Celanese - Earnings Call - Q2 2025
August 12, 2025
Executive Summary
- Q2 2025 delivered sequential improvement: net sales $2.53B (+6% q/q), GAAP diluted EPS $1.90, adjusted EPS $1.44, operating EBITDA $532M (21% margin) and adjusted EBIT $344M (13.6% margin). Engineered Materials (EM) drove the beat via mix and HIPs; Acetyl Chain (AC) was resilient despite vinyls/tow headwinds.
- Against S&P Global consensus, CE modestly beat on adjusted EPS ($1.44 vs $1.40*) and revenue ($2.53B vs $2.49B*); EBITDA tracked below SPGI consensus definitions (est. $512M* vs actual $427M*; Celanese “operating EBITDA” was $532M) with definitional nuance important for comparisons.
- Guidance: Q3 adjusted EPS guided to $1.10–$1.40 (inventory actions ~($25M) sequential headwind); 2025 free cash flow reiterated at $700–$800M; continued cost actions and portfolio moves (Micromax® divestiture advancing; site exits targeted $5–$10M 2026 savings).
- Near-term stock narrative: beat on revenue/EPS, but softer order books into Q3 and explicit inventory destock headwind temper momentum; management outlined a controllable path to a $2.00/share quarterly EPS run-rate as actions mature and demand normalizes.
What Went Well and What Went Wrong
What Went Well
- Engineered Materials: net sales up 12% q/q to $1.44B on +9% volumes and +3% FX; operating profit $165M, adjusted EBIT $214M, operating EBITDA $326M (23% margin), supported by HIPs and favorable mix.
- Cash generation: operating cash flow $410M and free cash flow $311M; management emphasized cash as the top priority enabling $200M delayed draw term loan repayment and a further $150M five‑year term loan paydown post quarter.
- CEO tone on execution: “cash generation is our number one priority… over $300 million of free cash flow in the quarter,” and confidence in actions to drive value despite weak demand.
What Went Wrong
- Demand softness: order books weakened in June, especially Europe/China (EM) and Western Hemisphere (AC); management expects a softening demand environment in H2.
- Acetyl Chain pressure: acetate tow slower than anticipated and vinyls pricing/volume actions did not fully materialize; AC net sales $1.12B slightly down q/q with operating profit $154M vs $162M in Q1.
- Explicit Q3 earnings headwind: ~($25M) sequential impact from inventory reduction efforts plus short order visibility (2–4 weeks AC; ~2 weeks EM) constraining confidence in near‑term trajectory.
Transcript
Speaker 1
Meetings. Welcome to the Celanese second quarter 2025 earnings call and webcast. At this time, all participants are in a listen-only mode. The question and answer session will follow the brief remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Bill Cunningham. Thank you. You may begin.
Speaker 2
Thanks, Daryl. Welcome to the Celanese Corporation second quarter 2025 earnings conference call. My name is Bill Cunningham, Vice President of Investor Relations. With me today on the call are Scott Richardson, President and Chief Executive Officer, and Chuck Kyrish, Chief Financial Officer. Celanese distributed its second quarter earnings release via Business Wire and posted prepared comments, as well as a presentation on our Investor Relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures, as well as reconciliations to the comparable GAAP measures, on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and prepared comments. Form 8-K 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.
Speaker 1
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, for your first questions. Our first question has come from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you. Good morning. Scott, in your prepared comments, you referenced order books beginning to weaken in June, and that trend continuing into July. Can you provide a little more color on really what end markets you saw that weakening in, and how severe has that weakening been?
Speaker 2
Thanks, David. We talked in early June about starting to see China automotive orders pull back a little bit. That has continued into the third quarter here. The other area in engineered materials that we've seen a little bit of weakening versus the second quarter is in European demand. The Americas has remained relatively stable there. The other bucket I would call out is in the Western Hemisphere in the acetyl chain. I think we've seen volume weakness towards the very end of the quarter, and that has continued into July. Those are really, I would say, kind of the big buckets of where we've seen that demand change.
Very good. Just on the $2 per share quarterly EPS run rate, how do we get there via Bridge and when do we get there, do you think? Thank you.
