Q1 2024 Celanese Corp Earnings Call
Greetings and welcome to the Celanese first quarter 2024 earnings call and webcast.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Bill Cunningham Vice President of Investor Relations. Thank you you may begin.
Patrick David Cunningham: Thanks Diego.
Patrick David Cunningham: Welcome to the Celanese Corporation first quarter 2024 earnings conference call.
Patrick David Cunningham: Name is Bill Cunningham, Vice President of Investor Relations.
Patrick David Cunningham: With me today on the call are <unk> chairman of the board and Chief Executive Officer.
Patrick David Cunningham: Richardson Chief operating officer.
Patrick David Cunningham: And Chuck Myers, Chief Financial Officer.
Patrick David Cunningham: 17th distributed its first quarter earnings release via business wire and posted prepared comments on our Investor Relations website yesterday afternoon.
Patrick David Cunningham: As a reminder, we will discuss non-GAAP financial measures.
Patrick David Cunningham: You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website.
Patrick David Cunningham: Today's presentation will also include forward looking statements.
Patrick David Cunningham: Please review the cautionary language regarding regarding forward looking statements, which can be found at the end of both the press release and prepared comments.
Patrick David Cunningham: Form 8-K reports containing all of these materials have also.
Patrick David Cunningham: Yeah.
Patrick David Cunningham: Yeah.
Patrick David Cunningham: With that let's see.
Speaker Change: And open it up for questions.
Speaker Change: Thank you.
Speaker Change: At this time.
Patrick David Cunningham: Recession.
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Patrick David Cunningham: Yeah.
Patrick David Cunningham: Our first question comes from Ghansham Panjabi with Baird. Please state your question.
Ghansham Panjabi: Hey, guys good morning.
Ghansham Panjabi: I guess you know.
Speaker Change: Just given all the.
Ghansham Panjabi: I believe globally, and so on and so forth.
Ghansham Panjabi: Sure.
Ghansham Panjabi: With you on the macroeconomic prospects locally.
Ghansham Panjabi: Okay.
Ghansham Panjabi: You last year.
Speaker Change: Uh huh.
Ghansham Panjabi: Edwin.
Ghansham Panjabi: Yes.
Ghansham Panjabi: Yeah.
Ghansham Panjabi: We got some space.
Ghansham Panjabi: On the <unk>.
Ghansham Panjabi: What I would say.
Ghansham Panjabi: It's generally unchanged from what we've been saying in the past few quarters I would say, we haven't seen any big positive or negative this quarter.
Ghansham Panjabi: We had expected we called out last quarter, we really thought we were at the end of Destocking I think that.
Ghansham Panjabi: This year, we retained in the order book.
Ghansham Panjabi: Okay.
Speaker Change: Can that be true.
Ghansham Panjabi: In China, specifically I said why.
Ghansham Panjabi: For China, it's pretty steady.
Ghansham Panjabi: Okay.
Ghansham Panjabi: Or that are lagging too.
Ghansham Panjabi: The euro but also other regions of the world and we're not picked up with the pull through of material because that lagging export.
Ghansham Panjabi: That's remained pretty steady I would say across all the sectors and Europe, Although we did see improvement since the middle of last year.
Ghansham Panjabi: Hey, you know what remains lackluster end and below normal levels in Europe.
Ghansham Panjabi: I'd also say as we move forward, we're really not seeing some of the seasonal uplift we would've expected at the end of the first quarter in the second quarter. Overall, I'd say you know all the sectors are pretty steady I think notable our sector in terms of poor demand continues to be construction, our paints and coatings et cetera.
Ghansham Panjabi: And you know, although I do think they are we would expect as we move into the second half that we maybe start recovery. There I think PPG called out that this quarter that they've had 11 quarters of flat to down and they're in second quarter expecting to see low single digit growth and and some further.
Ghansham Panjabi: And second half. So you know we hope that's true and if so what do you see it a little bit of recovery there as we moved into the into the second half I mean, I would characterize it you know much like we did even a year ago, which is we still think people are still spending if they're still spending not experiences on travel airlines are having a good time, but theyre not spending.
Ghansham Panjabi: On goods, yet it will normalize at some point, but we're not seeing that normalization yet.
Speaker Change: That's comprehensive Laurie Thank you for that and just in terms of a related question as to what would actually kick started de man, but from your perspective would it just be a simple as interest rates being produced on a global basis, and then you know related to that you had called out new capacity over the last six months specific to the comments on Chinese GDP asset et cetera.
Speaker Change: Is that capacity more disruptive than you thought or is it just that demand was weaker than you thought initially.
Speaker Change: Yeah look I think it terms of kick starting its really just you know when do people get competent in the environment again, when do we see a shift back to normalized spending on on durable goods.
Speaker Change: Clearly we could use some.
Speaker Change: China Recut, our I'm, sorry, then Europe recovery would be really helpful. But it's you know it's nothing it's nothing more than that I like is that consumers are spending we just need them to start spending on durable goods again.
Speaker Change: And again I do think that what happened in time I think your question on China, what I would say it.
