Q2 2025 Celanese Corp Earnings Call
Speaker #2: Greetings, welcome to the Celanese Second Quarter 2025 earnings call and webcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the brief remarks.
Darryl: Greetings. Welcome to the Celanese second quarter 2025 earnings call and webcast. At this time, all participants are in a listen-only mode. The 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 Bill Cunningham. Thank you. You may begin.
Speaker #2: If anyone should require operator assistance during the conference, please press star zero, and your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Bill Cunningham.
Speaker #2: Thank you. You may begin.
Speaker #3: Thanks, Daryl. Welcome to the Celanese Corporation Second Quarter 2025 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations. With me today on the call are Scott Richardson, President and Chief Executive Officer, and Chuck Irish, Chief Financial Officer.
Bill Cunningham: Thanks, Darryl. Welcome to the Celanese Corporation second quarter 2025 earnings conference call. My name is Bill Cunningham, Vice President of Investor Relations. With me today on the call are Scott Richardson, President and Chief Executive Officer, and Chuck Kyrish, Chief Financial Officer. Celanese distributed its second quarter earnings release via Business Wire and posted prepared comments, as well as a presentation on our Investor Relations website yesterday afternoon. As a reminder, we will discuss non-GAAP financial measures today. You can find definitions of these measures, as well as reconciliations to the comparable GAAP measures, on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and prepared comments. Form AK reports containing all of these materials have also been submitted to the SEC.
Speaker #3: Celanese distributed its second quarter earnings release via BusinessWire and posted prepared comments. As well as a presentation, on our investor relations website, yesterday afternoon.
Speaker #3: As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures, as well as reconciliations to the comparable GAAP measures, on our website.
Speaker #3: Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and prepared comments.
Speaker #3: Form AK reports containing all of these materials have also been submitted to the SEC. With that, Daryl, let's please go ahead and open it up for questions.
Bill Cunningham: With that, Darryl, let us please go ahead and open it up for questions.
Speaker #2: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad.
Darryl: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, for your first questions. Our first questions come from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Speaker #2: A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker #2: We ask that you please limit yourself to one question and one follow-up question. One moment, please, for your first questions. Our first questions come from the line of David Begleiter with Deutsche Bank.
Speaker #2: Please proceed with your questions.
Speaker #4: Thank you. Good morning. Scott, in your prepared comments, you referenced order books beginning to weaken in June and then the trend continuing into July.
Analyst: Thank you. Good morning. Scott, in your prepared comments, you referenced order books beginning to weaken in June, and then trend continuing into July. Can you provide a little more color on what end markets you saw that weakening and how severe has that weakening been?
Speaker #4: Keep up. Provide a little more color on what end markets you saw that weakening in and how severe has that weakening been?
Speaker #3: Thanks, David. You know, we we talked in early June about, you know, starting to see China automotive orders pull back a little bit. That has continued, into the third quarter here.
Bill Cunningham: Thanks, David. We talked in early June about starting to see China automotive orders pull back a little bit. That has continued into the third quarter here. The other area in engineered materials that we have seen a little bit of weakening versus the second quarter is in European demand. The Americas has remained relatively stable there. The other bucket I would call out is in the Western Hemisphere in the acetyls chain. I think we have seen volume weakness towards the very end of the quarter, and that has continued into July. Those are really, I would say, kind of the big buckets of where we have seen that demand change.
Speaker #3: the other area in engineered materials, that we've seen a little bit of weakening versus the second quarter, is in in European demand. the Americas has remained relatively stable there.
Speaker #3: and then the other bucket I would call out is, in the Western Hemisphere in the steel chain. I think we've seen, you know, volume weakness, towards the end of the very end of the quarter, and that has continued, into July.
Speaker #3: I mean, those are the, really, I would say, kind of the big buckets of of where we've seen that demand change.
Speaker #4: Very good. And just on the $2 per share quarterly EPS run rate, how do we get there via a bridge, and when do we get there, do you think?
Analyst: Very good. On the $2 per share quarterly EPS run rate, how do we get there via Bridge and when do we get there, do you think? Thank you.
Speaker #4: Thank you.
Speaker #3: I think it's important that the $2 target for us is really an achievable goal. We're talking a lot about it internally; it's not aspirational. We have concrete plans to get there.
Bill Cunningham: I think it is important that the $2 for us is really an achievable target. We are talking a lot about it internally. It is not aspirational. We have concrete plans to get there. I would say those controllable plans fall into two buckets. The first, cost structure items, and the second is really executing our differentiated business models. If you start with the midpoint of our Q3 guide of $1.25, you get about $0.25 to $0.30 going into next year, or really into the fourth quarter as well, from the inventory movement as well as not having the order timing and the pull-ins we saw into the second quarter. Next year, we have called out an additional around $0.10 per quarter of additional cost actions.
Speaker #3: and I would say those controllable plans fall in in two buckets. the first, you know, cost structure items, and the second is really executing our differentiated business models.
Speaker #3: And so if you, you know, kind of start with the midpoint of our Q3 guide of a $1.25, you get about 25 to 30 cents going into next year, or really into the fourth quarter as well.
Speaker #3: from, you know, the the inventory movement as well as as not having kind of the order timing and the pull-ins we saw into the second quarter.
Speaker #3: you know, next year we've called out an additional around 10 cents, you know, per quarter. of additional cost action. So that kind of gets you into that $1.60, $1.65 range, which is quite honestly about the the the range that we had walked, you know, into the third quarter.
Bill Cunningham: That kind of gets you into that $1.60, $1.65 range, which is quite honestly about the range that we had walked into the third quarter, with where if Q2 demand had held. We still had a gap to close there. That gap for us is really around four controllable areas. The first, additional cost and footprint actions. Some of these are more complex than the ones we have already actioned, but they are doable. They just take a little bit more time, but we are working these really in earnest right now. The second is high-impact programs, driving additional value in high-margin spaces, spaces where we have a real differentiated position. The third, additional price opportunities in engineered materials. We are getting some price. Certainly, we want to get more. There are certain products and grades that we have where pricing is really at an unsustainable level.
Speaker #3: with where if Q2 demand had held. and we still had, you know, a gap to close there. And and that gap for us is really around four controllable areas.
Speaker #3: The first, additional cost and footprint actions. You know, some of these are more complex than the ones we've already actioned, but they're doable. They just take a little bit more time, but we're working these really in earnest right now.
Speaker #3: The second is high-impact programs. driving additional value, in high-margin spaces, spaces where we have a real differentiated position. The third, additional price opportunities in engineered materials.
Speaker #3: We are getting some price, certainly we want to get more. you know, there's certain products and grades that we have where pricing is really at unsustainable levels.
Speaker #3: So continuing to find ways to move price in discrete pockets of the business there. And the third is that there are pockets of opportunity in the asset yield chain, particularly, you know, more in some of our downstream products for us to find, additional opportunities there to to drive more value, more volume or price.
Bill Cunningham: So continuing to find ways to move price in discrete pockets of the business there. The third is that there are pockets of opportunity in the acetyls chain, particularly more in some of our downstream products for us to find additional opportunities there to drive more value, more volume or price. Those are the four controllable actions we are working. These actions will get us to $2 per quarter. It just may be a few quarters delayed versus where we were when demand was a little stronger in the second quarter. But the path we believe is strong. If demand changes, we are ready, and we are ready to pounce, and grab that volume if it is there for us.
Speaker #3: So those are the four controllable actions we're working. These actions will get us to $2. per quarter. it just may be a few quarters delayed.
Speaker #3: Versus, where we were when demand was a little stronger in the second quarter. but the path we believe is strong. And, you know, if demand changes, we're ready and we're ready to pounce, and grab that volume if it's there for us.
Speaker #4: Thank you.
Analyst: Thank you.
Speaker #2: Thank you. Our next questions come from the line of Goncham Punjabi with Baird. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Ghansham Panjabi with Baird. Please proceed with your questions.
Speaker #4: Thank you, operator. Good morning, everybody. Scott, you know, the $25 million inventory reduction impact on the EM segment, you call that specific to 3Q.
Analyst: Thank you, operator. Good morning, everybody. Scott, the $25 million inventory reduction impact in the EM segment, you call that specific to Q3. I know you are focused on reducing inventory levels, but is the magnitude of the impact a function of just the weaker demand you kind of went through as it relates to order patterns for Q3 and late Q2?
Speaker #4: I mean, I know you're focused on reducing inventory levels, but but is the magnitude of the impact a function of just the weaker demand you kind of went through as it relates to order patterns for 3Q and, you know, late 2Q?
Speaker #3: Yeah, I'm just going to make a few high-level comments on that, Goncham, and then I'll let Chuck walk through the specific details. You know, on our fourth quarter earnings call in February, I called out that free cash flow generation was our top priority.