I think it's important that the $2 for us is really an achievable target. We're talking a lot about it internally. It's not aspirational. We have concrete plans to get there. I would say those controllable plans fall in two buckets. The first, cost structure items, and the second is really executing our differentiated business models. If you start with the midpoint of our Q3 guide of $1.25, you get about $0.25 to $0.30 going into next year, or really into the fourth quarter as well, from the inventory movement as well as not having the order timing and the pull-ins we saw into the second quarter. Next year we've called out an additional around $0.10 per quarter of additional cost actions.
That gets you into that $1.60, $1.65 range, which is quite honestly about the range that we had walked into the third quarter with where if Q2 demand had held. We still had a gap to close there. That gap for us is really around four controllable areas. The first, additional cost and footprint actions. Some of these are more complex than the ones we've already actioned, but they're doable. They just take a little bit more time, but we're working these really in earnest right now. The second is high-impact programs, driving additional value in high-margin spaces, spaces where we have a real differentiated position. The third, additional price opportunities in engineered materials. We are getting some price. Certainly, we want to get more. There are certain products and grades that we have where pricing is really at unsustainable levels.
Continuing to find ways to move price in discrete pockets of the business there. The fourth is that there are pockets of opportunity in the acetyl chain, particularly more in some of our downstream products for us to find additional opportunities there to drive more value, more volume, or price. Those are the four controllable actions we're working. These actions will get us to $2 per quarter. It just may be a few quarters delayed versus where we were when demand was a little stronger in the second quarter. The path we believe is strong. If demand changes, we're ready, and we're ready to pounce and grab that volume if it's there for us.
Thank you.
Speaker 1
Thank you. Our next question has come from the line of Ghansham Panjabi with Baird. Please proceed with your questions.
Thank you, operator. Good morning, everybody. Scott, you know, the $25 million inventory reduction impact in the EM segment, you call that specific to 3Q. I mean, I know you're focused on reducing inventory levels, but is the magnitude of the impact a function of just the weaker demand you kind of went through as it relates to order patterns for 3Q and, you know, late 2Q?
Speaker 2
Yeah, I'm just going to make a few high-level comments on that, Ghansham, and then I'll let Chuck walk through the specific details. You know, on our fourth quarter earnings call in February, I called out that free cash flow generation was our top priority. That no matter how the year played out, there were a number of scenarios where we were going to pivot to drive free cash flow. I'm proud of the team here. I'm proud of the team around the actions that are being taken. If you look high-level at our free cash flow guide of $700 to $800 million, when you look at that on a free cash flow per share basis, that's somewhere in that $7 per free cash flow per share. That is unique and strong. I'm proud of the actions we're taking, and we're going to continue to prioritize cash.
If we need to pivot with demand, we'll do that.
Speaker 0
Yeah, hey, Ghansham, let me talk about some of the income statement impacts of this. As context, look, our inventory reduction efforts in engineered materials, we're on a multi-year journey here, and it's allowed us to sustainably operate the business with lower inventory and maintain our customer reliability standards. We're doing this in many different ways, warehouse consolidation, SKU rationalization, safety stock optimization, raw material reductions. As for the third quarter sequential headwind, mix plays a pretty big role here. Some of our products in engineered materials run on a semi-annual production campaign. We ran one of those campaigns in the second quarter on products with a little bit higher associated fixed costs. It's just part of our normal production plan for the year.
This actually generated, Ghansham, a benefit in the second quarter of about $10 million to $15 million to earnings, and that was always part of our Q2 earnings guide. With the current demand trends, we'll actually draw some of that inventory in the third quarter, which will then generate a similar size negative earnings impact of $10 million to $15 million. That's how you get the $25 million net sequential negative impact in Q3. As for the full year, the earnings impact from Q2 and Q3 basically offset, as I've explained. We do expect a small impact in Q4 negative, but no real significant impact for the year. It's really important to remember that we're also getting contributions to our inventory reduction through areas like these raw materials and even off-take arrangements, some of which don't have any impact on the income statement from an absorption standpoint.
Okay, very helpful. For the second question, as it relates to the 2Q pressure points for the AC segment that you called out, right? Acetate tow and, you know, vinyls. How do you expect those two dynamics to evolve sequentially?
Speaker 2
Yeah, we're not expecting a big change right now, Ghansham. We're expecting that to continue, particularly in tow. I mean, as I called out on the first question, you know, we are seeing a little bit of softness in demand to start the third quarter, you know, even relative to the second on an acetyl non-tow product. That's really in that vinyls chain. I think it's relatively similar with potentially a little bit of downside on the volume side. That will be offset in acetyls with us not having turnaround. That's why you've got kind of the sequential guide up versus where we finished in the second quarter.