Speaker Change: I would say that new capacity has it been more disrupted than we thought I would say, yes, because the demand for that which was being planned to go N has not developed so there were some downstream consumers that were being built at the same time, they've been delayed obviously they've been delayed because of the demand for that.
Speaker Change: Those projects are delayed so it is ultimately demand answer the good news. There is though we are seeing some acetic acid flowing into new applications like kept locked them in and others. So again I think it's a temporary phenomena. If you. If you look at what's been added even what's to come.
Speaker Change: This is not such a large number that I think we're back where we were 20 years ago. I think we it's just a question of demand normalizing and catching up with the supply we have now.
Speaker Change: Perfect. Thank you so much.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from Mike <unk> with Barclays. Please state your question.
Mike: Great. Thank you and good morning, Jim I wanted to dovetail and ask about full year guidance Lori It seems like from your remarks, just now the macro conditions or maybe a.
Mike: Little bit uninspiring.
Mike: So the Brits are part of the $5 isn't something bad yes, first there were about six.
Jim: For the second half is that all controllable element actions or do you need to get a bit better.
Jim: Yes.
Jim: Thanks, Mike I would characterize it is we will hit those numbers with just controllable actions and if you think about it Eminem synergies are heavily loaded and compounding as we go through the year. So now that we have full visibility into the data everything do.
Jim: U R S farhan to upgrade for the M and M S. At.
Mike: And some and also the result of like the UN trope shut down and some of the other footprint actions. We took last year, we really start to see those synergies grow and compound as we move through the year. So that's the major impact the clear Lake expansion, while we did have a little bit of help in the first quarter from that.
Mike: Well also continue to grow as we move through the year. Yeah that service is another one which is more heavily loaded into the second half of the year and I would also say you know our turnaround cost in the first half is about double what it is going to be in the second half. So we get some tailwind there as well so I would say.
Mike: Everything we know now says we're well in that range just based on what we know we've not really built in any recovery other than the end of Destocking as we said before so I think we I still very still feel very confident that we will be within that range for full year.
Speaker Change: Great that's helpful.
Speaker Change: And just as a follow up question on engineered materials I think in the prepared remarks, you talked about continued pricing pressure I was hoping you could unpack that somewhat just where exactly are you seeing the most for some pressure today and what the dialogue specific comment or more broad based across the portfolio.
Speaker Change: I would add talk I think about that Mike in terms of it's really continued from what we saw in the fourth quarter of last year real no significant changes there raws have come down as well and we've been really mismatched year in engineered materials for more than a year on you know where.
Speaker Change: Kind of pricing for standard grade materials was versus the cost structure and as you saw with some of the margin expansion, we alluded to in the prepared comments, we're definitely catching up there, but we're not seeing a lot of ability to move our pricing here in those spaces. So the team is focused however, really around continuing.
Mike: To move the pipeline and work on upgrade of mix as we work our way through this year and then into 2025 to address that.
Speaker Change: Thanks, Dave.
Dave: Thank you.
Dave: Our next question comes from Jeff Zekauskas with J P. Morgan. Please state your question.
Jeffrey John Zekauskas: Thanks, very much when you look at your engineered materials volumes year on year are there they are down 12%.
Jeffrey John Zekauskas: Maybe global auto production is down 1%.
Jeffrey John Zekauskas: And when you look at the demand for the coatings companies you know, maybe it's down low single digits.
Jeffrey John Zekauskas: Why ascension aired materials.
Jeffrey John Zekauskas: Have a larger volume decrement.
Speaker Change: Yeah, Jeff I would really point to some of the real standard spaces. We participated in last year really to start moving some of the inventory levels that we had as we finished 2022 and that's really more of the driver than anything else. We also saw.
Jeffrey John Zekauskas: Little more seasonality.
Jeffrey John Zekauskas: In the medical sector here this year versus what we saw last year. So those are the main drivers.
Jeffrey John Zekauskas: Okay.
Jeffrey John Zekauskas: And then you know sort of the reverses the acetyl chain where volumes are up year on year.
Jeffrey John Zekauskas: 11%.
Jeffrey John Zekauskas: And I take it that what you wanted to do was run.
Jeffrey John Zekauskas: Your clear lake expansion more or less fallout.
Jeffrey John Zekauskas: Is that part of the reason why volumes are up and do you expect.
Jeffrey John Zekauskas: As a base case for your volumes to be up 10% or more this year.
Jeffrey John Zekauskas: And maybe could you comment on filter tow.
Jeffrey John Zekauskas: You know and that we saw a really strong numbers out of East man, but you know your your acetyl chain doesn't seem to be.
Jeffrey John Zekauskas: Yep growing its adjusted EBIT for <unk>.
Speaker Change: Yeah, maybe let me just make a few comments and then I'll, let Scott add more detail I mean, what I would say is we don't have a strategy to run out until necessarily at higher volume the justification for the clear Lake expansion was really in productivity right energy cat.
Speaker Change: <unk> shipping by shipping more out of the U S less out of Asia. So you know that's not the strategy now having said that we will run all of our assets, where it makes sense from a demand standpoint and from an economic standpoint, So I wouldn't say that that's the biggest factor there.
