Celanese Corp - Series A (CE) — Q3 2025 Earnings Call Transcript

Thanks, Darryl. Welcome to the Celanese Corporation Third Quarter 2025 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations. With me on the call today are Scott Richardson, President and Chief Executive Officer; and Chuck Kyrish, Chief Financial Officer. Celanese distributed its third quarter earnings release via Business Wire and posted prepared comments as well as a presentation on our Investor Relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and the prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC. With that, Darryl, let's go ahead and open it up for questions.

Nice quarter for Q3. Scott, looking at '26, can you give us an early look at what you can control for '26 and what's not in your control for '26 relative to earnings?

Yes. Thank you, David. Let me just start by saying how we have focused on 2025, continues into 2026. The priorities of increasing cash flow, intensifying our cost improvements and then driving top line growth. And that third piece, I think, is going to continue to be more important as we're seeing progress from our EM pipeline. Those are going to be our priorities going into '26, and we've laid a really nice foundation here in 2025. And so that foundation, even if we're in an environment where we see flattish demand, and I kind of look at flattish demand on what we've seen, say, Q2 through Q4 here in 2025, if we're in that type of demand environment, just to make it easy, I believe we're going to be able to grow EPS by $1 to $2 next year. And that's going to come from the cost actions that we've already put in place and that yielding increments next year. And then the second big piece is going to come from EM pipeline and the success we're seeing driving that, including the high-impact program growth, which is starting to yield results. And certainly, we won't have the Micromax EBITDA, but I think that's going to be offset by the fact that we don't expect to have the significant auto destocking that we saw in Europe in Q1 of this year. So I think when you put it all together, we feel confident in about $1 to $2 even if the world around us isn't growing.

Very good. And just on EM pricing, the best in 8 quarters. Can you discuss how much more there is to go in EM on the pricing front?

There's always more that can be done here, David. We have gotten price in some of the standard grade materials in the Western Hemisphere, not as much across the board as we want to see. So I think there's still going to be opportunities there. In addition, where we're seeing nice benefit is on the price for the new elements from the pipeline that are being launched. So this is going to continue to be a very critical area of focus for us as we go into 2026.

Could you talk about the operating rates and the acetyl chain? I understand there were comments in the prepared remarks about adjusting Singapore based on demand and that Frankfurt will be offline for the rest of the year. What rates did you run in the second half of this year, and what do you expect in the first half of next year?

Yes. Thanks, Vincent. Not to be flippant, but every day is different in this business. And I don't say that as hyperbole, it's true. When you look at our lowest cost assets, our lowest cost assets are running at 100%. And then the balance of the network, which is really our asset base outside of the United States is being flexed to meet demand, flexed to meet industry conditions and we're going to continue to operate that way. We've block operated Singapore as well as Frankfurt. We would expect that to continue going into next year. And part of that is our manufacturing team has done an excellent job of being able to continue to operate with high degrees of reliability as well as find ways to no capital debottleneck our assets to where we have more capacity at those lower-cost assets. So we're going to continue to flex that to meet demand, but I'd really look at lowest cost asset base running full and then the rest of the network operating as needed.

In the acetyl chain, when you look at sequential pricing through the year, it's gotten tougher. And prices had come down a lot in China earlier in the year. Where is the sequential price pressure coming from in the acetyl chain, either by product line or geography?

Yes. Thanks, Jeff. I think we've seen a little bit of pressure in Europe in kind of what I would say more of the downstream. So getting into the vinyls chain, VAM and emulsions as we've worked our way through the year, and that was really demand driven. As demand has come off, we've seen a little bit of pricing pressure there. We've seen a stabilization of pricing in China now over the course of the quarter or so. And in fact, pricing went up a little bit here at the beginning of this quarter, not significantly, but we did see a price lift as we got into October really across all product lines in China in acetyl. So the U.S. has been relatively stable. So that's kind of how I would look at it. It has been more around a function of demand where demand has been weaker, and we've seen a little bit of softening of price in Europe.

In Engineered Materials, your consolidated volumes decreased by 8% year-over-year. Which product lines are experiencing greater declines and which ones are seeing smaller declines? Are there specific areas of weakness, or is it affecting all product lines? Can you provide some insight on this?

Yes, it's primarily the product lines where we have higher volumes and greater market exposure in standard grade materials. This includes engineered thermoplastics such as POM, nylon, GUR, and polyesters. Our thermoplastic elastomers have performed very well, and the team has identified some areas of growth there, although we don't have as much volumetric exposure in that segment. Therefore, the focus is more on engineered thermoplastics.

