Celanese Corporation

Greetings and welcome to the Selenese Q4 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, Bill. You may begin.

Thanks, Daryl. Welcome to the Selenese Corporations. Fourth 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 Kyrush, Chief Financial Officer. Delany's distributed its fourth quarter earnings release via BusinessWire 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 the prepared comments. Form 8K reports containing all of these materials have also been submitted to the SEC. With that, Daryl, 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 your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before you press the star keys. We ask that you please limit yourself to one question and one follow-up question. Our first questions are coming from the line of David Begleder with Deutsche Bank. Please proceed with your questions.

Thank you. Good morning. Scott, now that the business has been stabilized and you've done some improvements on the cost and balance sheet side, what are your updated thoughts on potentially selling some equity to get ahead of this balance sheet issue? Thank you.

David, our focus continues to be on the plan that we've been outlining. You know, it is really about cash generation first. And I think The team has done an excellent job of prioritizing cash generation and the strength of that in 2025, despite the earnings decline year over year, was evident. And the fact that I think we've built, you know, the right elements that can keep that going here in 26 and beyond. And we're extremely well poised for recovery. So, you know, our focus really continues to be on using, you know, you know, debt. And, you know, we've been able to refinance our bonds and continue to pay off what is right in front of us. So, you know, given, you know, the fact that our maturities now coming up over the next couple of years are significantly lower than they were, and, you know, the cash generation that we have from the business, as well as what we have coming from divestitures, we believe is strong. We feel like we're in a really good position.

Very clear. And just on tow, what are you seeing for pricing in your contracts for 2026?

Very little change in contract pricing, David. And, you know, I would say, you know, in more of the spot part of the business, that's where we've seen more competition with the, you know, the additional capacity that came on in the markets. last year, which drove the actions that we're taking. And I think the team, you know, with the action we announced last quarter about the Lenox and plant closure, you know, we're going to be able to drive enhanced cost benefit into the business of about $20 to $25 million on a full-year basis, of which we should see about $5 to $10 of that this year. And we're trying to bring as much of that forward as possible.

Thank you. 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 question. I guess first, just on the sequential improvement in engineering materials, both from a volume and mix perspective, can you just parse out, you know, which end markets are starting to stabilize and, you know, unpack some of the broader macro assumptions for 2026?

Yeah, what I would say is, you know, electronics is what I would say the bright spot right now, Patrick. I'd say it's a net positive on a global basis. You know, we're seeing a global build-out from, you know, AI as well as data centers, and that's positive in the electronics space. But it's a small part of the overall base of the business. So, you know, certainly auto is a much larger piece of the base. And, you know, the business is going to trend kind of where that goes, at least at this point. And I would say auto is more mixed. You've got, you know, some uncertainty in China with some of the EB credits. and stimulus rolling off in China to start the year, so we've seen some softness in auto in China. You know, Europe has been relatively stable to start the year, and U.S., you know, with the fleet mix becoming a little more certain and a focus of the OEMs around ICE and hybrids, you know, that could be a good thing for us, but I would say to start the year, it's about as expected.

Got it. That's very helpful. And then with, you know, halfway to your, you know, billion-dollar divestiture target, just any ideas on, you know, timing, you know, potential assets that you'd look to explore, you know, to achieve that divestiture proceed target?

Yeah, and just to kind of restate, you know, we called out a billion dollars by the end of 2027, and to your point, we're about halfway there. You know, I... You know, we feel like, you know, we feel good about getting a deal done this year, another deal done this year, and we feel very good about, you know, achieving or exceeding that target by the end of 27. And, you know, again, we're prioritizing, you know, parts of the business that don't fit, you know, the core operating models of engineered materials or acetyl chain, and that does kind of lead you to a heavier focus on some of the joint ventures, as we've talked about in past quarters. So, you know, we have what I would say is a pretty robust slate of things that are being worked, but it's hard to get deals done in this environment. But, you know, I'm proud of the team for what we did on Micromax. The speed at which, you know, we started that process to when we got it closed was approximately nine months, which is pretty fast in any M&A market. And so, you know, we're going to continue to work this with a sense of urgency.

Thank you. And our next question is coming from the line of Jeff Sakakis with JPMorgan. Please proceed with your questions.

