Trinseo (TSE) 5 May 232023 Q1 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Trinseo First Quarter 2023 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich, President and CEO; 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 Thursday, May 4. 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. operator the require telephone. on should anyone assistance call, during your If

now to over the Myers. I'll call Andy hand

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

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

is include, and but During or not to, guidance Commission. you future what no undertakes Exchange our must caution described XX-K, and that materially made we results update discussed, in expectations. could our of make forth risk differ factors results to filings are The Item forward-looking certain revise in company XA in statements. Factors Form may presentation, differ to implied describing its limited this forward-looking report obligation statements, issuing could actual these including our or that actual Securities on or the annual We from other set statements. with cause

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

to Bozich. call Frank Now over I'd the to like turn

to start March. that the welcome our operations earnings addressing to I'd first by and Andy, like at XXXX Thanks, late Pennsylvania our quarter spill in occurred PMMA Bristol, call.

stakeholders. disruption the deeply and that begin in by is to concerns this neighbors the saying me our Let and disappointed of our organization event our

everyone's are very We confidence. hard regain working to

emulsion our material equipment acrylic accidental closely portion authorities while and and X,XXX gallons at ultimately an material on into contained the estimated was same latex and state the reported collecting local with an release events time, facility, to at into waterway. flow of and cooperated an this We the of some waterway. flowed activities, a response of immediately local, preventing not failure, occurred the further and Due federal

downstream applications, and This various in FDA in devices. the is material medical for is consumer dialysis used including use and approved filters industrial, by medical

polymer that are non-hazardous chemicals as a acrylic material, are our latex there potentially Within that certain classification. OSHA Importantly, precursor emulsion present.

chemicals. of pounds estimates Agency pounds of Management was the dispersed these and to of chemicals butyl pounds of containment Our None waterway. water the the styrene. to of these and and methacrylate, acrylate, within pounds of material methyl X.XX Emergency the to material portions by acrylate, part the X,XXX of XX.XX detected the X.XX believe X.XX cleanup ethyl reported Pennsylvania gallons on-site of activities the reach authorities Due as never response sampling conducted that release, initial

performance the environmental Additionally, of to record to facility opportunity Bristol take the companies' I'd like that about site address historical multi-tenant the includes other our at this operations.

actions. a Enforcement biases, with non-compliance, had compliance including of the enforcement as Our History event, has environmental regulations, facility no has history no Not database. and no and by Compliance this facility significant of Online quarters formal our indicated EPA's

way. as to you of response we of we've know, employees performance all a safety transparent and an the our had to health committed and outstanding proud this the record. and a As emergency are I'm EHS and environmental, cooperative in responders strong overall company, handle

results. like the Now, to I'd to turn first quarter

three XXXX for environment, we established at priorities low QX near-term entered we Trinseo. continued As demand

targeting the in material sustainability. on Europe that to to in working and increase capital growth focus second low-cost imports have last substitution volumes cash; may driving to year. And First, organic of we half been to lastly, lost second, continued management recover programs

quarter. around efforts Dave the on working million these QX were capital based but on confident detail, more by successful demand we reduced as say in reduced that capital the $XX our very to management our happy in even in I'm will working will in positive are levels. free actions taking, we XXXX, flow we at cash are we actions be management cash elaborate

From in over normal QX. recovery increase a of seasonal levels volume markets. increase a rather broad improvements volume market we our volume This X% saw the and a than reflected standpoint, end in

weak as conditions but Business were consumer continued broadly the quarter and first the in the building electronics, we with destocking demand. automotive fourth healthier same experienced in what quarter, in construction, demand

modified that of for as binders declined While these case well the applications lower XX% for sales periods and about for resiliency volume company more have and volume at and offerings half rate, was destocking during which total our down demand. shows resins year-over-year, specialty latex as that structural

margin and outperformed deliver that technologies should the enable and QX the for broader programs, volumes year-over-year our general, rate portfolio growth. that margin growth our run The in

The demand at volume recycled which materials, are products and grew during our QX. very for customers year-over-year containing of high X% buyer

second China has the in and demand than quarter, April with recovery the in far softer So been consistent QX, low, remains volumes expected. are structural

