Huntsman Corporation (HUN) Q1 2025 Earnings Report, Transcript and Summary

Greetings. And welcome to the Huntsman Corporation First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Mr. Ivan Marcuse, Vice President of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you, Melissa, and good morning, everyone. Welcome to Huntsman's first quarter 2025 earnings call. Joining us on the call today are Peter Huntsman, Chairman, CEO and President and Phil Lister, Executive Vice President, CFO. Yesterday, May 1, 2025, we released our earnings for the first quarter 2025 via press release and posted to our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the first quarter 2025 on our website. Peter Huntsman will provide some opening comments shortly and we will then move to a question-and-answer session for the remainder of the call. During this call, let me remind you that we may make statements about our projections or expectations for the future. All such statements are forward-looking statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income or loss and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. I'll now turn the call over to Peter Huntsman.

Ivan, thank you very much. Just over two months ago at our last earnings call, I started my comments by explaining why we did not give yearly guidance, but rather focused on quarterly guidance. And that was just before the first week of April when Liberation Day liberated the New York Stock Exchange to some $3 trillion of value. Before reciprocal tariffs, 90-day pauses, and 500-plus percent tariff rates were put on most goods flowing between the world's two largest and interdependent economic systems, along with varying degrees of tariffs on just about every trade flow in the world. Today, I'm not sure if we can tell you what's going to be happening between now and the end of the week in either the macro economy or our own petrochemical industry. I would assume that most CEOs who have already reported their numbers, if they were to report again today, would be changing their outlook. I want to see if we can take and make some sense as far as what we're seeing as far as what is happening today and some of the longer-term implications for Huntsman that we see as of today. Much of what we're seeing in our supply chains is a literal disconnect between orders and downstream demand. We see build rates for cars drop low single digit percentages, and by the time the supply chains move through OEMs and down to us, we are seeing double-digit drops in some order patents. It is not unlike what happens when someone taps the brakes on a fast-moving freeway, and the car behind them applies greater pressure. Three or four cars further back, cars are literally skidding to a halt. Now, I do not see vehicle production, housing materials, airplanes, and power grid components dropping by double-digit margins. However, I am seeing in the past few weeks, suppliers panic, and in a world of great and changing uncertainties, lowering inventories, preserving working capital, and stopping supply chains, especially those moving overseas. Will these conditions remain permanent? I think that is very highly unlikely. I would see a scenario not unlike 2020, when supply chains and inventories froze, and the world stood in a state of paralysis as consumers, manufacturers, and suppliers tried to make sense of the short-term. I see much, if not all, of the short-term supply and demand issues driven largely by the unknown and uncertain conditions likely being resolved in the next few months. As trade deals get done, alternate supply lines and sources emerge, and the dust from Liberation Day finally settles. Other aspects of this will be longer lasting. North American MDI tariffs is a good example. This past year, nearly 400,000 tons were imported into the United States and the Americas market, with about 75% of that coming from China. This represents between 20% and 25% of the total domestic demand for the entire year. Just in the month of January of this year, more than twice the amount of MDI that was imported a year ago was imported into the United States. By the end of the quarter, in March, imports had dropped by 60% into the Americas and greater than 75% from China. And it appears that this drop will continue into the second quarter as only one kiloton of MDI from China came into the Americas in the first week of April. These tariffs seemingly are longer term in nature, and I believe may have a greater impact on the Americas. Huntsman produces virtually all of our Americas material in North America. We're in an ideal location to benefit from this. More specifically, during the latter part of the first quarter of this year, as shipments from China were canceled, there seemed to be an oversupply of MDI on the Asian markets. Chinese MDI prices fell as did raw materials. However, in the past week, these prices have stabilized and have actually recovered by 10%. Again, as we are well situated in our Chinese business, as all of our MDI supply is domestically produced with an excellent team of local associates that operate this business. Again, how long will this last? No one knows. But orders seem to slowly be coming about in China and the Americas markets. Europe, on the other hand, is still trying to figure out if they have or even want an industrial policy. More to come on that one, no doubt. I do not see the impact of tariffs having a material impact, a direct material impact on our performance products and advanced material divisions. I can't clearly see what impact this will have on our customers end markets such as power and aerospace. But things seem to be moving towards a slightly more confident place than they were just a week ago. This past quarter, I told you that I thought we were seeing the bottom of MDI prices or better put margins, or better put, margins, as we had seen announced price increases across the US, EU, and China. I continue to believe this, though there may be a bit of choppiness in the numbers. The MDI markets may well be seeing better margin expansion from falling raw material prices than from rising MDI prices. However, volumes will be of greatest importance. The present market uncertainties do not provide us or our customers confidence for longer-term inventory build and volume increase. We continue to be frustrated by the lack of a clear and realistic energy in European-wide industrial policy, which is needed to encourage investment by us and others in Europe. We will continue to aggressively look at our cost and organizational structure and calibrate that to a shrinking industrial base as we see more companies struggling under the burden of high energy costs, taxes, and regulation. In short, we will not be waiting for the market to turn in our favor. We'll continue to take the steps necessary to have a value-creating business in Europe. We also continue to look for opportunities around the world that may provide a chance to increase our product footprint. While we are careful to protect our balance sheet, we will continue to assess our assets and explore possible opportunities in the marketplace to create shareholder value faster than just waiting for a market recovery. In short, we are focused on capitalizing on the short-term changes in volatility, aligning our costs to longer-term market realities, and exploring various options to enhance our portfolio and create greater shareholder value. With that, Operator, we'll open the line up for any questions.

