Celanese Corporation (CE) Q4 2025 Earnings Report, Transcript and Summary

Greetings, and welcome to the Celanese Q4 2025 Earnings Call and Webcast. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Bill Cunningham. Thank you, Bill. You may begin.

Thanks, Darryl. Welcome to the Celanese Corporation Fourth 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 fourth 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 the prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC. With that, Darryl, let's please go ahead and open it up for questions.

[Operator Instructions] Our first questions are coming from the line of David Begleiter with Deutsche Bank.

Scott, now that the business has been stabilized and you've done some improvements in the cost and balance sheet side, what are your updated thoughts on potentially selling some equity to get ahead of this balance sheet issue?

David, our focus continues to be on the plan that we've been outlining. It is really about cash generation first. And I think the team has done an excellent job of prioritizing cash generation and the strength of that in 2025 despite the earnings decline year-over-year was evident in the fact that I think we've built the right elements that can keep that going here in '26 and beyond. And we're extremely well poised for recovery. So our focus really continues to be on using debt, and we've been able to refinance our bonds and continue to pay off what is right in front of us. So given the fact that our maturities now coming up over the next couple of years are significantly lower than they were and the cash generation that we have from the business as well as what we have coming from divestitures, we believe, is strong. We feel like we're in a really good position.

Very clear. And just on tow, what are you seeing for pricing in your contracts for 2026?

Very little change in contract pricing, David. And I would say in more of the spot part of the business, that's where we've seen more competition with the additional capacity that came on in the market last year, which drove the actions that we're taking. And I think the team with the action we announced last quarter about the Lanaken plant closure, we're going to be able to drive enhanced cost benefit into the business of about $20 million to $25 million on a full year basis, of which we should see about $5 million to $10 million of that this year, and we're trying to bring as much of that forward as possible.

Our next questions come from the line of Patrick Cunningham with Citi.

I guess first, just on the sequential improvement in Engineered Materials, both from a volume and mix perspective, can you just parse out which end markets are starting to stabilize and unpack some of the broader macro assumptions for 2026?

Yes. What I would say is electronics is what I would say, the bright spot right now, Patrick. I'd say it's a net positive on a global basis. We're seeing a global build-out from AI as well as data centers, and that's positive in the electronics space. But it's a small part of the overall base of the business. So certainly, auto is a much larger piece of the base, and the business is going to trend kind of where that goes, at least at this point. And I would say auto is more mixed. You've got some uncertainty in China with some of the EV credits and stimulus rolling off in China to start the year. So we've seen some softness in auto in China. Europe has been relatively stable to start the year. And U.S., with the fleet mix becoming a little more certain and a focus of the OEMs around ICE and hybrids, that could be a net good thing for us. But I would say to start the year, it's about as expected.

Got it. That's very helpful. And then with halfway to your $1 billion divestiture target, just any ideas on timing, potential assets that you'd look to explore to achieve that divestiture proceeds target?

Yes. And just to kind of restate, we called out $1 billion by the end of 2027. And to your point, we're about halfway there. We feel like -- we feel good about getting a deal done this year, another deal done this year, and we feel very good about achieving or exceeding that target by the end of '27. And again, we're prioritizing parts of the business that don't fit the core operating models of Engineered Materials or Acetyl Chain. And that does kind of lead you to a heavier focus on some of the joint ventures as we've talked about in past quarters. So we have what I would say is a pretty robust slate of things that are being worked, but it's hard to get deals done in this environment. But I'm proud of the team for what we did on Micromax, the speed at which we started that process to when we got it closed was approximately 9 months, which is pretty fast in any M&A market. And so we're going to continue to work this with a sense of urgency.

Our next questions come from the line of Jeff Zekauskas with JPMorgan.

When you take a step back and look at 2025, I think in the Acetyl Chain, your adjusted EBIT was down about $400 million and your Engineered Materials was down about $120 million. How do you analyze those changes? That is, how do you see the larger factors that were at work in those changes?