Therefore, continue in China an for already seen some for of orders strong We've a we've this demand. tell first specialties May early increase generation implemented have represents seen the benefit of high-value cash series to too our initiatives. it's we improvement June, sustainable and take in if While quarter and action. these to will with cash

what is preparing we performance, the market trajectory and we recovery to for are while of can recovery. market optimize near-term timing the addressing While unknown, the

on results comment QX. of to like our Engineered Materials I'd in the segment

due recovered all the our These market margins unit and of ammonium lines, largely product MMA and expected force almost into our through the sales costs declining supplier our of margins MMA lower or against volume merchant into majeure sulfate of by product significantly fertilizer market. of through the natural gas impacts EM While cannot our be ongoing were ammonia were in to prices. hedges as of the sales gas

decreased local a QX. ammonia in in our expect and restarted gas the has significantly natural hedging However, our significantly costs we quarter, to second input impact have supplier production, as see lower

sequential in significant improvement see EM to results. expect we reasons, these For

to to our One related assets. Styrenics would sell last like comment I make our process to is

have specific to activities parties to interested in regional business dialogue related ongoing continue our and with business. Styrenics assets We

is our strategy deleveraging and assets long-term monetizing have sheet. stated, part part balance we is As them an the previously separating important of of these

in the sales we our of as and assets to businesses. interest well we the include assets, year, have Given are made as restarting of actions through Styrenics, which restructuring them, individual continued our specific process marketing improvements last the will regional

turn now, like the over to And I'd to Dave. call

Frank. Thanks,

these expectation I'd to rest natural spend to modeling fixed was the for related Our hedges as instructive it's minute first cost for impacts a of million of actions. of inventory for for on adjusted absorption, quarter $XX EBITDA our like due $XX gas and million the reduction under below unfavorable year. to topics, both

related drop $XX to million the the quarter was This €XX in gas XX% related first purchased hedges Of million to of or quarter, realized other future the in mark-to-market natural hedges approximately loss the was result the of and on related a $XX gas European from quarters. the that in was natural gas million price in in settled to quarter. $X hedges the

related quarter. Moving was quarter. second first to this, the to same the mark-to-market the at hedges minimal it we forward on expect from of the The now P&L future periods. the effect curve end on substantially the Based is as

and about purchased on to we related QX. realized $XX of loss hedges, do and gas QX However, a in in lower million expect QX amounts

when our right the to flow As cost this is one the P&L for absorption, lower decision this inventory generating This In we million. in quarter, doing of trade-off priorities environment. four decisions these million the we but the was a year. of preserving liquidity first clearly prioritizing if cash rates, and drained during negative and P&L by rest versus plants impact most will fixed arise, be of flow so $XX us, it of cash running at relates $XX operating

given million in release quarter, first and fact quarter the of our for is positive generation. we the significant the cash lowest seasonally which quarter $XX our for capital The working relatively free profitability low cash first the is to flow, quarter led the $XX that in million had us,

we the despite our are EBITDA year, increasing a our actions, guidance to guidance. cash For generation reducing series of full due

Acrylic site our agreement sell million. in an Mexico to Matamoros, First, we $XX for Cast signed sheet

We expect that close to transaction shortly.

Second, this the quarter with we our substantially third the dividend will of beginning reducing dividend, be year. payable in

our by the or EH&S. project are the finally, mentioned and company unrelated And as earlier, are maintenance start capital a QX. I result discretionary are we deferring to Third, we reducing to spend initiative off million we $XX with good by across this aggressively CapEx reducing working in in

weather Our results position liquidity this economic confidence our us improving strategic support continuing to initiatives. ability while our downturn to great strong in gives and

to about will the who quarter for remainder of I'll expectations Frank, back the Now the turn our call second XXXX. over and talk

Thanks, Dave.

and the corporate fixed of driving profit costs, lower quarter, These QX million growth, a guidance Looking we of higher million. absorption. factors an improvement $XX volume ahead loss are our expect from in million demand would of improvement adjusted $XX and second sequential assumes lower gas about and and natural approximately raw loss to significant represent material the no outlook EBITDA a a cost approximately hedge This upside. an therefore, net $XX of

slower net of due million. absorption below million the full the to natural gas XXXX, to cost quarter recovery. from to losses, a year guidance from of $XXX guiding [ph] $XX $XX fixed For of we million million adjusted are defender market hedge loss our This an $XXX outlook $XXX is EBITDA updated and million million and to $XX million prior $XX first

of While this a no which high year recovery see cycle, is increase of the a both year. low independent the restocking beginning upsides. represent We we're end assumes full the for expecting QX. this XXXX at guidance a set of full rest gradual through of the improvement of end, the improvement about And demand range or forecast end year, XX% economic demand the in from assumptions

these uncertainty we've and the the continue of question challenging to reflect our actions improvement and cash There strong to no business position. our timing conditions, to that XXXX this taken market reduced recovery, we conditions we've maintain very liquidity amid face outlook is around

expect reflects described compared $XX approximately cash from earlier. improvement We our generation of flow cash of million more $XXX This than approximately free cash that cash of guidance, prior million and to $XXX Dave actions operations increased million.