Speaker Change: What I'd say on co is we did see a significant uplift in tow. This year that uplift is continuing into this year and if you look at our first quarter volumes I think some people have called out more seasonality, we really saw first quarter you know what.
Speaker Change: Within the typical seasonality for toll, which is minor we're talking one or 2%.
Speaker Change: I think we're seeing but I would suggest to you we're seeing enjoying the same markets for tow that our competitors are but of course. It is now in our acetyl chain and we have more decision point that we can make around it to really maximize the value of the chain.
Speaker Change: Yeah, Let me just add I think as Lori said on toe.
Speaker Change: 'twenty 'twenty four and very similar to 2023, not a continued lift very stable. There. When you look on a year over year basis Q1 to Q1, Jeff. The main driver of volume Metrically is really just where the industry is if you recall, where we were in the first quarter of last year, we were coming off very high.
Speaker Change: Energy prices in Europe in the fourth quarter of 'twenty two European demand was relatively soft. In addition, we were still seeing it seeing China dealing with Covid in the early part of the years, which impacted volumes. So that's really the main driver on a quarter over quarter basis.
Speaker Change: Here in the steel business.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: The next question comes from Michael Sison with Wells Fargo. Please state your question.
Michael Joseph Sison: Good morning, a nice start to the year.
Michael Joseph Sison: Or for QQ.
Michael Joseph Sison: Well yeah volume.
Michael Joseph Sison: Or I guess, it's still it looks like it's going to be down year over year.
Michael Joseph Sison: But the third and fourth quarter for <unk>.
Michael Joseph Sison: Do you need volumes to improve year over year to sort of hit the outlook and and.
Michael Joseph Sison: Okay.
Speaker Change: How much if at all.
Speaker Change: Yeah.
Speaker Change: I think as we work into Q2, Mike volumes will move up a little over where they were in Q1 on a year over year basis relatively flattish.
Michael Joseph Sison: Any differences or more mix related as I talked about earlier with kind of where we were on on moving nylon last year to really get our inventory.
Michael Joseph Sison: <unk> levels down.
Michael Joseph Sison: And you know we will see an expectation that volumes move up really driven by two things in the second half one.
Michael Joseph Sison: Just you know as Destocking has ended and that kind of normal flow through not a real significant restocking or anything, but just slightly higher levels of volume coming from that in the second half, but more importantly, I'm really a commercialization of our pipeline and we weren't really to an integral.
Michael Joseph Sison: Weighted commercial model in engineered materials in April of last year. The average length of time projects in our pipeline takes us about 18 months. So we expect kind of the effort. The commercial team has been putting in now for the last year really start to start to take hold and see the value coming towards the end of this year from that.
Michael Joseph Sison: And then more of a little bit of.
Michael Joseph Sison: If a longer term question.
Michael Joseph Sison: Sales in the EM running about 6 billion, maybe a little bit better than that but you know longer term when demand does recover China.
Speaker Change: That's right it does this.
Speaker Change: 7 billion dollar business and and what what would the operating leverage.
Michael Joseph Sison: Trying to get volume come back look like on that.
Speaker Change: That's right.
Speaker Change: Yeah look I you know I don't know the exact number where that could end up I mean, the way I would characterize it is we expect over the next year or so that he basically starts contributing at the same level as acetyl from a margin standpoint, and then after that you know while asset yields will continue.
Michael Joseph Sison: Two to grow at kind of GDP GDP, plus a little bit you know, we would expect margin growth for E M to still be in that roughly 10% range that we've had in the past. So you know I would think about it that way. So ultimately there's no like in number and that number continues to grow but that's the growth rate we expect.
Speaker Change: Thank you.
Michael Joseph Sison: Our next question comes from Vincent Andrews with Morgan Stanley. Please state your question.
Vincent Stephen Andrews: Thank you.
Vincent Stephen Andrews: Starting to read a bit that some of the trade complexities.
Vincent Stephen Andrews: In the Red Sea area are starting to resolve themselves.
Vincent Stephen Andrews: And so I guess, one would you agree with that and two if the case and if if the shipping channels become a little a little less a challenge how how would that impact your businesses, good bad or indifferent.
Speaker Change: Hey, Vincent Thank you I look I would say we've been pretty indifferent. So far what we found is shipping channels and stuff why there can be a temporary disruption pretty quickly re normalize in a new way. So I you know, we haven't really seen an impact so far and similarly, I wouldn't expect a big impact is.
Speaker Change: If we see some of the issues resolved I think the market is pretty quick to correct itself.
Speaker Change: Okay, and then if I can.
Speaker Change: To ask a follow up on the nylon business in the prepared remarks, there was a comment about higher variable cost for higher velocity products.
Speaker Change: That's quite a mouthful could you just unpack that for me.
Speaker Change: Yeah, Vincent it's really related more to the pom business and it's really the flow through of of methanol since we werent producing as much of our own methanol in the first quarter, it's the flow through of that higher cost product.
