TSE - Earnings call transcript Q3 2020

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Operator

Good morning, ladies and gentlemen, and welcome to the Trinseo Third Quarter 2020 Financial Results Conference Call. We welcome Trinseo management team, Frank Bozich, President and CEO; David Stasse, Executive Vice President and Chief Financial Officer; and Andy Myers, Director of Investor Relations. Today's conference will include brief remarks by the management team followed by a question-and-answer session. The company distributed its press release along with its presentation slides at close of market yesterday. These documents are posted on the company's Investor Relations website and furnished on a Form 8-K filed with the Securities and Exchange Commission. Instructions]. [Operator turn to now Myers. call the will Andy over I

Andy Myers

instructions At good all mode. Thank participate remarks, and session. everyone. the After follow this question-and-answer in brief listen-only you, Julie, a morning, time, to in participants our will are

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

implied could certain discussed, During of expectations. you caution We make including these differ from archived guidance obligation is statements. its no release forward-looking in our results conference our following measurements. call. or what investor materially presentation, The or this presentation. may and Factors be issuing described must and that statements we describing future statements. actual transcript our that actual limited corresponding with measurements non-GAAP Annual The made website X, replay in cause certain XA forth results in the company Today's the available includes reconciliation the measures appendix Investor could on or but to to forward-looking filings our are will of to A in shortly conference the XXXX. these differ Securities earnings not Report of will in GAAP to the Relations undertakes set XX-K and revise other include, on update provided call presentation November and company's Form Risk Exchange Factors until A is our replay Item of Commission. be

over to call turn to like Now the Bozich. would Frank I

Frank Bozich

call. Thanks, Andy to quarter and welcome third Trinseo's earnings

the down the This the volume many quarter the we low only automotive, segment. towards demand in benzene, continued applications. second margins As volume the quarterly quarter. the which benefit quarter from after favorable margins decline preannouncement, second recovery quarter. in improvement XX% year to flat end our contributed prior prior the the of in recorded led volume through quarter to momentum earnings in In cost to and which year after a we and to XXXX, in versus Styrene Healthy to second I'm in polycarbonate want prior observed many applications increase in feedstock to sequential third appliances The tires, positioned Europe down demand margins our was its strong have versus XX% for for in new third an they that the quarters the year, demand In two positive year-over-year was of significant well perseverance being us their the transactions hard XX% as of the higher quarter. led cost them through seen noted third ABS thank segments in employees earnings. highest the conditions demand, both segment a adjusted year-over-year margin short-term quarter led and across returned. faced I polystyrene our speed margins. our their success and we very improved with along reductions, as expansion proud since as commercialized led of last for our to and structural particularly over work, challenges

like to I'd some a occurring segmentation the including the our Before in highlight in company, quarter, I in quarter. and for outlook beginning review fourth announcements fourth the developments change

ABS of are Base in compounds of elastomers The medical compounds and compounds with in of compounds made segment segment creates product divided this enhanced plastic Performance XXXX the provides serving applications. which presentation beginning new tailor-made footwear, and investors they now used appendix feel fourth also PC products applications Materials be serve automotive composed October and recast new consumer the effective The and are polycarbonate growth earnings offer predominantly for variety higher less in thermoplastic applications, will markets and appliances rigid product – with XXXX Base how the market. manage in segment new are ABS building results including been quarter The compounds segments, Rigid that and the Performance our and and packaging, transparency this to As this a Engineered as ABS is providing ABS, important segment is in historical personal lines. reporting. focus and Plastics. margins full include in includes into of earnings we two plastic specialization care Materials aligned compounds. The better compounds in Engineered core a soft automotive. are faster PC, our has growth which PC soft This our specialty segment construction. two or Plastics X, and These The new electronics business. of TPEs, volatility. reporting will up of under Plastics and the lines. Plastics and year be for segmentation, applications compounds We serves reporting and The

continue council Feedstock will had made improve the works competitiveness a significantly begun possible the agreement to Germany. During our of completed Bolin, process the thorough plan. the this a of styrene earnings in we supply call, German flexibility. decision for to We evaluation, that and operational closure with consultation negotiation we that operating first assets related After our the quarter recently we greater plant announced the have of provide new

capital formulations, the formulations and for progress, Form advancement few of of including be the polystyrene a reaching sustainable applications and These food in circularity, safety toward notes packaging that holes And Fern polystyrene. on no used German can since goal to a food is full announced full company. has equipment in compliance with make requirements, share investment their and end, to with our In requires that pleased solutions with September, to used in partnership packaging circularity. sustainability we offering Seal can critical we resulted progress, our I'm customers, continue be production. fill our products Next, polystyrene recycled our mission XX% by manufacturer same our

accelerate circular polystyrene. development with agreement Styrenics share joint INEOS a the Styrolution, data American of announced and recently also realization Agilyx We and to