Thanks very much. When you take a step back and look at 2025, I think in the acetyl chain, your adjusted EBIT was down about $400 million, and your engineered materials was down about $120. How do you analyze those changes? That is, how do you see the larger factors that were at work in those changes?

Yeah, let me start with Acetyls, Jeff. You know, of that, it was pretty much all driven by volume and price. And you got a mixed element that goes into that. So it's largely split relatively evenly between those two, you know, of which, you know, a good chunk of that was driven by the acetate till business. And so that was, you know, I would say from a product line perspective, that was the the bigger chunk, you know, we did see some margin compression, you know, from China as well that went into that. And then the balance was really driven by Western Hemisphere volume. We didn't have as much margin compression in the non-toe part of the portfolio in the Western Hemisphere. So those are the biggest components in acetyl chain. You know, in engineered materials, you know, volume and price were, you know, the – you know, both – you know, I would say semi-equal overall in terms of how much they were down. And then it was offset by cost. And we had some cost benefit NAST deals as well. But those are the largest drivers, I would say, overall in both business. It really comes down to, you know, above the line variable margin.

And then for 2026, it is your base case that you can get some EBIT growth out of engineered materials, but the acetyl change might be challenged to grow in 2026? Or do you have a different approach? And what are the key markets that you really need to have improved in order for cellulase to excel in 2026?

Yeah, Jeff, when we started 2025, you know, we talked internally in the organization, kind of a mantra around act now and win together. And I think it was really that action orientation was really important with a focus on, you know, cost reduction and pre-cash flow generation. This year, you know, we're still going with act now, win together and grow. That growth piece that you highlight is important. And I do believe engineer materials, in the current demand backdrop has, you know, more controllable ways to grow through our pipeline model. You know, it doesn't mean we won't be able to drive growth in acetyl chain. I just think that the groundwork that we've been laying in engineered materials and our ability to drive innovation and partner with customers and, you know, designers and engineers around, you know, innovative solutions, just we have more degrees of freedom to do that in engineered materials. It's likely to be in the higher growth areas like electronics that I called out earlier, elements of automotive continuing to penetrate in higher margin areas in China, and then continuing to partner with our customers on innovation into kind of the what is now the chosen fleet mix here in the Western world. So those are the big elements. You know, I do think we'll have some growth in medical as well, but I would say electronics and elements of automotive are going to be the key components.

Okay.

Thank you very much.

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

Hi. This is Turner Hendricks on for Vincent. I'm just wondering, could you provide more color around your expectations for higher than the first half earnings and whether you still expect to see $1 to $2 of EPS uplift versus 25?

Yeah, thanks for the question, Turner. You know, our team is still focused on, you know, $1 to $2 of lift. You know, as I talked about in engineer materials, it's going to be around driving growth there and getting – volumetric growth, continuing to push price where we can, and the team continues to be focused on doing that in the pockets of the business where we can achieve it. Then also continuing to drive our cost reduction programs. In Acetyl Chain, it is about, you know, looking for those opportunities where, you know, the supply-demand balance, you know, we can be opportunistic around to be able to drive volume and price and start moving kind of that sequentially on a quarterly basis back in a more positive direction. Look, since the last time we spoke, there's been some things that changed. You know, our interest expense is likely to be relatively flat on the P&L year over year. You know, I think, you know, how we model out our inventory draw this year, it's likely to have, you know, some amount of P&L impact. And then, you know, the demand backdrop is certainly not at least right now, where we were in the middle part of last year. And if we return to that, then, you know, certainly that would be a really nice tailwind. So it's, I do think that we are working a plan, you know, to be able to drive growth here this year. And, you know, certainly if we get any help whatsoever from the macro, you know, we are leveraged to be able to move up, you know, very quickly from an EPS perspective. You know, I'll just kind of remind you that a 1% improvement in volume in the acetyl chain is about $15 to $20 million a year, and a 1% improvement in volume in EM is about $20 to $25 million a year. So, yeah, these are small changes drive, you know, significant, you know, uplift for the business.

Great, great. That makes a lot of sense. Thanks for the color. Also, when thinking about the difference between first quarter and second quarter earnings, I'm wondering whether we need to reverse the $30 million inventory tailwind that's benefiting 1Q, as well as the size of the polyacetyl turnaround and any other bridge items that you might call out.

