Celanese - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 was pressured by severe Western Hemisphere auto/industrial destocking and amplified seasonality in Acetyls, driving net sales down 10% q/q to $2.37B and an operating loss of $1.405B; adjusted EBIT was $333M and operating EBITDA $517M (margins: 14% and 22%).
• Adjusted EPS of $1.45 topped the company’s prior Q3 outlook of ~$1.25; GAAP diluted EPS was a loss of $(17.45) driven primarily by $1.696B of Certain Items (including goodwill/intangible impairments).
• Management guided Q1 2025 EPS of $0.25–$0.50 and expects Q2 2025 to be ~$1.00 per share higher; they flagged ~$100M of Q1 headwinds (seasonality in tow/medical implants, Bishop outage, China JV dividend timing).
• Strategic focus: accelerated cost reductions (> $75M SG&A actions completed), cash generation, deleveraging (dividend cut to $0.03 per share in Feb 2025), EM footprint simplification, and targeted divestitures; price increases announced in EM effective Mar 1, 2025.

What Went Well and What Went Wrong

• What Went Well

  • Adjusted EPS of $1.45 exceeded the company’s prior guidance for Q4 (~$1.25), supported by cost actions and inventory drawdowns to release working capital.
  • Clear strategic priorities under new CEO: intensify cost reduction, leverage Acetyl Chain optionality and EM pipeline, and increase cash flow to deleverage; “We continue to take actions to reduce costs and accelerate growth” — Scott Richardson.
  • Free cash flow of $381M in Q4 and operating cash flow of $494M demonstrated strong cash generation in a weak demand backdrop.

• What Went Wrong

  • GAAP loss was significant due to $1.696B in Certain Items in Q4 (primarily goodwill/intangible impairments), yielding diluted EPS of $(17.45) and operating margin of (59.3)%.
  • Severe destocking in Western Hemisphere auto/industrial weighed on EM: Q4 EM net sales down ~14% q/q to $1.281B; EM adjusted EBIT fell to $156M; EM operating loss of $(1.508)B reflects impairment charges.
  • Acetyls faced amplified seasonality and pricing pressure; segment net sales declined 7% q/q to $1.110B, with adjusted EBIT down to $253M (vs. $276M in Q3).

Transcript

Operator (participant)

Greetings and welcome to the Celanese Q4 2024 Earnings Call and Webcast. At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press Star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Bill Cunningham, Vice President of Investor Relations. Thank you. You may begin.

Bill Cunningham (VP of Investor Relations)

Thanks Darrell. Welcome to the Celanese Corporation Q4 2024 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 Q4 earnings release via Business Wire and posted prepared comments and a summary presentation of key 2025 actions on our Investor Relations website yesterday afternoon.

As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements which can be found at the end of both the press release and the prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC. Before we open it up for questions, I'd like to turn the call over to Scott Richardson for some opening remarks.

Scott Richardson (COO)

Thanks Bill and good morning everyone. I strongly believe Celanese is a company that has cash generation, productivity and cost reduction in its DNA. These core competencies have driven shareholder value over our 20 years as a public company.

We are keenly focused on invigorating and capitalizing on these foundational capabilities in how we lead and drive business every day to improve performance and drive value creation. My first two months as CEO have been about prioritizing and driving action. Decisive steps we have taken to date include the following. We have executed on over $75 million worth of cost action that we outlined in our Q3 earnings call. We have reduced our 2025 capital plan to $300 to $350 million, which is about $100 million reduction versus our spend last year. We have added a new leader to the Engineered Materials business in Todd Elliott to bring a fresh perspective and new energy to reducing complexity and driving improved results.

We have added Chris Kuehn and Scott Sutton to our Board of Directors to bring additional finance and operational expertise to our boardrooms given the prioritization of cash generation, margin expansion, productivity and deleveraging.

And we have added a Finance and Business Review Committee to the Board of Directors which Scott Sutton and I will jointly chair. This committee will help evaluate all options to improve the company's operating model performance, drive cash generation and review our portfolio. We are taking the right steps to accelerate shareholder value creation and restore our performance at top decile levels in the industry.

