Q1 2025 Celanese Corp Earnings Call
Speaker Change: Greetings, welcome to the Celanese first quarter, 2025 earnings call and webcast. At this time, all participants aren't a listen-only mode.
Speaker Change: Question and answer session will follow the brief remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host Bill Cunningham. Thank you. You may begin. Thank you.
Speaker Change: Thanks, Dale. Welcome to the Celanese Corporation, 1st quarter, 2025, Earnings Conference Call.
My name is Bill Cunningham, Vice President of Investor Relations [inaudible]
Speaker Change: With me today on the call are Scott Richardson, President and Chief Executive Officer, and Chuck Kyrish, Chief Financial Officer [inaudible]
Speaker Change: Celanese distributed its first quarter earnings release via business wire and post a prepared comments as well as a presentation on our investor relations website yesterday afternoon.
As a reminder, we'll discuss non-GAAP financial measures today.
Speaker Change: You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website.
Today's presentation will also include forward-looking statements.
Please review the cautionary language regarding forward-looking statements.
Speaker Change: Lawrence, which can be found at the end of both the press release and the prepare comments.
Speaker Change: Form 8K reports containing all of these materials have also been submitted to the SEC.
Speaker Change: With that, Darrell, let's please go ahead and open it up 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 1 on your telephone keypad. A confirmation tonal indicate your line is in the question Q. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: Participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys.
David Begleiter: Our first questions come from the line of David Begleiter with Deutsche Bank. Please proceed with your questions
David Begleiter: Thank you, good morning. Scott, nice quarter. What can be on Q2? How should we think about the earnings savings? Cadence, if not ramp in the back half of the year.
Thank you David.
David Begleiter: We do have some tailwinds, particularly on the cost side as we go into the second half of the year. First half's pretty heavy on turn around, there's probably around 30 million tailwind there. We called out tariff impact of about 30 million on a direct basis, so those two offset each other.
David Begleiter: You know, the additional cost reduction actions that we outlined in the prepared remarks is about 40 million and then kind of the...
David Begleiter: The full run rate of the original 80 millions and other 20s. So you got about 60 there. And then, you know, toe dividend and toe volume will certainly be a tailwind as well. Those two together about 50 million or so in the second half. So when you kind of put those things together, it's, it's really a nice kind of, you know, almost, you know, 100 million or so just from those elements in the second half. The uncertainty factor is, is demand right now. And, and I think that is the end of the video.
David Begleiter: who are watching very closely to see kind of where things are going to hold from a demand perspective. [inaudible]
Speaker Change: Very good. And just on Micromax, is this the only divestory looking at this year, or could it be more this year, beyond just Micromax?
Speaker Change: We've been very consistent that our focus is on cash generation, and we are looking at a myriad of options on the divestiture side, David. It's not just Micromax. We've talked about having a portfolio of things that we're looking at. We felt like announcing the Micromax transaction was important because of the number of in-bounds that we've had on this business and with us launching the process right now. We felt like being publicly with it made a lot more sense.
Thank you.
Speaker Change: Thank you. Our next questions come from the line of Frank Mitsch with Fermi and Research, who's receiving your questions.
Speaker Change: Yes, just following up on Micromax, how do we think about the EBITDA margins for that business?
Speaker Change: Thank you, Frank. We said the revenue is about $300 million and honestly, right now, that business is running very similar EBITDA margins to what engineer materials did in the first quarter. So, high team, Frank, is how I would think about it.
Speaker Change: All right, terrific. Thank you. And I appreciate the color in the commentary and in the slides regarding nylon 66.
Speaker Change: and the difficulties they're in. I mean, we have seen a recent bankruptcy filing. What's your outlook in terms of capacity rationalization and what gets that business fundamentally improving? [inaudible]
Speaker Change: Nylon is the one that's specifically challenged and so we called it out really because it is a business that we know we've got to put a core amount of focus on and has been the biggest driver of our earnings decline in the last several years. [inaudible]
Speaker Change: You know, as we look here, you know, the industry has challenged, the industry has given up a lot of margin over the last several years and it's unsustainable. And so the actions that we started taking last year around capacity reductions, us kind of flexing a different operating model here hasn't been enough yet. But we are starting to see a stabilization here. And now that we've got things stabilizing, it's important that we start to build up. And it's easy.
Speaker Change: We've seen us announce some price increases. We're continuing to focus heavily on the cost side of the equation so that we can really streamline our operations to be leaner and ability to meet customer needs going forward.
Speaker Change: Understood. Just lastly, you know, you called out that you didn't expect a high cost producers. Thank you very much.
