Company News
May 5, 2024
Urethane Highlights from Huntsman Investors Call
Huntsman Corporation (HUN) Q1 2024 Earnings Call Transcript
May 03, 2024 2:50 PM ETHuntsman Corporation (HUN) Stock
Q1: 2024-05-02 Earnings Summary
EPS of -$0.06 beats by $0.00 | Revenue of $1.47B (-8.47% Y/Y) misses by $1.15M
Huntsman Corporation (NYSE:HUN) Q1 2024 Earnings Conference Call May 3, 2024 9:00 AM ET
Company Participants
Ivan Marcuse – VP, IR & Corporate Development
Peter Huntsman – Chairman, CEO & President
Phil Lister – EVP & CFO
Peter Huntsman
Ivan, thank you very much, and thank you all for taking the time to join us this morning.
Reviewing the results of the first quarter, a few things of note are emerging. I said in our fourth quarter conference call on the 22 of February that our number one priority this year was to recover lost volumes. During the first quarter, we were able to make some modest gains and we’ll be doing more throughout 2024. The gains that we saw in volume were attributed to a combination of new business, demand growth and pockets of inventory restocking. We question how much of this was the end of inventory destocking and the beginning of inventory rebuilding versus demand growth. While it will vary customer by customer, I believe it to be about 50-50. I should also say that eventually the two conditions merge into one gray area; demand improvement begets inventory restocking.
However, the bigger issue is when do markets recover sufficient to achieve pricing recovery? Today’s levels of profitability, particularly in Europe, are below reinvestment levels, in some cases, are still below positive cash generation. While I’m happy to see 25% growth in our North American MDI demand in Q1, we should remember that this is compared to Q1 of 2023, where demand had dropped 35% from 2022. All this noise means that we are moving back to where we were nearly a year ago. To have a real return to normalized market conditions, we’re going to need consistent demand improvement and equally important, higher prices to expand margins.
During the last call, we also outlined the need to improve our cash flow. While we’re seeing improvements in this area as well, we may face headwinds in working capital later in the year as sales volumes and prices move up.
Our third priority in 2024 is our continued focus on our costs in the face of global inflationary and regulatory pressures. We continue on track to meet all the objectives we announced to offset projected 3% to 4% global inflation.
Our fourth priority is to continuously assess our portfolio, make sure we’re maximizing the value of the assets we own and how we deploy capital for growth.
Finally, we continue to focus on our environmental and safety performance. This is our license to operate and regardless of business conditions, we will not compromise on the safety of our operations. This focus on risk also applies to our balance sheet. We will not jeopardize our investment-grade rating for short-term gains.
All in all, I’m not surprised by the results and conditions that we are seeing. Our quick action on cost, capacity rationalization and discipline with pricing will serve us well as the industry continues to recover. Our objective is to take quick and decisive actions, advantage of these improving conditions and get us back to normalized earnings as quickly as possible.
Patrick Cunningham
Hi. Good morning. Thanks for taking my questions. Some of your comments in the prepared remarks reflect a slightly more positive view on China, and I think sentiment there is pretty mixed at this point. Can you highlight where you’re seeing some strength, what end markets and what you expect to be growth drivers throughout the year?
Peter Huntsman
Yeah. We continue to see a lot of demand growth in auto. I think that much of that has to do with the fast-growing domestic markets in China, particularly around EVs. As we think about EVs, we essentially supply everything that goes into an ICE vehicle goes into an EV vehicle in our polyurethanes division, which is our largest division with automobile applications. But we also have a number of applications that we’re developing right now that are in the pipeline, some of them that are merging into EVs that are coming from the other divisions as well, around structure, strength, light-weighting, adhesion, insulation, and so forth.
So, Chinese automotive continues to be what I think is one of the stronger areas of growth in China. How long that continues? I think it’s probably going to continue for some time in China. I think there’s a broader question as to how long and how well that goes with the Chinese export markets, how successful China be exporting those EVs into the US, which has been extremely limited, obviously, and obviously going into Europe, which is — there’s a lot of talk about putting limitations on Chinese vehicles being built in China, yet you see a number of Chinese auto companies that have joint ventured with European auto companies. So, it’s going to be — that’s going to be a much grayer area.
But certainly that, and of course, anything that has to deal with energy conservation in China, insulation, building materials, where there’s energy conservation, central heating, piping, insulation, and so forth, infrastructure projects continue to do quite well. Obviously, if it’s related to residential construction, it’s pretty sluggish in China. But by and large, as we said probably three quarters ago, we expect China to have a slow but steady recovery both in volume and in pricing, and I think that’s what we’re seeing.
Frank Mitsch
Hi, good morning. Obviously, very impressive volume growth in North America in polyurethanes, as you mentioned. But you said you were only getting back really where you were for ’23. How do you think about the pace of business in polyurethanes, not just in North America, but as we play out through the year?
Peter Huntsman
I’m feeling better and better about it, Frank. Again, I don’t think that we’re going to see a compounded 25% growth, obviously, throughout the year. I think a lot of what we saw in the first quarter was the cessation of inventory drawdowns and so forth. And what we’re seeing right now is going to just be a slow and steady recovery as we kind of get back in-housing. I think inventory levels, I can’t say this unequivocally with all applications, but by and large, inventory levels feel like they’re pretty thin in most applications in MDI. And I think as we look throughout the next couple of quarters, we’re expecting to see — continue to see a recovering and modest growth in that area, particularly around construction.
