Q2 2025 Trinseo PLC Earnings Call
Good morning, ladies and gentlemen, and welcome to the transeo second quarter, 2025 Financial results conference call. We welcome the transeo management team Frank bozich, president and CEO. David Stacy Executive Vice President and CFO and B van Castle, senior, vice president, corporate finance, and investor relations.
Today's conference call will include brief remarks by the management team, followed by a question and answer session.
The company distributed distributed its press release along with its presentation, slides after the close of Market on Wednesday, August 6th.
These documents are posted on the company's investor relations website and furnished on a form K8 filed with the Securities and Exchange Commission.
If anyone should require operator assistance, during this call, please press star, then the the number zero on your telephone keypad.
I will now turn the call over to vancil. Please go ahead.
Thank you, Amy, and hello everyone. At this time, all participants are in listen-only mode. After a brief remarks instructions will follow to participate in the question and answer session.
Our disclosure rules and cautionary notes on 4. We're looking statements are noted on slide 2.
During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations.
We must caution you that actual results could differ material materially from what is discussed described or implied in these statements?
Factors that could cause actual results to differ, to differ include, but are not limited to risk factors set forth in item 1A of our annual reports on form 10K or in our other filings made with the Securities and Exchange Commission.
The company undertakes. No obligation to update or revise, its forward-looking statements.
Today's presentation, includes certain non-gaap Financial measurements.
A Reconciliation of these measurements to corresponding Gap. Measures is provided in our earnings release and in the appendix of our investor presentation,
A replay of the conference call and transcript will be archived on the company's investor relations website, shortly following the conference call, the replay will be available until August 7th 2026.
Now, I would like to turn the call over to Frank b****.
Thanks B and Welcome to our second quarter 2025 earnings call.
Our Core Business results. In the second quarter were slightly below the expectations. We had due to weaker than expected, demand across most applications and unfavorable in that timing associated with falling feed stock prices.
The seasonally higher volumes that we normally see in the second quarter were dampened by trade uncertainty after the April tariff announcements in the US.
We experienced high order cancellations early in the quarter, which we believed was linked to increased geopolitical and trade uncertainty, but saw the magnitude of cancellations dropping significantly during the quarter,
And this environment, it's critical that we remain intensely focused on 2 things, controlling the things we can control, which are fixed costs, and working capital.
And cultivating. Our key growth in sustainability platforms.
And 2025 we expect to realize 105 million dollars of EBA benefits from self-help actions.
Specifically, we expect to see 35 million in fixed cost savings. From previously, announced restructuring initiatives,
30 million of mixed Improvement and Commercial initiatives and 40 million associated with our change in the polycarbonate business model.
On working capital. I'm very proud of the work. Our team has done over the past 3 years to drive structural Improvement through systems and process processes.
Over this period, we've reduced working capital by $560 million, with about half of that coming from a 17-day reduction in our cash conversion cycle.
Also made outstanding progress in our transformation strategy by driving growth in higher value applications containing recycled plastic through 7% in the first half of 2025 and commanding previous premium margins.
For binders case and battery. Binders were 2, bright spots. This quarter with year-over-year, volume growth of 3%. In 19% respectively. I'll elaborate more on on a relatively new battery binder technology later in the call.
I'm also pleased to report that we released our 15th annual sustainability and corporate social responsibility report.
We continue to make progress on our 2030 sustainability goals as we remain committed to our investments and advancing recycling, technology, and sustainable product offerings.
Before I turn the call over to Dave, I'd like to elaborate more on our new and unique battery binder platform.
Trinseo opened, its Global battery application lab in Shanghai in 2017 and started selling. Our first generation high-performance binders for lithium ion EV battery and energy storage solution, applications in 2020.
Our latex binders function in the lithium-ion battery to bind the anode active materials, which are predominantly graphite and silicon.
into current into the current collector, which is a copper foil,
the polymer needs to provide strength ionic conductivity and formulation compatibility while at the same time having the ability to withstand a harsh battery cell operational environment to ensure bad, long battery life,
To do this, it must resist mechanical thermal chemical and electrochemical stress.
