Trinseo (TSE) 5 Nov 192019 Q3 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Trinseo Third Quarter 2019 Financial Results Conference Call. We welcome the Trinseo management team: Frank Bozich, President and CEO; and David Stasse, Executive Vice President and CFO and Andy Myers, Director of Investor Relations.

Today's conference call will include brief remarks by the management team followed by a question-and-answer session.

The company distributed its press release along with its presentation slides at close of market yesterday. These documents are posted on the company's Investor Relations website and by means of a Form 8-K filing with the Securities and Exchange Commission. Instructions] [Operator

hand to now Myers. call the will Andy over I

Slide [Operator good disclosure forward-looking Thank on and everyone. statements Instructions] noted on you, Vinnie, note morning, Our cautionary rules are X. and

make described certain this in our these or materially actual implied expectations. future from we that During must you could forward-looking in describing caution presentation, We results including issuing statements, what guidance may differ is statements. discussed,

in results actual to, that differ annual but are Form cause limited under Risk forth Factors not Item factors set XX-K include, to our on report XA could the Factors.

measurements. Today's be archived presentation of includes of on available Relations website the the will conference the is certain release XXXX. of the replay non-GAAP provided earnings in company's call. appendix Investor and call A in The following replay Reconciliation our until shortly and be measurements will conference X, presentation. investor November our these transcript

the to like would over Frank call I Bozich. to Now turn

Call. Financial welcome Thanks, to and Conference initiatives. high-priority discussing Andy, to Quarter Trinseo's XXXX start some by Results I'd Third like

an executive First, our efficiency, announced and we increase of focus organizational to to the team changes October. at leadership effort beginning in

greater business shift across Trinseo excellence is new structure optimization. enable The a efficiency effectiveness the pillars to and process program which is organizational through enable global the increase it, which on This aligned will will with organizational business functional organizational built design, our support that Company.

functional will excellence. are structure several and pillars to supply This chain Trinseo. These commercial, operational, benefits have

focus our First it faster growth will enable applications. on greater commercial

these volume construction We performance growth and quarter. each binders and of plastics. the third example, consumer double-digit and and latex in adhesives year-over-year electronics in had For

identified. million gains major the the to contributor transition the have of savings efficiency structure $XX and million be a of $XX cost we this annual will that to Second results to new

lower many underway. implement this that us addition to and will In serve initiatives currently structure new the well leadership costs, projects to effectively are

bring from chain and quarter next Company on such of administrative for The track important enabler the as of year. optimization. will these is IT, including scheduled future house, For and and a critical enable business first supply of project step IT services transition in to and to process the our is our functions systems greater be Dow control This for example, purchasing our Chemical in capabilities fully processes completion control

will vendor Some purchasing our consolidation examples a where of leverage optimization benefits and of through operations supply scheduling through through providers areas chain ongoing in we and are more increased purchasing our effective assets. in logistics in our of realize

previously Germany. options discussed facility strategic for in of polycarbonate Another the project is evaluation we our Stade that

Our polycarbonate and primary approximately XX% goal our of this have of reliable we of evaluation production. that for high supply effective quality businesses, compounding which was margin to polycarbonate higher ensure consumes our cost a

for best at this We raw cost to operation option in site the concluded options million contributor applications. have will the the sales in our sustainable growing medical facility. savings result more we the the be remain savings numerous and to to future and will team that this electronics identified our and million consumer explored support significant will identified. a $XX economic margin structural a $XX These to and to and better material has savings that This exploit goal achieve is significant also of higher that to

takes years. for show industry, our Germany, which in place I'd case three every plastics Now participation the rubber talk largest like about and to in fair the recent global

products sustainable our and projects to customer's recycled show had team case that demand for respond to several the that waste. the putting an During contribute to will to Trinseo end our opportunity plastics at address

initiative Circular sustainable companies creating Solutions along focused two This recycling, exciting formed a plastics other and unique than infinitely recycling makes highly polystyrene closed-loop several Styrenics with is last for has materials with As that on in on recyclable fewer this steps consortium the potential efficient we Trinseo mentioned SCS. quarter’s or polymers. has call, other facilities. is What

K the Show, our in plan XX% to for Europe your polystyrene by customers outlined of Trinseo’s XXXX. content At packaging to change we recycled to product be comprised offering

its we We in collaboration, to also for will contribute outlined build our goal. the a SCS recycling first chemical kind XXXX of to Europe plant polystyrene