Speaker Change: to be able to last in this sort of environment, you know, are you seeing any tangible actions of competitor capacity rationalizations?
Speaker Change: but Frank, we can only control what we do and we, I believe, have been taking decisive actions in this business and we will continue to do so and we'll continue to partner with our customers as well to bring unique solutions and continue to drive our cost down as much as we can.
Gotcha, thanks so much
Speaker Change: Thank you. Our next questions come from the line of Jeff Zekakis with JP Morgan. Please proceed with your questions.
Speaker Change: Thanks very much. Oil prices have begun to come down. Is this good for Celanese or bad for Celanese or how do you think about it or calculate it?
Thank you, Jeff.
Speaker Change: We have a flexible operating model. We have a variety of feed stocks, and I think we've been pretty consistent over the years that we're relatively agnostic to where oil pricing is at. And so we haven't necessarily seen some puts and takes from that. We certainly see some feed stock reductions, which is helpful. But then you see some offsets from that, particularly in things like the I've been seen a dividend, which comes down when oil pricing moves off. So.
Speaker Change: You know, as we have run a myriad of permutations, you know, from a straight cost perspective, we tend to be agnostic. The question is really demand. I think in most economic environments, lower oil pricing usually means demand is at reduced levels in a lot of our end uses. And so I think that's the piece that we're watching closely right now.
Speaker Change: So in the quarter, engineered materials volumes were down four, and the year-over-year, and the acetyl chain volumes were down six.
Is that?
Speaker Change: sort of the baseline level of year-over-year change that you expect. When you did your guide for the second quarter, many of the...
Speaker Change: Positive components you pointed to were either one time or cost-related. Are you seeing sort of a normal seasonal pickup in volumes? Can you talk about what you expect for volumes for here?
Speaker Change: Yeah, I'll talk about order book as well, Jeff here for the second quarter. Let me start with with engineer materials. You know, we saw a much stronger March than we saw in January and February .
Speaker Change: and the April orders were kind of in line with that mark to pick up, and the order book for May looks very similar. June is too early to say, and we're just uncertain to you around where June orders will go, but April and May are strong. So we are seeing a volume pickup from Q1 into Q2 from engineer materials.
Speaker Change: On the acid teal side of things, I would say we're not seeing the normal seasonal pickup that we would typically see. Usually Q2 is significantly better volumetrically and things like pain and coatings. We haven't seen that. We're seeing some of that, but not nearly at the level that we've seen historically in the past. Where we are seeing volumes move up in acid teals is in the acetate toe business and we called out some Q1 seasonality there. And things certainly are better. [inaudible]
Speaker Change: Kyrish, we've started the second quarter. Just as an example, April volumes in Ashtate Toe, were about 25% more than January volume, so certainly seeing things move in the right direction there.
Thank you.
Unknown Speaker .
Speaker Change: Thank you, Operator, good morning everybody. I just want to go back to the nylon 66, you know, question earlier, obviously a very significant drag.
Operating Profits since 2021 on the EM segment. Good.
Speaker Change: Scott, what specifically changed relative to perhaps your diligence at the time of the M&M transaction prior to close? And then what is the catalyst to change the profitability matrix for that business going forward? Is it just your demand weakness at this point and the exaggerated supply? What's going on there?
Thank you, Ghansham.
Speaker Change: The biggest change that we saw happen as we got into 22 and 23 was really reduced demand, and I think
Scott Ryerkerk: That was really came at the exact same time of the increasing capacity. I mean, the increased capacity coming to the marketplace was something that we had seen and we knew was coming. But I think that that overlay of the demand reduction coming at that second time has just created this significant over capacity in a short period of time. And we just didn't see a rationalization globally of capacity very quickly. [inaudible]
Scott Ryerkerk: We took action, obviously, over a year ago on our asset in Europe. And you'll have to see kind of where things go as we go forward. But, you know, historically, the Western Hemisphere was overcapacitized, but it had a home to go in China. And when China brought on a lot more new capacity, we've seen that volume back up. And so we'll just have to kind of see where things go from a balance perspective. But we're going to continue to pivot there.
Scott Ryerkerk: As we've said in the past, we don't need to be a producer of Nylon Polymer. We are buying Polymer as well and when it's cheaper to do so, we'll rent down our own operating rates.
Speaker Change: Okay, thanks for that. And then in terms of the upstream AC segment, pricing has been negative since 4Q22 on a year of your basis, pretty consistently.