We are moving forward with intensity and aggressiveness and are not hesitating to make bold changes to generate cash and deleverage the balance sheet. We know the journey in front of us is not an easy one, but we are energized by the opportunity ahead. We will share wins, no matter the size, as we progress in the coming months. And I look forward to reporting on our progress as we advance our plans to improve performance and drive value creation. Thank you. And now, Darrell, let's open the line for questions.

Operator (participant)

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. One moment, please, for the first question. Our first questions come from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

David Begleiter (Managing Director)

Thank you. Good morning, Scott. You mentioned some divestitures in the prepared comments. Could you get some sense of potentially the size of these divestitures and when they might occur?

Scott Richardson (COO)

Yeah, thanks, David. We've been working aggressively on divestitures for some time now. And you know, we did, you know, a transaction a few years ago with the food ingredients business and you know, I would look at, you know, most of what we're looking at is kind of around that size, some smaller, some maybe slightly, a little bit bigger than that. But that's kind of the right range to look at kind of the opportunities that we have.

David Begleiter (Managing Director)

And one more thing. I know equity raise is not your first choice, but given this where the balance sheet is today, what are your thoughts on potentially raising equity at some point to help delever the balance sheet?

Scott Richardson (COO)

Our capital structure is to fund our acquisitions with debt. In addition, we're unlocking cash from actions we've taken on the dividend reduction of CapEx, reducing working capital, and we're aggressively working divestitures. As I just talked about. Equity is extremely dilutive and we don't believe that's a step that's necessary given the strength of the debt market.

Chuck Kyrish (CFO)

Yeah, David. Hey, I can add to that. Look, as Scott, as Scott mentioned, we're taking numerous actions to reduce leverage. But what you're also going to see us continue to do in the meantime is be proactive in reducing the risk in our debt maturities. We have a plan and we're prepared to access the debt markets quickly and opportunistically and credit markets are very strong right now. You know, the principles around that are going to be to extend a portion of our more near term maturities, you know, aligning what remains with our cash generation, and we'll make sure and do that at a prudent and reasonable cost.

David Begleiter (Managing Director)

Thank you very much.

Operator (participant)

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

Frank Mitsch (President)

Hey, good morning. I want to dive into. Your outlook for the first half of the year. As you talked about the Q2. You indicated that it wouldn't have $100 million of non-repeating items that are impacting the Q1. And yet if I look at the dollar increase expected versus the Q1, that only implies like $20 million or so of improvement from volumes and SG&A, et cetera, which frankly, you know, looking at 2Q versus 1Q, that really doesn't seem like that much. Can you help explain some of the thinking there?

Scott Richardson (COO)

Yes, thanks, Frank. Look, we're getting some of that here at the end of the Q1 in that number, not a lot, but a little bit. And so that's that incremental in the Q2 is about that range you talked about. There's, you know, most of it we'll be on the run rate in the Q2 certainly to get to the full kind of $80 million that we called out and we're continuing to work additional action.

So look, it's really important that we look at what we see right in front of us and be transparent with that. We're working a number of other actions to lift not just the back half of the year, but also work we can get more in Q1. We're going to do it and we're going to do everything we can to make that Q2 number bigger than that $80 million you called out.

Frank Mitsch (President)

Gotcha. Thank you. And then the other thing in the prepared remarks was a comment that free cash flow for 2025 is expected to be higher than 2024. And I'm curious if you can kind of go through kind of order of magnitude that the street should be thinking about and how do you get there?

Chuck Kyrish (CFO)

Well, Frank, you know, we haven't given the guide for earnings at this point in time for the year, but what I wanted to lay out are components in free cash flow below the EBITDA line that we do expect to improve significantly year over year. Right. So you know, working capital was a use of cash last year, expect it to be a source of cash. Cash tax would be significantly lower. You know, we've lowered CapEx, you know, roughly $100 million. Right. Those, you know, before giving a guide for earnings, as we're kind of working through several things, I just wanted to lay out areas in free cash flow that will improve year-over-year below EBITDA.

