Trinseo - Earnings Call - Q3 2025

Executive Summary

• Q3 results were below expectations: revenue $743.2M vs S&P Global consensus $792.0M (miss), Adjusted EBITDA $30.4M vs $46.3M (miss), and Adjusted EPS $(2.41) vs $(1.90) (miss). Headwinds were lower volumes and mix, competitive pricing in Europe/Asia, $9M unfavorable timing, and negative AmSty equity income tied to an unplanned outage.
• GAAP net loss was $(109.7)M (diluted EPS $(3.05)), worse vs prior quarter and prior year; gross profit fell sharply vs last year on weaker volumes/margins, partly offset by restructuring savings.
• Management cut FY outlook: FY Adjusted EBITDA now $167–$177M (from ~$200M) and FY net loss $(408)–$(418)M (from ~$(320)M). Q4 guide: Adjusted EBITDA $30–$40M, FCF ~$20M, year-end liquidity ~$365M.
• Strategic actions intensified: cease virgin MMA in Italy and seek PS closure in Germany, targeting ~$30M annualized profitability improvement and $10M lower capex; cash costs $60–$70M over three years. Dividend suspended (save ~$1.5M/yr). Sustainability initiatives progressed (rSM supply integration).

What Went Well and What Went Wrong

What Went Well

• Engineered Materials resilience: segment Adjusted EBITDA was flat YoY at $33.8M despite lower volumes; mix and restructuring helped offset medical weakness.
• Growth platforms and sustainability traction: battery binders volumes +27% YoY in Q3; company working with 5 of the top 15 Li-ion battery producers; recycled-content volumes in EM up 12% YTD; launched portfolio using chemically recycled styrene monomer (rSM) via Indaver.
• Liquidity management: ended Q3 with total liquidity of $346M (cash $114M of which $2M restricted) and expects Q4 FCF of ~$20M and year-end liquidity of ~$365M.

Management quote: “We will remain intensely focused on what is in our control, including improving our free cash flow in the short and long term through working capital management, restructuring activities and other actions.”

What Went Wrong

• Broad demand and pricing pressure: net sales down 14% YoY on lower volumes across all segments and margin compression in Polymer Solutions and Latex Binders, particularly in Europe.
• Polymer Solutions and AmSty drag: Polymer Solutions Adjusted EBITDA fell to $4.1M (down $19M YoY) on unfavorable timing, lower ABS volumes, and mix; AmSty equity income was $(2.4)M with an ~$8M outage headwind.
• Estimate misses and guidance cut: revenue, Adj EBITDA, and Adj EPS all missed S&P Global consensus; FY Adj EBITDA cut to $167–$177M (from ~$200M), FY net loss widened to $(408)–$(418)M (from ~$(320)M).

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Trinseo's third quarter 2025 financial results conference call. We welcome the Trinseo Management team, Frank Bozich, President and CEO; David Stasse, Executive Vice President and CFO; and B. van Kessel, Senior Vice President and Corporate Finance and Investor Relations. Today's conference call will include brief remarks by the management team, followed by a question-and-answer session. The company has distributed its press release along with its presentation slides after close of market on Thursday, November 6. These documents are posted on the company's Investor Relations website and furnished on Form 8-K, filed with the Securities and Exchange Commission. If anyone should require operator assistance during the call, please press star then zero on your telephone. I will now hand the call over to B. van Kessel. Please go ahead.

B. Kessel (Head of Investor Relations)

Thank you, Kelvin, and hello everyone. At this time, all participants are in listen-only mode. After our brief remarks, instructions will follow to participate in the question-and-answer session. Our disclosure rules and cautionary notes on forward-looking statements are noted on slide two. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described, or implied in these statements. Factors that could cause actual results to differ include but are not limited to risk factors set forth in item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise its forward-looking statements. Today's presentation includes certain non-GAAP financial measurements.

A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the conference call. The replay will be available until November 7th, 2026. Now, I would like to turn the call over to Frank Bozich.

Frank Bozich (President and CEO)

Thanks, B., and welcome to our third quarter 2025 earnings call. I'd like to begin by sharing some information on trade flows in our chemistries, as we believe this is instructive for understanding how the end markets we serve have reacted to tariff uncertainties. We've included some of this information on slide four of our presentation materials. In general, we saw a sharp increase in imports of Asian polymers to both the U.S. and Europe beginning in Q1. We believe this was a reaction to the threatened tariff levels that ultimately were announced in early April and an attempt to fill supply chains in the U.S. ahead of the tariffs being implemented, and a redirection of trade flows to Europe from Asia because of slowing demand in China.