Speaker Change: Just trying to reconcile your comments and your prepared commentary, et cetera. Are we sort of at an inflection point? As you see at this point, I know you've known some pricing in different businesses.
Speaker Change: You're the overcapacity that we've seen is contained in Asia today, and we have been moving our business model
Speaker Change: Consistently over the last five or so years, further downstream, and we've added capacity in our emulsions business, we've purchased...
Speaker Change: to a third-party customer is not a seed of gas at her van. [inaudible]
Speaker Change: and so that downstream capability does give us some level of differentiation and it doesn't fully insulate us from overcapacity and we certainly would like margins to be better in a seated gas and in vam but it does give us [inaudible]
Speaker Change: and some flexibility there. And margins have been relatively stable in the Western Hemisphere.
Perfect. Thank you, Scott.
Speaker Change: Thank you. Our next questions come from the line of Vincent Andrews with Morgan Stanley , please proceed with your questions.
Vincent Andrews: Thanks and good morning. Just on the seven to eight hundred million dollars...
Scott Richardson, Unknown Executive
Speaker Change: Vincent, let me start and then I'll let Chuck fill in some of the year over your details.
As I said earlier, our focus is on cash. [inaudible]
Speaker Change: And yes, there's uncertainty in the back half. We do have some tailwinds, second half versus first half as I called out earlier, but there is some uncertainty with demand.
Speaker Change: We are not, even though volumes are better here in the second quarter, we are not ramping up our plant rates. We are focused on reducing inventory and are going to pull back on rates if we see any kind of reduction in demand. So that inventory reduction plan is very strong and we have levers we believe, even if we see a sharp reduction in demand in the second half, we have levers to be able to generate cash flow in the range we called out. [inaudible]
Vincent Andrews: Yeah, that's right, Vincent, and you know, to the guide on free cash, Lori, some of those levers.
Vincent Andrews: They will have impact on the income statement in terms of cost, resort, etc.
Speaker Change: So those are more difficult to predict sort of on a timing basis, but what we are confident in is the cash flow of protection and generation of these levers. And we also think about the categories that we've been talking about to call out of year over year improvement, you know, working capital use of cash last year. We're expecting it to be a source of cash that this year. So that's a significant increase year over year. You know, we've really taken CapEx down to our maintenance levels. And so that's going to be a significant increase. Cash taxes will come down.
Speaker Change: So those things, you know, in addition to, you know, these levers that Scott talked about make us confident in that 7,800 million of free cash flow for the year.
Speaker Change: Very good. And then if I could, as a follow up, your auto volumes, your volumes into auto were down 5% again to a global industry down 10.
Speaker Change: How much of that out performance was just a function of it seemed like it was Asia where the real weakness was and I think Asia has been a softer market for you in recent quarters versus are you also taking share of or any other things you want to call out in that delta?
Speaker Change: Look, our team has balanced and where we're positioned globally on automotive. Obviously, our business historically is stronger in the western hemisphere than in China, but that China business is growing. It's going to be a long way to go.
Speaker Change: The end of some of the European destocking that we had called out in the month of March, and as we started here, Q2, was a good driver for us. Certainly that's where we have more content is in the US and in Europe . And so that certainly was helpful. And we had seen kind of a mismatch of our volumes versus where builds were in the fourth quarter. And so this is kind of getting things kind of balanced back out, Vincent. Thank you.
Thank you very much.
Speaker Change: Thank you. Our next questions come from the line of Josh Spector with UBS. Please proceed with your questions.
Josh Spector: Yeah, hi, good morning. Scott, I wanted to ask your view on the impact of tariffs on your ability to flex your receitals chain.
Speaker Change: So you called out 15 million net headwinds a quarter and a second half. I'm not sure how much of that is a seedle versus the other businesses.
Josh Spector: but the hallmark of that business model has been the flexibility and ability to arb different regions, so how much of a hindrance is that, or do you see that something you can largely mitigate?
Speaker Change: Terrace really don't have much impact for us in Aceteles, Josh. I mean, the mounts that we called out are really more related to engineer materials.
Josh Spector: Yes, a hallmark of our model is the ability to flex. Next.
Josh Spector: But even when we first started investing in China in 2007, we've talked about China for China for the most part in asset deals and so we have a really nice position with where assets are positioned in asset deals and we really don't see much sterif impact. [inaudible]
Speaker Change: Okay, so maybe to clarify for me, on slide 17, when you talk about 9% of China sales, essentially coming from the US, is that all EM? Then there are what's the nature of that material?
