Celanese Corporation

Greetings, welcome to the Selenese second quarter, 2025 earnings call and webcast. At this time, all participants are in a listen only mode. The question and answer session will follow the brief remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Bill Cunningham. Thank you. You may begin.

Thanks, Darryl. Welcome to the Selenese Corporation second quarter, 2025 earnings conference call. My name is Bill Cunningham, Vice President of Investor Relations. With me today on the call are Scott Richardson, President and Chief Executive Officer, and Chuck Irish, Chief Financial Officer. Selenese distributed its second quarter earnings release via Business Wire and posted prepared comments as well as a presentation on our investor relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and prepared comments. Form 8K reports containing all of these materials have also been submitted to the SEC. With that, Darryl, let's please go ahead and open it up for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment please for your first questions. Our first questions come from the line of David Begleyter with Deutsche Bank. Please proceed with your question.

Thank you. Good morning. Scott, in your prepared comments, you referenced order books beginning to weaken in June and then the trend continuing into July. Keep in mind to provide a little more color on really what end markets and you saw that weakening and how severe has that weakening been?

Thanks, David. You know, we talked in early June about starting to see China automotive orders pull back a little bit. That has continued into the third quarter here. The other area in engineer materials that we've seen a little bit of weakening versus the second quarter is in European demand. The Americas has remained relatively stable there. And then the other bucket I would call out is in the Western hemisphere in the Asteel Chain. I think we've seen volume weakness towards the very end of the quarter and that has continued into July. I mean, those are the really I would say kind of the big buckets of where we've seen that demand change.

Very good. And just on the $2 per share quarterly EPS run rate, how do we get there via bridge and when do we get there, do you think? Thank you.

It's important that the $2 for us is really an achievable target. We're talking a lot about it internally. It's not aspirational. We have concrete plans to get there. And I would say those controllable plans fall in two buckets. The first, you know, cost structure items and the second is really executing our differentiated business models. So if you kind of start with the midpoint of our Q3 guide of $1.25, you get about 25 to 30 cents going into next year or really into the fourth quarter as well from the inventory movement as well as not having kind of the order timing and the pull ins we saw into the second quarter. Next year we called out an additional around 10 cents per quarter of additional cost action. So that kind of gets you into that $1.60, $1.65 range, which is quite honestly about the range that we had walked into the third quarter with where if Q2 demand had held. And we still had a gap to close there. And that gap for us is really around four controllable areas. The first, additional cost and footprint actions. Some of these are more complex than the ones we've already actioned, but they're doable. They just take a little bit more time. But we're working these really in earnest right now. The second is high impact programs, driving additional value in high margin spaces, spaces where we have a real differentiated position. The third, additional price opportunities and engineering materials. We are getting some price. Certainly we want to get more. There's certain products and grades that we have where pricing is really at unsustainable levels. So continuing to find ways to move price in discrete pockets of the business there. And the third is that there are pockets of opportunity in the asset deal chain, particularly more in some of our downstream products for us to find additional opportunities there to drive more value, more volume, more price. So those are the four controllable actions we're working. These actions will get us to $2 per quarter. It just may be a few quarters delayed versus where we were when demand was a little stronger in the second quarter. But the path, we believe, is strong. And if demand changes, we're ready and we're ready to pounce and grab that volume if it's there for us. Thank you.

Thank you. Our next questions come from the line of Gansum Punjabi with Baird. Please proceed with your questions.

Thank you, operator. Good morning, everybody. Scott, you know, the 25 million inventory reduction impact in the EM segment, you call that specific to 3Q. I mean, I know you're focused on reducing inventory levels, but it's the magnitude of the impact, the function of just the weaker demand you kind of went through as it relates to order patterns for 3Q and, you know, like 2Q.

Yeah, I'm just going to make a few high level comments on that Gansum and then I'll let Chuck walk through the specific details. You know, on our fourth quarter earnings call in February, I called out that free cash flow generation was our top priority and that no matter how the year played out, there were a number of scenarios where we were going to pivot to drive free cash flow. And I'm proud of the team here. I'm proud of the team around the actions that are being taken. And, you know, if you look high level at, you know, our free cash flow guide of seven to eight hundred million dollars, you know, when you look at that on a free cash flow per share basis, you know, that's somewhere in that seven dollar, you know, or free cash flow per share. That is unique and strong. And so I'm proud of the actions we're taking and we're going to continue to prioritize cash. So if we need to pivot with demand, we'll do that.

