Q3 2025 Orion SA Earnings Call
Greetings and welcome to the Orion essay third quarter 2025 earnings call.
At this time, all participants are in a listen-only mode.
A question and answer session will follow the formal presentation.
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Please note that conference is being recorded.
I will now turn the conference over to your host Chris caps, vice president of investor relations. Please go ahead.
You'll be referencing this deck during the call. Before we begin, we are again. Obligated to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties as described in the companies filing with the Securities and Exchange Commission and our actual results May differ from those described, during the call, in addition, all forward-looking statements are made of as of today. November 5th, 2025 Orion is not obligated to update. Any forward-looking statements based on new circumstances or revised expectations. All non-gaap Financial measures discussed during this call are reconciled to the most directly comparable, gaap measures in the tables attached to our press release and the quarterly earnings deck. Any non-gaap Financial measures presented in these materials should not be considered as alternatives to financial measures required by gaap.
And with that, I will turn in the call to point painter.
Good morning. Thank you. Chris and thank you all for taking the time to join our conference call.
Before getting into the Q3 review. I'm excited to announce that we've hired a new CFO, a replacement for Jeff, who previously announced his intention to retire.
The formal announcement will be made shortly. We had a strong slate of candidates, both internal and external.
We chose a candidate with 30 plus years of Financial and business leadership experience, including the past 15 years in the chemical industry.
He will to start on December 1st. Jeff has agreed to stay with Orion through the end of the year and will be available for further transition. Support prove q1 2026.
In today's call, I'll touch on Q3 results at a very high level, not the performance we expected and certainly we possess much greater earnings power.
Still, there are some constructive points for investors to consider.
Then I want to discuss the business environment, including recent headwinds cutting to the chase. Our biggest challenge, has been soft demand in our key markets. Various specialty and markets are being impacted by global, industrial activity in malaise, as reflected in soft PMI readings,
In our normally resilient rubber segment and despite solid Tire sell through Tire production in our key markets is down.
When compared to what we would consider more normalized levels Tire production in the US is down about 29%, and the decline is 20% across Europe over the same time, period, but closer to 35% in Western Europe.
While there are reasons to believe demand will. Inflict positively we are in no way. Counting on improved conditions, we are taking action based on the current reality
accordingly. We're continuing to focus on self-help actions. The things we can control some significant that are intended to improve Orion. Structural costs and overall competitiveness, I'll discuss more on this shortly.
1 key goal of these efforts is to ensure the company is generating positive free. Cash flow should the headwinds persist
I'll then hand the call to Jeff who will review the third quarter Financial results in more detail and discuss our free cash flow with a price guidance, and some other items
Then I'll have some concluding remarks before, opening up the call to Q&A.
On slide 3. We broadly touch on the factors contributing to our Q3 performance.
Adjusted Eva dub of about 58 million with slightly better than what we had conveyed in our mid October pre-announcement but still well below expectations.
The largest factors were reduced rubber segment demand in key Western regions.
Soft premium, specialty markets, and fixed costs. Absorption variances across both segments resulting from inventory control efforts.
Because of lower oil prices. We also absorbed another inventory revaluation in the third quarter.
Notably our operating teams again delivered strong, plant, reliability throughout the third quarter. This is sustained improvement in our operating performance is beneficial on a number of fronts, which I'll touch upon in a moment.
In our rubber segment. Our customers have been feeling pressure from elevated, levels of imports.
Tire Imports coupled with Surplus Channel, inventories have affected their production rates and thus our carbon black demand
meanwhile, overall Industrials activity softness has weighed on our specialty business,
And particularly end markets that usually consume our highest margin of grades.
In terms of the specific impact of this on, Orion. Remember, we are a historically we've been over indexed both Western markets as well as to premium Tyre makers.
while beneficial in Prior Cycles, this is not been ideal during 2025,
But there are signs of change Tier 1, players are adjusting their strategies to adjust to defend share including more Innovation at the higher end.
Plant modernization efforts and more vigorously promoting their second tier brands.
The most recent 232 Proclamation is another positive.
Bigger picture, Western markets, have been structurally dependent on tired Imports for many years. If not decades,
but at like half the Tire sell through at most not the 70 plus percent from which Imports have recently been seen
as the channel rebalances towards historically, more, normalized, level of imports. We will be very well positioned to benefit from a reversion in demand for our carbon black.
In our specialty segment, we have disproportionately deployed resources to drive customer qualifications, with some of our newest and most differentiated conductive carbon products.
And these efforts are bearing fruit on this slide. We highlight a couple of qualifications. Now in place, the leading supply chain players in both the high voltage wire and cable market and the battery energy storage space.
Both applications are plays on the strong data center demand growth for power.