Bill Cunningham: Yeah, I am just going to make a few high-level comments on that, Ghansham, and then I will let Chuck walk through the specific details. You know, on our Q4 earnings call, in February, I called out that free cash flow generation was our top priority and that no matter how the year played out, there were a number of scenarios where we were going to pivot to drive free cash flow. And I am proud of the team here. I am proud of the team around the actions that are being taken. And, you know, if you look high-level at our free cash flow guide of $700 million to $800 million, you know, when you look at that on a free cash flow per share basis, that is somewhere in that $7 per free cash flow per share. That is unique and strong.
Speaker #3: And that no matter how, the year played out, there were a number of scenarios where we were going to pivot to to drive free cash flow.
Speaker #3: And and I'm proud of the team here. I'm proud of the team, around the actions that are being taken and, you know, if you look high level at, you know, our free cash flow guide, of seven to eight hundred million dollars, you know, when you look at that on a a free cash flow per share basis, you know, that's somewhere in that $7 per free cash flow per share.
Speaker #3: That is unique and strong. And so I'm proud of the actions we're taking, and we're going to continue to prioritize cash. So if we need to pivot with demand, we'll do that.
Bill Cunningham: So I am proud of the actions we are taking, and we are going to continue to prioritize cash. So if we need to pivot with demand, we will do that.
Speaker #4: Yeah, hey, Goncham, let me talk about some of the income statement impacts of this. You know, as context, look, we've our inventory reduction efforts in EM, we're on a multi-year journey here.
Chuck Kyrish: Yeah. Hey, Ghansham, let me talk about some of the income statement impacts of this. As context, our inventory reduction efforts in EM, we are on a multi-year journey here, and it has allowed us to sustainably operate the business at lower inventory and maintain our customer reliability standards. We are doing this in many different ways: warehouse consolidation, SKU rationalization, safety stock optimization, raw material reductions. As for the third quarter sequential headwind, mix plays a pretty big role here. Some of our products in EM run on a semi-annual production campaign. We ran one of those campaigns in the second quarter on products with a little bit higher associated fixed costs as just part of our normal production plan for the year.
Speaker #4: And this allows us to sustainably operate the business at lower inventory, and maintain our customer liability standards. We're doing this in many different ways, you know, warehouse consolidation, SKU rationalization, safety stock optimization, raw material reductions.
Speaker #4: You know, as for the third quarter sequential headwind, mix plays a pretty big role here. You know, some of our products in EM run on a semiannual production campaign.
Speaker #4: We ran one of those campaigns in the second quarter on products with a little bit higher associated fixed costs, as just part of our normal production plan for the year.
Speaker #4: This actually generated, Goncham, a benefit in the second quarter of about 10 to 15 million to earnings and that was always part of our Q2 earnings guide.
Chuck Kyrish: This actually generated, Ghansham, a benefit in the second quarter of about $10 to $15 million to earnings, and that was always part of our Q2 earnings guide. With the current demand trends, we will actually draw some of that inventory in the third quarter, which will then generate a similar size negative earnings impact of $10 to $15 million. That is how you get the $25 million net sequential negative impact in Q3. As for the full year, the earnings impact from Q2 and Q3 basically offset, as I have explained.
Speaker #4: So with the current demand trends, we'll actually draw some of that inventory in the third quarter. Which will then generate a similar size negative earnings impact of 10 to 15 million.
Speaker #4: And so that's how you get the $25 million net sequential negative impact in Q3. As for the full year, the earnings impact from Q2 and Q3 basically offset, as I've explained.
Speaker #4: We do expect a small negative impact in Q4, but no real significant impact for the year. It's really important to remember that we're also getting contributions to our inventory reduction through areas like these raw materials and even off-take arrangements.
Chuck Kyrish: We do expect a small impact in Q4 negative, but no real significant impact for the year. It is really important to remember that we are also getting contributions to our inventory reduction through areas like these raw materials and even off-take arrangements, some of which do not have any impact on the income statement from an absorption standpoint.
Speaker #4: You know, some of which don't have any impact on the income statement from an absorption standpoint. Okay, very helpful. And just, you know, for the second question as it relates to the 2Q pressure points, for the AC segment that you called out, right?
Analyst: Okay, very helpful. Just, as it relates to the Q2 pressure points for the acetyls segment that you called out, acetate tow and vinyls, how do you expect those two dynamics to evolve sequentially?
Speaker #4: So acetate tow and, you know, vinyls. How do you expect those two dynamics to evolve sequentially?
Speaker #3: Yeah, we're not expecting, big change. Right now, Goncham, we're expecting that to continue particularly in tow. I mean, as I called out on the on the first question, you know, we are seeing a little bit of softness in demand to start the third quarter.
Bill Cunningham: Yeah, we are not expecting a big change right now, Ghansham. We are expecting that to continue, particularly in tow. As I called out on the first question, we are seeing a little bit of softness in demand to start the third quarter, even relative to the second, on the acetyl non-tow products. That is really in that vinyl chain. I think it is relatively similar with potentially a little bit of downside on the volume side. That will be offset in acetyls with us not having turnaround. That is why you have got kind of the sequential guide up, versus where we finished in the second quarter.
Speaker #3: You know, even relative to the second quarter, on the acetyl and non-tow products, it's really in that vinyl chain. So I think it's relatively similar with potentially a little bit of downside on the volume side.
Speaker #3: now that will be offset, and acetyls with with us not having turnaround. So that's why, you've got kind of the sequential guide up, versus, where we finished in the second quarter.
Speaker #4: Okay, very helpful. Thanks so much.
Analyst: Okay, very helpful. Thanks so much.
Speaker #2: Thank you. Our next questions come from the line of Jeff Zakakis with JP Morgan. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Jeff Zekauskas with JPMorgan. Please proceed with your questions.
Speaker #5: Thanks very much. Are tariffs in China affecting your tow business? That is, is there material that you normally ship into China that's now more difficult because of tariffs or not really?
Analyst: Thanks very much. Are tariffs in China affecting your tow business? That is, is there material that you normally ship into China that is now more difficult because of tariffs or not really?
Speaker #3: No, Jeff. Our tow business in China is really done entirely through our joint venture and our joint venture partners. So we're seeing no impact from tariffs.
Bill Cunningham: No, Jeff, our tow business in China is really done entirely through our joint venture and our joint venture partners. We are seeing no impact from tariffs.
Speaker #5: Okay. And in VAM and acetic acid in China, are you at least break-even and of your Asian sales in VAM and acetic acid, is there any that comes from the United States?
Analyst: Okay. In VAM and acetic acid in China, are you at least break-even? Of your Asian sales in VAM and acetic acid, is there any that comes from the United States?
Speaker #3: Yes, we are break-even. We're above break-even still, Jeff. Now, what I will say is we are selling less third-party acetic acid than what we have historically.
Bill Cunningham: Yes, we are break-even. We are above break-even still, Jeff. What I will say is we are selling less third-party acetic acid than what we have historically. We are, as I called out last quarter, continuing to pivot further into the downstream products like emulsions, redispersible powders because we have seen more pockets of value where we can differentiate ourselves. So we continue our looking at that landscape and kind of working that wheel of products that we have, and that is really pushing us further downstream. We are selling a little bit of U.S. material in Asia in certain regions. That may be direct ship or it could come through swaps, et cetera. Whether it is actual or virtual, that has been something that we have been doing since we started up the Clear Lake expansion last year.
Speaker #3: We are, as I called out last quarter, continuing to pivot further into the downstream products like emulsions, redispersable powders, because we've seen more pockets of value where we can differentiate ourselves.
Speaker #3: So we continue our looking at that landscape and kind of working that wheel of products that we have and that's really pushing us, you know, further downstream.
Speaker #3: We are selling a little bit of US material in Asia in certain regions. Now, that may be direct ship or it could come through swaps, etc.
Speaker #3: So, you know, whether it's actual or virtual, that has been something that we have been doing since we started up the Clear Lake expansion last year.
Speaker #5: Thank you very much.
Analyst: Okay, good. Thank you very much.
Speaker #2: Thank you. Our next questions come from the line of Michael Sassan with Wells Fargo. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Michael Sison with Wells Fargo. Please proceed with your questions.
Speaker #6: Hey, guys. So just curious, in terms of your third quarter outlook, I recall you had thought you'd get 15 to 20 cents or so in cost savings, another 15, 20 cents in less turnarounds.
Analyst: Hey, guys. Just curious, in terms of your Q3 outlook, I recall you had thought you would get $0.15 to $0.20 or so in cost savings, another $0.15 to $0.20 in less turnarounds. Is that still the case? That would imply sort of this minus $0.50 to get to the midpoint from weaker demand and inventory destocking. If that is sort of the math, does that minus $0.50 maybe come back in Q4? Maybe the seasonality that you typically get is not as bad as we head into Q4.
Speaker #6: Is that still the case and that would imply sort of this minus 50 cents to get to the midpoint? From weaker demand and inventory destocking.