Consequently despite the binder typically accounting for less than 2% of the total battery cost. It holds a critical a highly critical role in enabling both strong battery performance, and Battery Manufacturing,
This year, we're launching our fourth. Generation Volkswagen anode binder, which enables long-lasting fast charging and high energy density. Batteries this advancement as well as our Global footprint with plants. In each region are key advantages. We have to serve these applications,
Additionally, we have our first generation, water soluble binder prototypes available for testing and keep players.
After demonstrating strong performance in our own labs.
Our volume compounded annual growth rate over the past 5 years has been 63%. We expect this highly profitable platform to continue double-digit growth over the next 5 years. For these reasons, battery binders represent one of our top strategic growth platforms.
Now, I'd like to turn the call over to Dave.
Thanks Frank.
We ended the second quarter with 42 million dollars of adjusted Eva, which was below our guidance driven by a larger unfavorable impact from raw material timing.
The lack of seasonal, demand, pick up the Frank spoke about earlier and lower Equity, affiliate earnings at America's styrenics.
First half 2025 volumes were 13% below the prior year.
With the largest decrease is coming in latex, binders, paper and board applications.
Automotive applications in North America and Europe, and polystyrene where we've passed on on economic volumes.
Of the volume decline we've seen in the first half, about two-thirds is what we consider transactional volume.
Meaning, it's generally lower margin with spot based pricing and not formulated in nature.
At the segment, level engineer materials, adjusted Eva was 1 million below prior year, this slight lower volumes sold into automotive, and building and construction applications.
Lower volumes were offset by lower fixed cost and mix improvements from higher recycled content sales into consumer products applications.
Latex, binders, adjusted ibido is $0 below, prior year, mainly driven by lower volume in Europe and Asia, as well as significant pricing pressure across all regions.
Applications in China, where we've seen demand wheeking considerably since the Tariff announcements leading to Temporary Mill closures.
On a positive note, our higher margins targeted growth Platforms in case and battery, binders continue to outperform the market.
Lastly, polymer Solutions, adjusted Eva was 11 million below prior year, driven by lower volumes into building, and construction, and Automotive applications, and increased Asian Imports into the European market.
We are therefore pleased to see that the European commission, recognizes the ABS, dumping activity, from both, South Korea, and Taiwan in their previous closure, in July.
Second quarter free, cash flow was -3 million in line with guidance and we ended the second quarter with 399 million of total liquidity.
I'll turn the call back over to Frank.
Thanks, Steve. As previously mentioned, we expect full-year 2025 adjusted EVA of roughly $200 million. While the current demand level is disappointing, we believe there are five triggers for improvement in the demand environment.
First trait, certainty in any form.
Should improve consumer confidence and provide a landscape for new Investments.
Second, an enactment of the anticipated Federal Reserve interest rate cuts, which will lower our own interest expense, and improve consumer confidence.
Third, a resolution of the V various military conflicts. We see in Europe in the Middle East.
Forth. Our positive regulatory reforms in the chemical space in China, which could result in the closure of older non-competitive assets.
And reduce destructive industry pricing and lastly the stronger support for the EU chemical industry as outlined in the EU. Chemical industry action plan.
While each of these items are uncertain. We're encouraged by the dialogue related to each of these. That is being reported.
So now we're happy to take your questions.
Thank you.
The Line is now open for questions. If you have dialed in and would like to ask a question, please press star. Followed by the number 1 on your telephone keypad, to raise your hand and join the queue.
If you would like to withdraw your question again, simply press * and the number 1.
We do request for today's session that you please limit to 1 question and 1 follow-up again, please press star and the number 1 to join the queue we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of David Stasse with Deutsche Bank. Your line is now open.
Um, good morning. Uh Frank and Dave, you done a good job in Europe, closing some, uh, older non-economic capacity inspiring and polycarbonate can you talk to your M, MMA production Europe? And while you haven't taken similar action there uh given they're, they're all so challenged economics. Thank you.
Yeah, David thanks. Um
Look, we, we continually evaluate each of our assets. Um,
you know, we prioritized the uh,
You know, taking action where, you know, basic basically, on 3 Dimensions, you know, the speed of execution, the magnitude of the benefit and the and, and the cost to achieve. So we continue to look at various opportunities and you know, will evaluate that asset appropriately. And um, you know, if we make the decision or work with our works councils, uh, you know, we'll come to a decision that's appropriate.
