Company News
August 15, 2024
Urethane Highlights from Huntsman Investors Call
Huntsman Corporation (HUN) Q2 2024 Earnings Call Transcript
Aug. 06, 2024 1:28 PM ETHuntsman Corporation (HUN) Stock
Q2: 2024-08-05 Earnings Summary
EPS of $0.14 misses by $0.00 | Revenue of $1.57B (-1.38% Y/Y) misses by $36.92M
Huntsman Corporation (NYSE:HUN) Q2 2024 Earnings Conference Call August 6, 2024 10:00 AM ET
Company Participants
Ivan Marcuse – Vice President-Investor Relations and Corporate Development
Peter Huntsman – Chairman, Chief Executive Officer and President
Phil Lister – Executive Vice President and Chief Financial Officer
Peter Huntsman
Ivan, thank you very much and thank you all for joining us this morning. I find myself in a rather precarious place this morning as I usually prepare some opening comments the afternoon before these calls. Within the last 24 hours, swords have been rattling in the Middle East, triggering massive potential for raw material volatility. Over the past few hours of trading, trillions of dollars, yen, Euros and RMB have been wiped out, and consumer confidence has been reforecasted more times in the polling data for the upcoming presidential election. All of that being said after five quarters in the chemical industry of massive inventory adjustments, plummeting margins and a tidal wave of Asian-based oversupply. These most recent events seem quite calm.
Our cost initiatives that have been ongoing for the past three years are paying off as we’ve stayed ahead of inflation. Our focus on cash generation delivered over $50 million of cash flow from our operations in the second quarter. As we outlined plans in the previous earnings call, our volumes year-over-year and quarter-over-quarter were up across the entire business by 9% and 8%, respectively. This volume improvement took place as we were able to increase margins and earn what we projected from our previous calls. While I continue to be concerned with Europe’s highly successful policy of deindustrialization and excess chemical capacity flowing out of Asia, the single largest catalyst for margin improvement for Huntsman would be a resurgence of commercial and residential construction demand.
This will not fully happen until this interest rates drop below the current levels. I believe that events in the past few weeks have increased the likelihood and timing of a rate decrease. Presently, third quarter order patterns seem flattish to the second quarter. We remain cautious regarding the second half of the year. The present time it is simply too early to have a clear picture of the fourth quarter. That being said, inventory in the supply chain remains low. Our construction, aerospace, infrastructure, power and elastomers businesses continue to improve. We will stay focused on cost, and cash management is our priority.
Michael Sison
Hi, good morning. Nice quarter there, Peter. In terms of MDI industry operating rates, I think last quarter you noted that we were at the cusp potentially of getting better pricing. I think you said operating rates are in the mid-80s. Any thoughts of where we’re at now in July and how that – how you think that’s going to shape up as we head into the rest of the second half?
Peter Huntsman
Yes, it’s somewhat of a squishy number because there is not a lot of reliable data that’s transmitted in real-time. I would say that we probably have seen a few percentage points drop in Europe, probably a few percentage points tightening in Asia and the Americas basically, I’d say, stayed flat since the second quarter. I’d say that in the second quarter we probably – we’re in – first going into the second quarter, we’re probably in the mid-80s, maybe on the weak mid-80s. And I think now we’re probably still in that mid-80s, but perhaps a few points stronger. Overall, I think trending in the right direction, but moving along ever so slowly.
Michael Sison
Got it. And you did mention if there is an improvement in construction demand longer term, it’s the big – the most important earnings driver for Huntsman. Any thoughts where you think you’ve had a lot of cost savings where you think polyurethanes EBITDA can get back to in the event that hopefully demand resurges over time?
Peter Huntsman
Well, I certainly see given that if we get back into kind of that normalized construction, that we’re looking at the mid to upper mid-teens sort of margins with polyurethanes across the board. That will require, I think, three basic things to take place I believe that China will have to see a little bit stronger growth than we’ve seen in the last year or two. We’ll have to see Europe at least start to get some traction and in a low sort of percentage growth rate in an industrial basis, kind of remember that they need to be moving from a tourist economy back to some element of an industrial economy. And then the U.S., which I feel is in a recovery phase right now. We need to see that housing come back. Those three basic things take place. I think you see urethanes back into that mid-teens plus sort of margin basis.
eff Zekauskas
Thanks very much. Your volumes were up 8% or 9%. Your inventories were down about 10%. Why is that?
Peter Huntsman
I think that we’ve tried to manage cash as carefully as we can. We did have a plan as we announced three and six months ago to try to recover some of our volumes that we have lost. I don’t think through error, but we certainly lost some volumes a year ago trying to hold on to pricing and demonstrate pricing discipline. We did give up some of the larger, particularly around insulation, composite wood, some of the more polymeric commodity side. So we also saw a lot of deinventorying that took place in elastomers, industrial applications and so forth. So we’ve gotten some of that volume back. We’ve seen some regrowth taking place in some of those applications and we have seen a lot of the deinventorying taking place. So I think it’s just a capital discipline around supply and demand and production.
Phil Lister
And Jeff, just on the numbers, our volume in inventory is down 4% overall. You’re correct. If you calculate that on a DIO basis, we’re down about 10%. And as Peter says, that’s just a real focus on our inventory levels that we have right now.
Patrick Cunningham
Hi, good morning. So the polyurethanes guide is calling for flattish EBITDA quarter-on-quarter despite maybe $15 million to $20 million in discrete headwinds and relatively stable volumes. How should we think about variable margin improvement throughout the quarter? And if there are any particular regions you want to call out that might be stronger than others.