Yeah. Hey, Gansum, let me talk about some of the income statement impacts of this. You know, context, look, we've our inventory reduction efforts in the M. We're on a multi-year journey here and it's allowed us to sustainably operate the business of lower inventory and maintain our customer liability standards. We're doing this in many different ways. You know, warehouse consolidation, SKU rationalization, safety stock optimization. Raw material reductions. You know, as for the third quarter sequential headwind, MIX plays a pretty big role here. You know, some of our products in EM run on a semi-annual production campaign. We ran one of those campaigns in the second quarter on products with a little bit higher associated fixed costs. It's just part of our normal production plan for the year. This actually generated Gansum a benefit in the second quarter of about 10 to 15 million to earnings. And that was always part of our Q2 earnings guide. So with the current demand trends, we'll actually draw some of that inventory in the third quarter, which will then generate a similar size negative earnings impact of 10 to 15 million. And so that's how you get the 25 million net sequential negative impact in Q3. As for the full year, the earnings impact from 2Q and 3Q basically offset, as I've explained. We do expect a small impact in Q4 negative, but no real significant impact for the year. It's really important to remember that we're also getting contributions to our inventory reduction through areas like these raw materials and even offtake arrangements, some of which don't have any impact on the income statement from an absorption standpoint.

Okay, very helpful. And just for the second question, as it relates to the 2Q pressure points for the AC segment that you called out, right, so acetate tow and, you know, vinyls, how do you expect those two dynamics to evolve sequentially?

Yeah, we're not expecting a big change right now, Gansham. We're expecting that to continue, particularly in tow. I mean, as I called out on the first question, you know, we are seeing a little bit of softness in demand to start the third quarter, you know, even relative to the second on the, on an acetate non-tow product. So that's really in that vinyls chain. So I think it's relatively similar with potentially a little bit of downside on the volume side. Now that will be offset and acetate deals with us not having turnaround. So that's why you've got kind of the sequential guide up versus where we finished in the second quarter.

Okay, very helpful. Thanks so much.

Thank you. Our next question has come from the line of Jeff Zikakis with JP Morgan. Please proceed with your questions.

Thanks very much. Are tariffs in China affecting your tow business? That is, is there material that you normally ship into China that's now more difficult because of tariffs or not really?

No, Jeff, our tow business in China is really done entirely through our joint venture and our joint venture partners. So we're seeing no impact from tariffs.

Okay. And in, in VAM and acetic acid in China, are you at least break even? And of your, of your Asian sales in VAM and acetic acid, is there any that comes from the United States?

Yes, we are break even. We're above break even still, Jeff. Now what I will say is we are selling less third party acetic acid than what we have historically. We are, as I called out last quarter, continuing to pivot further into the downstream products like emulsions, redispersible powders, because we've seen more pockets of value where we can differentiate ourselves. So we, we continue our looking at that landscape and kind of working that, that wheel of products that we have. And, and that's really pushing us, you know, further downstream. We are selling a little bit of US material in Asia, in certain regions. Now, that may be direct ship or it could come through swaps, et cetera. So, you know, whether it's, it's actual or virtual, you know, that has been something that we have been doing since we started up the clear like expansion last year.

Okay, good. Thank you very

much. Thank you. Our next question has come from the line of Michael Sasan with Wells Fargo. Please proceed with your questions.

Hey, guys. So just curious in terms of your third quarter outlook, I recall you had thought you'd get 15 to 20 cents or so in cost savings, another 15, 20 cents in less turnarounds. Is that still the case? And that would imply sort of this minus 50 cents to get to the midpoint from weaker demand and, and inventory de-stocking. So if that's sort of the math, does, does that minus 50 cents, maybe come back in the fourth quarter and, and, and maybe the seasonality that you typically get isn't as bad as we head into, into the, into the fourth?

