Trinseo (TSE) 2 Aug 202020 Q2 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Trinseo Second Quarter 2020 Financial Results Conference Call. We welcome the Trinseo management team Frank Bozich, President and CEO; David Stasse, Executive Vice President and Chief Financial Officer; and Andy Myers, Director of Investor Relations. Today's conference 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 furnished on a Form 8-K filed with the Securities and Exchange Commission. Instructions]. [Operator ahead. go Please

session. and in everyone. our a follow the instructions Amy, all brief this participants will question-and-answer in participate are listen-only to good you, At morning time, remarks, Thank mode. After

noted Our disclosure rules X. cautionary note on statements on Slide forward-looking and are

replay actual we certain is could results During in describing from including what and described forward-looking forward-looking differ on results measurements. certain its our to appendix presentation obligation on our these replay no A limited Risk available cause provided differ issuing or measurements presentation. under the statements. or statements. include, call. of actual forth A this not could The GAAP of release July to transcript these company will call presentation, future Factors Investor non-GAAP and following measures XA conference you expectations. that are is shortly XXXX. statements earnings of to XX, company's investor guidance discussed, corresponding website in implied to in our We may until revise includes but the make be that the conference undertakes reconciliation must Item The archived be in the Factors. caution materially our Form will Relations set factors Today's Annual Report and update XX-K

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

to start within by our as Since company ago deeply life. published XXXX year, and decade welcome about Trinseo's last we our employees our maintained call. and sustainable world our to are like this I've how joining is second discussing After understand value. intrinsic passionate, And that has sustainability a core Andy. how product to come and earnings Trinseo founding Thanks, month. delivering improving daily report, addressing are truly corporate Trinseo quarter the embedded sustainability to this earlier which a responsibility I'd

range only of well per ratings list of puts a us of and XX% areas development, as of are for It's accomplishments content in includes as achieved environmental of of This like These we'd our CDP worked celebrated as dedicated post-consumer by Project. Our include on XXXX It achieved safety industry. who circularity. in protection since we formerly hours covers from such the recycled proud we and the favorable to in across which emissions most as scope which X.XX chemical we many in results, its our a Disclosure where June, anniversary milestone. this of we reduced achieve us company. XXXX. helped XXX,XXX America's the responsible momentous we rate report again many a in greenhouse Medical the XXth employees broad us covering one recognized Newsweek thank continue In that Carbon because company once products was which polystyrene have companies XXXX. gas sell, lists our and injury to greater product investments these upper we echelon we've including where innovations, proportion focus It the an

our polystyrene we also as the We environment of map not road from advance company's embarked business valuable can are journey. years this economy. on initiatives That were to appropriate from was an is recycling only believed and created use on for assessment XX time operations change, a our XXXX journey measurable goals These responsibility, sustainability sustainability The achievable as sustainable anniversary main in an outlined X goals, is and which look capabilities what partnerships our goals that critical long-term responsible and so customers we also ahead month. best to feedback of focused ambitious important. but as XX position in such categories how suppliers. we success supplier We plan and makes quality under sustainable the well announced part how for long-term remain workforce. our society products, sustainable in impacting earlier and controlling This the climate ambitious this includes target and

and employees So when our our I next for discuss want all progress achieving to their acknowledge forward hard look I goals. against these work can we to year

logistics, Next, that the to minimal relates to experienced I to our second by our COVID-XX during interruption provide production a to on the and business all pleased customers. our quarter, of as and demand of our operations operations, want I'm meet were say it brief business update COVID-XX. including well-being employees and we able only

continue our well our at and supporting as travel. home where leadership proud uninterrupted customers. our and team I the agility of throughout that employees the prioritize possible, of We to have our by employees which safety in very facilities and limiting cleaning from demonstrated as our pandemic, working resulted this safety health the to of increased service am