Okay, very helpful. Thanks so much.
Speaker 1
Thank you. Our next question has come from the line of Jeffrey Zekauskas with JPMorgan. Please proceed with your questions.
Thanks very much. Are tariffs in China affecting your tow business? That is, is there material that you normally ship into China that's now more difficult because of tariffs or not really?
Speaker 2
No, Jeff, our tow business in China is really done entirely through our joint venture and our joint venture partners. We're seeing no impact from tariffs.
Okay. In vinyl acetate monomer and acetic acid in China, are you at least break-even? Of your Asian sales in vinyl acetate monomer and acetic acid, is there any that comes from the United States?
Yes, we are break-even. We're above break-even still, Jeff. What I will say is we are selling less third-party acetic acid than what we have historically. We are, as I called out last quarter, continuing to pivot further into the downstream products like emulsions, redispersible powders because we've seen more pockets of value where we can differentiate ourselves. We continue looking at that landscape and kind of working that wheel of products that we have, and that's really pushing us further downstream. We are selling a little bit of U.S. material in Asia in certain regions. That may be direct ship or it could come through swaps, et cetera. Whether it's actual or virtual, that has been something that we have been doing since we started up the Clear Lake expansion last year.
Okay, good. Thank you very much.
Speaker 1
Thank you. Our next question has come from the line of Michael Sison with Wells Fargo. Please proceed with your questions.
Hey, guys. In terms of your third-quarter outlook, I recall you had thought you'd get $0.15 to $0.20 or so in cost savings, another $0.15 to $0.20 in less turnaround. Is that still the case? That would imply this minus $0.50 to get to the midpoint from weaker demand and inventory destocking. If that's the math, does that minus $0.50 maybe come back in the fourth quarter and maybe the seasonality that you typically get isn't as bad as we head into the fourth?
Speaker 2
Yeah, thanks, Mike. As we kind of look at this, if you normalize for the inventory and some of those accelerated orders that we saw in the second quarter, that gets you $0.25 or so up off of the Q2 guide. That basically puts the third quarter, as we're looking at it, really from an enterprise perspective, the underlying company is performing at or even slightly better in the third quarter than what we did in the second quarter because of those cost reductions, not having the turnarounds that you talked about. That's definitely rolling through in the numbers as we work our way into the third quarter. It's really just that change in demand. That is kind of in that $0.25 range as you look at what was in the second quarter to the third quarter.
That's probably somewhere 60% acetyls, 40% engineered materials as I would look at it right now.
Got it. A quick follow-up. I know pretty much all your peers have talked about a weaker third and 2025 is coming in pretty disappointing relative to everybody's expectations. Do you think there's anything structural in your businesses that maybe some of the earnings power just won't come back? Maybe nylon or parts of EM? I just didn't, I would have never thought folks would be at this level of earnings. I just wonder if there's some structural issues in the businesses or that could be persistent over several years versus just this year.
Mike, I'm energized by what our team is executing this year. I'm energized by what we're doing on free cash flow. We are building, I think, you know, the enterprise in a way that is increasing the earnings power. We are ready when demand changes. What we're doing on the cost structure side of things, just as an example, in acetyls, I think our Western Hemisphere cost structure has never been as low as it is today. With the fixed costs we've taken out of the business, the expansions, the low capital de-bottlenecks that we've done, the low carbon footprint products that we have.
In engineered materials, for example, the actions that we're taking, we're going to be operating on an S&A plus R&D percentage of sales next year in the range of 8%, which is equivalent to what we were doing pre-COVID in 2019 in a very different demand environment. If you kind of normalize and apply that demand environment to today, that S&A plus R&D percentage of sales would be 100 to 200 basis points lower than that 8%. The things that we're doing are going to give us the ability to respond when demand changes. Certainly, there's pockets of the business that, given where things are at today, are challenged. Are they long-term structurally challenged? I don't know about that because actions will be taken. For us, we're really working to ensure that we don't have a set-it-and-forget-it mentality on how we operate the company.
There's always more that can be done. If business isn't performing, then you've got to take action. You've got to drive change. That action orientation is really kind of what we're building into everything that we're doing here.
Thank you.