Yeah, thanks, Mike. You know, as we kind of look at this, I mean, if you normalize for the inventory and some of those accelerated orders that we saw in the second quarter, you know, that kind of gets you, you know, 25 cents or so up off of the, off of the Q2 guide. So, you know, that basically puts the third quarter as we're looking at it, it's really, you know, a, from an enterprise perspective, you know, the underlying companies performing kind of at or even slightly better in the third quarter than what we did in the second quarter because of those cost reductions, not having the turnarounds that you talked about. That's definitely rolling through in the numbers as we work our way into the third quarter. It's really just that, that change in demand. And that is kind of in that, that 25 cent range, as you kind of look at what was in the second quarter to the third quarter. And that's probably, you know, somewhere 60% Aceteles, 40% engineered materials, as I would look at it right now.

Got it. And then quick follow up, you know, I know, pretty much all your peers have talked about a week or third and, you know, 2025 is coming in pretty disappointing relative to everybody's expectations. But do you think there's anything structural in your businesses that, you know, maybe some of the earnings power just, just won't come back, you know, maybe, you know, nylon or parts of EM? I just, you know, I would have never thought folks would be at this level of earnings. So I just wonder if there's some, you know, structural issues in the businesses or that, that, that could be, you know, persistent over several years versus just this year.

Mike, I'm energized by what our team is executing this year, and I'm energized by what we're doing on free cash flow. And we are building, I think, you know, the enterprise in a way that is increasing the earnings power. And we are ready when, when demand changes. And, you know, what we're doing on the cost structure side of things, I mean, just as an example, in Aceteles, I think our Western Hemisphere cost structure has never been as low as it is today. With the fixed costs we've taken out of the business, the expansions, the low capital, the bottlenecks that we've done, the low carbon footprint products that we have, you know, in engineer materials, for example, you know, the actions that we're taking, you know, we, we're going to be operating on an S&A plus R&D percentage of sales next year in the range of 8%, which is equivalent to what we were doing pre-COVID in 2019, in a very different demand environment. And if you kind of normalize and apply that demand environment to today, you know, that S&A plus R&D percentage of sales would be, you know, one to 200 basis points lower than that 8%. So that the things that we're doing are going to give us the ability to respond, you know, when demand changes. And certainly, there's, there's pockets of the business that given where things are at today, you know, are challenged, you know, are they long term structurally challenged? You know, I don't know about that, because actions will be taken. And I think, you know, for us, you know, we're really working to ensure that we don't have a set it and forget it mentality on how we operate the company. There's always that more that can be done. And if, you know, business isn't performing, then you've got to take action, you've got to drive change. And so that's just that action orientation is really kind of what we're building into everything that we're doing here.

Thank you.

Thank you. Our next question has come from the line of Vincent Andrews with Morgan Stanley, please proceed with your questions.

Thank you. Good morning. Scott, I wonder if you have any thoughts on on the acidic acid business in China and some of the, you know, anti involution policies that have been proposed? Are you are you seeing or hearing or thinking that there could be some capacity rationalization in the Chinese market as a function of those policies?

You know, Vincent, I can't speculate what will or won't happen in the market, but definitely where things are at today. It's extremely challenging, I think, for the entire industry. And I think certainly China has has taken note of that and the anti involution policies that, you know, really started to get talked about more a few weeks ago, you know, certainly in those, you know, kind of more established, concentrated, less fragmented spaces are certainly already seeing change. I mean, coal, for example, has coal pricing has gone up three weeks in a row, I think it's up about 5% in the last month. And so I think those first order elements, you're already seeing elements of that, how that applies then into our businesses in particular, see the gas that I don't know yet, but certainly coal as an indicator, you know, is going to drive costs up over time for everyone. So I do think, you know, those dynamics, I think it's important that we continue to stay close to what's happening in our markets, we're going to keep trying things. And we're going to keep finding ways at which to pivot and find pockets of value. And that's probably going to be different today than it's going to be next week. But the team has kind of worked that daily operational execution model in order to be successful.

Okay, and then just as a follow up, there was a call out in the prepared remarks about medical being weak. And I recall that, you know, there'd been overstocking during COVID. And that seemed to normalize last year. So what is there anything in particular that's causing that end market to be a little sluggish right now?