Speaker Change: Into pom against sold here in the second quarter, that's really the main.
Speaker Change: Main impact okay. Thanks very much.
Speaker Change: Yeah.
Speaker Change: And our next question comes from Josh Spector with UBS. Please state your question.
Speaker Change: Hey, guys. This is James Ken and I forgot.
Joshua David Spector: You are in your prepared remarks talked about the price cost benefit in the first half.
Joshua David Spector: Are you expecting much flow through into the second half or does lower pricing kind of a road that.
Speaker Change: I wouldn't expect lower pricing to erode that James a lot will depend upon what happens with the raw material complex.
Speaker Change: We kind of know for the first off what the flow through of that is going to be so a lot just depends upon how ross develop in the second half.
Speaker Change: To see how much of that continues or not.
Speaker Change: Okay. So just as a follow up that.
Speaker Change: I think if I look back if I look back a quarter or two you gave in your prepared remarks comments on.
Speaker Change: Price cost being potentially the highest part of the year over year bridge is that still possible or.
Speaker Change: Just given where we stand is that maybe a little bit more in question.
Speaker Change: It's definitely still possible based on what we're seeing for the first half and then again, we'll just have to see how raws developed in the middle part of the year to see what then gets expense towards the back half of the year.
Speaker Change: Got it thank you.
Speaker Change: Our next question comes from Kevin Mccarthy with vertical research partners. Please state your question.
Kevin William McCarthy: Thank you and good morning, everyone. In your prepared remarks, you talked about two key synergy drivers for engineered materials, namely shut.
Kevin William McCarthy: Shutdown in nylon six six in Germany, and the S. A P ramp can you address those and and maybe translate it to how much earnings uplift you might be anticipating in the second quarter through the fourth quarter. It didn't sound like there was much in the first quarter from those items.
Speaker Change: Yeah look I would characterize it as you know for the footprint actions, we've taken and Theres been a number of smaller actions that we've taken as well not including Mechlin, which we've just now because that will really show up in next year's number we expect about a $50 million synergy lift on a full year basis from those.
Speaker Change: And you're right I mean, we're just now starting to see the benefit of the trove, which is the biggest piece of that.
Speaker Change:
Speaker Change: So there's that and then you know I would say you know on the S E T.
Speaker Change: You know the direct impact I mean, obviously, we get rid of the TSA, but we've had to add our own people. So you know that's a smaller number than you might think about significant the real the real benefit is that we now have one view of the data and we have everything in one system and it is really helping us with our planning and scheduling.
Speaker Change: And forecasting of demand and in engineered materials.
Speaker Change: And so you know again, we're working all of that kind of gets rolled into our synergy number and that number for the full year is 150 left from last year.
Speaker Change: Okay. Thank you for that and then secondly for.
Speaker Change: Chuck perhaps can you talk about how your free cash flow outlook has evolved and specifically I'm interested in any any guidance you might be able to provide on cash taxes or the expectation. Therefore in 2024, it sounded like maybe there's some.
Chuck Myers: Timing issues around taxes, we should be thinking about yes. Good question, Kevin Yeah, Let me walk through how we're thinking about 24 cash flow Yeah, I would say, we do expect the same cadence as we saw last year, where our cash will be.
Speaker Change: Second half weighted and teams are working hard to generate a total result for the year that is roughly consistent with last year it'll be subject to a few timing elements of course, yes.
Speaker Change: Aside of EBITDA growth I would I would point to these drivers we are working really hard to produce a working capital benefit to free cash flow. This year and that would be driven by further inventory reductions right. Now we've assumed 100 million dollar working capital benefit for the year and it'll depend on a few factors I would say working capital though.
Speaker Change: It'll be it'll be back end loaded it should be a use in the first half you, particularly as we're preparing for some of these footprint actions and then and then a source and in the second half you know either way I would point out that's a significant headwind to.
Speaker Change: Free cash flow versus 2023, as we had a tremendous year in working capital benefit to free cash flow last year that was really driven by about $400 million positive cash from reducing our inventory. So I just wanted to point that out you're right cash tax. It is an unusual year for us for cash taxes.
Speaker Change: In total this year there'll be about 300 million that is higher year over year by $75 million. One unusual item that we have that'll hit us in the second quarter, we're going to pay almost all of our roughly $90 million transfer tax that's related to the previously announced <unk>.
Speaker Change: Ciliated projects that that are currently in execution phase and are key to our cash repatriation plans. We'll pay this one time tax in the second quarter, but we would expect to be able to recoup that tax in future years.
Speaker Change: The associated foreign tax credits.
Speaker Change: It is a it is a big payment here in the first half. So I did want to call that out I mean, if you think about cash tax of 300 million three quarters of that will be in the first half.
Speaker Change: I would say cash cost the synergies should be $100 million to $150 million. This year, that's higher year over year by $25 million to $75 million, which will just to kind of depend on what that final number ends up being in the timing of some of those actions.
Speaker Change: Positive offsets to free cash flow this year year over year, lower cash interest by about $50 million.
