Orion Engineered Carbons(US:OEC)2023-11-04 11:38Financial Data and Key Metrics Changes - The company reported third quarter adjusted EBITDA of $77 million and adjusted diluted EPS of $0.49, marking the second highest results for both figures in the third quarter [5] - Year-to-date adjusted EBITDA reached a record $266 million, up 7.5%, with adjusted diluted EPS of $1.76, just $1 million short of the entire 12-month adjusted EBITDA from two years ago [5][11] - The trailing 12-month return on capital employed (ROCE) stands at 17%, significantly exceeding the weighted average cost of capital [10] Business Line Data and Key Metrics Changes - Specialty business faced challenges with lower gross profit per ton due to startup impacts and reduced cogeneration profitability, but overall performance remains strong [6][11] - In rubber, the company noted industry restructuring and expanding tire capacity in the Americas and Europe, which is tightening the market [8] - Gross profit per ton for Q3 was $386, lower than previous quarters but above the Q3 2022 level of $364, with expectations to revert above $400 in Q4 [23] Market Data and Key Metrics Changes - The company experienced flat volume in the third quarter, with increased specialty demand from the new plant in China offset by lower volumes in EMEA and the Americas [145] - Demand conditions in the U.S. and Europe are subdued, with rubber demand slightly stronger in North America compared to Europe, while specialty demand is weak in both regions [102][103] Company Strategy and Development Direction - The company is focused on ramping up its greenfield facility in Huaibei, China, and completing air emission upgrades in the U.S. [16][53] - The launch of new products, such as PRINTEX Kappa 10, aims to address growing demand in the electric vehicle market [18] - The company is positioning its specialty business for further growth through various initiatives, including customer qualifications and facility upgrades [27][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving another year of earnings growth despite lower demand compared to 2022, with a strong position heading into 2024 [26][28] - The company anticipates that destocking will be a headwind into the second half of 2024, but remains optimistic about its resilience [51] - Management highlighted the importance of being agile in response to market changes and emphasized the ongoing restructuring in the rubber market [25][66] Other Important Information - The company reduced its net debt by $102 million in the first nine months of 2023, with a debt to EBITDA ratio now at 2.29 times, down from nearly three times in mid-2022 [13] - The company has repurchased $63 million worth of shares since late Q4 2022, representing nearly 5% of outstanding stock [13][140] - The company secured funding for developing a climate-neutral process for producing carbon black from alternative sources [141] Q&A Session Summary Question: Contract pricing progress for next year - Management indicated that while they are making progress, they do not expect to provide specific metrics at this time due to commercial sensitivity [31] Question: Drivers of lower price/mix benefit in rubber contracts - The startup in China and associated issues impacted the price/mix benefit, which would have been higher without these factors [32] Question: EBITDA impact from startups in rubber and specialty segments - The estimated EBITDA impact from startups was approximately $20 in rubber and about $70 in specialty [33] Question: Expectations for the trajectory of the Specialty segment - Management noted that the trajectory will depend on market conditions and the performance of premium products [40] Question: Impact of UAW on Q4 - Management stated that the UAW impact is included in their guidance, which anticipates a strong Q4 [80] Question: Comparison of demand conditions in the U.S. and Europe - Demand is currently weak across both regions, with rubber being slightly stronger in North America [102][103]