No, Vincent, it's just really timing. You know, we had a little stronger volumes early in the year, then then maybe what we're seeing right now, but fundamentally, no demand is, is stronger today than it was coming out of COVID for sure. And I don't, you know, everything that we see doesn't indicate inventory through the chain and end use demand continues to be pretty stable there. Okay, thanks very much.

Thank you. Our next questions come from the line of Josh Spector with UBS. Please proceed with your questions.

Yeah, hi, good morning. I had a follow up on the earnings power, I guess, questions around the the acedals business, I guess, I mean, that's kind of been the bigger gap in two Q and three Q, if you can maybe break apart the pieces between you talked about some of the toe de-stocking impacts sounds like you're expecting that to go on in the rest of the year. But then like the core is earnings power, is it utilizations or demand or something that really needs to drive this? And how much is there in your control to maybe lift that earnings versus you need to wait on the market, noting that you shut down or at least delayed the start back up or your Frankfurt facility, your batching Singapore? Is there more that needs to be done or some impaired earnings on that side of the stream that needs more actions? Or is it all market in your view?

Thanks. Josh, the team is driving greater than 20% EBITDA in a business that's probably seeing Western hemisphere demand at the lowest level it's been in 20 years. And, and that's certainly not easy to do. You know, as we look at the business, in particular toe, you know, we did see higher volumes in the second quarter than we saw in the first, it just wasn't as strong as what we had originally called out. And, you know, the order book indicates that kind of those Q2 volumes are going to be pretty similar into the third quarter, we're seeing kind of that with the weakness I talked about earlier in, in, in the other asset yield products in the Western hemisphere. I do think this is about volume in the Western hemisphere. I mean, given the overcapacity in Asia, I mean, we're going to continue to find ways, as I mentioned earlier, to, to squeeze out more profit there. But for us, this really is about profitability in the Western hemisphere. And given how volume is so weak, we do believe that's an area that that will change over time. And just to kind of give you an idea of that earnings power and where things are at, you know, a 3% volume change in just the Western hemisphere non toe in this business is about $10 million per quarter. So it's not insignificant just as a, you know, to give you a rule of thumb in engineer materials, a 3% improvement in that business on a global basis, about 15 million a quarter. So real earnings power from very small volume changes in in in where these businesses can have success going forward. And, and we're only improving that equation with the with the cost structure changes that we're making over time here.

Okay, thank you.

Thank you. Our next questions come from the line of Sabator Tiana with the Bank of America. Please proceed with your questions.

Yes, thank you very much. So firstly, I wanted to check specifically everything about you for I, you know, how should we think about any buckets on, you know, on earnings Q4 versus Q3? I think you mentioned that there could be some inventory reduction initiatives still flowing through. But, you know, can you clarify what you should we should expect there? Either items such as seasonality, turnarounds, etc. So how should we frame Q4 versus Q3?

Yeah, thanks, Sal. I think it's important to understand the visibility right now is very short in both businesses. Historically, asset deals, visibility, the order book was kind of two to four weeks. Today, it's very much on the short end of that. Historically, in engineer materials, the visibility and confidence in the order book could be, you know, four to six weeks. Today, I would say, you know, the visibility in engineer materials is more like two weeks of orders you can really count on. And so that's hard to predict what's going to happen in in the fourth quarter. We have not seen normal seasonality so far year to date in anything right now. So it's hard to say, well, are we going to see real normal seasonality or not? The inventory value chain is extremely light. We do not see big pockets of inventory, you know, really anywhere in in the value chain in the in the areas where, you know, we have stronger profitability. You know, Chuck did mention a little bit of an inventory draw in the fourth quarter. It's likely on a sequential basis to be actually a positive when compared to the third quarter, because it'll be then less than what we're seeing here in Q3 based upon how we're seeing things right now from a demand perspective. So I do think, you know, it's hard to say what seasonality will be, but I don't think it's unrealistic to think that Q4, you know, would be similar to what we're seeing in the third quarter or even better, depending on how things materialize from a demand perspective.