Speaker Change: And a benefit of 100 to 150 million in lower Capex versus last year. So hope that helps in terms of some of the drivers in our thinking and especially the timing associated with those.
Speaker Change: Very much so thank you Chuck.
Speaker Change: Yeah.
Speaker Change: Thank you and our next question comes from let's say, yeah from off with Keybanc capital markets. Please state your question.
Speaker Change: Thanks, Good morning, everyone.
Speaker Change: Now the clear Lake is up and running is rationalization.
Speaker Change: Your asset yields assets firmly off the table or is that an option to be considered cause us tough supply demand environment.
Speaker Change: Okay.
Speaker Change: Oh lets see thank you I would say, we're pretty satisfied with.
Speaker Change: With where we are with our footprint for acetyl I mean, everything we have is specifically designed to serve a certain region and set of customers and we like having the optionality and flexibility that we have you know we've also continued to build out our downstream you saw the announcement about newbee E in China some of the RTP.
Speaker Change: Alex we're doing and that really is all about how do we continue to build the foundational level of earnings in acetyl and really kind of stabilize our earnings from acetyl, but if you look at just specifically the city gas. If for example, you know clear like clearly we believe the lowest cost lowest carbon footprint.
Speaker Change: Really important to meet our needs in the U S and now into Europe, China really serves China again, because of our technology. There. We believe one of the lowest cost producers in China, and then Singapore meets the need to for the rest of Asia, particularly India and some other areas.
Speaker Change: And you know is it's still very competitive with other sources of supply into that region. So again I you know I would say.
Speaker Change: We're always looking at our footprint, what we need to add if there's opportunities to Dubai to debottleneck, but also opportunities to rationalize but right now I would say our footprint is pretty fit for purpose.
Speaker Change: Thanks, Lori and.
Lori: As a follow up you used to be.
Lori: Fairly transparent to investors to see your outgrowth in engineered materials versus end markets, it's been harder to judge.
Lori: Through the last few quarters are there any metrics such as wins.
Speaker Change: I don't know your size of your pipeline that you can point us to to.
Speaker Change: Kind of demonstrate that did you keep outperforming your end markets.
Speaker Change: That outperformance will resume perhaps in future periods.
Speaker Change: Look I would say you know the pipeline is our winning factor if you will for engineered materials and what has allowed us to outperform.
Speaker Change: In our sector I think that continues to be true, especially now that we're one year. Since we went into a common system for both our heritage assets as well as our acquisition of Eminem and we do continue to look at it very closely I will tell you the number of projects being generated is consistent.
Speaker Change: More importantly, the value of the projects that are being generated and it is very strong, but maybe I'll ask Scott. If he has any more details on that he wants to add.
Scott: Yes, I mean, we gave us that last quarter about the fact that we created about 20% more revenue opportunity per sales employee in the second half of last year compared to what we did in the second half of 'twenty two and so that is I think a really good proof point to how things are moving the only other thing I'd add is we've been doing.
Speaker Change: And a lot of really cleaning up of this new kind of integrated business over the course of the last <unk>.
Speaker Change: 18 months.
Speaker Change: That will start to stabilize as we get the footprint actions in place and really get our inventories now come back in line with where they need to be so I think it'll be a little more visible alexia as we get them.
Speaker Change: Into the end of this year and into the next year as to being able to see that outperformance versus the various end markets.
Speaker Change: Uh huh.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Aaron Viswanathan with RBC capital markets. Please state your question.
Arun Shankar Viswanathan: Great. Thanks for taking my questions I guess first off just curious about your comments around volume it sounded like.
Arun Shankar Viswanathan: Activity in Q1.
Arun Shankar Viswanathan: Was seemingly getting slightly better in the better and the earlier part of the quarter and then maybe it stalled out in March.
Arun Shankar Viswanathan: And then are you seeing a similar pattern here of things, maybe getting better in April I mean, how would you kind of characterize.
Arun Shankar Viswanathan: Q2, thus far.
Arun Shankar Viswanathan: Versus your comments and what you saw in Q1. Thanks.
Speaker Change: Yeah look I would say from a volume standpoint, the first city gas. It is yeah. It was very much as expected in Q1.
Arun Shankar Viswanathan: Throughout the quarter.
Speaker Change: And then as we look to Q2. The order book is in line with with the guide we've put together right now around I mean, where were through the month of April and we have good visibility here to may So I think we feel comfortable with with the comments, we put in our prepared comments.
Speaker Change: Okay. Thanks for that and then just a question about the second half and as you look into 'twenty five so it looks like you'll be you know Ann.
Speaker Change: The year on a you know, let's say 660 rate for this or EPS for the second half.
Speaker Change: If you were to annualize that maybe you're you know $13.25 or so.
Speaker Change: If you add some volume and maybe some deleveraging on top of that you know it seems like you could get close to 14 Bucks. So is that kind of how you're thinking about twenty-five I know, it's a ways off but just maybe got some wanted to get your initial thoughts. Thanks.
Speaker Change: Yeah.
Speaker Change: We've had so much variability in the last few years I hesitate to go much further out than a quarter of these days, but look I think if you look at the run rate in the second half because it's built on controllable actions not built on market that you know not an unreasonable place to start as you start thinking about 25.