Frank Mitsch
Okay, so slow and steady is the — is kind of the volume forecast. So then on the margin side, you did highlight some modest price increases in — on MDI in a couple of regions, but we have stubborn benzene right now. How do we think about the margin profile for polyurethanes?
Peter Huntsman
I think that our improvements, Frank, over the next quarter or two, again early in the quarter, so I’m very good at projecting market conditions for anywhere from 20 to 24 hours. But I think over the improvements that I would be expecting in the next quarter or so, you’re probably going to be looking at two-thirds to three-quarters, that’s going to be around volume, and the rest of that around price. And I don’t have to be pessimistic about price.
Right now, you’re right. We do have some headwinds in benzene prices. We’re looking at crude prices today pushing $80 to $90, depending on WTI versus Brent. And that’s going to filter down into the gasoline pool. Typically this time of year, in the springtime, you’re starting your blending season and so forth, you’re going to see benzene prices will have a little bit of pressure on the upward side. So, we’re going to have to recover those higher raw material prices, and we need to get above and beyond those. So, that’s — in my opinion, that’s going to be the number one challenge that we’ve got as a company is to get these prices up.
David Begleiter
Thank you. Good morning. Peter, looking at longer-term EBITDA, what will it take and how long will it take to get back to that $1 billion threshold you exceeded in the past?
Peter Huntsman
Well, I think that it’s going to take two or three things. Very good question, something that we ask ourselves all the time. If we’re merely waiting for market conditions to recover, that’s not the answer that we ought to be. It’s not the objective we ought to be looking for. So, we do need to see demand in US housing come back to where it was around that million sort of a threshold in housing starts and so forth. And as we look around that, where we’ve been over the last couple of years and really looking more for stability there is the volatility, I think, that probably concerns us more than anything else in North America.
[Technical Difficulty] get an economy that’s kind of growing once again. China, I think China has a nice recovery, a slow and steady recovery. I think people are kind of expecting some major stimulus or something to come through. It’s also going to put it through the roof. I mean, I’d love to see it, but I just don’t expect it. I think you’re just going to see a gradual recovery taking place in China.
But a lot of it also has to be — do with what we are doing ourselves. As I look at our MDI splitter in Geismar, Louisiana, that we started up just as COVID was coming on full force. There’s another $40 million, $45 million of additional EBITDA that we ought to be getting out of that splitter. Once we’re able to sell that out, we’ve got a number of expansions that are coming on in the coming months and quarters around amines expansion, urethane catalyst expansions, e-grader, which is our ultra-pure amines. They’re going to be — going to chip cleaning, chip solvent. These are projects that are going to be $10 million to $20 million, $25 million of benefit to the company once these lines are up and moving and we’re able to sell them out.
We still have another $30 million-plus of EBITDA in the aerospace segment as we come back, as we see the full recovery. I mean, we’re still not at the same wide body demand as we were pre-COVID. I look at our Miralon technology. We’re in the process right now starting up a 30-ton reactor that will be selling product in the commercial arena for the first time at these sort of values and volumes that we’ve ever had. And we’re starting the construction of a 5,000-ton unit that will be coming on in the early part — latter part of ’25, early part of ’26.
If I look at the R&D pipeline, I look at the cost reductions of $280 million, I know I sound like there’s a lot of issues, but when you add all these up, David, you kind of get the idea that there’s another $150 million to $200 million of additional EBITDA that we really control, that we ought to be aggressively moving forward with. And so I feel that we do need markets to recover, but we’ve also got to be able to successfully execute on all the projects that we’ve started and will be coming up this year.
David Begleiter
Very, very helpful. And just much nearer term, back half of the year, polyurethanes EBITDA, should that improve versus Q2 levels based on current expectations?
Peter Huntsman
Yes, I would certainly hope so. I’ve challenged the team as we saw from our earnings from where we were in the fourth quarter to the first quarter of this year. We’re up 300%. If Tony can do that every quarter, 300% improvement for the rest of the year, we’ll be — I’ll be quite pleased with them.
Vincent Andrews
Thank you. Peter, just curious, as you talk to your customers in building and construction in United States, we’re ultimately going to get some rate cuts. It obviously seems like more a question of when. How fast do they seem to indicate they think markets will start to move once we move into a less restrictive monetary policy?
Peter Huntsman
I think there’s quite a bit of bullishness right now in the building in trades. I think there’s kind of two paths that are being pursued right now, that of what happens if rates kind of stay where they are. Obviously that means that you’re going to be getting less house for the same amount of money. So, maybe houses are a little bit smaller, maybe they’re a little bit cheaper to build, and the cost of that house is going to be down. And as we look across the board, though, we continue to see very low housing inventory of new homes, new home availability. And so, I think builders are doing really two things. They’re preparing and looking at a scenario where interest rates stay where they are and let’s adapt and equip to that. And also, should rates be coming down, I think that’s really going to open up the demand to be quite a bit higher than it’s been the last couple of years. The point is there’s a big gap there that needs to be filled.
Vincent Andrews
Okay, yeah. And then just we have seen housing starts improve over the last six, nine months kind of been a little lumpier recently, but are you starting to see the benefit of that flowing through in your businesses? Or is it just beginning and then maybe we’ll see it more over the next quarter or two?
Peter Huntsman
I think we’re seeing the beginnings of — well, I don’t think we are seeing the beginnings of that, I think right now, the biggest benefit that we saw in the first quarter was the lack of de-inventorying. And I get a sense that, that has really ended across the board in many of the products, but particularly in the construction and housing market. And as we look at the hopeful expansion of demand and housing starts over the next couple of quarters, I’m hopeful that will certainly be additive to what we’ve been able to accomplish thus far.
