Kevin McCarthy

Kevin McCarthy asked if the company's free cash flow guidance implies an adjusted EBITDA of around $1.8 billion and inquired about potential project cancellations in China due to the tariff environment.

Answer

CEO Scott Richardson advised against deriving a precise EBITDA forecast from the cash flow guidance, reiterating that the company is focused on delivering cash across a range of demand scenarios. On China, he stated that while Celanese has not seen project cancellations, there has been a noticeable pullback in orders for smaller items like appliances and toys, which he views as an indicator of broader market uncertainty.

Kevin McCarthy asked if Celanese is currently being run to maximize cash flow over earnings and inquired about the rationale for temporarily idling acetyl capacity in Singapore and Frankfurt.

Answer

CEO Scott Richardson confirmed that cash is the priority, given the company's debt level. He pointed to actions on the dividend, capital reduction, working capital, and divestitures as evidence of a 'cash first' focus. Regarding the acetyls plants, he explained that the team pivots daily based on the market landscape—geographically and up and down the value chain—to match operating rates with demand to maximize margin and EBITDA across the entire system.

Kevin McCarthy of Vertical Research Partners questioned the path to achieving the leverage target given upcoming debt maturities and asked about plans for global asset footprint optimization.

Answer

COO Scott Richardson stated the current plan focuses on cash generation, the dividend reduction, and opportunistic divestitures, with confidence in accessing capital markets for future refinancing. CEO Lori Ryerkerk confirmed that a continuous and aggressive review of the global asset footprint is underway.

Kevin McCarthy from Vertical Research Partners inquired about Air Products' decision to sell two coal gasification projects in Asia, asking for details on the divested assets, the status of any firm deals, expected cash proceeds, and the potential impact on Asia sales. He also asked about the market dynamics for rare gases like krypton, xenon, and neon, specifically regarding competitive intensity in Asia and its significance.

Answer

CEO Eduardo Menezes clarified that the two coal gasification projects being divested in Asia, while having no operational issues, have faced "customer issues" making them a drag on operating profit. He stated the sale process is ongoing, with no specific dates or values yet, but the goal is to maximize valuation, noting the impact on sales is not substantial. Regarding rare gases, Menezes indicated that Air Products is not a major player, has observed some pricing degradation and increased competition, but it does not significantly affect their business.

Kevin McCarthy asked for details on the decision to sell two coal gasification projects in Asia, including what is being divested, whether firm deals are in hand, expected cash proceeds, and the impact on Asia sales. He also inquired about the market for rare gases like krypton, xenon, and neon, and any escalation of competitive intensity in Asia.

Answer

Eduardo Menezes, CEO, explained that Air Products is divesting two of its three major coal gasification projects in China (excluding Luan), which had customer issues and were a drag on operating profit. He stated they are in the middle of the sale process, cannot provide specific dates or values yet, but aim to maximize valuation. The impact on sales is not substantial. Regarding rare gases, Mr. Menezes noted that Air Products is not a major player, but has observed some pricing degradation and increased competition, though it does not significantly affect their business.

Kevin McCarthy from Vertical Research Partners inquired about the trajectory to achieve the long-term ROCE goal of mid-to-high teens from the current level, asking about key drivers and timing.

Answer

CFO Melissa Schaeffer explained that current ROCE is significantly depressed by the large 'Construction in Progress' (CIP) balance, particularly from the NEOM project. She stated that excluding CIP and cash, ROCE would be approximately 500 basis points higher. As major projects come online and capital discipline improves, ROCE is expected to increase toward the long-term target. CEO Eduardo Menezes added that accounting for NEOM complicates the current figure.

Kevin McCarthy of Vertical Research Partners requested an update on partnership discussions for the Louisiana project and the rate-limiting step for its new timeline. He also asked about the status of the European infrastructure build-out and capital sunk versus avoided.

Answer

CEO Eduardo Menezes identified the rate-limiting step for Louisiana as the ongoing discussions to partner on the CO2 sequestration and ammonia loop, which he hopes to conclude by year-end. Regarding Europe, he stated that all major activity is paused pending regulatory clarity, with minimal capital spent compared to the previously floated $2 billion figure, which is no longer a target.

Kevin McCarthy of Vertical Research Partners requested an update on the Louisiana blue hydrogen project, focusing on the search for partners, and asked for confirmation of the company's target to be free cash flow positive in fiscal 2027.

Answer

Chief Financial Officer Melissa Schaeffer confirmed the Louisiana project is executing normally and that the company is in active discussions with potential equity and offtake partners, particularly in Asia. She also reaffirmed the target to be free cash flow positive in fiscal 2027, noting that partnerships or project financing could influence the trajectory.

Kevin McCarthy asked for the key assumptions behind the forecast of returning to positive net cash flow in 2027, specifically if it was contingent on project financing or partnerships. He also asked how management's internal view on clean hydrogen growth compares to external studies, given some peer caution.

Answer

CFO Melissa Schaeffer clarified that the 2027 positive net cash flow projection does not assume any project financing or equity partnerships; it is based purely on the organic ramp-up of projects. Chairman, President and CEO Seifi Ghasemi stated that Air Products' internal view on clean hydrogen demand is more bullish than external reports because, as a first mover with a tangible project, the company has better visibility into real customer demand than its competitors.

Kevin McCarthy asked about the evolving credit market conditions for growers in Latin America, specifically Brazil and Argentina, and the implications for Corteva and the broader industry, referencing recent comments from peers.

Answer

EVP and CFO David Johnson acknowledged higher borrowing costs, increased leverage, and bankruptcies in Latin America. He noted Corteva's effective risk management, with minimal losses and past dues as a percentage of AR being better year-over-year. Johnson highlighted Corteva's minimal exposure to national distributors and its robust barter system, which accounts for about 40% of total sales in Brazil, as key mitigation actions. CEO Chuck Magro reinforced that Corteva's go-to-market strategy and barter system are differentiating factors in risk management for the region.

Kevin McCarthy inquired about the evolving credit market conditions for growers in Latin America, particularly Brazil and Argentina, and their implications for Corteva and the broader industry.

Answer

CFO David Johnson explained that while the industry faces higher borrowing costs and increased bankruptcies, Corteva has effectively managed this risk, with minimal losses and improved past dues as a percentage of AR year-over-year. He highlighted Corteva's minimal exposure to national distributors and robust barter system, which accounts for about 40% of Brazil sales, as key mitigation strategies. CEO Chuck Magro reinforced these points as differentiating factors.