Speaker #6: So, if that's sort of the math, does that minus $0.50 maybe come back in the fourth quarter? And maybe the seasonality that you typically get isn't as bad as we head into the fourth?
Speaker #3: Yeah, thanks, Mike. You know, as we kind of look at this, I mean, if you normalize for the inventory and some of those accelerated orders that we saw in the second quarter, you know, that kind of gets you 25 cents or so up off of the Q2 guide.
Bill Cunningham: Thanks, Mike. As we kind of look at this, if you normalize for the inventory and some of those accelerated orders that we saw in the second quarter, that kind of gets you $0.25 or so up off of the Q2 guide. So, that basically puts the third quarter, as we are looking at it, it is really, from an enterprise perspective, the underlying company is performing kind of at or even slightly better in the third quarter than what we did in the second quarter because of those cost reductions, not having the turnarounds that you talked about. That is definitely rolling through in the numbers as we work our way into the third quarter. It is really just that change in demand. That is kind of in that $0.25 range, as you kind of look at what was in the second quarter to the third quarter.
Speaker #3: So, you know, that basically puts the third quarter as we're looking at it, it's really from an enterprise perspective, you know, the underlying companies performing kind of at or even slightly better in the third quarter than what we did in the second quarter because of those cost reductions, not having the turnarounds that you talked about.
Speaker #3: That's definitely rolling through in the numbers as we work our way into the third quarter. It's really just that change in demand. And that is kind of in that 25 cent range as you kind of look at what was in the second quarter to the third quarter.
Speaker #3: And that's probably somewhere 60% acetyls, 40% engineered materials, as I would look at it right now.
Bill Cunningham: That is probably somewhere 60% acetyls, 40% engineered materials, as I would look at it right now.
Speaker #6: Got it. And then a quick follow-up. You know, I know pretty much all your peers have talked about a weaker third and, you know, 2025 is coming in pretty disappointing relative to everybody's expectations.
Analyst: Got it. Then a quick follow-up. I know pretty much all your peers have talked about a weaker Q3, and 2025 is coming in pretty disappointing relative to everybody's expectations. Do you think there's anything structural in your businesses that, you know, maybe some of the earnings power just won't come back? You know, maybe, you know, nylon or parts of EM? I just didn't, you know, I would have never thought folks would be at this level of earnings. So I just wonder if there's some, you know, structural issues in the businesses that could be, you know, persistent over several years versus just this year.
Speaker #6: But do you think there's anything structural in your businesses that, you know, maybe some of the earnings power just won't come back? You know, maybe nylon or parts of EM?
Speaker #6: I just, you know, I would have never thought folks would be at this level of earnings. So I just wonder if there are some structural issues in the businesses that could be persistent over several years versus just this year.
Speaker #3: Mike, I'm energized by what our team is executing this year. And I'm energized by what we're doing on free cash flow. And we are building I think, you know, the enterprise in a way that is increasing the earnings power.
Bill Cunningham: Mike, I am energized by what our team is executing this year. I am energized by what we are doing on free cash flow. We are building, I think, the enterprise in a way that is increasing the earnings power. We are ready when demand changes. What we are doing on the cost structure side of things, just as an example, in acetyls, I think our Western Hemisphere cost structure has never been as low as it is today with the fixed costs we have taken out of the business, the expansions, the low-capitality bottlenecks that we have done, the low-carbon footprint products that we have.
Speaker #3: And we are ready when demand changes. And what we're doing on the cost structure side of things, I mean, just as an example, in acetyls, I think our Western Hemisphere cost structure has never been as low as it is today.
Speaker #3: With the fixed costs we've taken out of the business, the expansions, the low capital debottlenecks that we've done, and the low carbon footprint products that we have, you know, in engineered materials, for example, the actions that we're taking, you know, we're going to be operating on an S&A plus R&D percentage of sales next year in the range of 8%, which is equivalent to what we were doing pre-COVID in 2019 in a very different demand environment.
Bill Cunningham: In engineered materials, for example, the actions that we are taking, we are going to be operating on an S&A plus R&D percentage of sales next year in the range of 8%, which is equivalent to what we were doing pre-COVID in 2019 in a very different demand environment. If you normalize and apply that demand environment to today, that S&A plus R&D percentage of sales would be 1 to 200 basis points lower than that 8%. The things that we are doing are going to give us the ability to respond when demand changes. Certainly, there are pockets of the business that, given where things are at today, are challenged. Are they long-term structurally challenged? I do not know about that because actions will be taken.
Speaker #3: And if you kind of normalize and apply that demand environment to today, you know, that S&A plus R&D percentage of sales would be, you know, 1 to 200 basis points lower than that 8%.
Speaker #3: So that the things that we're doing are going to give us the ability to respond, you know, when demand changes. And certainly, there are pockets of the business that, given where things are at today, are challenged.
Speaker #3: You know, are they long-term structurally challenged? You know, I don't know about that because actions will be taken. And I think, you know, for us, you know, we are really working to ensure that we don't have a set it and forget it mentality on how we operate the company.
Bill Cunningham: I think for us, we are really working to ensure that we do not have a set it and forget it mentality on how we operate the company. There is always more that can be done. If business is not performing, then you have got to take action. You have got to drive change. That action orientation is really what we are building into everything that we are doing here.
Speaker #3: There's always more that can be done. And if, you know, business isn't performing, then you've got to take action. You've got to drive change.
Speaker #3: And so that's just that action orientation is really kind of what we're building into everything that we're doing here.
Speaker #6: Thank you.
Analyst: Thank you.
Speaker #2: Thank you. Our next questions come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Speaker #7: Thank you. Good morning. Scott, I do wonder if you have any thoughts on the acetic acid business in China and some of the, you know, anti-involution policies that have been proposed.
Analyst: Thank you. Good morning. Scott, I wonder if you have any thoughts on the acetic acid business in China and some of the, you know, anti-involution policies that have been proposed. Are you seeing or hearing or thinking that there could be some capacity rationalization in the Chinese market as a function of those policies?
Speaker #7: Are you seeing, hearing, or thinking that there could be some capacity rationalization in the Chinese market as a function of those policies?
Speaker #3: You know, Vincent, I can't speculate what will or won't happen in the market, but definitely where things are at today, it's extremely challenging. I think for the entire industry.
Bill Cunningham: Vincent, I cannot speculate what will or will not happen in the market, but definitely where things are at today, it is extremely challenging, I think, for the entire industry. I think certainly China has taken note of that. The anti-involution policies that really started to get talked about more a few weeks ago, certainly in those more established, concentrated, less fragmented spaces are certainly already seeing change. Coal, for example, coal pricing has gone up three weeks in a row. I think it is up about 5% in the last month. I think those first-order elements are already seeing elements of that. How that applies then into our businesses, in particular, acetic acid, I do not know yet. But certainly coal, as an indicator, is going to drive cost up over time, for everyone.
Speaker #3: And I think certainly China has taken note of that. And the anti-involution policies that, you know, really started to get talked about more a few weeks ago, you know, certainly in those, you know, kind of more established concentrated, less fragmented spaces, are certainly already seeing change.
Speaker #3: I mean, coal pricing has gone up three weeks in a row. I think it's up about 5% in the last month.
Speaker #3: And so I think those first order elements, you know, are already seeing elements of that. How that applies then into our businesses in particular, acetic acid, I don't know yet.
Speaker #3: But certainly coal as an indicator, you know, is going to drive cost up over time, for everyone. And so I do think, you know, those dynamics, I think it's important that we continue to stay close to what's happening in our markets.
Bill Cunningham: I do think those dynamics, I think it is important that we continue to stay close to what is happening in our markets. We are going to keep trying things. We are going to keep finding ways at which to pivot and find pockets of value. That is probably going to be different today than it is going to be next week. But the team has to kind of work that daily operational execution model in order to be successful.
Speaker #3: We're going to keep trying things, and we're going to keep finding ways to pivot and find pockets of value. That's probably going to be different today than it's going to be next week.
Speaker #3: But the team has to kind of work that daily operational execution model in order to be successful.
Speaker #2: Okay. And then just as a follow-up, there was a call out in the prepared remarks about medical being weak. And I recall that, you know, there'd been overstocking during COVID and that seemed to normalize last year.
Analyst: Okay. Just as a follow-up, there was a call out in the prepared remarks about medical being weak. I recall that there had been overstocking during COVID, and that seemed to normalize last year. Is there anything in particular that is causing that end market to be a little sluggish right now?
Speaker #2: So is there anything in particular that's causing that end market to be a little sluggish right now?
Speaker #3: No, Vincent, it's just really timing. You know, we had a little stronger volumes early in the year. Then maybe what we're seeing right now.
Bill Cunningham: No, Vincent, it is just really timing. We had a little stronger volumes early in the year than maybe what we are seeing right now. But fundamentally, no. Demand is stronger today than it was coming out of COVID for sure. Everything that we see does not indicate inventory through the chain, and end-use demand continues to be pretty stable there.