Peter Huntsman
I think it’s largely going to be flat. I mean, there will be some give and takes we experienced an outage in our Rotterdam facility in which we’re just now starting to restart the facility and coming back online. We’ve got to rebuild some inventory there. We’ll see a little bit of headwinds on the Chinese joint venture that we have around propylene oxide and we hope to see some volume growth and pricing momentum that continues into the third quarter. And I think some of that’s going to be offsetting each other a little bit of seasonality that will – that will mostly be taking place in Performance Products in the third quarter. So yes, I think a lot of give and takes, as I said in my prepared remarks, it’s probably going to be pretty flattish.
Phil Lister
One item to consider, Patrick, on the bridge for polyurethanes from Q2 to Q3. We will aim to have an inventory build towards the back end of quarter three. We’ve got a turnaround in the fourth quarter that will necessitate some inventory build, which will give us a one-time benefit on EBITDA, which will reverse out. And that’s probably between $5 million and $10 million, which will reverse out in the fourth quarter.
Patrick Cunningham
Understood. Very helpful. And then with price mix down 10% year-on-year for advanced materials, were there any areas of structural pricing pressure or was this mostly mixed impacts? And if you have any detail on how we should think about it for the balance of the year, that would be helpful.
Peter Huntsman
I think that virtually all of that is mix. Demand trends continue to be very strong in advanced materials, very solid, and we’re seeing the gradual recovery of aerospace, I do mean gradual – they are continuing to be playing with some supply issues in aerospace. But by and large, it’s been a very consistent and very reliable end of the business.
Vincent Andrews
Thank you and good morning. Peter, in your prepared remarks, you made a comment that lower interest rates, you’re not so sure would actually improve your operating environment in Europe. I was wondering if you could just color that in a little bit.
Peter Huntsman
No. I – okay, well, maybe I meant that came out a little bit backwards. I think the lower interest rates are going to particularly impact North American construction, housing, commercial construction and so forth. I do think that lower interest rates will impact Europe. I just don’t believe that it will be nearly as material to the bottom line. We certainly welcome that in Europe, but I don’t think it’s going to be nearly as material as it will be in the United States.
Vincent Andrews
And is that just a function for you of your exposure being larger to building and construction in the U.S. versus Europe? Or is there something else that’s causing that space?
Peter Huntsman
Yes. Yes. And I think as we look at and we track multifamily, single-family construction and so forth and we look at the housing inventory of how many homes are in the market, how many homes are available, let’s go through the typical housing data. The U.S. when it rebounds, I believe it’s not going to be a very gradual rebound. It could be a very sudden and strong rebound. Again, depending on – two things on rate cuts and overall consumer optimism.
Phil Lister
For North America, construction is about a 60% exposure, U.S. about 50%, but it’s very different, as Peter says. In Europe, in general, it’s aligned with commercial construction, whereas in North America, it’s relatively balanced, but with a greater proportion of sales into residential.
Frank Mitsch
Hi, good morning. Peter, one of the priorities in 2024 was to get the volumes up and clearly, that’s been a success. But price mix in the second quarter faced a very easy comp and obviously came in on the negative side of the ledger. 3Q faces another easy year-over-year comp. How should we think about the progression of price mix in 3Q and beyond? And what will it take to get it back to neutral if not positive.
Peter Huntsman
Well, it’s going to take a combination of capacity utilization, overall demand and mix of the products we’re selling, the combination of those three. And as sort of a cataclysmic economic event, I remain bullish that we’re going to continue to see a gradual improvement that’s taking place in the business over the course of the next couple of quarters.
Phil Lister
I think price mix was mostly built in, Frank. If you look at the sequential quarter one to quarter two in general, that was relatively neutral.
Frank Mitsch
That’s right. Yes. I did pick that up. And then North America polyurethane volumes up nicely in 1Q, up nicely again here in 2Q over 20% in both of those quarters, does that continue in 3Q that level of improvement in polyurethanes North America?
Peter Huntsman
Most likely, yes. Again, kind of basing that what you said earlier, we’re starting it on a very low basis as to where we were a year ago. But no, I think that we will continue to defend our market share and we’ll continue to win back business.
Salvator Tiano
Yes, thank you very much. First, I wanted to release a little bit of polyurethanes guidance because actually, I would think when you’re taking into account the force majeure or the PO/MTBE turnaround, it looks like actually like-for-like, it would have – you’re pointing to much higher earnings in Q3 than Q2. And I’m wondering what is driving that? Is it essentially the U.S. margin expansion because of the Freeport outage and then I guess the big price increase we saw in May and June? And also, how sustainable is this margin expansion as Freeport comes back online?
Peter Huntsman
Yes, Sal. So you’re correct in that we’ve got the Rotterdam force majeure or we’ve got PO/MTBE turnaround. I think we said earlier as well we’ve got a one-time benefit from what is an intended inventory build towards the end of September, ahead of a turnaround in October.
Any benefits that we’re getting tend to be in PU Americas when you compare quarter two to quarter three, driven by a little bit of volume. But as you indicate, we’ve also got some pricing traction in the United States with our price increase, which should improve unit variable margins as we go through the quarter.
So it’s really North America plus those other pluses and minuses that we go earlier to bridge the quarter two to quarter three.
Josh Spector
Yes, hi. Good morning. I wanted to ask around your early thoughts here around 4Q and not necessarily pinning to a specific number, but just thinking about seasonality. We talked about some of the moving parts in polyurethanes, and you’re seeing some pricing. Would you expect seasonality to be normal in fourth quarter? Should that be our base case, or are there things that you would call out to say why it would be abnormal, maybe closer to stable versus what you typically expect? Thanks.
Phil Lister
Yes, great question. My guess is probably as good as any, Josh. I would suspect this year that seasonality ought to be pretty normal compared to the last couple of years, with the exception of last year. And I base that solely on demand has been fairly steady, hasn’t been growing a great deal. It’s been fairly steady. There is not a lot of inventory just anecdotally that I’m seeing in the supply chain. That’s not to say that they are not pockets here and there, and so forth. But typically, at the end of the year, if you’re sitting on a lot of the inventory customers and in certain geographic areas of the company will take that opportunity to deplete inventories and improve their working capital at the end of the fourth quarter – and seasonally – that coupled with seasonality. So, from a seasonal point of view, probably a 100% chance of certainty that Christmas and New Years will come about, there will be a slowdown.