Understood right now. I know it's early for next year but in terms of what's in your control for next year versus what's not can you help us Bridge? Some of the items that could help lead to maybe a higher? EBA outcome in 26. Thank you.
Yeah. So
Look, I I mean let me back up a little bit and give you some context for what we're currently seeing. As we started 2025, our expectation was for demand levels that were similar to 2024, which we believed was low by historical standards with some pent-up demand. However, the impact of trade uncertainty in particular, uh, has been an incremental headwind. So,
the resolution of any of the of trade uncertainty, you know, in whatever form that takes,
Back to a level that we expected and possibly greater. So, and remember, 10% volume increase for us, is about a hundred million dollars of ibida improvement. And, you know, uh, I'll go back to what I've said on previous calls. We Believe even last year that there's been pent-up demand in building and construction and Automotive both in Europe and North America, where we have a significant exposure. Um, you know, if we think about housing, I want I I believe the number of the top of my head is there 6 million unit shortfall versus household formation over the past decade.
And the automotive industry, the car parked right now is at historic age. So we think that that, you know, interest rates and tariffs certainty get us back to reasonable you know, prior at least prior year demand levels and sort of stimulate demand, you know, uh, recovery from the pent-up demand that's out there.
Thank you. Your next question comes from the line of Matthew. Blair with t tph. Your line is now open.
Uh great, thank you and good morning. Um, I was hoping you could talk a little bit more about the amsty business. Um we understand there were some polystyrene outages in Q2 how much of a headwind was that to last quarter and then um are there some repair costs in Q3 and and if so how much of a headwind will that be to the to the Q3 number?
So, there was a mechanical.
Outage in 1 of the uh, styrene Assets in amsty, last quarter, and it had approximately a 5 million dollar impact. And there will be increased repair costs in the coming quarter. That's reflected in the current forecast or current Outlook
Yeah, Matthew I think Frank's Great. Yeah. Is that a 5 million impact to to to us to add to the equity income? We recognize from Einstein, the second quarter? Um, I mean looking forward to the back half of the year, um,
Is there will be an impact and by the way, it was a styrene plant, it was not a 1, not polystyrene, um you know, there will be a similar impact. I would say to the third quarter so you know, I would expect
I was I would expect the progression of amp size earnings to us over the back half of the year, you know, Q3 to be a similar number to Q2 and then higher in the fourth quarter as uh, as we expect um you know, better operational. Reliability.
Sounds good. And then, um, regarding your 2025 full year guidance. Um, the implied figure for the back half of the year. Does that incorporate any um, any of the net timing headwinds in Q2, uh, being reversed?
No, it does not.
So look em Matthew. It's it's you know for us timing is is is fairly hard to predict. I mean it's it's really, you know, it's a function of what happens, you know, largely to stirring prices frankly over the over, the next 6 months.
So, it's hard. It's it's, it's hard to predict. Um, but standing here today, you know, the guidance. We've given assumes flat net timing for the back half of the year.
Thank you. Your next question comes from the line of Frank Mitch with fermium research. Your line is now open
Hey, good morning. Um Frank. I was uh, I was intrigued by your comments that the uh the pace of cancellations uh, due to the trade issues was slowing down, as you progress through the quarter.
Um, I was wondering if you collaborate that on that and um if if if that's the case, I mean, should we not start to see?
The uh the pace of business match underlying demands um here in the third quarter.
Um, I think what we saw. I guess what I what I read into what we saw happening in Q2 was
That the order book that we began the quarter with reflected, a normal seasonal, uptick in demand.
and that, because of the
You know, as a result of the trade announcements in early April,
it was read that uptick was taken off the table.
So, um, I think that's how I read what we saw occurred during the quarter.
in case that, uh, that that those pent-up orders flowing through in 3 Q,
I,
as I said, if we see trade certainty and these in the improvements in, you know, in interest rates, or any of the 5 factors that we mentioned, we believe that's a trigger for an improvement in demand and you know, and a recovery of that those lost orders. But again, I don't, it's impossible to predict sitting here today. It's impossible to predict the timing for that or the certain have any certainty for when that would occur. But yes, I believe that would be a trigger.