CapEx the includes plant of programs. maintenance as funding $XX sustainability and as necessary Our well guidance growth million of all

the market also initiatives, as such opportunities substitution irrespective our actions While strategic environment. we're growth the long-term us of on offer and sustainability short-term, programs offerings. These we're focused for material taking

now take happy questions. And we're to

Instructions] Begleiter We'll [Operator you. David take with first question our Deutsche Thank Bank. from

now Your line open. is

And you question business Styrenics can about sales. piece This if can sell the guess of timing? take Han that's given closure are the potential talk you if Can there – is a I you process? David they're that on the actions [ph]. I additional guess -- first during an option any

paused assets. took we reason, them let we're going we strategics parties. the new process that And and said and historically give and sites, action in discussions on step can't me in parties process to is see the a number during of sales. -- the But engage beginning had interested that close with a and are and near the our continued we this. regional has specific and Boehlen inbounds of maybe remarks, timing inactive I we had to really -- when say express to engage interested permanently interest back in from might been just color. term with results we've it that the that suffice comment They've as deteriorating will -- the QX, The when formally to year, in styrene than significantly outcome last that's to other our those we in which could plant, investigate I the to Well, a saw mainly prepared entire we and more more closed. engaging we process, that parties, our say for elective monomer least positive

Okay.

and part -- going to of we're competitiveness, market that's to and rationalizations. in relative the activities. against second assets the part at our our forward about -- outlook and business their question The Look, of asset our to look your sites always ongoing

activities those the on point, mind. I be the always our that's part that look ongoing we have we anything at don't in would assets. So this our as would table of But strategic review of at --

then the about core portfolio the ex-Styrenics should Okay. how potential And we long-term normalized think earnings for

should portfolio million The a $XXX core in to excluding million -- $XXX would mid-cycle Styrenics that the assets. in EBITDA, I that, argue range, the perform

you. Thank Okay.

Thank you.

Morgan Angela Next, we'll Stanley. to with Catie go

open. Your line is

taking is for actually for sitting my Diaz This Thanks questions. Stefan Angel. in

segment? going utilization And absorption you You much maybe how say what baked the going the this your in of midpoint forward? was in how that was guide EM XQ? this the progressing specifically absorption much see rates are How called costs. of costs segment, would out EM into then do forward? And in of felt And on you

first of that. a the take part I'll Angela, at crack

$X in Engineered $XX of Materials other under of the the the million segment was spread in rest observation segments. that with million amongst and the first was So quarter, the

of going and say, of reflects. that's through don't forward I under absorption, P&L would the I materiality for to anything expect be the where of the in guidance our rest going year, terms

think it's QX in the say to to the on I for quarter other of business first transition point second a from to that in transition out just QX Materials kind amount significant we see do of me, helpful maybe pretty the couple to quarter. the Engineered because increase a EBITDA from things,

quarter, in see quarter, that under-absorption. Materials we're is costs, So six quarter. had we decreasing see plus we now just and that an continuing timing million the in seeing and in ammonia in negative first we and as quarter, rapidly Engineered I -- $X of what of don’t negative, call and repeating second talked we're the about, input this there's natural the gas. the first negative environment specifically timing second in

And realization of in because on somewhat P&L, the basis, it be we're can our lagged. that FIFO a

have that it second that kind what million, stabilizing see realization to the lag that of P&L. quarter, call second we that that that's We're not $X in our It's of quarter. effect the the in I in is. So going

have less quarter. gas also natural impact We $X of hedges, in hedge second the million

thing then decreasing is overall And input the the costs. last of benefit just

million the Engineered than the it you add quarter see $XX-plus in that result for in if result up, the we the just So higher Materials. the quarter, second I was in all think -- first segment,

by That helpful. some the color. about Great. then region? And was for super you trends just the could Thanks speak maybe demand of

Yeah.

increases you is that I segments. start were globally, seeing one is Automotive year-over-year. that me we're market the what tell So globally we would let by

better half that I demand The well. demand and of it you European tell versus half, has over improved slightly second than the lower. would Asian and what then the last in other is demand been and is -- relatively where year, US had -- is up held second is

balance, where we really we're market. And I from as is X% second change level consistent a uplift we in seasonal the in on So the of indicated. reflective than demand saw, half, at what were in increase any of structural more underlying QX the

Okay. Thank you.