As far as will there be a massive drawdown of inventory, and so forth, that doesn’t feel like there is a lot of inventory in the system right now. I think my biggest concern right now would be between now and the end of the year where you’ve got kind of a couple of these big macro issues, either geopolitical issues in the Middle East, U.S. elections, and so forth, consumer confidence, volatility in the stock market, consumer confidence somehow tanks in the fourth quarter, that could have a reverberating impact on overall demand. And I think that, in my mind, is probably the biggest uncertainty that’s out there right now.
But aside from that, I don’t see at this point, I don’t see a lot of areas of uncertainty and supply that’s sloshing around.
Aleksey Yefremov
Thanks. Good morning everyone. Peter, I was hoping you could update us on your spray foam story. How is your business doing this year? And if that business overall is gaining share from other forms of insulation.
Peter Huntsman
Well, I think when I look at the comparison to spray foam versus other products. I look at it first on a very macro basis, and I look at some of the earnings of our peers, and so forth, it feels like it’s a pretty sluggish area of demand right now. And we’re optimistic about some of the government initiatives and standards and so forth that are being set that will be coming in through 2025. As those standards, tax issues, building codes, and so forth, really hit the bottom line, I am quite optimistic about what I see in the pipeline. Presently, the higher crude prices, which is kind of where your polyurethane foam is based versus your natural mineral fibers, which are largely based on energy and natural gas prices it’s a competitive market out there right now.
Aleksey Yefremov
Thanks, Peter. And you reminded us of your commercial versus residential real estate exposure in the U.S. in prepared remarks. I was hoping to ask you if you see any signs of slowdown in commercial real estate? And also tell us what is the breakdown between maintenance and new within commercial?
Peter Huntsman
Yes. As we look at commercial in North America, just looking at the revenues, it’s really about on the commercial side, which makes up about 40% of our overall business, 45% of our overall North American polyurethanes business. Of that, it will be split about one third retrofit, two thirds new. Again, that’s commercial. When I look at residential, that’s making up of our polyurethanes business in North America on a revenue basis. That’s making up about 55%. And of that, that’s going to be about – of that number – it will be about three quarters that will be new and one quarter, that will be retrofit.
Hassan Ahmed
Good morning, Phil and Peter. Peter, a question, just wanted to revisit volumes in the Polyurethane segment. obviously, on a percentage basis, strong growth over there, particularly in North America. I’m just trying to get a better sense of despite – you mentioned that, obviously, we are coming off of a low base. How far away are we – be it by region, be it globally from reaching more normalized levels of volumes.
Peter Huntsman
I think that is a good question. I think that you’ve got to see that normalization again, we need to see a recovery in the construction, residential construction markets. And I believe that as we see that gradual improvement take place that’s certainly something that we would hope would have returned in 2025 as we kind of get through the rest of this year.
August 12, 2024
Epoxy Highlights from Olin Call
Olin Corporation (OLN) Q2 2024 Earnings Call Transcript
Jul. 26, 2024 2:37 PM ETOlin Corporation (OLN) Stock
Q2: 2024-07-25 Earnings Summary
EPS of $0.66 misses by $0.03 | Revenue of $1.64B (-3.45% Y/Y) misses by $59.22M
Olin Corporation [OLN] Q2 2024 Earnings Conference Call July 26, 2024 9:00 AM ET
Company Participants
Ken Lane – CEO
Todd Slater – CFO
Steve Keenan – Director, IR
Ken Lane
Thank you, Steve, and good morning, everyone. I want start by saying how grateful we are that despite a direct hit on our Freeport, Texas facility by Hurricane Beryl, all our team members are safe. I’m very proud of how everyone responded. We saw the best come out, with colleagues supporting one another, not only on site during and following the storm, but with each other’s homes as well. Many team members experienced significant damage to their homes, and I want to personally thank all of those who stepped up to help during the recovery. While we did experience damage to some of our assets, Olin’s preparations limited the impact of the storm and kept our team members and neighbors safe.
Turning to our second quarter results, overall, the quarter unfolded as expected, with our chemical businesses improving modestly with seasonal demand gains and generally improved pricing. Winchester also delivered on its second quarter objectives as higher propellant costs were partially offset by improved pricing, continued strength in military, and a strong performance by White Flyer. Looking ahead to the second half, we now have greater clarity around the macroeconomic outlook, customer demand, and global supply. The industrial economic trough we find ourselves in looks to be longer-lived than typical. We expect Hurricane Beryl to represent a setback for our chemicals businesses of approximately $100 million during the third quarter. Based on our current outlook and including the effect of the hurricane, we have lowered our full-year 2024 adjusted EBITDA outlook. Olin remains in great shape with our investment-grade balance sheet, strong liquidity, and leading market positions. We will continue to be disciplined with our capital allocation strategy as we were during the quarter. Also, we remain focused on executing our value-first commercial strategy and continuing to anticipate a bright future as economic activity improves and Olin acts as a coiled spring to serve that recovering demand.
Turning to Slide 4, I’ll highlight our efforts in the second half to maximize cash flow. Our teams will continue to focus on cash generation by reducing capital expenditures in spite of hurricane Beryl requirements, maintaining cost discipline, and reducing working capital through the second half of 2024. We’ve done a lot of restructuring around our chlor alkali and epoxy assets, and expect to continue to realize benefits in the second half. We will continue to stay focused on cost, discipline, and explore additional cost-saving opportunities.
