The Urethane Blog
Everchem Updates
VOLUME XXI
September 14, 2023
Everchem’s exclusive Closers Only Club is reserved for only the highest caliber brass-baller salesmen in the chemical industry. Watch the hype video and be introduced to the top of the league: — read more
May 7, 2024
Stepan Company (NYSE:SCL) Q1 2024 Earnings Call Transcript
Scott Behrens: Good morning and thank you all for joining us today to discuss our first quarter 2024 results. I plan to share highlights from our first quarter performance, and we’ll also share updates on our key strategic priorities, while Luis will provide additional details on our financial results. The company reported first quarter adjusted EBITDA of $51.2 million, up 5% year-over-year. Global sales volume was up 1% year-over-year. Volume weakness in the agricultural market due to continued inventory destocking and lower phthalic anhydride volumes due to ongoing operational issues at our Millsdale site, mostly offset the strong recovery in volumes across our other core markets. Global sales volume, excluding the impact of agricultural and PA was up 4%.
Surfactants experienced double-digit volume growth in Personal Care and Oilfield end markets and with our distribution partners. As expected, Latin American surfactant volumes grew strong double-digits as we recovered volumes in Mexico. First quarter sales volume in Mexico was a record. Overall, volumes in our global Consumer, Laundry and Cleaning and our Institutional Cleaning businesses have stabilized and we believe destocking has run its course. Within Polymers, Rigid and Specialty Polyols grew mid-single digits, while Specialty Products volume was up double-digits. From a company perspective, margins were in line with expectations despite unfavorable product mix. Net sales in the first quarter of 2024 decreased 15% year-over-year, primarily due to lower selling prices that were mainly attributable to the pass-through of lower raw material costs and less favorable product mix.
These lower selling prices were partially offset by a 1% increase in global sales volume, as mentioned above, and the favorable impact of foreign currency translation. We generated positive free cash flow of $11.4 million as capital expenditures returned to historical levels, and these results give us confidence that we will close 2024 with positive free cash flow. The company is on track to deliver our $50 million cost reduction goal for 2024 through disciplined efforts in supply chain and workforce productivity actions taken in the last quarter of 2023. We expect these reductions to help offset higher operating costs related to operational interruptions at our Millsdale site and pre-commissioning expenses at our new alkoxylation facility in Pasadena, Texas.
Scott Behrens: Thanks, Luis. I’ll focus my comments on our cost initiatives, business strategy and the progress of our major capital investments
Our Polymers business continues to focus on developing the next-generation Rigid Polyol technologies that can increase the energy efficiency and cost performance of our customers’ insulation products. Moving to Slide 11, construction on our new alkoxylation production facility in Pasadena, Texas is approximately 90% complete and we now expect the plant to start up in the fourth quarter of 2024 due to a contractor delay. The underlining alkoxylation business that supports the Pasadena investment, excluding the agricultural destocking, continued its volume growth during the first quarter of 2024 at very attractive unit margins. After completing a 3-year capital investment program last year, Stepan now has the largest installed low 1,4-dioxane production capacity serving the North American merchant market.
Our first quarter volumes grew strong double-digits versus prior year and volumes should continue to ramp throughout the year as more customer and product qualifications are completed. As already reported in our February earnings call, our Millsdale site was impacted by a series of power disruptions combined with below freezing temperatures in January with the main impact to the phthalic anhydride and polyol unit operations. All operations other than phthalic anhydride have been in our back in production and we were able to minimize supply disruptions to our polyol customers through our production network. The PA unit experienced several restart challenges but has since been restarted and is producing products. In addition to the power weather interruption, we also experienced unplanned maintenance and operational issues with the Millsdale wastewater treatment plant.