Frank Mitsch (President)

Thank You.

Operator (participant)

Thank you. Our next questions come from the line of Jeff Zekauskas with JPMorgan. Please proceed with your questions.

Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)

Thanks very much. Scott Sutton has been brought into the board of Celanese. I was wondering, Scott, if you played a role in bringing him in or what role you played in Scott coming to the board?

Scott Richardson (COO)

Look, Scott and I have known each other for a long time and I'm thrilled that Scott has agreed to join the board. I think, you know, we have been on a path as a board that's been very deliberate in how we refresh the board with capabilities that are going to help us navigate the landscape that we're in. Scott's the latest ad in that and you know, he brings unique capabilities and has a track record of accelerating cash generation, deleveraging, value creation. I'm really excited that he's going to help us in this journey.

Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)

Second question is in your prepared remarks what you said was that over time you reduced costs associated with the M&M acquisition by about $250 million. Later in the script, what you say is that there's been competitive dynamics in your largest product lines like nylon, which offset your over year improvements made to the cost position as well as lower raw materials and manufacturing footprint cost reduction. When you look at the M&M business from the time that you acquired it, like where do we stand now? Is the EBITDA really no different because price degradation has offset all of the cost improvement? Or, you know, can you give us like where did we start and where are we now with the M&M acquisition?

Scott Richardson (COO)

Yeah, we have increased the EBITDA from M&M. When you look at the synergies versus where it was when we closed the transaction, Jeff, and you know, we have seen margin degradation in some product lines within the M&M portfolio. We've also seen some margin degradation in some of the product lines in the historical Celanese portfolio. We've also seen several product lines that have expanded margins. This is a critical area of focus for us this year. Reversing this margin compression that we've seen broadly across the standard part of the EM portfolio is a critical action for us that we need to deliver on to lift the second half of the year.

Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)

Thanks so much.

Operator (participant)

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

Michael Sison (Managing Director)

Hey guys, good morning. Maybe a follow up on M&M. Could you maybe just give us your thoughts on.Is this a good business for Celanese longer term? What do you think the potential is here and how do you sort of get it there? You know, I suspect there's some macro help that you'll need there, but just, you know, what is the potential for M&M now going forward?

Scott Richardson (COO)

Yeah, thanks, Mike. I mean, we've seen some challenges, but we've also seen some strength in several of the businesses. I mean, our high-temp nylon portfolio that we acquired with the business has been a nice source of growth for us in electric vehicle applications, you know, with, you know, things like superior thermal shock characteristics in certain application areas. You know, we have also seen kind of the elastomeric products that we acquired have been, have given us kind of a new growth platform in athletic apparel and footwear that we didn't have before. There are, you know, really nice pockets of opportunity for us.

We have got to go really aggressively work that from a project pipeline standpoint. You know, there are good parts of the nylon portfolio as well. We have got to keep kind of keeping this machine moving from a pipeline standpoint. We have also got to make sure that we, you know, aggressively work the cost side of the equation just given where, you know, the fundamental macro is at.

Michael Sison (Managing Director)

Got it. You know, most folks have not given an outlook for the full year 2025. I understand that, but should EBITDA be better in the second half versus the first half? Maybe if you do not have specifics, what should be better or could be better in the second half. In terms of the walk for a better EBITDA? Can you just give us your general thoughts and what the economic backdrop we should think about in 2025 for Celanese?

Scott Richardson (COO)

Our focus is on moving with urgency, Mike, to take decisive actions to be able to drive wins. The actions that we're taking, we believe will be unique for us to drive value in the out quarters. Here we talked about the complexity reduction, $50 million to $100 million of opportunity in M&M. We need to make sure that we're fully leveraging the Acetyls optionality model which was challenging in the second half of last year. Historically we've been able to drive good value by flexing up and down the value chain there. The third is getting back to this point I just talked about on reversing margin compression in both the standard parts of the Engineered Materials portfolio, but also in the Acetyls business.