Our This to make target Commission’s European XX for of per recycling make contribution is will significant a day polystyrene achieving post-consumer capable the toward to rates. tons facility the processing up targets of feedstock.

to incorporate and keeping for products working electronics Lastly, of our Trinseo time. longer in materials periods consumer therefore, and content chain the for post-consumer medical was in recycled value

part be proud In initiatives. sustainability to addition, Trinseo of two key was

of new plastics is pledged which plastic loss is first second XX to its Sweep, pellets the the just where And recycled Trinseo use pledge plastic out pellet in zero Clean as Alliance, tons part products Circular Operation value is environment. its to by The renewed the keep Plastics undertaken million to our drive XXXX. chain commitment of towards across of

we Trinseo challenges. recycling me discussions with our some Trinseo that was clear of of clear of is business leadership is various Also, K solve at a was it to customer's had the and opportunity areas and plastic to was great customers our the for What there waste. partners depolymerization from providing Show chemical the needed in our that sustainability

styrene a from me on we European relating that received in the Commission XXXX. of Recall letter comments, my the the let of June you in a this activity Commission commercial provide update third European form I Request request brief in the for monomer to we Before from Europe. Information received give quarter

historical organizational process of fully cooperate styrene and employment, week, we purchasing, certain request we and We're and to for Commission continue received European this information styrene financial, information. in Last on supplemental the and market limited responding request supplemental to the a with matter. structures was that entity, to

review across I and quarter observed markets. take the Now we few to financials the to from minutes want what a our third

This of outages four demand styrene in quarter, QX of in margins a level the in prior macroeconomic During comparison to half the decline first combination third a environment over of the to quarters. the lower saw seen cause have those from styrene with we year. the we continuation conditions low

reflect styrene its the have guidance tracking to them track outages with May. lowest over Despite have to outages increasing XXXX. fact, level we've there Therefore, margin began some in of year is And been these updated economic increased in uncertainties, August, the margins this. these low have Styrene full levels consecutive have been from our Europe of we point on year XXXX. materials In share since November in raw back in to we highest spots. since disproportionate a months bright three this year-to-date

is over two to and reading October the represents June XXXX. to implementation years of Caixin, in which stimulus. of see a markets XX the highest was Chinese the half encouraged the fourth serve China, an straight In China we with PMI manufacturing Specific December in in license the increase. XX.X, and China, Two an plate most populated until cities quotas we raise auto to the additional decided from in are China month

to ABS, production in led plate market. substantial cities we're has these the third prior XX% In quarter. new polystyrene for which in we're and third in saw conditioners during X% sales And will U.S. year initiatives quarter large into third a Appliance market registrations automotive license is this growth quarter U.S. in volumes were a any hopeful stimulate the prior versus year. China, light growth automotive of of the the increase and like market government This refrigerators production in this both in are segment. of our year. above and in sales the truck this our air quarter the the highest that

to Since success. became spoken of I the CEO business March, the I a And outlined some of in anticipated importance benefits. as I've key about excellence

We like get expect in these are during more our and there. the times to forward. positive to as won't initiatives challenging even we economic we are but These future, ability in drive vital stop move results it ongoing confident

it quarter, period on XX% place EBITDA is electronics. with our generated to seen pricing We've an adhesives, excellence emphasis construction, than year-over-year that's initiatives customer results results and prior – in in adjusted been markets, These We've success business margins excellence year-to-date the consumer years. seen part strong of were polystyrene several in in polystyrene put also large the downstream in We've due seen strategic above growth higher in and weaker in good third a that business year. seasonally seasonably prior as mix.