Yes. Let me start with acetyls, Jeff. Of that, it was pretty much all driven by volume and price. And you've got a mix element that goes into that. So it's largely split relatively evenly between those 2, of which a good chunk of that was driven by the acetate tow business. And so that was -- I would say, from a product line perspective, that was the bigger chunk. We did see some margin compression from China as well that went into that. And then the balance was really driven by Western Hemisphere volume. We didn't have as much margin compression in the non-tow part of the portfolio in the Western Hemisphere. So those are the biggest components in Acetyl Chain. In Engineered Materials, volume and price were both, I would say, semi equal overall in terms of how much they were down, and then it was offset by cost. And we had some cost benefit in acetyls as well. But those are the largest drivers, I would say, overall in both businesses. It really comes down to above-the-line variable margin.

Okay. And then for 2026, is your base case that you can get some EBIT growth out of Engineered Materials, but the acetyl change might be challenged to grow in 2026? Or do you have a different approach? And what are the key markets that you really need to have improved in order for Celanese to excel in 2026?

Yes. Jeff, when we started 2025, we talked internally in the organization kind of a mantra around act now and win together. And I think it was really that action orientation that was really important with a focus on cost reduction and free cash flow generation. This year, we're still going with act now, win together and grow. That growth piece that you highlight is important. And I do believe Engineered Materials in the current demand backdrop has more controllable ways to grow through our pipeline model. It doesn't mean we won't be able to drive growth in Acetyl Chain. I just think that the groundwork that we've been laying in Engineered Materials and our ability to drive innovation and partner with customers and designers and engineers around innovative solutions, just we have more degrees of freedom to do that in Engineered Materials. It's likely to be in the higher growth areas like electronics that I called out earlier, elements of automotive continuing to penetrate in higher-margin areas in China and then continuing to partner with our customers on innovation into kind of the -- what is now the chosen fleet mix here in the Western world. So those are the big elements. I do think we'll have some growth in medical as well. But I would say electronics and elements of automotive are going to be the key components.

Our next questions come from the line of Vincent Andrews with Morgan Stanley.

This is Turner Hinrichs on for Vince. I'm just wondering, could you provide more color around your expectations for higher than the first half earnings and whether you still expect to see $1 to $2 of EPS uplift versus 2025?

Yes. Thanks for the question, Turner. Our team is still focused on $1 to $2 of lift. As I talked about in Engineered Materials, it's going to be around driving growth there and getting volumetric growth, continuing to push price where we can, and the team continues to be focused on doing that in the pockets of the business where we can achieve it. Then also continuing to drive our cost-reduction programs. In Acetyl Chain, it is about looking for those opportunities where the supply-demand balance, we can be opportunistic around to be able to drive volume and price and start moving kind of that sequentially on a quarterly basis back in a more positive direction. Look, since the last time we spoke, there's been some things that changed. Our interest expense is likely to be relatively flat on the P&L year-over-year. I think how we model out our inventory draw this year, it's likely to have some amount of P&L impact. And then the demand backdrop is certainly not, at least right now, where we were in the middle part of last year. And if we return to that, then certainly, that would be a really nice tailwind. So it's -- I do think that we are working a plan to be able to drive growth here this year. And certainly, if we get any help whatsoever from the macro, we are leveraged to be able to move up very quickly from an EPS perspective. I'll just kind of remind you that a 1% improvement in volume in the Acetyl Chain is about $15 million to $20 million a year and a 1% improvement in volume in EM is about $20 million to $25 million a year. So these are small changes drive significant uplift for the business.

Great. Great. That makes a lot of sense. Also, when thinking about the difference between first quarter and second quarter earnings, I'm wondering whether we need to reverse the $30 million inventory tailwind that's benefiting 1Q as well as the size of the polyacetal turnaround and any other bridge items that you might call out?