sustainable in prepared seen that's I higher add. that me back these -- reference signal difficult a Again, But of did in purchasing. in reestablish or remarks have beginning orders we're sign. that good very reestablishment come specialties May it's let companies maybe the not. positive and we just and a this order that certain the value to and say market whether have Yeah, these Okay. a that's it's June, into to China

closely to that watching we're see it's if So structural.

in the the for Thanks and color luck quarter. good

to Kevin [Operator Instructions] go will Next Estok we Jefferies. with

is line Your now open.

question. on taking for Thank my This actually for Hi. is Estok Kevin Laurence you Alexander.

year, could curious mitigate sort into what to sort pull operating you. Thank of the just So levers curious, guys recession just event in expect I'm -- of improve XXXX. sort you to say and the of like that half performance? loss or of now back of the just

Sure.

costs So portfolio. see if let me one, rapidly we across going down the start. There's fairly input

across So continues our first quarter you down a lower with typically year. being Clearly, in environment recessionary tailwind. XX% one, broader that that's isn't year-over-year if portfolio, that destocking XX%. again, costs. the look down also seen, in If we're But we've prior said, the input come a the economy it's that would versus continued

significant from value ongoing. a the would with wouldn't So a we stabilize most see destocking decrease that seeing see are we recessionary normal chains, a significant level at of there's throughout in today demand where than actually destocking still which we still higher effect our a we're environment,

levels anticipate So difficult the see say to destocking market some But are destocking not again, the that in I what can again, unpack we chains our demand. between the underlying would further showing. decrease significant difference value what and of beyond would

for use reduce levers, our to as as arbitrage well our reflex relates it network opportunities As are us always there to fixed cost. regional to

fixed cost some I million for that actions capital is be to us restructuring we would us last there were available the to that that other implement. to that investment what through out able we while are And had $XX actions in required year, tell took you

be those the So investments of of end QX. will many by completed

the our So it run gives assets are us optionality to and different. slightly future in our network

you Thank very much.

Next, we'll RBC. go to Priya with Ranjan

line is Your open. now

will your are Hi, quarter million volumes flat guys. to Thank flat for first you you Can much say so little bit on talk -- to XXXX? Is EBITDA? a call. $XXX expectations that the you that

is, Priya. Yes, it

the range was quarter is, think the to the I answer your at of is low the -- million volume the the if at And I EBITDA the heard end to yes. flat correctly, question XXXX. $XXX -- that of assumption of So first

explicit we So quarter. guidance we in put fairly of EBITDA that out give our for look, materials second million $XX the

million $XXX quarter. million of first reflects that had So quarters obviously plus three $XX we the million in that the $XX

that's flat where So we from where the are environment in operated first EBITDA we quarter. a

guidance? on And see way extent then put to it. gas go Got prices losses, you is you that the would natural a here, further much losses to the your how there quantify from to XX% that hedge from

go forward Yes. because as of to give down says, access hard. that. you expire. very rule of the It's hedges the to It's thumb time, our kind We've is talked if we a quantify hedge very in hard that gas about go prices loss

in impacts our and mean, you to a a quarters of the Priya at I look prices $XX can said, hedges. loss out curve, forward gas mark-to-market the other million you the at than is I just curve Again, quarter, is you, how that resulted it's all Priya So And the spot what that think, forward the that hedges that really the that in $XX tell -- drop in forward first and I right? that four other hedge €XX comprised million quarter. better much price, is future the on QX. important of European look I $XX million was there is have as curve distinguish point entirety the thing mark-to-market I can't very would shifts of the in first to --

that million is to and $X hedges in QX. And related of Okay? actually cash it settled

yes. Now--

ahead. Go

the you going and a don't forward ratio million Now $XX be less say on the with gas can quarter can't if to warn that, it downside. going that will be a now, going just going want not at you're ratio, -- that have €XX than a that. And think €XX right to €XX I'd take -- thing have other you gas again, change is because certainly to is natural -- I I you're trading to assume

plausible is European scenario think you that natural that gas in spike winter, the in has… even the we're prices probably look drop upcoming we I now. near the gas could gas and rise we at belief prices natural a there's right probably, natural think bottom, on credible And and very actually whether Our

Stimulated

Stimulated at the look Europe, kind demand demand early it statistics considerably we and up year. incented in residential industrial or of is in the

So like but used the without be to it offset is imports. gas, Russian the Russian it – be, not to going of LNG flow what Russian used to

winter obviously this from see is we would we So coming a result a cold in credible the up -- a higher hedge results. benefit think in natural scenario which prices for gas very winter could

like conclude all We you conference. to the for are those participation. I'll time. today's we have thank your this questions now And at

disconnect. You now may