Michael Sison (Managing Director)

Thank you.

Operator (participant)

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

Ghansham Panjabi (Senior Research Analyst)

Thank you. Good morning guys. Scott, first off, congrats on your new role and best wishes with everything. I guess going back to the EM segment and the new leadership there. Just curious as to how we should expect strategy to evolve versus what you have been doing. Relatedly, can you just comment on your view in terms of channel inventory levels downstream to that segment, you know, the customer level, et cetera.

Scott Richardson (COO)

Yeah, look, Todd Elliott already is bringing intensity and focus around everything that we do, looking at cost and opportunities, whether it be footprint, warehousing, distribution costs, SG&A, et cetera, but also on the customer side as you talked about. It really is about looking at the pockets of opportunity that are out there and accelerating in some of those higher growth segments like medical, like electric vehicles in China, future connectivity. You are really getting to that customer segment level. Defending the base is going to be important, but then also accelerating growth and driving project wins no matter the size.

Ghansham Panjabi (Senior Research Analyst)

Got it. And then you know, you know, obviously Scott, we've been in a two year global manufacturing slump. You know, you've been pulling levers on the cost side and working capital the best you can. But what are some of the other contingencies you have at your disposal in the scenario that you know, the current paradigm continues for another year longer in context of your debt load? Thanks.

Scott Richardson (COO)

I believe there's always more that can be done, Ghansham. And you know, I think we've shown that with cost, given where the demand landscape is at, we are looking at really all elements of the business. I just kind of highlighted on the Engineered Materials side of things with those action steps that we're taking to reduce complexity, we have some of the similar things on the Acetyls side of the house as well.

It is really about kind of taking a no stone unturned approach to everything that we are doing and also then looking at really almost every single customer interaction on how we can drive incremental opportunities. Also, make sure we are really extracting full value on the margin side.

Ghansham Panjabi (Senior Research Analyst)

Thank you.

Operator (participant)

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

James Cannon (Director)

Hey, guys, this is James Cannon. I'm for Josh. Thanks for taking my question. I just wanted to ask on the earnings power of the Acetyls business. I think previously you said 2024 was a typical run rate for the near term. I think if I think about the contract resets, that would be an incremental call in $40 to $50 million headwind this year. Is that the right ballpark or is there something to offset that gets us back to the $1.1?

Scott Richardson (COO)

Look, I'll echo what I just said, James. There's always opportunity for us to drive margins. You know, we had some contract resets. The team is working really hard to offset those. That's been hard in Asia with where the supply demand landscape is at. We are looking for ways at which to kind of leverage our optionality model there and flex up and down the value chain to be able to offset that and get back to those levels that we were at in the first half of last year.

Operator (participant)

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

Vincent Andrews (Managing Director)

Thank you. Has anything changed, Scott, about the scope of assets that you might consider divesting? I just asked that because you mentioned in the prior answer that size would probably be similar to the divestiture that was done. The food ingredients. And my recollection was that in the past, more recently, we've been talking about maybe multiple smaller divestitures rather than the opportunity to sell a few things or one thing at a larger cost. Are you looking wider or deeper or anything changed in terms of what you're willing to divest?

Scott Richardson (COO)

Yeah, we're looking at everything that has that's not critical to kind of our core operating models, Vincent. That's really, you know, this Engineered Thermoplastics, Thermoplastic Elastomers portfolio in the Engineered Materials Business. Our optionality model that starts with methanol and acetic acid and goes all the way through redispersible powders. If it's not in those operating models, we're taking a look at it, but it needs to facilitate deleveraging. That size I talked about was kind of in that range, but I also said plus minus. There is a series of smaller ones that, you know, we get you that when added up are in that range. There are some opportunities that are a little larger.

Vincent Andrews (Managing Director)

In the prepared remarks, you talked about the dissolution of the JV with Teijin on the Mylar. Is there anything else about your asset footprint that you're looking at? Maybe areas where you're not as advantaged or places where it might make sense to take capacity out of the market?