Speaker #3: But fundamentally, no, demand is stronger today. Than it was coming out of COVID for sure. And I don't, you know, everything that we see doesn't indicate inventory through the chain and end-use use demand continues to be pretty stable there.
Speaker #2: Okay. Thanks very much. Thank you. Our next questions come from the line of Josh Specter with UBS. Please proceed with your questions.
Analyst: Okay. Thanks very much.
Darryl: Thank you. Our next questions come from the line of Josh Spector with UBS. Please proceed with your questions.
Speaker #8: Yeah, hi, good morning. I had a follow-up on the earnings power, I guess questions around the acetyls business. I guess, I mean, that's kind of been the bigger gap in 2Q and 3Q.
Analyst: Yeah. Hey, good morning. I had a follow-up on the earnings power, I guess, questions around the acetyls business. I guess that has kind of been the bigger gap in Q2 and Q3. If you could maybe break apart the pieces between you talked about some of the filter tow destocking impacts. Sounds like you are expecting that to go on in the rest of the year. But then, like, the core acetyls earnings power, is it utilizations or demand or something that really needs to drive this? How much is there in your control to maybe lift that earnings versus you need to wait on the market, noting that you shut down or at least delayed the start back up of your Frankfurt facility, your batching Singapore?
Speaker #8: If you could maybe break apart the pieces between you talked about some of the tow destocking impacts. Sounds like you're expecting that to go on in the rest of the year.
Speaker #8: But then, like the core acetyls earnings power, is it utilizations or demand or something that really needs to drive this? And how much is there in your control to maybe lift that earnings versus you need to wait on the market, noting that you shut down early delayed the start backup of your Frankfurt facility, your batching Singapore, is there more that needs to be done or some impaired earnings on that side of the stream that needs more actions or is it all market in your view?
Analyst: Is there more that needs to be done or some impaired earnings on that side of the stream that needs more actions, or is it all market in your view? Thanks.
Speaker #8: Thanks.
Speaker #3: Josh, the team is driving greater than 20% EBITDA in a business that's probably seeing Western Hemisphere demand at the lowest level it's been in 20 years.
Bill Cunningham: Josh, the team is driving greater than 20% EBITDA in a business that is probably seeing Western Hemisphere demand at the lowest level it has been in 20 years. That is certainly not easy to do. As we look at the business, in particular, tow, we did see higher volumes in the second quarter than we saw in the first. It just was not as strong as what we had originally called out. The order book indicates that those Q2 volumes are going to be pretty similar into the third quarter. We are seeing that with the weakness I talked about earlier in the other acetyl products in the Western Hemisphere. I do think this is about volume in the Western Hemisphere. Given the overcapacity in Asia, we are going to continue to find ways, as I mentioned earlier, to squeeze out more profit there.
Speaker #3: And that's certainly not easy to do. You know, as we look at the business in particular tow, you know, we did see higher volumes in the second quarter than we saw in the first.
Speaker #3: It just wasn't as strong as what we had originally called out. And, you know, the order book indicates that those Q2 volumes are going to be pretty similar.
Speaker #3: Into the third quarter, we're seeing kind of that weakness I talked about earlier in the other acetyl products in the Western Hemisphere.
Speaker #3: I do think this is about volume in the Western Hemisphere. I mean, given the overcapacity in Asia, we are going to continue to find ways, as I mentioned earlier, to squeeze out more profit there.
Speaker #3: But for us, this really is about the profitability in the Western Hemisphere. And given how volume is so weak, we do believe that's an area that will change over time.
Bill Cunningham: For us, this really is about profitability in the Western Hemisphere. Given how volume is so weak, we do believe that is an area that will change over time. Just to give you an idea of that earnings power and where things are at, a 3% volume change in just the Western Hemisphere non-tow in this business is about $10 million per quarter. So it is not insignificant. Just to give you a rule of thumb, in engineered materials, a 3% improvement in that business on a global basis is about $15 million a quarter. So real earnings power from very small volume changes, in where these businesses can have success going forward. We are only improving that equation with the cost structure changes that we are making over time here.
Speaker #3: And just to kind of give you, you know, an idea of that earnings power and where things are at, you know, a 3% volume change in just the Western Hemisphere non-tow in this business is about $10 million per quarter.
Speaker #3: So it's not insignificant just as a, you know, to give you a rule of thumb in engineered materials, a 3% improvement in that business on a global basis is about $15 million a quarter.
Speaker #3: So real earnings power from very small volume changes in where these businesses can have success going forward. And we're only improving that equation with the cost structure changes that we're making over time here.
Speaker #5: Okay, thank you.
Analyst: Okay. Thank you.
Speaker #2: Thank you. Our next questions come from the line of Saboteur Tiana with Bank of America. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Salvator Tiano with Bank of America. Please proceed with your questions.
Speaker #8: Yes, thank you very much. So firstly, I wanted to check specifically as we think about Q4, you know, how should we think about any buckets on, you know, on earnings Q4 versus Q3?
Analyst: Yes, thank you very much. Firstly, I wanted to check specifically as we think about Q4. I, you know, how should we think about any buckets on earnings Q4 versus Q3? I think you mentioned that there could be some inventory reduction initiatives still flowing through, but can you clarify what we should expect there, either items such as seasonality, turnarounds, et cetera? How should we frame Q4 versus Q3?
Speaker #8: I think you mentioned that there could be some inventory reduction initiatives still flowing through, but can you clarify what we should expect there?
Speaker #8: Either item such as seasonality, turnarounds, etc. So how should we frame Q4 versus Q3?
Speaker #3: Yeah, thanks, Sal. I think it's important to understand that the visibility right now is very short in both businesses. Historically, acetyls visibility of the order book was kind of two to four weeks.
Bill Cunningham: Yeah, thanks, Sal. I think it's important to understand the visibility right now is very short in both businesses. Historically, acetyls visibility to the order book was kind of two to four weeks. Today, it's very much on the short end of that. Historically, in engineered materials, the visibility and confidence in the order book could be, you know, four to six weeks. Today, I would say, the visibility in engineered materials is more like two weeks of orders you can really count on. That's hard to predict what's going to happen in the fourth quarter. We have not seen normal seasonality so far year to date in anything right now. It's hard to say, are we going to see real normal seasonality or not? The inventory value chain is extremely light.
Speaker #3: Today, it's very much on the short end of that. Historically, in engineered materials, the visibility and confidence in the order book could be four to six weeks.
Speaker #3: Today, I would say, you know, the visibility in engineered materials is more like two weeks of orders you can really count on. And so that's hard to predict what's going to happen in the fourth quarter.
Speaker #3: We have not seen normal seasonality so far year to date in anything right now. So it's hard to say, are we going to see real normal seasonality or not?
Speaker #3: The inventory value chain is extremely light. We do not see big pockets of inventory really anywhere in the value chain in the areas where we have stronger profitability.
Bill Cunningham: We do not see big pockets of inventory, really anywhere in the value chain in the areas where we have stronger profitability. Chuck did mention a little bit of an inventory draw in the fourth quarter. It's likely on a sequential basis to be actually a positive when compared to the third quarter because it'll be then less than what we're seeing here in Q3 based upon how we're seeing things right now from a demand perspective. I do think it's hard to say what seasonality will be, but I don't think it's unrealistic to think that Q4 would be similar to what we're seeing in the third quarter or even better depending on how things materialize from a demand perspective.
Speaker #3: You know, Chuck did mention a little bit of an inventory draw in the fourth quarter. It's likely on a sequential basis to be actually positive when compared to the third quarter because it'll be then less than what we're seeing here in Q3 based upon how we're seeing things right now from a demand perspective.
Speaker #3: So I do think, you know, it's hard to say what seasonality will be, but I don't think it's unrealistic to think that Q4 would be similar to what we're seeing in the third quarter or even better depending on how things materialize from a demand perspective.
Speaker #5: Perfect. Thank
Analyst: Perfect. Thank you. I want to also ask a little bit about the balance sheet. Specifically, we saw that you extended your revolver to 2030. It is $1.75 billion. Is it fair to say that right now, if we do the math, 2026, 2027 maturities, they could fully be addressed by everything you have on hand, cash, free cash flow, and the revolver, or is there anything else we are missing? Is there any chance, any reason why you cannot draw on the entire $1.75 billion, for example, to repay your 2027 bonds?
Speaker #2: you. And I want to also ask a little bit about the balance sheet and specifically we saw that you extended your revolver to 2013.
Speaker #2: It's $1.75 million. So, is it fair to say that right now, if we do the math, 26, 27 maturities could be fully addressed by everything you have on hand, cash, free cash flow, and the revolver?
Speaker #2: Or is there anything else we’re missing? Is there any reason why you cannot draw on the entire $1.75 billion, for example, to repay your 2027 bonds?
Speaker #3: Thanks, Sal. Look, we're focusing on paying down our debt maturities through '27. With our free cash flow generation and then our billion dollars of divestiture proceeds.