Yeah, I think, you know, that's probably the right assumption, Turner, is, you know, that $30 million benefit we're going to get is going to likely draw out there in the second quarter. And, you know, we are going to have some turnaround and higher turnaround expense certainly in Q2. So I think, you know, with the dividend coming back in the second quarter, you know, all of those things relatively even out, I mean – You know, Q2 flattish to Q1, and certainly, you know, depending on where the demand environment is, you know, you might get some sequential benefit. But, you know, until we have a better line of sight to that, you know, I don't know that flattish is the wrong way to think about Q2. As we called out in the prepared remarks, you know, we do believe this year is going to be more second-half weighted just because of that turnaround activity that we've got in the second quarter. Great.

Thank you for the color.

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

Thank you. Good morning, everybody. You know, Scott, just on the asset yield chain and, you know, just zooming out a little bit and think about EBIT margins, which were sort of mid-teens last year versus the previous trend line in the mid-20s, how much of that differential do you think is cyclical versus, you know, something having changed in terms of, obviously, supply coming on and also some of the challenges that you're seeing on acetate on the spot market?

Yeah, Gantram, you know, how I view these things, you know, in our business, you know, over the last 20 years, you know, we've seen structural changes. You know, we saw, you know, and these could be headwinds, they can be tailwinds. And, you know, shale gas revolution in the U.S. certainly was a structural change. You know, the industry didn't get the benefit of that overnight. It's actions that were taken to be able to take advantage of those structural changes. You know, we saw overcapacity in China, for example, you know, come into the market the first time, you know, 2009 through, you know, 2017. And it was, you know, actions and business model changes that we and others made to be able to, you know, drive a more sustainable and higher level of earnings. And certainly even today where we sit now in, you know, the current market with overcapacity where it is in asset deals, you know, the underlying business today is better than it was during 2012 and 2013. So I think it really is about how we as a company respond to changes that we see in the market. You know, I do believe that through those changes, you know, you will see things start to move back up. Now, each cycle is different. Each cycle is shorter or longer, and, you know, nobody can really predict how long it will last, but it is about responding to to those changes that we see. On the engineering material side, we've seen changes as well. You know, the move from ICE to EV in China in particular is a big structural change. It's not likely to change. We have to adapt to that. We have to change. We have to respond to that from a market perspective. And we have to continue to drive, you know, efficiency in our own business so that when we see small incremental changes in volume that I talked about earlier, You know, those underlying margins are higher in the future than they were in the past.

Okay, got it. And maybe a question for Chuck on, you know, free cash flow. Obviously, 2025, you know, working capital is big for the year in terms of driving the, you know, free cash flow outperformance there. What are you embedding for 2026 for working capital? And, you know, just, you know, more broadly, what's defining your confidence on free cash flow relative to what seems to be a pretty challenged operating environment, at least for the first half of the year? Thanks.

Yeah, no, thanks, Gancham. I think what's driving our confidence is our ability to pull levers to generate free cash flow in all demand environments. So you mentioned working capital. It was very strong in 25 to 390. We are targeting another 100 million, Gancham, primarily from further inventory reductions. Cash tax is going to be lower this year, 50 to 60 million. Cash interest down about 50 million, and the cash that will outlay for cost reduction programs that's adjusted out of EBITDA, that'll be lower by about 25 to 50. So As you know, you know, we plan for a number of different scenarios, Gancham, and we feel confident that we can drive free cash into our target range that we provided, either through modest earnings growth or through these additional levers that we know how to pull.

Okay. Thank you so much.

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

Yes, thank you very much. So, firstly, I want to come back a little bit to the EPS growth this year. And, you know, you have in your prepared remarks all the free cash flow, I guess, outlook and the puts and takes on free cash items. And it seems to us, if you do some rough math, that that points to probably net income or EPS chain, EPS this year of around mid to high fours. as a base case. Does that make sense? And are there any items we may be missing that would deviate, you know, that would make your EPS deviate from that as a base case?

