Orion Engineered Carbons(US:OEC)2024-02-15 20:29Financial Data and Key Metrics Changes - The company achieved a record adjusted EBITDA of $332 million for 2023, marking the third consecutive year of growth, with adjusted diluted EPS at $1.92 [25][54] - Operating cash flow was strong, allowing the company to repurchase $66 million worth of shares and reduce debt by $78 million, lowering net leverage to 2.35 times EBITDA from three times EBITDA 18 months ago [26][39] - The full-year tax rate was 37%, expected to return to near 30% for 2024 [12] Business Line Data and Key Metrics Changes - In the rubber business, volume increased mainly from the specialty polymers market and a new facility in China, but was offset by lower volume in the Americas [8] - Gross profit per ton in rubber was $357, slightly up year-over-year but down sequentially, while specialty gross profit per ton was down sharply at $492 due to a less profitable product mix [9][10] - The rubber volume decrease was impacted by lower demand in the Americas and EMEA, with a higher gross profit per ton driven by contractual price increases [34] Market Data and Key Metrics Changes - Customer demand weakened throughout 2023, with volume down across all regions except China [13] - Electricity prices in Europe were dramatically lower compared to 2022, impacting gross profit significantly [13] - The company noted that the specialty demand remains subdued due to weak broader market conditions, but is using this as an opportunity to push new customer qualifications and upgrade plants [33] Company Strategy and Development Direction - The company completed its final air emission upgrade project in the U.S., allowing a shift in capital allocation towards growth, debt reduction, and shareholder value [27] - The focus for 2024 and 2025 will be on growth investments, particularly in the conductives planned in LaPorte, Texas, and debottlenecking projects in the specialty business [45] - The company aims to achieve a mid-cycle EBITDA capacity goal of $500 million, expecting global economies and demand to return to pre-COVID levels [51] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding 2024 volume expectations, reflecting a cautious outlook from customers [24][54] - The company anticipates mid-single-digit adjusted EBITDA percentage growth in 2024, similar to 2023, with a focus on maintaining profitability despite challenging market conditions [48] - Management highlighted the importance of customer mix and the potential for improved pricing power as volumes recover [37] Other Important Information - The company achieved its 2022 emissions target in the U.S. and received a reduction in interest payments on its sustainability-linked term loan [29] - The introduction of Kappa 10, a new conductive carbon product, is aimed at the battery market, with strong demand expected as production becomes more cost-effective [30] - The company secured a grant from the German government and the EU to develop a climate-neutral process for producing carbon black [30] Q&A Session Summary Question: What is the outlook for 2025 in terms of volumes and macro environment? - Management expects improvement in overall macro conditions in Europe, America, and China, which would drive demand back to mid-cycle levels [64] Question: How do you view the competitive environment post-EPA investments? - The completion of EPA projects positions the company favorably against competitors who have not completed similar upgrades, with potential benefits expected in Q2 or Q3 [89] Question: What are the expectations for pricing in the Specialty segment in 2024? - The company anticipates maintaining pricing strength in the Specialty segment, with stable pricing expected throughout the year [104]