The third quarter was positive. For 2026, looking at Slide 11, cost savings could be between $0.40 and $0.50. How much of the remaining $1 to $2 might come from potentially lower interest expenses? I'm trying to understand how much could result from volume growth and new products.

Yes. Regarding the $1 to $2 I mentioned earlier, I see it as primarily divided into two parts. One part is roughly half of that amount attributed to cost. We haven't detailed all the cost measures in the slide, and there's an ambiguous category noted at the end of the graph. I expect more updates on this front. Last week, we announced the closure of the Lanaken facility, and we are actively working on cost reduction strategies, which we will discuss in more detail once they are finalized. So, about half of it relates to costs, while most of the remaining amount will come from the pipeline. That's the current perspective. There may be other factors, like interest, but primarily these are the two main areas we are focusing on right now.

And Mike, this is Chuck. The interest expense, I would pencil in $30 million to $40 million reduction year-over-year.

Okay. And then a quick follow-up in EM in terms of the volume growth potential, how much is that coming from sort of the legacy, if you can think about it that way, the Celanese businesses and then how much comes from some of the DuPont?

I'll be honest with you, Mike. Right now, we're viewing the portfolio as entirely Celanese, and we are not breaking it out. We're no longer operating the business or the company that way. It really focuses on Celanese and its products. The engineered thermoplastics segment and the portfolio we have there has proven to be a significant addition for us. This growth comes partly from M&M and partly from Santoprene, making it an important area for us to differentiate our offerings. It has been a strong driver for us. As we examine the high-impact program area, we see end uses that are extremely appealing, where we are combining both engineered thermoplastics—encompassing both historical Celanese and M&M—with our elastomer portfolio in high-performance applications, whether in data centers, high-specification electric vehicle opportunities, or medical applications. Across these areas, we have become extremely focused from a commercial team standpoint, and we believe there will be promising growth opportunities in 2026.

Scott, just given the evolution of the macro throughout the course of the year end markets such as building and construction and autos and so on sequentially weakening, are you starting to see more accelerated inventory destocking at the customer level throughout the year-end? Or are inventories already pretty low? So what you're mirroring is just basically the end markets themselves at this point?

Thank you, Ghansham. Currently, demand is definitely lower than we have historically experienced. However, when we consider the typical seasonal trends from the third quarter to the fourth quarter in both volume and percentage, they resemble what we've seen in the past. We are not observing widespread accelerated destocking. There are some specific areas, such as our channel partners in North America, who have expressed a desire to reduce inventories by the end of the year. This collaboration has been beneficial, allowing us to adjust our rates thoughtfully throughout the quarter instead of making abrupt changes at the end. While there are indeed some pockets of destocking, it is not a widespread phenomenon, as we have been noticing this trend throughout the value chain for about six months now.

Okay. Got it. And then maybe a question for Chuck on free cash flow. What's the expectation for working capital contribution for this year in 2025? And then how would you have us think about some of the parameters for 2026 free cash flow? I think you said at the low end of your guidance for this year.

Right, right. Yes. So working capital so far this year has been a source of cash of $250 million as we've really focused on cash generation. I really don't expect much change in working capital, either source or use of cash in fourth quarter. So I would just -- I would model in 0 at this point for working capital. As you look ahead for 2026, with that, we don't expect with similar demand levels that we would repeat that $250 million of working capital source of cash, but we are continuing our inventory actions in Engineered Materials. So there will be some level of free cash flow source there. At this point, Ghansham, our cash outlay of restructuring, which is adjusted out of EBITDA is looking to be lower in 2026 as we have some projects that have rolled off from prior footprint. So adding to that, the EBITDA improvement that Scott's talked about on the cost and commercial side, that gives us confidence next year in free cash flow, at least at the low end of that $700 million to $800 million range. And I think it's important to understand, as we look ahead in the next few years, we think this level of free cash flow is sustainable.

The decision for the Lanaken closure, you cited evaluation of longer-term end market trends. I guess did anything change in terms of your forward view on either the demand or supply side? And then as you look to evaluate other more targeted measures in AC, should we be looking to the Frankfurt facility? Or do you expect more of a smaller collection of savings across the asset footprint?