Chuck Kyrish: Hey, Sal. Look, we're focusing on paying down our debt maturities through 2027 with our free cash flow generation and then our $1 billion of divestiture proceeds. We're not relying on our revolver to pay off those maturities. We have used our revolver temporarily from time to time for a short-term bridge, but then have quickly paid that off. So I would think about paying down those maturities through 2027 through our own cash generation, and not using the revolver. Now, we know that sometimes our cash generation in any given year can be a little bit back-end loaded. So we'll continue to be prudent and opportunistic in the debt capital markets if we need any further refinancing transactions to kind of bridge some of that payment. But think about those 2026 and 2027 through our own cash generation.
Speaker #3: You know, we're not relying on a revolver to pay off those maturities. We have used our revolver temporarily from time to time for a short-term bridge, but then have quickly paid that off.
Speaker #3: So, I would think about paying down those maturities through '27 through our own cash generation and not using the revolver. Now, we know that sometimes our cash generation in any given year can be a little bit backend loaded.
Speaker #3: So we'll continue to be prudent and opportunistic in the debt capital markets. If we need any further refinancing transactions to bridge some of that payment.
Speaker #3: But think about those 26 and 27 through our own cash generation.
Speaker #5: Great. Thank you very much.
Analyst: Great. Thank you very much.
Speaker #2: Thank you. Our next questions come from the line of Patrick Cunningham with CITI. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Patrick Cunningham with Citi. Please proceed with your questions.
Speaker #8: Hi, good morning. Thanks for taking my call. You know, pretty consistent price declines in acetyl chain over the past several quarters. Is the bulk of this from just China oversupply and the impact from the upstream pieces of the portfolio?
Analyst: Hi. Good morning. Thanks for taking my questions. Pretty consistent price declines in the acetyls chain over the past several quarters. Is the bulk of this from just China oversupply and impact from the upstream pieces of the portfolio? How would you characterize the optionality model and success for downstream sales? Have you been getting both price and volume there relatively consistently?
Speaker #8: How would you characterize, you know, the optionality model and success for downstream sales? Have you been getting bulk price and volume there relatively consistently?
Speaker #3: Yeah, thanks, Patrick. I think on the downstream sales, you know, pricing has been harder to get there. I mean, I think that's been more about volume and finding ways at which to create new opportunities in certain spaces.
Bill Cunningham: Yeah, thanks, Patrick. I think on the downstream sales, pricing has been harder to get there. I mean, I think that's been more about volume and finding ways at which to create new opportunities in certain spaces, some out-of-kind substitution as well. We've seen success, particularly in parts of Asia there. I mean, there definitely has been some margin compression that we've seen since the beginning of the year, on some products, from a margin perspective, in China. Then we've seen a little bit in certain pockets in the Western Hemisphere, but that's largely been more of a volume story as opposed to a margin decline.
Speaker #3: Some out-of-kind substitution as well. We've seen success, particularly in parts of Asia, there. I mean, there definitely has been some margin compression that we've seen since the beginning of the year.
Speaker #3: On some products, from a margin perspective, in China. And then we've seen a little bit in certain pockets in the Western Hemisphere, but that's largely been more of a volume story as opposed to a margin decline.
Speaker #5: Understood. And then just on the free cash flow outlook, can you help us understand what's driving the reiterated 700 to 800 million there? If we take a further leg down here, do you think you can manage to the low end of that range with further working capital actions?
Analyst: Understood. Then just on the free cash flow outlook, can you help us understand what is driving the reiterated $700 million to $800 million there? If we take a further leg down here, do you think you can manage to the low end of that range with further working capital actions?
Speaker #3: Yeah, as we enter the year, we looked at a number of demand scenarios. And this goes back to Q4 of last year even. And the commensurate inventory actions around each of those demand scenarios to generate 700 to 800 of free cash flow.
Chuck Kyrish: Yeah, as we entered the year, we looked at a number of demand scenarios. This goes back to Q4 of last year even. And the commensurate inventory actions around each of those demand scenarios to generate $700 million to $800 million of free cash flow. As you mentioned, as we've kind of seen demand soften here, we're prepared to take further those actions and increase the benefit from inventory working capital. We currently are confident in that $700 million to $800 million, in any demand scenario.
Speaker #3: So yeah, as you mentioned, as we kind of seen demand soften here, we're prepared to take further of those actions and increase the benefit from inventory working capital.
Speaker #3: And we are confident in that $700 to $800 million in any demand scenario. I also think, Patrick, it's important to clarify that, particularly in the second quarter here, the majority of that free cash flow was generated from operations.
Bill Cunningham: I also think, Patrick, it is important to clarify. Particularly in the second quarter here, the majority of that free cash flow was generated from operations, not from working capital. Our cash generation is coming from operating cash flow is strong, even despite the fact that we have $650 million to $700 million of interest expense this year. I think it is that conversion to cash which really shows the strength of these operating models. That is sustainable. Given that we do believe we are on a multi-year journey of inventory, in the engineered materials business, even that working capital piece going into 2026 is sustainable. So we feel really good about the cash generation here. We are going to be continuing to find ways at which to maximize how much cash we are generating from operations.
Speaker #3: Not from working capital. Our cash generation is coming from operating cash flow is strong. Even despite the fact that we have 650 to 700 million dollars of interest expense this year.
Speaker #3: And I think it's that conversion to cash, which is really shows the strength of these operating models. And that is sustainable. And given that we do believe we're on a multi-year journey of inventory, in the engineered materials business, even that working capital piece going into 2026 is sustainable.
Speaker #3: So we feel really good about the cash generation here and we're going to be continuing to find ways at which to maximize, you know, how much cash we're generating from operations.
Speaker #5: Very helpful. Thank you so much.
Analyst: Very helpful. Thank you so much.
Speaker #2: Thank you. Our next questions come from the line of Frank Mitch with Fermion Research. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Frank Mitsch with Fermium Research. Please proceed with your questions.
Speaker #8: Good morning. Scott, you gave some interesting rules of thumb regarding volume movements, impacts on acetyls, and EM. Just curious, where do you think we are right now on a volume basis relative to historic norms in both of those segments?
Analyst: Good morning. Scott, you gave some interesting rules of thumb regarding volume movements, impacts on acetyls and EM. Just curious, where do you think we are right now on a volume basis relative to historic norms in both of those segments?
Speaker #3: We're significantly lower, Frank. I mean, obviously, I called out earlier, I think we're at at least in the Western Hemisphere in acetyl demand, we're probably at the lowest levels we've seen in 20 years.
Bill Cunningham: We are significantly lower, Frank. I mean, obviously, I called out earlier, I think we are at, at least in the Western Hemisphere, in acetyl demand, we are probably at the lowest levels we have seen in 20 years. Engineered materials certainly is weak. I think first half volumes, versus first half last year even, I think we are down 5% to 6% volumetrically. I mean, if you just kind of think about those, those are big, significant changes that we have seen in the business. I know it is just rhetoric right now, but what we are hearing from our customers is that people are looking more at manufacturing in the U.S. We are hearing from customers that, going forward, now when this actually hits, we do not know, but that people are looking at making more cars in the U.S.
Speaker #3: Engineered materials certainly is weak. I think the first half volumes versus first half last year even, I think we're down, you know, 5 to 6%.
Speaker #3: Volumetrically. So, I mean, if you just kind of think about those, those are big significant changes that we've seen in the business. Now, I know it's just rhetoric right now, but what we are hearing from our customers is that people are looking more at manufacturing in the US.
Speaker #3: You know, we're hearing from customers that, going forward, now when this actually hits, we don't know. But you know that people are looking at making more cars in the U.S.
Speaker #3: People are looking at making more appliances in the U.S. We are seeing even the German automakers now rolling out their next wave of electric vehicles, which have a really strong ability to win, particularly in the Western Hemisphere.
Bill Cunningham: People are looking at making more appliances in the U.S. We are seeing even the German automakers now rolling out their next wave of electric vehicles, which have a really strong ability to win, particularly in the Western Hemisphere. Those things will be really beneficial for our businesses. On the acetyl side of things, whether it is interest rates or more government spending in Europe, or stability in Eastern Europe, any catalyst like that, it is our lowest cost part of the world, our highest margin business. We are going to be able to capture that demand relatively quickly. Our focus right now is really on, in this low demand environment, what are we doing to ensure that every dollar or every ton we sell in the future is worth more than it was in the past.
Speaker #3: Those things will be really beneficial for our businesses on the acetyl side of things, whether it's interest rates, more government spending in Europe, or stability in Eastern Europe.
Speaker #3: Any catalyst like that, you know, it's our lowest cost part of the world, our highest margin business, we're going to be able to be able to capture that demand relatively quickly.
Speaker #3: And so, our focus right now is really on, in this low demand environment, what we are doing to ensure that every dollar, or every ton we sell in the future is worth more than it was in the past.