[Operator Instructions] Our first question comes from the line of Kevin McCarthy with Vertical Research Partners.

Yes, thank you and good morning. Peter, I appreciate your description regarding what I would call a bullwhip effect. It strikes me that one of the things that might be a little bit different today is inventory levels are generally leaner than they were a few years ago. So I was wondering if you could speak to that. Where are you seeing the most pronounced bullwhip effect or volume reductions, and where do you think there might be pockets of inventory more elevated or leaner would be my first question. Thank you.

Yes, Kevin, thank you very much. Excellent question because that really strikes to the heart of the here and the now. I mean, if we are seeing a bullwhip effect, I will say that I'm not trying to contradict the guidance that we've given to second quarter. I sit here today and look at that guidance to second quarter. I firmly believe in that. But by the end of the second quarter, we may well be seeing an inflow of orders that may have a material change on that outlook. Again, I think it's important that we give you the clearest view that we have as of today and what we're seeing today. But as I look at what I would say are order patterns versus reality, reality being how many cars are actually being built, how many cars are actually being sold. There's no doubt that there's a low single-digit movement in the number of cars that are being produced. There are some builders that are slowing production down in Mexico, for example. But in the overall scheme of what we're seeing in the automotive industry, it's not more than just a few percentage points drop in production as we sit here today. We're seeing raw materials in some applications, not across the board, but in some applications, drop as much as 15% to 20% downward just in the last week or two. Now, again, how much of this is inventory fluctuation? How much of this is just setting something in place? But there is a massive disconnect as far as what's being ordered and what's being produced. I don't believe that there's a lot of inventory sitting in the auto supply chain. I would say the same thing applies to aerospace. I look at the number of planes that are being built versus the number of planes that are being delivered. Again, those are two completely different numbers. And then the supply chain as far as how many fuselages, wings, and so forth, tail sections that are being built. This is one of the best end markets in our entire business is aerospace. You would think with a customer base largely built on the backs of two companies that have multi-year back orders, that you would see one of the most consistent and reliable supply chains in any of our end-use markets. So I think on a yearly basis, it all looks quite flat. On a quarterly basis, there's quite a bit of volatility. On a monthly basis, it's all over the place. And so as I look at the auto, as I look at aerospace, I would even say the same applies to the downstream construction materials. I look at the number of homes that are being built, the number of homes that are being sold, and I compare that with products that are going to various applications, whether it's installation or appliances and so forth, and you see much greater volatility. So, Kevin, I'm sorry, long-winded answer, but I think it probably gets to a heart of what a lot of people out there are really thinking. How do you match today's drop-off in demand with the reality of what's actually being consumed in the broader market? The simple fact of the matter is the only parallel I've seen in the last 15, 20-plus years is really 2020, when we saw a very, very rapid, sudden drop-off in COVID, and subsequent weeks that we saw, in your words, this bullwhip effect that came back in the latter part of 2020 and went all the way up through 2021.

Thank you for that, Peter. And then as a follow-up, would you have so to guess as to how much the total company volume might have been down, if it was down, in the month of April, and how the order books are shaping up for May?

Yes, I'd want to look a little bit more closely at that. I think when you'd be looking across the board at all of the businesses, January and February for us would have been, what I would say would be months that were on target and were meeting expectations. We really saw a great deal of volatility around those orders in the month of March and going into April. And as I say, it's obviously we're in the very early part of May, not a great deal of visibility right now, but it seems like the dust is gradually starting to settle. So a lot of metaphors in there without giving you exact numbers, and I don't have the exact numbers on the volume of the pricing. But as we look into the second quarter, our single largest variable in the second quarter is going to be around what actually happens with volumes, order patterns, and prices. And I will just say that I am not aware of any large customers that we have lost during this time period as well. I say that because I believe that what we're seeing is a lot of what a lot of other people are probably seeing the same thing.

Our next question comes in line of Patrick Cunningham with Citi.

Hi, good morning. The trade uncertainty is clearly overwhelming everything. But, one of the goals is to increase U.S. manufacturing. And maybe you'll get some tailwinds for housing and infrastructure. How do you view the growth potential longer term if the policies work as intended? And how might you further reposition your asset footprint if we live in this protectionist world?