the taking you are which Works I we asset improve Germany, consultation the I'd with by Schkopau Please of of we polybutadiene in Trinseo closure initiated thorough rubber Bohlen, some a update the and assets Germany. with that results, have completed Schkopau, monomer of and of Before year. assets Council decided move steps the should the an our regarding Economic analysis, to the footprint. Deutschland on provide assets discuss disposition be in like we the to process forward recall have After Council polybutadiene our to styrene in end second-quarter with the

still monomer disposition assets update of and months. the We few an styrene the next to hope over the provide are evaluating

pleased on an second that of and out aggressive historically We quarter Turning coming the had free raw drop the prices. in to demand for steep customers quarter, strong end May. pandemic and both I'm the timing In significantly working impact particularly over was to The took our across observed on $XXX with our second is position American million, business of cost demand Therefore, I'm we second pandemic. we which capital in lost affected with. the XX% estimate material April very several includes the about markets, results very year-over-year quarter industry on of lower in just improve unfavorable be the automotive action well of demand financial QX generation to low flow as and something we the from North very the as pleased as from environment cash European the results.

demand followed July. improvement However, strong and the a trajectory are Europe, July. rest across that and each we a into follow-through saw significant through to North automotive June XX% our of America the Asia. the in a has in quarter, sales accelerated to by low in April, quarter similar and improvement that and Recall the point Tire with followed XX% approximately

due styrene of quarter Europe, cash payable demand material remain well yielded Performance rates. performance Asia investing historically continues decreased and content receivable, a the our revolutions Within $XX also basis cash reinforces want demand XX% recycled decrease post-consumer to by more both to same strong costs from and material $XXX volumes our prices textile latex volumes mention for to year-to-date strong resilience in volumes is and in by higher the that the operations, led million various appliances $XX this packaging which as slowdowns binders for and from paper were for European inventory in raw as feedstock addition, on packaging within to to demand raw fuel graphical offset XX% the from Despite comparison free sales Plastics with and across low-cost styrene to in significant but to margins demand flow relatively and Materials year. paperboard and In Europe. solutions. of result our during better prior Engineered the POSM lower periods of prices continue segment management of this applications reduced prior caused and a during low I demand benefit Polystyrene including accounts products operating basis, segment than in declining in saw this demand segment. than low in applications. million engineered generated these X% the we competitive from segment segment, applications in including as inventory partially in CASE initiatives. On only million, commitment period our CASE year-to-date in the increased naphtha accounts was in quarter, expanded a materials a our the overall lower of levels

continues sheet cash of a million be source $XXX available of $XXX liquidity and as with quarter balance second of under to Our the committed strength million. of availability we in million total ended $XXX resulting lines

to management, in addition million discretionary -- to reduce our we also In have savings travel actions. we the Overall this approximately to spending. $XX is other steps expect temporarily taking base. year, of cost portion related A from for capital working these of are reductions and we also

year full the expect a will we impact forward. savings million, structural cost going $XX have However,

many ample for of to that quarter. liquidity million made from full the with was the position, repay in coupled the decision we $XXX market for a at our that the markets view end beginning April, second July in bottom Our the draw our revolver led to of demand

through and control, initiatives working to cost We continue spending. manage capital capital cash will strategic

in first second for adjusted half $XX $XX first million, negative in Before perspective an performance. This of $XX combined on COVID-XX, from net half volume first the in to of second the to steep half from year. I I'd million was the half quarter. the The the created earnings of the discuss decline $XX lost timing earnings adverse the uniquely material including the year, of like give raw a EBITDA environment prices, estimated lower outlook from a some the of year mainly the the in with million million you for

be third see the and see improved of business rate. you to through quarter, results run last as similar half EBITDA look April can and the into which Excluding we we by volume will view performance how recovery impacts, to the in continued quarter. July the impossible we impacted but the COVID-XX say forward long these trough year's positive was to that first It's XXXX

