Celanese Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 16 speakers on the call.

Operator

Greetings. Welcome to the Celanese Second Quarter 2023 Earnings Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the opening remarks. As a reminder, this conference is being recorded.

Operator

At this time, I would like to hand the call over to Brandon Iach, Vice President of Investor Relations. Thank you. You may begin.

Speaker 1

Thank you, Daryl. Welcome to the Celanese Corporation's Q2 2023 earnings conference call. My name is Brandon Iyasch, Vice President of Investor Relations. With me today on the call are Laurie Reichert, Chairman of the Board and Chief Executive Officer and Scott Richardson, Chief Financial Officer. Celanese distributed its 2nd quarter earnings release via Business Wire and posted prepared comments on our Investor Relations website yesterday afternoon.

Speaker 1

As a reminder, we'll discuss non GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward looking statements. Please review the cautionary language regarding forward looking statements, which can be found at the end of both the press release Form 8 ks reports containing all of these materials have also been submitted to the SEC.

Operator

Thank you. We will now be conducting a question and answer Our first questions come from the line of Ghansham Panjabi

Speaker 2

I guess first off, Laurie, in your prepared comments, you had some comments China and some of the trends that you saw in 3Q. I was just hoping you could give us a little bit more color in terms of how things are evolving at that point, in context Thanks for all the chatter about stimulus, etcetera. Are you starting to see any signs of that permeating through to your business?

Speaker 3

Thank you, Gung Chung. When we look at China, it's been a difficult year in China clearly, as we've seen depressed demand consistent with the rest of But probably more pronounced in China. I think what we see different now as we start moving through the year and we saw some signs of it Only in 2Q already is despite lower demand conditions, conditions especially for the asset sales chain Seem a bit tighter. And the reason I say that is, when we saw some unexpected outages in the Q2 and here really in July, We did see pretty rapid price response to those outages, which suggests that there's not a lot of spare inventory or spare capacity In that area. And if you look at utilization for acetyls, for China for global acid, it's around 90%, about the same in China.

Speaker 3

So again, That suggests to us that although demand hasn't recovered significantly, there is enough demand mass with the supply that we are at a Place where we can see some price movement up as we see supply growing. I would say we're not seeing a lot of response Yes, there's a stimulus. We hear a lot about it. We haven't seen a lot of response yet, but we think it's coming. And there are some pockets of strength In China, in particular, autos remains pretty strong in China and the broader Asia area.

Speaker 3

But we see the pockets of weakness as well, electronics, especially consumer electronics, consumer goods. And I would say challenged by The situation in Europe and the poor economy in Europe, which is limiting exports out of China, which is also, I think putting a damper on production of goods in China.

Speaker 2

Okay, terrific. Thanks for that, Laurie. And then in terms of the current operating environment, It's very complex and you're pulling the levers that you need to in terms of managing supply, etcetera. In the scenario that this sort of Complexity spills over into 2024. What are some of the other internal offsets we should keep in mind as it relates to the variances, 'twenty four versus 'twenty from an earnings standpoint.

Speaker 3

Ghansham, I think you've hit a good point. We really have no visibility into 2024 at this time. So we don't really know what demand is going to look like in 2024. If I had to guess, I'd say it's going to be 2023 better than 2023, but we don't know. But there are a few things we do know that we know will give us an uplift and we are confident will give us an uplift in 2024.

Speaker 3

So if you start with the engineering material side, with the amount of inventory drawdown we're doing this year, we will be able to have Completely flush through our higher cost inventory as we move into 2024, which will give us lower variable costs In 2024, we'll see less hits to our P and L from the inventory reductions. We'll see those in 2023. We don't anticipate a lot of those continuing into 2024. So that will be an uplift. We have an additional $150,000,000 of M and M synergies, Which will hit next year.