Aleksey Yefremov
Thanks. Good morning, everyone. Pretty impressive volumes in polyurethanes in North America and Europe. Can you just tell us where are your volumes today in these two regions versus what you would consider a normal volume level?
Peter Huntsman
Well, I think, again, I’m very happy to see the volumes growing where they are, but they are where we were basically a year ago. And so, we really need to — we needed to see continued growth and continued movement on pricing. Again, I don’t expect volume improvements to be a 25% sort of improvement, but certainly the housing and the construction markets are one that we’re starting to feel is loosening up, and we ought to see some improvements there. Now, if mortgage rates go down, I think that’s going to have a near instantaneous impact on the business, and I think that would be the single biggest variable in our North American markets.
Phil Lister
And Aleksey, I mean, you can do the math, 35% down year-on-year, this time last year, as we said, and then 25% up. So, we’re still about 10%, 15% below where we were. And so, we still need to see that trend continue to get back to where we started.
Aleksey Yefremov
Okay, thanks for that. And then I wanted to ask you about your spray foam business. How is it doing in Q1 and heading into Q2?
Peter Huntsman
Well, spray foam continues to be a competitive market. The single biggest application for spray foam is our new housing builds. And as we look at that, that for us continues to be an area that’s a competitive market. If you look at the mineral fiber with a low cost of energy and so forth, yeah, we’re going head to head. But we still grew our volumes there versus the prior year, just under 10%, 8% growth in that business. And so, we continue to see growth. But again, growth is great to see, but we’ve got to see pricing, we’ve got to see margin expansion take place as well.
Jeff Zekauskas
Thanks very much. Can you talk about the relative prices for MDI in both crude and I guess more specialized in Europe, China and the US? And can you say something about your relative margins in each of those areas?
Peter Huntsman
Yeah. As we look at our polymeric MDI, they’re all basically selling it I’d say within $100, $200 of each other per ton, and it’s around $2,000 per ton. It’s a pretty flat market right now. There’s not a kind of an incentive at this point to be moving a lot of volume from one region to the other. And I think that when you see demand, which has been kind of sluggish this past year, that would tell you that you’re going to see pretty flat pricing.
I will say, though, that as I look for some optimism in those areas, as I looked at capacity utilization, I believe the industry today is running at about somewhere in the mid-80%s on capacity utilization, and where we’re seeing growth in demand and so forth, we’re seeing quarter-on-quarter growth for the first time in — excuse me, year-on-year growth on a quarterly basis for the first time in two years. There have been a number of operating outages that have recently been reported in the media and so forth.
So, I don’t want to paint a picture that we’re expecting to see prices go up to the roof. We’re kind of getting into those dynamics of where demand and capacity utilization moving into the mid-80%s, you’re starting to get into some areas where I think you’re probably going to start seeing some regional divergences and higher prices in some of these areas. Again, hopefully.
Michael Sison
Hey. Good morning. Nice start to the year. Peter, where are industry operating rates now for polyurethanes, MDI? And just curious where you think those need to get to, to establish a little bit better pricing and margin going forward?
Peter Huntsman
Well, typically, given the fact that this industry, the number of outages that you have to have for your maintenance of your facilities, typically it’s about 90%. I like to think somewhere around 90% is kind of a sold out position. As we said in the past, leverage — pricing leverage typically comes at about 85%, somewhere in the mid to upper 80%s. You start to see that pressure at 85%, as you move through that. So, as I would think about your capacity utilization right now, and I’m talking about today in the second quarter, not necessarily in the first quarter, I believe in Europe, you’re probably in the high-80%s, 87%, 88%. The US, you’re running over 100%. US needs imports to be able to satisfy demand. In China, you’re probably somewhere in the mid to upper 70 percentile. You add all that up and you’re probably about 85% capacity utilization today, which is at the very low end of what I would say is where you start getting into your pricing improvements.
Now, again, as you start having outages or better than outages, you start seeing demand improvements come along, that’s really what we need. So, given where we’ve been in the past, where we’ve been talking about global operating rates around 80% to 81%, 82% being at 85%, 86%, the idea that a plant or two going down or 2% or 3% sort of growth in the industry, all of a sudden puts you up there in that 88%, 89%. Sorry, I’m getting overly technical here with a few percentage points one side or the other. But point is, I think that we’re in much better position than we’ve been any time the last two years.
Hassan Ahmed
Good morning, Peter. Peter, I just wanted to revisit some of the commentary that you made on polyurethane volumes. Obviously North America, on a percentage basis, ridiculously strong, you know, up 25%. But you alluded to the fact that we’re still not really at normal volume levels. Europe up 9%, again, it seems from deflated levels. And Asia, relatively flat. So, could you just help me understand the trajectory from here? I mean, we’re obviously below normal in North America, Europe it seems well below normal, and same thing with Asia. So, I mean, how should we be thinking about near-term as well as medium-term volume growth trajectories by region?
Peter Huntsman
Well, I think that we’re going to continue to see probably stronger than average growth in Europe and in the Americas. I look into the second quarter, it’s early right now at the order books, but we’re going to see — continue to see modest underlying growth. We’re dealing with easy comps from a year ago. So I’d be focused more on quarter on quarter versus where we were a year ago. And we’ve obviously, this last year, we got in a deep hole. And I think we first need to get out of the hole, and I think that we’re just about out of that hole, and we need to start growing from that point on. And I think that’s where we are and that’s where we’re heading.