This conductive portfolio including our high Purity acetylene. Blacks is our fastest growing group of products, and their potential relevance in applications. Beyond traditional EV batteries is particularly incurred
On slide 4, we share some updated data related to the key tire and Market.
we surmise the monthly import data for July was not unnoticed, given the volatility this 1 data points spurred
Unfortunately, this is still the most recent us import data available because of the government shutdown.
Parson, this by category, 1 sees the largest contributor to the July increase, was substantially higher truck and bus Tire Imports, which surged over 50% year-over-year in the month of July,
We point this out because this import surge could reflect an effort by certain exporting countries to be impending tariffs.
Thailand for example is the largest exporter of truck and bus tires to the US that country's export data shows higher exports to the US declining in August the month when the country tariffs went into place for Thailand.
Meanwhile.
the US just invoked a new 25% section, 232 tariff on diesel truck parts that will unequivocally include truck and Foss tires as of November
As Section 232 proclamations are uncontested, they should prove durable and supersede any country's specific reciprocal tariffs.
In Europe, the tire industry continues to believe the eu's investigation into exports by China into that region. Will result in an initial finding of dumping in December with some retroactive implications.
Preliminary US, Canada and Mexico. Negotiations have begun around the usmca trade agreement which is poised for a reset effective, July 1 2026.
As a reminder, Canada and Mexico are both. Net exporters of tires and carbon black to the US and Orion does not have any production in either of these 2 countries.
Finally we continue to believe the millions of dollars of capital commitments for Major Tire Companies. Focus on adding net unit capacity and modernizing existing production facilities bodes. Well for North American fundamentals over the next few years. The implied production capacity growth of 3% through 2030 would be helpful but they're reassuring. Intentions are more talented. And obviously the normalization entire local production rates would be a more substantial driver of an earnings recovery for Alliance.
Second to enhance our competitiveness. We're implementing actions to further improve. Orion's overall, cost structure, last quarter. We announced 3 to 5 under performing production lines were being rationalized. Those actions will take place by the end of the year.
We are looking more creatively at further, optimization moves within our production Network.
Third, we've also re-examined, our non-plan headcount work processes engagement with outside contractors Consultants. The company's aggregate discretionary, spend, amongst other things and are in the process of further rationalizing costs across the board.
Savings from this competitiveness effort will start to build in the current quarter and achieve a run rate Savings in mid 2026.
We'll share more on the expected benefit when providing next year's guidance in February.
in parallel to this competitiveness issue, we're also taking actions that benefit cash flow now
A highlight for sure is the sustained improvement in our overall plant operating performance.
This helps on a number of fronts, in addition, to improved, on-time customer, service levels, better quality and reduced scrap. We're also able to comfortably run our business with lower inventory levels which in turn unlocks working capital.
You can see the progress here in the past 2 quarters, and we expect a strong, seasonal Q4 release, including, but not limited to receivables which should enable working capital to be a source of cash by approximately $50 million in 2025.
The improved operating performance center plan. Reflects our organization's focused efforts on this front but it's also a function of our having worked down a backlog of previously deferred maintenance projects.
With the improved operating performance. And with 3 to 5 P lines competing for maintenance Capital, we'll be able to further. Prioritize our maintenance spending and focus that spend on projects that ensure reliability at our most important production sites,
All this all feeds into our conviction around free cash flow generation to, despite the decline in Evita.
Jeff will touch upon cash flow in more detail after his Q3 review.
With that, I'll turn the call over to Jeff.
Thank you, Courtney.
On slide 6, we show the overall company performance, both year-over-year and sequentially in the table and compared with last year in the heater Bridge.
Revenue was down 3% compared with last year despite 5% higher volumes. This was mostly a function of the contractual pass through of lower lower oil prices, which have declined progressively throughout the year.
Gross profit was 20% lower compared with last year despite the higher volumes, the most meaningful volume. Gains occurred in our lowest margin markets. While volumes declined in our more profitable Western regions.
As a result of this Dynamic, the lower demand in key regions and Associated adverse fixed cost absorption. Were the biggest drivers of the profitability decline.
The fixed cost absorption, had an effect of improving our working capital and increasing our free cash flow by reducing inventories.
Also an inventory revaluation tied to lower oil prices, impacted gross profit, as did adverse pricing.
Finally, we had some favorable 1 offs last year. That did not repeat.
On slide 7, the rubber business. Kpis were directionally consistent with the overall company performance.
volumes were up 7% for Revenue was lowered, due to the oil related pass throughs
Gross profit declined compared with last year, primarily as a function of the adverse geographic mix that reduced fixed cost absorption in key Western regions.
Pricing and customer mix.
As well as the aforementioned inventory revaluation.
Higher volumes in the asia-pacific and South American regions were related to our improved operational performance and annual contract outcomes respectively.
But these gains contribute to minimally to even though because our high margin regions experienced lower volumes,
Compared with last year, costs increased due to inventory-related cost absorption.
