Q4 2023 Huntsman Corporation Earnings Call
Greetings and welcome to the Huntsman Corporation fourth quarter 2023 earnings call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad. Please.
Please note this conference is being recorded.
At this time I'll now turn the conference over to Ivan Marcuse, Vice President of Investor Relations and corporate development.
Mr. Barry Fishman you may now begin.
Thank you Robin good morning, everyone welcome to Huntsman its fourth quarter 2023 earnings call joining us on the call today are Peter Huntsman, Chairman, CEO, and President President and Fillister Executive Vice President and CFO.
Yesterday.
We were at 21 2024 after the U S equity markets closed we released our earnings for the fourth quarter of 2023 press release and posted to our website Huntsman Dot Com. We also posted a set of slides and detailed commentary discussing the fourth quarter of 2023 on our website.
Peter Huntsman will provide some opening comments shortly we will then move into the question and answer session for the remainder of the call. During this call. Let me remind you that we may make statements about our projections and expectations for the future. All such statements are forward looking statements and while they reflect our current expectations. They involve risks and uncertainties and are not guarantees.
Future performance, you should review our filings with the SEC.
Finally as for more information regarding the factors that could cause actual results to differ materially from these projected and expectations.
Do not plan on publicly updating or revising any forward looking statements. During the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA adjusted net income.
Loss and free cash flow you can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website Huntsman Com I'll now turn the call over to Peter Huntsman, our chairman and CEO.
Ivan Thank you very much. Thank you for joining US. This morning last evening, we released our prepared remarks for the fourth quarter 'twenty twenty-three results before opening the call to questions.
To take a few minutes to share with you our latest plans and views as we enter the second half of the first quarter.
At the outset.
I remind you that we have a complete financial results for the month of January but still have two more months until we know the full results of the first quarter.
I'm also still a bit haunted by the ghost of a year ago, but many of you and most companies, we're projecting 20 twenty-three tap or we'd be getting but a very strong second half second half food to be nothing short of a disaster let.
Let me begin by saying by sharing with you our five main goals for this year first we will be this will be a year wherein we will recover some lost sales from 'twenty to 'twenty three a year ago, we showed strong pricing discipline and early in the year and in many cases, we held the line he kept pricing.
From falling faster.
And as they otherwise would have in some cases, we lost business the competition, who are pushing volume over value.
Going forward, we will be pushing much needed price increases in most of our product ranges, but we will also be negotiating to get back some of that lost volume.
Our second priority would be to improve our free cash flow generation. This will be at the top of our incentive pay targets for 'twenty 'twenty four we will do this through a continued focus on working capital controlling both indirect and direct costs and moving more volume and higher prices.
Third priority is to maintain discipline in our cost structure, we will complete our previously announced cost reduction programs in each of our divisions and our corporate functions.
We will also be focused on offsetting projected 3% to 4% inflation increases.
Our fourth priority will be to continue as we have for the past several years assessing our portfolio on an ongoing basis to ensure that we're the best owners for the businesses and assets that we have.
We will continue to look for M&A opportunities to expand our more differentiated downstream businesses.
Lastly, and most importantly, we will invest to continue improving our environmental and safety stewardship and our operating reliability.
Focus on managed rest will also apply to our investment grade balance sheet.
Our board of directors remains committed to returning cash and value to our shareholders to this and we will be raising our dividend by 5% to share to 25 cents a quarter well.
While we do not plan to buy back any shares in the first quarter, but we look forward to restarting our buyback program as soon as market conditions warrant.
As I said at the beginning it is still too early in the quarter to make bold predictions.
However, the order patterns that I'm, saying in most areas of the World World tells me that in most of our divisions. We have seen the end of a very long period of inventory draw downs and prices and volumes look to be gradually improving.
With the restarting of China's economy post new year celebrations, I feel more optimistic than I did at year end and see more proverbial green shoes, and I have over the past 12 months to 18 months.
We have a lot of recovery before us, but I believe we're taking the right steps in the right directions.
Thank you very much and with that operator, why don't we open the lineup for any questions.
Thank you.
You'd like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
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So they may address questions for as many participants as possible. We ask you. Please limit yourself to one question and one follow up.
Thank you and our first question today comes from the line of Mike Sison with Wells Fargo. Please proceed with your questions.
Hey, Good morning, Peter you know volumes in polyurethane seems to have stabilized a bit in the fourth quarter.
Yeah, how do you think volumes start to.
Unfold in the first quarter or are you sort of mentioned that order patterns look like a little bit better and then when do you think it won't we can see an inflection point for growth and 24.
Well I think that again, you're going to continue to see a gradual improvement throughout the first quarter.
Both in pricing and in volume.
Look at it on a prior.
Prior year basis, I would imagine it will probably be seeing an improvement in the first quarter again, just looking at order patterns today, and so forth are probably around mid single digit sort of growth and that's going to be pretty much across the board, where we're looking for growth to take place.
As we have seen a cessation of D inventory in North America around housing and construction and and in China, We continue to see a bit of a rebound.
And construction, but mostly in automotive.