Additionally, the be polystyrene goal, applications. in to XXXX. in offer our an we can average packaging toward on XX% of will plan used in to This for monomer, remains the a ultimate in XXXX. to of European as are plan polymerization by joint polystyrene represents polystyrene content of making to sustainability original forward these then operational steps plant with INEOS it be numerous support the recycling styrene progress significant our on full which goal step for France, actions All customers Europe back which are polystyrene circularity, important toward an track recycled

in This designed for Americas packaging international is products certification us to XXXX. This an track food and similar goods. venture our sustainability, a the joint recycled from ensure and finished and site. In certification, our receive food total goal the our sustainability of service appropriate Tessenderlo Germany and targeting Germany system. apply our allow Styrenics will sites from polystyrene amount the of also Our mass Schkopau Stade polystyrene from to cycle polycarbonate rubber from areas by Belgium balance European allocation carbon of synthetic input to production sustainable of the other XX% its will site throughout site, three

equity tire environmental for footprint manufacturing outlet recycling investment value-creating and tires. sustainable aiding pool our resources, solutions improves of on creates tires their we've collaboration goal in for reached with a of that of a definitive Lastly, solutions an and envisions This in R&D agreement developing a agreement that end-of-life company. commercial new

recycled We overall with many numerous not segments, the continue fronts products to the significantly content as margin. our sustainability make and financial also benefit in solid achievements environment only higher a progress of on here, but over global performance command

medical we similar the quarter. to Moving the and demand We've third observed continue saw our automotive, October, what in views of we seen tire to pattern Through fourth recovery quarter. applications. in

quarter packaging, and prices that lines sustained strength product to this the we in benzene to consumer the electronics. as the continued applications similar increase. in to will in and to margins to expected polycarbonate addition trend for and optimistic be decline third We're styrene the slightly appliances expect quarter while demand our duration of In Europe demand are higher persist polystyrene of cautiously due

cash cash our revolver business position in utilize to inventory of $XXX year, the strong heading generated us point at value the repayment organically the and an lower cash strong actions Nine Our of months already through Julie draw balance management have open control third earnings. to EHS strength This the year finishing including provide fourth into balance million. to cost $XX areas initiatives We with growing and liquidity is inorganically higher which financial excellent shareholders the added -- our margins. exemplary cash to in quarter with strength and of puts This in may effective million a has of cyclicality working control $XXX phone a operations from capital only has and million look including questions. position of $XXX the in the the untapped. sheet now quarter flow liquidity of And we improved now of performance our after into higher had end a free the quarter the cash and forward sheet for million with even at and as we to line solid end of position the performance.

Operator

And your Deutsche ahead. with from first Begleiter Instructions] Please David of Bank. [Operator comes question go line the

David Begleiter

new at what EBITDA you you morning. new Good would a site, beneficial arrangements? more you. when these agreements been year just if in side, Bowen the had Thank last on money under Frank place lost that

Frank Bozich

Yes.

So at site David that new agreements we year. last didn't have

XXXX, into similar of that won't market incurred loss the So new in And XXXX this agreements contract. same under will is the market those be in conditions losses conditions if that that of we under effective are -- benefits next January the -- making place the we operating year. the be new expect we go

David Begleiter

engine types what And see right acquisitions? materials, now? so out And there? targets you new multiples helpful. if through of to And That's just very business segmentation you. what Thank expecting this the do grow are you

Frank Bozich

Yes.

you aligned it's this and volatility. -- operate important resegmentation, margins really offer years maybe very We broader -- volatility higher we're of word Engineered offer and to several to higher over demonstrated because that -- a just And the really David on about good very lower excited are the markets in reporting goes can past we it into focused it's that think see how We've it we with business that and it. growth the now. materials. the on provide So company growth transparency more some is attractive

As it We watching we see the to the attractive are think environment we be there. out relates become could this opportunity that that there opportunity if assets in arises. acquisitions, some there and to are available ready We're those. for want

David Begleiter

much. very you Thank

Operator

And question your Please with of Frank Research. Mitsch ahead. go next line from Fermium comes the

Frank Mitsch

to respect avoided some Good tax obviously It last really you. morning. with I note etcetera. just confusion Thank the month. And preannouncement the appreciated to

obviously and trends allowed really strong it feel October how get it So us the was a to said strong. you finished better up for and

as what your But you up. and strength about, of order confident visibility well expected you sort of that I But will look assume obviously thereafter? know you look on do how do curious I are continue. you Just how we books? have that your into the pretty order out books November, that have set December some

Frank Bozich

Yes.