Thanks, Patrick. First of all, I think it's important. Look, we don't take any of these types of decisions lightly. We look at where things are in the near term, long term, and we study them. And we also look at our ability to continue to supply our customers. And acetate tow has faced challenges, including declining demand over a period of time. Lanaken is our highest cost asset. And so as we looked at where things are, we're able to meet all of our customer needs from our network and subsequently drive productivity savings with this move, both in the short term and long term, no matter what may materialize from a demand perspective. And so this closure will yield probably in the neighborhood of $20 million to $30 million of productivity savings in 2027. We get a little bit at the end of next year, probably on that, but certainly for the full year of '27, that's the types of savings we're looking at. And we're going to continue to look across our whole footprint in both businesses for similar types of examples. And so there's no specific asset, I would say, that we're looking at right now. It continues to be kind of cross-checking where industry demand is, where is our capacity, where do we maybe have excess capacity in the network that will allow us to drive that productivity, but still be able to meet customer demand even if we were to see a big increase down the road in a recovery period.

Understood. Very helpful. And then maybe one for Chuck. Just in terms of progress on inventory reduction, they're still tracking well towards that goal. And then just in the context of some of your comments in the prepared remarks, what percentage of SKUs are made to order today versus made to stock? And what goal are you working towards there?

Patrick, look, it's an ongoing effort to be more efficient with inventory. I don't have that percentage right in front of me of the number of make-to-stock SKUs, but it's one of the several levers that EM is working on to reduce inventory. It also includes logistics and warehousing and testing lead times, et cetera.

I think you identified $30 million to $50 million of additional savings that you're targeting in Engineered Materials. Can you elaborate on the sources of those and the flow-through timing? And remind us if those figures are gross or net of inflation?

Yes. Let me hit the last part of your question, Kevin, I would look at those as net of inflation because we will work inflation through our productivity pipeline to offset that. So look at these as definitely being net. And it is really looking across the board. There is continued SG&A and R&D savings there as we optimize that side of the business on a global basis. Footprint continues to be an area of focus that will be in there. And then the last area is really things that we kind of call complexity reduction. So streamlining of our supply chain and our logistics network and really getting that optimized. I mean, Chuck just talked about the benefits we get from that on an inventory reduction. We also get cost reduction from that. And so a good chunk of that, we're going to get for the full year 2026. Some of it will phase in through the year, but we definitely are confident that we'll be able to get to those levels next year.

Great. And then a second question for you on divestitures, if I may. Congrats, first of all, on the Micromax deal. It looks like you got a nice multiple for that relative to your own trading multiple. Can you talk about the after-tax cash proceeds from that $500 million deal? And then more broadly, if we remain in the current environment of, I'll call it, industrial malaise globally, what additional portfolio actions or at least the magnitude thereof are you thinking about over the next several years? I think you said in your prepared remarks, you are actively pursuing additional. So any color on that would be appreciated.

Yes, let me begin, and then I'll hand it over to Chuck for the tax question. Our approach to divestitures has not changed. We believe we have two strong franchises at Celanese. In acetyls, our focus is on utilizing our integrated upstream and downstream operating model that begins with methanol and acetic acid and moves downstream, which uniquely positions us globally to create daily value. In Engineered Materials, we aim to develop unique customer solutions and leverage our leading portfolio in engineered thermoplastics and thermoplastic elastomers. If we have any assets in our portfolio that do not fit within the acetyl value chain or are not a differentiated thermoplastic or thermoplastic elastomer, we will assess whether they have more value to someone else than they do to us. This principle has guided our divestiture strategy for several years, leading to the food ingredients transaction and now to the Micromax transaction, as those assets did not align with our Engineered Materials business in the relevant categories. Joint ventures are another area where we don't have as much control, and the value they contribute to the enterprise is not on par with the rest of our portfolio. These are the principles we will continue to use as we evaluate opportunities to monetize different assets. We have committed to $1 billion in divestitures by the end of 2027, and the Micromax transaction brings us about halfway toward that goal. We are well on track to meet this target and will maintain our focus on this initiative as we conclude this year and enter 2026.

Yes. On the tax leakage, Kevin, that's expected to be 5% of the final gross sales price.

Firstly, I want to continue on Kevin's question on divestitures, and you mentioned JVs as a specific area of focus. I'm wondering, though, how are you thinking about the methanol JV? Because on one hand, it is one where you are a partner with someone else. On the other hand, it is, I guess, your main way of being integrated into methanol in the U.S. So how strategic is that business to you?

Look, I'm not going to comment on specific joint ventures. What I have said around methanol in the past is it really is about leveraging methanol and acetic acid. And so as we look at all of our joint ventures, we have a partner that is in those JVs. And so JVs can be harder to monetize across the board, and we'll continue to look at the partners. We'll continue to look at other potential counterparties who are interested in having ownership of our joint ventures. But our focus really is around value creation. And so if value is there to be created and is higher than what we believe is inherent in the current and potentially future stock price, then we will definitely look at it.

