Q3 2024 Celanese Corp Earnings Call
Greetings and welcome to the Celanese Corporation third quarter 2024 earnings call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the opening remarks, if anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce Bill Cunningham, Vice President of Investor Relations. Thank you you may begin.
Bill Cunningham: Thanks, Daryl welcome to the Celanese Corporation third quarter 2024 earnings Conference call My.
Bill Cunningham: My name is Bill Cunningham, Vice President of Investor Relations.
Bill Cunningham: With me on the call today are Lori <unk> Chairman of the Board and Chief Executive Officer, Scott Richardson, Chief Operating Officer, and Chuck Irish Chief Financial Officer.
Bill Cunningham: That money is distributed its third quarter earnings.
Bill Cunningham: Released its third quarter third quarter earnings release via business wire and posted prepared comments on our Investor Relations website yesterday afternoon.
Bill Cunningham: As a reminder, we'll discuss non-GAAP financial measures today.
Bill Cunningham: You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website.
Bill Cunningham: Today's presentation will also include forward looking statements.
Bill Cunningham: Please review the cautionary language regarding forward looking statements, which can be found at the end of both the press release and the prepared comments.
Form 8-K reports containing all these materials have also been submitted to the SEC.
Speaker Change: Before we open up for questions I'd like to turn the call over to <unk> for some opening remarks.
Speaker Change: Thank you Bill and good morning, everyone as Bill said before we get started with questions. Today I wanted to take a moment to emphasize a few key points.
Speaker Change: First it is clear from our prepared comments that our results for Q3 were disappointing.
Speaker Change: And the outlook for Q4 and into 2025 is below both our expectations and our goals.
Despite the many actions that we've taken to continue to deliver value to benefit from these measures has been increasingly offset by the broad and persistent macroeconomic headwinds.
Speaker Change: Given this dynamic we intend to temporarily reduce our quarterly dividend beginning in the first quarter of 2025.
Speaker Change: While we recognize the importance of the dividend to our shareholders. We've carefully considered a variety of options and we have determined that this is the most prudent and cost effective measure to support our deleveraging efforts at this time.
Speaker Change: We will look forward to accelerating the return of capital to shareholders. Once we have progressed our deleveraging efforts.
Speaker Change: To further help us navigate this challenging environment, we have identified and will take additional bold actions to strengthen earnings and cash generation. We have a strong track record of delivery and operational excellence and are confident that we are taking the right actions.
Speaker Change: For example, we are significantly slowing production to match demand in Q4, and implementing further cost reductions, particularly in SG&A.
Speaker Change: We hold ourselves to a high standard and the steps. We are taking are driving durable improvements for the company as we build an increasingly disciplined cross structure and better position the business to drive long term growth.
Speaker Change: In closing I want to thank our teams for their dedication and resilience in the face of persistent demand challenges in our end markets I am confident that our actions have and will continue to position celanese to create substantial value for our shareholders. We believe in Celanese has long term potential and we are leaving no stone unturned to capture.
Speaker Change: Opportunity that will benefit us both now and once demand begins to recover with that we'll open the line for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press started to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for your questions.
Speaker Change: Our first questions come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Vincent Andrews: Alright, Thank you and good morning, everyone. I'm wondering if you could just give us a little bit of a bridge.
Vincent Andrews: In terms of the.
Speaker Change: The cash flow divestitures and.
Speaker Change: How youre going to sort of de lever over the next year or so I'm, assuming you're anticipating some improvement in the operating environment at some point as well as divestitures and cost savings, but if you can just sort of bridges from today.
Speaker Change: Maybe through 'twenty, five and into <unk> and into 'twenty six in terms of what your expectations are.
Speaker Change: Yeah. So Vincent you know obviously, our first objective is to focus on ebay.
Speaker Change: We don't know what the environment is going to be next year or so in that way. Our focus is really on the cost reduction initiatives I talked about as well and doing things to really fill the project pipeline to make sure that we're generating additional business I think as we called out in the prepared comments you know we would see even at todays environment.
Speaker Change: Might be near a more typical level because we did have a lot of one offs in cash flow. This year, a more typical level that would yield about eight to 900, obviously with the steps we're taking.
Speaker Change: We would hope for some additional cash flow generated from that we continue to focus on divestitures.
Speaker Change: And timing is uncertain, which is why we never really figure them into into our free cash flow statement, but we do remain very focused on an opportunistic divestitures or we can find someone who values our assets more than we do.
Speaker Change: So maybe I can turn it over to Chuck and he can add any additional color, yeah, and I think that's right Laurie.
Speaker Change: We have this prepay.
Speaker Change: Pre payable term loan that we can deleverage throughout the course of next year as we generate cash and any other cash sources.
Speaker Change: So we've got yes.
Chuck: He is in place to use that cash to continue to deleverage and we remain committed remained strong committed to deleveraging the balance sheet to three times net debt to EBITDA as fast as we can get there we've talked a lot about significant actions underway to underscore that additional cost actions that we've announced the continued capex reduction and focusing on maintenance reliability.
Chuck: <unk> safety.
Chuck: Working divestitures as Lorie has always said that divestitures that makes sense and obviously the significant announcement of our intention to reduce our dividend starting in Q1 right. So that's what we're focused on is deleveraging this balance sheet down to three times net debt to EBITDA and we've put things in place to be able to do that.
Speaker Change: And if I could just follow up on me.
Speaker Change: Clear Lake.