year addition, cost spending, fixed productivity year-to-date initiatives prior onetime inflation. more offset In as and excluding than below items the company, was across

authorized quarter, Part Year-to-date, third recognized repurchased of X.X through our shareholders shares our our $XX Board quarterly million we repurchase with as have million that X.X combined the we approximately shares, mentioned that by recovery shareholders. returned August, our cash through shares is our largely value responsibility almost up we've stock. X% earlier the the which dividends. of million outstanding return million our outside of While rate well is repurchases during shareholders acknowledged our purchased value of of share the and initiatives control, we shareholders. to the our as late to through continued our to quarter. $XXX in and returned of I In dividend, and projects providing In to were economic about to we we

while so expectations, market the of third conditions far similar experiencing the to Moving improvements seeing the quarter, signs operating we’re we're quarter. year in full to fourth

similar million the we quarter-over-quarter unfavorable about quarter excluding net fourth timing addition, timing. expect in impact environments, an declining $X In raw material and of net results given the

we year, and income impact net to full million assumes expect This million minimal timing for adjusted a of full $XXX the outlook $XXX $XXX of For EBITDA net million. the million $XXX to year. from

the around of expect $XXX in strong been $XXX finish cash year result cash cash flow. free expect which XXXX we of operations, with has million million year to generation a to of and we from

quarter more plan XXXX, detail ahead our February. Looking fourth on in to we on providing call

to of we better regardless of will results we determined execution in enable experience we’re whatever us business growth successful improve adapt However, highlighted value business via and initiatives. as XXXX, well deliver environment future. believe to economic efforts I’ve as develops I cash our call, that shareholders. to our Through for will continue positioned our to This the economic to the on the to be generate the excellence, backdrop this

open phone the operator, line Now, questions. for please

[Operator line first David Instructions] Begleiter of Your Bank. the comes from today question Deutsche of

Your line is open.

good Hey, morning.

Good David. morning,

what XXXX? know I coming there’s Frank, in expectations margins, strengths for your more some styrene China. on in given are the capacity recent

said last, three good the a in You’ve in you think seen here months, I styrene. rebound

Right.

an XXXX in we see That going the metric coming be and about will of on new capacity. the tons global represents equal China XX,XXX year to X%. there's that X% first half in of in of that about increase capacity So

see that, growth demand growing X%. at against about we Now

expect the the basically be effective were same would Now, or the can one operating point than thing think XXXX operating I out to overall better in though, they of I terms – we in outage. the I outage we in reason the than the of XXXX is in And was low X% that less capacity industry XXXX. with level say that historically experienced rates

normally the was since level XX% to XX% since we've XXXX. that lowest And it's that So XXXX. been seen

for the lower coming there's a also cost, real hinges despite of return effective So effective to operating on into it in improve producers happens capacity bigger normal a rates capacity rates. or potential what China the the And is non-integrated coming market, new in in what the the really of to XXXX online. outage or the operating phase

operating is our that coming nonintegrated the for return to normal And us plus upside to equal outlook then rates capacity. the happens to So, new the is is producers. basically growth what the

more do on segment the few And you What business Very earnings lastly years? rubber, The power normalized has Frank. of just the this over expectations. performed not think next is good. vis-à-vis

the SSBR like our where targeting that in through because technology high-performance goes. product rubber, especially we which tires, we’re have we line opportunities is So, our

a on Let me give a year and that. of this what’s performance bit background the driving you little

and impact QX draw we’ve of of our performance that was and $X million because underlying EBITDA was million of understated had $XX While million also we shown the timing million impact. $X $X in about bill

year in saw overall SSBR to increase margins our we’ve year-to-date, or But actually a SSBR in to stable we Now, volume. held last year. relatively actually our X% QX, prior prior

have in growth look So is in SSBR which business, ESBR, that is economic or at by technology. they generations rubber depressed don’t how of more all a sustainability our high-performance basically had commoditized replacement when and like future conditions, for we standard performance new as is a fast tires. it’s tires, of or we tires drag high from don’t our qualify to lower you the grow driven tires standard What tire

were are results our decline our environment, this SSBR. in outlook but think I again, pretty. the So in tires, in by given like position high-performance is We where driven our with tires standard we

you. Thank

of Frank from Your Research. next Fermium the Mitsch line question of comes

is line Your open.

morning. of case. styrene typically Frank, the then good and you mentioned outages lower level Thank that you a seeing XXXX, it’s we’re monomer

relative some out styrene metrics to normal years? of might this kind be percent you in And level would terms would of a other able you what be year around that anticipate If put of outages. to