Our team has been actively addressing these issues through infrastructure and process improvements. These operational issues impacted first quarter results primarily from higher maintenance and operational expense and higher tolling costs. We anticipate second quarter expenses related to these issues to be similar to the first quarter expenses. We anticipate to go back to normal and lower spending levels in the second half of the year. Looking forward, we believe sales volumes will continue to gradually improve due to the ongoing recovery in Rigid Polyols and growth in surfactant volumes, including the expected recovery of the agricultural business in the second half of this year. We remain focused on delivering $50 million in pre-tax cost reductions to help offset inflationary pressures, the expenses associated with commissioning our new Pasadena alkoxylation assets, higher incentive-based compensation and incremental expenses associated with the operational issues at Millsdale.
https://ca.finance.yahoo.com/news/stepan-company-nyse-scl-q1-144023127.html
Tempur Sealy International, Inc. (TPX) Q1 2024 Earnings Call Transcript
May 07, 2024 10:29 AM ETTempur Sealy International, Inc. (TPX) Stock
Tempur Sealy International, Inc. (NYSE:TPX) Q1 2024 Earnings Conference Call May 7, 2024 8:00 AM ET
Company Participants
Aubrey Moore – Investor Relations
Scott Thompson – Chairman, President & Chief Executive Officer
Bhaskar Rao – Executive Vice President & Chief Financial Officer
Scott Thompson
Thank you, Aubrey. Good morning, everyone, and thank you for joining us on our first quarter 2024 earnings call. I’ll begin with some highlights from the quarter and then turn the call over to Bhaskar to review our financial performance in more detail. After that, I’ll provide an update on our proposed acquisition of Mattress Firm, which we expect to close by the end of the year. Lastly, I’ll open up the call for Q&A.
In the first quarter, net sales were approximately $1.2 billion, and adjusted EPS was $0.50. Our adjusted EBITDA was $198 million, consistent with the same period last year. These results are evidence of our strong competitive position in the market.
Turning to a few highlights. First, we continue to develop and launch high-quality bedding products in all the markets we serve. We are actively refreshing our US Tempur portfolio with our latest Adapt products. These products are designed to address the fundamental consumer need, alleviating aches and pains. They feature our most innovative Tempur material and are engineered to provide an impressive 20% improvement in pressure relief compared to standard material.
When our mattresses are combined with our proven range of smart adjustable basis, the result is a comprehensive advanced sleep system. The rollout of over 60,000 Adapt mattresses to retailers is on schedule and we expect to be substantially rolled out by Memorial Day.\
Early reports from our third-party retailers and our direct-to-consumer operations are strong. We also, to select national retailers, recently rolled out Active Breeze, our most customizable heating and cooling sleep system, priced at approximately $10,000 for queen and base set. This system caters to the discerning ultra-luxury consumer seeking cutting-edge sleep solutions, offering both active climate management and the benefits of Sleep Tracker AI.
Our third party retailers and our company-owned Tempur stores are reporting that the presence of this product on the showroom floors generates a halo effect propelling interest towards the top-tier offering of our Tempur lineup.
Although, still early in the rollout when bundled with additional products, the ACTIVEbreeze is driving some tickets upward of $20,000, while we anticipate modest sales volume for this ultra-premium product, it’s significant live in the elevating the brand perception and foreshadowing the future of bedding innovation.
Please note that even with challenges like reduced brick-and-mortar retail traffic our innovative products are driving momentum in the category.
Excluding the impact of floor models, our US average mattress sales prices across all brand products increased mid-single-digits and our attach rate increased double-digits year-over-year, demonstrating the consumers’ willingness to spend on innovative quality products designed to provide better night sleep.
New products are also building momentum in our International business. Our new product collection features consumer-centric innovation and an expanded price range that meets the needs of a broader spectrum of customers. In the first quarter, we executed the launch of our all-new Tempur mattresses bed bases and pillows in the UK and are now fully rolled out worldwide.
We also optimized the new Tempur mattress beds construction to facilitate a higher level of customization while streamlining the manufacturing process, allowing us to effectively meet the unique demands of consumers across various markets and channels.
Second highlight, we invested in compelling marketing to support our brands and products. We continue to be balanced with our media strategy focusing both on broad-based and targeted digital outlets to meet consumers throughout their purchase journey. In North America, we developed new creative design to drive consumers’ interest in the category and our recently launched Tempur products.
In the first quarter, we introduced a new ad focused on the Tempur-Pedic Ergo ProSmart base and its exclusive SoundScape mode feature, which delivers an immersive relaxation experience designed to help people who have trouble following sleep. These ads are already resonating with consumers in driving attach rate and ASP expansion for our retail partners.