And mostly as we look at infrastructure projects.
And in Europe I yeah.
Well I think we'll just see a continued gradual recovery across the board in Europe.
Got it and then if volumes do recover what do you think needs to happen to shore up sort of on either pricing or profitability and maybe you know, giving us a thought on what the polyurethane segment should be able to do longer term in terms of.
Margins and earnings power.
Well I think yeah.
N D I've not seen anything structurally that has changed in MDI. This is a mid to upper teens sort of business during its.
Normalized basis, and when you see.
[noise] MDI capacity utilization, usually somewhere in the mid to upper a these particularly the operators now pushing 90% youre going to see pricing power and I think the industry today globally somewhere on the low eighty's.
Present capacity utilization, but a little bit of an improvement over what we've seen in previous quarters I'll remind you that the last quarter were talking about global operating rates being probably in the mid <unk>.
So we are seeing a bit of an uptake there and but we need to see sustainability again last year. This time, we were talking about a stronger second half of the year and so forth and I think that what's going to be important at this time.
Or this year I said, we just see a long.
Steady recovery in volume in and allowing us to recover the pricing as well and I would say that across the board in virtually all of our products not just MTI.
Thank you. Our next question is from the line of Victor with UBS.
Please proceed with your questions.
Hey, guys. This is James Cameron on for Josh Thanks for taking my question.
Just looking at a you called out volumes down again against a weaker year over year comp I was wondering is there any impact from the ongoing DLR rationalization or is that.
Pretty much done at this point.
No I don't think we've seen any impact from DLR rationalization, I mean, an arc.
Case.
Yeah, we're we're seeing a little bit of fluctuation and order patterns are on aerospace and so forth, but I wouldn't say that any of those or a really material trends a lot of Max it's going to be timing on year end inventory and yes, as you look at something like aerospace or in automotive how many parts.
And the OEM supply chain.
The car companies shifting from Evs or hybrids to ice and yeah that'll that'll cause some disruption on a quarterly basis, but I don't see anything in advanced materials that would give me that would give me any concern about order patterns or sales. If you think about it less than 10% of our advanced materials portfolio now.
It's P. L. A we've deselected an awful lot over the years focused on the higher margin businesses and that generates less than 5% of the profit. It it's not our focus from a portfolio perspective.
Okay.
Okay. Thanks, and then just on on the Aerospace there was an incident earlier in the quarter that led to the FAA limiting production at a major aircrafts many.
And with that manufacturer.
Is there any impact on the first quarter guide from that.
No no.
I would just remind you it goes without saying we didn't have anything to do I mean, our products yourself. It had nothing to do with that Oh, what's that.
Factoring problem only had.
So no I don't yeah, when we look at it overall.
We don't see any impact in the first quarter because of that yeah. I mean, if you think about it our exposure is in general into wide body aircraft.
Into that relevant to aircraft is less than 5%. So it's it's again for any recovery that we have it's all focused on.
On the wide bodies are material that we sell into that end market.
Yeah.
Our next question is from the line of John Roberts with Mizuho. Please proceed with your questions.
Thank you you decided that you are going to restart your smaller Geismar unit, maybe it didn't sound like that was maybe quite justified yet maybe that should come a little bit later, but maybe you can talk about where you think that volume is going to go.
Yeah.
I'd remind you it's 130000 tons of volume here at roughly 250 million.
Million pounds, and so we're looking at that sort of volume being a relatively small percentage increase in the overall.
Yeah on the overall scheme of things I would just say to that is we as we look at restarting that yeah. It does take your time to restart an asset like this probably could take as long as you have throughout the entire quarter going into the second quarter. Our second quarter is usually pretty strong demand for oh.
OSB CW P insulation.
Installation of our building materials.
And just because we're operating that line doesn't mean that we're going to put all 130000 tonnes into the market on day, one that will be gradually be fed into the market as a market.
It needs it and so forth, but where are we looking at today's order patterns, what we're hearing from our customers and so forth.
We felt that we needed to start that that asset up John we've been integrating glass globally up between 75% to 80% of the markets in the in the low eighties I should give you some indication that we're simply moving up to the market levels.
And then is the Boeing situation affecting Europe oxy supply chain at all.
No we're not seeing any any issues today on that.
Yeah, what what noise I would remind you that we're supplying.
Our customers than supply Boeing.
Or in some cases, our customer supply and Oems that supply spelling and what impact that.
That may have if boeing were to slow down production and so forth.
We may not feel it for a quarter or two but no I don't see any reason today, we're certainly not seeing anything that would impact that.
Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.
Thank you good morning up here just on a M D I what would it take to return to mid cycle operating rates in MDI and is there a path forward to a peak later in this in this decade.
I think that as we look at it.
We we kind of look at the three regions I think that as we look at the U S housing market I think today a recovery in housing to be at that one and a half to one seven.
Kind of where we were just a few years ago.
Which I think is still well below the 2 million level.
As you know that people are saying, it's kind of a sustainable rate.
If we look at housing that that recovery of housing and I think again, it's it's oh.