Speaker #8: Gotcha. That's very helpful. I must tell you, I was surprised to hear that the low level of visibility on your order books seemed pretty surprising.
Analyst: Gotcha. That's very helpful. I must tell you, I was surprised to hear the low level of visibility on your order books seemed pretty surprising. To that end, without much visibility, just curious as to what the general thinking is in terms of the low end or the high end of that $1.10 to $1.40 range for the third quarter. What sort of expectations are embedded on both sides of that?
Speaker #8: So to that end, you know, how much visibility—just curious as to, you know, what the general thinking is in terms of the low end or the high end of that $10 to $40 range for the third quarter? What sort of expectations are embedded on both sides of that?
Speaker #3: You know, Frank, for us, I mean, the controllable actions that we're taking and the things that are rolling through the P&L already do give me confidence.
Bill Cunningham: You know, Frank, for us, the controllable actions that we are taking and the things that are rolling through the P&L already do give me confidence. Certainly, where demand could pivot here in the last six weeks of the quarter can go a number of different directions. But I think where we are performing from a controllable perspective certainly gives me confidence in our guide right now. We have to kind of take that mentality and keep that focus going forward. The good thing for us as well is now we are multiple years into this engineered materials integration, for example. This means we are now finally starting to get historical Celanese products on M&M assets and historical M&M products on Celanese assets, which gives us a lot better cost to serve. It has kind of given us the ability to lower the inventory.
Speaker #3: Now, certainly, where demand could pivot here in the last six weeks of the quarter can go a number of different directions. But I think, you know, where we're performing from a controllable perspective certainly gives me confidence in our guide right now.
Speaker #3: You know, we have to kind of take that mentality and keep that focus going forward. The good thing for us as well is now we’re multiple years into this engineered materials integration, for example.
Speaker #3: You know, which means, you know, we're now finally starting to get historical Celanese products on M&M assets and historical M&M products on Celanese assets, which gives us a lot better cost to serve. It has kind of given us the ability to lower the inventory, but what it also does is it gives us the ability to do more make-to-order products.
Bill Cunningham: But what it also does is it gives us the ability to do more make-to-order products. So it is less inventory that we have to carry. So we can respond to that demand. It is those types of things that I think we are being a lot more efficient with the business broadly, which does give me confidence that no matter what happens with demand, we can find a way to at least hit our cash flow numbers.
Speaker #3: And so it's less inventory that we have to carry, allowing us to respond to that demand. It's those types of things that, you know, I think we're being a lot more efficient with the business broadly, which gives me confidence that no matter what happens with demand, we can find a way to at least hit our cash flow numbers.
Speaker #8: Thank you so much.
Analyst: Thank you so much.
Speaker #2: Thank you. Our next questions come from the line of Alexei Yefimov with Key Bank Capital Markets. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your questions.
Speaker #9: Thanks. Good morning. I was caught. I wanted to ask you about this demand pattern of stronger second quarter weaker third quarter in EM. Do you have a view of what's sort of underlying reason for this?
Analyst: Thanks. Good morning. Scott, I wanted to ask you about this demand pattern of stronger Q2, weaker Q3 in EM. Do you have a view of what sort of underlying reason for this? Is this the tariff timing? Is this just weaker product production schedules or consumer? Any color here would be great.
Speaker #9: Is this the tariff timing? Is this just a week of odd production schedules or consumer or any color here would be great.
Speaker #3: Alexei, I hate to do this to you, but your line kind of cut out for us on my end. So do you mind repeating your question for me?
Bill Cunningham: Aleksey, I hate to do this to you, but your line kind of cut out for us on my end. Do you mind repeating your question for me?
Speaker #9: Yeah, sorry. Just underlying reasons for stronger 2Q and weaker 3Q. In engineered materials, is it tariff or something else?
Analyst: Sorry, just underlying reasons for a stronger Q2 and weaker Q3 in engineered materials. Is it tariff or something else?
Speaker #3: Look, I think it's hard to say how much is really driven by tariffs. I think, you know, some of the order timing, particularly on volumes for products that were ordered in China and are made in the U.S., that's probably the majority of that kind of $10 to $15 million or so that we saw that we think kind of moved into the second quarter.
Bill Cunningham: Look, I think it is hard to say how much is really driven by tariffs. I think, you know, some of the order timing, particularly on volumes that, you know, for products that were ordered in China that are made in the U.S., that is probably the majority of that kind of $10 million to $15 million or so that we saw, that we think kind of moved into the second quarter. I would characterize demand right now really across both businesses as uncertain. That is what we hear from our customers. In that time, what customers are doing is they are lowering their inventories. You have seen obviously a host of announcements in our sector here this quarter and from our downstream customers. Almost everyone is pulling back on inventories.
Speaker #3: You know, I would characterize demand right now, really across both businesses, as uncertain. And that's what we hear from our customers. So in that time, what customers are doing is they're lowering their inventories.
Speaker #3: And, you know, you've seen obviously a host of announcements in our sector here this quarter. From our downstream customers, almost everyone is pulling back on inventories.
Speaker #3: And when they pull back on inventories, it's going to certainly impact, you know, how much product we end up selling. And I think it's that uncertainty and whether it's tariffs or, you know, geopolitical reasons, you know, people are just certainly being a lot more saw this as we entered the year.
Bill Cunningham: When they pull back on inventories, it is going to certainly impact, you know, how much product we end up selling. I think it is that uncertainty. Whether it is tariffs or, you know, geopolitical reasons, people are just certainly being a lot more prudent. We saw this as we entered the year. As we entered the year, we knew it was going to be about cash and lowering inventory. That is kind of how we have been operating. Again, as I said earlier, I am really proud of the actions our team has been taking to really focus on reducing our cost structure and generating cash.
Speaker #3: prudent. Now, we Thank
Speaker #3: And, you know, as we entered the year, we knew it was going to be about cash and lowering inventory. And so that's kind of how we've been operating.
Speaker #3: And again, as I said earlier, I'm really proud of the actions our team has been taking to really focus on reducing our cost structure and generating cash.
Speaker #2: Thanks, Scott. And then filter tow, how much certainty do you have that this is not a
Analyst: Thanks, Scott. Then filter tow, how much certainty do you have that this is not a share loss, but a destock? How much visibility do you have in these competitive dynamics?
Speaker #2: these competitive dynamics?
Speaker #3: You know, from the visibility we've seen thus far, Alexei, I don't think we've seen significant sheer loss. I mean, there's some additional capacity that's being sold in the market.
Bill Cunningham: You know, from the visibility we've seen thus far, Aleksey, I don't think we've seen significant share loss. I mean, there's some additional capacity that's being sold in the market. It is not a new entrant, but just some additional debottleneck capacity that's in the market. But that's not really impacting our demand per se. I think where it's having an impact is customers don't need to hold as much inventory. At least that's the perception right now. I think people have been comfortable operating at lower inventory levels, and that's kind of what materialized through the second quarter.
Speaker #3: It is not a new entrant, but just some additional debottleneck capacity. That's in the market, but that's not really impacting our demand, per se.
Speaker #3: I think where it's having an impact is customers don't need to hold as much inventory. And at least that's the perception right now. And so I think, you know, people have been comfortable operating at lower inventory levels.
Speaker #3: And that's kind of what materialized through the second quarter.
Speaker #2: You. Our next questions come from the line of Arun Vishwanathan with RBC Capital Markets. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.
Speaker #6: Great. Thanks for taking my question. Hope you guys are well. I want to go back to the bridge Scott that you provided from dollar 25 to two bucks.
Analyst: Great. Thanks for taking my question. I hope you guys are well. I want to go back to the bridge, Scott, that you provided from $1.25 to $2.00. I think you said the inventory actions, that was maybe $0.25 to $0.30. The current cost programs was $0.10 to $0.15. That got you to $1.65. So, I think you then said that that would have gotten you to $2.00, were it not for the volume shortfall. Then there are the four controllable. So I guess, if volumes do come back, would normalized volumes get you the $0.35? Or given that volumes are at 20-year lows, would normalized volumes get you closer to maybe $3.00? Then with your controllables you maybe have like very, very long-term line of sight to north of $3.00. Is that the right way to think about it?
Speaker #6: I think you said the inventory actions, that was maybe 25 to 30 cents. The current cost programs was 10 to 15. And that got you to dollar 65.
Speaker #6: So I think you then said that that would have gotten you to two bucks were it not for the volume shortfall. And then there are the four controllable.
Speaker #6: So I guess if volumes do come back, you know, would normalized volumes get you the 35 cents? Or, given that volumes are at 20-year lows, would normalized volumes get you closer to maybe three bucks?
Speaker #6: And then with your controllables, you maybe have like a very, very long-term line of sight to north of $3. Is that the right way to think about it?
Speaker #6: What was the volume kind of shortfall from a normalized perspective?
