Trinseo (TSE) 4 Aug 232023 Q2 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Trinseo Second 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, August 3. 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 hand to now call the will Mr. over I Myers. Andy Please go Andy. ahead,

everyone. Bo, and you, [Operator good Thank morning, Instructions].

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

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

investor presentation these of appendix in earnings A release includes and is measurements to our measurements. certain the provided Today's GAAP measures our presentation. reconciliation in non-GAAP corresponding of

of the website shortly A Relations will be replay call. The XXXX. on the available Investor conference will archived transcript replay August company's following X, the call and until be

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

call. welcome and Andy, XXXX earnings our second Thanks, quarter to

I'd what brief our we're by start I sustainability results on Before the journey. market, comment our second a quarter like update seeing on and to in giving

our and of company. a we the In source XXXX strategy. July, our to of the improvements of facilities implement with at to continue our toward goals around reliable and supply how world, made responsibility we waste Feedstock acquisition decarbonization the the sustainability last energy details recycled future our year issued the Heathland of development sustainability our with and which businesses annual social sustainability fantastic and report, initiatives shape progress corporate We

our as set advancements date made Our the employees want us our extend efforts path who to role the to a for to their progress that success. have sustainable are dedication. thanks played to a heartfelt to in testament the stage and continued those I set on

Now second to the turn we'd like to quarter results.

was QX three quarters as similar the levels. expected, below QX As to volume mid-cycle the average over about and sales both stabilized XX% volume at has our last

see end consumer remains as to destock. demand demand applications, soft and as customers durables continue lower particularly across construction, consumer continue building and in We to many

the QX, the In company down volume year. total from was sales prior for XX%

during applications and However, products technologies offerings that case performance volumes these outperformed lower materials, our destocking unit broader relative resiliency that This for enable demand. improved growth and of for products structural while portfolio shows recycled periods containing the experiencing programs margins. more have our

this EBITDA third our Despite second temporarily well we And resulted were achieving generating $XXX overall the first In at sequentially we million quarter, demand stabilizing on way able to progress that. while in low higher initiatives, continued are of of of quarter more million quarter, cash flow. adjusted In improvement our cash and flow. these the to free this free $XX initiatives. level, we announced make cash positive we to than on consecutive deliver

free cash on in profitability. progress we flow outlook have our increased despite date, on XXXX Based our to lower

to third year. far continued of half quarter, the in see first the similar So the at to we levels demand

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

first the several we the year, expected in of announced of Late year. initiatives, seen asset half restructuring the last those and benefit we've

challenges continue Russia was our to assess chains supply As the value we the gas disrupted. facing natural since from structural

business. our optimize to actions additional taking are We

we longer of discussions our If produce counsel began closure purchase parties. the in facility recently potential styrene all from styrene will We third styrene works will and needs we closed, Terneuzen Netherlands. in our regarding no of the

European our needs model well as Europe of our purchased new in all to North percentage in of always sourced as our styrene America Asia needs of have, all times, and is at fact, for us, and This the we have requirements. from the not styrene We significant market.

is additions, the of the carbon Therefore, we also world, turnaround believe decade. price global the reduce through cost. cost of given CapEx and the end Feedstock With risk in plus the highest lower elevated purchase will our Europe, planned we action production a costs costs to energy well be able recent styrene we remain as long at and in the styrene some in will production structurally would region capacity production this than ongoing lower footprint. believe our styrene as This the

remain important styrene out, from that enjoy our supplying greater energy production our to however, America, economics We AmSty joint contributor we profit world-class needs. Styrenics, I styrene venture, materials. sourced Americas they North for AmSty in an a anticipate and would point and hard already of future share to raw will like as

network are sheet extruded operations. our possibility We also consolidating evaluating Europe, cast in and PMMA including of the

recent including our count head to leadership And This a other finally, streamlined taking structure. costs measures includes operating create reductions. and to we organizational executive more changes are lower

$XX million anticipate aggregate, these approximately million EBITDA improve annual we In actions XXXX. to in by will $XX

hand topic follow EBITDA. that Dave, on regarding on up call the up to I came a our call QX mid-cycle over Before I'd to earnings like