In the second quarter, we continue to support these lineups with our new targeted TV spots and digital assets focused on illustrating how the Adapt collection provides a solution to one of the leading barriers to quality sleep, aches and pains. Our consumer research shows that these new assets are our highest scoring ads to-date and we’re excited to put this new content into the market.
We also continue to invest in advertising to support our Stearns & Foster products with engaging messages that reinforces the superior comfort, quality and craftsmanship is the hallmark of the brand for over 175 years.
As has been the case with our successful Tempur-Pedic advertising, our recent investments in Stearns & Foster have also been successful, helping the brand to achieve excessive year-over-year growth in consumer traffic to stearnsandfoster.com every year since we first introduced the television advertising in 2021.
And in 2023, helping the brand to achieve the industry’s highest year-over-year growth in Google Search. Internationally, we continue to increase our marketing investments to support the positive momentum of our recently launched new Tempur product range. Our creative assets highlight the many benefits of the latest generation of Tempur materials, covers all retail assortments and reaches all relevant media channels.
We continue to see positive results with uplift in awareness, share of search, web sessions and retail traffic. Our market intelligence reaffirms that we are outperforming the market in a challenging retail environment. We recently announced the signing of David Beckham as our newest brand ambassador, for our key markets in the high-growth Asia Pacific region. The campaign consists of television assets, content for our online channels and point-of-sale material for our own stores and retail partners. The campaign launched in March in Australia. We’ll also go log in our other Asia Pacific subsidiaries later this year, and we will host an event with David Beckham and key retail partners in China during the second quarter.
Our advertising efforts worldwide are designed to break through to consumers at all points in their purchase journey, driving near term sales, while also continuing to build long-term support for our brands. Our research shows that our brands continue to be top of mind for consumers seeking high-quality sleep solutions.
Third highlight, we continue to expand and optimize our diverse omni-channel distribution platform to meet the consumer wherever they want to shop. Our brands and private labels continue to gain traction in the Wholesale segment across existing and new distribution channels. In the first quarter, we expanded our OEM relationship with a large specialty betting retailer. And in April, we expanded our products into additional big-box stores with one of the largest U.S. bedding retailers.
Consumers are also engaging with our product through our company-owned stores and e-commerce presence. Our North American direct channel performance was solid in the quarter, delivering a robust 8% sales growth year-over-year driven by strength in our e-commerce business.
Finally, we continue to drive year-over-year improvements in costs through sourcing and operational efficiencies. During the quarter, our operations team focused on enhancing supply contracts, improving labor productivity and optimizing logistics. These efforts, combined with the impact of normalizing commodity prices resulted in a 270 basis point benefit to the North America first quarter adjusted gross margin and 130 basis point benefit to International’s first quarter adjusted gross margin.
Bhaskar Rao
Thank you, Scott. As mentioned, in the first quarter of 2024, consolidated sales were approximately $1.2 billion and adjusted earnings per share was $0.50. There are approximately $18 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to costs incurred in connection with our planned acquisition of Mattress Firm.
Turning to North American results. Net sales declined 2% in the first quarter. On a reported basis, the wholesale channel declined 3% and the direct channel grew 8%. North American adjusted gross margin improved 160 basis points to 39.5% driven by commodities and operational efficiencies partially offset by changeover costs to support new OEM distribution and product launch costs. North American adjusted operating margin was consistent to the prior year at 15.3% driven by improvement in gross margin offset by investments in growth initiatives.
Now turning to international. International net sales were consistent year-over-year on a reported basis and declined 2% on a constant currency basis. As compared to the prior year, our International gross margin improved 140 basis points to 55.4% driven by commodities and operational efficiencies. Our International adjusted operating margin improved 20 basis points to 15.5% driven by the improvement in gross margin partially offset by investments in growth initiatives.
Scott Thompson
Thank you, Bhaskar. Before opening the call for questions, let me provide a brief update on our pending acquisition of Mattress Firm. As previously announced in the fourth quarter of 2023, we certified substantial completion with the Federal Trade Commission’s second request. We continue to work with the FTC to advance the transaction’s approval process and anticipate the FTC to complete its review in the second quarter.