Speaker 1
Thank you. Our next question has come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Thank you. Good morning. Scott, I wonder if you have any thoughts on the acetic acid business in China and some of the, you know, anti-involution policies that have been proposed. Are you seeing or hearing or thinking that there could be some capacity rationalization in the Chinese market as a function of those policies?
Speaker 2
You know, Vincent, I can't speculate what will or won't happen in the market, but definitely where things are at today, it's extremely challenging, I think, for the entire industry. I think certainly China has taken note of that. The anti-involution policies that really started to get talked about more a few weeks ago, certainly in those kind of more established, concentrated, less fragmented spaces are already seeing change. I mean, coal, for example, coal pricing has gone up three weeks in a row. I think it's up about 5% in the last month. I think those first-order elements are already seeing elements of that. How that applies then into our businesses, in particular, acetic acid, I don't know yet. Certainly coal, as an indicator, is going to drive costs up over time for everyone.
I do think those dynamics, I think it's important that we continue to stay close to what's happening in our markets. We're going to keep trying things. We're going to keep finding ways at which to pivot and find pockets of value. That's probably going to be different today than it's going to be next week. The team has to kind of work that daily operational execution model in order to be successful.
Okay. Just as a follow-up, there was a call out in the prepared remarks about medical being weak. I recall that, you know, there had been overstocking during COVID, and that seemed to normalize last year. Is there anything in particular that's causing that end market to be a little sluggish right now?
No, Vincent, it's just really timing. We had a little stronger volumes early in the year than maybe what we're seeing right now. Fundamentally, no, demand is stronger today than it was coming out of COVID for sure. I don't, you know, everything that we see doesn't indicate inventory through the chain, and end-use demand continues to be pretty stable there.
Okay, thanks very much.
Speaker 1
Thank you. Our next question has come from the line of Joshua Spector with UBS. Please proceed with your questions.
Yeah, hi, good morning. I had a follow-up on the earnings power, questions around the acetyls business. I mean, that's kind of been the bigger gap in 2Q and 3Q. If you could maybe break apart the pieces between, you talked about some of the tow destocking impacts. Sounds like you're expecting that to go on in the rest of the year. Like the core acetyls earnings power, is it utilizations or demand or something that really needs to drive this? How much is there in your control to maybe lift that earnings versus you need to wait on the market, noting that you shut down or at least delayed the start back up of your Frankfurt facility, your batch in Singapore?
Is there more that needs to be done or some impaired earnings on that side of the stream that needs more actions, or is it all market in your view? Thanks.
Speaker 2
Josh, the team is driving greater than 20% EBITDA in a business that's probably seeing Western Hemisphere demand at the lowest level it's been in 20 years. That's certainly not easy to do. As we look at the business, in particular tow, we did see higher volumes in the second quarter than we saw in the first. It just wasn't as strong as what we had originally called out. The order book indicates that those Q2 volumes are going to be pretty similar into the third quarter. We're seeing that with the weakness I talked about earlier in the other acetyl products in the Western Hemisphere. I do think this is about volume in the Western Hemisphere. Given the overcapacity in Asia, we're going to continue to find ways, as I mentioned earlier, to squeeze out more profit there. For us, this really is about profitability in the Western Hemisphere.
Given how volume is so weak, we do believe that's an area that will change over time. Just to give you an idea of that earnings power and where things are at, a 3% volume change in just the Western Hemisphere non-tow in this business is about $10 million per quarter. It's not insignificant. To give you a rule of thumb, in engineered materials, a 3% improvement in that business on a global basis is about $15 million a quarter. Real earnings power from very small volume changes in where these businesses can have success going forward. We're only improving that equation with the cost structure changes that we're making over time here.
Okay, thank you.
Speaker 1
Thank you. Our next question has come from the line of Salvator Tiano with Bank of America. Please proceed with your questions.
Yes, thank you very much. Firstly, I wanted to check specifically as we think about Q4. How should we think about any buckets on earnings Q4 versus Q3? I think you mentioned that there could be some inventory reduction initiatives still flowing through, but can you clarify what we should expect there, either items such as seasonality, turnarounds, et cetera? How should we frame Q4 versus Q3?
Speaker 2
Yeah, thanks, Sal. I think it's important to understand the visibility right now is very short in both businesses. Historically, acetyls, visibility to the order book was kind of two to four weeks. Today, it's very much on the short end of that. Historically, in engineered materials, the visibility and confidence in the order book could be, you know, four to six weeks. Today, I would say, you know, the visibility in engineered materials is more like two weeks of orders you can really count on. That's hard to predict what's going to happen in the fourth quarter. We have not seen normal seasonality so far year to date in anything right now. It's hard to say, are we going to see real normal seasonality or not? The inventory value chain is extremely light.