Speaker 3

That's helped by our Q1 SAP integration, which will get everything on the system and give us additional opportunities For synergy as we get everything fully integrated and cost takeout. And of course, with the lack Destocking, I would expect to see next year since we'll have taken so much destocking this year, in addition to that lift and we'll get from share recovery, We should continue to see M and M volume recovery in particular. On the acetyl side, we know at a minimum we have at least This additional $100,000,000 contribution from Clear Lake Asset that we have next year and then with the more than $1,000,000,000 of net debt reduction that This year, we'll have lower interest expenses next year. So again, if you take all those factors, those are things that we feel very confident will lift our earnings

Operator

Thank you. Our next questions come from the line of Michael Leithead with Barclays. Please proceed with your questions.

Speaker 4

Great. Thank you. Good morning.

Speaker 5

First question, when you look at the weakness in Engineered Materials during 2Q and into 3Q, can you help us roughly understand how much is just due to weaker end demand versus How much is due to weaker price? And other than Tom, can you talk about where you're seeing the most competitive pricing pressure today?

Speaker 3

I mean, clearly, we were below what we had expected in the quarter. I'd say half of that gap came from the M and M side, About half of that was really the inventory drawdown in M and M, which we really hadn't anticipated, so the earnings associated with that. And the other half is really just the weak demand, again, especially industrial and electronics. And how I would try Describe what's happened in demand, if you look at differentiated products, that's really where we've seen lower volumes. We've seen our customers taking lower volumes of differentiated products, again, because they don't have the end market for their goods.

Speaker 3

And we haven't moved price undifferentiated. We've been able to hold price, but we've just seen the volume drop off. We have chosen to take Instead of moving them and therefore is not needing them and differentiated, we've gone ahead and increased sales into the standard grade market, where we are able to capture volume, but at a lower margin or a lower price. So it is a combination of volume and price and it is a big factor Mix in terms of less differentiated, more standard grade, again, allows us to keep volume, which we think is important as we move towards recovery, We've had to take some price concessions to make that happen. And here's what molecules, I mean, Actually those more differentiated molecules that go into electronics, connectors and that sort of thing, which have also had a volume impact.

Speaker 3

Again, think it's short term. I think we'll see recovery there. And then on the M and M side, it's nylon. And again, I would say it's that switch from differentiated standard grade is more significant in terms of earnings Then necessarily the volume any volume impact.

Speaker 5

Okay. That's super helpful. And then just second, if I look at your updated EPS Guidance, it seems to imply going from about $2.25 at the midpoint in the 3rd quarter to slightly north of $3 in 4Q. So can you just help us understand what you think kind of gets sequentially better there in the Q4?

Speaker 3

Sure. As we move from the Q3 to the Q4, there's a couple of things happening. One is, we have Initiated about an additional $60,000,000 to $80,000,000 of cost control and most of that impact will show up in the 4th quarter This is work that we've been doing just the last few months. So most of that will show up in the Q4. You have additional M and Synergies, which show up in the 4th quarter versus 3rd quarter.

Speaker 3

And then we are expecting a pretty robust Q4, in fact, right now we would say we would expect Q4 to be our best quarter of the year. So partly we think that's on destocking. We think destocking And the Western Hemisphere should be over for the most part in the Q3, probably a little bit of stocking carrying into the Q4 from Asia. We also think we'll have less seasonality because we've had so much destocking across the year, we wouldn't expect the usual amount of seasonal destocking that we see in the Q4. And the last factor I would say is given the acquisition of M and M, we are now more heavily weighted towards Asia and China Than we were before and typically Q4 is a very strong quarter in Asia and China as we go before Chinese New Year's, Which will more than offset any seasonality we would expect to see in the Western Hemisphere.

Speaker 4

Great. Thank you.

Speaker 3

Thanks, Jeff. On VAM, in general, the markets It's been a little weak for BAM as we've seen. I would say Europe is still our most challenged geography. Really, there's not been a rebound in paints and coatings, construction and building as we continue to see the economy Really drag on VAM. I think globally the indication of this is we do see VAM utilization has moderated Into the mid-80s on a global basis, which is the lowest we've seen for many years, I would say, I mean, really since early COVID.

Speaker 3

We are seeing some recovery in BAM in the U. S, I'd say especially or in the Americas, I should say, especially in packaging. Packaging continues to be pretty strong, and that's one of our bigger end markets in the Americas. And then in China, although we see Some of the more industrial uses of AM coming back, again, not seen a lot of rebound yet in construction and building, although with some of the Unless that's been announced, perhaps that is to come here in the second half.