Josh Spector: Yes, it is all engineering materials, Josh, and it is really specifically just several product families. And as we called out there, we have the ability to move that production to other places for about half of that exposure. So we do have a gap and the team is working hard still on that remaining gap to find ways to mitigate it going forward.
Thank you.
Speaker Change: Thank you. Our next question has come from the line of Patrick Cunningham with Citi. Please proceed with your questions.
Speaker Change: Hi, good morning. You know, I was wondering if you could speak to the success of, you know, pricing actions across the EM portfolio given the, you know, one queue and two queue price increases even now. It looks like prices modically higher sequentially, but could you compare and contrast, you know, standard grade versus the more differentiated end and outlook for pricing for the year. Thank you.
Speaker Change: Yeah, thank you, Patrick. The team was successful getting some price. We didn't get a whole lot in the first quarter because those price increases were now stored.
Speaker Change: The end of the quarter, but we did see some and we are seeing a little bit carried forward obviously and some additional increases here in the second quarter. You know, I think the price you're seeing is a little more mixed related in the first quarter. That was a bigger chunk of the pricing. [inaudible]
Speaker Change: Very good, and then just on the high impact growth pipeline in EM, if you have any concerns on resource alignment, customer relationships with quite a bit of head count reduction in this business, how do you balance the right levels of SG&A investment to support this pipeline going forward?
Speaker Change: We are taking an aggressive approach on the cost structure of not just the business but the entire corporation.
Speaker Change: But we also believe that we have sufficient resources, and it is really about making sure that we are majoring in the majors, not majoring in the minors here, and that we are...
making sure our resources are focused on those high impact programs. And...
Speaker Change: It doesn't mean we're not going to work other things. It just means that where we're going to put real effort and where we're going to make investment is on those things that have a bigger payoff. And I think the engineered materials team led by Todd Elliott has really been doing a great job of ensuring that we are looking at everything that we're doing and making sure our resources are properly positioned on those high impact areas.
Okay, thank you.
Speaker Change: Thank you. Our next questions come from the line of Mike Sison with Wells Fargo. Please proceed with your questions.
Mike Sasson: Hey, good morning guys. A nice start to the year. When we think about the second half of the year, Scott, I think you're assuming, you know, things don't get worse from here. Where do you think you should end the year in terms of? [inaudible] I'm sorry, I'm sorry, I'm sorry
Mike Sasson: I don't know, maybe Ernie's power, where would you like to get to company too in terms of, you know, in this environment some level of earnings or EBITDA as we exit the year heading into hopefully a better year next year.
Scott: Well, my great, let me just kind of take a step back. We're not assuming anything right now.
Mike Sasson: We are continuing to be diligent on driving self-help actions, and that is where our focus is.
Mike Sasson: You know, you look at some of those second half tailwinds that I talked about, you know, if, and this is obviously a big if demand were to stay. Bye.
Mike Sasson: You know, similar to what it is in April and May. [inaudible]
Mike Sasson: Then, you know, if you add those things, you know, you would get to kind of a run rate, you know, exiting the year around two dollars a share [inaudible]
Mike Sasson: That's obviously a big if and we're not going to assume that that's going to be the case and we're going to continue to be ahead of how we operate our assets to ensure that we are generating cash because that is really the key focus for us right now Mike.
Mike Sasson: Got it and then longer term, you know, as you [inaudible]
Mike Sasson: You know, reassess the portfolio. Do you have any thoughts, you know, since you've taken the helm of where, you know, the earnings par for Celanese should be longer term? [inaudible]
Mike Sasson: We have two great franchises with strong operating models. We believe in the Asatil chain operating model. We believe in the engineered materials operating model. These businesses have significant earnings power. I mean the steps that we're taking now and the things that we're doing to generate. Thank you very much.
Mike Sasson: It's been really historically soft now for multiple years and the business is still generating the type of bebida that it is that flexibility that we have in that business and the investments we've made will really well position it to grow earnings pretty significantly going forward and you know I'm not ready to call out a number right now Mike on the future but we do believe kind of the first step is kind of that $2 per quarter and then we'll build off of that. [inaudible]
Great. Thank you.
Speaker Change: Thank you. Our next question has come from a line of Alexei Yefremov with Keybank Capital Markets. Please proceed with your questions.
Alexei Yefremov: Thanks, good morning everyone. Scott, last quarter you talked about your focus on being shared content in Asia.
Alexei Yefremov: I mean, we're now five months into this year. How do you feel about your progress on this topic this year? And maybe if you look into 26, how should this, this area of focus evolve for you? Good luck.