What what was really painful over the last year and a half was a D inventory that took place it wasn't necessarily at housing dropped to nine.
900000 units or something like we saw during the great recession.
It was a massive amount of the inventory that took place and how much inventory within the system when that inventory started so I think in North America, it's going to be a lot around housing I think that as we look at Europe, it's going to be.
Excuse me as we look to Asia, it's going to be around.
Our continued.
Paul.
In automotive for us, both ice and particularly EV had been very strong end markets for us in Europe.
In China.
China continues to improve as we have pointed out in the last couple of quarters.
Good.
But we're certainly not saying.
From a overall macro point of view.
Five 6% growth that we've seen in the past year. So I think that's going to be important.
And then Europe, I think Europe's going through particularly in Germany, something of a de industrialization right now and I think Europe needs to find.
Instead of course has to do they want to continue. This this this insanity that theyre going through a or.
Or do they want to.
Really have policies and priorities that are going to encourage manufacturing and.
Yeah, what are they going to be going in that area, but.
Your Frost and building materials installation light weighting automotive and so forth. Those are are some of those are doing fairly well right now we're seeing a gradual recovery in automobiles and so forth installation, but we need to see more coming out of Europe. So again I think all of those indicators are going in the right direction right now gradually.
Some faster than others, we just need to see it sustainably keep moving in that area.
No very helpful and just how should we think about the ramp in earnings from Q1 to Q2 for the total company.
Yeah.
I'm sorry, the ramp of earnings in Q1 Q2 for the entire company Yeah. The ramp from Q1 to Q2 EBITDA for the company.
Again, I think that that will be a factor of what we see in continued growth and and and pricing discipline.
Discipline.
Largely across the board.
But we would we would assume that that as we continue to see an improvement in demand and the continued improvement in pricing that we'll see an improvement in earnings as well Yeah. We were not going to guide to Q2, right now, but if you've got the Q1 guidance, but we would expect to seasonal improvement as you move into the construction time period.
Okay.
Our next question comes from the line of Alexia <unk> with Keybanc capital markets. Please proceed with your question.
Thank you good morning, everyone just to piggyback on the last question in New York Polyurethane segment, you're expecting better margins in the first quarter.
Should we think about that level of MDI margins in Q1 as sort of the baseline for 'twenty four or could those margins again in Q2, because you know we now see benzene rising for example, maybe you won't have enough pricing, but do you feel comfortable that at the very least that.
Q1 level of MDI margins, what would not slip lower.
Well I'd like to say that we have that much control and pricing for the entire year and then we have that good at forecasting but.
As we look at it I'm.
Our focus right now as to how Q1 is ending and how Q2 is going to be starting and as I look right now some of the broader indicators.
Europe, we're out with a price increase effective March one of 250 Euro. These are public announcements of 250 euros a ton Chinese.
On the post.
New year's which ended just this past week.
Yeah, we've seen.
Pretty strong demand both in volume and in pricing.
It's been publicly reported of around $150 a ton.
In the U S will be.
Pushing for a $400 a ton.
This improvement and an H B S now.
Hudson building solutions, we also have some formula pricing in the U S and we'll be pushing for other price increases as well that are not public so.
Across the board now a lot of that is going to be setting a last couple of days, we've seen benzene continued to be quite volatile.
And we've got to make sure that our prices stay above the wave of raw material price movements, but.
But by and large we're finishing first quarter and a much stronger position than we started first quarter on a pricing basis and I would say that again some of that improvement that optimism I talked about in my prepared remarks at the very beginning literally we've seen that really starting to come just in the last couple of days, yeah, we see some of the <unk>.
Actions have taken place in China, and so forth. So again, some good optimism going into the second quarter I felt like it feels like we've got the wind at ourselves.
But again.
And unfortunately, we've sent out here or there on.
On Europe specifically.
Yes.
Yes, pardon, yes Alexia.
And in Europe, specifically do you see any benefit from lower imports of a material from Asia in either polyurethane for performance products.
Well I think we would always be happy to see fewer imports and more just as a rule of thumb.
So yeah.
Yeah.
That would be the case, yes, yeah, I mean, we've seen a little bit of a slowdown in let's say if you look at where we are today in February versus quarter four in terms of imports from Asia, just because of the.
Let's see.
You'll get cisco's as ours as to how temporary that actually is.
Yeah.
Our next question comes from the line of Arun Viswanathan with RBC capital markets. Please proceed with your questions.
Hi, This is Adam on for Aaron Thanks for taking my question.
Looking to second and third quarter looking.
I'm looking at polyurethane and wondering other than some of the items you just outlined what might you think are some of the upside drivers beyond seasonality for that segment. Thank you.
I believe it's going to just.
Continued growth in demand.
Stability in raw material prices and disciplined in finished product pricing.
Just getting back to the basic fundamentals a little bit of.
<unk> of.
Of restocking would also help I think that inventories are very low and <unk>.
Our polyurethane as well we will be completing our cost.
Savings program throughout 2024, so we will see some of the benefits of that fault at the bottom line.