Yeah, so how I look at it is our prioritization right now is around free cash flow and continuing to drive, you know, sustainable changes into our business models. As we look at the year, we've run a number of different scenarios on kind of where things could play out from a demand standpoint, and then what that translates into to EPS. And, you know, for us, we're confident in being able to, you know, generate that free cash flow between 650 and 750. So there's a number of different EPS scenarios that get you to that number, just depend on the movements and timing and the fact that we're You know, second half weighted also certainly plays a little bit of a role just in terms of, you know, how much AR is sitting on the balance sheet as we model it out. So all of those factors go into play, you know, in terms of how we model it. So, you know, we're not looking at, you know, a finite range right now. Our focus is on really driving and maximizing as much as we can and working to grow on a year-over-year basis with an emphasis on ensuring that we are delivering the cash flow.

Okay, perfect. And I want to ask a little bit about capacity additions on the nylon and the foam chains, specifically because these are something you had to face the past few years. Can you provide us with some information on what may be coming online, particularly in Asia in these chains? And what is kind of your exposure given you moved away from some chains such as nylon polymerization? What would be your exposure if there's more capacity coming online in these chemistries?

Yes, Sal, as we've talked about in the past, you know, our focus really is to continue to build flexibility into our operating model. you know, in our nylon business as well as, you know, some of our other polymers. And that means being balanced in, you know, what we make but also what we buy. And so the additional capacity, you know, that may come on in Asia and, you know, to be very honest, it's already overcapacitized in China. And, you know, we're taking advantage of that by, you know, buying as much polymer as possible because, you You know, that's a more advantageous way for us to, you know, be able to supply our business in that region of the world. It is about being opportunistic and about building flexibility, you know, into our model. And what I would tell you is we are going to continue to evaluate options to be able to enhance and maximize profitability in all our value chains, including NILA.

Thank you very much.

Thank you. Our next questions come from the line of Lawrence Alexander with Jefferies. Please proceed with your questions.

Good morning. This is Kevin Estak on for Lawrence. So just on working capital inventories again, you know, obviously you're targeting, you know, an additional reduction. And I guess I was wondering what guardrails are you sort of using to avoid service issues? Are there any specific product families, I guess, where inventory is still elevated? And maybe, I guess, what's the timeline to reach a steady state inventory model?

Yeah, so it's a very coordinated approach internally, right? We're never going to take too much risk on service levels and delivering to our customers, right? There's many different ways you can use inventories, you can use raw materials, you can change your offtake agreements, and you can reduce, you know, finished goods, right? So we're in a multi-year journey on that, so we don't ever like to think that we're done. You know, we think we do have $100 million this year, but, you know, we're not going to stop there. There's a lot of efficiency that EM is driving within the organization, and you're just going to need less and less inventory as you go forward, right? So it's a constant activity of ours, and we feel good about continuing that progress.

Got it. Okay, thanks. And then just as a follow-up, so on acetate tow, I guess obviously it's one of the biggest headwinds. I guess what are – I mean, you touched on some of this already, but I guess I'm curious what the specific levers that I guess you can do to stabilize tow and basically like regional mix shifts, Any capacity actions, customer inventory normalizations, contract resets, I mean, and I guess when should we expect measurable improvement?

Look, we're working this with a level of aggressiveness, you know, as we look at every element of the business. And, you know, that includes cost structure. It also looks at, you know, how we go to market, you know, future contracts. In this business, you have to take, you know, both a short-term view and a long-term view of how, things are rolling in and rolling off. And so it is really about stabilization. We did see a decline. I do think there has continued to be an element of destocking. I think there was a lot of inventory throughout the value chain. in this business. I think that will probably take another quarter or so. So think mid-year where that evens out is our current estimation. And, you know, then you should get to a little bit more steady state. And I think, you know, get a little bit more balance here as we get into the middle part of the year.

Okay. Thank you.

Thank you. Our next question has come from the line of Alexei Yeferbal with KeyBank Capital Markets. Please proceed with your question.

Thanks. Good morning. There's a number of price increases that were announced in the polymers world. I wanted to ask you about your expectations for achieving those, and also is the intent here to offset rising raw material costs or actually expand margins?

Thank you. You know, in some of these polymers, Alexi, you know, margins have got to where, you know, they're at unsustainable levels. And I think you can look at, you know, challenges we've seen in the industry and, you know, you've seen, you know, some folks in the marketplace go into default. And, you know, I think that has just shown that, you know, things are at an unsustainable level. I'm proud of the way the team, you know, got ahead of this a few years ago by, you taking action in our footprint in our highest cost locations. And so that has certainly helped us be able to weather that storm. But, you know, as we go forward, you know, the returns need to improve here. And so it really is about, you know, pushing to drive returns to just an acceptable level going forward. And, you know, the team continues to push that. You know, I do think it's going to continue to be a – It's going to take some time. It's going to be a step-by-step process. I wouldn't expect us to get all of it at once. But, you know, it is about continuing to work this, you know, as we are having dialogue with our customers.