Phil Lister
And Hassan, as we indicated, sequentially, when you go Q1 to Q2, typically you’ll get about a 5% improvement in volumes. And we highlighted in the prepared remarks that we would expect to get more than that this year. So the trajectory is in the right direction.
Hassan Ahmed
Fair enough. And as a follow-up, continuing with polyurethanes, just on the cost curves, obviously there was margin improvement, call it, 1%, 1.5% EBITDA margins going up to like 4%. But I mean, you guys being on the lower cost of production side of things, I’d like to think that a chunk of the industry is still in the red. And further to that thought, I would imagine that unto itself, as the recovery is happening, would be a big positive in terms of you guys or the industry getting pricing power again?
Phil Lister
I would certainly agree with that, Hassan. As I look in the US, though, I think that the cost curve in the US is pretty flat. And you look at the major players in the US, they all have relatively the same size, we’re all by in growth. None of us are integrated back up into benzene, we’re producing our benzene. It feels like we’re kind of all in the same boat as far as it’s competitiveness. Natural gases, electricity is kind of the same price for everybody. The [chlorine] (ph) racket is the same for everybody.
So, as I think about Europe, I think that’s where you probably see some of the biggest cost disparities between the low-cost and high-cost producers. Europe still operates some relatively small facilities. And to be honest with you, I’m surprised some of those facilities are still operating. But again, I’m not privy to their economics, but as I look at their size — anyways, yes, so Europe, I think you’re going to see that.
In Asia, you’ve got a lot of newer facilities, single line, large volume, single lines that are operating. Wanhua, I believe, probably has a — I don’t think it’s order of magnitude. They certainly have, just by virtue of their size, of their lines and so forth, I think they probably have a bit of an advantage over the other players. But I think that we shouldn’t get lost, though, necessarily on the cost of production, because as you start going downstream and as you start looking at things like our splitter in Geismar, Louisiana, you start looking at our downstream applications, going to elastomers and system houses and so forth, if those downstream businesses are being operated well and you’re focused on adding value to the molecule, I believe you’re going to make more money on your downstream business than you will on your manufacturing economics. Both very important. Agreed.
But Europe also, you do have that disparity between producers. But Europe also, in spite of some of the industrial problems and so forth, Europe also rewards innovation and rewards energy conservation, light weighting, adhesion, footwear. There’s a number of applications in Europe that — where we have some of our higher-margin businesses.
Kevin McCarthy
Yes, thank you, and good morning, everyone. I had a question regarding MDI unit margins. So, benzene costs have been elevated a little bit north of $4 a gallon in the US lately, and your prices are rising as well. And so, if I net those two things out, when you craft your guidance of $70 million to $80 million for polyurethanes, are you baking in sequential improvement in the unit margins for MDI in terms of cents per pound? It sounds like maybe the answer is yes, but I just want to make sure I’m understanding that correctly.
Peter Huntsman
Yeah, I think, Kevin, I think that’s a correct assessment. We’re simultaneously trying to offset rising raw material prices and at the same time trying to get ahead of those prices. And I think that’s why I say we expect to see marginal price improvements and most of the improvement that we see, as I look again into the second quarter and perhaps developing the third quarter, it’s going to be — the improvement is going to be more around volume than price at this point.
Phil Lister
And, Kevin, we did see a small unit margin improvement as we moved from Q4 to Q1. And, as Peter says, we do expect a small improvement as we move from Q1 to Q2. And I would also say there’s a good focus on benzene, rightly, because that’s the largest raw material, gas remains relatively low, chlorine in general has been slightly down, and then ammonia onto nitric has been slightly down as well. So, you need to consider all of the raw materials that are flowing through into polyurethanes.
Josh Spector
Hi. Good morning. I wanted to follow up on polyurethanes. I think in the prepared comments, you talk about getting back to normal in that segment. I guess, what do you consider normal at this point? I guess, if you get improvement to the second half, maybe you’re run rating around $400 million, you have obviously some changes in the cost structure you alluded to, you’re doing some cost savings. I guess, what’s the bridge back to normal at this point?
Peter Huntsman
Well, I think that the bridge to get there is going to be higher volumes and it’s going to be higher pricing. But when I think of a normalized MDI market, I’m thinking of margins that are in the mid-teens, this is a business that, when it’s running on all cylinders, and that is your splitters are sold out and you’ve got strong demand, you’re probably looking at market conditions that you saw in 2022 time period of when you’re looking at the very high teens and you’re pushing 20%. But on a normalized basis, our urethane business ought to be somewhere in the mid — something just slightly north of 15%, 16%, sort of EBITDA margins. But again, we’re going to need both, again, demand and pricing to get there.
Matthew Blair
Sounds good. And then, could you talk about your MDI supply expectations for the next few years? There’s been some reports that Wanhua is starting up a new 400 kt expansion this quarter. Is that in line with your expectations? And are there any other big projects on the docket for the rest of this year or into 2025?
Peter Huntsman
Yeah. I think after that expansion from Wanhua comes on, I’m not sure there’s a whole lot of capacity coming behind that. But look, I mean, Wanhua is going to do what they’re going to do. But, I mean, as I look — the Chinese market continues to be a good market for us. Demand is continuing to modestly grow and pricing continues to be pretty sticky. And so I don’t see any new capacity coming on in North America or Europe. If anything, I question if everything ought to be operating in those two market segments, but as you look outside of China, there’s nothing coming on.
Operator
Thank you. Our next questions come from the line of Mike Harrison with Seaport Research Partners. Please proceed with your questions.
