Celanese Corp - Series A (CE) — Q4 2025 Earnings Call Transcript

Thanks, Daryl. Welcome to the Celanese Corporation fourth quarter 2025 Earnings Conference Call. My name is William Cunningham, Vice President of Investor Relations. With me today on the call are Scott A. Richardson, President and Chief Executive Officer, and Chuck B. Kyrish, Chief Financial Officer. Celanese Corporation distributed its fourth 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 will 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, Daryl, let us please go ahead and open it up for questions.

Thank you. Good morning. Scott, now that the business has been stabilized, you have done some improvements on the cost and balance sheet side, what are your updated thoughts on potentially selling some equity to get ahead of this balance sheet issue? Thank you.

David, our focus continues to be on the plan that we have been outlining. It is really about cash generation first. And I think the team has done an excellent job of prioritizing cash generation. The strength of that in 2025 despite the earnings decline year over year was evident. And I think we built the right elements that can keep that going here in 2026 and beyond. We are extremely well poised for recovery. Our focus really continues to be on using debt, and we have been able to refinance our bonds and continue to pay off what is right in front of us. Given the fact that our maturities now coming up over the next couple of years are significantly lower than they were, and the cash generation that we have from the business as well as what we have coming from divestitures, we believe is strong. We feel like we are in a really good position.

Very little change in contracts pricing, David. More of the spot part of the business is where we have seen more competition, with the additional capacity that came on in the market last year, which drove the actions that we are taking. I think the team with the action we announced last quarter about the Lanakan plant closure is going to be able to drive enhanced cost benefit into the business of about $20,000,000 to $25,000,000 on a full year basis, of which we should see about $5,000,000 to $10,000,000 of that this year. We are trying to bring as much of that forward as possible.

Hi, good morning. Thanks for taking my question. I guess first just on the sequential improvement in Engineered Materials both from a volume and mix perspective. Can you just parse out which end markets are starting to stabilize and unpack some of the broader macro assumptions for 2026?

What I would say is electronics is the bright spot right now, Patrick. It is a net positive on a global basis. We are seeing a global build out from AI, as well as data centers, and that is positive in the electronic space. But it is a small part of the overall business. Certainly, auto is a much larger piece of the base and the business trends where that goes at least at this point. Auto is more mixed. You have got some uncertainty in China with some of the EV credits and stimulus rolling off to start the year. We have seen some softness in auto in China. Europe has been relatively stable to start the year, and in the US, with the fleet mix becoming a little more certain and a focus of the OEMs around ICE and hybrids, that could be a net good thing for us. To start the year, it is about as expected.

Yeah. We feel good about getting another deal done this year, and we feel very good about achieving or exceeding that target by 2027. Again, we are prioritizing parts of the business that do not fit the core operating models of Engineered Materials or Acetyl Chain, and that leads to a heavier focus on some of the joint ventures we have talked about in past quarters. We have a robust slate of things that are being worked, but it is hard to get deals done in this environment. But I am proud of the team for what we did on MicroMax. The speed at which we started that process to when we got it closed was approximately nine months, which is fast in any M&A market. We are going to continue to work this with a sense of urgency.

When you take a step back and look at 2025, I think in the Acetyl Chain, your adjusted EBIT was down about $400,000,000 and your Engineered Materials was down about $120,000,000. How do you analyze those changes? That is, how do you see the larger factors that were at work in those changes?

Yes. Let me start with acetyls, Jeff. It was pretty much all driven by volume and price. You have got a mix element that goes into that. It is largely spread relatively evenly between those two, of which a good chunk was driven by the acetate tow business. From a product line perspective, that was the bigger chunk. We did see some margin compression from China that went into that. The balance was really driven by Western Hemisphere volume. We did not have as much margin compression in the non-tow part in the Western Hemisphere. Those are the biggest components in Acetyl Chain. In Engineered Materials, volume and price were, I would say, semi equal overall in how much they were down, offset by cost. We had some cost benefit in NAFTA deals as well. Those are the largest drivers overall in both businesses. It really comes down to above-the-line variable margin.

Yeah. Jeff, when we started 2025, we talked internally about a mantra around Act Now and Win Together. That action orientation was really important with a focus on cost reduction and free cash flow generation. This year, we are still going with Act Now Win Together, and grow. That growth piece is important. I believe Engineered Materials in the current demand backdrop has more controllable ways to grow through our pipeline model. It does not mean we will not be able to drive growth in Acetyl Chain. I just think that the groundwork we are laying in Engineered Materials and our ability to drive innovation and partner with customers and designers and engineers around innovative solutions provides us with more degrees of freedom. In Engineered Materials, it is likely to be in the higher growth areas like electronics that I called out earlier. Elements of automotive continuing to penetrate in higher margin areas in China and continuing to partner with our customers on innovation into the chosen fleet mix here in the Western world. So those are the big elements. We will have some growth in medical as well, but electronics and elements of automotive are going to be key components.