Great. And I also wanted to ask about your nylon chain. I know you've been deemphasizing nylon polymerization instead doing compounds. So at this point, how much of your nylon volumes and sales, perhaps profit comes from actual nylon standard grades versus the compounded value-add products?

Yes, Sal, almost all of our profit in that business is really created by compounds. And so now to make a compound, you need polymer. And so whether we make that polymer or buy that polymer, the key is getting that polymer at the most optimized economics possible because we create our value really through that compounding step.

I just wanted to continue down this line of questioning. I think you just earlier said, Scott, that you don't foresee any major capacity closures. But I recall earlier, there was a discussion about maybe buy versus make in polymers and potentially some rationalization there. So should we take it that the rationalization of polymer capacity is off the table for now or that's still being considered?

No. Let me be very clear, Aleksey. We are taking bold actions across the board. And we have continued to be I think through this year, every single quarter, we have had another cost reduction announcement. We are looking at all elements of our business in both acetyls as well as in Engineered Materials, and we will take action around cost, including footprint, if there's value creation opportunities there.

Okay. Makes sense. And then as a follow-up on your EM pricing, I realize it was relatively modest, but do you see any signs of more rational competition sort of improvement in competitive environment maybe across any of the end markets or types of polymers?

Look, we can't control what others are doing. What I will say about our EM commercial team is they are energized by the opportunity that's in front of them, not just around making sure that we're getting full value for the materials that we sell, but on partnering with our customers, about being connected to our customers, being current about what's happening in the marketplace and being able to respond to customer needs and leverage and drive new solutions. And I think we believe that, that team is going to continue the trajectory that they have been on this year despite the fact that through the year, the volume side of the equation has been difficult, but to be able to drive price, drive mix improvement through the year, I think, is a great accomplishment and is a really good starting point for us going into 2026. And we think we will be able to drive volumes through the pipeline next year.

Congratulations on the Micromax sale. Chuck, I believe you mentioned that with the over $3 billion debt due in '26 and '27, you felt fairly confident about being able to repay it. You noted that given the free cash flow and anticipated divestitures, you wouldn’t need to rely on a revolver or take on additional debt and that you would be able to manage those obligations. Do you still hold that perspective today?

Yes, Frank. Looking ahead to our 2026 maturities, we have about $900 million due. We are confident that the proceeds from Micromax, along with the excess cash we have, and cash generation in Q4 will cover this. We have also been making payments on our 2027 term loan over the last few quarters. We are optimistic about our cash generation and our ability to repay the 2027s. We understand that cash flow can be back-end loaded in any given year, so we will remain cautious and take opportunities in the debt markets, refinancing a portion of our maturities to align with our free cash flow generation over the next couple of years. This strategy is just to manage the timing of those repayments, but we are confident that we can generate the cash needed to pay them off and continue to reduce our debt.

Helpful. And then, Chuck, if I could ask you a more esoteric question. very sizable write-down this quarter. I'm reading the press release, and it's tied to Zytel and nylon. And then in the prepared remarks, it's talking about your stock price and so forth. I'm sure others understand what's going on there, but I don't. Can you please expand on that?

Sure, Frank. Look, the third quarter is our annual quarter to test our goodwill and certain intangibles like trade names. We did this using the same third parties that we always do, and we did record an impairment. I think what's important, Frank, is there was not a reduction in the projected cash flows of Engineered Materials since the last time we did this test. This impairment was really driven by a reduction in our market cap, created by a reduction in the stock price because part of the test is sort of a market-to-book analysis this year. So no change, no decline in the cash flow projections, but it was really driven by the market cap of Celanese.

Just wanted to get a bit more granular about the sort of near-term guidance. I know in the past, you guys have talked about trying to get to a quarterly EPS run rate of $2 per share imminently, right? So I know the guidance, obviously, for Q4, $0.85 to $1 bakes in seasonality. It's not really in an otherwise abnormal environment, it's not really sort of the right starting point. So maybe if we could start with like the $1.34 you guys reported in Q3, right, where in the near term, you see that going on a quarterly run rate basis via self-help via obviously now with Micromax almost about to close, reduced interest expense there and the like. And again, I understand that you guys are talking about an incremental $1 to $2 from self-help, which is $0.25 to $0.50, but would love some more granularity around that.