automotive, where and region, in in sequential second the largest quarter. for trucks in outpaced in we paper applications resulted expect applications. while market expect are automotive the normal applications, prior tire be the North seeing we graphical true levels We the them for improvement is quarter America and SUVs. same to second than quarter, lower sequentially automotive Overall, particularly production the to in textile experienced especially and far inventory tire, than This higher, volumes which impacts demand the year, demand that lower be third sales especially to sales

focused turnarounds such year, to completed low the is half larger year. half We highly we first on abundant continue from be POSM services dynamic dollar second which liquidity. of are the cash benzene the of result Many and in long low lower and projects will were will generation leverage and transition, as in to capital fuel the special margins July spending our continue demand to naphtha continue of the that Europe and styrene project-related and in expect rates reduced. as as

about we addition, impact expect Third of the prices a material In the raw timing favorable $XX increasing given million, as in overall net demand recovers. Quarter

difficult and we economic expenses of that remains it's recovery, as actions to the cash will on continue rate highly we've to unknown. taken to focused operating of maximizing While note predict be the it's recovery reduce rate important to

also may SSPR continue across Materials, Engineered in prioritize you for accelerate profitability ensure well-positioned are you. will to We investments our This recovery solutions and occurs. And generation cash open CASE, lines year and the when that questions. will the the we portfolio. sustainable to now Thank growth

Instructions]. [Operator

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

in to that April what pace better. the the as getting XQ possible July in of off understand recovery saw during appreciate the was was you bottom? a the that is going I can it there you saw anniversary. Quarter. that way I quarter well. that wondering year-over-year, was quantify point be if the and but you I April been sequentially volume up down things low quantify Second to maybe Is declines of XXth But have Happy sequentially

It reduction Yes. Overall year. in for reduction improved then volume versus business, in XX% XX% overall a the to and saw overall we prior June April. reduction

was of XX%. an it quarter, the For average

during volumes that what's is we important large into basis, polystyrene very, to the a go understand quarter. have volume Now on very

and automotive but automotive were we versus June QX, So improved that we is dig year continuing in volume momentum relatively the if were that and down we're Again, in remained progression were steady to America the we're have April again, seeing about the markets we gradual will the QX only steady in and but in was and down XX% XX% like for be versus goes into mix so and out see paperboard, that in prior down and polystyrene, ones in recognize EMEA, CASE for it's prior Again, XX% which we applications proving XX% it XX% year. itself improvements into we In July overall, remained for rubber the and that is order are May gradual. in XX% to and both applications. in important that's Asia. continuing about paper. was the and anticipate The tire you is pattern regional into August. up that XX% QX synthetic actually our automotive-related progressive textile other sales and sub-markets steady North seeing steady graphical XX% and pre-orders down

Got you. That's very helpful, Frank.

projected took you Scott is What the year. the by announced Powell with the decision action? in the You that down end shut to that your assets of savings XXXX

$XX that million. entire from savings the for Schkopau overall program Bohlen was both evaluation was under The and

related of that Now the to Bohlen. majority is

closure that as be in again, release going working have we'll But as well will from million. forward it's So in going the Schkopau percentage the the $XX smaller impact capital avoidance capital of future. a to EBITDA

right it's in positive It So will absolutely fronts. the all decision. be

Frank, severance we're maybe is so no really or significance just there notes that any one doing the of to -- with that on is mothballing PVR add closure. is also. we're assets, remarkable what There's thing closure no

of for next Your David with question the comes line Bank. Deutsche from Begleiter

This wondering and you about see talk mentioned was XX. that taking Katherine if Slide could Griffin question. on you how the I timing COVID-XX impact net unfavorable related you is the

OpEx little impacts cost half of perspective given you say expect maybe what a If looking or detrimental about better? sort volume from you just of talk margins bit about said for could absorption, the from what those you've second