Yes. I think that's probably the right assumption, Turner, is that $30 million benefit we're going to get is going to likely draw out there in the second quarter. And we are going to have some turnaround -- higher turnaround expense certainly in Q2. So I think with the dividend coming back in the second quarter, all of those things relatively even out. I mean, Q2 flattish to Q1. And certainly, depending on where the demand environment is, you might get some sequential benefit. But until we have better line of sight to that, I don't know that flattish is the wrong way to think about Q2. As we called out in the prepared remarks, we do believe this year is going to be more second half weighted just because of that turnaround activity that we've got in the second quarter.

Our next questions come from the line of Ghansham Panjabi with Baird.

Scott, just on the Acetyl Chain and just zooming out a little bit and think about EBIT margins, which were sort of mid-teens last year versus the previous trend line in the mid-20s, how much of that differential do you think is cyclical versus something having changed in terms of, obviously, supply coming on and also some of the challenges that you're seeing on acetate tow in the spot market?

Yes, Ghansham, how I view these things in our business over the last 20 years, we've seen structural changes. We saw -- and these could be headwinds, they can be tailwinds. And shale gas revolution in the U.S. certainly was a structural change. The industry didn't get the benefit of that overnight. It's actions that were taken to be able to take advantage of those structural changes. We saw overcapacity in China, for example, come into the market the first time, 2009 through 2017, and it was actions and business model changes that we and others made to be able to drive a more sustainable and higher level of earnings. And certainly, even today, where we sit now in the current market with overcapacity and where it is in acetyls, the underlying business today is better than it was during 2012 and 2013. So I think it really is about how we, as a company, respond to changes that we see in the market. I do believe that through those changes, you will see things start to move back up. Now each cycle is different. Each cycle is shorter or longer, and nobody can really predict how long it will last. But it is about responding to those changes that we see. On the Engineered Materials side, we've seen changes as well. The move from ICE to EV in China, in particular, is a big structural change. It's not likely to change. We have to adapt to that. We have to change. We have to respond to that from a market perspective. And we have to continue to drive efficiency in our own business so that when we see small incremental changes in volume that I talked about earlier, those underlying margins are higher in the future than they were in the past.

Okay. Got it. And maybe a question for Chuck on free cash flow. Obviously, 2025, working capital is big for the year in terms of driving the free cash flow outperformance there. What are you embedding for 2026 for working capital? And just more broadly, what's defining your confidence on free cash flow relative to what seems to be a pretty challenged operating environment, at least for the first half of the year?

Yes. No, thanks, Ghansham. I think what's driving our confidence is our ability to pull levers to generate free cash flow in all demand environments. So you mentioned working capital. It was very strong in '25 to $390 million. We are targeting another $100 million, Ghansham, primarily from further inventory reductions. Cash tax is going to be lower this year, $50 million to $60 million, cash interest down about $50 million and the cash that we will outlay for cost-reduction programs that are -- that's adjusted out of EBITDA, that will be lower by about $25 million to $50 million. So as you know, we plan for a number of different scenarios, Ghansham, and we feel confident that we can drive free cash flow into our target range that we provided, either through modest earnings growth or through these additional levers that we know how to pull.

Our next questions come from the line of Salvator Tiano with Bank of America.

So firstly, I want to come back a little bit to the EPS growth this year. And you have in with your prepared remarks all the free cash flow, I guess, outlook and the puts and takes on free cash items. And it seems to us if you do some rough math that, that points to probably net income or EPS change, EPS this year of around mid- to high 4s as a base case. Does that make sense? And are there any items we may be missing that would deviate -- that would make your EPS deviate from that as a base case?