Speaker 6

Okay. And then for Scott, are there any hard Objectives that you need to reach in order to retain your investment grade rating or are there no hard objectives?

Speaker 4

Yes, I think, Jeff, we've been talking very consistently going back to when we announced the deal in 2022 about 2 focus areas. The first is Reducing net debt by $1,000,000,000 in 2023 and then achieving 3 times levered Towards the end of 'twenty four into early 'twenty five. And I think those continue to be where we're focused on. I think that first objective as we called out in the prepared comments, We're very confident given the cash flow that we're going to generate this year of hitting that $1,000,000,000 of debt reduction. And then with the additional proceeds coming in from the Food Ingredients transaction, that will allow us to actually go up Another $450,000,000 above that from a debt reduction perspective.

Speaker 4

So definitely on track and tracking ahead for that first objective and Continuing to build plans and a focus around cash generation and harvesting, as well as the EBITDA lift in 24 that Laurie talked about a few minutes ago, to be able to get to that second objective.

Speaker 7

Great. Thank you so much.

Operator

Thank you. Our next questions come from the line of Josh Spector with UBS. Please proceed with your question.

Speaker 8

Yes. Thanks for taking my question. Just in your prepared remarks, you talked about the mix impact within M and M and just recall one of your opportunities to Grow earnings, you're going to go after some of the more commodity markets that maybe DuPont walked away from. Has anything there changed in terms of That mix impact are really where you can go after different shares. Any of that taking place this year?

Speaker 8

Is that more of a longer term target now?

Speaker 3

No, I wouldn't say it's a longer term target. It's just that it will take us probably Through the end of 'twenty four or maybe even in 'twenty five to recover all of that volume. I mean, some of the strength you see in M and M volume is Starting to get some of that standard grade back. Again, we've had some offsets though as we've had lower demand for differentiated grades, But we have been able to go after and get some of that standard grade back. I mean, the good news is DuPont Ztell has really been Backed into all of these standard grades at some point, so it's not a question of having to recertify.

Speaker 3

But some of the standard grade markets do work on contracts, so we need to wait for people's Contracts to roll out, so we can get the opportunity to go in there. So I would say we're on track with our plan to recover standard grade, more Commodity grades, if you will, to use your words, materials, but it is something that will take us several years To get it back fully, again, just because of the way the business is contracted.

Speaker 9

Thanks. And just on

Speaker 8

the cash side, I guess, I mean, with the JV you liberated additional cash. I mean, how do you think about the opportunities there Over the next year or so, are there any other opportunities that you would maybe accelerate because of the uncertain demand environment or Should we think about improvement being more organic based? Thanks.

Speaker 3

So I'll let Scott comment on the What I would say is, look, we remain confident in our ability to generate sufficient cash flow through earnings and through Inventory drawdown and other steps to meet all of our debt requirements and commitments. And so We'll continue to be opportunistic as we always have been in terms of future divestments and opportunities. That really hasn't changed, Again, because we have a lot of confidence in our ability to meet our cash commitment.

Speaker 4

Yes. And I think, while we'll be opportunistic on Possible other deals, our focus really is on what we can really control. And we've been now talking most of this year about Reducing our inventories and harvesting cash from the balance sheet and then focusing on Cash our CapEx, bringing that down to $500,000,000 this year. And then as we put in the prepared comments, lowering even further down to 400,000,000 next year. And so with that and then the expectation of higher earnings, we do believe that As we continue to work our way through the second half of this year and then into next year, the free cash flow generation will be robust And then we will use that cash to continue to aggressively lower debt.

Speaker 8

Thank you.

Operator

Thank you. Our next questions come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.

Speaker 1

Thank you and good morning everyone. Scott, wondering if you can give us any more color on your comments in the prepared remarks about being able to Term the debt out and remove the refi risk from the next several years.