I'll at that. shot Katherine, Sure. a take

that's on timing, net For what Feedstock obviously happens entirely prices. contingent with

we -- at XX in the prepared in Frank whole first drop So early recovery What which Feedstocks quarter. modest in negative had third a result across our for really quarter, large remarks hard predict of the in this relevant expected would in said the all big plus of half. because honestly the stage. we is prices Fourth is QX Feedstock a to his

or second prices. the working Our the for just half modeling built a we've only in recovery what modest our really Feedstock is of assumption that into year

So say. in early too say I really QX. XX to QX would plus

way in incremental in this case, best answer In is have a terms we margins I and that Katherine, our of think is the this disclosure to XX-K.

revenue. Our XX% raw materials our about are of

you you'd variable assuming XX% is if fixed fully the I think will. portfolio. at you across That's looked that So a cost absorbed, have margin if

for that You others while average you a know following us obviously that higher businesses certain have XX% business. from margins so than can from deviate by

the the back assumptions I year. think you assumptions the outline we that Frank for the volume of gave just half

the a improve think we in the decrease year-over-year and tire, expect which automotive are critical to quarter. volume ones XX% to I third

figure you that margin all work the math you the impacts. out So gives that to through I can think

next Your today question Jefferies. line the comes Laurence Alexander from of with

Bubes Alexander Adam is This on for today. Laurence

having bottomed demand end out was end-markets as thereafter? So that any lost out I there like stand in are that it momentum however, wondering, market sounds April. positive

is a is I really it of The no, very I gives the in second polystyrene to quarter because but an on stronger what there the demand that that did we significant think and us during efficacy would that crisis. is of simple increased COVID packaging the plastic say that answer focus due

higher that we especially that So demand think in packaging we continue an and saw will related content. have in applications polystyrene, most importantly, recycled that improvement will for that for think materials we the continue

portfolios answer trend thwart a So improvement again, of part is the the of during wasn't the simple quarter. significant there our that

to volumes just, Provide and Then you QX Performance a is this wondering helpful. about my in that QX segment sales. last if could be to auto you are just XX% me sales I'm in create Okay. there. I to auto think help down bridge trying percent was of I That's color some Plastics. in expected said question, what very think total

of applications Year-over-year the percent is prior that automotive-related third over was XX%. XX% Performance year. anticipated this reduction Plastics, XX% In volume. We segment into year quarter

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

actually are of early well. side supply I supply pace the on Dave, guys is question seeing as styrene terms the are the what were second you push continuing near-term you what additions things, of in Then and correlate in in expecting terms of year hope -- of is, guys outs? you year, forecasted we are this two-part. seeing side. seeing seeing or inventories, particularly that Frank certain the late part guys are Quick you last One It's you styrene China?

brought a data I'll more specific Maybe projects give you that on it have answer on projects I'll and we to projects take of and can XXXX-XXXX question being in we Dave give the some delayed. did the delayed. see the were take first second that was see and be on coming time that come stream in stream the qualitative The been anticipated XXXX and frame

global the anticipated to the relates to capacity we XXXX additions see for it we inventory. So be as them as

operate Now point in we've This supply-demand keep at neutral net come I'd that make they'll to at rates. mindset. in cash is this that calls we operating though. why are other on reduced demand about now like environment, dramatically managing to previous stream producers the to talked so anticipate with a Those position balance what the continue one lower that's have

Dave? it relates the to As inventories,

China what to impact Asia. that. the now we they've KTS and at KTS, China. first about COVID answer Inventories are of in since right about see that average long-term started XXX been That really I'll quarter a level in went compares really to XXX

Very helpful.

side there. polycarbonate some things. of we Obviously, saw over the margin on the follow-up a As resilience in

talked in maybe you off margin. that guys release press the tapering I of think about

where we the should thought expect the with business? in are what you in over around seeing QX there? What that guys of process you you So to stand sale then and guys did do What see regards QX?