Frank we have would and geographic it forward month orders. North we have have it's thanks some get sense where be for And the segment, very month visibility month have general, the more time where one a long and we good depends monthly of Asia, have typically spot early -- say we and orders -- -- we track America Europe. in orders. so a over a too, more longer But So look in in we in we And what issue but better starts. by each forward lead our our advance -- can better segments, when will month that's and a visibility in I would in

Frank Mitsch

you. Got

ahead Go Okay. David.

David Stasse

the Dave. of happen. economics at a the things. the beginning the obviously, mean of I'll I is with quarter, Yes, when are add known This of styrene settlements couple the bulk

quarter. happened the with settlement the November healthy as in of end already So October last they look pretty and has was to be

far the in the think see question, I I of your as book we as I third So, we as of the what kind in more October quarter. we answer mean can it's order how and to same, think exit

COVID any have The something keeping Now, and be, to changing that yet in with certain that. our obviously something countries. eye and plans just mindful we're could book, shutdowns clearly add needed. seen very to is not place if of we're but We've respect closely European may if I order impact in contingency in caveat one an on that situation of

Frank Mitsch

that JV from France. have Got think start-up for with to capital that any a you're do And recycle you. we about facility? Frank, mentioned Trinseo you OSAN Got and costs you. the you expecting the plant How in Helpful. in That XXXX.

Frank Bozich

to We be to a opportunity implemented margins And thing The on I in is for contain $XX of Europe expand a alluded something on, area. a touching an really that recycled year, that do there's about out comments in what's Yes. next investment. to over in time, tax million this maybe it certain don't us is being level plastics this content. and will that want one point envision happening I $XXXX the

that that Now, can to of we capture grow that ton the as that by packaging, obviously pay go products for that avoid a having recycled content $XXXX end the we portion letting a customers us, great tax. into

space. And ourselves again, a we a it's in see solution that leader expansion So, for sustainable great as opportunity margin us.

Frank Mitsch

you. Thank you. Got

Operator

Global. line ahead. comes your from Please Alembic And question go with of Hassan Ahmed next the

Hassan Ahmed

Good morning Dave. Frank and

Frank Bozich

Good morning,

Hassan Ahmed

would parcel styrene. the to meaningful into the supply the hear around influx love terms that, trends? in of changes Of the seen new your you part mind COVID. in capacity, near-term any particularly result as and thoughts, seeing what And with inventory have you looking as side of of guys question I we've downs of are of and of some a at XXXX. ups you A the terms seen keeping look and picture, in

Frank Bozich

then, now start -- there trends let balance was are but plants we'll and running, of I sort of online supply-demand and by And this me in came top at capacity X% run about operating started head, they they addition Asia that The how was approximately maybe inventory with capacity. the that's at -- reduced So, and those my the second. new rates. rates. of they've global off it the Earlier year, believe those talk

the Now, have play to what because globally, styrene what's interesting is -- demand fuel European that of for continued out we improved in of low we an QX world. the saw rest economics that, the relative dynamic

other as it much a many put Europe -- from -- a -- attract of imports regions. doesn't has lot so, it's And -- stop to are imports as

occurred second plants balanced the The operating rates we've before, Europe in thing more Europe has market. talked and a is that's about POSM the made as lower that --

point that. producers. And out we've from something is last for about benefited we status nonintegrated so, Chinese And years would is the several been the now thing I the talking of

And XXX that actually source reasons capacity So that or economic represented shut QX inability as two these basically in were were plants September in as well for plants of ethylene. there their about KMT were shut. to

these these So this was very an the a where examples have dynamic margin ethylene. demand greater that we have there's non-financially been anticipating to plants first to to that's where to happen of able were or ethylene sell and you not able environment not much source and nonintegrated viable, polyethylene being in cost higher being strong two either

it's we So and watch to a dynamic favorable it. continue

David Stasse

hundred. average last Dave. as China is Hassan of to reported which long-term inventory. compares about a week this question were I'll answer Inventories inventories XXX KTS, your on

falling little So last fallen XX%. it's the XX%. it's month, And week bit rapidly fell alone a higher, last just but over it's

is see because extremely strong demand as ABS, of those tight reason for in and both that our others in Asia. polymers produce earnings derivative the is in So as that in and obviously supply polystyrene the comp you'll well China that

drop. think going you're to I I see to that number think inventory So continue

Hassan Ahmed

the guys the look touched as to Makes on how leading through the naphtha as mean, follow-up costs. ROS, into playing be and Europe, complete benzene a fourth of well? in particular quarter of in on trend do out that as availability you clear. course you you in sense, I presentation very see XXXX And plentiful it lower