With respect to the U.S., on slide four, you can clearly see a significant increase in imports of ABS, primarily from Asian producers, beginning in the first quarter to get ahead of the tariff implementation. Exports from the U.S. of both ABS and PMMA decreased versus prior year, and the decrease was most pronounced in the exports to Canada and Mexico. A similar dynamic occurred in Europe, where Asian material that is typically consumed in China was redirected to the European market, putting margin pressure on the more standard grades of ABS and PMMA. These industry trade flow dynamics continued into the third quarter, resulting in lower volumes versus prior year, but similar volumes quarter over quarter. Whether these new levels of demand are transitory or structural remains to be seen.

However, late in the third quarter and into the fourth quarter, we are seeing an increased run rate of sales of our more formulated, higher margin products that is higher than the year-to-date average and prior year levels. In the case of our more formulated PMMA resins, the year-over-year increase in volumes was over 10% beginning in late Q3, and this has continued into Q4. We do believe there is a drive to reshore demand, even at slight premiums to the import parity price, to de-risk longer Asian supply chains and address potential tariff impacts in both Europe and the U.S. Concerning our focus on sustainability, I want to highlight the fact that the European Parliament finalized its vehicle end-of-life directive in September.

This mandates that new vehicles must contain 20% recycled plastic within six years, 15% of which must come from end-of-life vehicles, and this increases to 25% within 10 years. This action formalizes the EU's drive for greater product supply chain circularity. We have remained committed to pursuing investments to scale up our technology for our circular recycled content-containing platforms and expect these regulations to drive demand in the near term. Our pilot plants for recycled polycarbonate, ABS, and MMA are sold out. The volumes are still small, but will become more meaningful as we ramp up. Year-to-date, our recycled content-containing plastic sales grew 2% across all applications, with our recycled solutions and engineered materials growing at 12%.

Before I hand the call over to Dave, let me comment on our press release from the 6th of October, in which we announced the discontinuation of virgin MMA production in Italy and the intention to close our polystyrene production facility in Germany. We took this difficult decision after carefully considering our options and the impact on our employees. However, it is clear to us that these assets will not be competitive in the long term. Our Row Italy site will remain focused on PMMA resin production and will also be the site for our investments in recycled MMA. Pending works council negotiations in Germany, these projects should lead to $30 million of EBITDA improvement next year, and the cash savings will exceed restructuring costs beginning in 2026. Now, I'd like to turn the call over to Dave.

Dave Stasse (EVP and CFO)

Thanks, Frank. We ended the third quarter with $30 million of Adjusted EBITDA, which was impacted by $9 million of unfavorable raw material timing and negative equity-affiliated earnings from Americas Styrenics due to an $8 million headwind from repair and other costs related to an unplanned outage that occurred in June. At the segment level, engineered materials Adjusted EBITDA was flat versus prior year, as fixed cost improvements and slightly higher volumes in PMMA resin for building and construction and automotive applications were offset by lower volumes in medical. On medical sales, I want to remind you that we reported increased sales last year related to the closure of our Stoddard polycarbonate site and customers stocking up prior to the shutdown.

Latex binders Adjusted EBITDA was $9 million below prior year, mainly driven by lower volume in Europe paper and board applications, as well as significant pricing pressure in Europe and Asia. Our higher margin targeted growth platforms in CASE and battery binders continue to outperform the market. Sales volume in battery binders were up 27% versus prior year for the quarter, as we continue to enhance our portfolio, including new customer wins in anode binder applications. We're currently working closely with five of the 15 largest lithium-ion battery producers in the world. Lastly, polymer solutions Adjusted EBITDA was $19 million below prior year, driven by $9 million of unfavorable timing, lower ABS volumes, and unfavorable mix related to the closure of our polycarbonate plant. Third quarter free cash flow was -$38 million, and we ended the third quarter with $346 million of available liquidity.

The fourth quarter is typically our seasonally strongest quarter for free cash flow due to a working capital release. We expect our free cash flow in the fourth quarter to be +$20 million and our year-end liquidity to be over $350 million. Now, I'll turn the call back over to Frank.