QX improvement a that or that of and of applications and go margins of prices progression because into in of sheeting barrier we go the an was We sheeting did reduced cost would resilient biggest polycarbonate's application driver saw self-isolation into demand polycarbonate into sheeting. feedstock see

Now some in will be still be as as moving prices the squeeze that benzene better won't benzene QX it that put year, see QX we levels at it than prices on will margins, but rise. but prior up, was in are it

after we at to of of a last evaluating actively we're relates the and year renegotiated looking that our we strategic evaluate site options that project announced it not with positioning the As in that business, and sale -- so be to asset are restructured and sell clear. any position. a to site process certain contracts pursuing and to put we that sustainable believed the We us not business actively just the

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

First like than comp in in it is second question it the the more down quarter on guiding volume third quarter. to latex, looks you're the was

you about can driving what's that? So talk

I about can Mike, Hi that. Yeah. talk

in to would I would seen there the we've in of are slower terms think there slower of terms I U.S. I -- and was there, and secular a certain been out point which is largely market, seasonality say. for is recovering clearly than I the faster guess, has dynamic of two in slow recover, -- earlier the paper, a that are some continuation that us about end markets you to to markets there question That or recover -- coated in relatively also -- carpet others. know, textile, end

into we on question next fair. That's look as cash then the bridge, it. And year. Got

down in of well you of terms you the into next year? sense give cash some will as provided related slide items and ends the as transition and If item we is free next can who up, costs, to of restructuring the much turnaround I flow where macro the we as breakdown think line with just how about that head assumptions. helpful come Dow a the year, but us think expense, knows by

to in the did I project brought and said, assumptions. Yes, for will cash have on are cash The half million than $XX year. We'll We outlays Mike, going half Dow the this as largely Frank we lower We over. this XXXX, fact, items project, clean and million first significant $XX it's year about outlined If into Slide the remarks, to question. in second that some look -- XX. we of earlier And that up. small second were kind year of the the half year restructuring year outflows mentioned And residual will, in they prepared cash in our be back we the this some of cash that up to year. of as transition is a the half moving this they'll away of in his in the in the we as good still. those outlays first year talked just of half that have turnaround when lower full be go --

So XXXX. cash spend this we heavy Turnaround or half the year. first don't the in $XX about expect year. was in to any million of expense Again, related that

million year, the expect Next be for full year. that we $XX to about

a So upgrading going that plants. that's The room is last to all be our spend have $XX item -- and one go we next across million. will That's down. that projects other project. the software the for XX probably between year of of multi-year The control

to should for I transition next will think point Dow think it we're of call which X a Mike projects But a CapEx big year. million. -- upgrade, the So we're control early year full of the we that that room yet, let's give total a for projects don't guidance -- XXXX the the be $XX about and $XX were, little million, year at I

the breakeven cash Company about million. point Or to for of a think the last to cash our we to said want include $XXX is I of of dividend, Company. topic kind quarter, the $XXX last you if the CapEx make, is that the million. level something and it's I'd is taxes, At company, for just level we EBITDA sustainable interest, reiterate like a think what think breakeven the EBITDA on just I

of some that's think I just So important items. context an these fact for cash keep for to

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

question. a picture bigger I wanted to ask

your and XXXX be your will engineered economy polystyrene, by solutions. materials, XX% of applications, for circular aimed content at and approximately spend recycled Your

forward? trajectory and could your you as segments have seen what going that percentage -- So in performance of how the polystyrene as of contribute profits sales well

So thanks what -- area. x question. on the multiple, I sustainable versus about talking that solutions by depending the seeing asking would it goes application. we're for let X from a on seeing margin, minimum, typical petrochemical value sustainable me increased solutions products, the -- At that What up, start and we're