Analyst: What was the volume kind of shortfall from a normalized perspective?
Speaker #3: Yeah, Arun, we're waking up every day and just trying to put one foot in front of the other. And we've got to look at what's in front of us right now.
Bill Cunningham: Arun, we're waking up every day and just trying to put one foot in front of the other. We've got to look at what's in front of us right now. Our next milestone is $2.00. Once we hit $2.00, then we'll set the next milestone, for where things are. We've been building a plan here to get to that $2.00 per quarter level, that is through controllable actions that I kind of walked through. The walk I had done earlier in the year, got you in that $1.70, $1.80 range, keeping Q2 volumes flat through the balance of the year. That's not what we're seeing right now. It's hard to say what normalized volumes are right now, but just Q2 volumes and that dynamic is worth about $0.25, $0.30. It kind of gets you into that range certainly, but we're not going to count on that.
Speaker #3: And our next milestone is two dollars. And once we hit two dollars, then we'll set the next milestone. For where things are. And we've been building a plan here that to get to that two dollars per quarter level, that is through controllable actions.
Speaker #3: As I kind of walked through, you know, the walk I had done earlier in the year, you know, got you in that $1.70, $1.80 range.
Speaker #3: You know, keeping Q2 volumes, you know, flat through the balance of the year. And that's not what we're seeing right now. It's hard to say what normalized volumes are right now, but just Q2 volumes, and that dynamic is worth about, you know, $0.25 to $0.30.
Speaker #3: So it kind of gets you into that range certainly, but we're not going to count on that. We have to continue to work the controllable items that we have in front of us to get to that level.
Bill Cunningham: We have to continue to work the controllable items that we have in front of us to get to that level. If demand is there, we're going to be poised to capture it.
Speaker #3: And if demand is there, we're going to be poised to capture it.
Speaker #6: Okay, that's helpful. And then just as a quick follow-up, I think the other actions you mentioned I get the additional cost, but I just wanted to ask about the second and fourth items.
Analyst: Okay, that's helpful. That is just a quick follow-up. I think the other actions you mentioned, I get the additional costs, but I just wanted to ask about the second and fourth items. The second item, I think you mentioned, really harnessing some of your value-based programs. Could you just provide a little bit more detail there? Similarly, on the acetyls chain, is the uplift that you see there going to require a better construction and paints environment? What would you say would lead to better acetyls chain results?
Speaker #6: So the second item, I think you mentioned is really harnessing some of your value-based programs. Could you just provide a little bit more detail there?
Speaker #6: And then similarly on the acetyl chain, is the uplift that you see there going to require a better construction and paints environment or what would you say would lead to better acetyl chain results?
Speaker #3: Yeah, let me hit that point first. I mean, certainly the paints, coatings, and construction demand in the Western Hemisphere that we're seeing is extremely weak.
Bill Cunningham: Let me hit that point first. I mean, certainly the paints, coatings, construction demand in the Western Hemisphere that we are seeing is extremely weak. Any change there would be pretty attractive from an incremental perspective given that rule of thumb that I mentioned earlier. That is probably the weakest part of the business versus today versus when we started the year. Certainly any change that we would see there and anything to catalyze demand on that side of things would be extremely beneficial just because that is our highest margin area. When it comes to high-impact programs in the engineered materials business, we are committed to broadening and diversifying the business, finding additional pockets of opportunity outside of automotive, within the automotive business. We have a lot of different examples of the things that the team is working on.
Speaker #3: And so any change there would be pretty attractive from an incremental perspective given that rule of thumb that I mentioned earlier. That's probably the weakest part of the business versus today versus when we started the year.
Speaker #3: And so certainly any change that we would see there and anything to catalyze demand on that side of things would be extremely beneficial just because that is our highest margin area.
Speaker #3: You know, when it comes to high-impact programs, in the engineered materials business, I mean, we are committed to broadening and diversifying the business, finding additional pockets of opportunity, outside of automotive, within the automotive business.
Speaker #3: And we have a lot of different examples of the things that the team is working on. And the non-auto that could be things like drug delivery, performance footwear, fibers, hydrogen clean energy, oil and gas.
Bill Cunningham: In the non-auto, that could be things like drug delivery, performance footwear, fibers, hydrogen clean energy, oil and gas. These are spaces where we have had wins recently, nice wins. It is about multiplying those wins. In automotive, EV propulsion, batteries, cooling, advanced suspension systems, these are all unique areas where our products fit extremely well and where we are gaining traction. Some of those auto opportunities take longer. It is really about accelerating kind of the full pipeline of opportunities in the HIPS to ensure that, as we get into 2026, we have new demand materializing to the bottom line.
Speaker #3: I mean, these are spaces where we've had wins recently—nice wins. And it's about multiplying those wins. In automotive, you know, EV propulsion, batteries, cooling, advanced suspension systems—these are all unique areas where our products fit extremely well.
Speaker #3: And where we're gaining traction. Now, some of those auto opportunities, take longer. So it is really about accelerating kind of the full pipeline of opportunities in the hips to ensure that, you know, as we get into 2026, we have, you know, new demand materializing to the bottom line.
Speaker #6: Thanks.
Analyst: Thanks.
Speaker #2: Thank you. Our next questions come from the line of Hassan Ahmed with Olympic Global. Please proceed with your questions.
Darryl: Thank you. Our next questions come from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.
Speaker #9: Morning, Scott. You know, appreciate the details in the presentation you gave around the acetyl chain, you know, and over the years, you know, showing us how you've imparted sort of earnings stability and the like.
Analyst: Morning, Scott. I appreciate the details in the presentation you gave around the acetyls chain. Over the years, you have shown us how you have imparted earnings stability and the like. Also, 70% now of your revs come from the Western Hemisphere, and 70% of those are contracted out. You are obviously seeing that even in the near-term results. The guidance that you gave for Q3 for acetyls chain is relatively flat with Q2. My question is, if you take that model and try to incorporate those best practices within the EM side, how would it look? This is particularly in light of some of the comments that you just made about hearing rumblings about manufacturing moving more to the Western Hemisphere and the like.
Speaker #9: And, you know, also how, you know, 70% now of your reps come from the Western Hemisphere and 70% of those are contracted out. And you're obviously seeing that even in the near-term results, right?
Speaker #9: I mean, the guidance that you gave for Q3, for acetyl chain relatively flat with Q2. So my question is, if you sort of take that model and try to incorporate those best practices within the EM side, how would it look?
Speaker #9: And, you know, particularly in light of some of the comments that you just made about hearing rumblings about manufacturing moving more to the Western Hemisphere and the like.
Speaker #3: Certainly, there are areas of engineered materials, Hassan, that have elements of the acetyls business, particularly in standard grade materials. You know, areas like palm, you know, our polyester business, nylon.
Bill Cunningham: Certainly, there are areas of engineered materials, Hassan, that have elements of the acetyl business, particularly in standard-grade materials. Areas like POM, our polyester business, nylon, the standard spaces do have some of those kind of daily operational elements. The engineered materials team really is looking at the segments of the business within each product line on how we drive and compete. I think nylon is a perfect example of using some of those elements, looking at, do we make versus buy? Do we buy polymer from the market and compound for standard compounded products? That gives us a lower cost structure. Do we find different ways to buy materials cheaper? Otherwise, do we pivot materials to our lower cost elements of production? We have done some of that through the shutdowns of higher cost capacity that we have done in maximizing production in our lowest cost assets.
Speaker #3: Standard spaces do have some of those kinds of daily operational elements. And, you know, the engineered materials team really is looking at the segments of the business within each product line on how we drive and compete.
Speaker #3: And I think, you know, nylon's a perfect example of using some of those elements. You know, in looking at, do we make versus buy?
Speaker #3: Do we buy polymer from the market and compound for standard compounded products? Because that gives us a lower cost structure. Do we find different ways to buy materials cheaper?
Speaker #3: Otherwise, do we pivot materials to our lower-cost elements of production? And we've done some of that through, you know, the shutdowns of higher-cost capacity that we've done and maximizing production in our lowest-cost assets.
Speaker #3: And so there definitely are elements there. Our U.S. footprint that we have in both businesses is extremely low cost and it is advantaged. As we see demand pivot back to the U.S., if that occurs, I think we're as well positioned as anyone in our competitive landscape to be able to capture that demand very quickly.
Bill Cunningham: There definitely are elements there. Our U.S. footprint that we have in both businesses is extremely low cost. It is advantaged. As we see demand pivot back to the U.S., if that occurs, I think we are as well-positioned as anyone in our competitive landscapes to be able to capture that demand very quickly.
Speaker #2: Very helpful, Scott. And as a follow-up, I mean, obviously the macro continues to weaken. You know, a fair degree of uncertainty in the marketplace.
Analyst: Very helpful, Scott. As a follow-up, the macro continues to weaken, a fair degree of uncertainty in the marketplace. The chemical industry valuations keep coming down as well. Where do you guys stand with regards to the $1 billion in divestiture that you guys had flagged to accomplish within the next two and a half years?