Alexei Yefremov: China is an important area of focus for us. We believe that in automotive in particular that the local OEMs are going to be the winners. They're in China, and we need to be increasing our content there. That increased content is really going to be focused on these high impact programs that we have. It needs to be margin focused because I don't know that the volume play there is going to be the same as where our business has historically developed. And so the team is really. Really.
Alexei Yefremov: Corley Focus, Todd Elliott and team have created really a focused group that is really designed around accelerating our content there locally in China. Yes.
Alexei Yefremov: You know, we grew our EV volumes in China 20% last year over the previous year and we've got to do that again this year and so that's the kind of focus and targets that we're setting for ourselves to ensure that we're successful long term.
Alexei Yefremov: and just looking back on engineered materials last year, as you know, you were just shy of $1.3 billion a fee but duh.
Speaker Change: It sounds like destalking is over, demand is okay. How realistic is it for you to get back to that 1.3 annual level of the next few quarters? What are the risks? What has changed that may preclude you from going back to that level of earnings? Thanks.
Speaker Change: Well, first and foremost, it's around self-help actions. The things that we are driving that we control, and that is the first step here, and I think with the team it continues to create a nice slate of actions, and it seems like we're adding to that list every single quarter. And so that is helpful. The volume side of the equation is important. Every incremental ton that we sell is worth a lot, particularly as we continue to pull cost out of this business.
William Cunningham. Thank you. Thank you.
Speaker Change: Stability, coming out of where we were in in the fourth quarter and the first part of Q1 was extremely important, you know, I also think that the price discussion is important.
Speaker Change: Margins have compressed here, pretty significantly in some of these standard grades.
Speaker Change: Aries, and it is really important that we get off of these unsustainable margin levels. And so that's another element and we know that's not going to change overnight and we're going to have to keep working up that step by step. But we feel confident in the long term earnings power of this franchise.
Speaker Change: Thank you. Our next questions come from the line of Kevin McCarthy with the Vertical Research Partners. Please proceed with your questions.
Yes, thank you and good morning [inaudible]
Speaker Change: and back out your ranges for CapEx, working capital, cash taxes, etc. It seems to imply that you're tracking to an adjusted EBITDA level around
Speaker Change: 1.8 billion or so. Is that fair, or are there other cash flow items that might skew the implied earnings range materially higher or lower than that? [inaudible]
Speaker Change: No, Kevin, I wouldn't read too much into that. As we stated repeatedly, our focus is on cash and given the amount of potential demand uncertainty that we see in the back half of the year.
Speaker Change: You know, we're not, we're kind of looking at a myriad of scenarios of how things could play out.
Speaker Change: And with the levers that we have to pull in the variety of those scenarios, we believe that is a solid range for us, and we're confident in that range. Like I said, you know, before if [inaudible]
Speaker Change: Given some of the tailwinds that we have in the second half, if demand were to stay pretty stable, then certainly the earnings trajectory will look pretty strong in the second half of the year
Speaker Change: Okay, fair enough, and then secondly, you know, in a scenario where the tariff regime is status quo today,
Speaker Change: Can you just talk in general terms about what you think might happen in China? For example, have you seen or would you expect to see any examples of project cancellations in China as you look across your portfolio and where do you think the...
Effect on market conditions could be most pronounced.
Speaker Change: We haven't seen project cancellations in China. What I would say, Kevin, we are seeing orders in some of the
Speaker Change: You know, I would say kind of small appliances, toys, those areas we've seen that
Speaker Change: I kind of start to pull back here in the second quarter. That tends to be relatively low margin business for us, so we're not significantly worried about it from an even though perspective, but I do think it's indicative of the uncertainty that is out there. [inaudible]
Okay, thanks very much.
Speaker Change: Thank you. Our next questions come from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions
Arun Viswanathan: Great, thanks for taking my question. I guess I had a question on EM first. You noted that the earnings power of the business is deteriorated, maybe 350 million on a gross profit basis.
Arun Viswanathan: and 75% of that was nylon. I know you addressed some of the nylon challenges but...
Arun Viswanathan: Would you say that many of the actions you're taking would allow you to recover that 350 million of gross profit loss?
Arun Viswanathan: and maybe even grow above that, or is that kind of structurally deteriorated earnings power? How do you think about that?
Arun Viswanathan: is going to help us going forward as we continue to drive opportunities through our high impact programs.
Arun Viswanathan: as we stabilize and then start to increase the returns in our standard grade nylon business and continue to work projects in our historical EM product lines in the standard grades where we have seen some compression as well. In the actions that we're taking on pricing are important here because we need to get off of these unsustainable levels in the standard grade part of the portfolio.