Kevin McCarthy from Vertical Research Partners asked for details on the 40% volume growth in fungicides, the contribution from new products, and the implications of the new partnership with FMC for Fluendipere.

Answer

EVP Robert King explained the growth was primarily driven by successfully re-entering the Brazil market with the Onmyra brand at acceptable margins. He noted the FMC partnership for the SIVO brand will provide a new premium three-way fungicide for the North American corn market, expanding Corteva's portfolio.

Kevin McCarthy requested an update on the two new growth platforms from the Capital Markets Day: hybrid wheat and winter canola for biofuels, asking about their progress and timelines.

Answer

CEO Chuck Magro confirmed that the hybrid wheat program is on track for a 2027 launch and represents a potential $1 billion peak revenue opportunity with a 10-20% initial yield unlock. Regarding winter canola for biofuels, he stated the second-year pilot is progressing well, and the program will expand from approximately 30,000 acres to potentially hundreds of thousands in the next season, in partnership with Bunge and Chevron.

Kevin McCarthy asked for the key drivers behind the significant 800 basis point year-over-year increase in Crop Protection EBITDA margins in Q4 and whether any timing-related factors were at play.

Answer

EVP Robert King (Crop Protection) attributed the record Q4 margin expansion to several factors. Key drivers included strong performance in Brazil, growth from high-margin new products and biologicals, a favorable product mix towards higher-margin fungicides and insecticides, and a significant $170 million year-over-year cost reduction in the quarter.

Matt Hatter, on behalf of Kevin McCarthy, asked to quantify the amount of seed sales deferred from Q3 to Q4 and the associated earnings impact.

Answer

EVP of the Seed Business Unit, Timothy Glenn, clarified that the situation in Latin America is not a deferral of sales but rather lost business for the year. He highlighted that the 20% reduction in Argentina's corn area represents volume that is gone, not delayed, which is significant as Argentina is Corteva's third-largest seed market. CEO Chuck Magro added that this is a primary driver for the lowered full-year guidance.

Kevin McCarthy asked if there is any downside financial risk to Eastman regarding the Pepsi contract, given the rethinking of the second plant, or if supply from Kingsport mitigates this. He also inquired about the likelihood of perpetuating Eastman's streak of annual dividend increases, considering strong cash flow.

Answer

Board Chair and CEO Mark Costa expressed confidence in the Pepsi partnership and stated that the contract is structured to allow reliable supply from Kingsport and its bottlenecked capacity, with attractive margins. EVP and CFO William Thomas McLain highlighted Eastman's solid, well-covered dividend and 15 consecutive years of increases. While a board decision, he noted the strong cash flow expected in 2026 supports the dividend, and recent increases have not significantly impacted cash flows.

Kevin McCarthy asked about the Pepsi contract, specifically if there is any downside financial risk to Eastman now that the second plant is being rethought, or if contractual protections and Kingsport supply mitigate such risks.

Answer

Mark Costa, Board Chair and CEO, expressed confidence in Pepsi as a partner and stated that the contract is structured to allow reliable supply from Kingsport and its debottlenecked capacity. He noted that existing lines can be configured to support Pepsi's needs, and the attractive margins from Renew products ensure a good return on investment.

Kevin McCarthy asked for details on the newly targeted $75-100 million in cost reductions and inquired whether the new U.S. tariff regime might prompt any significant changes to the company's portfolio.

Answer

CFO and EVP William McLain outlined the cost-cutting plan, which includes optimizing contractors, maintenance, MRO purchasing, energy efficiency, and labor costs. Chairman and CEO Mark Costa added that these actions are about efficiency, not large-scale plant rationalizations, signaling confidence in a future demand recovery. Regarding the portfolio, Mr. Costa stated that while they always evaluate their businesses, no major divestitures are being considered in the short term, as the bottom of the market is not an ideal time for such moves.

Kevin McCarthy asked for a reconciliation between the high percentage of contracted volumes in the Fibers segment and the severe destocking seen in Q1. He also inquired whether tariffs could be a net benefit for any of Eastman's product lines by making imports more expensive.

Answer

Mark Costa, Board Chair and CEO, explained that while contracts are in place, they contain volume bands, and a broader set of customers than expected has moved to the low end of their purchase commitments to reduce inventory. He also confirmed that there are emerging opportunities for tariff benefits, citing potential share gains in Performance Films and advantages for U.S.-based plasticizer and agriculture customers.

Kevin McCarthy of Vertical Research Partners asked for the drivers behind the strong outperformance in the Additives & Functional Products (AFP) segment in Q3. He also inquired about the expected 2025 capital expenditure budget relative to 2024, particularly with the new Texas project.

Answer

CEO Mark Costa credited the AFP segment's strong results to broad-based 'excellent execution' across its portfolio, including volume wins in coatings, growth in care chemicals, and effective price management, rather than a single factor. CFO Willie McLain projected that 2025 capital expenditures could return to around the $800 million level, up from 2024's $625 million, to accommodate the new Texas project on top of the ~$350 million base maintenance capital.

Kevin McCarthy from Vertical Research Partners asked for more details on Linde's expectation of robust growth in electronics, including industry-level growth over the next few years and whether industrial gas demand continues to grow at a premium rate due to shrinking nodes and chip architecture changes, especially with AI and data centers.

Answer

CEO Sanjiv Lamba projected the semiconductor industry to grow to a trillion dollars over the next five years, with 9-11% annual growth, driven by logic and HBM memory. He confirmed that gas intensity increases with more advanced nodes and chip architecture, a trend expected to continue with R&D engagement with OEMs, further exciting Linde about the sector's growth.

Kevin McCarthy asked for an elaboration on the 'robust growth' expected in electronics, including industry-level growth over the next few years, and whether industrial gas demand still grows at a premium rate due to shrinking nodes and chip architecture, especially with AI and data centers.

Answer

Sanjiv Lamba, CEO, expects the semiconductor industry to grow 9%-11% over the next five years to a trillion dollars, driven by logic and HBM memory. He confirmed that advanced nodes continue to increase gas intensity, a trend supported by R&D engagement with OEMs, which excites Linde due to both significant growth and higher gas application intensity.

Kevin McCarthy of Vertical Research Partners asked about the impact of the 'One Big Beautiful Bill Act' on Linde's internal operations, customer feedback, and the outlook for 2025 and 2026.

