Orion Engineered Carbons(US:OEC)2020-11-08 12:26Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2020 was $55 million, down 19.2% year-over-year but more than tripled from Q2 levels, indicating substantial operating leverage as the economy recovered [12][34] - Basic EPS was $0.15 per share and adjusted EPS was $0.32 per share [37] - Contribution margin declined 12.7% year-over-year but increased 59% sequentially, reflecting strong operating leverage [38] Business Line Data and Key Metrics Changes - Rubber Carbon Black volumes were down 9.1% year-over-year but rose 65.9% sequentially, with gross profit per ton declining 19.3% year-over-year but more than doubling sequentially [46] - Specialty Carbon Black volumes fell 2.6% year-over-year but rose 18.8% sequentially, with gross profit per ton declining 7.8% year-over-year but rising 29% sequentially [45] Market Data and Key Metrics Changes - Global demand for Rubber Carbon Black improved significantly since April, with volumes coming in at roughly 90% of 2019 levels by the end of Q3 [22] - Specialty Carbon Black volumes reached 97% of 2019 levels, indicating a strong recovery [24] Company Strategy and Development Direction - The company is focused on pricing negotiations for 2021, with long-term drivers for higher carbon black pricing remaining intact, particularly in North America [18][76] - Investments in EPA-related projects are ongoing, aimed at sustainability and creating barriers to entry in North America [43][54] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in demand, noting that while global volumes remain below 2019 levels, significant improvements have been observed since April [28][30] - The company anticipates that it may take 12 to 18 months for volumes to return to 2019 levels, with a strong rebound expected if the pandemic situation improves [30][111] Other Important Information - The company has maintained a strong liquidity position, with $316 million available at quarter-end and no debt maturities until 2024 [44] - The company is actively working on initiatives to emerge stronger post-pandemic, including employee engagement and process simplification [56][58] Q&A Session Summary Question: Can you talk about some of the negative mix factors in the quarter? - Management noted that the mix issue relates to the relative strength of replacement tires versus OEM production, impacting overall margins [62] Question: To what extent do you think the decline in miles driven affects the tire market growth rate? - Management acknowledged that less driving could lead to reduced tire wear, impacting the market in the long term [64] Question: Why was specialty volume better than rubber volumetrically this quarter? - Management indicated that Rubber Carbon Black bounced back sooner than Specialty Carbon Black, but Specialty has now recovered to a higher level compared to last year [70] Question: Any early indications about base pricing heading into next year? - Management expressed confidence that Rubber Carbon Black pricing held firm during the downturn, and long-term pricing drivers remain intact [72][76] Question: How much of the specialty volume performance was due to restocking versus normalized demand? - Management stated it is difficult to quantify the impact of restocking versus pent-up demand, indicating that the market is still in a catch-up mode [80] Question: What does the guidance imply for volumes over the next 12 months? - Management indicated that while volumes are expected to increase year-over-year, they may still be down compared to 2019 levels [108]