This Styrenics businesses, discuss million. like During previous our about EBITDA mid-cycle is be the drivers call, indicated to for than of we the that our the sale of following amount lower that. I'd would some estimate, $XXX our

primary Coupled of resulted chemical war the in expectations relative rest energy costs The energy The are for China, lower this margin of products. drivers in Feedstock the Europe, reduced has competitiveness China. some our in the globally Europe in costs traded for of many chemical the in change Ukraine demand many growth segments reduced world in to and for demand industry higher own. rates the with lower has of and from including

ammonia believe half in Europe seen production Within capped ammonium of and Europe. in we've sulfate ammonium being price margin gas could of currently revenue our of Chinese the be as cost landed Materials, offset is which this We the not be me result at costs, higher of natural Let sulfate you as production. permanent sales. through could degradation generated our that is remind Engineered over significant in MMA a

I'd like Materials. three presentation more into Engineered to our divides ranging X offer differentiated Slide a specialized. the bit earnings from of to deeper categories, products less on we go

via in less regional world. MMA the is And left On the is MMA, current in rights differentiated where key this America which configuration we of profitability the in is our at category lost changing one given far we the We lowest cost assets agreement. permanently inputs. and believe the have variable North of cost capacity purchased economics

in our MMA competitive and cost, plant to disadvantaged. we and MMA plants, our However, become Asian less own has energy Europe, we produce the North therefore, compared American with structurally and are elevated ammonia and

believe world, the negative Assuming energy Europe remain costs is currently the levels. our to highest which profitability, Europe, MMA-related profitability among in mid-cycle may not in in we historic return

have in XX to past over assets to made months investments cost flex network European regional However, take the our advantage of we our differences.

We by slide more margins can applications extruded make have energy on customers. and more more of we intensity required make identified reduce service end our includes carbon products specific specialized also PMMA end section them to our to investments the competitive. dependent are and and the are levels that assets These and therefore, of the cast sheets. middle the The

input impact see energy have are were impact if watching energy While a cost will into highest, flows. differences on we a costs to Europe negative imports from the elevated coming trade saw from we and permanent Asia when

of both currently, margins While below return profitability mid-cycle and we conditions, volumes near will are to believe products these historic levels.

going consolidation will our forward. potential competitive network more make our addition, operations of In

continuous the contains section that are right PMMA These resins within rigid most consumer products far The for compounds, TPEs. EM, specialized value formulated, are differentiated sheets highly PMMA and mainly electronics priced. solution-based applications, products offerings

we overall also below very return profitability of resilient, normal have historical and While is to believe will these margins demand currently levels. been levels, products

cost we These these and of addition, growth significant by are through for enabled to new recycling In growth create are our technologies technologies. substitution historical higher upside where opportunities that opportunities performance have materials. these future innovations,

a in influence already costs known, In ultimate greatly our European seen and region, impact impacts overcapacity chemical MMA are industry. we've profitability. on China but reduction energy the in a polycarbonate have yet this had and major higher including not summary, The

address look to our given related this environment. does to on anything, business we've the Please not actions that products. understand understand to of change our will higher-value also that and we while operating Please already If ways optimize continue to this, need new focusing this our at some sustainable accelerates do taken strategy it this.

allow the flex we've near mid-cycle our ability we're growth in to network, Ultimately, will us making our increase earnings the the announced, term. to potential investments our actions

call turn Now the to over I'd like Dave. to

Frank. you, Thank

natural million gas Our million from decreasing of ammonia second EBITDA was due in prices. raw declining Materials $XX was expectation mainly quarter negative net from timing our Engineered $X below of this adjusted materials. and to