Speaker Change: OK, thanks for that. And just a question on the leverage. So it sounds like obviously you're laser focused on cash generation.
Speaker Change: If I'm running my numbers correctly that would kind of imply and correct me if I'm wrong.
Speaker Change: On an annualized basis around $1 3 billion or so in free cash flow generation and then on top of that you know you guys sound pretty confident in over the next two and a half years.
Speaker Change: An incremental sort of cash injection of call. It a billion to two and a half billion via divestitures. So I mean am I thinking about these things correctly, I mean, because that would.
Speaker Change: Place you guys, even barring any any sort of material recovery.
Speaker Change: And a pretty good situation in terms of debt pay downs.
Arun Viswanathan: Arun I don't believe we've been fully recognized for the cash generation from the other side of the border it's a sudden.
Speaker Change: Okay.
Speaker Change: Hassan.
Hassan: Yeah. My apologies look I don't think we've been fully recognized for our cash generation capabilities here.
Hassan: Last year, we had lower cash flow, but we called out a lot of one time items that would have added $4 million to $500 million too that when you look at the additional actions that we're taking in pulling cost out you know certainly cash flow over $1 billion, if you're operating at those EBITDA levels.
Hassan: Is it is certainly in the right range and so we feel good about our ability to continue to generate cash going forward.
Speaker Change: Understood understood and again wanted to revisit sort of the earnings power of the EM business. I mean, you guys. Obviously you flagged that.
Speaker Change: 350 million in and sort of deterioration between or 121, and 2024 and again from the sounds of it some of the actions that you guys are taking.
Speaker Change: You know and and you know what you guys have flagged in terms of the nylon business sort of oversupply demand not great I mean, it sounds much more cyclical and it just seems the costs that you guys have taken out in some of the sort of business wins that youre doing it seems you have a revised sort of earnings power for that business.
Speaker Change: And it seems it's higher than what you originally anticipated.
Speaker Change: Related the timing with the Eminem business am I thinking about that properly and that and B, what do you sort of give.
Speaker Change: Give us some sort of a guesstimate maybe in terms of margin.
Speaker Change: What that sort of earnings power may look like.
Speaker Change: Maybe on a normalized basis.
Speaker Change: Look hassan that there'll be a lot of assumptions there.
Speaker Change: We'd have to make we need to focus on where things are right now and.
Speaker Change: We are not happy with where our current earnings levels are and we are aggressively taking actions to improve that and I believe on the self help cost side of things. We are leaning things out to where we are going to be extremely nimble as we go forward and we are putting the right focus around how we can <unk>.
Speaker Change: <unk> unique opportunities to celanese in both engineered materials as well as in the acetyl chain and I do think that will dry power for us going forward yeah. The nylon business in particular is a business that does have a lot of standard elements to it. There are some also some really great specialty applications in this business.
Speaker Change: But those standard elements do you have.
Speaker Change: A lot of characteristics similar to how asset deals operates and so we're kind of taking some of the DNA that we have there and we're applying it to that operating model and the scenario that we've seen materialize here in nylon over the last several years is not unlike what we saw happen in the acetyl business in 2008 2009.
Speaker Change: Economic crisis, where demand fell extremely quickly and at the same time, new supply came online in China and it took some time to work that out I believe we have levers and actions that we can to get this business moving in the right direction going forward.
Scott: Very helpful. Scott. Thank you so much.
Speaker Change: Thank you. Our next question is come from the line of John Roberts with Mizuho Securities. Please proceed with your questions.
John Roberts: Thank you I'm not sure we've heard much about electronic ink inks in pace in the past could you just tell us kind of what type of customers that business serves the geographic mix and what is it that kept it at celanese up until this point is it connected to some of the other businesses.
John Roberts: Yeah. Thanks for the question John look we really like this business. It is a good business. It is a little bit more contained with a different set of customers than what we have in the rest of our engineered materials portfolio. It is not an engineered thermoplastic. It is not a thermoplastic elastomer, that's really the core of.
John Roberts: Our operating model, we have an E M and so it sits a little bit off to the side not unlike what we had with the food ingredients business a few years ago.
John Roberts: The reason why we're just now working to sell the business is.
John Roberts: We felt like there were opportunities in this business to kind of put some of the characteristics of our operating model into the business in terms of operating with a project pipeline model and generating a pipeline of opportunities going forward. It has historically been a very stable business, but we believe now this is a business that has really nice growth prospects and so.
