look at anything that makes good sense I mean, there's certainly they the bal.
On sheet is healthy for reinvestment into the business and are preparing for you know certainly if you were to come through a recessionary period end and how they a steep climb out of it you know, we'll be well prepared down in position for that.
Great. Thanks again.
The next question comes from Charles <unk> with Piper Sandler. Please go ahead.
Good morning, everyone can you hear me okay.
Yeah. Good morning, Okay, great. Good morning, a couple of things one.
China has been for lack of a better term a bit of a pain for a lot of companies not just so much in what they can sell to them and such but more that they're trying to keep their economy running a little bit and as a result exporting to places. They typically have an export until we've seen product of theirs in Europe , we've seen it in south.
In America have they run into have you guys went into them as a competitor and for instance in South America on sulfate, because they're apparently trying to sort of push the caprolactam and then by the same token are you seeing any type of lag that typically doesn't leave China in markets that it you know selling up that might have some.
And pricing, whether you sell there or not it may ultimately have.
I'll put some pressure on things so have you seen anything from China on that part.
Yeah, certainly certainly a lot of dynamics as you point out and here I haven't tried it and if I take a S. First as you commented on certainly we have seen some significant increases and are reaching a record high in September I think that are caught in a number of folks that.
It didn't say by bit surprised but certainly the numbers are a very large when we look at what we believe the operating rates are in my normal inventories are but that aside you know they are supplying as far majority of the Brazilian imports already I mean, they have been increasing their share in Brazil over the past few years, particularly after the anti.
Dumping affirmative case here in North America.
We have also seen trade flows pointing that they've been moving.
You know resin materials into Europe , as well and certainly there cost position and their price points provide an opportunity to move into that region as well given the lower utilization of domestic.
Producers there and then time, where you know Europe is structurally long in a number of our value chain, particularly an encap Roe and resin. So it'll be something we have to watch as we we play out and certainly that dynamic well, perhaps they're not bringing material.
<unk> directly into North America, I know again these are global markets with global pricing considerations and that's that's something that we are seeing just as they trade flows are moving a bit here on having a you know consideration has to wear a weekend regionally price.
And keep in mind, Charlie that well, we have we have antidumping duties here in place.
With respect to to China.
With the with ammonium sulfate so that we don't see competition from China here in the U S. A you know China has been a big export or as Aaron mentioned to Brazil over a number of years and we've been diversifying our exports are to look for other opportunities in the export market outside of Brazil.
To sort of mitigate that but so for a S. Those are important considerations I think you need to think about.
Okay.
Another phone a little bit more in the future to the degree that you guys can do it I mean are you moving toward a hate to use the word greener application or green or production and the reason I'm asking is because we've seen some of the other companies we cover who have actually managed to maintain market share over time.
These imports in certain markets, where they would compete because they have a far greener footprint in places where it makes a difference like Europe like the U S. Like some other countries they've actually maintained share that.
Price basis, they wouldn't have because of the the greener aspect is that something you guys are looking at in terms of your product slate is it can you be.
Greener than somebody else and therefore, either maintain or take market share for those who are really focused on on that aspect of their business.
Yeah, It's certainly a a keen focus for us as we head forward I would share that we are starting with our lifecycle analysis work, which is allowing us to clarifying have third parties validate our our footprint associated with our product lines in our integrated asset base.
That will one help have the clarity of where we sit today, which we believe are is in a better position than perhaps the sort of benchmarks that are out there.
By third parties and in the value chain and then at the same time working on a road map that will allow us to substantively decrease that footprint.
And that's in the works right I think there are known projects that we can we can accelerate and look at them and you know that as part of our forward planning and that's mostly what we're hearing at the start from our customer base is help us understand.
You know the the greenhouse gas footprint of the product lines, where you sit today, where we have the opportunity set and and as you point out I believe that will allow us to <unk> to have a strong position going forward with.
With our customers I would know that you know when we think about C. O. Two emissions, we we already do capture the vast majority of our C. O two emissions off of our Kellogg ammonia plant and have for Kimberly probably decades, Tom It is beneficially captured and reuse them into known commercial.
<unk> for cold chain storage.
Food and beverage market and so we're also that that's kind of a key factor going into you know our forward ability to serve customers in a way that is sustainable and with lower footprint.
Got it.
I think yeah I mean.
I missed that during the call you said turnaround costs. This year what was the cap it turned around call since you were $15 million.
The 15 million a little bit next year really working at what.
What was in that manner.