Mike Harrison
Hi. Good morning. Another question for you on the spray foam opportunity. Was wondering if you could talk about progress that you’re making on some commercial inroads in Europe and in Asia. You mentioned that maybe there are some opportunities in building insulation in China, and just curious how you’re positioned there?
Peter Huntsman
Yeah. So, this is going to be an area that we’re going to continue to put a lot of emphasis on. And you look — just beyond Asia, you look at specifically in Japan and some of these other areas, the Middle East, we’re seeing stronger growth there than in other areas of those regions. I see this as a real opportunity. And as you think around the — either the high cost of energy, as in the case of Japan, or in the Middle East, where there’s just a lot of new construction that’s going on, these are both prime areas of opportunity for us. But I should emphasize that as you look at the vast, vast majority of that business is North America, Canada, and the US related. We are going to see growth in Europe and Asia, but the health and the vitality of that business is going to be dependent on North America.
May 4, 2024
Epoxy Highlights from Huntsman Investors Call
Huntsman Corporation (HUN) Q1 2024 Earnings Call Transcript
May 03, 2024 2:50 PM ETHuntsman Corporation (HUN) Stock
Q1: 2024-05-02 Earnings Summary
EPS of -$0.06 beats by $0.00 | Revenue of $1.47B (-8.47% Y/Y) misses by $1.15M
Huntsman Corporation (NYSE:HUN) Q1 2024 Earnings Conference Call May 3, 2024 9:00 AM ET
Company Participants
Ivan Marcuse – VP, IR & Corporate Development
Peter Huntsman – Chairman, CEO & President
Phil Lister – EVP & CFO
John Roberts
Then I had thought you had already exited epoxy BLR resin that’s there. So, what else are you exiting that I thought you exited before and how much is left to go?
Peter Huntsman
Well, again, when we look at our epoxy businesses, we do continue to produce some commodity grades of epoxies and we will do that as we base load some of our facilities. Our emphasis is going to continue to be able to take that volume and moving it into higher value added components and so forth. But, yes, you do have some of the low end of your reactions — reactors that take place and your production that takes place that I consider to be commodity and that — you’re always going to be exiting the bottom end of that and pushing more volume on the upper end of that margin scale. So, not sure that it’s all necessarily, when we talked about exiting businesses, isn’t necessarily all BLR. I would just say that as we look at our capacity, availability and where we want to put our emphasis, that may be beyond just basic BLR as well.
Phil Lister
Yeah. And John, for context, I mean, BLR used to be about 50%, if you go back ten years. Today, we still have some business as Peter says, it’s about 10% of our volumes and we continue to move that down when appropriate.
May 1, 2024
Urethane Highlights from BASF Investors Call
BASF SE (BASFY) Q1 2024 Earnings Call Transcript
Apr. 25, 2024 5:48 AM ETBASF SE (BASFY) Stock, BFFAF Stock
BASF SE (OTCQX:BASFY) Q1 2024 Earnings Conference Call April 25, 2024 1:30 AM ET
Company Participants
Stefanie Wettberg – SVP, IR
Martin Brudermuller – Chairman & CEO
Dirk Elvermann – CFO & Chief Digital Officer
Martin Brudermuller
Good morning, ladies and gentlemen. Dirk Elvermann and I welcome you to our analyst conference call. Today, we will provide you with details regarding our business development in the first quarter of 2024.
Let’s start with the development of chemical production by region. Based on the currently available data, global chemical production grew by 5.4% in Q1 2024 compared with the prior year quarter on account of a strong growth in China. As in previous quarters, the growth in China was driven by recovering domestic demand and exports. However, this volume growth in China was still associated with low sales prices and is influenced by positive base effects.
In North America, our chemical production was essentially flat. While in the European Union, production increased slightly compared with the weak prior year quarter. And in Asia, excluding China, production decreased slightly. To sum up, the volume recovery continued, but slowly this trend is also seen in a sequential comparison as volumes increased slightly in Q1 2024 compared with Q4 2023. Still, we cannot yet confirm a fundamental turnaround in industry dynamics. For this, we will need to see the current positive trend continuing in the coming quarters.
We now move on to BASF’s performance in the first quarter of 2024 compared with the previous — the prior year quarter. Overall, BASF Group sales were 12% lower at EUR 17.6 billion. This was mainly due to lower sales prices, which declined across almost all segments. Prices predominantly decreased on account of lower raw material prices.
In Agricultural Solutions, we were able to slightly increase prices. Currency headwinds dampened sales in all divisions. Volumes of BASF Group increased by 0.5%. Excluding pressures and base metals, volume increased by 2.1% compared with the prior year quarter.
In terms of earnings development, we had a solid start to the year. EBIT before — EBITDA before special items amounted to EUR 2.7 billion. This is slightly below the figure of the prior year quarter and slightly ahead of analyst consensus. Higher earnings in the Nutrition & Care, Materials, Industrial Solutions and Chemicals segments more than compensated for the decline in other Agricultural Solutions and Service Technologies.
Let’s take a closer look at the volume development by segment. Volumes in the Chemicals, Materials, Nutrition & Care and Industrial Solutions segments increased, while Agricultural Solutions and Service Technology recorded a decline. Higher volumes in our upstream businesses led to improved utilization rates at our major plans and positively impacted profitability.
Excluding precious and base metals, the Surface Technologies segment recorded a volume decline of only 0.9% on account of the — distribution. Volumes in the Coatings division increased, and Agricultural Solutions volume declined mainly to lower sales of herbicides and fungicides compared with the record prior year quarter.