Great. Thanks for that and looking at our AG, an amine destocking. When do you think some of the negative impacts from that might start to subside.
I'm sorry, the destocking around what.
Yeah.
Okay AG chemicals and aiming specifically.
Yes, I think where we feel that most of the destocking at least what we're seeing in our amines products.
We're not that exposed to the agricultural products and chemicals.
So I don't want to comment on anything on the AG side more just out of we're just not exposed that much there. So I really don't track that but with most of our amines.
As we look again, if you look at the volume improvements that we're seeing quarter on quarter.
I think the we've seen the vast majority of the Destocking that has taken place there has come to that.
Our next question is from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your questions.
Yes, Thank you and good morning.
Peter I wanted to come to the the five goals that you outlined at the top of the conversation and I was particularly intrigued by your fourth point of.
Assessing the portfolio, making sure you're the best owner for all of your assets et cetera.
Obviously, we've seen some significant divestitures over the last five years or so do you have in your mind.
You know potential to part with any businesses that are bigger than a bread box or are you referring to you know maybe potential for more surgical changes in the portfolio and maybe any are any updated thoughts on where you'd like to drive the portfolio from here would be helpful.
Yeah I think.
We need to just continue to look at the entire portfolio I think we'd be via a real disservice to our shareholders. If we said that we want to stay exactly what we are today forever.
And as we look at those areas of the business that are particularly impacted by.
By higher energy costs in Europe.
I think that we need to step back and we need to ask ourselves how do we structure those businesses for the next five or 10 years or next 20 years.
We're going to be in a competitive.
Physician the markets have changed quite a bit in the last couple of years when it comes to pricing dynamics when it comes to.
Geopolitical shifts and energy policies, and so forth and I think we've got a continuously ask ourselves are.
Are we best positioned to own these assets in the right places do we have the right supply agreements or even partnerships.
And.
See where we go from there, but again I would.
I think it would be I.
I think it'd be the wrong move we came in one morning, and said everything is perfect and Theres no theres no need to what if we could trade some of our assets and I'll, just say I'm not going to get into which of those assets may be.
But if you could trade some of those assets for less volatile higher margin assets I know, that's a lot easier said than done but.
But I think we probably have approved some of that over the last couple of years as we've divested of our textile effects and T. I O two and.
And some of the more commoditized intermediate chemicals, and so forth oxides, and glycol and so forth and we bought assets that have that have been put into our advanced materials are downstream urethane spray foam businesses.
We look at those sort of changes I'd like to see that going forward.
That's really helpful. And then second Peter if I may I wanted to ask about your view on China I think you made a comment.
That youre more optimistic today than you were at year end of year end was not too terribly long ago. So.
And just kind of curious a is it to do with you know a little bit of MDI uplift.
That you referenced earlier or are you seeing other signs.
In China, there are more encouraging to you more more green shoots maybe you could elaborate a little bit on on the regional outlook there.
Yeah, I'm not sure that my views necessarily have changed all that much I always get a little bit leery.
When you go into Chinese new year, because it seems like you come out of it and you're either off to the races or it seems like things just the new years, and then things just remain lethargic, that's kind of what we've seen over the last two years or so with China's struggling through Covid and then a rather lethargic recovery in the last year.
Sure.
I see them coming out of this new year.
Just in the last week and again I don't want to base, a whole year on a weeks of demand and pricing and so forth.
But I think what we're seeing in market conditions in real time.
Kevin is we're seeing.
A better.
Rebound if you will after the Chinese new years, and we've seen over the last two or three years.
And this is this is kind of the China that we were used to a couple of years ago. So again I'm not I'm not saying these guys.
<unk> drastically but I.
I do think that the pick up that we're seeing in our particular business.
On.
On Evs and as we look at some of the demand.
There is picking up.
In China in particular.
It's it feels like it's real and it continues to see a gradual steady improvement and Kevin for context about 15% to 20% of our sales are into China and less than 10% into property, which has obviously been the big the big headline coming out of China and have all of that has fallen.
Okay.
Our next questions come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Hi, This is Turner Henry Exxon for Vince and I'm wondering if you can walk us through price cost and other considerations underlying your guide and that margins will move higher in the first quarter within performance products specifically.
Yeah, I think that as we look at performance products.
We can see can we continue to see a gradual recovery in the construction markets, that's going to be an improvement from <unk> and hydride and and the unsaturated polyester resin chain as you kind of move downstream in North America, we'll see a volume.
We will be higher in <unk>.
And our amines products as well and in that goes into everything from spray foam.
And we're seeing.
Prices are stable to improving in this business so.
Yeah, I think again performance products, we can see a gradual improvement and I hope that that builds momentum throughout the year.
Great. Thanks for the color. So you've mentioned that you anticipate stronger pricing in the first quarter and polyurethane.
Could you walk us through what Youre seeing in each region as it relates to our polyurethane is pricing and what you're expecting for underlying supply and demand.
Well again some of the broader things that we're seeing in China.
I would just say that we're seeing around $150 a ton improvement China, Unlike Europe and the U S. We're well setup will set a price out.