We do not see big pockets of inventory, you know, really anywhere in the value chain in the areas where, you know, we have stronger profitability. Chuck did mention a little bit of an inventory draw in the fourth quarter. It's likely on a sequential basis to be actually a positive when compared to the third quarter because it'll be then less than what we're seeing here in Q3 based upon how we're seeing things right now from a demand perspective. I do think, you know, it's hard to say what seasonality will be, but I don't think it's unrealistic to think that Q4 would be similar to what we're seeing in the third quarter or even better depending on how things materialize from a demand perspective.
Perfect. Thank you. I want to also ask a little bit about the balance sheet. Specifically, we saw that you extended your revolver to 2030. It's $1.75 billion. Is it fair to say that right now, if we do the math, 2026, 2027 maturities could fully be addressed by everything you have on hand, cash, free cash flow, and the revolver? Is there anything else we're missing? Is there any chance, any reason why you cannot draw on the entire $1.75 billion, for example, to repay your 2027 bonds?
Speaker 0
Hey, Sal. Look, we're focusing on paying down our debt maturities through 2027 with our free cash flow generation and then our $1 billion of divestiture proceeds. We're not relying on our revolver to pay off those maturities. We have used our revolver temporarily from time to time for a short-term bridge, but then have quickly paid that off. I would think about paying down those maturities through 2027 through our own cash generation and not using the revolver. We know that sometimes our cash generation in any given year can be a little bit back-end loaded. We will continue to be prudent and opportunistic in the debt capital markets if we need any further refinancing transactions to kind of bridge some of that payment. Think about those 2026 and 2027 through our own cash generation.
Great. Thank you very much.
Speaker 1
Thank you. Our next question has come from the line of Patrick Cunningham with Citi. Please proceed with your questions.
Hi, good morning. Thanks for taking my questions. Pretty consistent price declines in the acetyl chain over the past several quarters. Is the bulk of this from just China oversupply and the impact from the upstream pieces of the portfolio? How would you characterize the optionality model and success for downstream sales? Have you been getting both price and volume there relatively consistently?
Speaker 2
Yeah, thanks, Patrick. I think on the downstream sales, pricing has been harder to get there. I mean, I think that's been more about volume and finding ways at which to create new opportunities in certain spaces, some out-of-kind substitution as well. We've seen success, particularly in parts of Asia there. There definitely has been some margin compression that we've seen since the beginning of the year on some products from a margin perspective in China. We've seen a little bit in certain pockets in the Western Hemisphere, but that's largely been more of a volume story as opposed to a margin decline.
Understood. On the free cash flow outlook, can you help us understand what's driving the reiterated $700 to $800 million there? If we take a further leg down here, do you think you can manage to the low end of that range with further working capital actions?
Speaker 0
As we entered the year, we looked at a number of demand scenarios. This goes back to Q4 of last year even. The commensurate inventory actions around each of those demand scenarios were to generate $700 to $800 million of free cash flow. As you mentioned, as we've kind of seen demand soften here, we're prepared to take further those actions and increase the benefit from inventory working capital. Currently, we're confident in that $700 to $800 million in any demand scenario.
Speaker 2
I also think, Patrick, it's important to clarify, particularly in the second quarter here, the majority of that free cash flow was generated from operations, not from working capital. Our cash generation is coming from operating cash flow, which is strong, even despite the fact that we have $650 to $700 million of interest expense this year. I think it's that conversion to cash, which really shows the strength of these operating models. That is sustainable. Given that we do believe we're on a multi-year journey of inventory in the engineered materials business, even that working capital piece going into 2026 is sustainable. We feel really good about the cash generation here, and we're going to be continuing to find ways at which to maximize how much cash we're generating from operations.
Very helpful. Thank you so much.
Speaker 1
Thank you. Our next question has come from the line of Frank Mitsch with Fermium Research. Please proceed with your questions.
Good morning. Scott, you gave some interesting rules of thumb regarding volume movements, impacts on acetyls and EM. Just curious, where do you think we are right now on a volume basis relative to historic norms in both of those segments?
