KRA - Earnings call transcript Q4 2019

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Operator

Good morning and welcome to the Kraton Corporation Fourth Quarter 2019 Earnings Conference Call. My name is Annie and I will be your conference facilitator. [Operator Instructions] Today's conference is being recorded.

If you have any objections you may disconnect at this time.

I will now turn the call over to Mr. Investor of Director Shiels, Relations. Gene

Gene Shiels

Fogarty and President this release Good morning Thank section Atanasov the call Kraton's in Investor and related Vice is quarter Financial and of Copy Chief Kevin to we Relations everyone Chief available Corporation you, this Officer; of Fourth Atanas Senior are presentation the Annie. our fourth Kraton material on Quarter the welcome me and morning XXXX. and President Kraton's Officer. news morning the Executive review website. will the With

this and the year draw press earnings Before for disclaimers the in we review morning results to release. presentation non-GAAP attention I the on to and fourth like in of quarter information and included use full yesterday's would forward-looking the XXXX, measures your the

the make we historical and comments thus not are forward-looking may fact that statements statements. of constitute call During certain

other actual from Investors uncertainties we risks are could and forward-looking any stated significantly make different that that be statements today. Kraton's there cautioned the implied by to factors cause or expectations are performance

they're forward-looking date as in future. speak and we to only such of the the no statements statements update have Our obligation made

is factors. of a to Our number outlook business subject risk

does not section of these our the of morning's our in Investor Relations a and available the this As factors other full website. discussion XX-Q format of please XX-K permit presentation risk forms to refer regulatory filings

this each non-GAAP release financial presentation we With regard morning. review measure measure of earnings in to the financial financial provided as as yesterday's reconciliation use of to the a comparable was its non-GAAP we'll use well most GAAP measures

line we'll for Following questions. open comments the our prepared

Kevin to now I'll the turn over Fogarty. Kevin? call

Kevin Fogarty

to for companies between we XXXX good morning was with given tensions many year a lower our the year customer Kraton, business of to that had a program. the while portfolio business Thank general activity expectations a U.S. rest China at and expected to tariff our trade for additives us in clearly you, inventory had lubricant and Gene reduction certain including regard China challenging entered everyone. year. a our and industrial was and implementing we with – sales In significant the reasonable volume headwinds for customer

turned it in and business, our with XXXX our global roofing were half first impact weather-related trends paving despite of demand As line the out generally expectations.

the in escalating even by impact year of second overall in US. half trade the However China and negotiations the tariffs weaker certainly we with of demand compounded experienced

As effect China region. demand further economies through of a ripple contracted there the was other

and lower Europe with demand. demand also consumer weaker We in associated automotive saw such factors as

the that XXXX margin gum the as gum into quarter addition a we and turpentine significant quarter in translated during third third call, of incremental in discussed In we prices saw rosin reduction of in pressures particular relevant to markets for Chemical recognized year. The sulfide resulting the quarter. the were segment our crude in our fourth the turpentine for on most the be effects balance

heavy market quarter a million during fourth XXXX planned XXXX. call. guidance quarter XXXX of with for fourth by down was quarter Fixed Given the associated million however line updated adjusted EBITDA It's us. for $X costs was the these our weakening fundamentals as of quarter compared million to in our provided quarter fourth third with $XX $XX worth increased to and fourth that approximately noting compared maintenance XXXX quarter turnarounds turnarounds

given the the these in favorable the production decline more adverse market than in operating costs. absorption in rates half Therefore by of response lower and EBITDA less of addition million at fixed $XX conditions. resulted was $XX in driven adjusted associated with an softer well lower quarter turnarounds approximately turnarounds rates fourth or of In at plants impact as demand production as maintenance impact market plant of million to facilities other

the of market margins turnarounds of to of quarter XXXX remained associated was adjusted decrease fourth planned the the adjusted of stable costs a relates the with $XX.X a Polymer reflection segment million unit note XX% of fixed for results absorption the in impact decline volume quarter compared of fixed to higher or terms EBITDA production was average Polymer in compared again Of million result of sales XXXX. EBITDA to and quarter segment down of and lower balance decline rates. fourth so fourth and largely million $XX.X maintenance Once this in the segment X.X% softer demand. cost associated In XX.X the

rosin EBITDA impact $XX.X XXXX the versus quarter quarter EBITDA production associated of segment mentioned Of our maintenance and of decline XX% was as fourth adjusted rates. fixed FCA million chains and prices lower and for as for down $XX.X $X.X associated volume also in quarter this adjusted up the CST million the was 'XX, or gum gum higher fourth turnarounds modestly decline market third costs from and in third in XXXX earnings in the Sales compared was quarter. increased margin was experienced Chemical and we pressure million discussed year-ago turpentine the quarter to resulting with but call. in our TOR planned

of with the on full or cash XX.X call. capital generation down control Despite compared focus a provided we our updated million the quarter quarter working million As result cost ongoing EBITDA challenging optimization XX.X% range year XXXX third adjusted was XXX.X favorable. adjusted environment to the and in fourth XXXX for guidance EBITDA was within earnings

updated we third net excluding a reduced of On During in the million quarter in debt debt the also we call. XX.X foreign basis provided XX.X by year $XXX with or currency. million consolidated quarter by net effect full our million reduced consolidated our guidance line