Frank Bozich (President and CEO)

Thanks, Dave. Looking forward, we expect fourth quarter 2025 Adjusted EBITDA of roughly $30 million-$40 million, and as Dave mentioned, positive free cash flow of $20 million. This forecast assumes a continuation of the year-to-date market dynamics and a somewhat exaggerated seasonal year-end effect, as well as $5 million-$10 million of negative raw material timing. We will remain intensely focused on what's under our control, including improving our free cash flow in the short and long term through continued inventory management, restructuring activities, and other actions. Additionally, we continue to believe that there are at least five triggers that could improve the demand environment. First, trade certainty in any form would improve consumer confidence and provide a landscape for new investments. Second, a continuation of Federal Reserve interest rate cuts, which will lower our own interest expense and improve demand for housing and consumer durables.

Third, a resolution of the conflict in Ukraine. Fourth, is a rationalization of higher costs, less environmentally sound chemical assets in Asia. Lastly, stronger support for the EU chemical industry as outlined in the EU Chemical Industry Action Plan. Thank you, and now we're happy to take your questions.

Operator (participant)

Ladies and gentlemen, we will now begin the question-and-answer session. I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Alex Kelsey of Wells Fargo. Please go ahead.

Alex Kelsey (Credit Analyst)

Hi, everybody. Thanks for hosting the call and taking the question. I wanted to start with slide four on the trade flows. I think one of the dynamics we've seen among a number of chemicals companies is just structurally higher imports of China products into Western markets that's just structurally depressed pricing and influenced demand. So I'm just curious, you know, is it your view that this is transitory in nature, truly just getting ahead of tariffs, or are you seeing just a structural difference in how China is behaving with regard to your markets?

Frank Bozich (President and CEO)

Yeah, thanks for the question. Actually, we don't know whether it's structural or transitory. It's too early to tell, as we said in the prepared comments, but I would tell you that in our chemistries, the biggest, I guess, the more problematic dynamics, or the countries that we're seeing the most increase in inflows are actually Taiwan and Korea. In our chemistries, we believe that, you know, their domestic markets don't support the significant capacity that's been built over the years. Where they used to have an outlet to supply China, that volume or that surplus capacity is now being redirected to Europe and North America. I would point out that at least our analysis would indicate that those are higher cost assets in these chemistries.

The other thing I would point out that's problematic from a trade flow standpoint is the use of using imports of resin produced in China and South Korea into Mexico that can be compounded, you know, relatively lightly compounded locally and then brought into the U.S. under the USMCA tariff convention tariff-free. Now, our understanding is from our trade associations and our discussions that this sort of pathway or loophole in the USMCA is a goal to be closed by the administration, but that would be helpful in our value chains. You know, that's where China, Chinese products, we see more of the impact of Chinese flow into Mexico.

Alex Kelsey (Credit Analyst)

Do you have any perspective of, like, within PMMA and ABS, maybe this is a tricky one, but, you know, how much of the market Taiwan/Korea/China represents today versus, I do not know, 12 months ago, 24 months ago, whatever the right timeframe might be?

Frank Bozich (President and CEO)

I can't precisely answer what share of the market that they represent, but what I would tell you is that the import volumes on, for example, you know, the percentage increase in imports to, for example, from into Europe from South Korea in the first half of 2025 was up 18% over prior year, and in Q2, it went up to 26% increase over prior year. They are by far the biggest importer of ABS into Europe. In the case of PMMA, imports from, you know, imports from South Korea were up, you know, marginally in the first half, you know, into Europe.

In the case of imports into the U.S., the biggest increase in imports came from South Korea and Taiwan for ABS, where it was approximately 23% increase, but then Mexican product increased 75%. That was that pathway that we were talking about. I want to point out, though, that remember, we make mass ABS, and these are generally basic grade or standard grade polymers that are coming in under these conventions that are more broadly used than the less specified or formulated products.

Alex Kelsey (Credit Analyst)

Got it. Okay. Then on the PMMA comment, the formulated PMMA comment, I thought the commentary about seeing sequential ramp into Q4 was positive. One, has just something changed in that market from a supply or demand dynamic to suggest we're at trough and rising off trough levels? Then within the EM segment, like, what percentage of that is, you know, air quotes, formulated PMMA?