Speaker Change: Excellent.
Speaker Change: Our next question comes from David Begleiter with Deutsche Bank. Please state your question.
David L. Begleiter: Thank you. Thank you good morning, Laurie there was a competitor outage in acetyl starting I think late late February.
David L. Begleiter: I believe there's still on allocation of amino acid or did you benefit are you still benefiting from that a competitor situation.
David L. Begleiter: I would say you know while there was some temporary run up in pricing it was pretty small and fairly short lived I would not say, we're seeing any benefit from it continuing and the benefit was pretty small during the quarter and I think that just is reflective of really the lower.
David L. Begleiter: Demand that we've been seeing globally that an outage of that magnitude really didnt move the market very much and again I think it's not as much questions fly, but just demand is really still not back at normalized levels, particularly even in the western hemisphere.
David L. Begleiter: Understood.
Speaker Change: Mmm synergies what were they in Q1, what will they be in Q2, and what should be a cadence in the back half of the year.
Speaker Change: I don't have an exact number here in front of me I mean, I would tell you Q1 is definitely the lightest and they continue to build and compound as we move through the year.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from John Mcnulty with BMO capital markets. Please state your question.
John Patrick McNulty: Yes. Thanks for taking my question. So I guess the first one is on raw materials. So I believe for E. M. You were expecting as much as a 150 million benefit as the kind of lower costs rolled through the system. It looks like you've got you're going to have 20 in the second quarter in your comp.
John Patrick McNulty: Comparable to what you saw maybe in the first so is that still a reasonable outlook just based on where raws are right now that you could see 100 $110 million of benefit in the back half of the year or have things gotten better or worse I guess can you help us to think about that.
John Patrick McNulty: Yes, John as I said earlier are definitely in line to be in that range based upon what we're seeing for the first half and again a lot just depends upon what how things move in the middle part of the year to see how our cost structure will develop as we get into the second half.
John Patrick McNulty: Okay, and then I guess the second question would just be in the acetyl chain business.
John Patrick McNulty: Obviously, there's some new capacity in the markets beyond just yours that are that are impacting the business. It looks like there is more capacity coming on next year potentially as well. So I guess, if if we don't see much of an improvement in the overall demand environment are there other levers that you can pull in your acetyl chain.
Speaker Change: Business to drive incremental profitability or are we at a point now where it's really going to be about the market improving and developing from a demand perspective.
Speaker Change: Yeah. So let me make a few comments on that.
Speaker Change: John.
Speaker Change: If we look at this year there were two large I'd say world scale capacity added in acetic acid in China and again the impact that those have been a bit more than we thought because some of the companion downstream consumers that were supposed to come on at the same time had been delayed due to just overall demand in the market niche.
Speaker Change: Next year, there's really only one small unit coming on that we're aware of in the city gas at some other capacity a little bit and man, it's not enough that it should have a major impact, but we're still not at the whim of the market I mean, we still find opportunities to use both our global and our <unk>.
Speaker Change: Jane flexibility to really maximize our earnings in this market and and try to maintain that level of foundational Ernie I'd say the other good opportunity, which is developing for US is our ability now to provide sustainable products into the market based upon the CCU projects that we've put in at clear Lake.
Speaker Change: Now that we have our ICC certification for methanol as low carbon material, we're able to offer that to all of our customers in kind of whatever acetic acid product. They desire and we are seeing a lot of interest in that you know we also have a sustainability advantage for V. A E which customers are interested.
Speaker Change: In for kind of a low odor Lora logy Oc emission.
Speaker Change: I think there are some opportunities we have that are unique to us that others do not currently have at this period in time, and we see that demand starting to grow and hope that will become a more significant part of our portfolio.
Speaker Change: Great. Thank you very much for the color.
Speaker Change: Our next question comes from John Roberts with Mizuho. Please state your question.
John Roberts: Thank you it sounded like the sequential change in E. M earnings was nylon up sequentially and other plastic earnings down sequentially.
John Roberts: Was the decline the sequential decline in the other plastics due to the downturn or price pressure or what drove that.
John Roberts: I would focus on the turnaround cost John I mean that was really the largest driver.
John: It was really offsetting the nylon.
John: And then I wasn't thinking that medical was that seasonal what's what's driving the seasonality in medical.
John: It's honestly, John it's kind of what we always see in some years, it's more acute than others and we saw it come down a little more than what we saw last year from Q4 into Q1, and it's really just the timing of how our customers build inventory for the new year and it.
John: Q4 ends up usually being one of our strongest quarters and Q1 tends to be weaker which kind of goes.
Speaker Change: Counter to how everything else moves, but that's kind of been the historical seasonality.
Speaker Change: Really and in most of our medical business.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Laurence Alexander with Jefferies. Please state your question.
Speaker Change: Hi, This is Dan Rizzo on for Laurence Thanks for getting me in <unk>.
Unknown Executive: We talked a lot about the clearly clear Lake expansion I was wondering if an expansion in Singapore or someplace like that would be necessary given the growth that's potentially there in India over the next I don't know if you used a decade.