China moves really almost on a daily basis.
On your base and more Commoditized.
Polyurethane your downstream.
<unk> blends in and more differentiated urethane or usually going to to follow.
That macro movement in pricing, but as we see pricing today in China, we see that up around 150 Dod.
A ton improvement over what we've seen in the past couple of weeks.
As we go to Europe again were out with a $250.
A ton.
<unk> in Europe, and again, when I say that that's not to say that you would take all of our volume and put $250 a ton of that some of that will be effective March one some of it will be a little bit later than that.
Some of it.
On contracts and so forth in place maybe more maybe less of that 250, but directionally.
That's where we see pricing going in the European market and.
That's obviously is very much needed, particularly in the European market.
In the U S market again, we're seeing a number of areas with the splitter that we have in place we see kind of more of a fragmented base in Europe, we sell a lot internally through down through the Huntsman building solutions, we have.
<unk> of our product that's on pricing formulations, and so forth, where we're able to pass through raw material volatility in increases and we have some that are just on standalone contracts with prices that we negotiate on a quarterly or monthly basis, but we are pushing for.
Rod price increased.
The North American market as well in MDI and to your question on utilization, we would still expect it to be in the low <unk> in the first call. So we're not up to the.
Seasonal highs of construction in the second quarter and as we said earlier.
Things industry really needs to get into about 85% plus.
Utilization before you see a real inflection point when it comes to supply demand.
Yeah.
Our next questions come from the line of Mike Harrison with Seaport Research partners. Please proceed.
Are you with your questions.
Hi, good morning.
You noted that you were maybe seeing some additional opportunities to improve the cost base and I was just curious are those additional actions that could be taking place above and beyond the $60 million worth of incremental savings that are part of the restructuring program that's been in place for.
Several quarters.
Or were you just saying that theres still some actions that you need to take in order to achieve those incremental savings.
Yes, My Titusville.
I think we've guided to approximately $60 million year on year that includes some of the actions that will be taking during the course of.
This year, we are looking at manufacturing efficiency and honestly outside of just the cost base. We're looking at working capital as well I think we are.
Cognizant that in any recovery working capital that should typically be an outflow when it comes to to us of cash and I think there's some more work for us to be done, particularly around inventory days, where we can offset.
Some of them.
We'll also continue to to to finish up our European restructuring project as well as a small amount to do there as well and quite frankly, we still got to make sure that we're offsetting about $50 million to $60 million of inflation every single every single year.
Yeah.
Alright, and then the other question I had is on the the mirror lawn product line in this pilot plant that's coming online in the next few quarters.
Can you talk about the level of interest that youre getting from potential customers and I guess, what needs to happen from a commercial or offtake standpoint, but.
Before you decide to.
And then the second piece of that is I apologize if you've already said this but what could the cost of that 5000 ton, Maryland facility look like.
Well, the the 30 ton facility, which should be the largest facility.
Type it is producing.
The carbon nano.
<unk> product this will be the largest facility in the world.
We believe we have a very competitive cost basis.
Key to this is the lower you can get the cost the more applications you can get into we're presently working right now with everything from.
From concrete car tires EV batteries.
And structural products.
Products right now.
To sell as much as we're able to make of the product, but the product right now to cover the costs are going to very high end applications and the satellites in the asset applications and so forth.
As you come up with larger scale.
Capacities.
We're going to be able to widen the.
The product.
The availability the value band.
The number of applications that go into the.
The next phase of that expansion, we will be taking place next year.
We believe that will be starting up the 30 ton.
Reactor will be starting up before.
Sometime in the middle part of this year and.
We feel that we should have sufficient data from that to initiate.
The larger expansion, which will be.
In 2025.
At that point, I think that where that next expansion really is what I would consider to be a commercial.
Commercial size reactor.
That if you want to go larger than that you are just putting in multiple reactors of that size.
So really coming I think at the end of the next.
Year to being able to see the product being able to qualify the material and then being able to mass produce material economics it that yes.
Should make this a very.
Hopefully it very successful add on to the rest of the business in terms of cost might think about all of that.
Investment that Peter described the 30 ton the five kilotons in the tens of millions maybe $30 million to $40 million. It's all contained within the capital program that we've outlined and contained within the $200 million that we've guided for for this year's capital program.
Yeah.
Our next question is from the line of Frank Mitsch with.
HRM research. Please proceed with your questions.
Frank J. Mitsch: Thank you so much and good morning.
Peter I want to come back to the comment on performance products, where you indicated that you anticipate a gradual improvement as I look at that sector.
Frank J. Mitsch: The decline over the past several quarters has been.
It wasn't gradual it was fairly significant and in fact, the volume declines were pretty horrific.
The period of third quarter 'twenty two in third quarter 'twenty three we got back to relatively breakeven here in the fourth quarter. So the question is you know obviously a lot of that has to be destock. If if we're back to a period of underlying demand why why would we not see these double digit declines on volumes flipped to being double digit.
Frank J. Mitsch: Increases on volumes and so forth can you can you help help me understand Greg.