For a look at our epoxy business, let’s turn to Slide 6. Epoxy results continued to improve in the second quarter on lower cost and higher pricing. Third quarter epoxy results will be challenged by both the impact of Hurricane Beryl and our planned start at Germany epoxy resin turnaround. Our US epoxy anti-dumping case continues to progress on schedule, with an expectation for provisional duties to be set later this year. We are encouraged that the European Union recently launched a parallel investigation as we pull all available leavers to level the global playing field and combat the government-subsidized dumping of Florida epoxy. During the second quarter, we’ve seen several US and EU importers accelerate their epoxy import volumes. This raises the potential for retroactive duties to be applied, and we would expect our coalition of US producers to request this additional remedy. Olin has been clear with regulators in both the US and Europe that success on each front will be essential to keeping production of these critical materials in region.
JeffZekauskas
Okay. And in terms of your reassessment of demand for the second half, are there particular industry areas that have slowed relative to your expectations?
Ken Lane
Hey, Jeff, I’ll take that, and this is Ken. So, back in the first half of the year, even in the first quarter, there was a lot of expectation that we were going to start to see the economy improve in the second half of the year. I think that was a consensus pretty much across industries. And we were seeing some inquiries coming in around volume in the second half for our businesses, but as we got closer to that, they just didn’t develop because the economy, frankly, is still struggling to really start to grow again. I wouldn’t say that there’s any significant difference in any one particular industry. There were a couple that we thought there would be some more improvement than what we’ve seen maybe in the TiO2 space, maybe in polyurethanes. Both of those have continued to be stable but have not really shown any growth. So, in Q2, the volume uptick that we saw was more of a normal seasonal uplift. There was really no underlying growth that we saw in the market, which you would expect to see if you were going to see growth in the second half of the year.
Ken Lane
Yes, thanks for the question, Hassan. What I would say is we certainly are in the trough, and if you look at the last 12 months, that would I think certainly represent a trough level of earnings. And what I will say is, I think the expectations are that even if you look at the epoxy business, that is in a very unusual position relative to historic performance. So, that’s not a typical trough level. It’s really driven by the overinvestment that we’ve seen in China with the new capacity, and we know the impacts that that’s having on both Europe and to the US markets, which is why we’ve got the anti-dumping cases out there. So, that’s a bit of an unusual case, but I do think that the trough level of earnings is going to be somewhere around this level. I don’t expect that that it’s going to continue at this level significantly longer. As I said in my prepared comments, this is a very long trough that we’ve been in, and as soon as we start to see the green shoots, not just in the US markets, but also in the China market, we really need to see China start to recover and get the demand in the economy going there. Europe is probably closer to seeing some improvement, but it’s still very, very early, I would say, even in Europe.
Steve Byrne
And then just a quick question on these anti-dumping initiatives in the US and Europe with respect to epoxy, does that require some level of government support in order for those initiatives to get some traction? And what is it that you view as enabling those four countries to undercut you on price on epoxy? It would seem to be propylene and energy-related, but what’s your outlook for that?
Ken Lane
Well, again, our outlook is that we favor fair and free trade. That’s what we want to have. And what we have seen is over the last few years, there have been subsidized assets that are brought online that has created tremendous imbalances, and people are operating in a way that they’re dumping materials into these markets and threatening local production. So, as I said in the prepared remarks, if we don’t see some intervention with import duties to get some protection to the domestic producers, they are very much at risk. And I think these are materials that we want to continue to produce both in Europe and in the United States market. So, we’ll see how this all plays out. We expect to see some announcements around that later this year, and we hope that it’s favorable for the local producers.
Matthew Blair
Good morning. Thanks for taking my question. I’m glad everyone is safe after the hurricane. For that 100 million impact, is there a breakout between the CAPB and epoxy segments? And then I just want to confirm, but it sounds like the $940 million full-year guide actually does include an assumption of better cost of pricing in Q4.
Ken Lane
Yes, thanks for your question, Matthew. The split, if you think about the assets that we’ve talked about, it’s going to be around 70/30 roughly. Don’t make that too precise, but that’s kind of the range you can think about, 70 for chlor alkali, 30 for epoxy. I would use that as a rough estimate. And when we think about the back half of the year, yes, we see that there’s pricing momentum. So, in our outlook, we’ve included some improvement in the caustic market.
Arun Viswanathan
Okay. And well, maybe I can ask the question a little differently then. So, if you do have a resumption in normal operations, given some of the capacity that you’ve taken out, is that – would that be a limitation on your earlier comments maybe a little while ago that peak EBITDA is kind of in the $3 billion range? Maybe, is that now kind of two and a half or well below that? And then along those lines, do you see any kind of structural impairment to any of these markets? I know epoxy has gone through pretty significant pullback, especially in China, in demand. It’s unlikely that China will return to their prior growth rates. So, I don’t know if they’ve taken enough action to right-size their own epoxy market either. So, it seems like that business does have some structural limitations that weren’t there in the past. And then on chlor alkali, again, you’ve shut down some capacity. So, just wanted to understand if there’s been any change in kind of the earnings power of the businesses.
Ken Lane
Yes, well, listen, I said in the prepared comments as well that we’ve positioned ourselves very well with a set of assets that are going to be competitive in the long term. They’re very well positioned on the cost curve. We’re continuously looking at optimizing our asset portfolio, especially around chlor alkali, but our focus is going to be on operating those assets. As we see demand coming back, we will adjust our position in the market to be the ones that are capturing that growth. I mean, that’s really the way we’ve positioned ourselves. So, if you think about the capacity we took offline, it doesn’t take away the optionality for us to be that coiled spring as we’ve called it, to be able to respond when we see the growth coming back. With respect to epoxy, yes, structurally there are more challenges in that market. And that’s why, again, we’ve been so vocal about the anti-dumping cases that we have filed. We think that it’s very important that there is some support that comes into those markets. But ultimately, there probably does need to be some restructuring in the China market. There’s probably going to need to be some capacity that comes offline because to your point, it’s going to be a very long time before they’re able to grow into that capacity. And when you’ve seen these sorts of troughs in the past, that’s what’s happened. You’ve seen capacity come off in conjunction with growth in the market, and both of those things will typically correct themselves over time, but it’s going to be years, if not months before we see that happen.