Answer

CFO Matt White explained the bill is a net positive, primarily because it makes existing tax policy permanent, providing confidence for long-term investment. He noted it will be beneficial for cash taxes due to the reinstatement of bonus depreciation, which improves project IRRs by up to 100 basis points and is particularly helpful given Linde's U.S.-heavy backlog. He also cited the enhancement of the 45Q tax credit as a positive.

Kevin McCarthy of Vertical Research Partners requested an updated view on China, asking about near-term trends in April/May and the medium-term potential for productivity to offset macro risks.

Answer

Sanjiv Lamba, CEO, described a medium-term view of low-single-digit IP growth for China, with the business being managed for maturity with a focus on productivity, where he still sees significant opportunity. For the near term, he expects continued weakness in metals and chemicals, with stress in manufacturing-related businesses, while batteries, EVs, and electronics remain green shoots. He stated Linde expects no recovery in China this year.

Kevin McCarthy inquired about idiosyncratic sources of volume growth from the project pipeline, asking if contributions over the next few quarters would be similar to the past and which major startups are next.

Answer

CEO Sanjiv Lamba and CFO Matt White confirmed the stability of their growth model. Lamba noted that the project backlog consistently contributes 1-3% to EPS growth, with about 30 projects starting up this year. White framed this contribution as part of the 'capital allocation' bucket of their EPS growth algorithm, which he described as stable and unrelated to the macro environment, providing confidence despite a cautious near-term economic outlook.

Kevin McCarthy asked for an update on the epoxy resins market, particularly how it is expected to unfold over the next several quarters following its removal from Annex 2.

Answer

Steve Bender (EVP and CFO) discussed the positive impact of shuttering the Pernis facility in Europe and the ability to source cost-effective feedstocks (LER and BPA). He noted that these actions are leading to improved performance in Westlake's downstream epoxy businesses across Europe, North America, and Asia, with some improvement also seen in overall epoxy pricing, and a continued focus on formulated aspects.

Kevin McCarthy asked for an update on the epoxy resins market, specifically how it is expected to unfold over the next several quarters following its removal from Annex 2. He also sought clarification on when the $100 million in benefits related to the Pernis facility closure would begin to flow through, asking if it would start in Q1 or how it would be characterized.

Answer

Steven Bender, EVP and CFO, stated that with the Pernis facility shuttered and cost-effective feedstock sourcing, Westlake's downstream epoxy businesses are performing better. He expects some improvement in overall epoxy pricing and a focus on downstream formulated aspects. Regarding Pernis, Mr. Bender confirmed the plant was safely brought down in Q3, with benefits beginning to accrue in Q4 and continuing into 2026, though some severance costs will also flow through.

Kevin McCarthy of Vertical Research Partners asked about the potential for higher operating rates for Westlake's crackers and polymer assets in the third quarter compared to the second. He also requested an update on the polyethylene resin pricing outlook, including July settlements and August price nominations.

Answer

President & CEO Jean-Marc Gilson clarified that the crackers have been running at full capacity since their turnarounds, with the main operational issues residing in the chlorovinyl chain. EVP & CFO Steven Bender added that July polyethylene pricing had not yet settled, but industry price initiatives of $0.06-$0.07/lb were announced for July, with further nominations of $0.05-$0.08/lb for August.

Kevin McCarthy of Vertical Research Partners asked if international trade uncertainty was negatively impacting volumes in April or May. He also requested an update on expectations for polyethylene (PE) resin selling prices for the upcoming months.

Answer

M. Bender, EVP and CFO, acknowledged that trade uncertainty has led to cautiousness among customers across both chemical and building products segments. On PE pricing, he stated that the April contract market had not yet settled and that a price nomination had been pushed to May, indicating continued market uncertainty.

Kevin McCarthy questioned management's patience with the company's undervalued stock and the possibility of separating the businesses. He also asked for commentary on recent demand trends in January and February for polyethylene and PVC.

Answer

EVP and CFO Steve Bender emphasized the significant integration benefits between PEM and HIP and expressed belief that the market underestimates the earnings leverage in the PEM segment, which will become apparent as volumes and prices recover. He noted strong demand for polyethylene and PVC, supported by price nominations in January, February, and March for both products, driven by good demand and rising input costs.

Representing Kevin McCarthy of Vertical Research Partners, Matthew Hettwer asked CEO Jean-Marc Gilson about his evolving strategic thoughts and inquired about the epoxy pricing opportunity following the implementation of trade duties.

Answer

President and CEO Jean-Marc Gilson highlighted the strategic advantage of Westlake's integrated model, which reduces earnings volatility, and noted a focus on strengthening it, particularly downstream in the HIP segment. On epoxy, he expressed confidence in forthcoming U.S. duties but noted that Europe is lagging, meaning price pressure there will likely continue until tariffs are finalized.

Kevin McCarthy questioned why the Performance Coatings segment's operating income declined year-over-year despite sales growth and a 4% price contribution, asking if it was solely due to refinish mix or other factors.

Answer

Chairman and CEO Tim Knavish confirmed that mix was a significant factor, as refinish is an above-segment-average business, and its earnings reduction led to deleveraging. He also highlighted increased OpEx and CapEx spending in the high-growth Aerospace and Protective & Marine Coatings businesses to capture long-term growth opportunities, which impacted short-term operating income.

Kevin McCarthy from VRP questioned why PPG's performance coatings segment's operating income declined year-over-year despite sales growth and a 4% price contribution, asking if it was solely due to mix issues from refinish or other factors.

Answer

Chairman and CEO Tim Knavish confirmed that mix was a significant factor, as refinish is an above-segment-average business, and its earnings reduction led to deleveraging. He also highlighted well-above-normal OpEx and CapEx spending in aerospace and protective and marine coatings, which are consistently growing at double-digit rates, to capture long-term growth opportunities, impacting short-term segment EBITDA.

Kevin McCarthy of Vertical Research Partners asked for more detail on the market share gains within the Performance Coatings segment, particularly in Packaging and Protective & Marine, and how they compare to the $100 million gain quantified for the Industrial segment.

Answer

CEO Timothy Knavish clarified the $100M gain was primarily in Automotive OEM and Industrial Coatings. He noted that Packaging gains in Europe more than offset a known shift in the U.S., while Protective & Marine gains are driven by new technologies. CFO Vince Morales added that Aerospace, Traffic Solutions, and Refinish also outgrew their respective markets in Q2.

