Q2 2023 Celanese Corp Earnings Call

Greetings and welcome to the Celanese second quarter 2023 earnings call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the opening remarks, if anyone should require operator assistance during the call. Please press star zero on your telephone keypad as a reminder, this conference is.

Being recorded at this time I would like to hand, the call over to Brendan I ask Vice President of Investor Relations. Thank you you may begin.

Thank you Darren.

The Celanese Corporation's second quarter 2023 earnings Conference call. My name is Brad and I'll ask Vice President of Investor Relations.

With me today on the call are <unk> chairman of the Board and Chief Executive Officer, and Scott Richardson, Chief Financial Officer.

Celanese distributed its second quarter earnings release via business wire and posted prepared comments on our Investor Relations website yesterday afternoon.

As a reminder, we will discuss non-GAAP financial measures today, you can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website.

Today's presentation will also include forward looking statements.

Please review the cautionary language regarding forward looking statements, which can be found at the end of the press release and prepared comments.

Form 8-K reports containing all these materials have also been submitted to the SEC.

Since we published our prepared comments yesterday, we'll go ahead and go directly to question.

Please go ahead and open up the lines for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.

Our first questions come from the line of Ghansham Panjabi with Baird. Please proceed with your question.

Hey, guys good morning.

I guess first off Larry in your prepared comments you had some comments about China and some of the trends that you saw in <unk>, but I was just hoping you could give us a little bit more color in terms of how.

How things are evolving at that point in context of all the chatter about stimulus et cetera are you starting to see any signs of that permeating through to your business.

Thank you John Ken when we look at China.

Been a difficult year in China, clearly as we've seen depressed demand consistent with the rest of the world, but probably more pronounced in China.

While we see different now as we start moving through the year and we saw some signs of that.

Early in Q already is despite lower demand conditions conditions, especially for the acetyl chain seem a bit tighter and the reason I say that is when we saw some unexpected outages in the second quarter and here really in July .

We did see pretty rapid price response to those outages, which suggests that there's not a lot of spare inventory our spare capacity in that area and if you look at utilization for acetyl for China for global asset it's around 90% about the same in China. So again that that suggests to us that although dim.

Man hasn't recovered significantly there is enough demand match with the supply that we are at a place where we can see some price movement up as we see supply growing I would say, we're not seeing a lot of response yet to the stimulus we hear a lot about it we haven't seen a lot of response, yet, but we think its coming and there are some pause.

<unk> strength in China in particular autos remains pretty strong in China, and the broader broader Asia area.

So we see the pockets of weakness as well electronics, especially consumer electronics.

Consumer goods and I would say challenged by the situation in Europe , and the poor economy in Europe , which is limiting exports out of China, which is also I think putting a damper on production of goods in China.

Okay terrific. Thanks for that Lori and then in terms of the current operating environment, obviously, it's very complex and you're pulling that.

Or is that you need to in terms of managing supply et cetera.

The scenario that does sort of complexities spills over into 2024.

What are some of the other internal offsets we should keep in mind as it relates to the variances 24 versus 23 from an earnings standpoint.

You guys have I think we've hit a good point, we really have no visibility ended 2024 at this time.

So we don't really know what demand is going to look like in 2024, if I had to guess I'd say, it's going to be 2023, better than 2023, but we don't know.

There are a few things we do know that we know will give us an uplift and we are confident will give us an uplift in 2024. So if you start with the engineered materials side with the amount of inventory draw down. We're doing this year, we will be able to have completely flushed through our higher cost.

<unk> as we move into 2024, which will give us lower variable costs in 2024, we will see less hits to our P&L from the inventory reductions you will see those in 2023, we don't anticipate a lot of those continuing into 2024, so that will be an uplift we have an additional 115.

A eminem synergy.

Which will hit next year.

That's helped by our first quarter, SAP integration, which will get everything on the system and give us additional opportunities for and for.

Synergy as we get everything fully integrated end to end cost takeout and of course with the lack of Destocking I would expect to see next year. Since we will have taken so much destocking. This year. In addition to that lift then we will get from share recovery, we should continue to see Eminem volume recovery in particular.

On the acetyl side.

We know at a minimum we have at least this additional 100 million contribution from clear like asset that we have next year and then with the more than $1 billion of net debt reduction that will take this year will have lower interest expenses next year. So again, if you take all those factors those are things that we feel very confident we will lift our earnings from <unk>.

3% to 24, regardless of what happens to demand.

Thanks, so much.

Thank you. Our next question is coming from the line of Michael <unk> with Barclays. Please proceed with your questions.

Great. Thank you and good morning.

First question when you look at the weakness in engineered materials during <unk> and into <unk> can you help us roughly understand how much was just due to weaker end demand versus how much is due to a weaker price.

Other than Tom can you talk about where you're seeing the most competitive pricing pressure today.

Okay.

Sure. Thanks, Mike for your question.

As we look at Q2, if we look at what we had guided to versus our performance I mean, clearly we were we were below what we had expected in the quarter I would say half of that gap came from the <unk> side about half of that was really the inventory drawdown and Eminem, which we really hadn't anticipated so.

The earnings associated with that and the other half is really just the weak demand again, especially industrial and electronics and high I would try to describe what's happening in demand. If you look at differentiated products, that's really where we've seen lower volumes, we've seen our customers taking lower volumes are differentiated.

Products again, because they don't have the end market for their goods and we haven't moved price undifferentiated, we've been able to hold price, but we've just seen the volume drop off we have chosen to take molecules instead of moving them and therefore is not meeting them and differentiated we've gone ahead and increased sales into the standard grade market.

Where we are able to capture volume, but at a lower margin or a lower price. So it is a combination of volume and price and it is a big factor of mix in terms of less differentiated more standard grade again allows us to keep volume, which we think is important as we move towards recovery, but we've had to take some price concessions to.

Make that happen.

And what.

What molecules I mean, Tom is certainly the big one I would say for the.

Heritage Celanese molecule, we've had a few others, especially those more differentiated molecules that go into electronics connectors and that sort of thing.

<unk> also had a volume impact again I think its short term I think we'll see recovery there and then on the <unk> side, it's nylon.

And again I would say is that switch from from differentiated standard grade.

More is more significant in terms of earnings than necessarily the volume any volume impact.

Okay. That's super helpful. And then just second if I look at your updated EPS guidance. It seems to imply going from about $2 25 at the midpoint in the third quarter to slightly north of $3 <unk>. So.

So can you just.