XXXX, reduction date said first expect have in debt $XXX with million. primarily realities of market Chemical closing XXXX the in result regard acquisition we by end Arizona to insights of including cost the I as the outlook. We year. apply a intend reduced the on And we we to the sale this outstanding more still strategic net and business quarter have close consolidated our proceeds call, our coronavirus previously, through the prevailing further of from to Cariflex As the share particular to the sales priorities this At reduce effect indebtedness. sustainability, innovation, of will

I'm But to over in-depth quarter. more the turn review a our Atanas the Officer, Atanas? for financial for Atanasov call third Financial going of to Chief now

Atanas Atanasov

everyone. and Thank morning good you, Kevin

I'll Turning begin review segment. with to the Slide Polymer for the and of X, fourth quarter results XXXX year our full

decrease Fourth to a million, XX% quarter average materials to The XXXX XXX.X of fourth Polymer lower lesser of of million volume raw $XX.X reflects XXXX. XXXX. revenue fourth and segment the compared was quarter decrease or for the to a revenue sales compared cost extent of quarter

was accounts the effects but sales fully on was The offset decline of X.X% of to revenue the negative Total Polymer million, quarter sales. effect favorable for of by changes in which for fourth XXXX. foreign compared currency exchange of X.X cost down segment volume foreign our

in into volume lower and weakness Sales specialty for higher was and additive factors North continued based in broader due sales was by Europe. polymers demand America. volume sales innovation lubricant X.X% offset were These to applications Asia down and China this partially

applications, products by into volume into this was X% roofing to fourth of adhesive sales offset SIS down relative Performance and paving to applications. was compared sales primarily lower quarter sales field due partially winter higher XXXX and

which sales constraints volume at production volume Cariflex in to continued These Following of quarter sales quarter a sales for down largely third-party production for Cariflex was to limitations XX% the fourth XXXX. This is due third XX.X% quarter fourth our of quarter up volume lower strong first toller. nearly have the was XXXX. into

quarter. Fourth segment the quarter XX.X% or Polymer EBITDA year down to ago adjusted this XXXX the was million and for compared $XX.X was million $XX.X

of quarter fourth third lower with sales the maintenance fourth in and quarter margins fixed the quarter absorption. stable adjusted in As remained Polymer decline costs plant for unfavorable XXXX volume higher cost principally EBITDA result Therefore is XXXX. the segment compared and the to average associated of

years. that $X.X turnarounds fixed plants headwind. During statutory compared resulted and operating occurs turnarounds. the of Mailiao turnarounds The In of five this lower a largely quarter in case underwent XXXX. our of resulted fourth added in $X.X plant more Wesseling approximately every an increase significant incremental was a fourth rates the in absorption quarter function million costs demand to Wesseling cost million These sluggish lower and fixed also which in of plant turnaround

$X,XXX of is to to the ton turnarounds XXXX. decrease due and profit fourth of Adjusted gross in This compared fourth FCA was of quarter the impact quarter in $XXX the per ton per unfavorability. XXXX

Excluding ton. these $XXX costs in the quarter approximately adjusted gross per profit have would been

a had cost XXXX compared higher EBITDA margin XX.X% in the effect the on was which quarter fourth dilutive in year-ago quarter. Likewise adjusted to of the XX.X%

the been XX.X%. the cost impact quarter the would XXXX costs and Excluding absorption quarter have the margin in of adjusted EBITDA fourth for of million $XX.X turnaround fixed

XX.X% the to revenue results turning Polymer Now, year XXXX year or compared Polymer down XXXX. our segment segment, XXX.X full for for was to $X.XX billion full million

Polymers, performance Specialty margins For modestly were a whole unit and XXXX average to for compared businesses our XXXX. as Cariflex products up

average raw as lower lower the prices reflects material such As volume. lower sales selling associated revenue with costs well decrease as average

negative In offset accounts impact million. $XX.X was the and changes this by revenue exchange materially currency decrease addition the sales impact of $XX.X foreign for cost million favorable in of of on of

in Europe Specialty to sales weaker being China, additive and XXXX United primary and volume Asia partially In terms compared volume drivers with demand applications based broader the States. volume sales XX.X% lubricant was innovation by of Polymer sales higher offset the lower down into in sales

compared sales XXXX. Performance X% was products to down volume

hangover of higher volume weather the roofing due of second adverse Cariflex XXXX. and glove this XXXX As and was versus impact the X.X% customer of surgical largely quarter in into the in applications. effect up latex of sales inventories high third discussed we XXXX was to the on volume paving quarter on

$XXX.X volume in this adjusted XXXX. volume Polymers versus was in XXXX. offset XX, December a Polymer sales was modest cost by million ended decline months is in attributable largely EBITDA the compared adjusted XX the XX.X% and and SG&A Polymer segment down million Specialty The performance to favorable and partially EBITDA segment increase For XX.X XXXX Cariflex products to or

versus XXXX full the was year relatively the in EBITDA adjusted XX.X% segment XXXX. XX.X% margin unchanged For the Polymer

of gross a below was ton addition adjusted profit the on modestly In year per $X,XXX per basis $XXX full XXXX. ton

XXXX the beginning to Chemical $XXX.X million $XXX.X Fourth segment $X.X Slide X in compared segment million review I'll the was a for Chemical of million the to now the for fourth with turn up quarter. fourth the XXXX. results of quarter quarter revenue