Thank you. And as a follow-up, acetyl spreads have been a little better in China lately. What are your expectations for anti-involution or any kind of rationalization in that country, just based on your knowledge of what government might be thinking?

Yeah, as I mentioned before, I mean, we've gone through big overcapacity in the acetyl business in China in the past. You know, when I was living there, In 2009, the first overcapacity came in and we were in that period for a long time. I think the pattern of behavior that we've seen over the last year or so does kind of tend to trend with what we saw in the past, which is new capacity comes in. There was a lot of new capacity over the last couple of years. As those plants are starting up, you know, they run at high rates to prove out the technology, but, you know, margins are unsustainable. And so rates come back down and, you know, margins move up a little bit. And so we certainly have seen that trend continue and things have stabilized, I'd say, you know, at higher, albeit still relatively low levels on a margin basis over the last eight weeks or so. So, you know, we're not, you know, forecasting, you know, huge lifts by any stretch of the imagination. And, you know, the The team will continue to kind of work, you know, near-term and instantaneous opportunities on both a price and volume basis.

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

Hi, guys. Good morning. It's Aziza on for Frank. Scott, I was curious if maybe you can provide some thoughts on, you know, Chinese asset sales pricing as we progress through 2026?

Yeah, Aziza, I mean, look, we're not going to forecast any huge uplifts. I think, you know, we would expect things to stay in the range they've been, you know, over the last several quarters. I mean, plus or minus kind of where they've been. As I just said, you know, we've kind of stabilized at these levels over the last eight weeks or so. Demand right now is extremely low as we're in Chinese New Year. This year's Lunar New Year is a longer holiday than what we typically see by a few extra days. It'll be interesting to see how things come out at the later New Year as well. But certainly demand was relatively stable going into the New Year holiday. Pricing held. And that doesn't always happen. You know, sometimes as you're getting into that New Year period, pricing falls off. It stayed relatively stable as we went in. So, you know, we'll see kind of where things come out. But we are not anticipating, you know, really big uplift coming from Asia. As we look at you know, recovery scenarios in the acetyl business, you know, we tend to really look at Western Hemisphere only. And so, you know, those numbers I quoted earlier, about a 1% improvement in volume being $15 to $20 million, that's on Western Hemisphere only. That doesn't include any of the business in China, just because I think with where overcapacity is, if we get upside in volume and price, we'll take it. But, you know, we're not going to necessarily bake that into our numbers.

Got it. And also, regarding the second quarter POM turnaround, have you guys quantified the impact to the second quarter earnings?

No. I mean, what we said earlier is think a number similar to the lift that we called out of $30 million. So that's, you know, the right range. I mean, these – Typically, these turnarounds in the past were about every three or so years. You know, we've worked really hard, you know, on our reliability over the last several years to where, you know, we've been able to extend this to five years between these major turnarounds. So, you know, this is, you know, not something that certainly happens every year in the asset. And, you know, so it is a little bit larger than we would typically see, but it really is contained to the second quarter.

Got it. Thank you.

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

Morning, Scott and Chuck. Look, I wanted to revisit the $650 million to $750 million free cash flow guidance you guys provided. Look, I mean, you know, it's anyone's guess what demand does, but – You know, if we were to take a draconian view and say that demand really doesn't improve much from Q4 levels, you know, what does that do to the guidance, you know, and all the other aspects baked into it, meaning, you know, the $100 million sort of working capital uplift that you guys guided to and the like?

Yeah, first of all, Hasan, I would never refer to you as draconian by any stretch of the imagination. Look, not to be repetitive, but I'm going to kind of go back. We model out a lot of different scenarios, kind of that low-demand scenario, higher-demand scenarios. I mean, we kind of look at different permutations. You also have to plot timing. And so as we kind of look at that, you end up range-finding for where you think you can move on cash flow, given the other actions that you can take. and how, you know, AR and inventory can move and what you can do through the year. And so, you know, as we kind of range find for that, you know, we do feel very confident in that 650 to 750 range that we put out there.