Tony Jones
All the best, Martin. Only a few months ago, Martin, you talked about the need to review your production network, particularly in Germany, given high cost and low growth. How are you thinking about this now with the strongest start to the year? And a quick one for Q2. Maybe you could give a little bit of color about how you see the divisional outlook as we go into the second quarter.
Martin Brudermuller
I’ll take the first one, Dirk, you take the second one. I mean overall, let me say, I think our decisions that we have taken already to shut down plants and to trim the Fubon to basically competitiveness framework and also to the demand in Europe, I think it was all right decisions. But there will be more to come because I think we will have a fundamental topic in Europe because base chemicals will be for good because of structurally higher energy costs, less competitive. So we have to trim it more to the European demand. In our case, in BASF, we will trim it more to our own internal consumption and sell less to the market because you have also to take into account that the base candidates are the CO2-intensive products. That means we produce them, we sell them to the people, and then we have to reduce with high cost for CO2. That doesn’t make sense anymore. That’s why we will really use that to fuel basically our chains with the raw materials. And there’s a little bit more to come, and this is what the new Board will do when they talk about the target picture of [indiscernible], which is basically revised and renewed, I have to say, with the current framework. So I would expect that, particularly in the upstream area, the European chemical industry will be weaker in software and this lower participation in global share than it has been in the past. So that will be our work, and there’s still a little bit to be done, but I think we are very happy with the first step.
Dirk Elvermann
Yes, Tony, and just speaking — talking a little bit about the divisional outlook going forward. So starting with Chemicals and Materials, as I said already that the first quarter was okay, was good. And we have also benefited here from the one or the other special effect. Rest of World already mentioned, one of the other turnaround for outage of the competitor, which we benefited from.
Now second quarter of fundamentals, I would say, more on this unchanged, but now also we will have some turnaround. So I’d rather see that flat. Then for Industrial Solutions, I think full year, we are forecasting here a considerable increase, have nice a trend in both businesses is a volume to a large extent right now like dispersions and for instance, benefiting from that. So positive trend going forward.
Surface Technologies comprising of Catalysts, the Batteries, but also the Coatings business here for the entire segment, the site was on prior year level, depends also a little bit on development of the precious metals prices, which are, again, at a very low level, as we appreciate.
Nutrition & Care, we see a positive trend also going forward with the measures that we have taken now gaining traction. And Agricultural Solutions, we said early, after a record year last year, this will be lower volumes, while certainly, price is also getting more under pressure. But as I said, we have a more favorable mix now with higher portion of seats in our sales. So I’d rather say slight decrease and nothing dramatic happening there. So that would be my short summary of the outlook.
Laurent Favre
Yes. I guess, comments to not Christine and the others from and it’s certainly been a fun ride. My first question to you, Martin, is regarding what you — I guess what you told Jaideep. You said that there’s a clear path forward for BASF. And I guess for years, the path has been to go more downstream, and there was a lot of M&A, and I guess that was before 2018. And when we look back to 2018 and we think about your time as CEO, obviously, there’s been a lot of mess to deal with decarbonization, COVID, et cetera, and the investment in China. My question to you is, what is that clear path going forward in terms of upstream versus downstream because it’s certainly not clear to me.
And the second question for Dirk as you’ve gone through all the — all the business lines. On the other line itself, I understand there was a higher provision for the LTIP mark-to-market in Q1. Is there also a provision for higher bonuses that we should assume will be sent back to the divisions later this year?
Martin Brudermuller
Laurent, first of all, let me say, I will not communicate the strategy of the new Board team. That will be happening in a couple of months when Marcus and his team will tell you how they it, basically, what they have on their minds for the next years. I mean it will be a kind of an evolutionary thing. This is very clear. That is, I think, what was always BASF. There’s also some considerations they have, which differ from what I had. I mean I can only say when I started 2018, I had hoped for different 6 years than we actually had that we handle from one crisis to the other was really not what I had in mind, also not presenting the numbers in 2023 as they are. I hope we have a better result here, but life is as it is.
I think what is important that my team, which is very much also, to a large extent, Markus’ team, we have been working on trimming the structures of BASF. And I think this is the basis also for going forward that we really have been looking how we get closer to the customers, how we get more efficient, how do we get cost out, how we differentiate between the businesses. And I think this is my pride, I have to say, that we got along with all these targets despite of the crisis. So we have not made compromises on that, and that includes also the decisions to close down plan. So I think that’s a great basis, but have a little bit more excitement for what is coming then as the new strategy update for Marcus and the team.
Dirk Elvermann
Laurent, your question to others, you seized right. So provisions in — due to bonus accruals, due to — or to take them results proportional, but there’s also the longer-term elements in it, the LTI part. And then there are some things like the captive insurance payments. There was one that is booked here in others. And then it’s typically also to a minor extent, some consolidation effects. So that will be the 4 buckets that you’ll find another.
April 30, 2024
3PL History
Over the past decade, C.H. Robinson lost its moat to innovation and competition
Can it evolve quickly enough to satisfy Wall Street?
Craig Fuller, CEO at FreightWaves
· Monday, April 29, 2024
C.H. Robinson (Nasdaq: CHRW), the largest trucking freight brokerage, is in a challenging spot that isn’t strictly due to the Great Freight Recession. Its stock is trading near the lows of the COVID lockdown (closing price on April 26 was $70.22; the COVID low was $63.91), with investors asking tough questions about the company’s long-term prospects.