Frank Bozich

of driver distillate demand naphtha. low the or that operations more a refinery and shift produce fuel demand the to is So for

-- until the we continue rest the a you our jet economics kerosene and we a in global see view of naphtha and demand fuel of believe I I in particular recovery relative to -- So to us or market favorable for long world. fuel, that Europe for see is

recovers view And demand, our beyond and levels. into seen XXXX XXXX forecasts some to I've that XXXX current in kerosene least fuel at before demand is through so especially go global that --

Hassan Ahmed

guys. Thanks helpful. Very much so

Operator

And your go from next Petrie of question Citi. line with Eric ahead. the comes Please

Eric Petrie

morning, Frank. Good Hi.

Frank Bozich

Good Eric. morning,

Eric Petrie

declined think prices $X,XXX noted from As have are you up in September per ton. $XXX inventories styrene over And since I to China.

that ABS contracts does how those how of much margins latex and are and your impact So And in rubber? indexed-based?

Frank Bozich

give do better significantly So our that -- basically sales performance to We plastics no think the area. had opportunity on impact saw of I are great raw with margins. But pricing. out our take the we formula think a margins those. interesting applications. I in we certain in that in commercial based Most pricing, QX goes pass-through of efforts. point materials a index -- product value a -- show excellence into to result very quarters products a we can that and pricing great And our several have as past, line job And done really it we've differentiate our

David Stasse

Eric, just add to I'll on that.

mentioned Frank contractual and the almost and actually. sales Asia, sold have is pass-through on little In pass-through of spot largely Polystyrene vast very the in agreements. in is with sold in As agreements. not have entirely America majority a North rubber, latex Latex polystyrene basis. we

been I So as out, it's more producers the margin appliance – of the Frank higher value-based in pointed a Asia. has into selling function really think

Eric Petrie

with that by recycled And from has product you price Thank content XX% do that recently for been how value? launched interiors. PULSE for And OEMs? my you. Helpful. question up follow-up the auto adopted ECO How auto to you

Frank Bozich

contain that but of strong almost circular our demand it's there very would to and markets, one I have more recycled -- in material. I'd we auto, is post-consumer for end products So desire a not just say, every -- say broadly

applications product ECO PULSE product -- on versus of price the line. others not the specific see a material to content. many to we've that we well multiples margins we the as But and virgin even seen in premium and So recycled the with -- as

-- -- that the a to XXXX, the if new avoid will pay tax and I So packaging come percentage in product, $X,XXX having to before on of we the value. capture made reference place ability offer tax a in great that we ton to this a into can a customer

Eric Petrie

Thank you.

Operator

question Blair ahead. the Please of with line your TPH. comes Matthew And next from go

Matthew Blair

morning on plastics. the good Performance question everyone. Hey, Frank first

of helped up about boost were of like down, the at EBITDA still talk like Looking autos year-over-year factors was when the So some things it? you could about it appendix, that looks XX% plastics the earnings you And plastics level talk also performance this into those generated then in about base sustainable really XXXX gains? like XXXX? whether is could and early most of in QX ended

Frank Bozich

So, yeah, I -- seen the market of result demand of appliance is a COVID-driven particular performance world. driver appliance we've strong the the for areas would strong very in and really where demand say plastics demand one is around that's into base the the very

this And our in very it's many job volume story had we a so is story been applications those. certain able -- though base -- the advantages their has have a offer processing we've do pricing really done we demand, margin team our great we've value about, so product -- even differentiated and a but and good customers plastics a line, really

pointed again, And or we've to cetera. change believe of seen our believe environment forward see what it Europe, in into to continue conditions going say that in whether the -- again, is book. with et from But as it's could situation a QX. XXXX. me just don't shutdowns order there see any out continue earnings I through a those volatile so resurgence right the difficult COVID. affect COVID Now will new it's We make And and Dave earlier, -- would that won't we now can