Frank J. Mitsch: Gradual versus something more significant in terms of recovery.
I think that as we look at the amount of.
Frank J. Mitsch: Sure.
Restocking that is taking place.
Frank J. Mitsch: Believe it when we go back and we look at where the markets were a little over a year ago.
We were having a very difficult time fulfilling customer orders and I think customers when we started.
Frank J. Mitsch: To work through the bottlenecks customers had very high inventories of our product in their supply chain and I think that was really across the board I mean, we had we had trouble getting blowing agents and for our building solutions. Our spray foam, we had trouble producing up a means when you saw that.
The Boomerang effect of the economy post COVID-19.
I think that there was the supply chain.
Built up too much inventory.
And there was a concern that there wasn't going to be enough production there wasn't going to be the logistics were not in place and pricing was going to go.
Yes through the roof and a lot of our customers.
Almost across the board whether it was in oriented strand board or particle boards or installation materials are means whatever I think they built.
Unnecessarily large amounts of inventory now when when the markets turned I think that it turned certainly more suddenly and took longer to day inventory than than all of us anticipated or maybe some of us didn't anticipate anticipated. This sort of a drawdown I don't think so I mean, I always look across the entire chemical industry.
About the same magnitude same time.
Maybe off a quarter here and there.
Now does the market bounce back at the same magnitude that it came down I don't believe that it does because I don't think most people today are worried about where theyre going to be getting product next quarter.
Theyre seeing prices.
Gradually improving theyre seeing there's plenty of capacity out there demand isn't going through the roof and so I think that the recovery of the restocking is going to be gradual it's going to be throughout the year and it's not going to take place as fast I wish it would to some degree but then again if it did Frank as you know, there's a tremendous amount of volatility if we sell the restocking take place as fast as <unk>.
Frank J. Mitsch: Stocking prices margins would go back up it probably collapsed just as much. So I hope that there is a.
A little more.
The reason.
The reasoning that goes into to this restocking I think it is going to be gradual and it's going to be throughout the year.
Speaker Change: Understood understood.
Speaker Change: You did highlight obviously the high cost of benzene, but we've certainly gotten a nice respite.
On natural gas not only here in the states, but also in Europe are what's the what's the impact on Huntsman, what can we expect to see with respect to that flowing through the P&L.
Speaker Change: Well I think that youll see the impact of that throughout the second quarter, a little bit at the end of the first quarter as you say it again.
It's not necessarily natural gas, but it's the hydrogen.
This made from natural gas to hydrogen and obviously, it's a raw material for our utilities and our boilers and so forth.
Speaker Change: And that was some of that will be in real time.
Some of it will be.
In pricing and the impact that will be in the next quarter. So again, it's great to see these low prices.
I wish we saw the same sort of drop in the European markets Europe is still about five times higher.
Speaker Change: And as cost today, but its natural gas and.
And obviously, China is more based on coal than it is natural gas, that's usually pretty stable pretty low.
Our next questions come from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your questions.
Matthew Blair: Thank you good morning, Peter one of your five goals was to improve free cash flow generation in the prepared remarks, you know lift out a few different levers here things like reduced incentive comp, but higher turnaround spend.
I think your free cash flow conversion in 2023 was only in like the low single digits do you have a target for 2024 that you could share on free cash flow conversion.
Speaker Change: Yeah, I would just say that we've talked about the improvement in our free cash flow.
Speaker Change: Feels quite anxious to make a comment here.
Speaker Change: But when we talk about the.
The incentive pay.
I didn't I didn't say that we would be cutting incentive paid to help cash flow I said that our incentive pay would be tied to the generation of cash flow.
So I hope that came out and clearly this is the highest portion of our incentive pay for senior managers. This year is going to be on achieving our cash flow targets and objectives.
Yes, so free cash flow is clearly going to be better in 2024 and 2023. Therefore, consequently, the conversion ratio is certainly going to be.
See better year on year on year, and I think we highlighted some some items to consider capex will be $30 million lower.
Restructuring cash will be $30 million lower between pension and incentive comp that we pay out in 'twenty four 'twenty three performance combined will be about $35 million lower overall, we still do have outstanding.
Praxair lawsuit that we won quite a while back against Linda and so we're just going to be very disciplined when it comes to cash flow hitting the cycle average, 40% free cash flow conversion ratio that we've targeted that is going to be difficult in 'twenty four as we continue to.
Speaker Change: To recover and grow but quite frankly again, we're going to be clearly better than we were in 2023.
Yeah, and I would just say when we look at on a normalized basis at 40% free cash flow conversion rate.
I would still say that that's where this company ought to be doing a normalized.
Speaker Change: Economic period, I don't I don't see that number hasnt changed.
Yeah.
Speaker Change: Sounds good and then regarding U S construction market.
Speaker Change: Some paper housing starts were pretty good in the fourth quarter of 2023 up 6% after.
Some big declines earlier in the year.
Speaker Change: Did you see that come through in your Q4 results and and <unk>.