Scott Richardson (COO)

We believe in having an efficient footprint, Vincent, and ensuring that we fully leverage the strong technical capabilities that we have in house here at Celanese. I think we have a long term history of reducing our footprint, but yet adding capacity at our advantaged sites. That principle, that core principle of manufacturing, is what we're leveraging to these M&M assets as well. By doing that, you get much greater leverage on fixed costs. We're consistently looking at opportunities to do that. We've taken action. We've reduced our footprint by eight sites since we did the acquisition. We're continuing to look for opportunities to be as efficient as possible.

Operator (participant)

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

Arun Viswanathan (Senior Equity Analyst)

Thanks for taking my question. Hope you guys are well and congrats on the new roles there. I guess two questions. First off, I know that you've taken actions on eight sites there and evaluating some more options as well and divesting of other assets, but is it also the case that there's been some structural weakness in the auto market and you guys are potentially overexposed to underperforming regions such as Europe, do you think? Because we've seen this inventory overhang now for two or three quarters and then I think you guys have taken decisive action in Q3 and Q4 as well. It doesn't seem like that's been enough to really clear out the inventory. Do you think the actions in Q1 will result in that inventory reduction or would they linger beyond into Q2 and Q3?

Scott Richardson (COO)

The value chain had too much inventory. We talked about that on our last earnings call, and we are working to match our inventory levels with where the fundamental demand is at. Demand has held pretty stable here in the Q1, but the value chain is rebalancing the inventory footprint and that's our channel partners. It's the tiers, the molders and the end customers. The line of sight that we have today, based upon our outlook, is that we would see that come to a close here in the Q1.

Arun Viswanathan (Senior Equity Analyst)

Okay, great. If I can follow up just on the guidance. It looks like the Q1 guidance again is in the $400 million or so EBITDA range, maybe slightly below that. Do you expect that to kind of lift up through the year maybe into the $1.5-$2 billion range on an annualized basis? That would be more second half weighted. Is it mostly those cost and productivity actions that would get you there or does it require some recovery and volume growth as well? Thanks.

Scott Richardson (COO)

Look, our focus is on the decisive actions that we're taking right now. We can't control what happens in the macro, but we can focus on where we spend money, how we drive a level of efficiency, how we interact and access our customers to drive opportunities. One of the things we called out is a focus on smaller projects in engineered material. One of the great things about smaller projects is they tend to be able to be commercialized in six to twelve months. It is very important that we continue to work that with a level of aggressiveness, you know, to be able to improve kind of that outlook in the second half.

Arun Viswanathan (Senior Equity Analyst)

Thanks.

Operator (participant)

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

Patrick Cunningham (VP and Senior Analyst)

Hi, good morning. Thanks for taking my questions. Some estimates we see on acetic capacity upwards of 3 million tons in 2025, maybe a little less on the VAM side, but still meaningful capacity in the next few years. What gives you confidence that there will not be significant incremental impact from near term capacity? What does this capacity mean for the utilization rates of your own networks?

Scott Richardson (COO)

We do not see a big change coming in the supply demand landscape, Patrick. You know, where things are today is the industry is operating below the cost curve and that is not sustainable. It has not been historically sustainable and we have not seen things degrade further, even though we have seen new capacity come into the marketplace from a margin perspective. We continue to look at where are those pockets of opportunity up and down the value chain in Acetyls, where we can pivot. The team was successful last year growing, for example, our redispersible powders business largely outside of China and other parts of Asia, like India and Southeast Asia, where there was a strong pull and growth for some unique applications such as composite insulation systems, large style adhesives.

It is things like that that are going to be critical where we are partnering with our customers to get the full pull through of that value chain where we have unique technology.

Patrick Cunningham (VP and Senior Analyst)

Got it, understood. How should we think about incremental benefits from Clear Lake into 2025? I mean, are volumes any sort of offset to contract resets here? Is there any reason why run rate utilization should get worse than where you exit the year? Whether it is raw material availability or depressed demand levels? Just trying to understand the U.S. operating footprint here.