David Stasse

that's is was something were this quickly. impact net we second second and Maybe to quarter you about I'll some we've lift some did Matthew pushed be to the COVID thinking margin $XX the us out that $XX year, as million polystyrene little of business in just be quarter in that point maybe in -- guys, -- million very largely We think that will actually that booked tightness you're the half the a just for plastics base I add $XX plus about in the instructive on XXXX I'll just million, out orders And from market. year. of seen and for and third plus a this in expect of that demand the maybe where bit into of the

you you So as about I answer XXXX. question think your think that should about to

Matthew Blair

tax? Dave, have Sounds capital, do you then like and items on good. any estimates And QX working rough net timing

David Stasse

Yeah.

it in. past relates or We capital we'd as think not in that in environment see volumes sure often not pretty of see I kind sure as a As working see cash, fall December -- the to we've And flat I'm going capital seen quarter. would to think going year off. in demand I'm given the we're I inflow that we're this the usually working to we're

Cash I'd is the So million. capital I fourth in quarter tax think pretty much flat call working now. $X about right probably

like the the a other interest out that things deck gives think the slide CapEx, year-to-date back -- I that and numbers. on updates just kind in year-to-date the other of cash there's

Matthew Blair

you. Dave, thank

Operator

[Operator Instructions] Morgan line the And question ahead. with next Please from Castillo Stanley. go Angel comes of your

Angel Castillo

base of Good I morning, the XXXX. the just on for on you wanted touch to COVID XXXX and again gentlemen. in comments impact your Thank question.

kind take as like think take business. if year Right third million that XXXX be business million a we I something add rate $XX $XXX noted. And on closer EBITDA for to now, would full just a imply quarter the EBITDA that $XX in the run million about if of to basis. of earnings it kind million. just kind it we that you annual the So we of But potential $XXX and an guess for of

and forward? they everything a normalize --- how in -- for normalized necessarily think that volumes power but see do of the you you are, the and earnings contextualize not about how kind on strong improve business So things as as kind as maybe going us could you just if do of your XXXX think margins with of being

Frank Bozich

Yes.

pointed have look the Dave second from there million we a positive approximately would lift COVID-related at that half was you anticipated if as $XX factors. out, think I

cost are environment we non-recurring also other the we the cost took related that pointed would year the to The there that recovery related programs some subsidies not in recur. is actions Europe. in thing were incentive of half we got out that then benefits in And related second to that that a

hang So though even to structural have those, we on savings we do we wouldn't that some cost got.

I the in would factor if half normalized of gives those would be hope business think of what the be it's forward things So the would view you would second a representative we absent those goes. be those and factors

the Now won't there last there's saw EBITDA a period we we it, what -- were order maybe we confident like economic our very in pointed very on environment this it very, an out But guess comment generated ability those QX of matter no our saw see we'll I as because we We that cautiously portfolio Europe a cash optimistic another very, actually the lot shutdowns in to environment we're QX. just in impact in free we're work and positive resurgence feel through and in seeing is. negative are flow. and through we we of, -- and manage that significant

market again to actions can we're manage the of we because and take through know see environment we quickly. -- So portfolio I whatever I'm able

I that be think what see happens. would how about we'll year. But so next And

Angel Castillo

And helpful. thank you materials on very for then information. providing your engineering That's that

that in like flatter see were whereas of color if to business of more that sales big and maybe you give of do of could looks some performance that that In in in And we -- at kind can continue? How look beyond? growth year-over-year. volumes and EBITDA we pickup a into margins XXXX it kind was terms business the annual you maybe whether pretty expect there kind little of move as a XXXX bit as XXXX go-forward drove I of the us what to and to as uplift

Frank Bozich

more solutions really two and and for drivers material think with sustainable at price platforms us in business electronics recycled the that it winning winning we're So or margins. able consumer I more growth. there's It's advantageous new medical to

the So I the solutions even business And though was us for the year-over-year, sustainable performance. those. think value to reflected flat offer with winning that's and more volume opportunity relatively an awards price in the we're

themselves As through markets where I to this customer is submissions to we rate, end at solution customer qualification be would end and developing what platforms it much -- relates are we're than is that. better markets than various our see ability a rates. growing think those much But specific win growth GDP can that greater

So continue we it. We've excited in this pretty to in we're like well done business. invest really to it and

Angel Castillo

Very you. helpful. Thank

Operator

And call. there conference us. for concludes today's Thank further all questions This no today. joining for are you

You may now disconnect.

Trinseo (TSE) 6 Nov 202020 Q3 Earnings call transcript