Oil, price, driven inventory, revaluation and other timing effects.
Applications and products.
In the coding market. For example, a premium segment, demand was impacted by Soft OEM vehicle bills and particularly with dispersion houses that can serve as swing capacity for the major coding companies. When demand is stronger, stronger.
More generally, We Believe hesitant customer demand Behavior, including continued just in time. Order patterns reflect overall uncertainty.
The biggest cost factor is Specialties even, but the bridge was the adverse fixed cost absorption. Largely a function of our inventory control efforts.
On slide 9, we touch on a few other noteworthy items in the quarter.
We recorded an 81 million non-cash. Goodwill impairment charge.
Our book value, which includes Goodwill is comp compared to the implied value of those assets when considering our Enterprise Value.
On a positive note, we recovered 7.3 million of the 2024 fraud related losses, through legal actions and around 11 million dollars to date.
We continue to aggressively pursue recovery through a variety of legal means and insurance coverages.
Finally, we completed an amendment to our credit agreement during the quarter, which increased our RCF capacity back to its prior level expanded our bank group and gives us more overall flexibility in navigating the current business environment.
On slide 10, we depict our latest 2025 guidance including the ether range. Conveyed in mid October and the corresponding adjusted, EPS, expectations.
Reflecting our current Eva guidance along with better visibility on our progress with our working capital efforts. We expect positive full year, free cash flow in the 25-. 40 million range,
Flight 11 shows our historic Capital spending including spending expectations for 2025.
Notably we do not have a figure for 2026 on this slide as we anticipate updating investors on this spend. When providing a broader Outlook in February.
1 fluid aspect is our ability to flex maintenance Capital, given our improving plant reliability.
On slide 12. You can see that we have achieved positive. Year-to-date free cash flow and expect further working Capital Improvements in Q4.
As mentioned earlier, we expect full year, free cash flow of 25 to 40 million.
With that, I will hand the call back to Corning.
Thanks, Jeff. I just want to close by reiterating a few key takeaways.
while the case can be made that our business is at or close to trough conditions,
Or that a demand inflection should materialize. We are not depending on such a scenario. We are taking action. We have reduced working capital and expect a further progress in Q4 and into 26.
We're taking additional costs out and working to further optimize our assets. Our objective is to increase Orion's overall competitiveness and Agility.
This will serve Us in combating, the current headwinds and when demand conditions normalize will be positioned to achieve even greater operating Leverage.
We'll share more detail and a more detailed review on these initiatives in February. All these activities are a resolute focus on generating free cash flow. That is our highest priority.
And with that Carrie, let's open up the line for our Q&A discussion.
Thank you.
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And our first question will come from Josh Spectre with UBS.
Good morning. It's uh, Chris Pella on for Josh.
Um,
So, our expectations, uh, for Q4, like the decline, if I'm comparing it to Prior years, that that's pretty much all volume largely in in that area. So, we're expecting people to take longer seasonal, shutdowns, that kind of thing, and be managing down their own inventory in Q4. That's the signal. We have there. I think for next year's volumes in terms of manufacturing, as I indicated, there's a case to be made that an inflection is upon us. But we're not counting on that. And I would say in terms of negotiations there, as we said and predicted last quarter, we didn't see settling quickly in our interests, they continue to drag on and I would say, all in all the negotiations are behind schedule, compared to a more typical year. So I think in terms of exactly what's going to be out there for next year, in terms of volume, we're really going to have to wait until we conclude the negotiations.
No, thank you. I appreciate that. And can you just, uh, what's the impact? Um, of Laporte on, uh,
volumes and earnings in 2026.
I mean volume wise I it's not a high volume plant to begin with and I think overall with the startup costs and all that, I would expect it to be negative in 2026.
Thank you, appreciate it.
And our next question.
John 10, when
Hi, good morning, thank you for taking my questions. Um, my first 1 just you know assuming that import tire pressure is sustained through 26, for at 25 levels. What is the potential you know, for, you know, earnings Improvement in 26? Nrcb. Just between with all the the movements you're making and costs, you know, your customers moving to more value. Um, positioning just help us understand what's possible. The volumes are flat and um, I, you know, if you have any commentary on pricing spreads, that would be helpful.
Yeah. So I think the the big question in 2024 is or I'm sorry. 2026 is going to be the outcome of the negotiations, both the volume, a particular company wins and you know the margins that come with that. Um I think that's sort of like the big unknown. We will be working hard on some of the efficiency projects that I mentioned, but I think a big impact for next year is going to be the outcome of the negotiations and it's it's obviously commercially sensitive and and we are like in the middle of it right now.
Okay, great, thank you. And then, do you have any expectations for Specialties next year? Whether it's Market improvements, mix improvements. Um, just help us understand what your thoughts are, um, on the specialist side.