$X.X the up million The negative effective offset $X.X by Total sales. currency Sales reported than favorable sales of compared of foreign fourth impact Chemicals than in was XXXX. of cost the X.X% exchange quarter more the was to segment revenue volume impacted on was this and quarter of million our volume volume fourth XXXX. higher by marginally

City Panama up in to Sales rosin the Chemicals volumes and X.X% demand sales Hurricane by sales with fourth Adhesive opportunistic raw lower of was softer associated of sales principally compared applications which oil was volume upgrades materials, oilfield were XXXX in sales constrained quarter rosin. outage with the in higher down Michael. XX.X% for Performance lower reflecting sales of

volumes market in our reflects the City the expanded tires fourth was outage plant. versus up for our XXXX CST quarter Sales fourth Panama demand effect at and quarter refinery improved of of XX.X% France the in which us capacity Niort allowing to leverage both 'XX

of third quarter fell declined As gum and third call, we XXXX the discussed the market XX%. pricing quarter turpentine in during gum rosin XX%

pricing fourth pressure gum in and quarter gum TOR pricing lower albeit margin at chains. CSD for further translated the stabilized Although trends rosin market and turpentine in our lower into levels

turnaround of $X.X In absorption also XXXX maintenance unfavorable were in fourth cost to of contributed higher quarter and plant which the of million. due fourth costs to XXXX than $X.X quarter addition fixed fixed the million activity

adjusted quarter was Chemical or fourth XX.X less As XX% cost for quarter $X.X compared million $XX.X EBITDA of higher accounting million absorption million down with of in turnaround or a a EBITDA. result segment the XXXX favorable the adjusted of of impact fourth cost XX.X% the decrease to for

margin the to Fourth quarter EBITDA Chemical quarter of compared the in for was XXXX XX.X% XXXX. adjusted XX.X% fourth segment

have the associated would fixed and EBITDA quarter, $X.X XX.X%. turnarounds the Excluding impact adjusted with in been XXXX fourth of million costs FCA margin

offset and function Looking full year revenue lower Chemical is or the volume X.X% million million for principally $XX.X compared the results $XXX.X in year-over-year accounts resin pricing of on sales decline of and $XX.X lower largely rates year of end exchange by full our XXXX. markets. foreign a at revenue impact was segment $XX.X decline to down currency for million The favorable Changes sales. in foreign cost million

at was sales to TOR was due volume and Niort raw volume XXXX Performance XXXX. CTL as up sales part volume sales both in down sales lower our tire sales the primary of TOFA and capacity segment year. volume in in Adhesive in XX.X% of plant our on raw XXXX compared leverage availability hurricane to sales was Chemicals the Chemicals X% reflecting essentially we X.X% and higher flat impact was in France. sales lower the material during increased XXXX of constrained materials Overall and down

XX% Chemical $XX.X chain segment as segment costs XXXX. adjusted chain. year raw CST EBITDA million higher full our was compares was reflects The down and full The as to volume margin $XXX.X lower million material and to this XX.X% pricing the or decrease XXXX and XXXX. XX.X% adjusted EBITDA sales XXXX For for well in lower the Chemical in TOR compared year

accounted impact Polymer revenue on $XX.X consolidated by exchange of the foreign Slide decline million the million million of fourth lower offset quarter in X. our fourth revenue primarily in of XXXX, the of of was XXXX $XX.X volume to by segment. results turning more for million foreign favorable currency Changes cost sales. on for Now $XX.X than down versus sales Consolidated the quarter driven $XXX.X

was million the EBITDA consolidated XXXX this XXXX. down quarter quarter Fourth fourth XX.X of and $XX to million compared was adjusted

commentary of higher and X discrete XX in fourth reflects As aforementioned by in fixed approximately the both my discussed the million with associated segment in sites. driven costs plant million approximately of principally this our Chemical Polymer turnaround items activity quarter decrease

fixed approximately $XX less addition rates favorable the absorption of XXXX In of resulted downtime maintenance fourth cost million. lower quarter plant impact with operating in

margin these was the specific items EBITDA fourth With in adjusted quarter XX%.

Excluding the adjusted fourth margin approximately would XX.X%. EBITDA been timing related costs impact these the have of quarter

equates being diluted share impact in favorable compares adjusted XXXX. to quarter the to in and this was share $X.XX profitability absorption approximately Fourth the effective per loss The attributable quarter an lower of diluted share per less earnings fourth balance primarily the quarter $X.XX with to Chemicals cost $X.XX of costs and of turnaround fixed adjusted our in per segment.

year million consolidated XXXX. X billion full the down the X.X to compared of XXX.X XXXX For revenue was billion

in material impact As of the selling the lower average significant of revenue a Polymer lower outlined Chemicals segment. rosin in decrease pricing lower the lower with segment costs higher in segment sales associated raw along raw commentary the and the with driver volume prices was material and costs

the of the of offset largely sales. addition favorable exchange revenue for million XX.X impact effect negative our cost decrease In currency on of foreign $XX accounted overall the million of foreign by

million compared adjusted XXXX down the to in XX.X% XXXX. compares Consolidated of million XXXX. This year XXX EBITDA adjusted $XXX.X adjusted to was margin in XXXX. was for XX.X the The was EBITDA This EBITDA for consolidated million XX.X%.