Speaker #2: And obviously, you know, the chemical industry sort of valuations keep coming down as well. Where do you guys stand with regards to, you know, the billion dollars in divestiture that you guys had sort of flagged to sort of accomplish within the next two and a half years?
Speaker #3: Yeah, thanks, Hassan. The Micromax process we announced publicly a quarter ago is going very well. You know, we have worked our way through the first round of bids.
Bill Cunningham: Thanks, Hassan. The MicroMax process we announced publicly a quarter ago is going very well. We have worked our way through the first round of bids. We narrowed that down to a nice diverse group for the second round. Management presentations are completed. We are working through site visits and expert calls, and fully through the diligence process right now. We expect to have second-round bids in the next month or so. Then we will narrow that further to a third round and work to conclusion, we think, at some point here in the second half of the year. So we feel really good about the MicroMax process. I actually asked the head of M&A yesterday, as a matter of fact.
Speaker #3: You know, we narrowed that down to a nice, diverse group for the second round. Management presentations are completed. You know, we're working through site visits and expert calls.
Speaker #3: And we're kind of fully through the diligence process right now. We expect to have second round bids in the next month or so. Then we'll narrow that further to a third round and work to conclusion.
Speaker #3: We think at some point here in the second half of the year. So we feel really good about the Micro Max process. You know, I actually asked the head of M&A yesterday, as a matter of fact, and I said, "Do you feel more confident today in our non-Micro Max projects than you did a quarter ago?"
Bill Cunningham: I said, "Do you feel more confident today in our non-MicroMax projects than you did a quarter ago?" He said, "Absolutely." I do think we have seen some traction there. A lot of the deals we are working there are a little more complex. Some are with our joint ventures. Those are harder to get done. So they do take longer. But I do think the work the team is doing to keep the focus on those with the highest degree of profitability, I would say we feel more confident in that today than we maybe did a few months ago.
Speaker #3: And he said, "Absolutely." I do think we've seen some traction there. I mean, a lot of the deals we're working on are a little more complex.
Speaker #3: Some are with our joint ventures, and those are harder to get done. They do take longer, but I do think, you know, the work the team is doing to keep the focus on those with the highest degree of probability—I would say we feel more confident in that today than we maybe did a few months ago.
Speaker #2: Very helpful, Scott. Thank you so much. Thank you. Our next questions come from the line of John Roberts with Mizuho Securities. Please proceed with your questions.
Analyst: Very helpful, Scott. Thank you so much.
Darryl: Thank you. Our next questions come from the line of John Roberts with Mizuho Securities. Please proceed with your questions.
Speaker #10: Thank you. Selling third-party acetic—what you used to call parlay—was a core part of the acetic acid strategy. Is the lower third-party sales something structural here? Just the industry has changed enough that it doesn't make sense?
Analyst: Thank you. Selling third-party acetyl, what you used to call parlay, was a core part of the acetic acid strategy. Is the lower third-party sales something structural here? The industry has changed enough that it does not make sense? Or is it just a cyclical decline because it requires working capital, which maybe you do not want to extend right now? Or maybe there is less margin, obviously, and lower prices. How much of this third-party decline, which used to be part of the core, is cyclical versus structural?
Speaker #10: Or is it just a cyclical decline because it requires working capital, which maybe you don't want to extend right now? Or maybe there's just less margin, obviously, in lower prices?
Speaker #10: So, how much of this third-party decline, which used to be part of the core, is cyclical versus structural?
Speaker #3: You know, John, you've covered us for a long time and you know that, you know, this business changes every single day. And, you know, is it structural?
Bill Cunningham: You know, John, you've covered us for a long time. And you know that this business changes every single day. Is it structural? No, I don't think it's structural. It may take a while for that dynamic to change, but there's a lot of moving parts here. And margins are really at unsustainable levels. So I do think that's why you're seeing us make the choices that we're making to further pivot downstream. And I think the work that we've done there in debottlenecking capacity downstream has given us another outlet so that we're not so reliant. Ten, 15 years ago, we were extremely reliant on selling third-party acetic acid. And we're not today. What that business in some years was well over 50% of the end products that we were selling. And now it's less than 30%.
Speaker #3: No, I don't think it's structural. It may take a while for that dynamic to change, but there are a lot of moving parts here. And margins are really at unsustainable levels.
Speaker #3: So I do think that's why, you know, you're seeing us make the choices that we're making to further pivot downstream. I think, you know, the work that we've done there in debottlenecking capacity downstream has given us another outlet.
Speaker #3: So there were not so reliant. And, you know, 10, 15 years ago, we were extremely reliant on selling third-party acetic acid. And we're not today.
Speaker #3: And, you know, that business in some years was well over 50% of the end products that we were selling. And now it's less than 30%.
Speaker #3: So I think, you know, for us today, having more diversity in the business is a good thing. Certainly, we'd like acetic acid margins to be better than they are.
Bill Cunningham: So I think for us today, having more diversity in the business is a good thing. Certainly, we'd like acetic acid margins to be better than they are. But this thing's pivot here. And we're going to make sure that we continue to pivot with the market as opportunities present themselves.
Speaker #3: But things pivot here, and we're going to make sure that we continue to pivot with the market as opportunities present themselves.
Speaker #2: And then can you say that the MicroMax deal will be simple all cash, or do you think there might be an earnout or something a little bit more complicated with that deal?
Analyst: Can you say that the MicroMax deal will be simple all cash? Do you think there might be an earnout or something a little bit more complicated with that deal?
Speaker #3: We're working deals, John, to keep the complexity at a minimum. On the deals that we're doing, and I think for us right now, we're quite confident that we won't have an outcome that's super complex.
Bill Cunningham: We're working deals, John, to keep the complexity at a minimum on the deals that we're doing. For us right now, we're quite confident that we won't have an outcome that's super complex.
Speaker #2: Okay, thank you.
Analyst: Okay. Thank you.
Speaker #11: Yeah, we'll make the next question our last one, please.
Darryl: Darryl, we will make the next question our last one, please. Thank you. Our final questions will come from the line of Matthew Blair with Tudor Pickering and Holt. Please proceed with your questions.
Speaker #2: Thank you. Our final questions will come from the line of Matthew Blair with Tudor Pickering & Holt. Please proceed with your questions.
Speaker #11: Great. Thank you. And good morning. You mentioned autos leaking, but could you talk a little bit about the mix within autos? Historically, Celanese has enjoyed some nice tailwinds from things like hybrids and EVs.
Analyst: Great. Thank you. Good morning. You mentioned autos leaking, but could you talk a little bit about the mix within autos? Historically, Celanese has enjoyed some nice tailwinds from things like hybrids and EVs. Are those tailwinds still present, or are they starting to reverse?
Speaker #11: Are those tailwinds still present, or are they starting to reverse?
Speaker #3: We're not seeing a big reversal right now. Certainly with demand pulling back in China, you know, our sales into EVs on a global basis are probably a little bit less today just because of more where the end-use demand is.
Bill Cunningham: are not seeing a big reversal right now. Certainly, with demand pulling back in China, our sales into EVs on a global basis are probably a little bit less today just because of more where the end-use demand is. Electric vehicles are definitely here to stay. I think each region is going to be a little bit different. Certainly, EVs are going to play a big role in Europe. With the future model launches that I think we are going to see in 2026 and beyond, EVs and that as a powertrain of choice is going to be critically important for us. We feel really good about the portfolio that we have developing from a pipeline perspective there. In the U.S., it is going to be a mixture. There is going to be ICE. There are going to be hybrids and electric.
Speaker #3: You know, electric vehicles are definitely here to stay. I think each region's going to be a little bit different. Certainly, EVs are going to play a big role in Europe.
Speaker #3: And with, you know, the future model launches that I think we're going to see in 2026 and beyond, EVs and that is the powertrain of choice is going to be critically important for us.
Speaker #3: And we feel really good about the portfolio that we have developing from a pipeline perspective there. In the US, it's going to be a mixture.
Speaker #3: There's going to be ICE, there's going to be hybrids and electric. And so we have to make sure that we're remaining nimble and flexible with our customers so that we can meet those needs because I do think it's going to be a changing mix here for.
Bill Cunningham: We have to make sure that we are remaining nimble and flexible with our customers so that we can meet those needs because I do think it is going to be a changing mix here.
Speaker #11: Okay, well, thank you everyone very much. We'd like to thank everyone for listening today. As always, we're available after the call for any follow-up questions.
Darryl: Well, thank you, everyone, very much. We would like to thank everyone for listening today. As always, we are available after the call for any follow-up questions. Darryl, please go ahead and close out the call. Thank you, ladies and gentlemen. We appreciate your participation. This does conclude today's teleconference. Please disconnect your lines at this time and enjoy the rest of your day.
Speaker #11: Daryl, please go ahead and close out the call.