Speaker Change: Yeah, we don't see that on the horizon, you know it probably wouldnt if there were.
Speaker Change: More of an increase in demand it probably wouldn't necessarily make sense to expand the Singapore plant.
Speaker Change: But for what we have right now and for that developing market in India, and Singapore as if its and we have options to bring material into Singapore from other parts of the World. You know should we see that demand increase yeah, Dan the only thing I'd add is on a downstream basis. The VA expansion that we've just done is as much for growth in <unk>.
Speaker Change: Southeast Asia, and India as it is for China honestly, we have a we already have the AE plant in in Singapore that plant was actually supplying some demand in China. We're now able to kind of shift that network really to service growing customers in.
Speaker Change: <unk> demand, such as paints and coatings mortars and adhesives.
Speaker Change: So that's.
Speaker Change: That's really helpful. And then with with cost are we talking again, a lot about price cost with raw materials, but I was just wondering what's happening with labor and Penske transportation costs.
Speaker Change: Kind of elevated going higher and if that could have a kind of a negative impact towards the second half of year.
Speaker Change: Look I think we've seen over the last several years.
Speaker Change: Pressures on labor cost as everybody, but I would say you know through productivity steps and others. You know that that's managed that's baked in and I'm I'm not seeing any significant pressure there for the second half of the year, Yeah and on transportation I mean this is a common theme we've seen now for a while and.
Speaker Change: You know I think that has impacted prada.
Speaker Change: Product movements around the globe for the industry broadly so really nothing is different now or in the second half than what we've been seeing here for a while.
Speaker Change: Thank you very much.
Speaker Change: Thank you and our next question comes from Patrick Cunningham with Citi. Please state your question.
Speaker Change: Hi, Good morning. This is Eric Zhang on for Patrick on the incremental extra supply in China Citic assets do you have any outlook on when the delayed downstream startups will be resolved and once that is resolved do you expect it to have a meaningful uplift in acetic acid pricing in China.
Speaker Change: Yeah look the projects that we were aware of.
Speaker Change: A quarter or two delayed I mean, the real question of course is that demand for those products has to be driven by more demand for exports quite frankly, and so how long that takes to resolve is really tied to consumer spending in general view of the economy People's confidence in buying goods again, so I would say, while we do expect.
Speaker Change: That capacity to be to start up whether over one full or whether it will just replace other capacity remains to be seen the other thing that I said earlier, which I'd emphasize again is there are some new uses in China of acetic acid that should start taking some of this capacity like Cadillac them. So you know if I can get.
Speaker Change: Do you a number now but I would say you know I think we're still several quarters away from starting to see any significant movement in that.
Speaker Change: Okay got it thank you.
Speaker Change:
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from Salvator Tiano with Bank of America. Please state your question.
Salvator Tiano: Yes, thank you very much.
Salvator Tiano: So firstly I want to ask a little bit on engineered materials from especially from your <unk> exposure.
Salvator Tiano: As we're seeing more and more automakers delays or EV plans from speaking with IC.
Salvator Tiano: Amgen.
Salvator Tiano: Even just.
Salvator Tiano: A few months ago, how does this change I guess your plan and your potential margins. My belief and also are you seeing any impact for consumers trading down to lower priced models as well.
Speaker Change: Well, let me try to answer the first part and then I'll I'll let.
Speaker Change: Scott take the second part I would say look as long as consumers are buying vehicles. We're happy you know.
Salvator Tiano: EV do have about a 10% higher content available to us at Ice's, but we still have a very large position in I C E vehicles and to the extent people are converting to hybrids hybrids are about 25, 20% more content available to us than ice's.
Salvator Tiano: So while there are some shifts and shifts and which products you know as long as people are buying vehicles like I said, we're happy.
Salvator Tiano: Yeah, we have to continue to work our pipeline really to touch on all three areas.
Salvator Tiano: Whether it's a battery electric hybrids or ice just because each market is developing a little differently I mean in China now over 20% of the market as E V and so we still have to continue to focus E V. There pretty heavily so it is important that we kind of build that broadly speaking we have not seen as siggi.
Salvator Tiano: Inefficient change in terms of the types of vehicles and what our customers are buying and really an impact to our business at all and in fact, I mean, if you look at things on a year over year basis, which is probably the right way to look at it you know auto builds were up I think around 2% or so globally.
Salvator Tiano: Our business our volumes were up about four on a year over year basis into auto. So I think from that perspective, specifically, we feel like the project pipeline model continues to deliver value for us.
Speaker Change: Great. Thank you and I also wanted to ask go back to it will be felt the China asset class.
Salvator Tiano: Expansion.
Salvator Tiano: I assume some of these downstream projects that were supposed to absorb the acid demand I don't know the polyester chain, but at least our estimates are there are a bunch of Oh vomit.
Salvator Tiano: <unk> projects as well so certainly as they come online they will absorb more of the city cafe.
Salvator Tiano: To participate in these markets.
Speaker Change: You did have a comment the prepared remarks, I don't have much higher variable margins I believe the downstream projects. So.