I am just wondering, could you provide more color around your expectations for higher than first half earnings and whether you still expect to see $1 to $2 of EPS uplift versus 2025?

Yes. Thanks for the question, Turner. Our team is still focused on a $1 to $2 lift. As I talked about in Engineered Materials, it is about driving growth there and getting volumetric growth, continuing to push price where we can, and the team continues to be focused on doing that in the pockets of the business where we can achieve it. Then, also continuing to drive our cost reduction programs. In Acetyl Chain, it is about looking for those opportunities where the supply-demand balance allows us to be opportunistic around driving volume and price, starting to move sequentially back in a more positive direction. Since the last time we spoke, there have been some changes. Our interest expense is likely to be relatively flat year over year on the P&L. How we model out our inventory draw this year will likely have some impact on the P&L. The demand backdrop is certainly not where we were in the middle part of last year, and if we return to that, it would be a nice tailwind. We are working a plan to drive growth this year. If we get any support from the macro environment, we leverage that to move up quickly from an EPS perspective. A 1% improvement in volume in the Acetyl Chain is about $15,000,000 to $20,000,000 a year, and a 1% improvement in volume in EM is about $20,000,000 to $25,000,000 a year. These small changes drive significant uplift for the business.

Great. That makes a lot of sense. Thanks for the color. Also, when thinking about the difference between first quarter and second quarter earnings, I am wondering whether we need to reverse the $30,000,000 inventory tailwind that is benefiting Q1, as well as the size of the polyacetal turnaround and any other bridge items that you might call out?

Yes, that is probably the right assumption, Turner, that the $30,000,000 benefit we are going to get is likely to draw out in the second quarter. We are going to have some turnaround at higher expense in Q2. With the dividend coming back in the second quarter, all these things relatively even out. I mean, Q2 could be flat to Q1 and certainly depending on where the demand environment is, you might get some sequential benefit. But until we have better visibility, I do not know that flat is the wrong way to view Q2. As we called out in the prepared remarks, we believe this year will be more second half weighted, just because of the turnaround activity we have in Q2.

Thank you, operator. Good morning, everybody. Scott, just on the Acetyl Chain and zooming out a little, thinking about EBIT margins which were mid-teens last year versus the previous trend line in the mid-20s, how much of that differential do you think is cyclical versus something having changed in terms of obviously, supply coming on and also some of the challenges you are seeing on acetate in the spot market?

Yes. Ghansham, how I view these things in our business, over the last twenty years, we have seen structural changes. These could be headwinds or tailwinds. The shale gas revolution in the U.S. certainly was a structural change. The industry did not get the benefit of that overnight. It is actions taken that enabled us to dependably benefit from those structural changes. We saw overcapacity in China come into the market from around 2009 to 2017, and it was actions and business model changes that we and others made to drive a more sustainable and higher level of earnings. Even today, our current market with overcapacity in acetyls is better than it was during 2012 and 2013. It is about how our company responds to changes we see in the market. I believe through those changes, you will eventually see things start to move back up. Each cycle is different and has varying lengths, and nobody can really predict how long it will last. It is about responding to those changes.

Okay. Got it. And maybe a question for Chuck on free cash flow. Obviously, 2025, working capital was significant for the year in terms of driving free cash flow outperformance there. What are you embedding for 2026 for working capital? More broadly, what is defining your confidence on free cash flow relative to what seems to be a challenged operating environment at least for the first half of the year?

Thanks, Ghansham. What is driving our confidence is our ability to pull levers to generate free cash flow in all demand environments. You mentioned working capital; it was very strong in 2025 at $390 million. We are targeting another $100 million in 2026, primarily from further inventory reductions. Tax is going to be lower this year. Cash interest will go down about $50 million, and the cash outlay for cost reduction programs will be lower by about $25 million to $50 million. We plan for several different scenarios, and we feel confident we can drive free cash flow into our target range provided, even through modest earnings growth or through these additional levers that we have learned how to utilize.

Yes, thank you very much. So firstly, I want to come back a little to the EPS growth this year. In your prepared remarks, all the free cash flow guidance and the various factors on free cash items point to maybe net income or EPS change this year of around mid to high fours as a base case. Does that make sense? Are there any items we may be missing that would deviate from that as a base case?

It is how I view it is our priority right now is around free cash flow and ensuring we are driving sustainable changes into our business models. As we look toward the year, we have modeled several scenarios on where things could play out from a demand standpoint, and what that translates to in EPS. We are confident in being able to generate that free cash flow between $650 and $750 million. Several different EPS scenarios can reach that number just depend on the movements in timing and the fact that we are second half weighted also plays a role in determining how much AR is on the balance sheet as we model it out. All these factors are considered in how we forecast.

I want to ask a little about capacity additions on the nylon and the POM chains, specifically because these are challenges you have faced over the past few years. Can you provide some information on what might be coming online in Asia and your exposure given you moved away from some chains such as nylon polymerization?