August 12, 2024
FM in Europe
Huntsman Declares Force Majeure on MDI From Netherlands Site — OPIS
Published: Aug. 6, 2024 at 12:51 p.m. ET
U.S. chemical manufacturer Huntsman declared force majeure Monday on its methylene diphenyl diisocyanate (MDI) supply from its Rozenburg plant, in the Netherlands, a company spokesperson told OPIS Tuesday.
“Huntsman declared force majeure, effective Monday, Aug. 5 , for the supply of MDI and MDI-based products manufactured at the facility,” the spokesperson confirmed to OPIS.
The producer was operating the MDI unit at reduced rates, “due to unforeseen circumstances…resulting from the declaration of force majeure by several of our Rotterdam cluster partners,” Huntsman said.
It is not yet clear how long the force majeure will remain in place.
The company operates two MDI units at the site near Rotterdam, which have a total capacity of 470,000 metric tons/year, according to data from Chemical Market Analytics, by OPIS, a Dow Jones company.
“We continue to work diligently to minimize the impact of this event, and we will restore normal operations as quickly and as safely as possible once our partners’ issues have been resolved,” the producer said.
The two MDI production units are a key part of Huntsman’s global chemical production network, used to manufacture various polyurethane products.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
August 1, 2024
Urethane Highlights from BASF Investors Call
BASF SE (BASFY) Q2 2024 Earnings Call Transcript
Jul. 26, 2024 3:52 PM ETBASF SE (BASFY) Stock, BFFAF Stock
BASF SE (OTCQX:BASFY) Q2 2024 Results Conference Call July 26, 2024 2:30 AM ET
Company Participants
Stefanie Wettberg – Senior Vice President of Investor Relations
Markus Kamieth – CEO & Chairman of the Board of Executive Directors
Dirk Elvermann – Member of the Board of Executive Directors, CFO & Chief Digital Officer
Markus Kamieth
Yes. Thanks, Stefie. Good morning, ladies and gentlemen. Dirk and I welcome you to our analyst conference call. And it’s my first one since taking over as the Chairman at the end of April. And I’m really looking forward to many more of those calls and our discussions about BASF.
And you might have seen that something’s changed, some things stay the same. The music, at least, we have not changed while you were in the waiting line.
We will provide you with details on our business development in the second quarter, and we will highlight some notable aspects today.
Let’s start with an overview slide. Overall, the development of EBITDA before special items in Q2 was in line with our expectations and the analyst consensus. We saw a continuation of the dynamics of the first quarter marked by positive volume momentum across most of our businesses.
At BASF Group level, volumes, excluding precious and base metals, increased by 2.4% compared with Q2 2023. Sales declined by 7% to €16.1 billion, mainly due to lower prices. However, price pressure has eased.
We achieved an EBITDA before special items of €2 billion, which is at prior year quarter level.
Overall, stronger earnings in our Chemical businesses were offset by considerably lower earnings in the Agricultural Solutions segment due to a difficult market environment.
Here is a snapshot of how the markets and our segment volumes and specific margins developed in the second quarter. In a slightly improving market environment for base chemicals, we were able to realize strong volume growth in both divisions in the Chemicals segment. EBITDA before special items increased considerably despite slightly lower segment margins due to a margin decline in the Intermediates division.
In the Petrochemicals division, margins improved due to temporary supply constraints at competitors.
The Materials segment benefited from slightly higher volumes, particularly in Performance Materials in an overall improving market. A considerable increase in margins was largely driven by a few product lines in the Monomers division, especially in the ammonia value chain.
Industrial Solutions operated in an overall stable market environment. Nonetheless, both divisions achieved considerable volume growth and margin expansion. In particular, our Dispersions & Resins division contributed to the strong performance of the segment.
The global automotive production was basically flat in the second quarter. In this environment, volumes in our Surface Technologies segment had a considerable negative impact on EBITDA before special items. In particular, Environmental Catalyst and Metal Solutions recorded lower volumes. Overall, margins improved mainly due to a continued strong performance of our Coatings division.
The market environment for Nutrition & Care further improved in the quarter. The considerable increase in EBITDA before special items compared with the prior year quarter was supported by higher volumes in both divisions as well as margin expansion. In particular, in our personal care specialties and vitamins businesses.
The crop protection market is characterized by continued destocking and faced adverse weather conditions that negatively affected business development in our Agricultural Solutions segment. The segment’s EBITDA before special items was negatively impacted by considerably lower volumes and margins.
The factors I have just described led to the following developments in EBITDA before special items compared with the prior year quarter. Despite the considerably lower earnings in Agricultural Solutions segment, EBITDA before special items of BASF Group was at the prior year quarter level. While the Materials and the Surface Technologies segments recorded slightly lower earnings, we were able to increase EBITDA before special items considerably in the Industrial Solutions, Chemicals and Nutrition & Care segments as well as in Other.
Christian Kepler
All right, good. To Markus, well done for your first official analyst call. Two questions, please. First of all, what is your current order book visibility in your more traditional Chemical activities? Would it be fair to assume 4 to 6 weeks? And what kind of demand trends do you see at present in automotive, construction and electronics out of this order book? And then I’ll come back with the second question.
Markus Kamieth
Yes. Thanks, Christian. Analyst call is not over yet, so let’s wait, I would guess. So overall, I think the current order book visibility is tough to always put one number in there. But it hasn’t changed dramatically. It has been shorter than historically visible already for quite some time, and I would say 4 to 6 weeks is probably a good guess. Some businesses are a little bit longer, of course, some businesses less. But overall, across our Chemicals business, that’s a pretty good assumption.