Speaker Change: There was supposed to be $100 million of benefit there is going to come from starting up that asset if I read the prepared comments correctly I believe there was $20 million in the third quarter. So first is that correct and then second what is sort of the bridge to getting between the 'twenty, if I'm correct and in the 100.
Speaker Change: Yeah, I'm clear like you may recall, we called out about $10 million in the first quarter and then 20 million now in the third quarter, we would expect some additional amount in the fourth quarter as well, we still think the benefit of clear Lake is it on 100 range on a full year basis.
Speaker Change: And so we would expect to see you know the majority of that than the current next year as well.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you our next questions come from the line of Mike <unk> with Barclays. Please proceed with your questions.
Mike: Great. Thank you good morning, I wanted to start Lori at a high level I think the magnitude and abruptness of the decline in the second half of the year was a bit surprising. So can you help contextualize or just help us better understand sort of how the past three months progressed relative to your expectation and sort of win.
Speaker Change: Order books really started deviate versus your expectation and you realize you to pivot here on your production and your cash.
Speaker Change: Monitor.
Lori: Thanks, Mike for that question, let me give you just a little bit of color. So when we made the guidance last quarter.
Speaker Change: We're coming off a stronger June things were looking a little bit stronger into the second half and in discussions with our customers, particularly auto industrial we were expecting some lift in.
Speaker Change: In those segments and across and of course, we were seeing the impact of synergies and other things I would say.
Speaker Change: As we went through the quarter, we continued to see further pressure specifically on auto and industrial.
Speaker Change: I think you know as an example, and.
Speaker Change: If we look at.
Speaker Change: European registration of autos, they saw 40% from June to August So I would say really starting to see the big impact of that in August I think we've seen the OEM announcements from Mercedes and Volkswagen, everyone, which suggests maybe that situation isn't getting quicker anytime soon even if you'd look at.
Speaker Change: The second quarter to third quarter European auto builds were down 14%. So that's really where we started to see the big impact is as we worked our way through the quarter and frankly conditions just continued to worsen as we went through the quarter, including than in the U S, where we started to see announcements from Atlanta.
Speaker Change: And J M.
Speaker Change: Okay. That's helpful and then on the dividend I appreciate where a day one here, but you emphasized in the prepared remarks, the temporary nature of this reduction.
Speaker Change: They're a specific leverage target our earnings level that youre actually aiming at for how long do you want to keep the dividend at this level or what we need to see how cash flow evolves over the next year or so here.
Mike: Mike Our focus is is really laser focused right now on getting to that three times leverage and given the current market conditions that we're seeing and the fact that it looks like these are continuing into the early parts of 2025 at least we felt the need to take further actions and after a lot of.
Speaker Change: Along with the board determined that reducing the dividend at this point what the.
Speaker Change: <unk> prudent and most cost effective option. So that's really where our focus will remain its driving activities to really rapidly to leverage to three time as quickly as we can.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question is coming from the line of Michael <unk> with Wells Fargo. Please proceed with your question.
Michael <unk>: Hey, good morning.
Speaker Change: So you might take a look at the fourth quarter and you know the EBITDA look for E M.
Speaker Change:
Speaker Change: Are you getting close to a write down for the eminent business if not why and.
Speaker Change: You have a lot of one offs there does that do those sort of come back or does as we sort of add that back as we head into the first quarter.
Speaker Change: Thanks, Mike Let me address the second half of your question first I mean, so there are a number of one off in the fourth quarter and we would expect.
Speaker Change: The destocking that we expect to see the mix effects the effects from affiliates inventory we.
Speaker Change: Expect the vast majority of that to come back in the first quarter and let me turn it over to Chuck to talk about our how we go through our evaluation and looking at right now Hey, Mike Yeah. So third quarter. Each year is when we do test our goodwill and indefinite lived intangibles.
Chuck Irish: Mind, you goodwill it's tested at the reporting unit level. So that's an engineered materials level. So we tested that.
Speaker Change: Quantitatively with the help of our big four evaluation specialist and we did not record an impairment.
Speaker Change: We did also just all the trade names and then in engineered materials individually.
Speaker Change: And with the same process and we did record a $34 million impairment on trade names most of that was <unk>.
Speaker Change:
Speaker Change: So that's that kind of concluded our third quarter cycle of those testings.
Speaker Change: Got it and as a quick follow up if you think about 2025.
Speaker Change: Clearly the end markets.
Speaker Change: Have impacted view, all and everybody else and chemical was pretty pretty pretty negatively if the environment doesn't improve in 2025.
Speaker Change: Yeah.
Speaker Change: Well, how do you think EBITDA or earnings should shape up next year, given you do have some stuff within your control to get some upside.
Speaker Change: Yeah, Mike I would start with if you can look at the performance over the first three quarters of this year, we have seen quarter on quarter.
Speaker Change: The improvement in performance being driven by synergies being driven by our project pipeline et cetera.
Speaker Change: Those those things will be true next year as well, where we will have additional synergies next year.
Speaker Change: We are putting a lot of effort into really trying to accelerate the project pipeline. It has grown significantly versus a year ago, but clearly in this current macroeconomic that's not sufficient to support the business growth that we expect.
Speaker Change: That combined with our cost reduction programs.
Speaker Change: I would just say for 2025, there is so much uncertainty while we are going to take a lot of steps to help ourselves to really control what we can control.
Speaker Change: Whether that market environment gets better or deteriorates, what we see in terms of interest there is a lot of open questions out there around 2025, and I think it's just simply too early to speak with any authority about 2025 expectation, yes, Mike. So as we close 2024 and go into 2025, we have four priorities so that.