in taxes. EPS expense, $X.XX compared lower the adjusted SG&A was and $X.XX lower and particularly Full the down sales or by of included partially year XXXX Chemicals X% in lower profitability volume the $X.XX decrease income to offset XXXX. Drivers segment interest lower costs

full quarter range foreign our basis Now within was turning guidance consolidated share in $XXX to and net debt This under X, a million by debt to authorization. and excluding Slide million effect $XXX on currency falls call $XXX.X we consolidated of million. the our activity million $XXX.X the of reduction we reduced provided reduced third repurchase year by XXXX

$XXX $X.XXX following billion Given acquisition Chemicals. Arizona from year-end our of net was million at consolidated down the billion full year reduction debt XXXX debt X.X the

XXXX. XXXX, XXXX. third X, market to the our condition we light the outlook I'll evidenced results conservative our the XXXX was report. to took faced risks adjusting in for prudent account in which a balance the as the guidance we quarter now in the changes year significant for of In the in In approach review turn more our of half second As for of appropriately by Slide we of

to a to perhaps reflect and achievable. more We current our uncertainty we the market context of approach be have term taken guidance near in XXXX importantly but similar with significant guidance dynamics believe

incremental $XXX XXXX impact million the release, the of quarter any in for press will first our expect to not EBITDA As outlook outlined include beyond million. This in of range potential does XXXX. the coronavirus adjusted yesterday's we $XXX that forward

quarter XXXX we growth but Overall, approximately fourth in we by we up with pressure EBITDA intensified will volume broader dynamics. China segment continuation In margin XXXX expect our and of the anticipate from volume that a expect year performance that full associated million. affect Polymers anticipate Specialty competitive XXXX. will to XXXX, in $XX But for relative conditions negatively disruptions and first the coronavirus and market be sales increased resulting products X% adjusted market we conditions in of Asia XXXX and quarter Polymer

case our sales expect we normal summer paving experience season a paving XXXX. of and believe every market up paving roofing our we we'll reason and In have business the and be to volume to for to compared roofing

$X we customer. In our significant impact will measures However, of the Polymer competitive a believe sales expect volume the business against additive increased with we on pressures inventory lubricant margins incremental growth. pricing and associated weigh million Specialty reduction

in in approximately Looking which volume at constrained we XX% XXXX Chemical grow expect we versus to our supply. segment CTO experienced

continued CX half the in light into markets given of the hydrocarbon our we the year in XXXX. last second in of tackifiers decline gum low-cost in However of pricing pressure ready see and availability rosin and

decline of Likewise our expect chain and CST in in with XXXX no in recovery hydrocarbon in tackifiers turpentine availability or pricing lower the change no rosin pricing and we assuming gum XXXX. gum gum pricing in turpentine margins in

aggregate We CST to primarily be expect in to chain and these approximately to relative million of chain. in TOR $XX our impact XXXX a our lesser the factors extent

expect In increases increase million. transportation $XX will IMO approximately logistics XXXX. rate and in including impact the This the reflects of XXXX costs by market we

expect adjusted contributed in $XX that EBITDA. approximately million our Cariflex we Lastly, XXXX

in we As the this anticipated Cariflex close of the end first of quarter sale will the year.

the includes the on third-party only at outlook the EBITDA to Cariflex date contribution of approximately first for that sale. million for year timing contribute toller would EBITDA. of constraints $X the expected previously expect production and the full our XXXX sale we based through of Due adjusted Our adjusted mentioned closing quarter

the business to share repurchases. any we of debt a associated excluding proceeds or year This the of the foreign $XX reduction currency provide of effect our expect business. sale excludes $XX that activities reduction for guidance generated of EBITDA also Cariflex net will any debt million adjusted from with from our consolidated million Given cash

And Kevin call comments. for turn his closing with this back to the I'll now

Kevin Fogarty

Thank you, Atanas.

Now heard time you it two for global very months into just markets. improvement in determine difficult a frame as XXXX remains to

fundamentals is China the broader been there Asia. Although we're of could by caused past Indiana their businesses robust And easing visibility in into when the Chinese and demand as momentum which mass typically new prepare provide for tariffs positive demand expect has that Lunar Year year. disruption while New as we in near-term a coronavirus the some surge

Greater Based on impacting to coronavirus disruption and the Southeast with we volume geographically the for despite duration Kraton disruption second yesterday's beyond. that release press growing is into positive. will remain growth will future not expanding and the fundamental concern for for and uncertainty Europe. now the Asia had broader headlines Europe or China longer-term from a is Chemical Asia the alone believe there near drivers potential Americas and both changed. linger segment and for Polymer the remains quarter Nonetheless noted Kraton important term outlook The as in the well as markets for

expansion we growth And as such India. markets in potential see continue long-term further to

driver our As always differentiated key innovation a growth. remains for

just as For to, has growth volume across are segments. Chemical expecting solid spoke and XXXX we Atanas specifically Polymer our both

will constraints experienced to by Chemical supply additional Kraton possible we relieving our in XXXX. For growth this made segment be expected CTO

drive XXXX for traction momentum the sales assumes into to season for half we'll pressures segment carry we our experience commercial we we this to our HSBC of prudently paving guidance margin to have In Offsetting will polymers specialty expect our continue with business forward. however Polymer the experienced believe to to business. excellent regard in our reason And growth. have second with normal and roofing a XXXX markets every summer positive

market given we working in extend of as capital. certain year manage the with indirect Therefore to to and prude in substitution with when half the in associated experienced competitive or beyond conditions it steps in second took response XXXX And markets activity cost direct XXXX. optimize