John Roberts: With those kind of self help actions being implemented in the business, we now feel like.
John Roberts: Now is the right time to market.
Speaker Change: Okay, and then on the China JV dividends, what was the remedy they've got the distributions restarted the law change or did you make a legal change to your ownership what happened there.
Speaker Change: No John the law change requires an audit to be completed before we can receive the dividend payments and so that.
Speaker Change: That audit will need to get done in the first quarter of every year and so.
Speaker Change: The timing of those payments now are just going to be split over the last three quarters as opposed to a ratably through all four quarters as in the past so.
Speaker Change: That's really the main element of what changed.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is come from the line of Salvator Tiano with Bank of America. Please proceed with your questions.
Speaker Change: Yes, thank you very much.
Speaker Change: Firstly I want to go back to us to tell where you mentioned you know very strong demand in April the end of Destocking versus some other major producers, but actually recently said the opposite that the Destocking is expanding.
Speaker Change: I'm wondering given that you have local production in China do you think the visa reflect will be for a change in actual end market demand or could the improvement youre seeing b, but we're gaining market share versus imports.
Speaker Change: Okay.
Speaker Change: Yes Sal.
Speaker Change: China business is really fully contained within the joint venture. So you know our base Celanese business does not have exposure to celanese beyond the dividend and so.
Speaker Change: We've been pretty open about the fact that several years ago as earnings declined pretty significantly that it made sense for us to operate our business model differently in acetate tow. We're operating it really as another derivative of acetic acid and and really combine our teams and our operating it really similarly to how we operate.
Speaker Change: Other downstream derivatives and so we contracted the business a little differently and so you know the contracts we have in place have a little more seasonality in them than what we had historically and so you saw that in the fourth quarter volumes were stronger we saw that corresponding decline in the first quarter and youre seeing that bounce back now here in Q2.
Speaker Change: Perfect.
Speaker Change: With regards to some other items from the Q2 and Q3 earnings bridge.
Speaker Change: Firstly, you mentioned around 15 to 20 million and improvement in vinyls in Q2 based on price and volumes how slowly ease. This number internally when we think about the modest demand improvement you've mentioned how does this compare to normal seasonality and then Q3, you recently yesterday you've mentioned.
Speaker Change: You put a press release on June 1st price increase for many engineered materials products.
Speaker Change: <unk> go through as planned what could be the tailwind in Q3 from pricing.
Speaker Change: Well, let me take your second question first look I don't want to negotiate against ourselves here, so I'm not going to.
Speaker Change: Call out a number we need to reverse the trend of pricing in this business and this is another action that we're taking I didnt call that out as a second half tailwind because we're not counting on it until we see it come through and it's something though that it is a trend that needs to be reversed.
Speaker Change: Going then onto your first question around vinyls, but inventories are lean here as we as we get into the second quarter, there's heavy turnaround activity.
Speaker Change: In the Western Hemisphere.
Speaker Change: And pricing is still below the Asia arbitrage and so.
From a both a pricing and volume perspective, we feel like and are seeing opportunities here in the second half, which is why we called that out so.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Our next question is come from the line of Laurence Alexander with Jefferies. Please proceed with your questions.
Speaker Change: Good morning, just a couple of quick ones first.
Speaker Change: Going back to the discussion about the one time versus structural improvements. This year can you give a sense for what the the visible carry overs are into 2026.
Speaker Change: On both the EBITDA side and the free cash flow side.
Speaker Change: Second very quickly on the high impact projects is that pool of opportunities growing or are you just doing a better job.
Speaker Change: Winning kind of the targets you go after.
Speaker Change: And then just lastly.
Speaker Change: You know I think kind of it's easy for us on the outside to debate spreads and the direction of spreads, but if you think about a return to a strong global environment at some point in the next four or five years.
Speaker Change: If you fully flex your portfolio, how much would your earnings or EBITDA lift or your sales lift just from the uptick in volume.
Speaker Change: Okay, a lot to unpack there Laurence.
Speaker Change: Let me start with you.
Speaker Change: You know kind of.
Speaker Change: The 26 run rate.
Speaker Change: Yeah, It's it's too early to speculate really on where demand is so we can only kind of look at where we are today and as I called out if demand were to stay similar to what we see here in the second quarter with the self help actions and things that come back in the second half will be on kind of that $2 trajectory is how I would see things.
Speaker Change: You will have some quarter as Asian, that'll look a little different going forward than things in the past for example, this tow dividend we will not have in the first quarter. So we'll have to kind of think about how that plays out but we're also going to continue to be hopefully some of the other actions, we're taking around pricing as well as things on the high impact program side of things will take her.