I comment a little bit on trends that we see. Currently, I mean, heading into the third quarter, I already said in my speech that the current momentum that we see — that we saw in the second quarter already shapes up to be valid for the third quarter as well. So in most industries, rather sideways movement on demand and that also relates to the segments that you have pointed out.
Automotive has been, for the first half of the year, flat compared to prior year. And we expect the second half to be even a bit more under pressure, so maybe even a slightly lower number compared to last year’s number if you look at the global picture. And this comes with a bit of a conservative look also on the inventory developments in the automotive history, which are increasing, especially in Asia. So a bit of a cautious approach there. Overall, we expect build numbers, automotive, to be in line with last year, roughly around 89 million cars.
Construction overall, also, I would say, unspectacular development right now. A little bit positive developments in the more commercial construction segment, and infrastructure is also doing okay in all regions. But the residential construction market is depressed, especially in Europe and in North America. And here, the high interest rate environment and the inflationary environment certainly are not going away so quickly.
And then electronics, I have to say also, here, this is one of the few exceptions where we see continued good growth, especially in the more — in the semiconductor/chips segment. When you go into the consumer electronics segment, I would say also here, rather a sideways movement because also here we see consumer spending and consumer confidence in most areas not really growing strongly.
Peter Clark
Nice to hear you, Markus. I’ve got one clarification and two questions. The first clarification, in September, we’re going to hear from the divisions as well as the update on Ludwigshafen.
And then the questions you announced the ring-fencing in December. So we’re almost 9 months on from the ring-fencing of the Verbund by the — versus the pure-play business. Just wondering how that’s progressing and we’re still looking at 2026.
And then on the fixed cost performance. Obviously, in the first quarter, I was certainly encouraged that fixed costs pretty much went down in every segment. A couple of segments saw them up. I know the one-off effect is preparing for a shutdown, et cetera. But just getting on top of that fixed cost, again, as we go forward from here and making sure all the divisions or segments start to see them come down.
Markus Kamieth
I’ll try to take the first two questions, but I didn’t quite get the second one, so you might have to help me with that, Peter. So yes, to clarify on the Capital Markets Day, we are going to give you, let’s say, in the keynote strategy update so where the Board sees the priorities for BASF Group going forward, what’s our strategic pathway. We’re going to go into the divisional details — into the segments. And we’re also going to give an update on what we call target picture Ludwigshafen, so basically where we will — how and where we will develop the site towards short term and long term.
The question on the capital market reference to last December, I didn’t quite get that question acoustically. Could you repeat that, please, Peter?
Peter Clark
Yes, the ring-fencing was announced in December last year, obviously, with the target date of ring-fencing Verbund operations from Ag, Coatings, et cetera, by ’26. Just wondering how that’s progressing because we’re 9 months in from that announcement.
Markus Kamieth
Okay. I didn’t quite get that word ring-fencing. That’s a word I would not have used. But anyway, I get your question. Yes, we are well underway with our structural measures. As we have announced, we are in the course of putting our non-Verbund businesses into a more independent structure with regards to legal entities, but also on — in the process environment, IT, for example, putting them on separate SAP instances and so forth. And these projects are all progressing well and in line with our original plan. So no further updates or news there.
Georgina Fraser
I’ve got two questions. The first one is, would you agree that given the weak local demand and a lot of extra capacity that China has been responsible for a lot of the pricing pressure that you’ve seen in the first half of the year and that we might be starting to see a stronger antidumping duty response from other producing regions that are feeling pressure from China. Does your expectation of improving pricing power factor in a tighter global tariff regime? And just any comments that you could give on the impact of possible tariffs for BASF.
And then my second question is a bit more philosophical, and it’s following up on the question that Peter asked about the Verbund. What do you think is the reason that we haven’t seen more recent players in the chemical market, thinking particularly in China and Asia, adopt the same Verbund business model and the reason that some players in regions like the U.S. have been exiting this business model in recent years? Would love to hear your thoughts on that.
Markus Kamieth
Yes, Georgina, thanks for your questions. First of all, I would say that the situation in China certainly has an impact on the overall pricing situation in the world. That is — there’s no question on that because China is by far the largest chemical market in most of the chemical categories that we are looking at here. As you know, we talk always about the overall chemical market, China represents 50%.
And of course, it requires tremendous capacity buildups to continue to support the growth of maybe in the past 5%, 6%, 7% per year in this industry. Now China over the last 3 years has grown lower than expected in GDP, in industrial activity. And that also meant that overcapacity is also in the chemical markets have built up. And these products are looking for a home. And of course, that sets price pressure. There’s export pressure also in all regions impacting pricing.
However, given the size of the Chinese industry, that also can change very quickly because when China’s industrial activity also goes up, domestic manufacturing again strengthens. With currently in 2024 is happening, then this capacity will also be quickly absorbed.
But I would say, overall, you see in especially export markets for China that are easy to reach, Southeast Asia, South Asia, Latin America, where you see particularly strong price pressure coming from the Chinese volume. So I think this is fair.
I cannot talk so specifically to your question on antidumping duty response, it’s a bit hypothetical. I think overall, I have not seen a wave of antidumping tariffs now being applied for, being implemented overall. This is not something that drives our thinking. And that’s certainly also not something we see as a general theme in the industry. There’s always specific cases that you look at where we are also, of course, protecting our interest in the one or the other case. But it’s spotty, it’s not a general broad theme, I think, in the chemical industry.