Yes. So how I'd look at it is our prioritization right now is around free cash flow and continuing to drive sustainable changes into our business models. As we look at the year, we run a number of different scenarios on kind of where things could play out from a demand standpoint and then what that translates into EPS. And for us, that's -- we're confident in being able to generate that free cash flow between $650 million and $750 million. So there's a number of different EPS scenarios that get you to that number, just depend on the movements and timing and the fact that we're second half weighted also certainly plays a little bit of a role just in terms of how much AR is sitting on the balance sheet as we model it out. So all of those factors go into play in terms of how we model it. So we're not looking at a finite range right now. Our focus is on really driving and maximizing as much as we can and working to grow on a year-over-year basis with an emphasis on ensuring that we are delivering the cash flow.

Okay. Perfect. And I wanted to ask a little bit about capacity additions on the nylon and the home chain, specifically because these are something you have to face in the past few years. Can you provide us with some information on what may be coming online, particularly in Asia in these chains? And what is kind of your exposure given you moved away from some chains such as nylon polymerization? What would be your exposure if there's more capacity coming online in these chemistries?

Yes, Sal, as we've talked about in the past, our focus really is to continue to build flexibility into our operating model in our nylon business as well as some of our other polymers. And that means being balanced in what we make but also what we buy. And so the additional capacity that may come on in Asia, and to be very honest, it's already overcapacitized in China, and we're taking advantage of that by buying as much polymer as possible because that's a more advantageous way for us to be able to supply our business in that region of the world. It is about being opportunistic and about building flexibility into our model. And what I would tell you is we are going to continue to evaluate options to be able to enhance and maximize profitability in all our value chains, including nylon.

Our next questions come from the line of Laurence Alexander with Jefferies.

This is Kevin Estok on for Laurence. So just on working capital inventories again. Obviously, you're targeting additional reduction. And I guess I was wondering what guardrails are you sort of using to avoid service issues? Are there any specific product families, I guess, where inventory is still elevated? And maybe, I guess, what's the time line to reach a steady-state inventory model?

Yes. So it's a very coordinated approach internally, right? We're never going to take too much risk on service levels and delivering to our customers, right? There's many different ways you can reduce inventories, you can use raw materials, you can change your offtake agreements and you can reduce finished goods, right? So we're in a multiyear journey on that. So we don't ever like to think that we're done. We think we do have $100 million this year, but we're not going to stop there. There's a lot of efficiency that EM is driving within the organization. And you're just going to need less and less inventory as you go forward, right? So it's a constant activity of ours, and we feel good about continuing that progress.

Got it. Okay. And then just as a follow-up. So on acetate tow, I guess, obviously, it's one of the biggest headwinds. I guess what are -- I know you touched on some of this already, but I guess curious what the specific levers that I guess you can do to stabilize tow and basically like regional mix shifts any capacity actions, customer inventory normalizations, contract resets? I mean -- and I guess, when should we expect measurable improvement?

Look, we're working this with a level of aggressiveness as we look at every element of the business, and that includes the cost structure. It also looks at how we go to market, our future contracts in this business. You have to take both a short-term view and a long-term view of how things are rolling in and rolling off. And so it is really about stabilization. We did see a decline. I do think there has continued to be an element of destocking. I think there was a lot of inventory throughout the value chain in this business. I think that will probably take another quarter or so. So I think midyear where that evens out is our current estimation. And then you should get to a little bit more steady state, and I think get a little bit more balance here as we get into the middle part of the year.

Our next questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets.

There's a number of price increases that were announced in the polymers world. I wanted to ask you about your expectations for achieving those? And also, is the intent here to offset rising raw material costs or actually expand margins?

In some of these polymers, Aleksey, margins have got to where they're at unsustainable levels. And I think you can look at challenges we've seen in the industry, and you've seen some folks in the marketplace go into default. And I think that has just shown that things are at an unsustainable level. I'm proud of the way the team got ahead of this a few years ago by taking action in our footprint in our highest cost locations. And so that has certainly helped us be able to weather that storm. But as we go forward, the returns need to improve here. And so it really is about pushing to drive returns to just an acceptable level going forward, and the team continues to push that. I do think it's going to continue to be a -- it's going to take some time. It's going to be a step-by-step process. I wouldn't expect us to get all of it at once, but it is about continuing to work this as we are having dialogue with our customers.