Okay to, to to terrific. Um, and, uh, yeah, and and um, interesting comments regarding, uh, Battery Technology, uh, uh, on the, on the latex finder side roughly. How much is, uh, is the battery of business, uh, of that segment today. And uh, I believe David. You also mentioned that there was significant pricing pressure in latex in uh in 2q, actually it was positive price and 1 key, but yeah, flip to negative price and 2 any uh, any elaboration or any color on. That would be helpful. Thank you.
Yeah. So
I'm going to give you a number by memory, uh, of the of our latex, binders case and battery represents approximately 20% of the volume of last year, volume and but a significantly higher share of our margin.
Um,
I believe that it because of the pressure that we've seen in paper and board this year. It's just it's a significantly higher portion this year, but I don't have an exact figure and we can we can get that to you. Um,
Your second question.
Yeah. Maybe could you repeat it Frank? Sorry.
Yeah, it was a significant pricing pressure uh, you know, prices in in latex were up in 1 queue and then obviously down in 6, uh, 6% in 2q. Uh David indicated, significant pricing pressures and I was just curious if you could elaborate on on where that's coming from. Yeah, so
well, what we saw, you know, you can imagine a lot of our
uh, latex goes into paperboard, Packaging.
And in particular in China with the you know the beginning of the of the Tariff announcements. You know you just look at the 35% reduction in container shipments out of China. Those are mostly packaged Goods, right? So there was a significant reduction in demand uh in China in paper and board in Q2 as a result of that and you know as as a consequent and mil closure. So as a consequence, a lot of the industry was scrambling to fill their to keep volumes and were a very aggressive with price and some of the some of that we declined to a lot of that is transactional and transitory and we chose not to uh
participate in some of that volume. And that's why we saw the volume loss decrease in the second quarter. But again, I we believe that's
Transactional and transitory uh, activity that we can get back.
Thank you.
All right, thank you. And the next question comes from the line of Assan Hamad with almen global your line is now open.
Morning, Frank and Dave.
Um, you know, wanted to revisit and I, you know, obviously understand that it's early days to give any 2026 guidance. But you know, as I take a look at what you guys are guiding to for 2025, I mean, it seems for the back off of the year which typically is a seasonally weaker sort of period. You know? You'd be at a quarterly run rate IA of around 50 million a quarter, right? So, you know, you sort of annualized that and again, obviously this is a seasonally weak period. So you're at least at 200 million in a sort of, well, below normal demand environment, right? Um, now, you know, let's assume demand doesn't really improve materially next year. But seasonality, maybe kicks in further, sort of, you know, benefits from your cost cutting drive and the like. So, what sort of like, the minimum sort of Benchmark to think about? I mean, would you guys do at least 250 million, you know, in that environment in ibadan 26?
And what would that mean? At least for free cash flow next year.
yeah, I look I think that um,
You know, this goes back to the same question, or that was I give the same answer I gave earlier. You know, that we believe that right now, we're seeing transitory headwinds that affect.
You know, uh, depressed demand in the business, and, and suppress it.
Significantly from the prior year, which was already low with pent-up demand, so res. I believe that we will see a resolution of one or more of the five items that I mentioned, and that will have a significant impact on, you know, our end demand in most of our end markets. So again, it will be very difficult.
You know, again, I, I believe that, uh, we have significant leverage to the upside with volume and that would come with some more certainty regarding trade, interest rates, and the various regulatory, uh, activities around the world.
Nissan, I'll I'll, I'll add a couple of points related more to the key, uh, free cash flow side. We, we have a slide in Our Deck,
On slide 14, where we outlined the cash flow components for 2025.
Um, you know, if I were to, if I were to, um, bridge these things to 2026.
Restructuring costs of 55 million, that will be a much lower number in 2026 uh, than 55 million this year. Um, the other is interest expense cash interest this year is 200 million. Um,
You know, clearly since the last call we had, I think there's been a bias. There's been a uh, a market consensus view that there will be um,
you know, given the employment statistics probably, um, more
Rapid, uh, succession of rate Cuts than we previously thought.
And 100 basis points of rate Cuts is worth 19 million dollars a year to us. So you know, I think I I think um it it's obviously to really to put it put numbers on 2026 but certainly I think the numbers that are on listed on this page,
Will be much lower than, uh, than than 365 million of of cash out flows next year.