Speaker Change: We are focused on as an organization number one reducing costs.
Speaker Change: Sure that we're scrutinizing every dollar that we spend and that we're being very deliberate and targeted with where we invest two is deliver the synergies.
Speaker Change: And make sure that that number one is in addition to the synergies that we've already committed to number three on the engineered materials side of things as supercharge the pipeline. While we have had some good metrics. It has not been enough to offset the downside we've seen.
Speaker Change: From some of the demand challenges, but we've got to continue to aggressively work with customers continue to penetrate and non automotive sectors to where we increase our share of wallet. There and then the fourth area on the acetyl chain side of things is really fully leverage this integrated model that we have to be able to ensure that we're driving.
Speaker Change: Every single day, and we know thats going to be different from one week to the next but.
Speaker Change: But we have to keep the focus on those four priorities and if we see a change upward in the demand landscape.
Speaker Change: That's just going to lead to more upside. So our focus really is on those things that are within our own control right now.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is coming from the line of Jeff Zekauskas with J P. Morgan. Please proceed with your question.
Jeff Zekauskas: Thanks very much.
Jeff Zekauskas: What would have been the consequences of not cutting your dividend.
Jeff Zekauskas: And is the dividend cut.
Jeff Zekauskas: And.
Speaker Change: A diminished expectation for longer term operating cash flows in 2005 and twice.
Speaker Change: And what caused that.
Speaker Change: Okay.
Speaker Change: Let me try to answer the second part first Jeff what our long term expectations for this business is no different.
Speaker Change: And it's been I mean, we still believe in the long term performance of our asset sales on our E businesses, including the acquisition.
Speaker Change: The challenge we've had is the current macroeconomic conditions and recent demand deterioration have really challenged both businesses and because of that we are taking all of these actions, but we are not getting the cash flow. We expect it to be on the deleveraging plan that we have.
Speaker Change: Had planned for.
Speaker Change: So looking at the dividend, we really did determined this was the most cost effective and prudent way to get back on that cadence of deleveraging that we wanted to do for our business and that's really what drove the decision around dividend.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: Secondly.
Speaker Change: I think you spent roughly $125 million.
Speaker Change: Cash costs.
Speaker Change: <unk>.
Speaker Change: For restructuring the scenario you expect to spend that whats your.
Speaker Change: What's your number for 2025.
Speaker Change: And then secondly in your expectations about the auto markets.
Speaker Change: Watson IHS already expecting down auto production in Europe.
Speaker Change: For the third quarter.
Speaker Change: In July.
Speaker Change: <unk>.
Speaker Change: Was the downturn in Europe really that unexpected.
Speaker Change: Yes, let me answer the second question first Jeff and then I'll turn it over to Chuck I mean look there are a variety of publications that we look at and when when we made our forecast for the quarter. There was still an expectation of a slight uptick that did come down relatively.
Speaker Change: Really quickly to the end of July in early part of August.
Speaker Change: And there was that flip and as Lori talked about then we started to really see the acute change in car registrations in other data in the month of August So that was really where we saw the bigger flip in expectations and I think there was what.
Speaker Change: <unk> kind of materialize I think is there wasn't expectation in the second half of the year.
Speaker Change: There would be a lift.
Speaker Change: <unk>.
Speaker Change: We saw a buildup in Q2 of inventories and so what we've seen now in the end of a part of the third quarter and into the fourth quarter is customers' destocking that inventory in preparation for lower builds in lower sales here in the second half of the year.
Vincent Andrews: Hey, Jeff and on the cash cost synergies next year.
Speaker Change: Remainder Eminem.
Speaker Change: Those are going to drop off probably about $50 million and we will have some cash costs from the new cost reduction actions that.
Speaker Change: We announced.
Speaker Change: And so that's as we talked about a greater than $75 million of cash cost that will be less than one year payback. So I think when you roll. It all up total cash spent on on cash cost synergies plus theres no cost actions somewhere somewhere pretty close to.
Speaker Change: This year.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question is come from the line of Ghansham Panjabi with Baird. Please proceed with your question.
Ghansham Panjabi: Hey, guys good morning.
Ghansham Panjabi: Lori going back to your prepared comments and also the comments from this morning weakness in China in autos et cetera, none of that is truly all that surprising relative to what your peers have been saying as well, but the dividend cut is.
Ghansham Panjabi: Going back to that component.
Ghansham Panjabi: The dividend cut more a function of you're not seeing or anticipating a recovery in 2025 relative to your initial plan.
Ghansham Panjabi: Are you anticipating a much more.
Ghansham Panjabi: Worsening of the trend line, if you will near term just given the uncertainty that's out there how should we sort of think about those two dynamics.
Speaker Change: Yeah, I think I would think about it in two parts. One is the performance we've experienced in 'twenty four and the reduction in.
Speaker Change: Free cash flow, we've had 24, although we have sufficient cash for.
Speaker Change: For the debt that is due next year, we just arent deleveraging as quickly as we like right. Our EBIT is lower we haven't been we haven't been able to pay down additional cash towards the debt and then if you look at 25 and beyond there is so much uncertainty we feel it's prudent to be prepared for that and to.
Speaker Change: Stay on track with our deleveraging plan and again, the most cost effective and prudent way to do that is by reducing the dividend at this time.
Speaker Change: Okay, and then going back to the delayed draw term loan was that was the dividend cut part of that sort of process in terms of securing that loan I'm just trying to get some.