Perfect. Thank you. And I want to also ask a little bit about the balance sheet and specifically, we saw that you extended your revolver to twenty thirty. It's one point seventy five billion. So is it fair to say that right now, if we do the math twenty six, twenty seven maturities, you know, they could fully be addressed by everything we have on hand, cash, free cash flow and the revolver? Or is there anything else we're missing? And is there any chance any reason why you cannot to draw on the entire one point seventy five billion, for example, to to repay your twenty twenty seven bonds?

Hey, Sal, we're focusing on paying down our debt maturities through twenty seven with our free cash flow generation and then our a billion dollars divestiture proceeds. You know, we're not relying on a revolver to to pay off those maturities. We have used our revolver temporarily from time to time for a short term bridge, but then have quickly paid that off. So I would think about paying down those maturity through twenty seven through our own cash cash generation and not using the revolver. Now, we know that sometimes our cash generation in any given year can be a little bit back and loaded, so we'll continue to be prudent and opportunistic in the debt capital markets if we need any further refinancing transactions to kind of bridge some of that payment. But think about those twenty six and twenty seven through our own cash generation. Thank you very much.

Thank you. Our next questions come from the line of Patrick Cunningham with Citi. Please proceed with your questions.

Hi, good morning. Thanks for taking my questions. Pretty consistent price declines in actual chain over the past several quarters. Is the bulk of it from just China oversupply and impact from the upstream pieces of the portfolio? How would you characterize the optionality model and success for downstream sales? Have you been getting both price and volume there relatively consistently?

Yeah, thanks, Patrick. I think on the downstream sales, pricing has been harder to get there. I mean, I think that's been more about volume and finding ways at which to create new opportunities in certain spaces, some out of kind substitution as well. We've seen success, particularly in parts of Asia there. I mean, there definitely has been some margin compression that we've seen since the perspective in China. And then we've seen a little bit in certain pockets in the Western hemisphere, but that's largely been more of a volume story as opposed to a margin decline.

Understood. And then just on the free cash flow outlook, can you help us understand what's driving the reiterated seven hundred to eight hundred million there? If we take a further leg down here, do you think you can manage to the low end of that range with further working capital actions?

Yeah, as we entered the year, we looked at a number of demand scenarios. And this goes back to Q4 of last year even, and the commensurate inventory actions around each of those demand scenarios to generate seven, eight hundred of free cash flow. So yeah, as you mentioned, as we've kind of seen demand soften here, we're prepared to take further those actions and increase the benefit from inventory working capital and current our confidence in that seven, eight hundred million in any demand scenario.

I also think Patrick's important to clarify, I mean, particularly in the second quarter here, the majority of that free cash flow was generated from operations, not from working capital. Our cash generation is coming from operating cash flow is strong, even despite the fact that we have six hundred fifty to seven hundred million dollars of interest expense this year. And I think it's that conversion to cash which is really shows the strength of these operating models and that is sustainable. And given that we do believe we're on a multi-year journey of inventory in the engineer materials business, even that working capital piece going into twenty twenty six is sustainable. So we feel really good about the cash generation here. We're going to be continuing to find ways at which to maximize how much cash we're generating from operations.

Very helpful. Thank you so much.

Thank you. Our next question has come from the line of Frank Mitch with Fermium Research. Please proceed with your questions.

Good morning, Scott. You gave some interesting rules of some regarding volume movements, impacts on asset deals and EM. Just curious, where do you think we are right now on a volume basis relative to historic norms in both of those segments?

We're significantly lower, Frank. I mean, obviously I called out earlier, I think we're at at least in the Western Hemisphere and asset deal demand. We're probably at the lowest levels we've seen in in twenty years. Engineer material certainly is weak. I think first half volumes versus first half last year even, I think we're down five to six percent volumetrically. So, if you just kind of think about those, those are big, significant changes that we've seen in the business. Now, I know it's just rhetoric right now, but what we are hearing from our customers is that people are looking more at manufacturing in the U.S. We're hearing from customers that going forward, now when this actually hits, we don't know, but that people are looking at making cars in the U.S. People are looking at making more appliances in the U.S. We are seeing even the German automakers now rolling out their next wave of electric vehicles, which have a really strong ability to win, particularly in the Western Hemisphere. Those things will be really beneficial for our businesses on the asset deal side of things, whether it's interest rates or more government spending in Europe or stability in Eastern Europe, any catalyst like that, it's our lowest cost part of the world, our highest margin business. We're going to be able to be able to capture that demand relatively quickly. So, our focus right now is really on, in this low demand environment, what are we doing to ready to ensure that every dollar or every ton we sell in the future is worth more than it was in the past?