Your question on the Verbund business model, it’s very difficult to answer, I have to say. Because this word Verbund means a lot and it means a lot of things. And I think our specific setup that we have at our Verbund sites works very well for us. It’s a particular strength for us. And we also build our future view of BASF very much on this strength that we have in the Verbund — at our Verbund sites because it will give us a lot of opportunities, especially in the new regime where the green transformation of the chemical industry will happen over the next 10, 20 years. And this is where Verbund sites, so integrated setups, will play out their particular strength.
So we very much are convinced that for a large part of our portfolio, Verbund or a more specific integrated production setups really make a lot of sense and also in the future will rather gain in competitiveness than the opposite.
So I cannot comment now specifically on why other people chose other different setups, but we feel very comfortable with what we are doing. And as you know, our new site in South China is a very integrated site. And also here, we expect, especially with regards to lowering the carbon footprint, introducing circularity that the Verbund setup will definitely be a strong asset for BASF also in the future.
August 1, 2024
Urethane Highlights from Covestro Investors Call
Covestro AG (CVVTF) Q2 2024 Earnings Call Transcript
Jul. 30, 2024 11:49 AM ETCovestro AG (CVVTF) Stock, COVTY Stock
Covestro AG (OTCPK:CVVTF) Q2 2024 Earnings Conference Call July 30, 2024 10:00 AM ET
Company Participants
Ronald Koehler – Head, Investor Relations
Markus Steilemann – Chief Executive Officer
Christian Baier – Chief Financial Officer
Carsten Intveen – Director, Investor Relations
Markus Steilemann
Thank you, Ronald and hello and a warm welcome to our second quarter call. The highlights of the second quarter were continued strong volume increase of 9.3% year-on-year. With this, we are fully on track to our target of a high single-digit percentage volume increase in the full year 2024.
However, lower prices are still affecting sales, which came in at €3.7 billion. We achieved an EBITDA of €320 million, landing on midpoint of our guidance range. Free operating cash flow was minus €147 million, in line with our expectations. And we are narrowing our EBITDA guidance to €1 billion to €1.4 billion.
Let me take the opportunity and give you a brief update on ADNOC. As we stated on June 24th, we believe that ADNOC and Covestro can generally reach a common understanding regarding core aspects of a possible transaction. Therefore, we have decided to open our books for a confirmatory due diligence and to start concrete negotiations regarding a potential transaction, including the potential conclusion of an investment agreement. This phase is ongoing in a constructive manner.
We pursued the negotiations in accordance with our fiduciary duties in good faith, open-minded and in the interest of our shareholders, our company, our employees, and all other stakeholders. This said, we ask for your understanding that we will not make any further statements at this stage and do not intend to comment further on this issue unless legally required.
Let’s turn pages to Page number 3. Turning back to the business and the volume development in the second quarter of 2024, year-on-year, the global sales volume continued to increase by 9.3%. This is driven by an improving demand, but also by fixing our reliability issues in Europe.
Going through the different industries, construction showed the highest growth rates with a low-teens percentage increase. Furniture and electro follow with a high single-digit increase. Auto exhibited flattish development.
Looking into the different regions, EMLA continued to benefit significantly from the resolved internal availability issues. Drilling it down into the different industries, we see a mixed picture. Construction and furniture are exhibiting strong growth, mostly associated with better availability of our core products, MDI and TDI. Electro and auto, however, are showing a strong decline.
Overall, sales volumes in North America increased slightly, driven by strong growth in furniture and a slight increase in the construction industry. Electro developed rather flattish, while auto shows significant decline.
Asia-Pacific continues with positive growth across all industries that Covestro is focused on. Furniture, auto, and construction exhibited significant growth, while electro showed a slight increase.
With this summary of the demand development, I’m now handing over to Christian, who will guide you through the financials.
Christian Baier
Thank you, Markus, and a warm welcome also from my side. We are on Page 4 of the presentation. Sales for Q2 2024 are stable at €3.7 billion. The strong increase in volume was offset by negative pricing and FX.
Prices declined by 9.7%, counterbalancing the volume increase of 9.3%. The negative FX effect of minus 0.4% was neglectable, and mainly driven by the weaker Chinese renminbi.
With that, let’s turn to the next page where we are showing the Q2 2024 EBITDA, bridge. Year-on-year, we have a decrease in EBITDA of 17% to €320 million. This is at the midpoint of our Q2 guidance range of €270 million to €370 million.
Selling prices declined stronger than raw material costs due to the ongoing unfavorable industry supply-demand ratio. As a consequence, EBITDA was impacted with minus €186 million from a negative pricing delta.
The volume increase only partially compensated the negative pricing delta. And the volume leverage was clearly below the long-term average, due to the historically low margins. FX And other items also contributed to the negative development to a minor extent.
Just to provide full transparency on the EBITDA, bridge. Other items were impacted by €23 million of restructuring costs in the S&S segment as part of the transformation program, STRONG.
Markus Steilemann
Yeah. Thanks, Christian. And let’s turn to page number 10. And also let’s turn now the focus to the future. On June 25th, we launched our new transformation program, STRONG. With STRONG, we are shaping the sustained competitiveness of Covestro with effective structures and efficient processes and supported by a broad AI implementation. After ramp-up phase, beginning 2028, STRONG targets to generate annual savings of €400 million. This is slightly below 10% of our global fixed cost base.
In order to make this happen, we are expecting cumulated €300 million restructuring cost. Our updated 2024 EBITDA guidance assumes a mid-double-digit million euro positive impact from STRONG as savings will be partly counterbalanced by restructuring costs. What are we doing content-wise with STRONG? We have an underlying set of measures that leads to these savings, one-time costs and potential impairments.
For example, we are streamlining our structures and asset footprint, and we are pushing forward our near and offshoring activities. We also skipped already our 2024 non-tariff selling increases. Further content, we will share with you based on the implementation of further steps and after having informed the respective employees.