As previously disclosed, we continue to expect the transaction to close in mid to late 2024. In connection with and contingent upon this acquisition, we are proactively pursuing a divestiture plan. We are also engaged with numerous Mattress Firm suppliers on post-merger supply agreements. I’m pleased to share that six of the seven suppliers, we’ve offered post-closing supply agreements, have successfully negotiated and executed a win-win agreement with us.
Lastly, a brief comment on Mattress Firm’s financial performance. Mattress Firm recently made their quarterly results available on their website. We encourage you to review Mattress Firm’s website for more information on their financial performance for the most recent quarter, which we believe was consistent to slightly ahead of the U.S. industry trends.
In summary, we’re making good progress on closing the proposed transaction and we look forward to joining with the Mattress Firm team.
Susan Maklari
Good morning. Scott I wanted to talk a little bit about how you’re thinking of the year coming together. I think coming into 2024 the expectation was that earnings in the first half would be driven more by margin recovery, while the top line was still perhaps a bit soft and then seeing some recovery in the volumes in the second half. I know you mentioned in your prepared remarks you continue to expect that.
I guess can you talk a bit about what gives you the confidence that we will see that second half improvement in the volume? And any thoughts on the puts and takes to how the earnings may come together as we move through the balance of the year now that we’re one quarter in?
Scott Thompson
Sure. Thank you for that very short and simple question. Look when we look at it, the first thing that you asked about the confidence in the back half, quite frankly the comps get easier. That’s probably one of the biggest things is with the comps in the back half are much easier than in the front half. Also, when we look at our products that have been launched, they’re resonating in the marketplace and they should have momentum, both from an international and a domestic standpoint. We also obviously had good margin performance this quarter. I expect that we’re going to have a positive gross margin performance throughout the year.
I guess the last thing I would kind of throw into your question is, if you look at the historical data and where the bedding industry is, I think everyone who had looked at that data and I’ll talk primarily about the US at this point that’s where the data is the easiest to look at is you’d have to say the bedding industry is in a depression and has been in one for a number of quarters. And so, it’s got to normalize at some point whether it’s this quarter or whether it’s a quarter out or two. There’s no reason to believe it wouldn’t normalize. There haven’t been any products or any changes or any structural changes and the need for mattresses. And we may be building up pent-up demand. I don’t know. It’s hard to always tell. But certainly, we’ve been bouncing around the bottom for a long time and it just seems very reasonable that we should begin to normalize into what I’d call relatively minor growth from an industry standpoint. And then quite frankly, even if the industry doesn’t deliver that growth as you know we’ve been a fairly robust market share gainer over a number of quarters. And we don’t see any reason why that won’t continue going into the back half of the year.
Peter Keith
All right. Good morning, everyone. Thank you. Just regarding the FTC decision, I guess I was curious on what gives you confidence on predicting the timing of that by the end of the second quarter?
Scott Thompson
Yeah. If you look at and this goes back to the original disclosure of the transaction and first of all let me say we’re on our original timeline, that we originally disclosed when we started this journey or gauntlet ever how you’d like to describe it.
And it’s based on, we’ve always said, look, if we need to go through litigation, we’ll go through litigation. And we’ve always kind of put that in the budget from a timing standpoint, because we’re very comfortable if that’s the road that we need to take.
We clearly have given the FTC additional time, because those conversations have been constructive and productive. We’re dealing with high-quality people, who are taking their job very seriously and learning more and more about the industry. And we think the more they learn about the industry, that’s more likely that we’ll have the meeting of the minds.
But there’s certainly, no guarantees and we’re certainly not finished yet. But the timing framework has always been we assumed that we would have litigation and win through litigation.
But I think the most important thing when we started the process was, it was important to do this what I’ll call right and get the right answer, as opposed to just maybe do it fast. And we’re using that principle as we work through with the FTC in all areas.
Operator
Thank you. And we will take our next question from Seth Basham with Wedbush.
