Celanese Corp (CE)

• Advantaged Acetic Acid Production Technology: Celanese has an advantaged technology for acetic acid production, providing cost advantages and a strong competitive position. Their U.S. Gulf Coast acetic acid plant is believed to be the lowest cost and lowest carbon acetic acid plant in the world today. -
• Focusing on High-Growth Markets and Applications: The company is investing in high-growth sectors such as electric vehicles, non-automotive applications, oil well pipes with flexible covers, high-performance athletic shoes, and electrical and electronics. The demand for electricity is expected to double over the next 5 years, and Celanese is poised to benefit from the associated build-out of electrical infrastructure. -
• Aggressive Footprint Optimization and Flexibility: Celanese is aggressively optimizing its asset footprint, including integrating assets from the M&M acquisition, to enhance operational flexibility and respond quickly to customer needs. This positions the company to capture opportunities and drive long-term growth. -

• Celanese plans to temporarily reduce its quarterly dividend beginning in the first quarter of 2025 to support deleveraging efforts due to challenging macroeconomic conditions and recent demand deterioration affecting cash flow expectations. - -
• Significant debt maturities approaching in 2026 ($1.5 billion) and 2027 ($3.4 billion) may require heavy lifting to achieve the target of 3x net debt to EBITDA, given the current glide path of EBITDA. -
• Demand deterioration, particularly in the automotive sector, has led to unexpected inventory build-ups and production slowdowns, impacting the company's ability to match production with demand and affecting cash flows. - -

1. Dividend Cut and Deleveraging
   Q: Why did you reduce the dividend, and what's your deleveraging plan?
   A: Due to challenging market conditions and reduced free cash flow in 2024, we are not deleveraging as quickly as intended. With uncertainty extending into 2025, we determined that reducing the dividend is the most prudent and cost-effective way to achieve our goal of deleveraging to 3× net debt-to-EBITDA as quickly as possible. - - - -

2. Outlook for Engineered Materials
   Q: How do you view the earnings power of your EM business, and are impairments a concern?
   A: Our long-term view of the EM business remains strong. Despite short-term challenges, we believe in the value of the M&M acquisition and our differentiated products. We tested goodwill and did not record an impairment, though we recognized a $34 million impairment on certain trade names, mainly Zytel. - - -

3. Cost Reduction Measures
   Q: What cost-cutting actions are you taking, and how will they impact 2025?
   A: We are focusing on reducing costs, including an additional $75 million in SG&A reductions to align with current demand. These actions are intended to be sustainable even if demand recovers. Total cash spend on cost actions and synergies in 2025 will be similar to this year. - - - -

4. Impact of Weak Markets
   Q: How have weak auto and China markets affected your performance and outlook?
   A: The abrupt decline in demand, especially in automotive and industrial sectors, has pressured our earnings. European auto registrations fell 40% from June to August, and conditions continue to worsen. We are adjusting our operations to match the current demand environment. - - -

5. Cash Flow and Debt Obligations
   Q: Can you meet your debt obligations, and how does the dividend cut help?
   A: While we have sufficient cash for debt due next year, reduced free cash flow means we aren't deleveraging as quickly as planned. The dividend cut helps us stay on track with deleveraging to 3× net debt-to-EBITDA and supports our commitment to maintaining an investment-grade rating. - - - -

6. Potential Asset Sales
   Q: Are you considering asset sales to aid deleveraging?
   A: Yes, we are actively pursuing divestitures where it makes sense, exploring multiple opportunities across regions and business segments, but timing is uncertain. - - - -

7. Acetyl Chain Margins
   Q: What is the outlook for Acetyl Chain margins, and are they sustainable?
   A: We believe margins in the Acetyl Chain are sustainable due to global trade flows, our advantaged technology, and cost position. We are leveraging our flexibility to maximize earnings despite market challenges. - - -

8. Guidance for Q4 and 2025
   Q: What is your guidance for Q4 and expectations for 2025?
   A: For Q4, we expect significant impacts from seasonality, destocking, and inventory actions, reducing EPS to approximately $1.25. For 2025, there is significant uncertainty, but we are focusing on cost reductions, synergy delivery, and growing our project pipeline. - - - -

9. Clear Lake Plant Contribution
   Q: How is the Clear Lake plant contributing to earnings?
   A: Clear Lake contributed about $10 million in Q1 and $20 million in Q3. We expect additional benefits in Q4 and anticipate a full-year benefit of around $100 million next year. - -

10. Forecasting Amid Market Changes
    Q: How are you adapting your forecasting amid changing customer behaviors?
    A: We are remaining flexible, adjusting production to match demand, and optimizing our operations. We're enhancing our forecasting methods to respond to rapid market changes and shifts in customer buying patterns. - -

Quarterly guidance for Q4 2024:

• Earnings Per Share (EPS): $1.25 - (no prior guidance)
• Free Cash Flow: Anticipated to be second-half weighted, aiming for consistency with the previous year despite headwinds - (no direct numeric prior guidance to compare)
• Cash Taxes: $300 million (includes a $90 million transfer tax) - (no prior guidance)
• Cash Cost of Synergies: $100 million to $150 million - (no prior guidance)
• Capital Expenditures (CapEx): A benefit of $100 million to $150 million in lower CapEx versus last year - (no direct numeric prior guidance to compare)
• Cost Reductions: Further reductions in SG&A and slowing production to match demand - (no prior guidance)