Yes, Sal. As we have talked about, our focus really is to continue building flexibility into our operating model, in our nylon business and other polymers. That means being balanced in what we make and also what we buy. The additional capacity that may come online in Asia is already over-capacitated in China. We are taking advantage of that by buying as much polymer as possible because that is a more favorable way for us to supply our business in that region. It is about being opportunistic and building flexibility into our model. We will continue to evaluate options to maximize profitability in all our value chains.

Good morning. I wanted to inquire about your inventory targets, obviously targeting an additional reduction. What guardrails are you using to avoid any service issues? Are there specific product families where inventory remains elevated? What is the timeline to reach a steady-state inventory model?

It is a very coordinated approach internally. We are never going to risk service levels and delivering to our customers. Various ways can be utilized with inventories, such as raw materials or finished goods. We will continue to look for efficiency. There is a lot of efficiency that EM is driving within the organization, and we expect to need less and less inventory as we proceed.

As a follow-up on acetate tow, obviously it is one of the significant headwinds. What are the specific levers you can use to stabilize? Are there regional mix shifts? Capacity actions, customer inventory normalizations, contract resets? When should we expect measurable improvement?

We are addressing this with a level of aggressiveness as we look at every element of the business, including cost structure and market strategy. It requires both short-term and long-term strategies to assess how things are rolling in and rolling off. Stabilization is essential. We still see some decline. There has been an element of destocking throughout the value chain in this business. We estimate it will take another quarter or so before it settles, probably mid-year. We expect to return to a more steady state and get back to balance as we approach the mid-year.

Thanks. Good morning. There are several price increases announced in the polymers world. I wanted to ask about your expectations for achieving those. Is the intent here to offset rising material costs or actually expand margins?

Yes. In some polymers, margins have reached unsustainable levels. The challenges we have seen in the industry, with some players defaulting, show that the margins are not sustainable. I am proud of how our team anticipated this issue by taking proactive action in our footprint in our highest cost locations. This has helped weather the storm. Moving forward, returns need to improve. We are working step by step to achieve that equilibrium but it will take time.

As a follow-up, acetyl spreads have improved in China lately. What are your expectations for anti-involution or any rationalization in that country based on your insights?

As mentioned before, we've experienced big overcapacity in the acetyl business in China historically. The pattern we've observed this past year trends like previous dynamics, where new capacity is introduced, and as plants operate at high rates to validate their technology, margins become unsustainable. Rates drop and margins increase a bit. We've seen some stabilization recently, albeit at low margin levels, but not expecting significant improvements ahead.

Hi, guys. Good morning. Scott, I was curious if you can provide some thoughts on Chinese acetyls pricing as we progress through 2026?

Yes, Aziza. We are not going to forecast any huge uplifts. We expect things to stay within the range they have been in the last several quarters. Demand is quite low as we are in Chinese New Year, which this year is longer. It will be interesting to see how the recovery unfolds. Demand remained stable going into the New Year holiday, so that is a positive sign. However, we don't expect significant changes from Asia for our acetyl business as we look to recovery scenarios primarily in the Western Hemisphere.

Sorry about that. You noted that Western Hemisphere acetyl margins are better. How much of your business is Eastern and is there any reason to maintain positioning there long term? The Eastern Hemisphere has faced deep troughs. You know us for a long time. We weigh every option on the table and continually analyze the short-term needs of the business alongside long-term strategies. We consider the right match for our business footprint. The Acetyl team continues to pivot there, and we are actively operating units across different locations.

As we progress into the second half, if there are areas within EM or Acetyl Chain that could worsen, what do you believe those might be? It sounds like the situation is more stable now. But in terms of potential macro issues, what should we watch for?

We will not take anything for granted. We will continue to evaluate and take bold actions across the portfolio. Last year highlighted the need to reset the growth mindset in Engineered Materials, and I believe the team has done a commendable job in building the pipeline and focusing on high-quality commercial wins. Our focus is extending toward quality over quantity. This orientation should start yielding beneficial results as we move through 2026. Also, we will analyze the cost side across both businesses and at the corporate level, as generating operating leverage is our priority. Cash will remain our main focus.

So Scott, in explaining the volume decline of 6% in the quarter, I think you mentioned in the prepared remarks that the destocking and seasonality were greater than expected. Can you give us additional color on whether you've seen any rebound or restocking in January and early February ahead of the Lunar New Year?

Yes, let me start with Acetyl Chain. We have seen moderate seasonal improvement, mostly in the coatings sector, and we will observe how demand evolves as we get into March and April, traditionally peak seasons. It is currently moderate with no substantial change in acetate tow yet. For Engineered Materials, we anticipated some destocking from our partners and are starting to see that return to our order book. There has been seasonal improvement in sectors like automotive in the Western Hemisphere, which aligns with expectations from Q4 to Q1.

Thank you for joining today’s call. We appreciate your interest and support. We will be available after for any follow-up questions. Daryl, with that, let us close out the call.