Speaker Change: Context behind that and then separately on the on the 75 million program targeting SG&A is that to adjust to the new baseline or volumes or are you still assuming some sort of recovery as it relates to the operating dynamics of 'twenty five 'twenty six onwards. So let me answer the second part and then Chuck can answer the first part so there's 75 million is additional.
Speaker Change: <unk> cost cutting to better adjust our SG&A organization towards the current level of demand. It's also we also believe as we get more efficient as our systems get more mature now that we've gotten through our new system implementations. We also believe though it will be an area that will.
Speaker Change: Level, what would be able to stay even if we start to see some demand recovery.
Speaker Change: Hey, guys turn on your other question those two are not tied together the delayed draw term loan is something we put in place to help us bridge those maturities.
Ghansham Panjabi: And the dividend cash is because we made a commitment to deleverage the balance sheet to three times and we're not doing that as fast as we want to.
Speaker Change: Very clear thank you Bob.
Speaker Change: Thank you. Our next question comes from the line of Josh Spector with UBS. Please proceed with your questions.
Josh Spector: Yeah, Hi, good morning.
Josh Spector: Wonder if you could just talk about your view on the earnings power of engineered materials, but at this point I guess, if I look at <unk> you were up year on year EBIT level volumes were up but that's supposed to be a bigger chunk of the synergy savings and maybe a bit before youre seeing some of the negatives of the actions you're taking in fourth quarter.
Speaker Change: If you can maybe look at second half and talk about some of the puts and takes that we should be thinking about and some thoughts on the back of our heads are more around if theres something impaired around the nylon side of things either pricing or share loss that means earnings are structurally lower than what we should have thought a year or two ago.
Speaker Change: Yes.
Speaker Change: So that's a lot of spots in one question. So let me just talk about how I see.
Speaker Change: My view of the business. So the EM business, our long term view of the business has not changed I mean, we still feel we have the most unparalleled portfolio of engineered materials, we have a structure that really drive in a very disciplined way new project growth into new customers grow.
Speaker Change: <unk> into new application and while we continue to improve all of those as well as improve our cost structure. This is fundamentally a very good business still in demand by our customers, who demand innovation and you want to buy products from us. So what we're seeing is a short term turned down I also wouldn't just focus on nylon.
Speaker Change: <unk> six is certainly.
Speaker Change: Certainly challenged at this point with an oversupply of defer of non differentiated polymer, but I would say you know our focus on <unk> is really on the differentiated polymer that compounding and that's why you've seen us take all of the steps that we've done I would say for <unk> in particular.
Speaker Change: Particularly even if <unk> is less than we originally thought many of the other part of the acquisition such as <unk> are high trail. Our high temperature nylon are outperforming where we thought they'd be at this time. So in aggregate, we still see the value of the <unk> acquisition.
Speaker Change: And the value of the total <unk> portfolio has been as strong as ever will be once we get back to a more normalized demand condition.
Speaker Change: Okay. Thanks, maybe one quick follow up just I guess thinking about the synergy side then within <unk>. So I guess some context here is that volumes were up.
Speaker Change: Obviously things deteriorated later in the quarter, but we didn't see the flow through in <unk> or sorry in <unk>. So what offset that if you think about the synergy what were the minuses that led us to only up 10 and.
Speaker Change: In the quarter.
Speaker Change: Yes, I think there is some timing around inventory Josh that has rolled through both in the quarter as well on a year over year basis.
Speaker Change: So that played a role there also pricing as we called out we've seen degradation in standard grade pricing, which has been the other bigger offset so I think those are the two biggest chunks I think when you look at things on a on a year over year basis for the year in total.
Speaker Change: Volume up.
Speaker Change: Price cost mix.
Speaker Change: Positive spending down so another positive there.
Speaker Change: <unk> currency, we've had some headwinds on currency year over year, both in the quarter.
Speaker Change: For the full year, and then turnaround and inventory. So I think that that's where it's been offset and so we do believe in the earnings power as Lori talked about but that doesn't mean, we're just going to live with where we are today and that's why we talked heavily about the actions we are going to take both in the business as well as the corporate level on cost and then continuing to aggressively work pipe.
Speaker Change: <unk> and drive closed wins, so one of the big synergy areas, we talked about for 25 and beyond is revenue synergies and so we need to deliver on that going into next year to continue to uplift the possible earnings power of the business.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Arun Viswanathan with RBC capital markets. Please proceed with your question.
Arun Viswanathan: Great. Thanks for taking my question.
Arun Viswanathan: If I could ask the Q4 guidance.
Arun Viswanathan: Question again, so if we think about going from.
Arun Viswanathan: You know around $2 50 for Q3 year to <unk> 44 down to $1 25 for for Q4.
Speaker Change: Maybe could you break that out maybe into some buckets of seasonality and how much is associated with the inventory drawdown and maybe some incremental weakness in auto and industrial or any other end markets that'd be helpful. Thanks.
Speaker Change: Yeah, So I think on the asset side of things.
Speaker Change: Seasonality, so so call it roughly in that $20 million range.
Speaker Change: So I'd put that the seasonality Arun on the corporate cost side of things Thats really timing of cost flow through there.
Speaker Change: More than anything and then it's really engineered materials and kind of looking at at where we are there and those are the big buckets, we called out in the prepared comments, so destock of about $45 million, which theres, probably a little seasonality in that number.
Speaker Change: Have mix, which is really all seasonality of about $15 million.