And as a follow-up, acetyl spreads have been a little better in China lately. What are your expectations for anti-involution or any kind of rationalization in that country just based on your knowledge of what government might be thinking?

Yes. As I mentioned before, I mean, we've gone through big overcapacity in the acetyl business in China in the past. When I was living there in 2009, the first overcapacity came in, and we were in that period for a long time. I think the pattern of behavior that we've seen over the last year or so does kind of tend to trend with what we saw in the past, which is new capacity comes in. There was a lot of new capacity over the last couple of years. As those plants are starting up, they run at high rates to prove out the technology, but margins are unsustainable. And so rates come back down and margins move up a little bit. And so we certainly have seen that trend continue and things have stabilized, I'd say, at higher, albeit still relatively low levels on a margin basis over the last 8 weeks or so. So we're not forecasting huge lifts by any stretch of imagination. And the team will continue to kind of work near-term and instantaneous opportunities on both a price and volume basis.

Our next questions come from the line of Frank Mitsch with Fermium Research.

It's Aziza on for Frank. Scott, I was curious if maybe you can provide some thoughts on Chinese acetyls pricing as we progress through 2026?

Yes. Aziza, I mean, look, we're not going to forecast any huge uplifts. I think we would expect things to stay in the range they've been over the last several quarters. I mean, plus or minus kind of where they've been, as I just said, we've kind of stabilized at these levels over the last 8 weeks or so. Demand right now is extremely low as we're in Chinese New Year. And this year's Lunar New Year is a longer holiday than what we typically see by a few extra days. So it'd be interesting to see how things come out. It's a later New Year as well. But certainly, demand was relatively stable going into the New Year holiday. Pricing held, and that doesn't always happen. Sometimes as you're getting into that New Year period, pricing falls off, it stayed relatively stable as we went in. So we'll see kind of where things come out, but we are not anticipating a really big uplift coming from Asia. As we look at recovery scenarios in the acetyl business, we tend to really look at Western Hemisphere only. And so those numbers I quoted earlier about a 1% improvement in volume being $15 million to $20 million, that's on Western Hemisphere only. That doesn't include any of the business in China just because I think with where overcapacity is, if we get upside in volume and price, we'll take it, but we're not going to necessarily bake that into our numbers.

Got it. And also regarding the second quarter POM turnaround, have you guys quantified the impact to the second quarter earnings?

No. I mean what we said earlier is think a number similar to the lift in -- that we called out of $30 million. So that's the right range. I mean these -- typically, these turnarounds in the past were about every 3 or so years. We've worked really hard on our reliability over the last several years to where we've been able to extend this to 5 years between these major turnarounds. So this is not something that certainly happens every year in the asset. And so it is a little bit larger than we would typically see, but it really is contained to the second quarter.

Our next questions come from the line of Hassan Ahmed with Alembic Global.

Look, I wanted to revisit the $650 million to $750 million free cash flow guidance you guys provided. Look, I mean, it's anyone's guess what demand does, but if we were to take a draconian view and say that demand really doesn't improve much from Q4 levels, what does that do to the guidance and all the other aspects baked into it, meaning the $100 million sort of working capital uplift that you guys guided to and the like?

Yes. First of all, Hassan, I would never refer to you as draconian by any stretch of imagination. So look, not to be repetitive, but I'm going to kind of go back. We model out a lot of different scenarios, kind of that low-demand scenario, higher-demand scenarios. I mean we kind of look at different permutations. We also -- you also have to plot timing. And so as we kind of look at that, you end up range finding for where you think you can move on cash flow given the other actions that you can take and how AR and inventory can move and what you can do through the year. And so as we kind of range find for that, we do feel very confident in that $650 million to $750 million range that we put out there.