Speaker 2
We're significantly lower, Frank. Obviously, I called out earlier, I think we're at, at least in the Western Hemisphere in acetyl demand, we're probably at the lowest levels we've seen in 20 years. Engineered materials certainly is weak. I think first half volumes, you know, versus first half last year even, I think we're down 5 to 6% volumetrically. If you just kind of think about those, those are big, significant changes that we've seen in the business. I know it's just rhetoric right now, but what we are hearing from our customers is that people are looking more at manufacturing in the U.S. We're hearing from customers that, going forward, now when this actually hits, we don't know, but people are looking at making more cars in the U.S. People are looking at making more appliances in the U.S.
We are seeing even the German automakers now rolling out their next wave of electric vehicles, which have a really strong ability to win, particularly in the Western Hemisphere. Those things will be really beneficial for our businesses. On the acetyl side of things, whether it's interest rates or more government spending in Europe or stability in Eastern Europe, any catalyst like that, it's our lowest cost part of the world, our highest margin business. We're going to be able to capture that demand relatively quickly. Our focus right now is really on, in this low demand environment, what are we doing to ensure that every dollar or every ton we sell in the future is worth more than it was in the past.
Gotcha. That's very helpful. I must tell you, I was surprised to hear the low level of visibility on your order books, seemed pretty surprising. To that end, without much visibility, just curious as to what the general thinking is in terms of the low end or the high end of that $1.10 to $1.40 range for the third quarter. What sort of expectations are embedded on both sides of that?
Frank, for us, the controllable actions that we're taking and the things that are rolling through the P&L already do give me confidence. Certainly, where demand could pivot here in the last six weeks of the quarter can go a number of different directions. I think where we're performing from a controllable perspective certainly gives me confidence in our guide right now. We have to kind of take that mentality and keep that focus going forward. The good thing for us as well is now we're multiple years into this engineered materials integration, for example, which means we're now finally starting to get historical Celanese products on M&M assets and historical M&M products on Celanese assets, which gives us a lot better cost to serve.
It has kind of given us the ability to lower the inventory, but what it also does is it gives us the ability to do more make-to-order products. It's less inventory that we have to carry, so we can respond to that demand. It's those types of things that I think we're being a lot more efficient with the business broadly, which does give me confidence that no matter what happens with demand, we can find a way to at least hit our cash flow numbers.
Thank you so much.
Speaker 1
Thank you. Our next question has come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your questions.
Thanks. Good morning. Scott, I wanted to ask you about this demand pattern of stronger second quarter, weaker third quarter in engineered materials. Do you have a view of what's sort of the underlying reason for this? Is this the tariff side? Is this just weak production schedules or consumer, or any color here would be great?
Speaker 2
Aleksey, I hate to do this to you, but your line kind of cut out for us on my end. Do you mind repeating your question for me?
Sorry. Just underlying reasons for stronger 2Q and weaker 3Q in engineered materials. Is it tariff or something else?
Look, I think it's hard to say how much is really driven by tariffs. I think some of the order timing, particularly on volumes that, for products that were ordered in China that are made in the U.S., that's probably the majority of that kind of $10 million to $15 million or so that we saw that we think kind of moved into the second quarter. I would characterize demand right now really across both businesses as uncertain. That's what we hear from our customers. In that time, what customers are doing is they're lowering their inventories. You've seen obviously a host of announcements in our sector here this quarter and from our downstream customers, and almost everyone is pulling back on inventories. When they pull back on inventories, it's going to certainly impact how much product we end up selling.
I think it's that uncertainty and whether it's tariffs or geopolitical reasons, people are just certainly being a lot more prudent. We saw this as we entered the year. As we entered the year, we knew it was going to be about cash and lowering inventory. That's kind of how we've been operating. Again, as I said earlier, I'm really proud of the actions our team has been taking to really focus on reducing our cost structure and generating cash.
Thanks, Scott. Filter tow, how much certainty do you have that this is not a share loss but a destock? How much visibility do you have in these competitive dynamics?
You know, from the visibility we've seen thus far, Aleksey, I don't think we've seen significant share loss. I mean, there's some additional capacity that's being sold in the market. It is not a new entrant, just some additional debottleneck capacity that's in the market. That's not really impacting our demand per se. I think where it's having an impact is customers don't need to hold as much inventory, at least that's the perception right now. I think people have been comfortable operating at lower inventory levels, and that's kind of what materialized through the second quarter.
Speaker 1
Thank you. Our next question has come from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.