XXXX. pressures We have $XX additional the in market not of enhancement business. million approximately reality further targeted will margin our initiatives for line broad-based productivity ignore and Bottom

fully expected be are through of half implemented to the actions These second XXXX.

realized second benefit for current the of we measures expect current goal future. position benefit be effectively specific to the XXXX. likely Simply half productivity associated Kraton fully while from our costs, in in a these to to given year stated the is implementation continuing modest manage While be and the through will environment

on We of long-term for our Now know and is you fundamentally demands enabler as a well the as an the more aspect to many competitive rather while Kraton customers line as bottom that world of to customers Kraton a their remain a believe role skeptics and sustainable growth expectations solutions key for are the evidence see cost positioned process. many sustainable still circular sustainable our we increased facing at focus decision-making approach, participate And our investing as than a future. opting provider to pure products solutions.

to compelling the whether and on are we societal emissions recycling. provide decreased world this and increased to a gas sustainable ever-increasing believe of will challenge due We REIT to greenhouse side or solutions economic we continue plastic

our to you example to For products. alternatives is Chemicals as seeking segment specialty Chemicals of know customers bio-based value exceptional provide hydrocarbon that a provider based

production have already rosiest ERS scale capability growth and Through on will have family our that a potential we novel stand our to Investment for in and color been hydrocarbon commercialized up the offering innovation and our revolution applications believe patented We we technology. and under industry stability XXXX. historically late tackifiers. based see way of by upon is served focus this based for expansion new set favorable recently

summarize by the into regulations renewable outlet. Kraton diesel in so-called the participate Without more let this rapidly opportunities including example and X. I is member from me nonfood XXXX see second that pools bio-based A within the renewable fuel in saying we mandate those increase in evolving period second all directive to states. Contained the recently of for in completed Red getting is nuances European jet of for XXXX the where through Union mandates a and this the Director to components real-time just the market sources a energy and

many materials toward alternatives circular Likewise a polymer play in economy wire automotive. in applications Furthermore cable Polymers can a and as world and our a offers key enabling segment non-recycled we cyclical rapidly in economy. other believe materials moving and compatibilizing medical to compelling effect a the role including single-use our non-recycled plastics

the of world plastics One in urgency the PET as such with largest Polymers the issues had otherwise comingle a polyolefins. has recycling non-compatible facing

Kraton again doing very real drive hurdle enabler technical our while represents appetite so challenge. and societal solve this Here will a an in innovation to solving

we examples make These resource can an continuing to are difference Kraton the manage priorities to of and effectively current a for positive contained at In how clear environment to in closing current otherwise our Kraton world. reiterate position while are future through the future.

Specifically to we debt further as we to through operations debt remain XXXX. reduction committed business reduce generate fundamentally in cash expect to

Finally of to in business be we XX. proceeds expect use these primary consistently said And occur as the Cariflex sale sales will debt the of before March the reduction. we

With we're to call the open happy for questions. up those comments

Operator

you. session. Jim Instructions] Sheehan Humphrey. question from Our from first begin question-and-answer Thank line is of [Operator the SunTrust We'll Robinson now the

is line now Your open.

Jim Sheehan

be Good macro being ability morning, like difficult have of some for looks that such you to when could would with you the talk coronavirus Do a the so by uncertainty this if timing about so flex CapEx backdrop. outlook down of demand your you impacted expect economic XXXX? expectations do and what any decision? It is would in making CapEx? a the to And

Kevin Fogarty

to balance capital that assets we expenditures. shareholder sure need prudently on with think from continue the associated sure taking said the nations that obviously outlook. That make with the of deliver to standpoint including Jim, combination account are regulatory requirements business the agenda market and to required of necessary your need fully with work the we the we've doing place continuity on. in diligently still capital that the we that agree I growth things being got as so spend to Well, We're I into assessment make and

the we as ramp we'll move obviously need number from we case some to to expenditures And the to take to do Should the ability have to capital? the we extent that. so? We'll the the we obviously next. feel to In update continue through the to one monitor down progress have ability any need down year year. we So capital do

Jim Sheehan

capacity? the that regarding Thank And rate what how Taiwan up plant I'm you. your plant coronavirus utilization started? that of was before wondering ramping polymer just impact you're the

Kevin Fogarty

facilities. Well the we any consider the don't our for that part sensitive pretty on commented expected us to particularly that the to year. economics. demand information facility of talk an with ramping up the the about down tell as respect we overall our of But I reasons. of comments overall the But the is rates business We you of in kind obviously China to up caused half of specific scenario had that second obvious market ramping be project impact will standpoint Atanas utilization slow in of from plant planning as

Jim Sheehan

Okay. And What's supply XXXX. your access in having CTO you talked more to about for CTO outlook prices?

Kevin Fogarty

the CTO mean of inputs. prices key Well I context you think to think of assumption about in I kind respect the obviously what your would energy with be

in value obviously that's driver marketplace. major of the the CTO So

Jim Sheehan

you. Thank

Operator

you. Thank

is of Stifel. Anderson next question Vincent the line from Our from

now is line Your open.