I’m XXXX, industry were outages. we But the So industry example, capacity going – we they than the industry low. of this X% looking In unplanned. seen, unplanned total planned was just at it was under numbers typically back digit experienced less XX% of would capacity year now, XX% to And particularly in have industry and in outage. double And the outage capacity just outage. less XXXX, had under capacity than for in both rate the

on past So, average the above XX%. over decade, it’s been half

and was an was year anomaly year it XXXX. the lowest this since So,

to a looking suggests, it’s And reauthorization. share to just the reversion forecast Very helpful. mentioned outages. XXXX. a difficult follow-up, at the mean, to you purchase Thank obviously But kind positive means unplanned some you. I of

ticked quarter a beyond? What obviously in anticipate would buybacks the or the annual QX You – quarterly for kind second the from you of basis back kind level of level up of you’re on and third buying quarter.

a really precise we forecast couldn’t Frank, Yes. number.

was we Let the Basically August. place time range. authorization in put back approximately to with our at prices in back me go were share $XX $XX. that We in the

thing. determination pricing. do we the at at program made had described. to was looking same would we And that a purchasing Board that basically acquisition And strategy in the various and so we place an that different together levels And got put we

predict capital And really balanced would our so return how to shareholders that. can't would do cash forward, we take deployment but approach we that and a continue going through I to

you. Got you. All right, thank

Ahmed of Global. Your Alembic next question Hassan the line comes from of

is line Your open.

I Frank, to Frank. Asia, gotten for are you are in normal me in right a morning, any Or relative particular. get seem to levels you that mean, sort Is seeing out styrene see I inventory in where downs inventory pickup stick it Good wanted now fair? levels? sense quite to lean. and particularly of of that had inventory they where

about good Hi, and historical answer we in Dave. Inventory kts compares so morning, an the that. average Hassan. XXX to that in see levels, mid-XXs kts. XX It's I'll China now

of indicative of seen, think environment. get the in think Now what I we level of what that outages And the particularly I of the that, that means periods the the price last that mentioned, were outages unplanned some for Frank that. outage heavier first for to us haven't lean in so us, obviously, outage would is increased level we see if to on means as as But are as of couple there demand a outages, season if be, into years. margins low heavier that's there planned – as quarter, top we the season,

level poised to I in market is think of see the with this increase an leaner margins inventories.

buyer to cost on for the obviously, a cutting after Thanks follow-up, you management, these as decided sale opportunities a that. any beyond thoughts potential identifying entertain what And as the did that, And And Was Dave. any guys polycarbonate there it chuckling it doing in have on about guys your interest be process? hold assets, assets? further were you are other sale you side, business, Perfect. of that that? business polycarbonate be portfolio to interest,

with strategic review let So the address that through we styrene. first went me

for asset. And the XX% downstream supply focus is the polycarbonate about confirming long that styrene remember economics best for business, possible. term the our it's think of capacity important that's a to that's I that to of business provide to

long we improve that review, achieve that options – were the all when they term economics. So and goal considered we started to all to

we in was the options are support term shift the areas, downstream the through material of opportunities long opportunities site, a significant the site best the was of and operating taking economics and at day, to had the other that For to of is and end the developed. team business what to raw continued advantage operation savings guess clear developed, I after that the reviewing the

the to option keep it. is all to of again, but on opportunities And it. table, the the were best take this So, as improve options advantage running

management beyond of portfolio terms polycarbonate? in broader And

we at to Then those and/or with for our councils when initiative. to our part We our to do asset always across will for the asset of into optimize and continue will look that's be our reviews enter ongoing be an And we business – our communicating and assets opportunities process do reasons. most those going as statutory effort improve we portfolio that. will by that look of very our and portfolio assets transparently have in Europe, to works' being in excellence

it. will to we again, be about will and So we transparent that continue do

guys. helpful Thank you Very so much.

the comes Your Barclays. Leithead next from question of Mike of line

open. Your is line

Thanks. aggressively one taken leading of guys. I morning, to polycarbonate, first competitors your back European over in want circle on approach price. has Good volume to prioritize I the business that believe

market So business that at in and just I can that factors you these and application? competing guess, the of some in polycarbonate your dynamics how, talk calculus all, into through if you’re seeing

Sure.

support our with supply. why us give area competitors operate in scale the they’re provide comments that we And capacity to we’ve dynamics this forward. the that to – agree and do are how look assessment our ourselves grow mass we’re So internal of economies but merchants say not when demand positive higher contribution, think overall earnings and site we that in again, the additions market for for I goal how it’s – us we critical growth primary an for and supply going our this downstream about frankly, serve – sales, position the regarding area, that occurring in the in best and the about business, that would we in when best you And downstream our applications thinking listened high at industry. compounding. and And of about, that does volume, their asset our