$X fixed million included inventory also under natural absorption for from and higher Results forecasted than hedge gas cost $X million losses. reductions

absorption, a capital. this preserving in As reduce environment us to for it working relates liquidity to fixed is to top we and work continue priority cost

we $XX was In of million inventory capital quarter, by which cash flow free a the $XX working reduction second of including million, reductions. had driven

decision lower in was significant. resulted at run profitability, the lower while to So rates the benefit operating cash

are year cash as million, anticipate million Free and larger for despite to the capital for outlook half free was cash of year. decrease the reducing $XX increasing we the year first guidance our we flow a EBITDA for working flow $XXX the our

of liquidity $XXX million more including and undrawn bank of We million ended the with our second $XXX cash than quarter facilities.

discuss last item refinancing to like I'd is plans. our The structure and capital

debt in in As will I'm XXXX. that that and to $XXX third very $XXX September we of in highest maturities deck accomplish million of our our maturity priority, have due remains shows, million quarter. September XXXX in be Addressing able these Slide XX due the confident we

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

Dave. Thanks,

in the loss of the guidance, million. million is EBITDA This weaker from to to conditions mostly Materials adjusted outlook to from expected year, of of The million, Polystyrene. year, $XX quarter below the full primarily million Engineered $XXX due a the end of of in lower ahead to prior remainder Looking and second net our margins Feedstocks, timing. second net we're $XX impacts and of market year half unfavorable low guiding leading the an updated the rest $XXX

million QX through QX. guidance of average EBITDA $XX in adjusted about our Sequentially, of an implies

we lower in from of from impacts don't as our expect year, of net we facility well the back second in Engineered the similar for repeat down volume unfavorable Materials half the prices. including sales margins being feedstocks the lower quarter expectation Terneuzen but sulfate as While ammonium anticipate to timing

cost to continue generation, regarding navigate actions asset including liquidity initiatives demand we've enhance profitability we numerous and As a significant optimization, been take to environment, proactive improvements. to low reductions and sustained cash

improvement. EBITDA As we to natural of with result are lower losses benefit of over combined look ahead actions, expected these year-over-year hedges into XXXX, $XXX in from the gas million

to I'm your Now take questions. happy

first Research. [Operator Instructions]. at our Frank Fermium Mitsch morning We'll take from question this

you interest be that flow here that top a expect was indicated the if the I are priority refi successful you guidance, guidance, noted change? you like XQ, to sounds refi about Can David, it a cost And $XXX successful the talk million. cash how on to the on in and on you maturities. might coming

Look, this I'll of is Frank. in is on given kind of we added the all and couple a refinancing, make say Yes. point. really are the at comments this process. we can This where

me and the with and think So to had of have that's helping and what a third interest is groups, in been in in gives done I us discussions process deep and refinancing, lot both a something we've obviously healthy private get what lender variety being public very able a quarter. with in of confidence the run

not The this slides what reflective of that's we the not is that may year is in capital of $XXX our interest It's of reflective refinancing. in current structure. -- the we guidance give get million

I interest in different refinancing a clearly, we we're refinancing environment operating at place what higher. put debt be in years going Look, environment. and six was mean to ago the get is much

third interest everything be to But still up. again, something about have up, I disclose, the it disclose since expense and say Frank, that the be. have in confident this wrapped So when just going when we what very being I'm at it will we'll we quarter, we're will going through time, can't process the

then Terneuzen what shutting cost for some on I it Understood. like terms And helpful. of with when occur, What was about Terneuzen I work it Frank, embedded very councils, you can that timing production million you on and getting overall you'll saw of might benefit for any thought the you be have report Any color in down I that decision said currently these be know would down? the $XX that issues. And of XXXX. thoughts $XX might a be the it -- additional million to shut discussions on actions believe down? I talk to press

Yes.

me let maybe start. So Yes.

as to we last. have a in caused technical issue outage an had that events would before unplanned the it, So have week Terneuzen us

some contribution through the not plant year. that of is is the -- the So anticipate a currently part outage seen running. in Feedstock we've unplanned reason of And the that's end of reduction the

Now X -- to solution than the structured process in we've comment X-month but approximately And really with with -- to begun the say work typically, constructively the can't is or process, council. -- we're and there's a employee process. this and groups works more less consultation very find and a a going Netherlands, that's again, our good to for months everybody I

social that. plan, the of we're is still estimate and are evaluating component the still a we that, cost, the of negotiating which to relates it As

exact estimates be, the will what say cost have to hard for. we it's some but So

I the middle worst still council said, a we'll for through Frank, to look, as placeholder, in -- go Yes. we're process. a of have think Frank the