For three and a half decades, C.H. Robinson’s position was uncontested. It was in an enviable position — it had information and access to fleets that no one else did. After all, with the largest number of offices around the country and the largest network of carriers, almost no one could compete with Robinson’s pulse on the market or connection to fleets.
Early on, this information and trading arbitrage became C.H. Robinson’s unfair advantage.
However, other freight brokers emerged, and the share of freight that brokers handled grew faster than C.H. Robinson’s business.
Less than a quarter-century ago — in 2000 — freight brokerages handled only 6% of all trucking freight. Today, FreightWaves estimates that 25%-30% of freight is handled by 3PLs; others have suggested that the figure is more than 50%. Regardless, it’s a huge number.
Brokerages gained market share by taking freight from the largest asset truckload carriers, playing the role previously reserved for companies with trucks.
Shippers used to be reluctant to give freight to companies that didn’t own their own trucks. Still, they eventually realized that freight brokerages provided unparalleled flexibility and could offer rates that shifted as the market did (freight costs are massively volatile).
Because brokerages were not constrained by fleet size, they could handle surges much easier than asset-based carriers. In that regard, a brokerage can provide a superior product compared to a single-source truckload provider.
Those circumstances have caused large over-the-road truckload providers to struggle for years. It is not just freight brokerages taking share; intermodal (railroads) are also eating their lunch.
A few companies like J.B. Hunt, Werner, and most recently, Covenant, saw these changes coming. They largely moved away from their dependence on the for-hire truckload market.
Others failed to pivot fast enough — Celadon, CFI, U.S. Xpress, Interstate, etc. — and each paid dearly.
In addition, shippers benefited from the fact that brokerages were faster than the fleets about investing in technology and customer success initiatives.
From 2000 to 2015, the industry saw the scale of startup or small brokerages explode (Brokerage 2.0): TQL, Echo, Coyote, Command, Access America, Nolan, GlobalTranz and many others grew exponentially.
This caught the attention of private equity (PE) firms, corporations, and even UPS — they all bought into the belief that the freight brokerage market was ripe for consolidation.
The Brokerage 2.0 players sold out, and middle management at those firms left and started their own versions of what we’ll call Brokerage 3.0.
Meanwhile, technologies emerged that eroded Robinson’s information and fleet access advantage.
Emerging firms like Arrive, Molo and Steam popped up, and hundreds of others were created, requiring little more than a computer, an MC, and a load board account. These firms grew very quickly — understanding that the secret to freight brokerage was recruiting new brokers and creating a dynamic sales culture — something that “stuffy” corporates, PE and UPS would never understand.
The new firms cleaned the clocks of the incumbents.
PE firms and strategic acquirers soon learned that there was little differentiation between the various freight brokerages, and it was hard to retain talent unless the management teams stayed intact (which is hard to do after they’ve sold out).
Then, the most damning part of the story took place: Silicon Valley discovered freight brokerage. Startups like Convoy and Uber Freight were funded — and all focused on blitzscaling. Even Amazon joined the party, leveraging its vast resources and huge freight spend to take an additional share.
In the U.S., Amazon moves more freight through its network than FedEx.
Early on, these startups tried to achieve critical mass, offering heavily discounted pricing to “buy share.”
And they did. The digital natives grew exponentially without concern for short-term profits. However, many of those same firms have found profit elusive or worse.
At the same time, tech vendors made it easier for new entrants to join the industry and existing players to scale quickly.
DAT Rateview, Truckstop Rate Insights, SONAR and FreightWaves removed Robinson’s information advantage — now, everyone understood what was happening in the market in near real time.
Public and private load boards (DAT, Truckstop, Loadboard123), digital matching apps (J.B. Hunt 360, Loadsmart, Emerge), Trucker Tools, and others took away Robinson’s capacity access advantages. At the same time, systems like Mercury Gate, Ascend TMS, Macropoint, P44, FourKites and Transflo destroyed Robinson’s advantages in system infrastructure that enabled the brokerage to scale so quickly.
Perhaps the biggest blow to C.H. Robinson’s business model is the emergence of payment networks like TriumphPay that make it seamless for brokerages to fund growth without needing large balance sheets.
Now, anyone can start or grow a freight brokerage with little upfront capital and play at the same level (or even better) as C.H. Robinson.
After successfully fending off the pressures of competition for three decades, C.H. Robinson finally gave in.
Bob Biesterfeld, the former CEO of C.H. Robinson, declared in 2019 that the company would protect its market share by investing $1 billion in new technology.
But it was too late. Robinson had been losing market share, but this was hard to see because of the growth of the underlying market. As long as the freight brokerage market grew, few would realize that C.H. Robinson’s business was under real stress.
Then, the freight market exploded during COVID. Robinson made a fortune during the peak COVID cycle, handily beating analyst estimates like everyone in the space. However, that peak cycle turned, followed by the Great Freight Recession — one of the biggest and most painful downturns in freight market history.
Although Robinson replaced its CEO, the new CEO can do little to fend off the inevitable decline of its core business.
In recent months, FreightWaves has received reports of many veteran brokers leaving the firm, something that was unfathomable just a few years ago. Sources told FreightWaves that the departures were caused by compensation restructuring initiatives and a change in the company’s operating culture.
Margins are under pressure from the Great Freight Recession, which is now in its third year, and the cutthroat competition of thousands of freight brokerages all bidding on the same loads.
Sources have told FreightWaves that Robinson’s new management wants to change the company’s cost structure and has pursued a series of changes to its compensation structures to change the unit economics of the business. These changes have been controversial and unpopular; some veteran reps with decades of tenure have left Robinson to protest the company’s new operating culture.