Yes. Thanks for the question, Hassan. We continue to be focused around driving controllable actions that will, as a first step, get us back to that $2 a quarter run rate. That hasn't changed even with where demand is at from a seasonality perspective, and we will get there. If demand stays lower, it may take us a little bit longer to get there. But if you look at where we were performing in the middle part of the year, Q2, Q3 from an EPS perspective and you just take the actions that I've talked about that we have going to next year, it starts to really get to a point where you're approaching kind of that level as you're getting up into the $1.75 to $2 range. And that's where continuing to stack wins, as we called them in our prepared comments, additional costs continuing to drive the pipeline. And then if we get any inkling of a demand improvement, and even if you were just at the demand levels we saw in the second quarter, you're effectively there. And so the multiplying effect of the actions that we're taking are significant. We look at our enterprise right now as a coiled spring that when released is going to really drive very substantial and increased earnings levels as we go forward. It's tough right now. The demand environment is not tough, but I'm extremely proud of the resilience and the actions that the team here at Celanese has taken this year to position us going into next year and beyond.

Thank you, Scott. As a follow-up, I would like to hear your perspective on Anti-involution and its impact on the acetyls chain and your company. Specifically, I mention this because it seems that PetroChina announced yesterday that they are studying 19 different refining and petrochemical assets for potential retirement, which includes methanol assets. This indicates that the situation is progressing from the conceptual stage to reality. How do you see Anti-involution affecting your operations?

It's hard to say exactly how it will materialize, Hassan. But look, the dialogue on the ground in China, and I was there in the quarter and was talking with the team, it's palpable, more so than I would have expected. I don't know that it's had a really direct impact thus far. I mentioned we've seen some price movement, albeit small, but some price movement in the quarter. I don't know how much of that is Anti-involution or just kind of normal market changes and some of the inventory getting absorbed after some new plants started up. But the reality of it is that people are talking about it there. And I don't know how it comes in fruition to the business, but I do expect that we're definitely going to see this be an important step going forward because I do think the profitability of assets in China need to be higher than where they are today.

I wanted to follow up just on the Acetyls utilization rates. I think my understanding prior was maybe you had rates lower in some of the Western markets, so some of your low-cost regions like the U.S. to basically react to some of the weaker demand. I guess your earlier comment was that it's your low-cost assets running full out. So specifically, can you comment on that and maybe your U.S. asset base utilization rate where that is today? And then related with that, if we think about what gets utilization rates higher, if you're running at a high rate in the U.S. today, does U.S. demand improvement help you? Or do you really need Europe or other regions to improve to get your utilization rates up?

Yes. I mean, look, Josh, we've always run our U.S. assets at pretty high rates. That really hasn't changed dramatically. And I'm not saying we don't have room there. We probably have a little bit of room, but you definitely see the uplift. And when you see Western Hemisphere improvement, the netback is significantly higher than moving that product around to different regions where it's better than running other assets, but certainly, U.S. demand flows directly to the bottom line in that case. So we do think the assets are extremely well positioned. We've done debottlenecks of the U.S. asset base over the last 5 years. And so we have the ability to move those up. And when I said full rates, I was really particularly on acetic acid in the U.S., really referring to we kind of operate that at kind of the capacity that we've historically had, not necessarily operating both acetic acid plants at full rate. So we kind of look at those as still operating kind of at the levels they historically did on a combined basis with the ability to ramp up going forward.

Can you provide more detail on the $1 to $2 uplift? Previously, you mentioned that around $0.35 could come from some of your cost actions. Is that correct? Also, what would be the restocking amount? Is that included as well? Additionally, could you clarify what the destocking amount was for 2025?

Yes. Arun, as I said earlier on the call, we look at that $1 to $2 really as a rule of thumb if we're not seeing the market really change at all off of where we've been over the last several quarters. So there's no kind of restock element in there. And what I said earlier is make the assumption about half of that is coming from cost actions and then the balance coming from the EM pipeline and then some other things, as Chuck mentioned, maybe interest expense. The EM team has been modernizing its strategic orientation. That's the best way I can put it. We're evolving. And just where our world is, where we have the ability to really win is in the differentiated spaces where we can leverage our widespread unique portfolio. We have more engineered thermoplastics, more thermoplastics elastomers in our portfolio than anyone else has in the world, bringing that full portfolio to customers to meet unique challenges that they have around solution sets. And it is about partnering and really getting focus around where we spend our time and then leveraging innovation that we've had. We've launched publicly our grade selection tool for customers called Chemille, where it's an AI-driven tool, which is allowing grade selection around our materials for the customers as well as our commercial organization to very quickly meet the needs and streamline that commercialization cycle. And so it's investments we've made in areas like that, that are really bringing the EM team to the leading edge as it comes to creating new opportunities and partnering with our customers.

Darryl, we'll make the next question our last one, please.

Will the European acetate tow closure have any ripple effects across the rest of the acetyls network, either upstream or even downstream, maybe some of your JVs?

No. I would not look at it that way, John.

Thank you. We'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions. Darryl, please go ahead and close out the call.