Scott Richardson (COO)

Look, we're seeing the full run rate of the expansion as we exit 2024. And we've seen some, obviously some slight offset from some of those contract resets, which is why we're working other opportunities to offset that. You know, we've got some natural gas headwind in the U.S. to start the year that has seen higher costs, but we do expect that that will wane and come off as the weather improves and we move into the Q2.

Patrick Cunningham (VP and Senior Analyst)

Great, thank you.

Operator (participant)

Thank you. Our next questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your questions.

Aleksey Yefremov (Managing Director and Equity Research Analyst)

Thanks. Good morning everyone. It sounds like you're deliberately reducing inventory in EM in Q1. Is it possible to size it in terms of EBITDA so that we can understand how much could potentially come back in the Q2 from this deliberate action?

Scott Richardson (COO)

It's really not that substantial, Aleksey. I wouldn't say it's kind of material like we saw in the Q4.

Aleksey Yefremov (Managing Director and Equity Research Analyst)

Okay. A follow up on EM as well. It looks like pricing came down, maybe low single digit for the segment in Q4. What do you expect from price in Q1 and potentially Q2, another step down or stabilization?

Scott Richardson (COO)

What we are seeing right now is stabilization for the most part. You know, we're having to, to be competitive in certain standard grade applications. The team is also working tenaciously on offsets. I mean this has been a headwind, but again in these standard grade applications, you know, where margins are at for the industry are really at unsustainable levels. We are working on opportunities to be able to turn that tide. The best way to do that is improving mix and that's the criticality of working the pipeline and continuing to be successful in some of these more unique higher growth, higher margin segments.

Aleksey Yefremov (Managing Director and Equity Research Analyst)

Thanks Scott.

Operator (participant)

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

Kevin McCarthy (Partner)

Yes, thank you and good morning. Scott, are you essentially running Celanese today to maximize cash flow as opposed to maximizing earnings or is that not the case and you're really trying to strike a balance between the two?

Scott Richardson (COO)

Cash is the priority, Kevin. Given where our debt is at, we are looking to do everything that we can to unlock cash. I think some of the actions that we have taken, whether it be the dividend, the reduction of capital, the reduction in working capital and a tenacious focus there, as well as aggressively working on the divestiture side, it is a focus on cash first.

Kevin McCarthy (Partner)

Okay. If I may, I want to follow up on Acetyls. I think you idled some capacity temporarily in Singapore and Frankfurt, as you discussed in the prepared remarks last night. Do you do that because they go temporarily cash negative or perhaps for a different reason? I am wondering if you could talk about your specific operating rate at Clear Lake in the Q4 and how you expect that to trend in the Q1.

Scott Richardson (COO)

The Acetyls team wakes up every day, Kevin, and looks at the landscape that it's in and it pivots and it pivots up and down the chain, it pivots geographically where it sells. We match operating rates to the needs to maximize margin and EBITDA across the landscape and to meet our customers' needs. That is a model that that team will continue to operate on and will continue to focus on striking that right balance between volume and margin.

Kevin McCarthy (Partner)

Thank you.

Operator (participant)

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

Hassan Ahmed (Senior Equity Analyst)

Morning, Scott. First of all, congratulations on the new role and also congratulations on bringing Scott Sutton on board. Big fan. First question on the guidance. You know, you guys talked about $0.25-$0.50 in Q1 EPS and $1.25-$1.50 as demand recovers in Q2. Now, I mean, if there is no change in the macro in the back half of the year, should we consider $1.25-$1.50 as the run rate?

Scott Richardson (COO)

We're doing everything that we can to drive our run rate much higher than that, Hassan. It's the actions that we talked about and, you know, our focus on not giving a guide in the second half is because we have multiple actions that are underway. I mean, I talked about the complexity reduction in Engineered Materials, you know, driving our Acetyls optionality model to a level that was, that performed better than we saw at the end of last year. Then this margin compression component in addition to everything else that we're doing broadly across the cost side in SG&A and the manufacturing footprint. We believe that there are decisive opportunities and actions that we can take here at Celanese to lift the run rate performance even if we don't see a change in the macro.