And we economics a we So that merchant focus minor the to relatively see sustainable possible. position, best but have operate segue with our small position. is

it. mix That’s but effect business have you’re choppy demand And rubber, this on demand, for obviously could volumes by the weaker demand. seeing helpful. apart you over synthetic And maybe unit demand environment? Got then trended been have the margins the in ESBR how just auto hit follow-up SSBR versus parse this

Hi, I can Mike, address that. Dave, its

outlined Frank think I pretty it well.

more SSBR. you frankly composition the SSBR that up of evenly standard capacity ESBR our tire and of roughly high performance rubber, lot split And the If the the ends manufacturing tires. the synthetic Asia towards then at targeted which between look a being in goes in ESBR it’s into market, standard commoditized which market. is tire and

Our up about double-digits we’re where they’re down our basis – ESBR side volumes, on SSBR developing focused as Frank On and market, on percentage on a growing the that X% they’re is year-over-year mentioned, double the ESBR but frankly in if look – down there side digits. a volumes business there that also is excess capacity there’s been of are you margin big And hit ESBR. in global basis, on the a side.

So know, tire you the a largely margin demand consistently on that’s margins as with business conversely we’ve large fluctuation contracted Where held producers we and pretty on and subjective SSBR SSBR. and environments. several weak have years for

you. Got it. Thank

comes Petrie the Your of Citi. from Eric question next of line

is open. Your line

$XX target you business good see million, cost Question segment? run Hi, split being it and going on would captured next Frank. million see year morning. do that of how all savings rate you the how by you Do your forward? to $XX

That’s question. a great

to a the On me a business a I guess you on that unit. context maybe portion early let too number. us what to last that for give it’s piece,

than normally streamlines, gains and global operating efficiency pipeline have raw tell much of which and a more site the at you to million, and $XX are to there also would improvements then sources we transition opportunities we from $XX I bigger there’s that the savings. First, have the functional then opportunities material the and organization, is of million a these

– tell resourcing of in resourced XXXX. the will the So and for But P&L add-on, is process is systems initiatives one – vast process majority you – it be really us of how a be right it’s now the would in our And that, sort months that then at that that and that’ll give program of a operations, But for much I going forward will manufacturing hit I you we more opportunities independent know have future. exact fully bigger the we’re implement than future cetera. timing in to future. guess and program. that in in the And chain become big number business Chemical from important we sequencing. supply we these our efficiency would we various I developing a the processes as look to phasing redesign Dow the until et the this But our won’t that our in again, of we in enabler and for couple

opportunity pipeline than that the have the that confident should realize majority hitting see I’m we but So, continued we of will XXXX, P&L. a of bigger this.

you. thank prices styrene on I a And Okay, European the improving. $XXXX market, Asian $XXX roughly comments have Could you declined margins follow-up, to September. from down in a mentioned think from you give us

much how comments helpful. would any economics might purchasing you there of buying based on those be and be So, volume

Hi, Eric, it’s Dave.

think, you’re right. I

have much seen in in styrene there margins smaller. is decline a but exposure Asia, our We

just level give to numbers I’ll you So, refresh set. everybody, see the the

for kts capacity We XXX in Europe. have about of styrene manufacturing

a of to this obviously, in produced year our than had bit that speaking is little XXX Europe couple KTs. exposure we’ve outages, because we’ve a styrene less Now, margin generally but

purchasing about small purchasing Styrenics. on Asia. And we’re our Americas XX% kts interest KTs small and a we’ve XXX through there a Asia. – cost we’ve exposure economics in We’re then that exposure XXX a and We’ve relatively got in relatively got of in ownership then got

X billion it’s in being X,XXX total, or far Asia with kts margin the exposure by So, the of about smallest. styrene

you. thank Helpful,

Vincent of of line the Morgan from Stanley. Andrews comes question next Your

Your open. line is

Angel is my Castillo on question. Vincent. for Thanks for this taking Hi,

expectations. quick on question your a XQ Just

that curious seasonality comfortable include XQ. as You as noted little – a I to I’m wouldn’t guess bit the more you similar factors you make are market, that? why I guess with maybe, a and feel just what