Understood. Understood. And just moving on, again, as it relates to sort of debt paydowns and the like, I mean, you guys seem pretty comfortable with the incremental $500 million of sort of asset sales. So a, what gives you that comfort to achieve that by 2027? And b, if need be, could that number actually be higher?

Yes. I mean we're aggressively pursuing additional divestitures. And as Scott mentioned, we feel good about getting another one of those done. There's a lot of things that we can look at. We're -- that's part of our cash generation. That's part of our debt paydown strategy. That's a probability weighted number. So theoretically, that could end up at a higher number. But we're targeting right now $1 billion total by the end of 2027 to help us deleverage the balance sheet.

Our next questions come from the line of Michael Sison with Wells Fargo.

Guys, sorry about that. You sort of noted that the Western Hemisphere acetyl margins are better and holding up better. How much of your business is Eastern? And is there any reason to be there longer term? I mean this trough in the Eastern Hemisphere has been pretty deep. Does it make sense to reduce some capacity for that area longer term?

Mike, you've known us for a long time. You know that we look at every option on the table, and we continue to look at what the short-term needs of the business are and balance that with where we think we need to be long term. And we will look at what the footprint in both businesses needs to look like and what the right match is. So I would say we're constantly evaluating where we need to be and how we need to be operating the assets. And the acetyl team continues to pivot there. We're block operating the Frankfurt VAM unit and block operating the Singapore acetic acid unit as well and just for that very purpose and finding ways at which to be more efficient and squeeze out cost.

Got it. And then if you take a look as we head into the second half, and we sort of sat here last year thinking things couldn't get worse. But if there are areas within EM or the acetyl chain that, that could get worse, what do you think it could be? And it does sound like things are more stable sequentially at least. But what are the things we need to watch out for if things could potentially get worse on the macro side for you?

Mike, we're not going to take anything for granted, and we're going to continue to evaluate and take bold actions across the portfolio. We knew as we started last year that we needed to kind of reset the growth mindset in Engineered Materials. And I feel like Todd Elliott and the team have done a great job of building the pipeline and refocusing commercially on those areas where we can really drive high-quality wins and making sure our time is being spent there with a focus on quality over quantity. And I think that is really going to start to pay off for us as we work our way through 2026. And we're going to continue to evaluate the cost side of the equation in both businesses as well as from a corporate perspective because I do think it is really about how we generate operating leverage going forward. And so those are our priorities with cash as being kind of that keen focus and delivery of our cash target.

Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.

Scott, in explaining the volume decline of 6% in the quarter, I think you mentioned in the prepared remarks last night that the destocking and seasonality were kind of greater than expected. And so I wonder if you could comment on the degree to which you've seen any rebound or temporary restocking in January and early February, ahead of the Lunar New Year? Or has it been mixed or just not happening? Just looking for any additional color on kind of incremental volume stability or improvement as you see it.

Yes. Let me start with Acetyl Chain. I think we've seen some moderate seasonal improvement largely in the coatings space, and we'll see kind of where things hunt out as we get into March and April, which tends to be when demand moves up higher. So I would say that it's moderate at this point. We haven't seen substantial change positively in the acetate tow side of the equation there in acetyls. In Engineered Materials, what we called out last quarter was that we knew we were going to see some destocking from our channel partners here in the Americas, we're starting to see that come back to the order book. And we've seen seasonal improvement in spaces like automotive in the Western Hemisphere improve to start the quarter. So that is pretty much as expected and as is typical as we see from Q4 to Q1.

Okay. And then to follow up on your divestiture efforts. It sounds like the focus or at least one of the focus areas would be your joint ventures. You've got quite a few of them, I think. Maybe can you provide any color as to where you are in that process? And whether or not we might expect something this year or more likely next year? Are you looking at multiple JVs or focusing on a primary target? Any color there would be helpful.