Kevin McCarthy of Vertical Research Partners asked for help conceptualizing the scale of share gains in the Performance Coatings segment, particularly in Packaging and Protective & Marine, relative to the $100 million figure cited for the Industrial segment.

Answer

Chairman & CEO Timothy Knavish clarified the $100 million gain was primarily in Automotive OEM, followed by Industrial Coatings and Packaging. He noted Packaging gains in Europe are offsetting a known shift in the U.S. CFO Vince Morales added that all four businesses within the Performance Coatings segment (Aerospace, Refinish, Protective & Marine, and Traffic Solutions) outgrew their respective markets in Q2.

Kevin McCarthy of Vertical Research Partners requested a breakdown of the sales guidance for Global Architectural Coatings, specifically asking about year-over-year volume expectations for the segment.

Answer

CEO Timothy Knavish projected that pricing in Global Architectural would remain incrementally positive. On volume, he anticipates the project pause in Mexico to continue into Q2 but expects momentum in Europe to improve, potentially turning flat to incrementally positive. The primary change from Q1 to Q2 is expected to be driven by the European market.

Kevin McCarthy asked for the expected volume trend through 2025 and how much of the projected improvement relies on macro uplift versus company-specific share gains.

Answer

CEO Tim Knavish projected negative volume in Q1, followed by flat to low-single-digit positive volume for the rest of the year, leading to low-single-digit growth for the full year. He stressed this forecast is based on market stabilization, not a significant recovery, combined with over $100 million in secured share gains in the Industrial segment and ongoing gains elsewhere. CFO Vince Morales noted that Q1 2024 presented a difficult year-over-year comparison.

Kevin McCarthy asked whether the U.S. and Canada architectural divestiture would be dilutive or accretive to 2025 earnings and if the business would be moved to discontinued operations in the fourth quarter.

Answer

SVP and CFO Vince Morales stated that assuming the net proceeds are used for a share buyback, the transaction is expected to be slightly accretive to 2025 EPS. He noted about $15 million in stranded costs that will be addressed by the new restructuring program. He also confirmed PPG's intention to move the business to discontinued operations.

Kevin McCarthy asked if there were any price increases on the table for Consumer Brands or Performance Coatings Group, and if there might be potential for price acceleration in those platforms relative to the 7% called out for Paint Stores.

Answer

SVP of Finance and CFO Al Mistysyn confirmed that based on overall cost basket dynamics, the company has targeted price increases across each of its businesses and regions to offset rising costs and drive progress. President and CEO Heidi Petz added that these increases are incumbent for investing in customer success.

Kevin McCarthy asked if there are any planned price increases for the Consumer Brands or Performance Coatings Groups, and whether there is potential for price acceleration in these segments relative to the 7% increase announced for the Paint Stores Group.

Answer

Al Mistysyn, SVP of Finance and CFO, confirmed that 'targeted price increases across each of the businesses and each of the regions' are planned to offset overall cost basket dynamics and drive progress. Heidi Petz, President and CEO, added that these increases are essential for investing in customer success.

Kevin McCarthy of Vertical Research Partners requested more details on the expanded restructuring program, including the magnitude of charges, the sources of savings, and the expected timing of their flow-through.

Answer

Chair, President & CEO Heidi Petz explained the deeper restructuring was a disciplined response to deteriorating demand. CFO Al Mestyshin quantified the program, stating the $105 million charge is expected to generate approximately $80 million in annual savings. He noted these savings will begin to appear in the second half of 2025 and will be fully annualized in 2026.

Kevin McCarthy from Vertical Research Partners requested more details on the expanded restructuring program, including the magnitude, sources, and expected flow-through of the savings.

Answer

CEO Heidi Petz linked the deeper restructuring to the deteriorating outlook and the company's simplification priority. CFO Allen Mistysyn provided specifics: the total charge is now $105 million, expected to generate approximately $80 million in annual savings. A portion of these savings will be realized in the second half of 2025 and will fully annualize in 2026.

Kevin McCarthy asked about the recent Suvinil acquisition, inquiring about its strategic appeal, ambitions in Latin America, the expected closing timeline, and if it was included in guidance.

Answer

Executive Heidi Petz described Suvinil as a long-admired asset with a leading brand that is an 'obvious complement' to Sherwin-Williams' existing Latin American business. Executive James Jaye added that Brazil's architectural coatings market is large and growing faster than GDP. The deal is expected to close in the second half of 2025 and is not yet included in the company's guidance.

Kevin McCarthy asked about the prospects for positive pricing in the Consumer and Performance Coatings segments and the level of foreign exchange drag embedded in the 2025 guidance.

Answer

CEO Heidi Petz stated that any price increases in those segments would be 'very targeted' by geography. SVP & CFO Allen Mistysyn quantified the consolidated FX headwind at approximately 1%, with a more pronounced impact on the Consumer (mid-single-digit) and Performance Coatings (2%) segments, primarily driven by Latin America.

Kevin McCarthy requested an outlook for the Auto Refinish and Packaging businesses, asking if the softness in Refinish is structural or transitory and if the acceleration in Packaging is sustainable.

Answer

Executive Heidi Petz characterized the Refinish weakness as transitory, attributing it to a double-digit decline in North American insurance claims, which she expects to improve. She expressed strong confidence in Packaging, noting Q3 sales were up high-single digits on volume. She expects the momentum to continue, driven by share recapture and the recent acquisition of Henkel's metal packaging business.

Kevin McCarthy inquired about Olin's outlook for the U.S. caustic soda market, specifically whether the anticipated price improvement in Q4 is primarily due to seasonal factors or reflects a more cyclical or structural uplift.

Answer

President and CEO Ken Lane confirmed expectations for higher caustic values in Q4, citing stable caustic demand (with softening pulp and paper offset by robust alumina) and restricted supply. He explained that supply reduction is due to Olin's actions, other industry outages, lower chlorine derivative demand, and normal seasonal turnarounds, all supporting caustic values.

Kevin McCarthy requested an update on the U.S. caustic soda market, specifically regarding the expected price improvement in Q4 and whether it's driven by seasonal or structural factors.

Answer

Ken Lane, President and CEO, expects higher caustic values in Q4 due to stable demand (with alumina offsetting pulp and paper weakness) and restricted supply. This restriction comes from lower chlorine derivatives demand, Olin's portfolio actions, and normal seasonal industry outages.

Kevin McCarthy of Vertical Research Partners asked about the potential impact of tariff uncertainty on Q3 chlor alkali operating rates and requested an update on the operational challenges experienced in Q2.