Great. Thanks for taking my question. I hope you guys are well. I want to go back to the bridge, Scott, that you provided from $1.25 to $2. I think you said the inventory actions, that was maybe $0.25 to $0.30. The current cost programs was $0.10 to $0.15, and that got you to $1.65. I think you then said that that would have gotten you to $2 were it not for the volume shortfall and then the four controllables. I guess if volumes do come back, would normalized volumes get you the $0.35? Or given that volumes are at 20-year lows, would normalized volumes get you closer to maybe $3? With your controllables you maybe have like very, very long-term line of sight to north of $3. Is that the right way to think about it? What was the volume kind of shortfall from a normalized perspective?
Speaker 2
Yeah, Arun, we're waking up every day and just trying to put one foot in front of the other. We've got to look at what's in front of us right now. Our next milestone is $2. Once we hit $2, we'll set the next milestone for where things are. We've been building a plan here to get to that $2 per quarter level that is through controllable actions that I kind of walked through. The walk I had done earlier in the year got you in that $1.70, $1.80 range, keeping Q2 volumes flat and through the balance of the year. That's not what we're seeing right now. It's hard to say what normalized volumes are right now, but just Q2 volumes and that dynamic is worth about $0.25, $0.30. It kind of gets you into that range certainly, but we're not going to count on that.
We have to continue to work the controllable items that we have in front of us to get to that level. If demand is there, we're going to be poised to capture it.
Okay, that's helpful. Just as a quick follow-up, I think the other actions you mentioned, I get the additional costs, but I just wanted to ask about the second and fourth items. The second item, I think you mentioned really harnessing some of your value-based programs. Could you just provide a little bit more detail there? Similarly, on the acetyl chain, is the uplift that you see there going to require a better construction and paints environment, or what would you say would lead to better acetyl chain results?
Yeah, let me hit that point first. Certainly, the paints, coatings, construction demand in the Western Hemisphere that we're seeing is extremely weak. Any change there would be pretty attractive from an incremental perspective, given that rule of thumb that I mentioned earlier. That's probably the weakest part of the business versus today, versus when we started the year. Certainly, any change that we would see there and anything to catalyze demand on that side of things would be extremely beneficial, just because that is our highest margin area. When it comes to high-impact programs in the engineered materials business, we are committed to broadening and diversifying the business, finding additional pockets of opportunity outside of automotive, within the automotive business. We have a lot of different examples of the things that the team is working on.
In the non-auto, that could be things like drug delivery, performance footwear, fibers, hydrogen, clean energy, oil, and gas. These are spaces where we've had wins recently, nice wins. It's about multiplying those wins. In automotive, EV propulsion, batteries, cooling, advanced suspension systems, these are all unique areas where our products fit extremely well and where we're gaining traction. Some of those auto opportunities take longer. It is really about accelerating kind of the full pipeline of opportunities in the HIPS to ensure that as we get into 2026, we have new demand materializing to the bottom line.
Thanks.
Speaker 1
Thank you. Our next question has come from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.
Morning, Scott. I appreciate the details in the presentation you gave around the acetyl chain, and over the years, showing us how you've imparted sort of earnings stability and the like. Also, how 70% now of your revs come from the Western Hemisphere and 70% of those are contracted out. You're obviously seeing that even in the near-term results, right? I mean, the guidance that you gave for Q3 for acetyl chain is relatively flat with Q2. My question is, if you sort of take that model and try to incorporate those best practices within the EM side, how would it look? Particularly in light of some of the comments that you just made about hearing rumblings about manufacturing moving more to the Western Hemisphere and the like.
Speaker 2
Certainly, there's areas of engineered materials, Hassan, that have elements of the acetyl business, particularly in standard grade materials. Areas like POM, our polyester business, nylon, the standard spaces do have some of those kind of daily operational elements. The engineered materials team really is looking at the segments of the business within each product line on how we drive and compete. I think nylon is a perfect example of using some of those elements in looking at do we make versus buy. Do we buy polymer from the market and compound for standard compounded products? Because that gives us a lower cost structure. Do we find different ways to buy materials cheaper? Otherwise, do we pivot materials to our lower cost elements of production? We've done some of that through the shutdowns of higher cost capacity that we've done in maximizing production in our lowest cost assets.