Understood. Understood. And just moving on, again, you know, as it relates to sort of, you know, debt paydowns and the like, I mean, you guys seem pretty comfortable with – the incremental 500 million of sort of asset sales? So A, what gives you that comfort to achieve that by 2027? And B, if need be, could that number actually be higher?

Yeah, I mean, we're aggressively pursuing additional divestitures. And Scott mentioned we feel good about getting another one of those done. There's a lot of things that we can look at. Yeah, that's part of our cash generation. That's part of our debt paydown strategy. You know, that's a probability-weighted number, so theoretically that could end up at a higher number. But we're targeting right now a billion dollars total by the end of 2027 to help us deleverage the balance sheet.

Very helpful. Thank you so much.

Thank you. Our next questions come from the line of Michael Sasson with Wells Fargo. Please proceed with your questions.

Hey, guys, sorry about that. You know, you sort of noted that the Western Hemisphere acetyl margins are better, holding up better. You know, how much of your business is Eastern, and is there any reason to be there longer term? I mean, this trough in the Eastern Hemisphere has been pretty deep. You know, does it make sense to reduce some capacity for that area longer term?

You know, Mike, you've known us for a long time. You know that, you know, we look at every option on the table, and we continue to look at what the short-term needs of the business are and balance that with where we think we need to be long-term. And, you know, we will look at what the footprint in both businesses, you know, needs to look like and what the right match is. So, you know, I would say we're constantly, you know, evaluating, you know, where we need to be and how we need to be operating the assets. And, you know, the Assetil team continues to pivot there. You know, we're block operating, you know, the Frank or VAM unit, block operating the Singapore, you know, acetic acid unit as well, and just for that very purpose and finding ways at which to be more efficient and squeeze out costs.

Got it. And then, you know, if you take a look as we head into the second half, and we sort of sat here last year thinking things couldn't get worse, but if there were areas within EM or the asset deal chain that, that could get worse, what do you think it could be? And it does sound like things are more stable, sequentially at least, but what are the things we need to watch out for if things could potentially get worse on the macro side for you?

Mike, we're not going to take anything for granted and we're going to continue to evaluate, take bold actions across the portfolio. We knew, as we started last year, that we needed to kind of reset the growth mindset in engineering materials. And I feel like Todd Elliott and the team have done a great job of building the pipeline and refocusing commercially on those areas where we can really drive high-quality wins and making sure our time is being spent there with a focus on quality over quantity. And I think that is really going to start to pay off for us as we work our way through 2026. And we're going to continue to evaluate the cost side of the equation in both businesses as well as from a corporate perspective because I do think it is really about how we generate operating leverage going forward. And so those are our priorities with cash as being kind of that keen focus and delivery of our cash target.

Great. Thank you.

Thank you. Our next question has come from the line of Kevin McCarthy with the Vertical Research Partners. Please proceed with your questions.

Thank you, and good morning. Scott, in explaining the volume decline of 6% in the quarter, I think you mentioned in the prepared remarks last night that the destocking and seasonality were kind of greater than expected. And So I wonder if you could comment on the degree to which you've seen any rebound or, you know, temporary restocking in January and early February ahead of the Lunar New Year, or has it been mixed or just not happening? Just looking for any additional color on, you know, kind of incremental volume stability or improvement as you see it.

Yeah, let me start with acetyl chain. I think, you know, we've seen, you know, some moderate seasonal improvement, largely in the coating space, and we'll see kind of where things, you know, hunt out as we get into March and April, which tends to be, you know, when demand, you know, moves up higher. So I would say that it's moderate at this point. We haven't seen substantial change positively in the acetate toe side of the equation there in acetyls. You know, in engineered materials, what we called out last quarter was that we We knew we were going to see, you know, some destocking from our channel partners here in the Americas. You know, we're starting to see that come back to the order book. And we've seen, you know, seasonal improvement in spaces like automotive in the Western Hemisphere, you know, improve, you know, to start the quarter. So that is pretty much as expected and as is typical, you know, as we see from Q4 to Q1.

And then to follow up on your divestiture efforts, it sounds like the focus or at least one of the focus areas would be your joint ventures. You've got quite a few of them, I think. Maybe can you provide any color as to where you are in that process and whether or not we might expect something this year or more likely next year? Are you looking at multiple JVs or?