Speaker Change: Affiliates are down $15 million again that one's more seasonality driven.
Speaker Change: And then you've got the inventory absorption cost, which is really the balance there. So when you kind of put that in there in the engineered materials buckets, it's $30 million, maybe a little bit more than that that seasonality from the affiliates in that mix bucket. We talked about in addition to the asset sales number.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, Scott that is very helpful. So just taking that a step further into Q1 then.
Speaker Change: Do you anticipate these actions that you are taking on the inventory side too.
Speaker Change: Allow you to.
Speaker Change: Is that the complete inventory actions that you have to take and so when you look into Q1, you won't necessarily have those drags and you also may have less seasonality.
Speaker Change: It could get back get you back to closer to maybe <unk>.
Speaker Change: Or so in Q1 or how are you thinking about.
Speaker Change: How that evolves and maybe some of the bad guys that won't repeat in Q1, let.
Speaker Change: Let me start kind of high level now I will turn it to Chuck to provide details on the inventory flow through look we are constantly looking at really matching our production levels with where demand is at and given where things are in a need here with what we've seen from a destock perspective to take.
Speaker Change: Plant rates down bring inventory down this is a level of inventory that we've been pretty clear we wanted to reduce for the year, we expected it to be split a little bit more balanced between Q3 and Q4, so a little bit more Q4, heavy given where we're at and then we will look at what point rates need to look like in the fourth quarter dependent on what the order book looks like and when we get to that.
Speaker Change: That point, Yeah, I think it's going to be really important for us to.
Speaker Change: <unk> managed to generate free cash flow that will make these decisions.
Speaker Change: If we if we're purposely cash flow you could see some could see some P&L from some of those costs flow throughs, but it is important to us to generate free cash flow here and deleverage the balance sheet.
Speaker Change: Excellent.
Speaker Change: Thank you. Our next question is coming from the line of Frank Mitsch Fermium Research. Please proceed with your question.
Speaker Change: Hi, everyone, it's aziza on for Frank.
Speaker Change: Just wanted to start off with Chinese van margins sitting at decade lows here with the lackluster demand and new capacity, how long are you guys thinking it.
Speaker Change: It might take to absorb.
Speaker Change: Yeah look I think the re absorption for <unk> is really going to depend on when we start to see demand recovery I mean, we had called out now for many quarters.
Speaker Change: Reduction, we've seen and the construction paint and coatings market. We are also seeing demand destruction for derivatives.
Speaker Change: It's particularly in China for things like EBITDA into the solar market and some other.
Speaker Change: No.
Speaker Change: It's pretty impossible to predict like how quickly that that can be reabsorbed. It really it's more dependent at this point on the shape of demand going forward.
Speaker Change: Because of that unpredictability. It is absolutely imperative that the team continues to maximize daily where we're selling product and look at where those opportunities are and so the team is being very surgical on looking at how we want to monetize the molecules of acetic acid downstream into Bam and then into the.
Speaker Change: It is and looking for is it better to sell an emotion a powder Bam and given the challenges we've seen in Bam, we'd move further downstream and we will continue to pivot up or down depending on where those opportunities are at.
Speaker Change: Understood.
Speaker Change: I was just curious what are your expectations.
Speaker Change: For the fourth quarter and early read on to 2025.
Speaker Change: Yes, just to clarify fourth quarter in general our fourth quarter for <unk>.
Speaker Change: Oh, sorry in general.
Speaker Change: With raw material expectations for the company for the fourth quarter and 2025.
Speaker Change: Yes, raw material right now for the fourth quarter is largely stable as we look at things today, but obviously that can change.
Speaker Change: I think a lot will depend upon where fundamental energy dynamics are at as we go into 2025. So we will continue to remain flexible one of the elements that we're focused on here at year end is reducing raw material inventory as well as finished goods inventory, which will give us the ability to be flexible depending on what.
Speaker Change: Oppens with raws next year.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
David Begleiter: Thank you good morning.
Speaker Change: Oregon, Scott going back to comments on Supercharging, the portfolio or the project pipeline E M.
David Begleiter: It used to be a strength of its business from my perception is now being called out as an area of weakness so.
Speaker Change: Obviously, the business has changed with Dupont, but what's really underlying the change in that it's gone from a position of strength to perhaps a position that needs to be improved.
Speaker Change: The pipeline model is still a position of strength, David and Theres No question about that for us in the stats that we have proof.
Speaker Change: Prove that the size of projects being up over 30%.
Speaker Change: Year over year is a really good example, our project win rates are also up.
Speaker Change: Since the acquisition.
Speaker Change: And so the issue we're seeing now though is.
Speaker Change: The amount of volume that's coming with each of those products and projects is smaller in addition, the amount of challenges we've seen in the base.
Speaker Change: Has come both from a volume perspective, and a pricing standpoint, so the pipeline needs to be enhanced and needs to be bigger in order to offset some of those headwinds that we're seeing so when we talk about supercharging, it's not a confirmation on where things that is just the opposite it is a strength of this business we feel like it can do more and we're going to continue to.
Speaker Change: Invest resources and partner with customers in a way that allows us to be successful because we need the pipeline to be generating more in this environment.
Speaker Change: That's helpful. Scott, Thank you and just on Singapore.
Speaker Change: Given the new supply in China.
Speaker Change: Bobby brought back online unless or trying to recover strongly for single work can be brought back into production.
Speaker Change: So we do expect that Singapore will come back online I mean, Singapore.