However, the company must reduce operating expenses to offset the impact of declining brokerage margins.
There are few good short-term answers for C.H. Robinson.
Competition is only going to increase. Robinson’s one-time advantages are largely gone, killed by innovation and direct competition. Its leadership has little choice but to address compensation packages representing the largest operating cost at freight brokerages. But, as noted above, as those changes occur, the company will continue to lose some of its most successful sales and carrier reps. Shippers are likely to leave as a result, as often, the personal relationship with the sales and customer service teams is what keeps the shipper from moving to a competing broker.
Worse still, as a public company, all of Robinson’s challenges are visible to everyone, including competitors, employees, and customers.
A huge business model reset with some long-term thinking is required, but that may be difficult for a publicly traded company to satisfy investor expectations every quarter.
April 30, 2024
Epoxy Highlights from Olin Investors Call
Olin Corporation (OLN) Q1 2024 Earnings Call Transcript
Apr. 26, 2024 1:25 PM ETOlin Corporation (OLN) Stock
Q1: 2024-04-25 Earnings Summary
EPS of $0.45 beats by $0.09 | Revenue of $1.64B (-11.33% Y/Y) misses by $12.71M
Olin Corporation (NYSE:OLN) Q1 2024 Earnings Conference Call April 26, 2024 9:00 AM ET
Company Participants
Steve Keenan – Director, Investor Relations
Ken Lane – Chief Executive Officer
Todd Slater – Chief Financial Officer
Damian Gumpel – Vice President, Corporate Strategy
Ken Lane
Thank you, Steve and good morning everyone. Let me start by saying I am delighted to be part of Team Olin. Olin has a long and rich history with leading positions across this portfolio and I am looking forward to leading the company as we define the next phase of value creation for our shareholders and employees.
Today, Olin is in great shape with an investment-grade balance sheet and a strong team. This company has incredible potential and I look forward together with our 7,000 Olin team members to start building upon this foundation and writing the next chapter in Olin’s success story. I do want to thank Scott Sutton for his leadership of the company, which resulted in a step change of record results. Scott has been very gracious with his time and support during our transition. I am a firm believer in our operating model and I am absolutely committed to continuing Olin’s value-focused commercial approach. The entire Olin team embraces the winning model and that support runs deep from senior leadership to frontline manufacturing.
Now, I want to talk about my near-term priorities. First and foremost is always operating safely. Keeping our people and our communities safe, while running our assets efficiently and reliably. It is not a coincidence that the safest operators are the most reliable. We are focused on being a leader with respect to our safety performance.
Next, Olin is a coiled spring. And as our market demand recovers and customers seek to pull more volume, we will be ready to capture that significant value opportunity. I’ll provide whatever support is needed to defend the gains we have achieved and continue our value generation as the industry leader that we are. Also, it’s clear to me that investors appreciate Olin’s consistently strong cash flow and share buybacks across the cycle. Delivering on our commitments is an imperative. We will continue our disciplined capital allocation strategy and will be a steady buyer of our shares, focused on delivering above average shareholder returns. Finally, I am committed to providing Olin stakeholders with strategic transparency and a long-term roadmap for growth, that we will share during a Capital Markets Day around year end. More will be communicated on that in the near future.
Now, let’s take a quick look at our chlor alkali business and turn to Slide 5. Olin took decisive actions during the fourth quarter to curb price erosion across our system. Early in the first quarter, our value accelerator initiatives continue to tighten Olin supply, successfully advancing the inflection point and effectively stopping the value drop. During the first quarter, we saw improved chlorine volume being pulled by Olin customers at our value level across several key end uses, including agriculture, urethanes, titanium dioxide and water treatment. As we look beyond the first quarter, we are seeing some seasonal demand increases for chlorine and caustic soda. In the United States, planned and unplanned outages and low supplier inventories have kept caustic availability tighter than expected. Trade publications confirm that domestic caustic is climbing up from a cycle bottom.
Now, let’s turn to our Epoxy business on Slide 6. During the first quarter, our Epoxy business continued to realize the benefits of our 2023 restructuring actions. Our streamlined asset base will support the growth of our higher margin epoxy systems demand while also reducing Olin’s downside commodity exposure across the cycle. Our recently announced U.S. anti-dumping initiative seeks to level the playing field. The first quarter marks the beginning of the recovery for epoxy and the start of a gradual climb out of a very deep trough. As that building momentum continues into the second quarter, we will realize continued benefits from our restructuring and stronger focus on higher margin formulated systems.
Hassan Ahmed
Understood. Understood. And as a follow-up, you touched on the improvement sequentially within the Epoxy business. How should we think about the split between, call it, further organic improvement ove0r there? And maybe you could touch a bit on some of these sort of trade cases that you guys as well as the industry has brought about on the anti-dumping side of things?
Ken Lane
Yes. So we are seeing the impact from the restructuring last year. The team did a great job last year rightsizing the footprint. We have got the asset footprint that we think is going to support the strategy around growing the higher margin business today. But we are seeing an influx over the last year or so of products that is being dumped into the United States. First, I’ll say, we’re all for fair trade, free trade, but we are going to fight against unfair trade, and that’s what you see here. So we had the first hearings in Washington, D.C. this week. It’s early in that process, but we are going to continue to push that case. And we believe that there is a risk within the United States having only two producers of epoxy resin is a risk for the future. We have got a very critical material here that we are producing and it is under threat by unfair trade.
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