Speaker 4

Yes. I mean, we Put the maturities in place that we did a year ago because that's what was available to us. And what that yielded was Higher levels of maturity coming up in 2024 2025. And so as we said at the time, we would be opportunistic around What we could do to bring those towers down. As we look at the landscape, we think there could be an opportunity for us to bring those down and really Match up the maturities over the next few years with the lower levels Of cash flow that we're at with where the economy is right now, but still very robust.

Speaker 4

And so bringing those down to The levels of free cash flow generation in

Speaker 6

the next couple of years.

Speaker 1

And that would be straight, Dez? Or are you considering a convertible type thing or anything like that?

Speaker 4

Our focus in the past has really been around bonds and term loans, and we think that's been the right Structure for us from a capital perspective, we've looked at everything, but that's our current focus.

Speaker 7

Okay. Thank you very much.

Operator

Thank you. Our next questions come from the line of Michael Sison with Wells Fargo. Please proceed with your questions.

Speaker 7

Hey, good morning. In the last quarter, you had a you gave us a bridge To get that extra dollar per share, a couple of things, M and M integration, unwinding high cost inventory, lower natural gas, Yes. So, and a couple other things. So when you think about that dollar,

Speaker 9

is can you just give us

Speaker 7

a little bit of color of How that has changed in the sense that is it you still have that dollar, but there's a bunch more minuses that sort of Get you to the Q3 and Q4 outlook?

Speaker 3

Mike, if you look at that, we really we were Seeing some uplift in Aptill's last quarter when we gave our outlook, we had expected that to Probably continue over the quarter. Obviously, in Acetyl, they had a good quarter. They came into the bottom end of the range, But not further up in the range because we did see some settling back, if you will, to look Kind of at cost curve levels. And then in Engineered Materials, as I said, what we really saw is we saw a bit more of an inventory impact In M and M, we saw this really continued destocking and especially in industrial and E and E And we had last again, for the same reasons as acetyl, when we did our earnings call last quarter, we really were seeing strong order books In April and saw that as an indication of some recovery happening across the quarter. And again, in May June, we saw that really not happen.

Speaker 3

I think we certainly while we're just pointing our performance, I think we understand it and I think we feel very confident though in the That we've given for the rest of the year.

Speaker 7

Got it. And then, again, if you take a look at your outlook, the prior Q4 would have been somewhere around $3.50 And I think there was some confidence that that would be a good run rate heading into 2024, Meeting $14 something like EPS. So when you think about the new run rate of $3 in the 4th quarter, I know predicting next year is A little bit early, but how do you think about that $3 in the 4th quarter as it relates to a run rate potential for 2024?

Speaker 3

Look, I don't again, just looking at the actions I laid out earlier, the things that are within our control, I think that's a very reasonable expectation.

Speaker 7

Thank you.

Operator

Thank you. Our next question comes from the line of Saan Ahmed with Alembic Global. Please proceed with your questions.

Speaker 9

Good morning, Laurie and Scott. In your Prepared remarks, you guys talked about the destocking lasting longer than previous cycles. Now, obviously, having lived through 2008, 2009, the COVID lockdown period and the like, I mean, multiple lessons must have been learned. So my question really is that as you think about the restock, being A longer duration destock certainly seems like a deeper destock. What potentially over the next couple of years do you think the restock will look like?

Speaker 9

I guess where I'm going with this is, has the sort of inventory appetite of your customers changed materially Living through all the craziness of the last decade or so.

Speaker 3

That's a really interesting question, It's always hard to predict some of our customer behavior. I think we are seeing a very deep destock and I think That speaks to the uncertainty people feel about the market. I think again, especially the uncertainty in Europe and what that means just not for the European market, but also for the China export market. If we look at U. S.

Speaker 3

Markets, I would say reasonably recovered, Probably not a lot of destocking left. I would tell you though, China for China is doing okay, but China for export It's really where that uncertainty lies and we see value continue to be taken out of the chain as well as all of the everything into Europe. It's a very kind of unusual global situation that we have right now. As a result, I think and with low prices, people assume prices Staying low, so there's no reason to carry inventory. There's a lot of availability of materials, so there's no reason to carry inventory.