That's, uh, definitely very helpful. Now, as a follow-up, I mean...
You know, obviously, um, all sort of fairly recent with regards to the whole sort of anti-dumping U.
Sort of measures in the EU as it relates to ABS, but how, how, how do you see this playing out? Um, how do you see, sort of China, you know, the Chinese sort of reacting to it, and how does it all sort of drill down back to you guys?
Yeah, I well look, there's a lot of uncertainty with regard to that, but I know that the EU commission, uh, outlined a chemical industry action plan.
That includes, you know, some protectionism and also an anti-dumping protection to ensure that there is Fair competition with Imports in Europe. Um,
so we're we're encouraged by that, you know, we're waiting to see how that takes place but um,
You know, and and at the same time, what you see happening in China is the regulatory discussions in China related to the the anti-invasion uh, policy there which would rationalize, you know, the non-competitive or older non-integrated Assets in China, you know. Again make us optimistic that that will be addressed.
um,
and I want to spend a second on this because, you know, there's some discussion about it. But 21, the statistics that I've seen is that 21% of the Chinese chemical industry capacity is older than 15 years old. Now those assets
uh,
You know, would be the ones that would be most likely subject to the anti-involution policies. And if that capacity comes up to the table, it would help the industry broadly, not only in China but in the rest of the world.
The other thing I do want to point out is that, you know, the while there's uncertainty with regard to the trade policies and the Tariff policies with the, you know that have been introduced in the US.
uh,
Produce locally.
And the and in particular, we are we understand that the uh, US government or, you know, the policy makers are focused on trans shipment of Chinese products into Mexico. Uh, that would be compounded and then brought into the us as usmca compliant. Now if if that is addressed, that's a significant upside for not only us but everybody in the industry in the chemical industry. So those are
um,
you know, I think there's a lot of it's too early to tell, but the discussions and the ideas that are being floated are very encouraging.
Frank, thank you so much.
Thank you.
Thank you. And your final question comes from the line of Lawrence Alexander with Jeffrey's your line is now open.
Uh, good morning, it's Dan Roan Florence. So I was just wondering with, with the guidance, you know, you give for for 2025 and and um, why now you know, you're finally giving you're giving
Yearly guidance but you're kind of not giving Q3 guidance. I mean is visibility improved or or just why the change in in policy from from last quarter.
I think it's
simply.
You know, it's been a very dynamic and volatile environment from a policy standpoint that has affected the industry. And, you know, at this point in time, we've seen uh.
what the impacts were in Q2 we had you know, I would say starting Q3 we see it in a similar uh
You know, a sort of a similar Market Dynamic that we had in Q2, so we believe absence certainty around any of those 5 things that we can anticipate a similar environment to Q2 for the remainder of the year. But clearly we expect that resolution of any of those 5 items will change that to the positive.
Like from a policy perspective, you're right. We gave quarterly guidance earlier in the year. Um you know because we had limited visibility. I don't think anything is really changed. Frankly on our visibility we still have the same same limited disability but we chose to give annual Guidance just because of where we are in the year. I mean we're you know kind of uh approaching 2/3 of the way through the year and we thought it was appropriate to give annual versus quarterly guidance. That that's really the only reason why
That thank you. That's helpful. And then just a little more granular with, um, with like corporate costs. I think, you know, it's been running roughly 20 to 25 million. A quarter, is that kind of how we should think about it over the long term given all the kind of the moves you made the cost you've taken out that that's seems to be a decent run rate, or will it be a little more uh, a little more volatile than that?
No, I think the current run rate is we're at our current run rate, reflects the actions that we've taken today and that would be, you know, that's appropriate to use in our forecast.
And and just 1 other just minor plan on that um due to the kind of the accounting treatment of of stock compensation, our q1 corporate costs.
are always going to be higher than the other three quarters of the year that you can talk to. Um,
Yeah, we've mentioned that in prior calls, but I just want to make sure you're aware of that. So, you know, kind of annualizing the first half of the year probably is not a good... Uh,
Not a good approach.
All right. Thank you very much.
Thank you. There are no further questions at this time.
This does conclude today's conference call, you may. Now disconnect
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