As and $XX is I 'XX. 'XX, million million an would estimate in use million, in $XX cost, $XX dismantling right is including total spread about what severance now decommissioning,

to next you. Leithead Barclays. now at Mike Thank go We'll

Great.

probably about First favorable also from question on levels. I in about Frank, store you not just some returning being MMA, able historical Materials. being permanently Dow. uncompetitive you MMA or to Europe think to talked Engineered production believe, I And talked

European So market in to ultimately Terneuzen, more similar would and look open to source you shutter there? the capacity

Yes.

the in repeat question? the Sorry, of question. sort the of you broke you Could up middle

talked mostly or being uncompetitive you about Just it MMA Europe, unprofitable. in on your

So you to more shutter from and similar third capacity buy parties? Terneuzen, to look MMA would European

PMMA the in that time. effective that the in by our will don't have from Europe buy contribution point our We at for to to earnings those has important this lower returning to recognize is change So we investments forward we year. don't -- us have operate PMMA we of row to be normal. end the and have a in historically, give have I do MMA make trying that to and not market But it any production, plans made mid-cycle downstream, way for bring the anticipate this -- think structural the flexibility been is expectation we're it we than from we

to MMA is recycle -- to that very, our facility investment making other PMMA outlook the is important that's in Now thing financial to realize recover the very that And very our are we that favorable. in investments Europe. for is

will operating in which in assets that require So us the have we the help to row our facility recycling. continue with to

some the you gives but no that to hopefully, plans So color, plant. close

plan And Great. address and XXXX refinancing, clarify, action wanted Dave, quickly the you That's when current you take? for may super about I to helpful. the and just then maybe to the XXXX is talked whatever both just

right with I Mike. in now, just of understand Mike, the I it's we're and question, unfortunately, a the I since good -- lenders middle of it discussions but in -- talk the question, just about middle can't

So think 'XX 'XX looking only, in just as I third and 'XX it's the obviously just as now, I at premature, we'll right Mike. comment a the hopefully, well have quarter, we're solution can't an but announcement

David question take Begleiter Bank. next We'll our now at from Deutsche

Frank, what closure polystyrene for mean does Terneuzen your assets? in the European

David, Yes, it doesn't. actually,

I our think remain very assets that going polystyrene are to profitable.

HIPS mix because applications. line of a polystyrene, the in Europe and that great we have our and some on both in America focus on and focused franchise segments be the North of higher-end mainly We in product

the allows continue well we have. again, perform market assets the based -- as as position our So very are anticipate that we polystyrene market will technology on the to

portfolio how process the good. certain within And Very sales progressing? overall for is Styrenics the assets

some are expectations interest I soon required to a within and strategic anything strategic region, We unlikely would buyers ongoing. it's that that some highly it's but specific Styrenics want transaction, approvals these specific just of because regulatory very our be assets ongoing. manage the that it's in to there's because from some have buyers, happens some complete

you backward make question we in think operated given where it's we required franchise the the to wasn't polystyrene to think back a to our America we've and that's North go to integrated that's profitable ABS that's want mix. in don't understand franchise a that -- we very don't about product extent Asia, I our polystyrene first important raised because model that

about the And position potential comfortable competitive we forward. very of business so for and feel earnings our again, going strength that

to at now next Blair Matthew go We'll TPH.

will far AmSty seems in a than more results? QX. that in you have think a little weaker any color prices U.S. about XX% for expected Do there? Do QX so your And you spot risen tailwind have be styrene July. AmSty

for will answer the be It results. QX AmSty's yes. a tailwind Matt, is

question two as fact, duration America lot are up. the they're margins from linked. those draw the for parts where export an second globally there the were of North of the no In you -- was and North of margin, exports styrene -- market kind a quarter is Europe Styrene in weak know, of end

the American on is lot of nothing low So utilization. styrene running were of and at levels units water North a

shut wasn't, the are others AmSty but economic for quarter, even in some reasons second Some were.