Speaker 3

But we also saw post COVID how this can change very quickly. As soon as prices start to increase, as soon as we start to see consistent demand recovery, I do believe customers won't want to be back in the same situation they were at the end of 2020 and we'll start to see people wanting to restock. So maybe direct answer to your question, I think it is a deeper destocking because of the accumulation of just Macroeconomics, geopolitics and everything else. But I have no reason to think we won't see a recovery at some point. And I think I don't think people have gotten comfortable with a lower level of inventory once demand comes back.

Speaker 3

I think there's just a lot of uncertainty about what is that timing of demand recovery.

Speaker 9

Very helpful. And as a follow-up on the EM side of it, again in your prepared remarks, you guys talked about moving from Exclusive distribution arrangements in the West to dual or multi distribution approaches. How do you see the impact of that sort of playing out near term as well as on a go forward basis?

Speaker 3

Yes. I think it's really a matter here of we are such a much bigger company now that continuing to have Single distributors in these major geographies is probably not giving us the breadth and the reach to the amount of customers we need to be reaching to generate the new opportunities and volume sales that we desire to have. So this is just about we need to have multiple partners to

Operator

Thank you. Our next question is coming from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.

Speaker 10

Yes, good morning. Just to follow-up on the balance sheet discussion. Scott, you ended the quarter with $1,300,000,000 in cash and I Do you address your senior unsecured notes due in July of 2024? Or Would you prefer to refinance them over the next few quarters, instead of paying them off with cash?

Speaker 4

Yes, Kevin, I think, we're not in the business of holding cash right now. We want to find ways at which to reduce that debt as quickly as we can. We Term loans that we have coming up and so we can utilize that cash for the term loans. I would also Remind you, we do have a $300,000,000 interest payment in the Q3, so we will use the cash we have on hand For that, and then we have maturities coming up still later this year that we will handle as well. We've talked Openly about having cash in other geographies that we need to move back to the U.

Speaker 4

S. And we're building those pipelines now And we expect to be able to get that cash back here to the U. S. By the end of the year. And then once we get Our systems integrated in the 1st part of next year that will give us an ability to operate the company at a much lower amount of cash, probably right around $500,000,000 So I think with that, that's going to free up a lot of opportunity for us to use that cash for deleveraging, Given the maturities we have coming up plus the term loans we have outstanding.

Speaker 10

I see. Thank you for that. And then On a related note, your balance sheet reflects approximately $1,500,000,000 as the Some of short term debt and current portion of long term debt. That actually ticked up a little bit sequentially. Would have thought that it would go the other way with the term loan pay down of $370,000,000 Can you speak to what's in there in terms of how much you might have Drawn on the revolver and what you might owe affiliates at this point?

Speaker 4

Yes. Mainly, it ticked up, Kevin, just because of foreign exchange, Mainly the euro moved up a little bit, but that's the big delta there.

Speaker 5

Okay. Thank you.

Operator

Thank you. Our next questions come from the line of Matthew DeYel with Bank of America. Please proceed with your questions.

Speaker 11

Thank you. It seems like a sharp acceleration in the China macro. I don't know, maybe needed Improve the palm and PA66 trade flows. So like is that right? And does the recent PA66 capacity expansions within

Speaker 3

Our outlook is really not based on any increase in demand. We have a little bit of Improvement in destocking occurring the rest of the year, again based on our view of the market, but we really aren't forecasting any Uptick in demand in any particular region. So I wouldn't say, that's needed to meet our $9 to $10 range for the year. Certainly, it would be welcome, but I wouldn't say it's needed. And I would say the expansions in nylon, nylon has always been pretty well supplied.

Speaker 3

There's been plenty of compounders. There's been plenty of polymerization out there. The expansions you've seen are maybe more on the upstream side, the raw material side of that. So I don't See that that really changes our dynamic much around nylon. We continue to focus our nylon on more differentiation, Getting into highly differentiated products, looking for new applications, new end markets, That share regain based on our good customer relationships, especially in standard grade, that's what I talked about earlier, the regain of share over the next Couple of years with those and really taking advantage of our integrated value chain and our option to be in or out of the polymerization market, Depending on where things are.