Answer

President and CEO Ken Lane stated that tariffs are currently viewed as net neutral for the Chlor Alkali and Vinyls business, with the primary risk being potential retaliatory tariffs from Brazil. Regarding the operational issue, he confirmed it was a chlorine leak at the Freeport site that is now resolved. All assets have been restarted, and a formal investigation is ongoing.

Kevin McCarthy from Vertical Research Partners asked for perspective on the structural or normalized profitability of the Winchester business, given its current trough compared to pre-pandemic levels and the recent peak.

Answer

President and CEO Kenneth Lane affirmed that Winchester is currently in a trough but its earnings capacity has significantly improved. He pointed to structural additions like the Lake City contract extension through 2030, the accretive White Flyer acquisition, and the new AMMO Inc. acquisition with its expected synergies. He expressed strong optimism for strengthening in the next 12-18 months as inventory and consumer pressures ease.

Kevin McCarthy asked for an update on the caustic soda export market, specifically whether spot prices have bottomed and if improvement is needed to achieve flat ECU values in Q1.

Answer

CEO Kenneth Lane expressed confidence that caustic soda export pricing has hit a bottom, supported by firm demand and an improving Asian market. He added that production cuts in the weak EDC market are further tightening caustic supply, reinforcing his outlook for firm ECU values.

Kevin McCarthy from Vertical Research Partners sought updated thoughts on the medium-term outlook for chlorine and what is needed for the market to retighten. He also asked for a breakdown of the hurricane-related EBITDA impact between the Chlor Alkali and Epoxy segments.

Answer

President and CEO Kenneth Lane explained that chlorine demand has not recovered to pre-COVID levels, primarily due to weakness in housing and durable goods. A market retightening will require a recovery in those areas, which would pull chlorine into vinyls (PVC) and other end uses. CFO Todd Slater provided the hurricane cost breakdown: in Q3, the $110 million impact was roughly $77 million in Chlor Alkali and $33 million in Epoxy. The anticipated $25 million Q4 impact will be entirely in Chlor Alkali.

Kevin McCarthy asked about the progress on a new company-wide strategic plan (A2029) following the A plan, and qualitatively what operational areas the company might focus on in the coming years.

Answer

Chris Villavarayan, CEO and President, noted that Axalta is ahead of plan on four of the five A plan elements (margin, EPS, leverage, ROIC). He stated that the primary focus for the A2029 plan, to be rolled out by May next year, will be to drive growth elements. He emphasized leveraging Axalta's high margins and focusing the team on growth initiatives, building on the strong underlying business performance achieved.

Kevin McCarthy sought clarification on the company's plan to mitigate tariff impacts, including the timeline and the specifics of any pricing actions.

Answer

CEO Chrishan Anthon Villavarayan detailed a multi-pronged approach to offset the $25 million tariff impact expected in 2025. He prioritized actions like vertical integration, localizing raw material sourcing, and product reformulation before broad pricing. However, he noted that targeted price increases, such as 7% in North America Refinish, have already been implemented. He expressed confidence in fully offsetting the impact within the year.

Kevin McCarthy asked about the implied sequential deceleration in the Q4 guidance despite strong momentum, and questioned if the Mobility segment's margins could return to the higher levels seen from 2015-2017.

Answer

CEO Chrishan Villavarayan explained the Q4 outlook reflects tough comps, particularly a 25% decline in North American Class 8 truck builds, and normal seasonality. He stated that reaching the 400-500 basis point higher margin levels of the past is a stretch due to structural changes, but he does see further upside from current levels. He noted that new business is margin accretive and a future Commercial Vehicle pre-buy cycle should provide a tailwind in late 2025 and 2026.

Kevin McCarthy asked for more details on Dow's current demand function, specifically how October and November order books are shaping up relative to normal seasonal patterns. He also questioned how conservative or optimistic the fourth-quarter guidance of $9.4 billion in sales and $725 million in EBITDA is, given typical year-end movements.

Answer

Jim Fitterling, Chair and Chief Executive Officer, highlighted low U.S. GDP growth (excluding data centers) and pressure on China's GDP. He noted that MDI product diverted from the U.S. due to anti-dumping duties is likely being dumped elsewhere, emphasizing the need for broader economic drivers like durable goods and automobiles to recover. He stated that September was strong, October order books look good, November is too early to call, and December is even earlier. He characterized the Q4 guide as 'right down the middle' based on year-to-date experience.

Kevin McCarthy asked for insights into Dow's October and November order books relative to normal seasonal patterns. He also questioned how conservative the Q4 guidance of $9.4 billion in sales and $7.25 billion in EBITDA was, given typical year-end movements.

Answer

Chair and CEO Jim Fitterling noted that September was a strong month and October order books looked good, but it was too early to call November and December. He described the Q4 guide as 'right down the middle' based on year-to-date experience, not leaning too conservative or optimistic. Fitterling also highlighted the impact of global economic uncertainty and trade deal settlements on overall demand, particularly in durable goods and automobiles, beyond the strong tech and infrastructure sectors.

Kevin McCarthy of Vertical Research Partners sought clarification on the cycle's shape, asking if the Q2 EBITDA of $700 million represents a durable trough and if the timing for a peak earnings period has shifted from a 2027-2030 window more towards 2030.

Answer

CEO Jim Fitterling confirmed that the timing for a cyclical peak is flexing toward the later end of the 2027-2030 timeframe. While he avoided calling a definitive trough due to market uncertainty, he emphasized that Dow is actively taking steps to improve core earnings and position itself for the eventual upcycle, noting early signs of discipline emerging from China.

Kevin McCarthy asked about the European asset strategy, questioning the expanded scope of the review, the factors determining an 'idle vs. shutdown' decision, and whether industry-wide rationalizations are bringing stability.

Answer

Chair and CEO James Fitterling explained the review was driven by Europe's loss of energy cost-competitiveness and persistently weak demand. He agreed that industry ethylene capacity cuts are approaching 20%, which should help balance the market. The 'idle vs. shutdown' decision is a strategic one, weighing permanent closure costs against the potential for a future market recovery, citing a past successful decision to idle a plant that later became profitable.

Kevin McCarthy of Vertical Research Partners requested a detailed walkthrough of non-operating cash flow sources and uses for 2025, including proceeds from the infrastructure deal, litigation, and restructuring costs.

