Celanese Corporation (CE) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Project Pipeline in Engineered Materials: Celanese is experiencing moderate growth in volumes due to the strength of its product pipeline, particularly in auto builds in China and non-China parts of Asia.
• Synergy Pull-Through and Lower Cost Raw Materials: Expected growth in margin based on synergy pull-through from the integration of heritage DuPont and lower cost raw materials in inventory.
• Clear Lake Productivity: Anticipation of the largest quarter of synergy capture for Engineered Materials and a full year run rate on Clear Lake, improving productivity.
• Stable to Slightly Up Auto Sector: Auto has been stable to slightly up this year, with 25% of Celanese's production serving this sector, showcasing the portfolio's diversity and stability.

Pessimistic Highlights

• Supplier Issues and Force Majeure: Celanese faced about $35 million in costs in Q2 due to supplier issues leading to force majeure, with an additional $5 million to $10 million expected in Q3.
• Market Conditions and Margin Pressure: General market conditions are expected to remain unchanged with some margin pressure due to increased raw material costs and competitive pricing, particularly in nylon and palm.
• Weak Demand in Construction and Coatings: The demand environment for construction and coatings remains weak, affecting the acetyl business.

Company Outlook

• Stable Market Conditions with Moderate Growth: Celanese does not anticipate significant market improvements but expects moderate growth in volumes and margins due to internal strategies, including synergy pull-through and project pipelines.
• Second Half Performance as Indicator for 2025: The performance in the second half of 2024 is seen as a base for 2025, with additional benefits from synergies, reduced interest rates, and improved productivity from Clear Lake.

Q & A Highlights

• Q: Can you discuss the moving pieces within Engineered Materials and expectations for improvement? (Josh Spector, UBS)

  A: We expect stable market conditions with moderate volume growth and margin improvement based on product pipeline strength and synergy pull-through. Auto builds in China are expected to grow slightly. (Lori Ryerkerk)

• Q: How do you plan to address potential sequential macroeconomic deterioration in the second half? (Mike Sison, Wells Fargo)

  A: Celanese will continue to find sources of value and expects stability based on current order books. The outlook for 2025 includes self-help measures, additional synergies, and productivity improvements. (Lori Ryerkerk)

• Q: What is the status and impact of the acetyls force majeure? (Mike Leithead, Barclays)

  A: The force majeure is expected to be lifted in Q3, with a total cost impact of about $35 million in Q2 and an additional $5 million to $10 million in Q3. Focus remains on resolving supplier issues. (Lori Ryerkerk)

• Q: Can you discuss the competitive dynamics in your product markets, especially nylon? (Mike Leithead, Barclays)

  A: Pricing pressure on raw nylon polymer was noted, but mitigated by strategic shutdowns and sourcing flexibility. Margin pressure was seen in palm due to raw material cost increases. (Lori Ryerkerk)

• Q: What are the expectations for acetic acid and VAM markets, considering new capacities in China? (Jeff Zekauskas, JPMorgan)

  A: The market dynamics fluctuate, with a focus on downstream opportunities in Asia, particularly in emulsions and redispersible powders. The Western hemisphere sees a more balanced approach. (Scott Richardson)

• Q: How does the current macro environment impact your volumes and outlook? (Ghansham Panjabi, Baird)

  A: The macro environment is considered stable, with Celanese seeing volume growth in Engineered Materials due to project pipelines and revenue synergies. The diversity of the portfolio helps stabilize earnings. (Lori Ryerkerk)

• Q: What are the expectations for free cash flow into 2025? (Ghansham Panjabi, Baird)

  A: Cash taxes and interest expenses are expected to be lower in 2025, with CapEx remaining consistent during the deleveraging phase. (Chuck Kyrish)

• Q: Can you provide details on the force majeure and its impact on acetyls and tow? (David Begleiter, Deutsche Bank)

  A: The force majeure, primarily due to carbon monoxide and other raw material issues, impacted acetyls with a significant cost. Tow saw weaker non-contracted sales but remains stable overall. (Scott Richardson)

• Q: Are there any plans for divestitures similar to the food ingredients sale? (Matthew Hettwer, Vertical Research Partners)

  A: Celanese is exploring multiple opportunities for divestiture but does not comment on specifics. The focus is on assets that may be worth more to others. (Lori Ryerkerk)

• Q: How does the expansion of Clear Lake and new assets in China impact the acetyl chain and market dynamics? (Vincent Andrews, Morgan Stanley)

  A: The Clear Lake outage did not lead to market improvement, but production adjustments are made based on market conditions. New capacities in China have stayed largely in Asia, affecting European exports. (Lori Ryerkerk and Scott Richardson)