AmSty. or the QX level So And seeing recently, is those margins of styrene nothing what water the on in but you're exported. may it referring and is was to for nothing be is results depressed what it as you're

others But water Now to replace our unplanned outages and outages. are the Terneuzen buying spot pretty in nothing recently. including couple the you're there's out been sharply there's own I said, a prices in have and that Europe, of spot right, as There's in we risen production. and market some on

tailwind a will will But in offset a expect that prices quarter. styrene that would global QX. be that largely AmSty to spot business in headwind lifted for be for business by our I third feedstocks it's the So a be --

quickly. would probably then month revert to before that's But started. issues we Matthew. where this the would I were look, your or -- back of and expect kind resolve question, to we tend to a pretty these answer themselves And this two

is you been And QX? in gotten worse Has how any there talk then about improvement? so could construction than end market far has it QX? your faring Or

No. No Europe of thought by region, sluggish. with We that significant saw see probably we North speak we QX. slightly that China levels being and than America it improvement in I could better being the weakening, with steady slightly

now next Advisors. we'll And Ahmed Global at Alembic go to Hassan

the you And in your cost guys opportunity of Back on in -- you were of side, European -- still talking and this probably on. Asia all. earnings about Europe. between arbitrage call, case? sort more deltas market. QX From talked First the M&A during between about the that that is of it, lingering sort product sounds into Chinese coming of Is the the

We're Actually, Europe, into what the that seen European material we've on in based amount of input and coming Asia a costs. it's is from of lowering really decreased of

closed gap peak year. import saw delta the last Europe are it's There some quantities, So has but reduced. we from that being still the

our I be. away mid-cycle our expectations take lower asset, think European is important competitiveness it to the than -- due for that commentary our to just thing the cost to is for from used earnings MMA

again, presentation, to in typically two there chart back And that impressive. of lasted going restock QX after was at there then of a and was sort quarters sort quite that looked sort about of you the talked Understood. destocking earnings thereon and historic how destocking

on side, it you be mean changes you on it talked these a of basis? European are of volume about that closures the how rebound guys all announcing, are it that with about, I some thinking side, go-forward even Now be be the cost structure a on you MMA

because cycle happen long I'm going a the chemical great the of in industrial recession output output. the me restocking believe anticipate, almost that's would there as as is 'XX. let right we period -- question, in to -- -- understand we're between simply we if what now, will dislocation and that It's Well, a I

between production -- So that you and sustains I a can't can't dislocation at see industrial output itself chemical levels. these

very that recovery to I'm be some the answering I'm or It's of think this has But when of sure predict the point difficult happen. that not in at there some the the So recovery. question correction if value various to is will -- timing if we the magnitude chains.

particularly the with I relative look, made have most mean, the got the obviously, guess I question presented I I that, side. charts, in commentary those was changes of headed Yes. you mean as the was where the been in But answer. you some QX on some there marketplace, M&A structural to of that I back

question growth good normal, aspect your as been normal So for as the in earnings not meaning you a the new volume about that be may profile. perceived be volume was, previously even in actually new really new to thinking factored it Has that normal into you're this as also are recovery? the we your

The XXXX you six and outlook in our that various today volume tell would this XX%, is we've for output for decreased has monitoring months approximately rate than February that of the industrial outlook recovery growth China from forecasting the was I growth been -- What forecast China is ago. it just XXXX growth since our year lower in for the agencies.