Focusing on on a primary target and any color there would be helpful Yeah, what I would tell you Kevin is we are looking at a lot of different things and we have a pretty robust portfolio of options of Varying sizes, you know some small some, you know getting a little closer to the size of Micromax and you know as Chuck mentioned earlier would probability weight that you know, we you know, we feel good about getting another deal done here in 2026. I don't know exactly, you know, where it will fall in the size spectrum. It might be a smaller one, but certainly would be attractive even if it's small. So, you know, we are kind of working all elements. It may be that, you know, it takes a few of these deals to get to the target, and maybe, you know, it takes one deal. So it just – it kind of depends upon how these things materialize here over the course of the next, you know, year and a half.

Thanks very much.

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

Yeah. Hi. Good morning. I want to just ask on the earnings in engineering materials. If I kind of take your comments on first half, you know, your EBIT is maybe around 200 million a quarter on average. You know, looking at last year, kind of similar levels to what we saw in 2Q, 3Q. I'm obviously ignoring seasonality in the weaker 1Q a year ago, but I'm just wondering that, you know, we're not seeing some of the cost initiatives really come through. You're talking about the more second half, but you've been talking about the cost initiatives for, you know, six, nine months now. So why aren't we seeing it as much in the first half, and why does it take to the second half on the cadence of timing to And then when you talk about the new products and the higher margins, kind of the same thing. Like, when do we start to really see more of this and why not now?

Yeah, Josh, I'm going to respectfully disagree with you. I think you're definitely seeing it roll through. You know, we are in a much lower demand environment today in that business than where we were in the middle part of last year. And, you know, we're still performing at very similar levels. And that really is coming from the mix improvement we've seen as well as the cost reductions the business is taking, and we're going to continue to drive that forward. As I said, you know, there's such a leverage on volume in this business, you know, with a 1% change kind of being, you know, five plus million dollars a quarter, you know, the amount of change that we've seen in that business is sizable on a year-over-year basis volumetrically. So it really is about, you know, continuing to improve the underlying fundamentals of this business, and those small incremental changes in the demand are going to flow right back to the bottom line.

Thank you, Scott. Appreciate the thoughts.

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

Thank you. Have you actually guided for the China CIGTO dividend expected for the final three quarters of 2026 in your free cash flow range?

Yeah, John, think pretty flat to last year is what to expect, that $40-ish million a quarter.

Okay. And then you once explored some consolidation opportunities in the SIGTO industry. Does the contraction in the industry increase the chance of revisiting further consolidation, maybe in a different form or different partner than what you earlier pursued?

I don't know that the landscape has changed considerably. John, overall, in terms of the fundamentals. But, you know, look, we are always very open to options in all of our businesses. And so, you know, we explore, you know, every opportunity that might be out there. But I think on tow, I just don't know that the fundamentals have changed enough to change that outcome.

Next question, our last one, please.

Thank you. Our last questions will come from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.

Hi, good morning. This is Adam on for Arun. Thanks for taking our question. If I could ask maybe Hassan and Gansham's question in another way, it seems like, you know, the working capital management change for 26 is almost a $300 million headwind. And you talked about, you know, some benefits from lower cash, about 25, you know, Taxes lower by 40 to 50. Is the balance of that from earnings improvement? And if not, where is that coming from? And how much earnings improvement are you really expecting to impact your free cash flow? Thanks.

Yeah, thanks, Adam. Yeah, you're right. I mean, the working capital we've had one year over year is sizable. And then some other things that are lost, as you mentioned. But again, I'll say again, we feel good about driving free cash into that range, either through modest earnings or through further levers if we we see a lower demand scenario play out. It's very similar to what we did this year in 2025, so we're confident in that range.

Okay, great. And apologies if I've missed this, but have you guys outlined in terms of a cost benefit from the Lanark enclosure, you know, kind of market impact aside?

Yeah, so Lanark enclosure for us is going to be about a $20-$25 million cost benefit on a four-year basis. About five to ten of that we expect to get this year.

Thank you.

Well, thank you, everyone. We'd like to thank everyone for listening in to today's call. And as always, we're available after the call for any follow-up questions. Daryl, with that, let's please go ahead and close out the call.

Thank you so much, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time. We appreciate your participation. Enjoy the rest of your day.