Orion Engineered Carbons(US:OEC)2023-08-10 15:51Financial Data and Key Metrics Changes - The company reported a second quarter adjusted EBITDA of approximately $87 million, a 5% increase year-on-year, and adjusted diluted earnings per share of $0.53, resulting in record adjusted EBITDA of approximately $188 million for the first half, a 13% increase year-on-year [43][60] - The adjusted net income and adjusted diluted EPS are both up 10%, achieving record levels for the first six months [60] - The company expects to generate more than $200 million of discretionary cash flow this year, reflecting a conversion rate of over 60% [38][70] Business Line Data and Key Metrics Changes - The rubber business saw a significant increase in EBITDA, up $19 million, or 51% in Q2, and up $43 million, or 54% in the first half of 2023, driven by price improvements [65][66] - Specialty business volumes decreased in most markets, reflecting weakness in the manufacturing sector, with gross profit per ton decreasing compared to an extraordinary Q2 level last year [62][64] - The company maintained stable pricing in specialty despite market conditions, indicating strength in its value proposition [63][64] Market Data and Key Metrics Changes - European power rates have decreased by approximately 50%, impacting profitability by about $25 million annually, with expectations of continued lower levels [2][60] - The company anticipates that the lower power prices in Europe will continue to prevail, affecting future financial performance [72] - The company noted that the tire capacity in Europe will be at very high levels, with industry utilization rates expected to be in the high-80s to low-90s [19][20] Company Strategy and Development Direction - The company is focused on maintaining high unit margins in its specialty business while preparing for future growth through investments in new capacity and customer qualifications [74][75] - The company is negotiating for 2024 and beyond, with about 60% of its Americas and EMEA rubber demand already committed or in late-stage negotiations [47][72] - The company is advancing its acetylene-based conductive additive plant in La Porte and expects to add additional capacity in North America and Europe in the next three to five years [45][72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate current market challenges, emphasizing that deferred demand will contribute to future growth [72][74] - The company expects customer purchase deferrals and destocking to continue into Q3 and Q4, but remains optimistic about the pricing outlook for 2024 [72] - Management highlighted the importance of maintaining a fair pricing strategy in specialty products, focusing on value rather than volume [30][108] Other Important Information - The company completed a $50 million share buyback and plans to continue opportunistically repurchasing shares with a portion of its free cash flow [67][70] - The company reduced its net debt by an additional $39 million in Q2, bringing the total reduction to $76 million in the first half of 2023 [69] Q&A Session Summary Question: What percentage of existing contracts already had multiyear agreements in place? - Approximately 50% of the volume was under contract going into negotiations, with expectations for better terms in new contracts signed this year [14] Question: How are customer inventories compared to normal levels? - Customers are at low inventory levels, with limited interest in restocking until end customer demand picks up [25][53] Question: What is the outlook for rubber pricing and capacity? - The company expects strong pricing in rubber due to structural improvements in the market, with high capacity utilization rates anticipated [19][47] Question: How does the company plan to approach share buybacks? - The company plans to be more measured in its buyback approach, being opportunistic based on share price movements [112]