So in growth our lower. China outlook for is

say, are Our the still virgin those. grow we as very our that to growth, material as markets and continue with would replace to polycarbonate PMMA our well adjacent about demand optimistic ability target I'm because recycled both volume, advance ABS programs in especially overall growth as I in ability material to of

recycling a -- participate in has become value and that's while think value the more disadvantaged, the in our I are growth structurally chains So for we us advantaged of some chains. opportunity

Alexander now next to Laurence Jefferies. go We'll at

much quarters restructuring just What's getting the are next pretty restructuring extent half demand? in what To demand related contingent does then or, And if lean your kind actions? say, I it's first you can savings a scope not even as several in improve recovery further Or guess are or as first on that, your of flat if to lines. year get? for you

the in dollars will The that that hard believe dependent irrespective volume it's of see on -- Laurence. We're real recovery are is we question saving volume answer not those thanks, recovery. a we first broader So to the come cost markets.

move have script, remarks, way that, that us flex we allow is -- in making our we an to network look, I mentioned the to we global network have cost. answer second the overall operate been in sites to the to the question have products investments The optimize between to the prepared as lower

do So million to our to always of things $XX our structure. -- included optimize were the there cost in about $XX million things million and in we can use significant forward, going are that we're of constantly evaluating regional not are Those or there $XXX network defined these initiatives we additional to that talked improvement the already. are

the to I'd clarifying discussing hasn't we're in just the million Laurence, like up actions -- call. look, but just press a it that. restructuring on add Frank, XX to it to million, that we statement today had come are for $XX then release, and this

We be -- $XX to XXXX. less they're $XX XXXX losses million between in our hedge than going million will and in be

So restructuring Frank, XXXX that's two and million would you $XXX that 'XX. things add being a all and gas the hedges of be how up, the versus of from benefit those mentioned,

We go Bank next now to Roger of Spitz of America.

Appreciate it.

be doing How than back First is your quarter? in million the FIFO suggests of half, higher to QX QX million be a XX% year lower a get on the reported sums guidance will traditionally seasonally I'm EBITDA assuming number this if in $XXX correctly. numbers QX my will $XXX this suggesting for weak you question do than basis, XX%,

Yes.

reflects that Terneuzen And there But to half of headwind, I average tailwind as outage the tell short the Styrene suffice $XX you. calendarization in our said, from year. to reflects a $XXX $XXX million from impossible in be the term, the on million back of earnings what think I is AmSty. monomer million with by say offset the that year. some of half The second the in quarter think associated our will the of guidance guidance Dave is on Terneuzen,

the a losses thing. that In other we half number as being see the million back our -- ago, the $XX as in year, of mentioning natural had through $XX we I minute QX. just of hedges million. the one go in -- QX Look, million around was gas Roger, $XX we'd hedge

down well. So throughout of the as hedge impact the we losses as year go goes

Yes.

typically more QX the in give early QX little In really in is Engineered in a sales credit fertilization on than and season from Europe in it you color. QX pile I'll and the EM, lower ammonium bit because is is we to sulfate Materials, get winter. Southern Sorry, seasonally

So uplift QX sulfate. typically, see a we to prices would in QX relative ammonium in for seasonal

$XXX forward? current That And out at liabilities million working other then think would about we using assets haven't I you debt so a million, been after how the stuff. year go and the going time. and I'm than should mean down $XXX million, or taking $XXX other you at working cash long current and of in some suggest capital about inflow, capital which to very started

at a working it's If really mean, you would all, you're see their it any problem, obviously, things if recovery XXXX high-class and in a capital have bones start be you going but at I are outflow to material way the at? looking

reflective the volumes past a of selling as at So of working of we've low right? level the for very as are well quarters, that's as and four well. low right. operating capital prices prices, Feedstock level We're Roger, you're low low been

balance we've sheet. got had huge -- we've So in the deflation

increase. prices we'll see clearly, will So working work volume, have we and -- a when increase to an capital a we're -- that have in there's and going recovery,

the or year-to-date pounds better of inventory, And not much gotten capital reduction of I substantially this been or way the made gains of from Roger, days release characterize is the because all we seen think think in hold the inventory. of has our to probably, we've I half on year working would can we prices. of capital working on days, we've managing it we've

days a reduce inventory around the much and chain gotten of that put processes appreciate of just our reduce we're we've that, rigor So better supply to lot as carrying. to you can

produced. to on in scenario, hold recovery what I think a we can, half of we've

Results the Financial ladies thank joining we have you you. gentlemen, morning. We'd Call. day. Thank And XXXX a the Second all is wish Trinseo for Quarter you time like Goodbye. Conference questions this we all great for And and to that