There definitely are elements there. Our U.S. footprint that we have in both businesses is extremely low cost. It is advantaged. As we see demand pivot back to the U.S., if that occurs, I think we're as well positioned as anyone in our competitive landscapes to be able to capture that demand very quickly.
Very helpful, Scott. As a follow-up, obviously, the macro continues to weaken, a fair degree of uncertainty in the marketplace. Obviously, the chemical industry sort of valuations keep coming down as well. Where do you guys stand with regards to the $1 billion in divestiture that you guys had sort of flagged to accomplish within the next two and a half years?
Thanks, Hassan. The MicroMax process we announced publicly a quarter ago is going very well. We have worked our way through the first round of bids. We narrowed that down to a nice diverse group for the second round. Management presentations are completed. We're working through site visits and expert calls and fully through the diligence process right now. We expect to have second round bids in the next month or so. We will narrow that further to a third round and work to conclusion, we think, at some point here in the second half of the year. We feel really good about the MicroMax process. I actually asked the head of M&A yesterday, as a matter of fact, and I said, "You feel more confident today in our non-MicroMax projects than you did a quarter ago?" He said, "Absolutely." I do think we've seen some traction there.
A lot of the deals we're working there are a little more complex. Some are with our joint ventures, and those are harder to get done. They do take longer. I do think the work the team is doing to keep the focus on those with the highest degree of profitability, I would say we feel more confident in that today than we maybe did a few months ago.
Very helpful, Scott. Thank you so much.
Speaker 1
Thank you. Our next question has come from the line of John Roberts with Mizuho. Please proceed with your questions.
Thank you. Selling third-party acetyl, what you used to call parlay, was a core part of the acetic acid strategy. Is the lower third-party sales something structural here? The industry has changed enough that it doesn't make sense? Is it just a cyclical decline because it requires working capital, which maybe you don't want to extend right now? Maybe there's just less margin, obviously, and lower prices. How much of this third-party decline, which used to be part of the core, is cyclical versus structural?
Speaker 2
John, you've covered us for a long time, and you know that this business changes every single day. Is it structural? No, I don't think it's structural. It may take a while for that dynamic to change, but there's a lot of moving parts here, and margins are really at unsustainable levels. I do think that's why you're seeing us make the choices that we're making to further pivot downstream. I think the work that we've done there in de-bottlenecking capacity downstream has given us another outlet so that we're not so reliant. Ten, fifteen years ago, we were extremely reliant on selling third-party acetic acid, and we're not today. That business in some years was well over 50% of the end products that we were selling, and now it's less than 30%. For us today, I think having more diversity in the business is a good thing.
Certainly, we'd like acetic acid margins to be better than they are, but things pivot here, and we're going to make sure that we continue to pivot with the market as opportunities present themselves.
Can you say that the MicroMax deal will be simple all cash, or do you think there might be an earnout or something a little bit more complicated with that deal?
We're working deals, John, to keep the complexity at a minimum on the deals that we're doing. I think for us right now, we're quite confident that we won't have an outcome that's super complex.
Thank you.
Speaker 1
Daryl, we'll make the next question our last one, please. Thank you. Our final questions will come from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your questions.
Great. Thank you, and good morning. You mentioned autos leaking, but could you talk a little bit about the mix within autos? Historically, Celanese has enjoyed some nice tailwinds from things like hybrids and EVs. Are those tailwinds still present, or are they starting to reverse?
Speaker 2
We're not seeing a big reversal right now. Certainly, with demand pulling back in China, our sales into electric vehicles on a global basis are probably a little bit less today just because of more where the end-use demand is. Electric vehicles are definitely here to stay. I think each region is going to be a little bit different. Certainly, electric vehicles are going to play a big role in Europe. With the future model launches that I think we're going to see in 2026 and beyond, electric vehicles and that as the powertrain of choice is going to be critically important for us. We feel really good about the portfolio that we have developing from a pipeline perspective there. In the U.S., it's going to be a mixture. There's going to be internal combustion engines. There's going to be hybrids and electric.
We have to make sure that we're remaining nimble and flexible with our customers so that we can meet those needs because I do think it's going to be a changing mix here.
Speaker 1
Thank you, everyone, very much. We'd like to thank everyone for listening today. As always, we're available after the call for any follow-up questions. Daryl, please go ahead and close out the call. Thank you, ladies and gentlemen. We appreciate your participation. This does conclude today's teleconference. Please disconnect your lines at this time and enjoy the rest of your day.