Speaker 3

So I'd say, I think we're positioned well to either make, blend or buy Whatever works out and our value really comes from differentiation. Maybe if I can give you some examples because we've often gotten this question Around nylon relative to EVs, we've recently actually just completed 2 new contracts for EV parts made from nylon. 1 is for a major OEM, we have a part now going into EV motor mounts, which will use Zytel. And then we have a second application we just finished for the AC compressor bracket, which is made from Zytel, which is going into EVs. And why this is important is, Yes, we talked about the time of the deal, but may have gone unnoticed is there are a lot of applications for nylon into EVs, Especially as you think about EVs being quiet, people want less noise, you need less vibration and Polymer parts and in particular nylon for those that require strength are great parts to replace metal and other things, not just for lightweighting, But also to give consumers the experience they want from an EV.

Speaker 3

And so we're already starting to see some successes Using the Celanese knowledge of the EV market and our contact with those customers and applying Zytel to those and winning some new businesses there.

Speaker 11

I appreciate that. I guess I wasn't necessarily worried about the 9% to 10% number this year in a recovery, more just In general with repairing some of these markets like particularly I guess palm because it's not one we have a ton of line from a supply demand basis. Is it really just trade flows from China and China is kind of sitting on the cost curve into Europe? Or is there And if that's the case, I guess, what reverses that?

Speaker 4

Matthew, I think it's important. We have a lot of history here in Palm and these situations tend to be temporary where co producers in the market Have made too much material and they move it into other regions, even if they just have to get rid of that material. Our cost to serve in Europe and the U. S. Is really unparalleled with our facilities in Bishop, Texas As well as they're in Frankfurt, Germany.

Speaker 4

And with that, our ability to win sustainably has been proven out over time. These do tend to be temporary fluctuations. So we do not expect that this is something that is going to continue for the foreseeable future.

Speaker 7

Thanks, Matt.

Operator

Thank you. Our next questions come from the line of Arun Viswanathan with RBC Capital Markets.

Speaker 12

Great. Thanks for taking my question. Just going back to the guidance, so now the new mid With $2.30 at the midpoint, it kind of implies around $3 for Q4. You noted that Q4 is going to be your strongest quarter. Could you just maybe bucket out that bridge between $2.30 $3 From Q3 to Q4, we can do the math, but I just wanted to hear it from you as well as to how the two segments kind of play out?

Speaker 12

Thanks.

Speaker 3

Yes. Look, I would say I would expect for the year, we've called out Aptill chain will be at foundational level of earnings, so you can pencil in $1,300,000,000 for the Aptill So essentially a second half very similar to the first half. And then in engineer materials is where we'll see the lift. And again, about half That coming from or maybe even a little more, but probably about half of that coming from M and M. Really as we continue to regain share, as we continue to move pricing on differentiated grades.

Speaker 3

And then you also have the other half coming from EM as we see the end of destocking really here in the Americas And a little bit of recovery in other well, not really recovery, but end of destocking in other markets. We also get a little bit of the biggest piece of this though, A lot of this will be in EM is the $60,000,000 to $80,000,000 of additional costs and productivity activities That we've undertaken, most of which will show up in the Q4. And again, you'll also have the help in M and M from the additional uplift of synergies In the Q4 versus the Q3 and a little bit of help from lower interest expense on debt pay down. So all of those together accumulate to make 4th quarter, what should be our best quarter of the year.

Speaker 9

All right.

Speaker 12

Thanks for that. And just as a follow-up then, so you'll be exiting the year Maybe a $3 run rate gets you kind of back into that $11 to $12 range for next year. Is that the right way to think about it? I mean, are you seeing the end of this destocking cycle? And Was there any risk to that view?

Speaker 12

Would it be maybe an automotive kind of slowdown from the strike or anything like that? Or is there what are some of the risks to maybe not achieve that level of earnings power as you look into 2024?