Seth Basham
Thanks. Two-part questions, if you don’t mind. First a follow-up on your response regarding FTC, if we do need to litigate this do you still expect to be able to close the transaction this year? And then secondly, regarding your sales trends in the quarter, can you give us a little bit of perspective on the cadence and then how the second quarter started off? Thank you.
Scott Thompson
The answer to your first question is, yes. We still would expect to be able to close it within this calendar year. On cadence, I’m going to break up the cadence question in kind of two buckets which I don’t normally do. But this time, I think the two buckets kind of differed a little bit.
There is a cadence of sales at retail okay, call those end user sales. And then there’s a cadence of sales wholesale, on how we get orders. And as I think if you go back and listen to the fourth quarter earnings call in Jan, when we disclosed it last time, we were getting mixed messages.
So if you look at it from a retail perspective, end user there’s no question that January was a tough market in the U.S., so one because January was tough; and two because of weather. Then February was positive. And I think probably comped positive February over February and was obviously a holiday period.
And then I think March was down at retail. Then moving to the beginning of the second quarter, I would say that retail sales were flattish is what it feels like. Again, information is not too precise.
If you’re talking about our orders and our sales, we’ll call it wholesale, we were actually up in January and started the quarter slightly positive as I think probably retailers were stocking up in anticipation of President’s Day, then our orders kind of flattened out we’ll call it, in February as they kind of were working through the stock and they were slightly down in March and then have picked up and are flattish in April, again in a non-promotional period.
And although flat is not a word I particularly like, I like it better than down. I like things that are different than flat to go up. Actually flat in our orders, in a non-promotional period would be better than we’ve experienced over the last call it three or four quarters. Generally the trends have been during non-promotional periods, orders have been slightly negative and then they’ve been positive during promotional periods. So I don’t know if it’s a green shoot or not, but that’s the best information we have as of today.
May 7, 2024
Pearl Group expands west with launch of Pearl Deutschland
Pearl Group (Dubai, United Arab Emirates), an international leader in polyurethane (PU) insulation solutions and other PU-based applications, has achieved another significant milestone in its geographical growth, launching Pearl Deutschland in Leverkusen, Germany.
This strategic expansion is the latest development in Pearl’s ambitious PearlX2 strategy, which aims to double the organisation’s size by 2026.
Following the acquisition of Covestro’s majority stake in the joint venture in 2021, Pearl has established itself as a standalone powerhouse, delivering high-quality PU systems and solutions with agility and a customer-centric approach. The launch of Pearl Deutschland in Leverkusen not only signifies a return to Pearl’s German roots but also places it in direct proximity to suppliers and customers.
The opening of Pearl Deutschland follows a series of global expansions by Pearl, including the inauguration of a production facility in Saudi Arabia in 2023, which has recently doubled its production capabilities. Additionally, Pearl has extended its global footprint by opening sales offices and distribution hubs in Egypt and India.
Martin Kruczinna, CEO of Pearl Group, said: “Customers in the polyurethane system space, both in Germany and any other country globally, not only require high quality products but they also value strong technical service, both of which are core strengths of Pearl. At a time when many bigger players are looking to decrease headcount and cut costs, Pearl has decided to focus on people instead to cater to customer needs. It is boldly investing in its team and infrastructure, attracting international talent to significantly enhance our capabilities and increase operational efficiencies. Returning to our German roots, which have always been a mark of quality among our customers, underscores our dedication to excellence and offering in-country technical expertise and local stocks to our customers. By establishing a presence in Germany, we are not only closer to our European customers but are also demonstrating our resolve to be an international leader in the PU systems industry.”
Pearl has appointed Dr Wilhelm Lamberts as Managing Director of Pearl Deutschland. Lamberts has been a non-executive director on Pearl’s board of directors since 2021, and in his new role, he will be focused on growing Pearl’s European operations and strengthening relationships with new and existing customers. In a career that has spanned almost four decades, Lamberts has held senior management positions at Covestro Deutschland AG, Bayer MaterialScience AG, Bayer Polymers AG and Baulé SAS.