Vincent Anderson

thanks. Yes,

your are SBC probably longer-term with thinking capital can shares your state exposure where be adhesives you into margin allocation to just to adhesives So strategy hot incremental after about I the the customers. capture any and Cariflex. into your tackifier and for market? portfolio looking melt sensitive But on sales deleveraging your given trading, to I'm will Have priorities your downstream pressure thought that

Kevin Fogarty

Well, the you're overall the mean, but to downstream sustainable at asking of step think raw the when with participate day of material the customer. We're about I or to not supply context our look which of work going is developments our low. mean, very material case has customers. the their portfolio a as competitor of on in them. always to is what you we're during innovation we And a be Kraton that Kraton value customers chain to see that available see the you'll now end the at we in I call supplier to role chances being looking in, a talked the about offering I

Vincent Anderson

Fair recovery. just much anticipating you a volume not then growth some enough. outlook your And XXXX despite pretty with of assumptions regards demand have aggressive to

you are where mostly to So by if this operating plants better to that Or any given try just getting channel a better attempting share I a to your motivated in some? up is bit understand up regain you've particular market back rate? strategy

Kevin Fogarty

say that structural. of year. example of we would throughout our we're But supplier. we that is raw arrangement original taking year. The fact I factors last we were fact is supply it of strategic CTO the material various of called know part on And constrained for on some for What is is with the supply our the matter the out that matter additional was

we reason us presuming a think relatively the last in it supply this were don't case CTO the the But to again at to more year we're us CTO. so additional gain CTO CTO it of in think and terms for the markets And to And in think it you in puts of supply we're polymer that obviously of that some means look it's of of supply not the challenges seeing additional responsibility where about market a CTO volume a that cases, paving structural that we year. if share for Kraton. terms of output we the an the it But When normal as a But our little thought would as can. it much that's fractions year strategy thought comes would some believe in we with to to scenario. as be is disruptive guidance, we not there's to bit and, as we of we're in erosion half prudent it example obviously here thought as in our dealing for called the as business, growth. marketplace positioning be assume the be prudent in first kind of no in overall side out weather you much recovery change

relative if fact for would in the now right expected In to Europe positive fundamentals anything look we example start season. to weather the have when

Vincent Anderson

released. I has your just the appreciate. That's they've can budget very paving. in highway topic there, it helpful. conversations correctly remind how recently India's And and any their favorable on you budget in some you've positioned paving I'm if of market had you're the of since fiscal increases exposure that looks like reading pretty But 'XX been that issued us

Kevin Fogarty

ground unknown market yourself mean, is I of And working we both whenever time been the India. raised lot you to a kind sure India and a people approvals and to years for enter on have you a prove make glad in obviously need got and most about we five now. hard importantly I'm you've So material our the the of developing marketplace. we capability regulatory in spent seeking relatively

the for having so. So what all to to infrastructure, India's of you're in absolutely terms commitment mean, see do you about new speaking example, think when I we

the consumed Our got we've that's being now technology we new real Indian and is Hima And which in the these in building roads. and market. specified market suited is high-modified in think materials time absolutely asphalt new airports about the we've building India for are that talked technology approved and

Vincent Anderson

Excellent, thank you.

Operator

UBS. The John the of you. line Roberts is Thank next with from question

Your now line is open.

John Roberts

you. Thank

of is particularly it doesn't your Could there Because Your market issue sure it in know end higher Specialty guide through for coronavirus being go that's go of Polymers, key March. – beyond I'm if just is Asian you're impact volume sure like pricing products but impact or in beyond leaking the a impacted. and expecting concern? you sounds low of into exposures that it end pricing pressure. March, some the some terms I don't is the

Kevin Fogarty

thing even in parts is Asia a They're a is even now, you lower like about to not down The work material trading shut not down. what's particularly at ordering. think happening when – moving. The cases. some China marketplace. Material effectively about Customers not not it's marketplace of other quality the in and are now

a So literally it's standstill approach.

correct into know account months better part the and into calendar of the only so year. taking through what to what our in our we're able we we're guide and two assumption in And see you're

that first on same guidance I'm the believe based months what is information. it's us for seeing impossible the forecast. sure the year. So you beyond we yes three I'm for to of that are. And

John Roberts

adjust? secondary market slow they a impacted production or coming there can't is effect China's the from by Asia latex being And down issues in their because

Kevin Fogarty

and about Cariflex? talking you Are latexes

John Roberts

No, based sometimes on about natural Polymer talking forth pressure and your I'm so have markets. products some downward that

Kevin Fogarty

would I or natural differentiate between the in case. think don't synthetic the I this

John Roberts

Okay, you. thank

Operator

Thank you.

line Our Capital from is next question of Markets. Chris Kapsch from Loop the

open. Your now line is

Chris Kapsch

see source morning. other you that end this XXX what you range? that. that are over tend developments variables XXX, slows And potential at pushing the the Good the is results then that some downward that range; guidance the to anticipate there that of high add I low range could the were coronavirus risk And toward a of point? the that's push If could I if of end the to range at maybe March down today Yeah. beyond guess of at look