Speaker Change: Is still economic to run, especially into the non China Asia market and remains an important part of our portfolio and very much in line with how we like to have the optionality about what we produce and where we produce and into what markets and so our expectation is that and because of.
Speaker Change: It is so profitable we do expect that portfolio will continue to come online and run as needed.
Speaker Change: Fortunately, we have the flexibility there now because of the structure of our contracts that we can we can make that choice more than we did in the past, but much like we're using Frankfurt as kind of our swing Bam capacity more and more we'll see Singapore, becoming more of our swing.
Speaker Change: Zeke asset capacity.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Our next question is coming from the line of Alexia <unk> with Keybanc capital markets. Please proceed with your question.
Speaker Change: Thanks, and good morning.
Alexia: Is the bigger issue that you are selling less volumes or is it that you are selling at lower prices and our prices stable at this point or are there continuing to fall in Q4.
Speaker Change: So let's say it's both.
Speaker Change: I would say for differentiated products to keep that the main impact has been around volume because the pricing tends to be sticky.
Alexia: But for standard grade products.
Alexia: <unk> of an issue around we're able to sell the volume, but the issue is around price and margin.
Alexia: Okay.
Alexia: I'll also any are.
Speaker Change: Are you pulling inventory below normalized level in Q4, such that you may need to rebuild it in 2025 or you get back to your normal inventory seasonality at year end.
Speaker Change: I would not expect will be below normalized levels alexi in less we see a change in demand levels.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Thank you our next questions come from the line of Patrick Cunningham with Citibank. Please proceed with your question.
Patrick Cunningham: Hi, Good morning, I wanted to follow up on the project pipeline, it's encouraging to see the value per project has increased 30% in 2022 are there any secular growth markets or applications, where you're getting the most traction and any strategic shift or change in thinking as how you approach auto OEM customer base given the recent week.
Speaker Change: Mrs.
Speaker Change: Well look I think with where we are seeing change in.
Speaker Change: The mix of work.
Speaker Change: Who's winning from an OEM perspective, and as we think about this with with China is still growing and Chinese Oems being more successful a continued focus there in winning in China is very important and so we have seen some wins just recently, we're very focused on the EV market we've had.
Speaker Change: A really good traction in things like thermal management models cooling hoses light weighting on the <unk>.
Alexia: <unk> side of things, but then on the non auto side of things. If you recall. This was one of our most important areas of synergies really getting the eminem products into non automotive applications in a much bigger way, we did that historically in the celanese engineered materials portfolio and we're heavy focus on it.
Alexia: <unk> had some wins in and things like oil well pipes with flexible covers around those.
Alexia: Just recently, we've been heavily focused around high performance.
Alexia: Palladic shoes with some big wins, there with products that are creating particularly in running shoe applications.
Alexia: <unk> performance in so really good uptake in those are global opportunities and so the team is working on not just having these be singular wins and focused heavily around once we get a win sharing that translation and opportunity across the globe. So that we can be penetrating.
Speaker Change: With each of these as much as possible in a much shorter timeframe. The nice thing about non automotive as some projects tend to move through the pipeline quicker and so thats why that heavy focus around non auto is really important as we go into 'twenty five 'twenty six.
Speaker Change: I would add one of the sectors that Scott didn't talk about that we're very excited about is in electrical.
Alexia: <unk> electric and <unk>.
Speaker Change: Electronics, Yes, if you think about the demand for electricity current outlook is that that's going to double over the next five years and that requires a lot of build out of electrical infrastructure and we are seeing the pull through of polymer demand as part of that build out.
Speaker Change: Very helpful.
Alexia: How committed is selling that's been grade rating.
Speaker Change: Consider issuing additional equity to preserve this rating or do you believe the current steps we've taken are enough.
Speaker Change: We're committed to deleveraging this balance sheet two to three times debt to EBITDA as fast as we can get it to get it there as Lorie mentioned, we've assessed a variety of options to support that.
Speaker Change: With the support of the board that the given the challenging environment and our goals.
Alexia: The announcement of our intention to reduce the dividend was the prudent action to take.
Alexia: Thank you.
Speaker Change: Thank you our next questions come from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Kevin Mccarthy: Yes, Thank you and good morning.
Kevin Mccarthy: To follow up on the prior question if I look at your term structure, you've got the 1 billion.
Alexia: Senior unsecured notes in March that presumably the delay.
Alexia: Delayed draw term loan we'll take care of.
Alexia: Beyond that $1 billion in half from 26% and $3 4 billion in 2007.
Alexia: So to get to that three turns of leverage goal based on the current glide path of EBITDA. It seems like you've got some heavy lifting ahead and so.
Speaker Change: Would you consider.
Speaker Change: Mandatory convert.
Speaker Change: Or acceleration of the divestiture.
Speaker Change: Options to try to take some of the pressure off your ongoing efforts to deleverage.
Speaker Change: Well, we're working divestitures as aggressive as we can the ones that makes sense, Kevin and the timing of them.
Speaker Change: You know it could be uncertain I think the other thing you mentioned kind of falls in the category of other things that we have considered right. So.
Speaker Change: And again.
Speaker Change: For the board.
Speaker Change: Took the passive intention to reduce reduce the dividend I mean, I think looking forward to those those maturities.
Alexia: We've got access to various outlets.
Alexia: Outlets in the capital markets, and we will we're going to deleverage with the cash that would generate the cash that we have.
Alexia: That we achieved through any.
Alexia: Things like divestitures, and we'll look and see what the prudent approaches on our capital structure with these these access to various capital markets.