Yes. What I would tell you, Kevin, is we are looking at a lot of different things, and we have a pretty robust portfolio of options of varying sizes, some small, some getting a little closer to the size of Micromax. And as Chuck mentioned earlier, we probability weight that. We feel good about getting another deal done here in 2026. I don't know exactly where it will fall in the size spectrum. It might be a smaller one, but certainly would be attractive even if it's small. So we are kind of working all elements. It may be that it takes a few of these deals to get to the target and maybe it takes one deal. So it just -- it kind of depends upon how these things materialize here over the course of the next 1.5 years.

Our next questions coming from the line of Josh Spector with UBS.

I want to just ask on the earnings in Engineered Materials. If I kind of take your comments on first half, your EBIT is maybe around $200 million a quarter on average. Looking at last year, it's kind of similar levels to what we saw in 2Q, 3Q. I'm obviously ignoring seasonality and the weaker 1Q a year ago. But I'm just wondering that we're not seeing some of the cost initiatives really come through. You're talking about them more second half, but you've been talking about the cost initiatives for 6, 9 months now. So why aren't we seeing it as much in the first half? And why does it take to the second half on the cadence of timing? And then when you talk about the new products and the higher margins, kind of the same thing, like when do we start to really see more of this and why not now?

Yes, Josh, I'm going to respectfully disagree with you. I think you're definitely seeing it roll through. We are in a much lower-demand environment today in that business than where we were in the middle part of last year. And we're still performing at very similar levels. And that really is coming from the mix improvement we've seen as well as the cost reductions the business is taking, and we're going to continue to drive that forward. As I said, there's such a leverage on volume in this business with a 1% change kind of being $5-plus million a quarter, the amount of change that we've seen in that business is sizable on a year-over-year basis volumetrically. So it really is about continuing to improve the underlying fundamentals of this business and those small incremental changes in the demand are going to flow right back to the bottom line.

Our next questions come from the line of John Roberts with Mizuho.

Have you actually guided for the China acetate tow dividend expected for the final 3 quarters of 2026 in your free cash flow range?

Yes, John, I think pretty flat to last year is what to expect, that $40-ish million a quarter.

Okay. And then you once explored some consolidation opportunities in the acetate tow industry. Does the contraction in the industry increase the chance of revisiting further consolidation maybe in a different form or different partner than what you earlier pursued?

Yes. I don't know that the landscape has changed considerably, John, overall in terms of the fundamentals. But look, we are always very open to options in all of our businesses. And so we explore every opportunity that might be out there. But I think on tow, I just don't know that the fundamentals have changed enough to change that outcome.

Our last questions will come from the line of Arun Viswanathan with RBC Capital Markets.

This is Adam on for Arun. If I could ask maybe Hassan and Ghansham's question in another way, it seems like the working capital management change for '26 is almost a $300 million headwind. And you talked about some benefits from lower cash, about $25 million. Taxes lower by $40 million to $50 million. Is the balance of that from earnings improvement? And if not, where is that coming from? And how much earnings improvement are you really expecting to impact to your free cash flow?

Yes. Thanks, Adam. Yes, you're right, I mean the working capital headwind year-over-year is sizable and some other things that will offset it, as you mentioned. But again, I'll say again, we feel good about driving free cash flow into that range, either through modest earnings or through further levers if we see a lower demand scenario play out. It's very similar to what we did this year in 2025. So we're confident in that range.

Okay. Great. And apologies if I've missed this, but have you guys outlined in terms of a cost benefit from the Lanaken closure kind of market impact aside?

Yes. So Lanaken closure for us is going to be about a $20 million, $25 million cost benefit on a full year basis and about $5 million to $10 million of that we expect to get this year.

Well, thank you, everyone. We'd like to thank everyone for listening in to today's call. And as always, we're available after the call for any follow-up questions. Darryl, with that, let's please go ahead and close out the call.

Thank you so much, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time. We appreciate your participation. Enjoy the rest of your day.