Kevin Fogarty

that relative we visibility the as performance. XXXX year give is what much can mean, I we with this you the appreciate do to clearly, explaining try into guidance guidance to you hope as Well,

are. the our So see what of some then drive in clearly you lower drivers down the kind incorrect drivers the toward cases assumptions it end are of range. then on And those would if

they On the like some it difficult going those was where clearly. the of margin first we're In at guidance. us for of focused To extent ended that respect XXXX in expand. the that drive presume would this I it least in enter range were improve that to take on conditions the that and to the and would Kraton that just would assumptions – the XXXX a would margins end other think here happens upper obviously marketplace margins with pretty hand to questions question to forecast the and be

the the our end mean Kraton strategy go lead we to right when the our we to if setting afraid in of are And to too which making that sure because the as consistently not a be leader way in in price and comes might add ourselves way market it I price know in at to lead are us in the we is the given marketplace you marketplace. which practices we consider I applied day and of

you lot owned what's move bio-diesel think with of to obviously our it. example the in for prices release time right when the last our present in several raw And I increase going first that. mean, we my of press move, materials So opportunity I we're do to market about At an end when I'll day the the This watching now. give in conditions night we by the chemical acid since to a the of years move very we're that's that other fatty closely. see oil for starting is a and driven world. family the in happening and side business vegetable families positive we're very the fatty we've up trend acid and business talked

Chris Kapsch

you –Kevin on overhead then as of to quarter as the and interim. on the unabsorbed your margin fixed the the the on This absorption margins it profile FCA to drags cost refer was one response just exiting fourth the so talk you about year Got that absorption, it.

respectively the and I'm just that wondering what so into you baked segments assumption full the the that range. have two recovery XX% And volume FCA for is guidance given expectations for for for year what X%

Kevin Fogarty

Yeah.

assuming So cost we're that fixed drag XXXX. have to obviously. We're absorption going not in

Chris Kapsch

that I'm sorry you're – you're saying

Kevin Fogarty

not Not will assuming. that we assume drag. We have

Chris Kapsch

Adhesives Got it time? way you TAM opportunity and innovation associated any you on Polymers long some parameters and is around maybe with if – over that and anyway the some development. you some sustainable the that automotive then recyclable about of you're enthusiastic what if point at could wondering one commercial put just the project I'm is what Thank touched this this of to some in you. to the opportunity on cycle put could And parameters in Polymers then

Kevin Fogarty

think they're they're meaningful innovations successful, – successful the to We when when they're good these on find mix. on yeah, work overall projects marketplace because fully a sales these obviously, we'll if our work We question. in it's ourselves that being implemented we do having and

not in their So right. projects they're own insignificant

of compatibilization for Customers day to Rosin if clearly, on really material you're of is meaning impact, two the the they're the your Polymers cited new testing using tell them in this about of technology are Now, certainly materials comingle years. the today. Well, talking one in end the embracing But going hand customers revolution question I Ester meaningful case real we before otherwise some mean, and in year? year. are I about our can this commercial that examples expect they're both I more what's the and these cases probably have are you the Polymers incompatible commercial example to at the and be

Chris Kapsch

you. thank Okay,

Operator

you. Thank

line Our of next from from question the Bank of Spitz is Roger America.

Your now line open. is

Unidentified Analyst

Antonio [ph] Hi, in Irene for filling good morning. This Roger. is

So the of [ph] in just question compare other a I And FTEs pricing in Chinese products any changed has the the have quarter? year-over-year product perspective? past peak terms you've China. pricing how does level guess or the from CTO I past of quarter-over-quarter, discussed that or in in

Kevin Fogarty

I sure your question want appropriately. to make I answer

generally time question. we're nuance that enough we business and even produced standstill about it in and get to in interesting components Europe. the CTO the result said a answer from in whether speaking in pricing, not asking CTO to But that decline if or seeing make you're being CTO production that and commercial not China. fractionate is pine now to our in anything of might If employ But China time slowing is consumed not CTL If China. US into of obviously chemical the market not you specifically therefore the right for production to there's as mentioned activity

Unidentified Analyst

Alright thanks.

Operator

Citigroup. the question next of James from line The you. from is Thank Finnerty

now Your open. line is

James Finnerty

vast what's used the proceeds be sale? on expected just impact that And to sale reduction? would we morning, again good majority the And loan? for should on the tax quarter, Hi, that be the Cariflex the term the close assume this would debt probably of

Atanas Atanasov

Thank for Yeah. question. your you

assumption Obviously, proceeds principally, they down minimum indicated previously anticipate with that the get debt. after leakage. we've Our respect days But finalized minimum pay as continue down tax to go leakage we to we've as indicated close taxes, the with to anticipate we XX XX previously we will to transaction. tax to respect

the discussing our term options internally. couple that currently option have down pay a different have of to Obviously, we're loans. We we

going as was our that have also we not have I We down Suffice a to said debt to say decision. is But significantly. notes. made final go

James Finnerty

Okay.

using the the terms various parts to in proceeds of So there's of flexibility capital structure?

Atanas Atanasov

Correct. Yeah.

James Finnerty

Okay, very great. much. Thanks

Operator

the your next Stifel. now is from open. of you. from line Vincent line Anderson question is The Thank

Vincent Anderson

roughly Yeah, I was and of how thanks. TOFA morning curious again, the Good US to do send derivatives much based TOFA export just you your market?