Speaker 3

Again, if I go back to what I went through earlier, if I look at 24, I don't look, I think that number that you're Out there is not a bad number from kind of a base. But if you look, there are a lot of things and that just assumes steady demand With the end of 'twenty four, which again we're not or with the end of 'twenty three. And again, we're not forecasting any great uptick in demand at the end of 23, we're just forecasting an end of destocking. So I don't see a lot of destocking continuing to occur next year. And again, if we look at just those things we can control, we will be in a better position from a variable cost standpoint as we flushed high cost inventory out of This year, we will not have the inventory, the level of inventory reduction hit next year, which will help next We have in the additional $150,000,000 of M and M synergies and we have the additional $100,000,000 from So I would say, if you take the Q4 and annualize it, I would see that more as a floor than as our

Operator

Our next questions

Speaker 8

Scott, do you have that number?

Speaker 4

Yes, David. I think, As we put out the Q3 number, it's another lift off of where we were in the second quarter, Which was a lift off of the Q1. As we go into Q4, as Laurie mentioned, we would expect another lift up. That kind of puts you in that range when you add up kind of all of those numbers somewhere in that $500,000,000 to $600,000,000 range. We're going to try to get to the top end of that range or even exceed it depending on where Q4 lands.

Speaker 4

But that's kind of where we'd be. But you're getting a lot closer On a quarterly basis as you end the year, to kind of that quarterly accretion level that we talked about last quarter.

Speaker 10

Understood. And Laura, just on the additional $60,000,000 to $80,000,000 of cost reductions, is that permanent? Is it somewhat temporary? And is it A little more color on that would be helpful. Thank you.

Speaker 3

Yes. If I look at the 60 to 80, some of it is definitely one time. If you look, about half of it is related to production actions. So these are things that are focused on fact that we have lower demand and so better optimizing when we're taking turnarounds, how we're doing turnarounds. I mean, if we don't need the capacity right Back right away, for example, we can do it without overtime and just take a bit longer to do a turnaround.

Speaker 3

We are idling facilities, not so much entire Facilities, but say lines within a compounding unit, so that allows us not to staff as much power savings, etcetera. So reduced overtime, reduced use of contractors, again, really in response to demand. So I would say those are one time or temporary actions Hopefully demand comes back and then these are things that we can reverse. And the other half, I would say, These tend to be a lot of them tend to be small and a lot of these are one time as well. So continuing to really reduce Travel across Celanese, which is worth a few million, reduction in promotional and marketing spend, a few million as well.

Speaker 3

So again, most of these are temporary. Look, there are some things there, which is acceleration of the synergies that We have laid out for the acquisition of M and M. So where we have redundant positions, for example, in the organization, Going ahead and removing those redundancies now versus maybe having waited till later in the year or even into next year. And I'd say it's probably just guessing off the top of my head, kind of 2 third things that I'd say are more temporary in nature and related to the reduction in Demand that we're seeing and our focus on maximizing cash in this period of time and then the other third would be kind of

Operator

Thank you. Our next questions come from the line of Duffy Fischer with Goldman Sachs. Please proceed with your questions.

Speaker 13

Yes, good morning. Could you just comment, have you seen any change in behavior in polyplastics Since you sold your half to Dicel, and are they part of the kind of competitive dynamics Issues that you called out in those increased imports into Europe?

Speaker 3

Yes, I don't think we've really Seeing any difference in their behavior, I mean nothing different than we're seeing in the rest of the industry in response to kind of the macro That we're all experiencing right now.

Speaker 13

Fair enough. And then either sequentially or year over year, What did Ibn Sina contribute to 2Q? And then what does that do in the back half of the year?

Speaker 3

Yes. So year over year, I've been seeing a that's probably the easier way for me to think about it. 'twenty two was high Higher crude prices, higher methanol prices, we had a really healthy contribution from Imencena. This year, I believe Imencena is going to be in that $60,000,000 to $70,000,000 less in contribution than last year for the full year. It's because our For all of the joint ventures is about $100,000,000 less in 'twenty three versus 'twenty two, and that's the combination of Evensena and Moving KEPCO to a manufacturing joint venture.

Speaker 12

Great. Thank you, guys.

Operator

Thank you. Our next question has come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your question.

Speaker 14

Thanks and good morning everyone. This is Ryan on for Alexi. Just on the my first question here is, you flagged the $30,000,000 to $35,000,000 headwind in Ian from destocking during 2Q. Based off your commentary on the call, I presume this is something that would continue in 3Q, but Is something that you could get partially back in 4Q as destocking kind of ends here?