Yeah next year, we are looking at 28 28 to 33.
Okay, Yeah, that's what I had missed alright, thanks very much appreciate it.
Thank you.
As a reminder, if you would like to ask a question. Please press Star then one could be joined into the queue.
The next question comes from David Silver with C. L. King. Please go ahead.
Yes.
Yes.
Yeah, Hi, good morning, Thanks for good morning, David.
So I'll have to stipulate upfront I've been jumping around between a couple of calls so I'll, probably be making you repeat yourself and actually just right off the bat I, just I noticed that the email and the.
Earnings release had a few tweaks to them and.
I give them two thumbs up I think it was a more readable and you.
You know a nicer presentation.
Yeah, So I'm just buttering up at them because they are true.
This morning.
Anyway, Okay. So first question would be about ammonium sulfate.
The outlook so.
In particular I was kind of looking at the you know roughly flat year over year revenues and checking my price charts and I think.
Your volumes ammonium sulfate volumes in the third quarter were down quite a bit year over year and I'm wondering first off if you could confirm that and then second off just.
I'm, assuming it's going to be a sold out you know.
Post harvest season, or very active pre buy could you just how would you just characterize demand for ammonium sulfate and maybe your supply position heading into the fall fill season.
Yeah.
No. It certainly you know a few few comments I mean, just to reiterate from before Ratably as we reset them into Q3, you know certainly we have the dynamics coming off of Q2 with with the season, there you know reduced demand and the weather and that compressed cycle.
We we saw inventory sort of had to move through the system not just for our product lines that really across the board for.
For fertilizers.
So as we reset them across the industry for fill in Q3, I'm clearly that was that the the higher end of our previous Ah seasonality trends that we would have.
<unk> seen in recent past, but that said we've been moving through the season as expected. So yes volumes, where we're down in in the third quarter, but not not unsurprising given the.
The dynamics are certainly demand continues to.
Move forward as we progress into that.
The start of a of next year so.
Again, what we would say right now is the risk aversion that I commented on briefly before is not uncommon right for for periods before farmers really need to purchase fertilizer.
You know, whether it's a fall buying surge for storage and application extra activity. They can kind of see a lull before another winter surge you know heading into the early part of next year or so.
All of that we're seeing is is not a typical.
You know and then of course, we had the turnaround in Q3 with that would've impacted some volumes as well you know moving into the chain. So.
Really as we head forward on your comments around pre buy.
Where we're really going to be watching over the next 30 days on to this market and emotion, it's really key to informing.
Informing customers' interests in a pre buy them, we're here to support our customers and and farmers and their success and Theres always add advantages for them at year end for you know, whether it's tax planning and savings as well as you know preparing for the season, but as we've shown in previous.
Seasons weekend, we can operate with a pre buy or not but we're gonna take their cues from from the market here and you know we continue to you know address our order book you know pricing has moved up a bit further through the fill as we would've expected and you know really positioning into again, we think the fundamentals here are sound in.
Next year, perhaps as others already pointing out for for seasons to come given where global stocks to use ratios are going to land.
You know, we really do have to continue to support you know food security around the world, So and Dave just on the on the topline for ammonium sulfate in the third quarter.
Year over year, although volume was down you know revenue went from $113 million in the third quarter of 21 to 132 million in the third quarter of 22, so our market pricing more than offset the volume decline.
Just to be clear.
Yeah, no. Thank you for clarifying that I was.
Mostly just trying to think about it from a volume perspective, yet, but you're yeah no. Thank you for clarifying that.
Yeah. The other thing I, just wanted to ask would be raw materials, and maybe any opportunities for <unk>.
I don't know strategic purchasing but.
So for has been on a bit of a roller coaster and it settled out much lower this quarter than a couple.
A couple of quarters ago.
And.
You know.
This is almost by the day, but you know when I look at natural gas prices yesterday's close they were about as low as they've been in a long time.
As you look ahead I mean, how are you thinking about you know raw material volatility and do you see any kind of opportunity to lock in maybe some more favorable pricing relative to.
What you've encountered.
Year to date thanks.
Yeah No. Good question, Yeah, as we noted earlier, our raw materials have come down a bit here in the fourth quarter relative to the third quarter. You did note that natural gas has come off although natural gas is quite volatile depending on weather patterns, depending on the the amount of injections in supply.
Hi.
As well as demand. So so that's one to watch closely our sulfur has also come off in the fourth quarter relative to the third.
And we expect benzene to be down a little bit as well, whereas propylene might be a bit flat here in the fourth quarter relative.