Kevin Fogarty

of very but Rosin to it's manufacturing in CTO them We guess across be the we of facility pond European plan centers we're ship But here. aloud relatively shipped it's our where a small making and some would Esters volume. terms little. actual fractionation some in Scandinavia. CTO manufactured output product I to thinking just example dispersions to our of the one I'm

Vincent Anderson

end So supplying you the TOFA it in mostly and the so market? are stays then US

Kevin Fogarty

yeah. Absolutely,

Vincent Anderson

quickly really just if remarks. in and issues? Finland's enough to prepared apologize the impact there? But touch that you then And paper quick labor and Okay. your resolved CTO pulp on prevent this supply any I Was on missed I did

Kevin Fogarty

because us about our in our referenced on impact an we CTO is what new some do we're to moved a continuously we and of ability always have not Europe. did just It position which I

it position marketplace. some It did have by obviously requiring some the our supply in I gap. we not to declarations that a impact not some There were So unique some shortages us. if think competitors impact an of were did that force were fill majeure allocations

Vincent Anderson

Okay.

So course those business? tower of exports of

Kevin Fogarty

fractionation more our – Yeah, export end this additional well, no ability situation capacity that to We We this year. but we in the excess have of CTO intend it's that because at that I that fact would in and also the utilize you suggest that that We're way. to in see see Europe. CTO day we the unique the of of marketplace to capacity secret. that a we got

Vincent Anderson

you. It's see. I all very That's helpful. me. Thank for

Operator

Thank you.

of line from Chris Kapsch Loop is question Market. the from Capital next Our

is now open. line Your

Chris Kapsch

you the Yeah. negative year One increased that absorption is experienced fixed alone availability is in address of of variance – have the you the follow-ups. 'XX? A cost couple this CTO that

Kevin Fogarty

chart extent more have fixed fixed positive increasing last cost. we're year the year effect it produced standpoint will we're producing not and a our to because than this Well from cost we a then

Chris Kapsch

mean from the last unabsorbed I'm alone year? So drag that fixed costs entire basically I will alleviate the saying

Kevin Fogarty

to to want ask respond. I Atanas

Atanas Atanasov

really in that primarily a fourth was quarter you portion a very of that that of absorption of be remind – made that. we is cost absorption issue fixed cost will I part we would That had more fixed the and very, which the XXXX clear. timing But issue

in cost One is mandatorily of – the happens related approximately the to years. a significant of mandatory that year five again But you fourth vessel a saw issue. fixed XXXX mostly which was was is quarter absorption those that every portion was

Chris Kapsch

one profile margin certainly to so XXXX, not this first normalized any in might couple about several visibility But – the And half, exit we're the have that? conditions now we there's we Obviously, some the year the There's Arizona just downdraft you of it or one sounds few influencing start of thoughts obviously the as point we or normalizing? a business. like not the but the the do sort of trough. there downdraft think with years elevated maybe Pine first normalization maybe Chemicals years of which ago Okay. have XXXX the deal then question into since the the that troughing now beyond were a at not Thank one the was thought business, might – on half because of circumstances last then overall points – thoughts in any on prices over in and what industry about CST you.

Kevin Fogarty

– Look take very, – fair a let's question. it's very talk let's

Let's parts. take as three them

our have side. acid We fatty

in market as TOR is from turpentine our fatty That's our participating our standpoint have a biodiesel momentum buckets good. fatty them the our as in or rosin vegetable Europe I outlet. told and of you kind from side. about order, by well in the perspective backdrop of terms pine biodiesel our other we of side Taking own as acids chemical in driven oil in interest business. three potentially new acid then We a big and have

there good. the momentum So is

what really, line. we're fast level in – the profitability as it to it two chain half the was existed early of normal. back and that at our up. of run that supply the third would I that back the a CST normal third margin there led day a end profile the corrected of outages driven prior – market product the like to That corrected comes year of to of When expansion very described in call it that to I We're kind the chain turpentine of And quarter. to

with product that that's underlies outlook portfolio. a positive So the day just the if stable of growth end the attractive the at of anything if in perhaps context not that stable

tackifier the tough substitute part and forecast. TOR to price of to have of had the between prices, admittingly one the and material of one our equation a pass-through side is difficult TOR and costs been equation. does aquifer you economics understand the been most purchase and business. raw selling to on And willingness fundamental Then what whole that's the relationship the to the side The business the that the the trying the the to – come and we've that driver

Atanas of point As rosin off in in know, for we're kind expecting to today that has a lot now well XXXX plan. more jump And XXXX. the year, right but the we sit out And as decline a with of sit chain not as see the as we've called happy XXXX I think as assumption. almost our proxy months we're used two from you I

Chris Kapsch

Thanks for that, Kevin.

Operator

longer queue We have Thank any no on [technical you. questions difficulty]

Gene Shiels

will this Thank a replay you, later Annie. available be this And we'd like thank to call our participants of morning. morning. this There

you. replay to those number one For remarks. willing That concludes prepared the access the or to X-XXX-XXX-XXXX. Thank is wanting our

Operator

the XXXX conference concludes This Corporation Kraton earnings call. fourth quarter

You disconnect. now may

Kraton (KRA) 28 Feb 202019 Q4 Earnings call transcript