Polyurethane, so just just pretty soft due to weakness in other regions or should we be thinking about a lag if housing starts to improve in one quarter, maybe it takes like one or two quarters for that to flow through to huntsman.
Yes, let's remember that the the time from permitting to purchasing to building inventory.
The impact of that entire supply chain is not an instantaneous issue and companies today are looking at where they are going to be in second quarter and in some cases third quarter Theyre looking at what the demand is going to be in projected debate.
Speaker Change: We'll see things.
Mortgage rates will have an impact on.
How much inventory and pre buying.
OSB installation customers, we'll be doing so there are a lot of variables, but again as we look at it if we step back and we look at it.
From a macro point of view.
From what we're hearing from our customers the early indications that we're seeing.
Our our indication internally.
Speaker Change: As Tony said, it's time to restart.
Our line in Geismar and gradually start bringing that into the market and.
We believe that's going to be needed to satisfy demand.
So that should tell you as much as of our view going forward.
Our next question is from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.
Hassan I. Ahmed: Morning, Peter.
Florida.
And Andy sort of prepared remarks that you guys posted overnight.
For the polyurethane segment, you guys talked about I believe it was like a 6% volume gain in Europe, and you talked about some.
Some market share gains out there as well can you talk about you know the dynamic that shrunk firing over there with regards to this.
Yeah, I would just remind you that.
Speaker Change: That we had.
We had our facility down earlier in the year. So when we talk about.
Speaker Change: We were a year ago, and where we were even a quarter ago.
Speaker Change: They're pretty easy comps to beat.
So I'd like to think that Europe is expanding GDP, 6% per quarter.
It's going to continue like that but.
Again, there is theirs.
I think theres, some fundamental issues around Europe on the broader economic.
Perspective, when you look at energy and industrial policy, but as we look at our customer base in Europe we.
We don't see it getting any worse, we see if anything there's perhaps a building tennessee for restocking and.
As we look at our facility there, it's running well and.
We're.
We're continuing to see stability and gradual improvement there.
Hopefully.
<unk> March one here.
And be successful in price increases.
Understood understood and just sticking to the polyurethane segment I mean, obviously EBITDA margins in Q4 were around 8% and a half you know.
Call it near breakeven.
Speaker Change: Guys are you know relatively sort of low cost downstream integrated into like you know could you talk a bit about the global cost curves.
I'd like to think that you know a large chunk of the industry is lossmaking right. Now you know I mean, how sustainable is that really should we be seeing sort of you know curtailments now you know.
Speaker Change: The pricing increases.
Speaker Change: Well it's.
I mean, just going around the world the lowest cost producers globally right now are in China and you've got.
Low energy costs in China, with the amount of coal that's being consumed and.
The coal based economy largely and.
That's going to be where you have got the largest newest facilities and so youre going to have the lowest cost coming out of China.
On that cost curve is going to be the U S. I believe our positioning in the U S is that that I'm not going to sit here and say that we are the lowest cost producer in North America, but I would be surprised if anybody's lower than us I don't know the exact economics of our competition, but I think between our reliability and the size of our facility in <unk>.
Speaker Change: Fourth we will be among the lowest cost producers in North America.
Speaker Change: And I would say that when I look at the profitability in North America.
While its improving these are not long term sustainable margins, we need to see better market conditions pricing and demand.
And then when I go to Europe.
Europe is one cold winter or one filed pipeline are one import terminal.
The problem away from an energy spike as we saw in.
Speaker Change: In the summer before pollutants invasion as we saw on the winner of pollutants invasions. We've seen since then where LNG prices can spike up.
<unk> hundred 10 times.
In a very short period of time, so Europe needs to figure out what their energy policy is going to be and that's have an economy that size based on the means of propulsion.
Columbus used 700 years ago.
<unk> and.
They've got to figure out what they're going to do from an energy point of view and from an industrial point of view.
And whether you can do to compete and when you look at the margins over the last two years in particular.
Publicly have said it if I havent that I should we Havent made we havent made strong cash flow out of Europe in almost two years.
It's unacceptable and it's.
It is unsustainable so if we're in that position, even if our competition.
And I believe again in Europe, we may not be the lowest.
We're very close to the lowest cost producer.
No way that MDI company is operating at European market Economics today, and says we're making a strong return on capital and we're proud of what we're doing today in Europe, they're just so yeah Hassan.
Speaker Change: I am happy to where the direction that the markets are going demand is picking up pricing is picking up I don't mean to get on pyrite, yet, but we've got a long way to go in there is there is there.
Speaker Change: There's a lot of work that needs to be done.
We are heading in the right direction, but still you're probably asking me more worried in the U S and Asia.
Speaker Change: Our next question comes from the line of Salvator Tiano with Bank of America. Please proceed with your questions.
Yes, thank you very much.
Wanted to come back to the U S MDI market first.
So firstly it seems like you have some pretty steep price increase you mentioned correct me if I heard.
Salvator Tiano: Correctly around $400 a ton in the U S.
Some trade publications see them last night are still differentiating between U S and European and Asia condition, saying.
Demand and supply are much much looser here. So what are you seeing that's making you.