To the third now with respect to strategic purchases you know, there's limited I would say storage capability from a raw material perspective.
We may have the opportunity to add.
Add additional volume on the periphery in and take advantage of situations are but I would say, it's more on the rounds as opposed to the ability to significantly a stock up.
But again keep in mind, Dave or half of our revenue half of our business is on formula based agreements so even despite.
The volatility the volatility in the raw materials that we see we get that.
Covered through the Formula of agreements, we have are really on on more of a real time basis with very little lag. So we feel very comfortable with that and where we have a sort of spot oriented business.
We do get ahead of those you know the changes in the raws and price appropriately and feel we manage it on on that basis, very very well as you can see from our results and when you look at them a quarter by quarter. So that's how we manage it we'll continue to look if there are opportunities to sort of lock in some pricing here.
They're generally you know our business model is strong and conducive to perform well in a volatile.
Raw material environment.
Okay, Great and I did have one more and this is may be picking your brains are getting your perspective on <unk>.
Competition from Europe .
And.
In particular, I think this really relates to the nylon chain and I'm not really interested on so much on the fertilizer side.
But things have been quite volatile in Europe , both on the cost side and now the economic outlook.
And I'm wondering in particular, you know as you think about kind of the supply demand fundamentals on nylon and caprolactam products.
Just wondering what youre seeing out of Europe in terms of maybe some of these producers nylon producers that rely on highly integrated production models multiple products and everything.
Coming out of the holiday season, let's say in the third quarter. I mean are you seeing them and the more larger more strategic players I mean are they.
Inclined to kind of ramp back up to as you know as hard as they can you know to kind of maintain their market shares are.
Are they may be taking a little more cautious attitude based on you know maybe regional economic trends. So how competitive do you think European based producers are going to be you know maybe over the next quarter or two.
Just just based on their regional economic outlook and the cost picture that they face. Thank you.
Sure and apparently in a number of value chains and.
When you, notably point ticket caprolactam, the monomer and certainly nylon and the polymer.
The energy dynamics on the input cost structure is a reasonably high there and that is why they have typically been operating at the lower utilization rates for for a number of quarters and while certainly natural gas has come back down.
More more recently and we've seen some tick up and and utilization. It is you know eight hours.
Structurally challenged region. It is structurally long and has been it has relied on the ability to I would say export for for full capacity utilization and that is being certainly challenge at current with import pressures and are really now coming from from China.
I would say that on the.
The strength of integration. So there are players that are more stand alone that are players that are you know hassle full integration and have positions and you know I think those that have that business model that full integration through you know most notably probably you know engineering solutions have hi, good contractual.
And you know that are focused on sustainability considerations like we talked about a little bit previously or are likely the you know the winners over the long haul here.
Okay, Great I appreciate all the color. Thank you you bet.
The last question today comes from Vincent Anderson with Stifel. Please go ahead.
Yeah. Thanks, I just had one more.
You know.
It feels like we Havent had a normal economic environment for the fourth quarter large acetone large buyer acetone negotiations since the trade case went through.
What are you seeing.
MMA going to even take significant commitments that we're staring down a recession I'm just curious what's going on there right now.
Yeah, I mean were you know cautiously because we're in the heart of a lot of those conversations you know at current and and as you say anything about M&A tied through into <unk> is that an application basis, but you know I think that the best way to think about it is probably just stability year on on year relative to what what we see right now.
Okay, Alright, that's probably.
Because it's going to get for the time being and actually I just have one other one.
Sounds like the answer is no for now but have you seen any incremental interest in ammonium sulfate just given your supply is that tied to the logistics issues on the Mississippi River right now.
Yeah, and then again where were focus into positioning for them you know our customers and are into the value chain and as you say, we we wouldn't have the same exposure relative to the barge movements. We do some rail to barge, but you know further further north up you know the river. So you know I think that our relative.
Did those dynamics, we are in a in a different time competitive state.
Okay, Alright, thank you that was it.
Yes.
This concludes our question and answer session.
I would like to turn the conference back over to Erin Kane for any closing remarks.
Yeah.
Thank you all again for your time and interest this morning, despite the challenges of the third quarter. Our performance reflects the resilience of our business model and our ability to navigate and execute in a multitude of environment.
The growth prospects of advanced six remain robust we look forward to closing out 2022 with another strong quarter and are committed to delivering long term value to our shareholders. So with that well look forward to speaking with you again next quarter stay safe and be well.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.