Trinseo(US:TSE)2023-05-05 19:38Financial Data and Key Metrics Changes - The first quarter adjusted EBITDA was below expectations due to unfavorable impacts of $19 million from natural gas hedges and $10 million from fixed cost under absorption related to inventory reduction actions [13][14] - The company reported a working capital reduction of $52 million in Q1, leading to a positive free cash flow of $24 million, despite low profitability [15] - For the full year 2023, the company is guiding a net loss of $94 million to $61 million and an adjusted EBITDA of $275 million to $325 million, which is $100 million below prior guidance [17][18] Business Line Data and Key Metrics Changes - Total sales volume for the company was down 20% year-over-year, but specialty and modified resins, as well as case applications and latex binders, declined at about half that rate, indicating more resiliency [9] - The Engineered Materials segment experienced lower MMA margins due to ongoing ammonia force majeure and natural gas hedging impacts, but input costs are expected to decrease significantly in Q2 [11][12] Market Data and Key Metrics Changes - Business conditions in Q1 were similar to Q4, with continued destocking and weak demand in consumer electronics, but healthier automotive demand [9] - The volume of products containing recycled materials grew by 1% year-over-year during Q1, indicating a stable demand for high-value specialties [10] Company Strategy and Development Direction - The company established three near-term priorities: focus on working capital management, recover volumes lost to low-cost imports in Europe, and drive organic growth programs targeting material substitution and sustainability [8] - The company is restarting the sales process of its Styrenics assets as part of its long-term strategy to deleverage the balance sheet [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenging business conditions and uncertainty around market recovery, but emphasized strong liquidity and cash generation actions taken [18] - The company expects a significant sequential profit improvement in Q2 due to lower raw material and corporate costs, with a net loss of approximately $15 million and adjusted EBITDA of approximately $80 million [16] Other Important Information - An accidental release of 8,100 gallons of acrylic latex emulsion occurred at the Bristol facility, but no harmful chemicals were detected in water sampling [5][6] - The company has a strong historical environmental compliance record, with no significant violations prior to the recent incident [7] Q&A Session Summary Question: Timing of Styrenics sales and potential closures - Management indicated ongoing dialogue with interested parties for Styrenics assets and will engage them formally in the near term [20] Question: Long-term normalized earnings potential for core portfolio excluding Styrenics - Management estimates mid-cycle EBITDA for the core portfolio should perform in the $250 million to $300 million range [22] Question: Absorption costs and Engineered Materials segment performance - $10 million of absorption costs were felt in the Engineered Materials segment in Q1, with expectations for significant improvement in Q2 [24] Question: Demand trends by region - Automotive demand is increasing year-over-year, while US demand remains stable, European demand has improved slightly, and Asian demand is lower [26] Question: Mitigation strategies in a recession - Management highlighted potential levers such as regional arbitrage and fixed cost reductions to improve operating performance [28]