Yes.

timing operating rates QX and seen in very be we’ve we QX. question, far the basically, understand should same. as I so net performance business basically similar the The are if of in environments what seeing So,

it’ll in seeing our time, are went we’re the downstream through markets, upturns markets serving that we but supply chain take for believe flow various Now, that to us. optimism to we and in the

read question? a have we’ll the into that so answer that get Does as And on better early QX later and we QX.

you’re Thank as following net timing It moved that we XQ and from just obviously, your you. of guess know into we then curious that, the kind and and backed of just head and on head there’s on comments up what kind in materials, the And thoughts does. quite the throughout raw out XQ, I we lag impact in a expect a benzene quarter raw the effect into just year, material XXXX I in fourth that? should and as bit

Hi, little well Angel, outages. and think and obviously, the – benzene as for to too QX, I QX a to in by I us it’s will accrued what as happens Yes. be mean, Dave. it’s early happens influenced to largely what

out you’re just timeframe. caused prices a outages in to Angel, do a to think a judgment early probably you in little where August, that and – early QX One will There rise feedstock though, So, us be I to it’s of thing benzene couple to benzene on, were too I pass strike affected cracker Europe point for right. too want September little QX. prices

that over we’ve that by ended, enough styrene in and is really then, that, the the trough the several was increase mentioned and impact or that margins movement outages in of seen in in to months driver the once we the price so last primary the benzene have So contributed three was largely Europe. styrene which And four months. it first since largely August those margin caused the earlier, as was year

you. Great, thank

the question last your And Koort from Sachs. of Bob line of Goldman comes today queue in

open. Your line is

Campbell of had Good year-over-year results much encouraging interesting of bridge styrene. for curious pretty just into XXXX, the This I’m Dylan how third noticed pretty polystyrene capacity that other it styrene growth I is is we that growing morning. on quarter. at styrene Bob. I a gave in EBITDA for look demand terms and When going guess and versus in polystyrene derivatives?

way, know, get it a to purchase you styrene we that but manufacturer hard out styrene. yes, as a parse to also it’s you little we going answer, I’m because precise Dylan, and

I – terms What polystyrene I So, to very I hard and mean which think business regardless is bought It polystyrene somewhat understanding we feedstocks say, which at internally transferred versus would versus say or what important out. we latex the how for that market. transfer our rubber. styrene from think for fungible economics manufactured I it’s polystyrene whether the the just – for which us account We I sold, for how business segment. of – of our of purchased polystyrene goes in – and parse would styrene of account into is it’s or of it’s internally

Okay.

What that we for affected polystyrene we’ve margin latex the of cost market our businesses. the EBITDA their in what business businesses, report over styrene there’s So styrene holds and there. same the as rubber and reported as EBITDA other in polystyrene that business polystyrene the is buying and

I your a two that you rate for a had to run a versus been there running reason will pricing But we’ve market. months. you’re large activities, million going in of understand want say sure on a the quarters about – at that, and that quarterly parsing make shut million first fairly get Dylan $XX that I results So, good down over – three year plants activities been polystyrene of Europe three adjusted and or the been very is or the run right, two be polystyrene EBITDA XXXX, results the $XX years. into were $XX past in And rate job is excellence commercial the that specific have segmentation out market the several million would next shut down for we’ve to that. the question about done – good And

produce converted the to ABS and And is capacity. European of other being shut are One down. them combined is being those X% of about

So polystyrene provide for with larger us that some regional globally. it that is And XXXX. ship think tailwind – product, we should again, will doesn’t

going helpful be into should both in reduction next X% that So year.

cash it. noticed Got then of kind build, you in free and of helpful. sources And working seem the I capital. minimal That’s uses flow

guess, I so a difference or source quarter, think kind or driving in fourth What’s I or decent you’ve the got generally, use of pretty the two a quarter. in years last fourth the XXXX? capital working in the of

Yes.

right, we was say, in have a That and there would conservative, think – receivables of Dylan, probably that. as I have have I seen you’re we I seen would really would Dylan. the working we that forecasting release based say guess really for we decline released I typically a – about just sales I attribute all December to

Got it. you. Thank

And gentlemen, conclude today’s does participating. conference call. for ladies Thank you this and

You disconnect. may now