Alexia: Outlets and balanced cost and risk on that in our capital structure at all times.
Speaker Change: As a second question if I may a lot of chemical companies are reviewing their asset footprints, particularly so in Europe as you know.
Speaker Change: I think in years past Celanese took a hard look at Asia, Laurie and listening to your comments it sounds to me like Youre thinking of Singapore as as a keeper so to speak.
Speaker Change: I would like to ask you more broadly, though do you have plans to reexamine.
Alexia: The asset footprints.
Alexia: Anywhere in the world or.
Alexia: Or are we going to play the cards, we are dealt so to speak for the near term.
Alexia: Patrick I'd say Celanese has always been known for being very aggressive about footprint optimization and we look at it continuously I mean, if you go back over even just the five years I've been here. We are we have made decisions around setting down re optimizing our footprint something almost every year.
Alexia: Now that we have added the assets from the <unk> acquisition, we have been going through that process again, and you've already seen us make announcement around intro opened facility in Argentina, and some other facilities around the world and we're really looking now on a combined basis, what does that footprint.
Alexia: Optimization look like.
Alexia: You've seen some of the announcements we've already made mechelen, which will be shut down now in 2025.
Alexia: That activity will continue because it's what we normally do we constantly reassess and reevaluate what is the right footprint for us given where our customers are and what our demand profiles look like.
Alexia: Thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.
Hassan Ahmed: Good morning, Lori and Scott.
Hassan Ahmed: You know a question around I mean, you guys have always done a very good job at.
Hassan Ahmed: Matching production with demand and you know obviously it seems Q3 and Q4 of this year.
Hassan Ahmed: From the commentary it seems.
Hassan Ahmed: Auto production going to surprise, you guys and the like so just a broader question around just forecasting how you guys are looking at the order books forecasting based off of that particularly in light of what appears to be.
Hassan Ahmed: Significant changes in customer buying toxins.
Alexia: How customers are thinking.
Hassan Ahmed: It seems buying talking some more just in time it seems customers.
Alexia: Through lessons learned through Covid are keeping leaner and leaner inventory levels. So are you do you think.
Alexia: Those customer habits are sustainable on a go forward basis or just a function of this erratic sort of macro we're in and how are you guys adopting in terms of forecasting and matching sort of your sort of production with the demand in this environment.
Speaker Change: Let me ask Scott to address the broader question, but I would just say really if you look at the inventory situation. We have in the third quarter, we had really been building inventory across the first half for two reasons, one an expectation, particularly in auto and <unk>.
Speaker Change: Turn in the second half, which is being called out by the majority of our customers and the industry.
Speaker Change: As well as we had built some inventory because we were doing footprint optimization. So we were building inventory so that we could shut facilities down and switch customers to new facilities. When we got into third quarter, we acquired raw material anticipating a normal level of build if you will and then we thought.
Speaker Change: Demand really dropped down midway through the quarter.
Alexia: We slow production now, but we still thought there so a lot of the inventory we built in the third quarter was actually around rod. So there's some very specific dynamics around third quarter, but I mean your question is a fair one which is how are we looking at customer demand and forecasting because it is changing slightly so let me turn that to Scott.
Scott Richardson: Hassan we have to remain very flexible and now that we're all on one system.
Scott Richardson: With the eminent business coming into the <unk> system in the first quarter, we are going through a process of really looking at where we make and how we make and run our network from an optimized basis right now and we're overlaying that with the changes that you've kind of alluded to that are happening.
Scott Richardson: More or less in the western hemisphere. The one thing you didn't mention that we also have to be very cognizant of is the rapid pace of change on who's winning particularly in automotive in China. We've seen over the last year, a rapid change of the Chinese Oems, taking a bigger share. There that has also driven an inventory rebalancing.
Scott Richardson: At the end user customer base.
Scott Richardson: We're feeling now and so we've got to make sure that we've adapted.
Scott Richardson: Adapted in our manufacturing footprint and how we operate our assets to where we need that product and as we go forward at least in the short term, it's probably going to be a little heavier towards Asia, and so optimizing those assets and making sure that we can respond to customer needs very quickly is something that the team is very much focused on.
Speaker Change: Very helpful and as a follow up obviously a lot of questions around <unk>. So I wanted to change gears, a little bit and moved to acetyl chain. The prepared remarks in reading those it seems you guys. Obviously you guys reported.
Scott Richardson: Continued strong margins in that segment despite the headwinds.
Scott Richardson: Macro brings.
Scott Richardson: And you guys talked about the sustainability of those margins within within the acetyl chain segment. What gives you guys. The.
Scott Richardson: Sort of comfort level.
Scott Richardson: And sort of believing that those margins are actually sustainable on a go forward basis.
Speaker Change: Yes, Brian I think a lot of it is global trade flows and what we've seen and how things have transpired and where the global cost curve set, particularly on the upstream part of the value chain and so I do believe we've.
Scott Richardson: <unk> been able to exhibit resilience in that part of the value chain and then as you get further downstream the amount of flexibility that we have in that part of the chain is is a lot more than it ever has been before and so the team has a lot more choices on where they can pivot which doesn't.
Scott Richardson: Hence our ability to drive earnings power and some of that may just be offsetting headwinds, but because of that flexibility. We do believe that this sustainability margins. In these ranges is kind of where we think there'll be.
Speaker Change: I would call out two additional factors. One is we do have an advantage technology for its unique asset.