Gotcha. That's very helpful. I must tell you, I was surprised to hear the low level of visibility on your order books seem pretty surprising. So, to that end, we have much visibility. Just curious as to what the general thinking is in terms of the low end or the high end of that $1.10 to $1.40 range for the third quarter. What sort of expectations are embedded on both sides of that?

Frank, for us, the controllable actions that we're taking and the things that are rolling through the P&L already do give me confidence. Now, certainly where demand can pivot here in the last six weeks of the quarter can go a number of different directions, but I think where we're performing from a controllable perspective certainly gives me confidence in our guide right now. We have to take that mentality and keep that focus going forward. The good thing for us as well is now we're multiple years into this engineer materials integration, for example, which means we're now finally starting to get historical selenese products on M&M assets and stroke M&M products on selenese assets, which gives us a lot better cost to serve. It has given us the ability to lower the inventory, but what it also does is it gives us the ability to do more -to-order products. So, it's less inventory that we have to carry so we can respond to that demand. It's those types of things that I think we're being a lot more efficient with the business broadly, which does give me confidence that no matter what happens with demand, we can find a way to at least hit our cash flow numbers.

Thank you so much.

Thank you. Our next questions come from the line of Alexei Yefremov with Key Bank Capital Markets. Please proceed with your questions.

Thanks. Good morning, Scott. I wanted to ask you about this demand pattern of stronger second quarter, weaker third quarter in EM. Do you have a view of what's sort of underlying reason for this? Is this the tariff timing? Is this just a week of on-production schedules where consumer or any caller here would be great?

Alexei, I hate to do this to you, but your line kind of cut out for us on my end. So, you mind repeating your question for me?

Yeah, sorry. Just underline reasons for stronger two Q and weaker three Q in engineered materials. Is it tariff or something else?

Look, I think it's hard to say how much is really driven by tariffs. I think some of the order timing, particularly on volumes for products that were ordered in China that are made in the U.S. that's probably the majority of that kind of 10 to 15 million or so that we saw that we think kind of moved into the second quarter. I would characterize demand right now, really, across both businesses as uncertain. And that's what we hear from our customers. And so, in that time, what customers are doing is they're lowering their inventories. And you've seen, obviously, a host of announcements in our sector here this quarter and from our downstream customers. And almost everyone is pulling back on inventories. And when they pull back on inventories, it's going to certainly impact how much product we end up selling. And I think it's that uncertainty. And whether it's tariffs or geopolitical reasons, people are just certainly being a lot more prudent. Now, we saw this as we entered the year. And as we entered the year, we knew it was going to be about cash and lowering inventory. And so, that's kind of how we've been operating. And again, as I said earlier, I'm really proud of the actions our team has been taking to really focus on reducing our cost structure and generating cash.

Thanks, Scott. And then, filter toe, how much certainty do you have that this is not a share loss but a de-stock? How much visibility do you have in these competitive dynamics?

From the visibility we've seen thus far, Alexi, I don't think we've seen significant share loss. I mean, there's some additional capacity that's being sold in the market. It is not a new entrant, but just some additional debottleneck capacity that's in the market. But that's not really impacting our demand, per se. I think where it's having an impact is customers don't need to hold as much inventory. And at least that's the perception right now. And so, I think people have been comfortable operating at lower inventory levels. And that's kind of what materialized through the second quarter.

Thank you. Our next questions come from the line of Arun Vishwanathan with RBC Capital Markets. Please proceed with your questions.

Great. Thanks for taking my question. I hope you guys are well. I want to go back to the bridge, Scott, that you provided from $1.25 to $2. I think you said the inventory actions, that was maybe $0.25 to $0.30. The current cost programs was $10 to $15. And that got you $1.65. So,

I

think you then said that that would have gotten you to $2, where not for the volume shortfall and then the four controllable. So, I guess if volumes do come back, would normalized volumes get you the $0.35 or given that volumes are at 20-year lows, would normalized volumes get you closer to maybe $3? And then with your controllables, you maybe have like very, very long-term line of sight to north of $3. Is that the right way to think about it? What was the volume kind of shortfall from a normalized perspective?