Speaker Change: So that's how I would think about it right now and as we get closer to the end of the year, we'll provide obviously a lot more color on on other things that we're driving on the high impact program side of things I mean, this is an area, where we're really getting focus around those things that we believe are going to grow it differentiate differential level.
Speaker Change: In areas, where we have unique offerings and things that we bring to customers and where we believe we can win in all regions of the world and again that doesn't mean, we're going to stop doing other things. It means that we're really going to pivot our resources and put a concerted effort around these things and so it is an area that we believe we.
Speaker Change: It will grow further and faster than what we have been growing.
Speaker Change: Some of these areas previously.
Speaker Change: And look from a spread perspective.
Speaker Change: I don't want to speculate because it.
Speaker Change: Uncertain as to where demand.
Speaker Change: We will go but I think you have to really look at first on the acetyl chain side of things I mean, we are at historical low levels.
Speaker Change: Of consumption, particularly in the western hemisphere in areas like paints coatings adhesives, a lot of these.
Speaker Change: <unk> applications, they don't ship from Asia, because you're moving 50% water. So these are applications and demand that is going to be regional in nature and we are at very low levels, there and so as you see recovery. There. We believe we are well positioned with our asset base to win and you should see some some margin.
Speaker Change: Expansion as well as volume expansion, there and the investments that we've made to expand our van capacities over the last six seven years in North America as well as acetic acid expansions, we believe we're well positioned.
Speaker Change: On the engineered materials side of things the cost that we're taking out and really continuing to really fully synergize. This business from a cost and a network in our footprint perspective, it's going to allow us to ramp volumes.
Speaker Change: And we have compounding assets really now in every corner of the world and in that ability because we don't need to be the maker of the polymer. So we buy polymer compound that's okay. Because the pool of profit sits in that compounding step and its the step where we can create unique customer solutions and so that capability.
Speaker Change: 80, you know when you see some demand normalization.
Speaker Change: And with the success of us driving high impact program areas, particularly in areas, where we've been underrepresented like China, we think that.
Speaker Change: The upside potential is nice going forward.
Speaker Change: Thank you.
Speaker Change: We will make the next question the last one please.
Speaker Change: Thank you our last questions are going to come from the line of Matthew Blair with Tpa <unk>. Please proceed with your questions.
Matthew Blair: Great. Thank you and good morning, some of the industry numbers for things like autos and durable goods were really quite strong in March and April.
Matthew Blair: There's a thought that that was simply demand that was pulled forward due to tariff concerns.
Matthew Blair: And we contrast that to some of your commentary.
Matthew Blair: Sounds like demand is holding in May order books, I think you mentioned are pretty similar to April.
Matthew Blair: So could you help us reconcile that are there other areas that are picking up in Q2 that are offsetting.
Matthew Blair: Durables and autos for you or perhaps that original assumption just just wasn't correct. Thank you.
Matthew Blair: Yeah. Thank you Matthew I think.
Matthew Blair: Look we don't know exactly kind of what the current demand level is is it we don't believe it's necessarily pre buying per se, but end customers certainly, we're accelerating purchases and things like automotive and and so this could be just a rebalancing of restocking in the value chain and its.
Matthew Blair: Why do we talk a lot about the uncertainty of demand in the second half.
Matthew Blair: Because we don't know exactly where that's going to be in kind of what we're seeing right now.
Matthew Blair: We also don't know exactly where June is going to be and so you will have a lot better line of sight as we get a few more weeks into this but I do think I don't want to sit there and say demands not uncertain. It very much is.
Matthew Blair: We're not necessarily hearing that from our customers, but we also can't make the assumption that this isn't just a little bit of that rebuild the supply chain now what I will say, though is <unk>.
Matthew Blair: Tariff impact is still impacting automotive we haven't really seen.
Matthew Blair: Those terrorists.
Matthew Blair: Ah paused and so and that is our largest end use and so.
Matthew Blair: A lot of dynamics here that you were working to clarify here in the coming weeks and months.
Matthew Blair: Great. Thanks for your comments.
Matthew Blair: Well, thank you everyone.
Matthew Blair: Thanks, everyone for listening in today as always.
Matthew Blair: Well after the call for any follow up questions.
Matthew Blair: Please go ahead and close out the call.
Speaker Change: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. We appreciate it.
Matthew Blair: And have a wonderful day.
Matthew Blair: Now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [noise] [music].
Speaker Change: Oh.
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Speaker Change: Yeah.