TSE Q3 2024: Outages Resolved, Q4 EBITDA Guidance $40–50M
- Americas Styrenics Recovery: The management confirmed that the $10 million negative impact experienced due to unplanned outages in Q3 is behind them, with both affected units restarted and expected to contribute fully in Q4, positioning the company for improved profitability going forward.
- Strengthening Demand and Future EBITDA Upside: Customer feedback revealed expectations of modestly positive demand in Q1, driven by pent-up demand in building and construction and improvements in pricing dynamics. Combined with restructuring initiatives and known business wins, management anticipates adjusted EBITDA to exceed $300 million next year.
- Cost Savings and Improved Cash Flow Outlook: The ongoing restructuring is expected to generate cost savings of approximately $25 million in 2025 and contribute to a lower cash flow breakeven point later, with the benefits from fixed cost absorption helping to offset seasonal declines. This sets up a favorable margin environment for future quarters.
- Seasonal Headwinds: Q&A discussion highlighted a $30 million decline in adjusted EBITDA for Q4 driven by fixed cost absorption issues and lighter seasonal demand, suggesting potential ongoing pressure on operating performance.
- Financing Uncertainties: Concerns were raised over the $115 million stub notes due next September and a large $1.8 billion floating rate debt, which could pose refinancing risks if cash flows weaken.
- Operational Disruptions Risk: The negative impact of $10 million from unplanned outages in Q3 raises concerns that similar operational issues might recur and potentially damage future margins.
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Financing Update
Q: Update on revolver extension and sub note repayment?
A: Management stated that they plan to address the $115 million sub notes due in September either through using cash on hand or pursuing a refinancing transaction, with ongoing deliberations on the revolver extension timing. -
Free Cash Flow
Q: What is the 2025 free cash flow outlook?
A: They expect $45 million in restructuring expenses next year, requiring roughly $340 million EBITDA for cash flow breakeven, with lower cash interest anticipated due to an easing rate environment. -
Q4 Guidance
Q: What drives Q4 EBITDA and margin expectations?
A: The outlook for Q4 is $40–50 million in adjusted EBITDA, reflecting recovery from a prior $10 million negative impact at AmSty and the effect of seasonal volume and margin pressures. -
Operational Outlook
Q: Is the unplanned outage issue resolved; update on AmSty sales?
A: Management confirmed that the outages have been resolved with both units restarted, and noted that they continue the AmSty asset marketing process with expectations to sign a transaction in the first half of next year. -
Customer Demand
Q: What is the customer outlook for next year’s demand?
A: Customers appear cautious but expect a modestly stronger Q1, influenced by a declining raw materials environment and lower interest rates, which should ease inventory pressures.
Research analysts covering Trinseo.