Salvator Tiano: This capacity comes online.
Salvator Tiano: On a net basis would that actually be good for you or could it be.
Salvator Tiano: So oh margin pressure because there may be some marginal day.
Salvator Tiano: Downstream business.
Speaker Change: I like that.
Salvator Tiano: Would simplify it and just say you know any additional demand for acetic acid no matter, which end market. It's into is good for us.
Salvator Tiano:
Salvator Tiano: So.
Salvator Tiano: Again, because it yeah.
Speaker Change: We do sell a lot of assets to others as well, yeah, and I would just add I think you know when new capacity starts up whether it's the cedar gas at Bam et cetera.
Speaker Change: It's going to come in and it's going to have a near term impact, but you know those things then even out over the subsequent quarters in our business is really about flexing, our global network and that full value chain and so one quarter, we're going to make money one way the next quarter, we're going to make money a different way.
Salvator Tiano: And that really is the uniqueness of this kind of integrated value creation model that we have within the acetyl chain.
Speaker Change: Great. Thank you very much.
Speaker Change: Yeah, there will make the next question our last one please.
Speaker Change: Thank you and that final question comes from Hassan Ahmed with Alembic Global Please state your question.
Hassan Ijaz Ahmed: Good morning, Lori and Scott.
Hassan Ijaz Ahmed: You know again wanted to revisit the acetyl chain, particularly in China, you know I mean reading through your prepared remarks.
Hassan Ijaz Ahmed: It just seems like you know the first quarter was like you know a tale of two cities.
Hassan Ijaz Ahmed: It seemed you guys started very strong and then by February pricing started weakening.
Hassan Ijaz Ahmed: Just trying to understand the dynamic behind that I mean, it seems you know the two new facilities that you guys talked about you know they've been around for you know call. It five or six months. So what really caused that change between the first half of Q1 in the second half.
Speaker Change: Well, it's funny you know you may recall I mean, typically in China Q1 is a seasonal seasonally a lower demand quarter because of Chinese new years. So if you look at total.
Speaker Change: If you look at acetic acid pricing, specifically in China, I mean, what we did see in Q1 with the lowest price said fourth quarter of 'twenty.
Speaker Change: And again not unexpected very much in line with with what we've expected and again. It is due based on you know the lower demand I would also tell you, even though that new capacity maybe came on two quarters ago. It takes a while for them to ramp up and to really get into the market. So I would say, it's shaping up very much.
Speaker Change: Such as expected I would also say you know this this is normal as Scott said that there was some minor disruption in the market. When these come on line, but things do settle down over time.
Speaker Change: Yeah, Let me just add Hassan.
Hassan Ijaz Ahmed: It's important to remember we had the single largest are single unit the largest single unit turnaround in the history of the corporation in the first quarter largely hitting the acetyl chain business. We had some of these dynamics in China, yet the business. So still generated 28% EBITDA margin. So it's a very resilient.
Speaker Change: That finds a way to still deliver value, even when we see market disruptions or when we see higher costs from things like turnarounds.
Speaker Change: Helpful and that's it.
Speaker Change: A follow up if I could just sort of hit on the 2024 guidance again, maybe in EBITDA terms I mean, you know over the last couple of months you you've talked about some of the drivers and I just wanted to make sure you know medically I'm thinking about them or they're trending.
Speaker Change: As you guys had stated a couple of months ago. I mean, you talked about the Eminem synergies being call. It $150 million EBITDA wise, what are a tailwind clear lake expansion being around 100 million and then obviously you know you had some offsets in terms.
Speaker Change: All headwinds from some of the outages that you had last year. So I mean, you know.
Speaker Change: As you sort of sit there and think about some of those headwinds and tailwind incrementally year on year, how much of a boost when we get from some of these controllable and.
Speaker Change: And new capacity additions.
Speaker Change: Yeah again, I think if you look at versus 2023, those things that you called out Eminem synergies that $1 50.
Speaker Change: Clear like expansion, we've asked them to still deliver $100 million for the year and we probably have another an offset of about 100 million, maybe a bit more for higher turnaround related expenses as well as some of the non repeatable impacts from last year I think the two factors you are not factoring in there is.
Speaker Change: As you know we will have lower debt service this year as we've paid down.
Speaker Change: Over a million and half of our of our net debt and yeah. That's probably another 50 or so and then we'll have lower costs flowing through from our inventory with all of the inventory, we took out last year and be able to flush out some of that higher cost inventory and as we said that maybe the single biggest factor.
Speaker Change: On a year as well.
Speaker Change: Very helpful. Thank you so much.
Speaker Change: Thank you and there are no further questions at this time I'll hand, the floor over to Bill Cunningham for closing comments.
Patrick David Cunningham: Thank you.
Patrick David Cunningham: We'd like to thank everyone for listening in today as always.
Patrick David Cunningham: We are available after the call for any follow up questions.
Patrick David Cunningham: Diego. Please go ahead and close out the call.
Diego: Thank you and with that we conclude today's conference all parties may disconnect have a good day.