Yeah, Arun, we're waking up every day and just trying to put one foot in front of the other. And we've got to look at what's in front of us right now. And our next milestone is $2. And once we hit $2, then we'll set the next milestone for where things are. And we've been building a plan here that to get to that $2 per quarter level, that is through controllable actions, as I kind of walked through. The walk I had done earlier in the year got you in that $1.70, $1.80 range, keeping Q2 volumes flat and through the balance of the year. And that's not what we're seeing right now. It's hard to say what normalized volumes are right now, but just Q2 volumes and that dynamic is worth about $0.25, $0.30. So it kind of gets you into that range certainly, but we're not going to count on that. We have to continue to work the controllable items that we have in front of us to get to that level. And if demand is there, we're going to be poised to capture it.

Okay, that's helpful. And then just as a quick follow up, I think the other actions you mentioned, I get the additional costs, but I just wanted to ask about the second and fourth items. So the second item, I think you mentioned really harnessing some of your value-based programs. Could you just provide a little bit more detail there? And then similarly on the Acetyl chain, is the uplift that you see there going to require a better construction and paints environment or what would you say would lead to better Acetyl chain results?

Yeah, let me hit that point first. I mean, certainly the paints coatings construction demand in the Western hemisphere that we're seeing is extremely weak. And so any change there would be pretty attractive from an incremental perspective, given that rule of thumb that I mentioned earlier. That's probably the weakest part of the business versus today versus when we started the year. And so certainly any change that we would see there and anything to catalyze demand on that side of things would be extremely beneficial just because that is our highest margin area. When it comes to high impact programs in the engineer materials business, I mean, we are committed to broadening and diversifying the business, finding additional pockets of opportunity outside of automotive, within the automotive business. And we have a lot of different examples of the things that the team is working on. And the non-auto, that could be things like drug delivery, performance footwear, fibers, hydrogen clean energy, oil and gas. I mean, these are spaces where we've had winds recently, nice winds, and it's about multiplying those winds. In automotive, EV propulsion, batteries, cooling, advanced suspension systems, these are all unique areas where our products fit extremely well and where we're gaining traction. Now, some of those auto opportunities take longer. So it is really about accelerating the full pipeline of opportunities in the HIFs to ensure that as we get into 2026, we have new demand materializing to the bottom line.

Thanks.

Thank you. Our next question has come from the line of Hassan Ahmed with Olympic Global. Please proceed with your questions.

Morning, Scott. I appreciate the details in the presentation you gave around the asset use chain. Over the years, showing us how you've imparted sort of earning stability and the like, and also how 70% now of your revs come from the Western Hemisphere and 70% of those are contracted out. And you're obviously seeing that even in the near-term results, right? I mean, the guidance that you gave for Q3, for asset use chain relatively flat with Q2. So my question is, if you sort of look at the EM side, how would it look? And particularly in light of some of the comments that you just made about hearing rumblings about manufacturing moving more to the Western Hemisphere and the like.

Certainly, there's areas of engineer materials that have elements of the elements of the asset deals business, particularly in standard grade materials. Areas like Palm, our polyester business, Nylon, the standard spaces do have some of those kind of daily operational elements. And the engineer materials team really is looking at the segments of the business within each product line on how we drive and compete. And I think Nylon's a perfect example of using some of those elements in looking at do we make versus buy? Do we buy polymer from the market and compound for standard compounded products? Because that gives us a lower cost structure. Do we find different ways to buy materials cheaper? Otherwise, do we pivot materials to our lower cost elements of production? And we've done some of that through the shutdowns of higher cost capacity that we've done in maximizing production in our lowest cost assets. And so there definitely are elements there. Our US footprint that we have in both businesses is extremely low cost and it is advantaged. And so as we see demand pivot back to the US, if that occurs, I think we're as well positioned as anyone in our competitive landscapes to be able to capture that demand very quickly.