On the next page, we are now coming to the outlook for Covestro for 2024. We are narrowing our EBITDA guidance for full year 2024. We’re now expecting the EBITDA for full year 2024 to come out between €1 billion and €1.4 billion.
The mark-to-market EBITDA is calculated at around €1.2 billion based on June 2024 margins flat forward and our current budget assumptions for 2024. The updated guidance now assumes only limited changes in our product margins per ton. A more pronounced rebound from the historical low levels is getting rather unlikely in the second half of 2024.
As there has been no significant change in the global demand picture and the industry outlook, we are skipping the comprehensive discussion and the slide here. Let me just highlight the overall trend. The market outlook on global GDP is now around 2.6%, and the outlook for our core industries is mostly unchanged versus the Q1 call.
Sebastian Bray
Hello. Good afternoon, and thank you for taking my questions. I have two, please. The first is related to the operations in Germany, and I think you touched on it already in response to Christian’s question. But has there been — how close to net income breakeven are the operations in Germany currently? And has there been a sequential improvement? Or is it roughly stable between Q1 and Q2?
My second question is on trading by geography. Could you give us a feel for how China is developing and if you expect any bigger recovery moving into 2025? And likewise, any comments on Europe and the US to welcome? Thank you.
Christian Baier
Yes, very happy, Sebastian, to take the first one, and then Markus will go on the second one. With respect to operations in Germany, between the quarters, it’s broadly the same development that we see here. Operationally, we are reasonably close without any special items, if you will, to the zero line, if you take into account the German tax group, it obviously also includes relevant parts of administrative functions, which are then trending in that context. So operationally stable, reasonably close to the zero line from the bottom and then further burden, if you will, from an administrative perspective, which is then driving also the tax losses that we do have sitting in Germany that can be used indefinitely. Markus, please?
Markus Steilemann
Yes. Thanks, Sebastian, also warm welcome from my side. Well, Asia Pacific and that is mainly China continues with positive growth actually across all industries that we are serving, particularly strong has been auto as well as electro. And currently, let’s say, we see this trend ongoing for us also in the third quarter.
For Europe, the picture is different. We have seen also here a good second quarter. But if you now look at the base in Q3 2023, that base was already increasing because we started to fix the reliability issues exactly from the third quarter 2023 onwards, gradually continuing into the fourth then. And that means that also the base for comparison is therefore increasing. That would then lead to lower, let’s say, comparable year-over-year growth rates, which doesn’t indicate a weakness in the market just a different comparison basis, to be clear. And for the US, we see and expect that the third quarter should be relatively stable and steady with regard to the growth rates. Helpful?
Jaideep Pandya
Thanks a lot. The first question is on the different products in the portfolio of Performance Materials. Could you give us some color where are we with regards to margin development for MDI, TDI, PC and polyols? Like what do you see sort of in the market?
And sort of a related question, I think your utilization has now jumped to around mid-80s. So maybe you have another 5%, 7% go, but spreads are really not piping in the market. So I mean when — could you give us a reference point to last time when utilization was 85%, what was the sort of mark-to-market you were looking at back in the day? Because I’m just trying to understand what is the leverage Covestro has internally versus, let’s say, improvement in external factors to get out of this €1.2 billion, €1.3 billion EBITDA ZIP code.
And then, sorry, my last question, and apologies, I’ll stick to the party line, but I just want to understand from the ADNOC situation, is there any sort of scope for the deal to break because, obviously, you have made considerable progress in terms of even reporting or communication, and I understand there is a three-months window. But is there any reason why we should be worried? Or is that completely off the table now and it is really merely a question of price and a timing point of view? Thanks a lot.
Markus Steilemann
Yes, Jaideep, also welcome from my side. So on the different commodities in our portfolio, let’s start with MDI, we perceive the current situation compared to the previous situation that we have talked about to be at a stable margin situation; TDI as well as polyols going slightly down from our expectation and also what we currently see in the first couple of weeks in Q3. And the polycarbonate business is also stable. But more importantly, in this context is getting by the day, basically, the respective downstream business because we’re selling the minority of polycarbonates in the, let’s say, commodity area. This has now only be about one-fifth of the entire polycarbonate we’re selling externally, whereas four-fifth is in the more stable downstream business. And that EP part of our Solutions & Specialties has shown to be, from my perspective at least, very resilient in the overall context. So shall I continue then with the second part or — yes.
Jaideep Pandya
Yes, please.
Markus Steilemann
Okay. So I can also dwell further, let’s say, on MDI. But with regard, let’s talk about Adnoc. So from my perspective, the situation and also the information we can provide has been provided. It has been, from my perspective, as you said, a significant step forward on 24th of June, where we opened the books, where we entered into clear and official negotiations. And I can only reiterate what I have said today numerous times. I think in this phase, the ongoing process is how shall I put it, going well, yes, to be very clear.
And I know that Christian and I have used numerous ways to say today. But from that perspective, I would take it, as we have said it in numerous ways today, not as a, let’s say, indication that something is going right or something is going wrong, but rather as the best thing that we can say in terms of how we currently perceive the situation, yes? Because anything would say in terms of well likelihood has increased, likelihoods decreased, would maybe not express where we currently are. I can only say that everything that I have experienced so far personally is that the phase in which we are currently in is going on constructively. And yes, I could say it in different ways, but that’s really what it is.
You could now start to speculate and say, well, could this be faster? Could that slower? Is there anything that we should worry about? But I think given the very confidential environment in which we have worked so far has served us well, even though I can also fully understand that, at times, you, for sure, have more desire to get even closer to the matter and maybe your desire is there to earlier get more information than we’re currently providing it. But rest assured, we are continuing to negotiating in good faith, open-minded and in full alignment with our fiduciary duties. And secondly, I also would like to reiterate once again that we need to balance, on the one hand, hand, time and, on the other quality of the outcome. And really we balance this each and every day to the best extent possible also in your interest.
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