Speaker 3

Brian, I'm sorry, you were breaking up a little bit. I believe your question is the $35,000,000 headwind that we had in 2nd Quarter due to destocking, would we expect to recover that in the Q3 or sometimes later? Was that your question?

Speaker 5

Yes. That was it.

Speaker 3

Okay, great. Well, I wouldn't necessarily say we expect to recover it. It's a one time thing. Now sometime in the future, Do you get some benefit from restocking, as we see demand come back strongly and Restocking will be a similar level to second quarter in terms of the financial implications. So I wouldn't expect Big rather big pluses or minus, maybe a little bit more down in the Q3 because we'll have more finished good destocking and less Raw material and intermediate destocking, but not hugely significant.

Speaker 3

So I wouldn't expect a second to third quarter Big change relative to destocking.

Speaker 14

Understood. Got it. Thank you. And then just my second question is, You flagged the delayed start up at Clear Lake due to some component defects. I understand the financial impact of the $1,000,000 But are there any material costs that go along with this?

Speaker 14

Thanks.

Speaker 3

No, it's really The impact of not being able to get our synergies, I mean, obviously with the lower demand profile, there is capacity in the world. So, we don't

Operator

Thank you. Our next questions come from the line of John McNulty with BMO Capital Markets.

Speaker 6

So cash Generation. Scott, it looks like you're pull down CapEx for next year. Are Leverage as we look to 2024 that you still feel like you can pull, is there more kind of to ring out of the working capital Side of things, are there other integration costs that can maybe be pushed off? I guess, how should we be thinking about some of the puts and takes

Speaker 4

Yes, I think we've been very open about our priority To free cash flow here in 2023, John, and that doesn't change going into 2024. We put the 400 CapEx Number out for next year. That's the first step. On the inventory side of things, dollars 400,000,000 to $450,000,000 reduction this year. There will likely be more opportunity going into next year just given how much raw materials have come up Over the course of the last several years, which we expect kind of volumes to be at good levels as we finish this year from inventory standpoint, but there will likely be more value opportunity as we work our way into next year to convert more working capital there.

Speaker 4

And then continuing to focus aggressively on terms and looking for other working capital opportunities, the teams are really focused heavily On that cash side and then when you kind of then layer in the elements of controllable EBITDA growth that Laurie has mentioned several times on the call, We feel very good about the opportunity to continue to drive free cash flow going next year.

Speaker 6

Got it. Okay, fair enough. And then Just a question on EM's differentiated products. It sounds like so far you haven't seen much in the way of pricing pressure there. Do you Expect to see any as you kind of look out over the next, whatever, call it 12 months, just given the level of deflation that we've seen across so many industries so far?

Speaker 3

No, John, not really. Like I said, we've seen some demand softness just based on our customers' Demand softness for their products. But again, we would expect that this is temporary and that will come back and we've not seen as we typically don't See a lot of pressure on pricing for our differentiated products.

Speaker 1

Daryl, let's take one more question, please.

Operator

Thank you. Our final questions will come from the line of John Roberts with Credit Suisse. Please proceed with your questions.

Speaker 15

Thank you. How is the Food Ingredients business performing into the deal closing? We've got some pretty broad weakness in the Food Ingredients overall market.

Speaker 3

Yes, I think our food ingredients is performing as expected and as we laid out at the beginning of the year, we really haven't had any issues there.

Speaker 4

Yes, John, that business tends to be pretty resilient through most economic conditions.

Speaker 15

And then with And rise in oil prices, is there any risk to the Singapore unit being curtailed later in the year if oil continues up?

Speaker 3

Look, I would say no more than it ever is. I mean, we constantly flex our Singapore and our Nanjing units depending on economics, Depending on regional demand and the cost to supply those regional demands, at this level of crude pricing and coal pricing in China, I don't see that dynamic

Speaker 9

Thank you.

Operator

Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Brandon Iyash for closing comments.

Speaker 1

Thank you. We'd like to thank everyone for listening in today. As always, we're around for any follow-up questions you have.

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Earnings Conference Call
Celanese Q2 2023
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