Now again, at the the can't not position. a say each unlimited But sort this profitability I we capability. chemistries, specific I even we're get really of basically put into in of crisis, I there, markets. an time, it demand from point a against standpoint, would -- to through limited think that we supply would in probably out see And improved and tremendous demand leadership relates I as believe a our

it of side. demand as these an that sort each of So robust insatiable the of or are in see the the we seeing demand would electronics to where for say relates markets, consumer types are we're solutions I that key markets the more

that polystyrene I note probably applications. rate next plastics at beginning per We to the in spend forward second this. want a plan European year. you'll has the polystyrene, -- of In also And tax Union that on virgin see a $XXX our a to put one ton, of

from polystyrene that post-consumer actually our customers. And market. a waste So for go orders a recycle specific booked that applications strong very, now we've in containing response will there very into our first is

tax can is market ton see the we $XXX tremendous. penalty in that a value our avoid we that customers create helping the by Now

polystyrene So that's joint what investments important. so Styrenics we where made North have doing in Agilyx step the venture circularity is and Americas that or we've is America the in with

think we're and position, longish many that a this can I showing for you sorry your dollars. leadership are to our the we're invest hope So tell of place markets about in the it. excited We but answer, is

color. Helpful

both? Secondly, volumes And exposure for for split did half? versus replacement rough OEM how then sales you your And do demand to tire see ESBR in your decline second how underlying auto and SSBR what's much XQ?

XX% number. over the I'll you for we decline So question. And I'm from going prior overall Overall, this to rubber. repeat volume year had of in earlier give synthetic a the QX, in

that to of ESBR. Now our remember improve XX% that is into versus reduction QX. I don't will -- -- that mix XX% SSBR about anticipate We maybe going

different, materially in between ESBR the quarter. wasn't SSBR and second Eric, It

to exposure your replacement auto And versus OEM tire?

for it's the what specifically is, Asia. XX% it's America. difficult ends were we then is -- how hard maybe XX% to of us very synthetic again, to know, is for I XX% us to is what and assess. question the this to XX% replacement, tire I us, And know industry where given -- on. each. Well, is and tires is, that rubber origin really really North Eric. your important OEM. But our what about know our exposure Europe, flows And XX we up. It's markets? mean what qualified But we a for XX% standard geographically, hard What it's in America, North do the think manufacturers, know generally downstream sell to for rubber people know we've in of rubber the tire the

sales. regional at in important tire understand that's to of looking when think you're I trends kind

question Morgan Your Stanley. line Castillo Angel with from comes of next the

viewing we into to you trying be in fourth across? get sequentially your EBITDA flattish the limited it were quarter XQ, clarify bit seasonality should that it's that little that for translating early. question to what on a -- on EBITDA, to not visibility. Just the commentary that just or a is we recognize time, At the the I down think But quarter, comment about there's fourth and slightly typical as

at juncture, volume, terms of QX see in Well, is QX to in of that terms again, year-over-year this approximately we progression. going to be similar

that about AmSty, should think we That's helpful. versus XQ how half terms And then in of the in second XQ?

XQ, that I We improvement. going a see talked about I big an we're draw last which polystyrene clearly, is markets don't versus how on XQ. in primarily AmSty that their would from have wouldn't severe -- numbers, manufacturers relatively Mexico, about of the polystyrene exposure say American how And -- see Latin North American given with America, the Mexico, QX appliance I call was anything I we're in companies to XX% between XQ -- America affecting the improved, distinction the impact don't think Latin to were market, in Latin AmSty's to they're have our QX reopened. having operations volume. we

polystyrene QX improving. don't here But now, their standing difference. a I right QX, big So are to volumes see,

And another one, quick I of it. terms just just in Got if may, M&A.

it's market terms are you what as case whether bolt-on the perhaps in SSPR, that? you or you thinking are versus you this of opportunities year, As noted, CapEx think Dow in year, valuation seeing and next within how the spend lower about about in coming opportunities or

Really, on balance support getting our be We're assets to to focus their there market sell us. that in preserving now crisis. the forced sheet, certain participants balance the unlike to right sheet, the that going are through are is

those see so point, through get is as arise, of if the comes. opportunities case preserve the sheet, this entire But to what at we'll evaluate crisis, we -- them And opportunities out and our the balance focus it. come

today's Thank ladies does And gentlemen, your and for conference you call. participation. this conclude

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