Hassan Ahmed (Senior Equity Analyst)

Understood. In the presentation you know, one of the things that you guys talked about was, I guess you gave six reasons to own Celanese shares today. One of them was the strong earnings leverage, you know, as obviously demand recovers. My question to you is, you know, as you take a look at the geographic footprint you guys have, as well as the end markets you guys are exposed to. Is the leverage the same today as it was in prior years? Particularly, you know, as you look at the sort of changing, sort of dynamics globally with tariffs out there, with your exposure to EVs and you guys yourself flagged, you know, the higher exposure to EVs that China today has and how that today is a lower margin business than it was historically.

Scott Richardson (COO)

We have a core principle that we believe in having a very efficient manufacturing footprint. When we acquired the M&M business, their footprint was not as efficient as what we had historically. Here at Celanese as a combined organization, we are looking at what is the right efficiency profile that we need. We are overlaying what we believe and where things are at from a demand perspective geographically. It is that matching that is really critically important. You know, as a corporation, we are pretty evenly split between Americas, Europe and Asia in terms of where our revenue comes from. Asia is growing and Europe is declining. It is going to be very critical that we continue to drive that intersection point to a level that allows us to enjoy kind of that operating leverage that we historically have.

Hassan Ahmed (Senior Equity Analyst)

Very helpful.

Operator (participant)

Thank you. Our next question has come from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

John McNulty (Managing Director and Chemicals Analyst)

Yeah, good morning. Thanks for taking my question. Scott, when you think about the Acetyl capacity that's coming on in Asia, have you seen any offsets where you're seeing closures, you know, assets coming down permanently? It looks like there's a significant amount of more capacity still to come. Just wondering how that gets placed and if it's just going to have to be where we wait for demand to absorb it all.

Scott Richardson (COO)

We haven't seen, I'd say, permanent capacity reductions. We definitely have seen the industry operating at lower rates. You know, I think what's a little bit different about this cycle on capacity versus what we saw 15 years ago? Fifteen years ago, it was almost all new players to the marketplace. This is about 50-50 existing players adding capacity and some new players. Obviously for those with existing capacity, they're kind of flexing their networks up and down based upon what they need. We have definitely seen probably a little bit more kind of down to match where demand is at.

John McNulty (Managing Director and Chemicals Analyst)

Okay, fair enough. Do you see there being any risk that that capacity makes its way more meaningfully into other markets or does it really kind of stay in the markets that it's been over the last, you know, whatever the last few years?

Scott Richardson (COO)

That arbitrage window is not open and, you know, it's kind of stayed right at or below kind of what it costs to move product. Look, shipping is expensive and complex and storage is complex as well right now in other markets. Just given transit times, et cetera, we have not seen a lot of that material move out of the region.

John McNulty (Managing Director and Chemicals Analyst)

Got it. Thanks very much for the color.

Operator (participant)

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

Laurence Alexander (Equity Analyst)

Good morning. First on the divestitures, are these assets that you've decided just do not fit in the portfolio and you will exit even if things get better, or as things get better, would you keep them and focus on deleveraging through other means? Secondly, with Acetyls, can you elaborate a little bit on kind of the execution issues in the back half of last year and to the extent that they've been changed or fixed, should we see the improvement this summer regardless of the environment, or do you need a better level of aggregate demand in order to also fix the execution issues that you've identified?

Scott Richardson (COO)

Yeah, let me hit your second question first. I would not call them necessarily execution issues. I think it was just a length in supply demand really driven by kind of where demand declined at the end of the year. Look, the team's doing everything we can to really flex that model up and down the value chain and look for pockets of opportunity.

On your first question around divestitures, look, I think we have identified pieces that are not critical to kind of those core operating models. We are looking at and having a lot of conversations. I mean, it has been a tough, tough M&A market the last several years. You know, we are very principled. I have heard from a lot of investors that are concerned about, you know, us fire selling assets. We are not in the business of fire selling assets. Our focus is on divestitures to drive deleveraging. It is going to be important that we continue to stick with that principle and be aggressive about doing deals as they present themselves to us.