Scott Richardson: Which gives us some cost advantage as well and then we have a very advantaged cost footprint in the U S. Gulf coast with our largest succeeded acid plant, there, which we believe is the lowest cost and lowest carbon acetic acid plant in the world today. Thanks.
Scott Richardson: Thanks, so much sorry, its Scott.
Speaker Change: Thank you. Our next question is coming from the line of Matthew Blair with Tudor Pickering Holt <unk> Company. Please proceed with your question.
Matthew Blair: Thank you and good morning can we circle back to these potential asset sales.
Matthew Blair: Could you say.
Matthew Blair: It would be more targeted to the EMS segment or the <unk>.
Matthew Blair: <unk> chain segment.
Matthew Blair: Then also on a regional basis or are you looking to sell assets.
Matthew Blair: In Europe or would this be kind of all over include U S and Asia as well.
Matthew Blair: Yeah.
Speaker Change: Yeah, Matthew Thanks for that question.
Speaker Change: Rest assured we have had a very robust.
Speaker Change: Look and lift.
Matthew Blair: A possible divestitures that we've been looking at multiple opportunities for various sizes as we talked about on the call last quarter.
Matthew Blair: I would say this we tend to look at these more in line with not as much even just specific assets as necessarily.
Matthew Blair: As you've seen us do in the past, maybe joint ventures, or a very specific product line that we no longer think fit with our portfolio or were somewhat values anymore. So it's a combination of all of those things so because of that I wouldn't say, it's really focused on any one region, although like our footprint optimization has been.
Matthew Blair: Very focused on Europe, but even there <unk> seen us do thing throughout various regions. So this is just really looking at what's the best fit for us going forward and where do we have assets that may be of more value to others.
Speaker Change: It sounds good and then could you also talk about what Youre seeing in the European auto markets. So far in the fourth quarter. It looks like Germany, New car registrations pick up a little bit in October, but some of the other markets might be a little sluggish does that match with what youre seeing as well.
Matthew Blair: Yes.
Speaker Change: In the most recent data Matthew into our forecast that we're guiding to.
Speaker Change: Great. Thank you.
Speaker Change: Alright. Thank you. Thank you. Our next question is coming from the line of John Roberts with Mizuho Securities. Please proceed with your question.
John Roberts: Thank you.
John Roberts: Back in 2018, Celanese and Blackstone dropped plans to merge cig tow do you think the environment has changed enough for may be a different structure like a manufacturing JV might allow that opportunity to come back.
Speaker Change: Yeah, we've talked about this a lot John.
Speaker Change: I would say, we don't see any opportunities there for <unk> since we've been able to integrate it into the full.
Speaker Change: <unk>, we do think Thats the best place for it it allows us to operate it as part of the chain.
Speaker Change: Maximize the value of the chain and I think the things that prevented that from happening back in 18 in terms of regulatory concerns still exist today, So I don't see that Thats changed.
Speaker Change: Thank you.
Daryl: Daryl will make the next question our last one please.
Daryl: Thank you our last question will come from the line of Salvator Tiano with Bank of America. Please proceed with your questions.
Salvator Tiano: Yes. Thank you very much so firstly I wanted to come to.
Daryl: The trick will be what they are.
Salvator Tiano: The lessons learned or what are the actions you intend to take going forward when it comes to things such as financial plumbing, you're forecasting guidance because.
Salvator Tiano: Back to one of the questions has been earlier about auto builds them recognizing about <unk> of the guidance.
Daryl: Your Q2 results.
Speaker Change: Some got it because we're showing different.
Speaker Change: Numbers of course, there were several other I guess.
Speaker Change: Data points, including all suppliers that have very very much outright sale.
Daryl: Auto builds are moving lower so it was something about essentially.
Speaker Change: I just should have been expected and the same goes to the whole acetyl stream margin, where I think we've had a lot of discussions about.
Daryl: <unk>.
Daryl: Supply this year and mix.
Daryl: Which haven't which doesn't appear like it will take into account those much at the beginning over years. So.
Daryl: <unk> I mean hindsight whatnot.
Speaker Change: What can be done to improve the forecast from here.
Speaker Change: Brooks, how we're going to continue to use the data.
Speaker Change: That.
Speaker Change: Variety of data sources to drive inputs into our forecast we also use custom.
Speaker Change: Customer forecast as well I.
Speaker Change: I think one of the things that we always adjust and we will continue to adjust in this environment is how much we use historical statistics to be able to drive forecasting just because in periods, where demand is more volatile that changes and so we will continue to take that into account as we.
Speaker Change: We make our forecast.
Speaker Change: Okay, perfect just wanted to clarify a little bit towards next year. It seems like there is both on us and on <unk>.
Speaker Change: More capacity coming online in Asia. So.
Speaker Change: Is it fair to say the opposite the clear Lake contribution.
Speaker Change: With over $50 million, so you get or other cost cutting measures.
Speaker Change: We should expect acetyl chain earnings to be down in 2025 versus 124.
Speaker Change: Look I wouldn't make any assumptions as of yet.
Speaker Change: As we've talked about it's still early and looking ahead Lori mentioned earlier, what we would expect to get from clear Lake. We're just going to have to see where demand is at and particularly in Asia to see kind of where the margin levels will be as we get into next year and we will provide more color on that when we get to the call in Q1.
Speaker Change: Thank you very much.
Speaker Change: Well, thank you everyone.
Speaker Change: I'd like to thank everyone for listening today as always we are available after the call for any follow up questions.
Speaker Change: Please go ahead and close the call.
Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
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