Answer

Management provided a 2025 cash flow outlook, guiding to a ~70% cash conversion rate, CapEx of $3.0B-$3.2B, a $2B dividend, and infrastructure deal proceeds of $2.4B to $3.0B. They also guided to ~$600M in net interest expense and noted progress on the Nova litigation situation, with more details to come.

Kevin McCarthy posed two questions about Europe: first, how much lower European margins are compared to other regions, and second, whether the strategic review has a specific target for EBITDA uplift or margin improvement.

Answer

James Fitterling, Chair and CEO, acknowledged that Europe's higher cost position is the biggest difference compared to the 2020 cycle low, though energy costs have moderated. He noted the businesses under review have mid-cycle EBITDA margins of about 15%. The review's goal is to reallocate capital to higher-return businesses rather than hitting a specific uplift target for the existing assets, which represent about 20% of EMEA sales.

Kevin McCarthy sought details on RPM's sales force expansion, including where new hires are concentrated, the expected pace of the $5.3 million expense, and the typical time frame for a new salesperson to become profitable, also asking about the likely increase in total company SG&A expense.

Answer

Frank Sullivan, Chairman and CEO, provided examples such as Tremco Roofing's three-year apprenticeship program and the addition of sales support staff in StoneHard and Tremco Roofing to free up sales reps. He also highlighted the integration of the sales approach within the Industrial Coatings Group. He reiterated that the $10 million in higher advertising, selling, and M&A costs are expected to continue quarter by quarter, with the goal of leveraging these investments for higher sales growth, particularly in the Consumer Group.

Kevin McCarthy inquired about the expansion of RPM International's sales force, including where additions are concentrated, the number of people planned, the expected pace of expense, and the time frame for new salespeople to become profitable. He also asked about the likely increase in total company SG&A expense for the current fiscal year.

Answer

Frank Sullivan, Chairman and CEO, detailed sales force expansion in Tremco Roofing (apprenticeship model, 3-year profitability), Stonehard, and the addition of sales support staff for project management. He also highlighted the integration of the Industrial Coatings Group's (ICG) sales approach. He indicated that the $10 million in growth investments would likely extend quarter-by-quarter, with the goal of leveraging these into higher sales growth, particularly in the Consumer Group.

Kevin McCarthy of Vertical Research Partners inquired about the scale and competitive advantage of RPM's 'systems and turnkey solutions' strategy and asked about the potential impact of the 'One Beautiful Bill Act' on the company's cash taxes.

Answer

Chairman & CEO Frank Sullivan explained the turnkey strategy involves moving from selling components to selling full systems, like owning a larger share of the building wall, and leveraging a unique 'supply and apply' model. VP & CFO Russell Gordon commented on the tax bill, noting that while details are being sorted, provisions like bonus depreciation should spur investment and be beneficial for RPM.

Kevin McCarthy of Vertical Research Partners inquired about the macroeconomic assumptions embedded in RPM's Q4 guidance and requested a quantification of the margin impact from lower operating rates in Q3.

Answer

Chairman and CEO Frank Sullivan stated that RPM has been in a low-growth environment for 18 months and doesn't see that changing, but expects a return to profitable growth in Q4 driven by self-help initiatives. VP and CFO Rusty Gordon added that the volume decline, coupled with inventory reduction initiatives, led to reduced production and under-absorption of fixed costs.

Kevin McCarthy inquired about the timing of the upsized $500 million in MAP savings between the current and next fiscal year, and asked about the likelihood and timing of a successor program to MAP 2025.

Answer

CEO Frank Sullivan explained that the full run-rate impact of the MAP 2025 savings will be realized in fiscal 2026, with current benefits running about $30 million per quarter but dependent on volume. He anticipates communicating a new strategic program, which will follow MAP 2025, in the fall after the spring strategic planning process is complete.

Kevin McCarthy asked for an update on capital deployment priorities, weighing M&A against accelerated share repurchases given the company's deleveraged balance sheet. He also requested a progress report on the MAP program's execution, including asset consolidations and cost savings.

Answer

Frank Sullivan, Chair and CEO, reaffirmed RPM's commitment to its capital allocation model of internal investment, acquisitions, and a rising dividend, noting the balance sheet is the strongest in his 35-year career. He mentioned the M&A market is loosening and RPM will pursue small- to medium-sized deals. On MAP 2025, he stated they are on target for the projected savings and are in the 'fourth or fifth inning' of the overall program, with strong execution that would have blown past margin targets if revenue goals were met.

Kevin McCarthy from Vertical Research Partners asked for more details on Project CORE, including the timing of savings and associated cash costs. He also questioned the drivers of the volume decline in the Americas, contrasting the US and South America, and requested an update on the execution of merger synergies.

Answer

CFO Jim Till stated that Project CORE will generate approximately $20 million in savings in fiscal 2026 with a one-to-one cash cost of about $20 million. CEO Kurt Begley clarified that the Americas volume decline was primarily driven by South America, with North America remaining stable. Begley also reaffirmed confidence in achieving the separate $55 million merger synergy target by 2027.

Kevin McCarthy questioned why IFF left its annual guidance unchanged despite a first-half earnings beat, asking if the current outlook contains an element of conservatism.

Answer

CEO J. Erik Fyrwald asserted that the guidance is 'appropriate' and not 'overly conservative.' He explained that the first-half outperformance is being offset by second-half challenges, including market headwinds and internal execution issues. Specifically, he cited weakness in the Health business and commodity pressures in Fragrance Ingredients as key drags on H2 performance.

Kevin McCarthy from Vertical Research Partners requested details on the new AlphaBio joint venture, asking about its strategic rationale, structure, and the timing of the associated cash investment.

Answer

CEO Erik Fyrwald described AlphaBio as a 50-50 joint venture with Chimera aimed at scaling IFF's breakthrough designed enzymatic biomaterials (DEB) technology. The venture includes a €130 million plant in Finland, with CapEx split evenly over the next two years and a target start-up by the end of 2027. He highlighted the technology's potential to create high-value, biodegradable polymers for various industrial markets.

Matt Hutter, on behalf of Kevin McCarthy, asked for an explanation as to why the foreign exchange headwind to EBITDA is 2% greater than the impact on sales, and how international business margins compare to U.S. domestic margins.

Answer

CFO Michael DeVeau explained that the larger FX impact on EBITDA is due to a currency mismatch in the cost structure. While sales are based in local currencies, a significant portion of input costs are denominated in U.S. dollars and euros, creating a multiplier effect on profitability. Regarding margins, he stated that they are 'pretty agnostic' geographically on a like-for-like basis; the primary differentiator in a region's margin profile is its business mix, such as a higher concentration of fine fragrance.