Right more optimistic than I guess straight consultants here and also on the Geismar starts up in Q2 can you discuss a little bit why.
Why it would be very close associated without them what is the minimum operating rate that you would need.
Need to run in order to be profitable on an EBITA and EBITDA level.
Yes.
When we talk about the $400 a ton I will just remind you that's what we're shooting for in our <unk> business. So we take our own MDI internally, we transferred to <unk>.
<unk>, we price at market and then we sell that to customers and we're seeing.
We've been public and I only want to talk about price increases that we have that are public.
Salvator Tiano: As we think about.
What the trade, saying versus what were saying well the difference yes, what the differences between those one sales paper and one sells product and we sell product in so I can only I can only comment on what we're saying what our customers are saying the feedback we're getting from our customers in reality on pricing.
Trade publications I think are a good snapshot on the macro.
But I wouldn't say right now that MDI.
In the U S is long and sloppy and pricing.
I'd say it's.
SAP with the case, we wouldn't be shooting for the price increases.
Salvator Tiano: And pushing for the price increases that we are in.
Speaker Change: I apologize I forgot the latter part of your question I think it's just confirming I think just to sorry go ahead.
It was the second lien some geismar either will be any cost in Q2 associated with the startup and NESA and what's the minimum operating rate that needs to be.
Well that you need to run to be profitable on an EBITDAR and EBITDA basis.
We will just as we said, let's just bring that on.
Speaker Change: Slowly make sure that we operate appropriately about 50% levels. Some of these plants below those levels, then by Tencent Glu ups.
Break them efficiently, we'll bring those on but we'll bring it on slowly and we will make sure that with where we are profitable and what we put into the into the market.
Speaker Change: Great. Thank you very much.
Our next question is from the line of Patrick Cunningham with Citi. Please proceed with your question.
Hi, Good morning, This is Eric Zhang on for Patrick.
You've done a lot with polyurethane is on the cost optimization front, what do you think EBITDA margins can get to this year with maybe a modest volume recovery and starboard prices. Thank you.
Speaker Change: Yes, I'd be reticent to throw out a margin number because I know whatever I say I'm, even going to be too high or too low.
Speaker Change: But I do think that.
We will be moving throughout the year.
Hopefully again, unless we see a massive amount of restocking that happens very suddenly, which I'm not anticipating but I.
We're going to see a gradual.
Prudent throughout the throughout the year and I hope that we finished the year much closer to our normalized levels of EBITDA than when we started the year I know that's a perfect answer but.
I think at this point again, we've got the results of January and that's just.
Simply too early in the year to make it a year production and as we said cycle average margins. If you go back over the last 10 years. This is a mid teens mid teens plus margin business.
Yeah.
Got it thank you.
Thank you.
Operator, I think we'll take one more question.
The top of the hour and so.
Assuming anybody else has with US yes, we have a question from line of Laurence Alexander with Jefferies.
Laurence Alexander: Good morning largest one.
Good morning, just wanted to revisit the portfolio.
Optimization comments.
Scale of your business a limiting factor in what you do or is the focus really just on return on capital volatility.
Kind of what is what is what value is reflected in your share price versus the fundamental value can you just help clarify how much scale constrains what you do.
Yes. So I mean, you were talking about the fact, Lawrence that we've sold down our <unk> business saw spindles business or the intermediates business.
Textile effects business. So we've got a $6 billion company today again, I think we'd rather that we were adding on bolt on acquisitions to grow the business and grow the business, both organically and inorganically over time in those inorganic investments would come around particularly around advanced advanced materials and as Peter said earlier.
Laurence Alexander: Do you you may look at some.
Small parts around the edge as well in terms of whether we're the best owner or not to the point.
We come in and we look every day are we the best owner can we generation effective return from the portfolio in the long run and you are correct. We're absolutely looking at the return on invested capital versus our cost of capital.
I would just say Lawrence and I Hope I don't get ahead of myself in saying.
Yes.
Laurence Alexander: We do run the risk if we were to look at selling a big chunk of the business today without the acquisition of something else, we run the risk of <unk>.
Getting too small here.
Sure.
I think that that's not something that we want to entertain either but that shouldn't preclude us.
Laurence Alexander: From doing something big if we can replace it with something big and continue to shift and change the portfolio.
Laurence Alexander: Again, I, probably would've said if you go back and you look at the history of Huntsman every five years.
At least there's been.
Theres been a major addition of major divestiture or something that has fundamentally changed that I believe has made us a stronger company, whether it's a sale going back 15 years ago part of our base chemicals businesses 10 years ago of our Tio too in some of our.
The basic pieces and so forth and more recently in the last five years of our intermediates and textile effects and I think at the same time being able to buy the right assets to replace those or if we can't find the right assets, we're going to return cash as we did this last year.
With the sale of the textile effects business, we will return cash to shareholders.
Speaker Change: Thank you.
Thank you.
At this time, we've reached in the question and answer session and this will also conclude today's teleconference. You may now disconnect. Your lines at this time and have a wonderful day.