Commenting on the opening of the new European location, he said: “We are thrilled to return to Europe with the launch of Pearl Deutschland. This expansion is not just a milestone for Pearl but a significant step towards fulfilling our PearlX2 strategy. It reflects our commitment to meeting the evolving needs of our customers by offering high-quality systems and expert solutions closer to them.”
Pearl’s strategic expansion into Germany and its continuous global growth underline the company’s ambition and readiness to serve a broader market, ensuring high-quality solutions and services are accessible to customers worldwide.
Photo: (from left) Martin Kruczinna, CEO of Pearl Group, and Dr Wilhelm Lamberts, Managing Director of Pearl Deutschland
May 6, 2024
International Process Plants (IPP) enters agreement to market ammonia, methanol and melamine plants in Ludwigshafen, Germany, from BASF 
Ludwigshafen, Germany; Princeton Junction, New Jersey, USA – MAY 6, 2024 – BASF and International Process Plants (IPP), a global leader in the acquisition and sale of process plants and equipment, have entered an agreement to market ammonia, methanol and melamine plants located at BASF’s Verbund site in Ludwigshafen, Germany. The plants have become available as BASF implements structural measures at its Ludwigshafen site to ensure competitiveness in a changing European market environment as announced in February 2023.
BASF will continue to produce ammonia and methanol in other assets at Ludwigshafen site. The two companies have agreed not to disclose financial details of the deal. The agreement includes the integrated production assets for ammonia (380,000 metric tons/year), methanol (165,000 metric tons/year) and melamine (51,000 metric tons/year). IPP is offering these world-class production units for relocation and sale to qualified buyers with projects for such assets who are looking for opportunities for lower capex and shorter project execution timelines.
“We are excited to add these world-class ammonia, methanol, and melamine plants to our portfolio of excellent plants for relocation,” said Ronald Gale, President of International Process Plants. “These facilities represent a significant opportunity for companies seeking to expand their production capacity with existing assets that operate at a high level of energy and raw material efficiency. IPP is committed to finding a new home for these assets in a location with sufficient and economic gas supply or as part of a green ammonia or methanol project where they can continue to operate efficiently and productively.”
The 380,000 metric tons/year ammonia plant consumes 0.97 Tm3 of natural gas as feedstock and fuel per ton of ammonia. The 51,000 metric tons/year melamine plant consumes as little as 2.6 tons of urea crystal per ton of melamine and has a low energy requirement of 0.27 Tm3 of natural gas per ton of melamine. The methanol unit is a synthesis loop that can be used in a green methanol project with available green feedstocks.
“BASF is partnering with IPP on the divestment of the idled ammonia, methanol, and melamine plants to ensure that these well-maintained assets are sustained for chemical production. The units were in operation through 2023 and only shut down in the context of the structural adaptation of our production setup at the Ludwigshafen site. The sale represents a more sustainable and economic approach to the deployment of these production units, and with a net benefit to the global process industry,” said Ruediger von Watzdorf, Senior Vice President Technology, BASF Monomers division.
About International Process Plants (IPP)IPP creates a sustainable lifecycle for manufacturing assets. IPP is a global leader in the purchase and supply of complete plant sites, process units/systems, and used, new, and rebuilt major pieces of process equipment. The company has offices in 14 countries, helping manufacturers save time and money with immediately available assets to grow their capabilities. With a consultative approach, the IPP team focuses on a clear understanding of client needs to deliver solutions quickly and at significantly less cost. Over 160,000 customers worldwide look to IPP to meet their needs. IPP’s holdings include 17 complete plant sites, 110 plants for relocation and 15,000 equipment process systems and major pieces of equipment. For more information, visit ippe.com.
About BASFAt BASF, we create chemistry for a sustainable future. We combine economic success with environmental protection and social responsibility. Around 112,000 employees in the BASF Group contribute to the success of our customers in nearly all sectors and almost every country in the world. Our portfolio comprises six segments: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care and Agricultural Solutions. BASF generated sales of €68.9 billion in 2023. BASF shares are traded on the stock exchange in Frankfurt (BAS) and as American Depositary Receipts (BASFY) in the United States. Further information at www.basf.com.
May 5, 2024
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.
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