Kevin McCarthy of Vertical Research Partners inquired about expectations for price-cost dynamics in the coming quarters and asked how the company is thinking about and planning for potential tariff scenarios.

Answer

CFO Glenn Richter described the current price-cost dynamic as flattish, with some continued deflation but an overall stable outlook for next year. Regarding tariffs, he noted it's difficult to forecast but that the team is focused on it. He recalled that previous China-focused tariffs were intuitively good for IFF's business due to its global footprint and the competitive environment in China, but stated they will provide more color in February.

Kevin McCarthy of Vertical Research Partners requested a deeper dive into the Q3 outlook for the Intermediates and Derivatives (I&D) segment, noting cautious margin commentary for MTBE and styrene and an upcoming turnaround.

Answer

EVP of I&D, Aaron Ledet, stated he expects Q3 results to be 'relatively flat' compared to Q2. He clarified that the Q2 improvement was partly due to one-time costs in Q1. He sees no material improvements ahead, citing weak demand from polyol customers, an oversupplied oxyfuels market, and an upcoming turnaround in the acetyls business.

Kevin McCarthy of Vertical Research Partners asked for views on demand for circular plastics, whether price premium forecasts have evolved, and if customer behavior is altering the investment pace for projects like MoReTec 2.

Answer

CEO Peter Vanacker reported strong, double-digit percentage growth in circular product volumes in Q1, continuing a multi-year trend. He stated that brand owner interest remains high, with any reduction in their public aspirations being a result of insufficient supply, not a lack of demand. For MoReTec 2, he confirmed the company is proceeding with engineering but will require clear customer commitments before a final investment decision, which is not expected until 2026.

Kevin McCarthy requested an updated view on the propylene and polypropylene cycle for the next few years, considering the conflicting dynamics of reduced supply from crackers and increased supply from new crude-to-chemical projects.

Answer

EVP Kimberly Foley noted that the industry's shift to lighter feedstocks has tightened propylene supply, with China's PDH capacity setting the price floor. She highlighted LYB's 'Flex 2' project as a strategic move to secure internal propylene supply. CEO Peter Vanacker added that the company is also positioned for cost-advantaged growth through its NATPET joint venture in Saudi Arabia and is addressing its European footprint through its ongoing strategic review.

Kevin McCarthy of Vertical Research Partners asked a two-part question: whether the refining shutdown would have a material earnings impact on other segments, and if the final investment decision (FID) for the MoReTec-2 project was still on track for March.

Answer

CEO Peter Vanacker stated there would be 'nothing material' in terms of earnings impact on other segments. Regarding MoReTec-2, he clarified that the timeline is longer; a first major investment step is expected in Q1 2024, but the final FID is more likely in 2026. He noted the initial step is a significant commitment due to the project's modular nature.

Kevin McCarthy of Vertical Research Partners inquired about MDI (methylene diphenyl diisocyanate) utilization rates during the second quarter and the anticipated progression into the third quarter for both Huntsman and the broader industry.

Answer

Chairman, President & CEO Peter Huntsman responded that the industry is likely operating in the low to mid-80 percentile range. He noted that rates are probably higher in North America and lower in China, and that the situation remains fluid due to tariff impacts on Chinese products, which are not significantly reappearing in Europe.

Kevin McCarthy inquired about the 'bullwhip effect' described by management, asking where the volume reductions are most pronounced and about relative inventory levels across the value chain. He also asked for an estimate of the total company volume decline in April and how order books were shaping up for May.

Answer

CEO Peter Huntsman acknowledged the 'bullwhip effect,' noting a significant disconnect between falling orders and actual end-market consumption, particularly in automotive and aerospace. He compared the situation to the rapid drop-off and subsequent rebound seen in 2020. While not providing specific April or May volume numbers, Huntsman stated that the largest variable for Q2 is volume, which was most volatile in March and April, but he believes the 'dust is gradually starting to settle.'

Kevin McCarthy asked for an assessment of MDI industry operating rates by region and how the company is managing high European energy costs.

Answer

CEO Peter Huntsman identified Europe as the loosest MDI market and the U.S. as the tightest, with global operating rates in the mid-to-high 80s. He criticized Europe's energy policy and stated Huntsman is managing by focusing on its less energy-intensive businesses and has significantly reduced its European petrochemical footprint over time.

Kevin McCarthy asked for an overview of current international trade flows for MDI and maleic anhydride and how they might be affected by escalating bilateral tariffs.

Answer

Chairman, CEO and President Peter Huntsman stated that he expects trade flows to remain largely as they are, with existing U.S. tariffs likely to persist. He noted that since most MDI producers have regional production, inter-regional trade is limited. The main exception is maleic anhydride, where overcapacity in China is leading to some product spilling over into Europe.

Kevin McCarthy from Vertical Research Partners asked if overall company pricing could turn positive in 2026 and requested a walkthrough of the working capital assumptions in the 2025 free cash flow guidance.

Answer

Chairman and CEO Pierre Brondeau indicated that pricing with diamide partners should stabilize, but he still expects some price decreases for branded Rynaxypyr in 2026 as patent protections expire. EVP and CFO Andrew Sandifer detailed that the free cash flow guidance is heavily weighted to H2 and relies on rebuilding payables, maintaining flat inventory levels, and diligently managing receivables collection amid second-half sales growth.

Kevin McCarthy of Vertical Research Partners asked for a bridge to the flat year-over-year adjusted EBITDA guidance for 2025, seeking to understand the major headwinds that offset significant COGS favorability and restructuring benefits.

Answer

CEO Pierre Brondeau and CFO Andrew Sandifer identified several major headwinds totaling over $250 million. These include a price decline of approximately $130 million (mainly from diamide partner contracts), an FX headwind of about $70 million, an incremental investment of $25 million in a new sales organization, and the lost profit of roughly $25 million from the divested GSS business.

Kevin McCarthy of Vertical Research Partners requested elaboration on the forward price trajectory, asking about the difference between diamides and non-diamides, the drivers of competitive intensity, and the potential path to flat pricing in 2025.

Answer

Pierre Brondeau, Chairman and CEO, explained that pricing pressure is most correlated with channel inventory levels, which is why North America saw the least pressure. He stated that diamide pricing is not under more pressure than other products, except in countries with weak patent protection like India and China. He anticipates price pressure will ease in the second half of 2025 as markets normalize.