Laurence Alexander (Equity Analyst)

Thank you.

Operator (participant)

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

John, could you check if you're muted, please?

Scott Richardson (COO)

Okay. Darrell, it seems like John might be muted. Let's go ahead and make the next.

John Roberts (Managing Director)

Can you hear me now?

Operator (participant)

We can hear you now, John.

John Roberts (Managing Director)

Sorry. Yep. Congrats, Scott, and welcome back. Todd and Scott Sutton. Could you talk about the new JV rules in China? We have other companies with China JVs, and I do not recall hearing anything about that issue. All JVs in China or something specific to the seller's JVs.

Scott Richardson (COO)

I think some JVs have gone through some of this and some have not. It is really related to the rules that govern certain JVs. What changed here is that there is a rule that requires an audit to be completed before dividends can be paid. That audit gets completed here in the first part of the year. We should see dividends starting in Q2. That's a rule change that at least our JVs are now subject to.

Okay. Darell, thanks. Let's make the next question the last one.

Operator (participant)

Thank you. You got it. Our last questions will come from the line of Salvator Tiano with Bank of America. Please proceed with your questions.

Salvator Tiano (Equity Research Analyst)

Yes, thank you. Firstly, I want to ask a little bit about, you know, as you're thinking here, about. If you can talk a little bit about the package of cost savings. I know you mentioned, obviously the $50 million. Sorry, the $50 million to $100 million from complexity and $80 million SG&A. I think last quarter we were talking about some of the cost synergies not being realized in 2024 and thus being pushed into 2025. Clear Lake, obviously, the $100 million also not fully realized last year, in part due to the force majeure. Are these part of this package you already gave or is there upside from this, especially on the Clear Lake side?

Scott Richardson (COO)

Look, we achieved $250 million of synergies as we exited last year, Sal. We still have more that are in our plan to be realized here this year. Clear Lake, we're on the run rate, as we talked about, there's been some offsets from margin compression. That is why I really talked about that as a critical element of focus for us on really reversing that trend as we go forward so we get the full value of these actions that have already been executed on. We are looking at driving productivity every single day, looking at every dollar that goes outside of the company and where we can save and where we can prioritize and this is a focus on cash. That tenacity will continue. Everything is on the table.

Salvator Tiano (Equity Research Analyst)

Perfect. I want to go back to your auto exposure to China. You got a number of questions. I'm just wondering how are things different in China versus Europe and the U.S. when it comes to the OEMs? A big tailwind for Celanese and others has been obviously lightweighting and replacing metal hood and other components with the plastic. Is there a bigger or a smaller opportunity right now in Chinese autos versus what you had in the Western Hemisphere over the past couple of decades?

Scott Richardson (COO)

Look, there's still a huge opportunity for us in China and it's why we're continuing to put a heavy focus there. I think, you know, one of the things that's really important is that the technical requirements of electric vehicles, particularly from a powertrain standard standpoint, are becoming a lot more demanding. There's also a lot of other applications where China is moving up this technical requirement curve. This requires materials with higher performance requirements. We have really, we believe, the best portfolio to match that. Where our KPVs sit in China, we're about half of where we are in the Western Hemisphere. That's moved up substantially the last several years. It is critical that we maintain that focus.

Just really since the beginning of the year, we've had two sizable technical exchanges with two of the top five Chinese OEMs as a way to accelerate and drive business. Great thing about China auto is that commercialization time tends to be much shorter. Kind of more like 6 to 12 months as opposed to 24 months in the the Western Hemisphere.

Salvator Tiano (Equity Research Analyst)

Perfect. Thank you very much. Thank you.

Scott Richardson (COO)

Thank you everyone. We'd like to thank everyone for listening today. As always, we're available after the call for any follow up questions. Darrell, please go ahead and close out the call.

Operator (participant)

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.