Very helpful, Scott. And as a follow up, obviously the macro continues to weaken, a fair degree of uncertainty in the marketplace, and obviously the chemical industry sort of valuations keep coming down as well. Where do you guys stand with regards to the billion dollars in divestiture that you guys had sort of flagged to sort of accomplish within the next two and a half years?

Scott Thanks, Hassan. The Micromax process we announced publicly a quarter ago is going very well. We have worked our way through the first round of bids. We narrowed that down to a nice diverse group for the second round. Management presentations are completed. We're working through site visits and expert calls and kind of fully through the diligence process right now. And we expect to have second round bids in the next month or so. And then we'll narrow that further to a third round and work to conclusion we think at some point here in the second half of the year. So we feel really good about the Micromax process. I actually asked the head of M&A yesterday, as a matter of fact, and I said, do you feel more confident today in our non-Micromax projects than you did a quarter ago? And he said, absolutely. And I do think we've seen some traction there. I mean, a lot of the deals we're working there are a little more complex. Some are with our joint ventures, and those are harder to get done. And so they do take longer. But I do think the work the team is doing to keep the focus on those with the highest degree of probability, I would say we feel more confident in that today than we maybe did a few months ago.

Very helpful, Scott. Thank you so much.

Thank you. Our next question has come from the line of John Roberts with Mizuho Securities. Please proceed with your questions.

Thank you. Selling third party acetic, what you used to call parlay, was a core part of the acetic acid strategy. Is the lower third party sale something structural here, just the industry changed enough that it doesn't make sense? Or is it just a cyclical decline because it requires working capital, which maybe you don't want to extend right now? Or maybe there's less margin, obviously, at lower prices. So how much of this third party decline, which used to be part of the core, is cyclical versus structural?

John, you've covered this for a long time. And you know that this business changes every single day. And is it structural? No, I don't think it's structural. It may take a while for that dynamic to change. But there's a lot of moving parts here. And margins are really at unsustainable levels. So I do think that's why you're seeing us make the choices that we're making to further pivot downstream. And I think the work that we've done there in the bottlenecking capacity downstream has given us another outlet. So we're not so reliant. And 10, 15 years ago, we were extremely reliant on selling third party acetic acid. And we're not today. And that business in some years was well over 50% of the end products that we were selling. And now it's less than 30%. So I think for us today, I think having more diversity in the business is a good thing. Certainly, we'd like acetic acid margins to be better than they are. But things pivot here. And we're going to make sure that we continue to pivot with the market as opportunities present themselves.

And then can you say that the Micromax deal will be simple all cash? Or do you think there might be an earn out or something a little bit more complicated with that deal?

We're working deals, John, to keep the complexity at a minimum on the deals that we're doing. And I think for us right now, we're quite confident that we won't have an outcome that's super complex.

Thank you. Yeah, we'll make the next question. Our last one,

please. Thank you. Our final questions will come from the line of Matthew Blair with Tudor, Pickering and Holt. Please proceed with your questions.

Great. Thank you. And good morning. You mentioned autos, we can, but could you talk a little bit about the mix within autos? Historically, Sony has enjoyed some nice tailwinds from things like hybrids and EVs. Are those tailwinds still present or are they starting to reverse?

We're not seeing a big reversal right now. Certainly with demand pulling back in China, our sales into EVs on a global basis are probably a little bit less today just because of more where the end use demand is. Electric vehicles are definitely here to stay. I think each region is going to be a little bit different. Certainly, EVs are going to play a big role in Europe. And with the future model launches that I think we're going to see in 26 and beyond, EVs and that is the powertrain of choice is going to be critically important for us. And we feel really good about the portfolio that we have developing from a pipeline perspective there. In the US, it's going to be a mixture. There's going to be ice, there's going to be hybrids and electric. And so we have to make sure that we're remaining nimble and flexible with our customers so that we can meet those needs because I do think it's going to be a changing mix here for all.

Okay. Well, thank you, everyone, very much. We'd like to thank everyone for listening today. As always, we're available after the call for any follow-up questions. Daryl, please go ahead and close out the call.

Thank you, ladies and gentlemen. We appreciate your participation. This does conclude today's teleconference. Please disconnect your lines at this time and enjoy the rest of your day.