Kevin McCarthy of Vertical Research Partners asked whether the weakness in basic industry markets is purely cyclical or if it might necessitate structural actions like portfolio changes.

Answer

Christophe Beck, Chairman & CEO, asserted that the weakness is cyclical, not structural, and these businesses are not candidates for strategic review. He views portfolio diversity as a key strength. He expressed optimism for the Power business due to AI-driven demand and for the Paper business due to its successful shift toward consumer products, stating they know how to manage these businesses back to health.

Kevin McCarthy of Vertical Research Partners asked if the volatile external environment has changed Ecolab's capital deployment strategy, particularly regarding CapEx and M&A aggressiveness.

Answer

Christophe Beck, Chairman and CEO, stated there is no change to their strategy, emphasizing that now is the time to 'play to win' by investing in the business. CFO Scott Kirkland elaborated that capital allocation priorities remain the same: increasing the dividend and investing in the business. He highlighted the healthy balance sheet (1.8x net leverage), recent share repurchases, and a robust M&A pipeline, noting that their financial strength provides significant optionality in the current environment.

Kevin McCarthy asked about the margin difference between U.S. and international operations and the reason for a larger FX headwind on EPS versus sales.

Answer

Scott Kirkland, CFO, explained the small difference between the 3% sales and 4% EPS FX impact is simply a result of geographic profit mix. Christophe Beck, Chairman and CEO, added that while U.S. margins are above the company average, the gap with international margins has narrowed significantly, and all global markets are driving towards the same 20% OI margin objective.

Kevin McCarthy requested a 'reset' on the Healthcare and Life Sciences segment post-divestiture, asking about the organic sales growth and margin uplift prospects for 2025 and beyond.

Answer

CEO Christophe Beck outlined two distinct paths. Healthcare is now a smaller, near-breakeven business focused on improving profitability and building a new instrument reprocessing offering, targeting low-to-mid-single-digit growth. Life Sciences is the key long-term growth engine, which he expects to become a multi-billion dollar business with margins of 30% or more, despite currently being in a transitional, low-growth phase.

Kevin McCarthy inquired about the expected quarterly cadence of EPS embedded in the updated full-year guidance, noting historical patterns. He also asked for an update on the company's capital expenditure trajectory for the second half of the year and beyond, including the impact of the ongoing SAP project.

Answer

EVP & CFO John Corcoran stated that the quarterly cadence this year will be more typical, with a modest step-up in EBITDA and EPS in Q3 followed by a further increase in Q4, driven by volume and favorable price/raw material momentum. On CapEx, he expects to reach the $150 million full-year target and anticipates that spending will step down after 2026 as the SAP deployment concludes and footprint optimization reduces maintenance capital needs.

Kevin McCarthy asked for the pricing outlook in the HHC segment and management's confidence in restoring its EBITDA margin to the 15-17% range. He also questioned the significant working capital drag in the quarter and sought reassurance on achieving the full-year cash from operations guidance.

Answer

President and CEO Celeste Mastin stated that HHC margins are expected to improve throughout the year, targeting a normalized 16-17% EBITDA margin range as price increases are realized. EVP and CFO John Corkrean added that full-year pricing is guided to be up 1-2%, primarily from HHC. Regarding cash flow, Corkrean explained the Q1 working capital build was expected due to revenue growth and that self-help actions are in place to meet the full-year target of $300-$325 million, with performance weighted to the second half of the year, similar to the pattern in fiscal 2023.

Kevin McCarthy inquired about H.B. Fuller's ambitious restructuring plan, asking for details on the 2025 cash costs and the expected timeline for savings. He also questioned the Q4 pricing dynamics, particularly the delays in the HHC segment, and the level of price increase assumed in the 2025 organic growth forecast.

Answer

CEO Celeste Mastin confirmed the plan is aggressive but achievable, with 16 of 27 facility reductions targeted for completion by the end of 2025. CFO John Corkrean provided financial details, projecting ~$5 million in savings for 2025, ramping to ~$20 million in 2026, with ~$40 million in related capital spend in 2025. Celeste Mastin explained that Q4 pricing was delayed by lower-than-expected volumes but is being implemented in Q1, with a 0% to 2% price increase anticipated for the full fiscal year 2025.

Kevin McCarthy of Vertical Research Partners asked for details on volume trends by region, particularly in China, and inquired about the potential impact of recent Chinese stimulus efforts. He also questioned the sustainability of the company's adjusted gross margin above 30%.

Answer

CEO Celeste Mastin stated that China's business was down low-single digits but would have been up high-single digits excluding the solar market impact. She highlighted strong growth in automotive and HHC in China, driven by a successful portfolio repositioning. Mastin expressed optimism about the Chinese stimulus. Regarding margins, she affirmed the goal of reaching mid-30s gross margins and a 20% EBITDA margin through restructuring, pricing discipline, and shifting mix to higher-margin products.

Kevin McCarthy from Vertical Research Partners asked for the 2025 outlook for the grid storage market and whether Albemarle is managing its business differently due to evolving tariff regimes.

Answer

CEO Jerry Masters noted grid storage has been a positive surprise, expecting continued strong growth driven by LFP battery adoption. CCO Eric Norris added that Albemarle's market share is similar to its share in the LFP EV market. Regarding tariffs, Masters stated there is no significant direct impact, as the company does not ship substantial volumes from China to the U.S., but they are monitoring the indirect effects on customers.

Asked how the ratio of contract-covered hydroxide volumes will change with production growth and sought clarification on the rephasing and timing of the two expansion projects in Argentina.

Answer

The ratio of hydroxide volumes under contract will decrease slightly from two-thirds as new, uncontracted volume comes online through 2025. In Argentina, instead of 25,000 tons coming online in early 2026, it will now be split, with about half (10k-15k tons) in early 2026 and the other half in late 2027.

Asked for a breakdown of floating versus fixed pricing in the portfolio and how the average selling price would trend if market prices remained flat. Also questioned the reason for the reduction in the capital budget and the expected trend for D&A for the rest of the year.

Answer

Approximately two-thirds of hydroxide volumes are under contracts with price floors, while the rest floats. If market prices stay flat, the average realized price would trend down as new, market-priced volumes are added. The capital budget is lower because Q1 spending reflected prior commitments, and spending will decrease as slowdowns take effect. D&A will increase in the second half of the year as new assets begin commercial production.