Orion Engineered Carbons(US:OEC)2025-02-20 16:38Financial Data and Key Metrics Changes - The company achieved an EBITDA of $302 million in 2024, which is 14% above pre-COVID earnings levels despite a softer global industrial backdrop [10][12][35] - Adjusted EPS for the fourth quarter was more than double the prior year's EPS, although EBITDA was down about 7% year-over-year [35][36] - The company expects 2025 adjusted EBITDA midpoint to be $310 million, representing about 7% to 8% constant currency growth [33][34] Business Line Data and Key Metrics Changes - The rubber segment experienced a late Q4 demand weakness, resulting in a 2% lower volume year-over-year [45][46] - The specialty segment exhibited a strong volume recovery in 2024, with full-year volumes advancing 11% [22][48] - The specialty segment's fourth quarter volume growth was 9% year-over-year, although the mix was skewed towards lower value products [22][48] Market Data and Key Metrics Changes - Domestic tire production in the U.S. was 15% lower than year-ago levels in December, despite tire shipments being slightly higher year-over-year [18] - Elevated tire imports continued to pressure local production, particularly in North America and Europe [10][19] - The freight industry's indicators remain subdued, with tender volumes slightly lower year-over-year [18] Company Strategy and Development Direction - The company aims to navigate dynamic market conditions by focusing on operational excellence and enhancing plan reliability [28][31] - A commercial strategy was enacted to diversify away from premium Tier one tire customers, which were most affected by elevated tire imports [38][24] - The company is focusing on sustainability and innovation in the carbon black space, achieving EcoVadis's platinum rating [15][16] Management's Comments on Operating Environment and Future Outlook - Management noted that the economic backdrop is uncertain, with several headwinds, particularly in the rubber segment due to soft demand [12][13] - The company anticipates a free cash flow inflection in 2025, with expectations for sharply improving cash flow in the coming years [31][51] - Management expressed optimism about potential improvements in the shipping industry fundamentals and the benefits of tariffs [19][20] Other Important Information - The company has reinitiated share repurchase activity, buying back nearly $20 million worth of stock in 2024 [31][40] - The company expects free cash flow in the range of $40 million to $70 million for 2025, with potential to exceed $100 million in 2026 [34][52] Q&A Session Summary Question: Guidance for 2025 and macro assumptions - Management expects rubber volume increases in the mid-single digit range and additional volume growth in specialty [60][61] Question: Supply addition and competitive behavior in specialty blacks - Management highlighted conductivity as a significant change in specialty markets, particularly in EV batteries and energy storage systems [72][73] Question: Operating rates in Russia, China, and India - Management indicated that peace could lead to some normalization in supply but emphasized that local supply remains preferred [80][81] Question: Rubber volume decline and retail tire volumes - Management noted that tire imports are significantly impacting rubber carbon black demand, with U.S. tire production down [84] Question: Free cash flow allocation for share buybacks - Management stated that share buybacks will be opportunistic, depending on business cash requirements and share price [90] Question: Update on La Porte plant and earnings contribution - Management expects early quarters of 2026 to be a drag on EBITDA due to operating costs and labor costs [108] Question: Pressure from import markets - Management confirmed that there has been no let-up in import pressures impacting customers [101]