Alright. Well, we'll do our, you know. Look, we'll give our official guidance for next year in February. I think, what will be guiding our views on that are? Of course, what we hear directly from customers. Um, I think you can get a sense of that, by looking, how General manufacturing's going. Uh, where PMI goes, I would also say, uh, OEM builds, right? That's an important market for that space. So those will be, I think things you could look at that, would give you a sense of of how we see that business development.
okay, thanks for
And again, that is star 1. If you'd like to ask a question, moving on to Lawrence Alexander with Jeffries,
Hey, good morning. This is uh Kevin s.com for Lawrence. Thank you for taking my question. Um just uh curious if you could give your thoughts around maybe what an industrial, you know, rebound would look like I guess let's say in 2026 and 20 or 2027 and I guess just curious. What what what you think it takes to get us there? Thanks sure. I mean I I think a and Industrial recovery would say taking us back to things that looked more like free Co and I would think in that kind of environment.
we'd find that we're
Specialty area, uh, a pickup in construction, a pickup in automotive. Those are things that would be uh very helpful and constructive in that area. Basically the industrial economy getting back to a more normalized level.
Understood. Okay, thank you very much.
Securities.
Uh, thanks and John Roberts for John Roberts again. Um, good morning.
Morning. Um,
I think the tire importers into the West are receiving government support or maybe lower raw materials I don't know Russian rubber or Russian oil for carbon black. That allows them to continue to import into the US in spite of the tariffs
Well, I think if you look at it um the 2322 tariffs, let's say of 25%.
To be clear, that's not going to be enough to totally price out. Imported tires.
The US and Europe. Cannot possibly make all the tires they need right before, all this happened. It was about 50% of the tires, were imported to the US very similar into Europe.
So we're we're never talking about it has to get to a point where they're pushed out what I think it has to get to the point where customers are more returning to their normalized brands. So uh 1 magazine recently published that just in October of this year, tier 2 tires, have the greatest demand that's more like normal conditions. The last, uh, or so far this year. It had been tier 3 tires that have the highest demand of of the 4 tier tiers that they track. So there's a little bit there of customer sentiment, moving back to a different value. Proposition in the tires, they buy.
Uh and then number 2 like the health and the tariffs is enough to like close the gap. So the gap between the tier 2 and the tier 3 and and most Tier 1 companies have a tier 2 brand, um, that that closes up to where people who choose that value proposition. It's it's again it's like there's no effort here, there's no dreaming of pricing them all out that's impossible but as a matter of just can you close the gap enough? That consumers will shift back and I think that's a concrete sign that yeah this is all possible. This is all doable and you know I think things tend to revert to their norm and and perhaps this is the beginning of it but we're not going to count on that.
John. I think you also depending on the results of the anti-dumping. Uh uh situation in in Europe, you may also see an impact from that and that might give you some insight into either, um, the profitability that they're dealing with in the short term, or even their willingness to to, uh, operate at a very low or negative return.
Is it fair to say? It sounds like the recovery is more dependent on the lower end consumer improving.
Um, that it is on the tariffs.
Health, but it sounds like we need higher tire prices.
Well I I would think it's 2 things I the point I would like to make it's not just relying on government action, right? There's an element for industry and there's some certainly Plus in the trade policy to overcome some of the perhaps unfair disadvantages that are there that that you mentioned earlier. I think the 2 of those together are important.
But I I would like to stress I think uh industry and our customers. There's a role there for self-help, they can continue to innovate in their top brands. Make them more attractive, continue to approach their their to promote their second, tier Brands, perhaps shift some production from 1 to the other. These are all things within their control and, you know, that you see some signs of them taking action in that direction.
Some more than others.
Thank you.
and we'll take a follow-up question from Josh Spectre with UBS
Hi guys. It's uh Chris again uh on on for Josh. Um from as I think about next year, what are some of the recurring costs in 2025 that won't uh won't be there in 2026?
The uh cost absorption related to uh to pulling that inventory, off the balance sheet and running it through the penal. I think that's the biggest thing. Um, you know, going the other way is obviously we've taken some cost out this year. Many of them are permanent, but there's a variable component that's not permanent. So that would have to add back in. But as recording mentioned earlier, we have some pretty aggressive cost actions that we are going at, uh, currently and going into early 2026 that will, uh, will help us uh, reduce our cost next year and become more competitive.
All right. No. Appreciate the caller. On the follow-up. Thank you.
Thank you. This now, concludes our question and answer session. I would like to turn the floor back over to Corning painter for closing comments.
Well, I'd like to thank you all for your time and attention today, and to thank everyone for their questions. They were insightful and useful and I think added value for all our investors.
So thank you very much for that and we look forward to be uh speaking with investors uh during the balance of this quarter. Thank you all have a good rest of your day.
And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference, you may disconnect your lines and have a wonderful day.