Frank Bozich (President and CEO)

Yeah, I think it's too early to, you know, we don't know that the market dynamic is changing necessarily. It's too early to tell. Like I said, this is a late Q3, early Q4 dynamic that we observe, and we're watching it and trying to understand it. We believe that there is, you know, an effort on behalf of many of the customers in North America and Europe to de-risk their supply chain, you know, from a complexity standpoint and also, you know, with regard to potential tariffs or trade barriers in North America and Europe. I guess at this point, we're watching it, but it, you know, again, it was good to see that increase over prior year.

Alex Kelsey (Credit Analyst)

To that second question that I asked, in terms of however you want to define it, like, what percentage of revenue/EBITDA/volume in EM would you define as formulated?

Frank Bozich (President and CEO)

Yeah, I would not disclose that, you know, specifically. It is a material part of our EM segment, and, you know, but I, you know, we would not share that information generally.

Alex Kelsey (Credit Analyst)

Okay. And then on AmStay, I have one question, maybe accounting related, but if the shutdown on planned maintenance was taken in Q2, I'm curious why there's an impact on Q3 EBITDA. And then more generically, can you just talk about, you know, what's being done within AmStay to sort of right-size that business, just given how underperforming it's been this year?

Dave Stasse (EVP and CFO)

Alex, this is Dave. The unplanned outage occurred at the end of the second quarter in June, but, you know, it was related to the production of styrene. What that forces them, you know, which is obviously upstream to polystyrene. What they have to do then is go out and buy styrene, obviously, at a cost higher than what they can make it for. You know, those increase, that increased cost of goods sold in this case, you know, goes through the P&L in the second, in the third quarter, right? There are both repair costs that are included in the, in the, so the total impact for the year for Americas Styrenics was $10 million, or excuse me, the total impact to our equity income was $10 million. $2 million of it was in June, and $8 million of it was in the third quarter.

The composition of that is both the cost of repair, but also the higher cost raw materials from the styrene that they had to buy going through the P&L. Look, and related to the second question about what are we doing to right-size it, I mean, look, I do not think we are doing, I do not think anything is necessary to right-size the business. They have got two styrene units, you know, that are very competitively positioned on the global cost curve for styrene. 70% of the styrene they produce, they consume internally in polystyrene downstream, and the other 30% goes into the merchant market. Again, they are on the, you know, from the left side of the cost curve. Look, I do not think there is anything necessary to do there from a right-sizing perspective.

Clearly, styrene is long globally, and it's, you know, it's why we exited, you know, our European plants. So styrene margins are lower, you know, a lot lower than they used to be. But I, you know, I don't think a necessary step there is going to be any, you know, capacity rationalization.

Alex Kelsey (Credit Analyst)

Okay. That's helpful. Then last one for me, if we, like, when we were entering 2025, and I understand things have changed, you know, the expectation was, you know, flat volumes kind of started us at $200 million-ish of EBITDA, plus cost saves got us to something closer to $300 million, if I'm remembering correctly. I know it's probably early on 2026, but, you know, again, it feels like we're lower for longer, maybe troughing. If you kind of take some of that same analogy, you know, where the business is forecasted to be at the end of 2025, like all else equal in, like, a, you know, up 10% in volume environment, down 10%, flat, you know, any range of outcomes for what we could think about for 2026?

Frank Bozich (President and CEO)

Yeah, maybe let me tackle the last thing first. We've said this consistently that, you know, a 10% volume increase across the portfolio results in about $100 million of EBITDA. You know, again, we're not prepared to talk about, you know, we don't have a view on 2026 or are prepared to give any guidance for 2026. I think it might be helpful to go back to, you know, how we were, as we entered the year, how we thought about it. You know, our expectation for significant increase was really in 2025 over 2024 was driven by five factors. One was stable volume.

Number two was the disposition, the sale of our polycarbonate assets to DPAC, the also known business wins that we had, as well as, you know, a more normalized earnings from AmSty, as well as the cost savings initiatives that we announced last year. What I would tell you is that we got the known business wins or the incremental business wins in our downstream markets. We delivered the cost savings, and we executed on the DPAC sale, where we've had a shortfall versus our expectation was on the more normalized earnings from AmSty and then the volume development that occurred, you know, what we would attribute to really global tariff uncertainty. You know, again, I think what's in our control, we've done a good job of managing, but, you know, that's sort of how this year developed.

Again, too premature, it's premature for us to give you guidance for next year.

Operator (participant)

There are no further questions at this time. With that, ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.