Well, I'm not sure that as we look at our asset footprint, I continue to see kind of some vague question marks around Europe. But if you, okay, I'm probably oversimplifying things. If you kind of look at a more protectionist view in China and a more protectionist view in America, I mean, China certainly started five, six years ago increasing their industrial capacity, domesticating their industrial capacity and so forth and becoming less reliant on imports, largely doing what the U.S. is today. The vast majority of what we sell, the vast majority of where we make money is in domestically produced product, both in North America and in Asia. So I don't see us having to change our footprint, if you will, manufacturing or otherwise to try to calibrate around where things seemingly are going. Now, again, that may have an impact on our downstream demand on some of our products and so forth. But I think that we're in a pretty good position ourselves. You did mention the construction markets. And I would think that the single biggest issue, probably certainly longer term, even more so than tariffs and tariffs, you will recalibrate. And we'll be able to work our way through tariffs. The single biggest impact that we see between now and the end of the year on our earnings would be an improvement in the pickup in the North American residential and commercial construction.

Understood. Very helpful. And could you provide an update on the spray foam business? Has this business seen a similar disconnect in downstream demand versus your orders? And do you expect any sort of further pressure on this market just given, home builders are under pressure at this point?

Yes, the bottom line is, if you think about the spray foam business, that's going to both be a new homes, which is slowed and home remodeling, putting taking out a second mortgage or whatever and add a higher interest rate and remodeling your home. That industry is obviously slowed as well. So, yes, we would see that impact in both areas.

And, Patrick, you'll have seen that we announced the closure of our Boisbriand, Canada facility for spray. We're consolidating everything down in Arlington and in Texas. And that's just right sizing our footprint to ensure we've got the cost base right.

Our next question comes from line of Jeff Zekauskas from J.P. Morgan.

Thanks very much. Can you talk about pricing and MDI in North America? It seems that the major producers went out with meaningful price increases. What happened and what continues to happen?

Well, look, we are still out there pushing price increases and so forth. I'm not going to speak on behalf of our competitors. I'll let them speak for themselves and whatever decisions they're trying to make. Jeff, the objective of our price increases was to expand margins. And if we can do that by maintaining a price and being able to take advantage of falling raw material prices, we'll certainly do that. I would say that I think that we are in a worse position today than we were two months ago. When it comes to those prices being implemented due solely because of the lack of volume, the lack of demand that we're seeing in the market. Conversely, I would expect that as you see tariffs fully in effect in North America, perhaps even in China, and as you see volumes recover to a more normalized area, you'll see an opportunity for those price increases to be more meaningfully implemented across the board.

And then for Phil, I think inventories went up $100 million roughly sequentially. Is that mostly because your demand was less than you expected and you need to move your operating rates down? And do you have any estimates for whether working capital will be a benefit or a use this year?

Yes, Jeff, it came in about where we expected. As a reminder, we've got a number of turnarounds around the world, particularly the large one that we had in Rotterdam, where we have to build for that. We've got some more minor ones during the second quarter in Geismer in Shaoxing, China, as well as the turnaround at our Conroe, Texas facility. So I expected us to build those numbers will come down in the second quarter. And you're right. There's some calibration there towards a lower or let's call it an uncertain demand environment. But we'll have our inventories back down at the end of the second quarter for the full year. I think we articulated we still expect to have an improvement on our cash conversion cycle. We improved on that last year and we'll expect a further improvement on that for this year in terms of whether it be a source or a use. Selfishly, I hope there's a use. I hope there's a booming economy by the fourth quarter and fourth quarter activity is much higher in the fourth quarter this year versus the fourth quarter last year. But our focus, honestly, is on what we can control and ensuring our cash conversion cycle is appropriately managed.

Our next question comes from the line of Josh Spector with UBS.

Hi, good morning. I want to ask two things first on the trade balances for MDI. I mean, at least on the data that we have through February, it looks like there's been a tick up in Germany imports into the US. So as China backs out, do you see a scenario where Europe fills in that gap or do US assets move up much more to fill that? I don't know if that's internal transfers of a competitor or something else going on or something with the market. And then second, just with your US pricing, where you have spread pass-throughs or benzene pass-throughs, how do those contracts renegotiate? What's your ability to increase those spreads separate from the price increases? Thanks.

Yes, on the first part of that question, yes, I would think that if somebody is bringing in product from Europe today, I can't imagine why they would be doing that. I mean, as I look at our own manufacturing costs, we're in excess of $100 a ton higher cost in Europe. And then on top of that, you have to pay what I think it's a 6% to 8% duty or tariff. And then on top of that, you have to pay working capital, you have to pay transportation. So you're talking there probably of a $400 to $500 a ton difference between Europe and the US. So if somebody is shipping product in from Europe into the US for economic benefit, I find that really tough to understand why somebody would be doing that. But short of an operating upset, you've got contractual obligations that you have to meet on a take or pay or something. So, no, I do not see Europe backfilling Asian material that otherwise would be coming to the US. It has not been competitive to do that for at least the last three or four years. And I don't foresee in the future, given the energy costs and so forth in Europe, freight costs and tariffs and so forth, I don't see how that could possibly make sense on a longer term basis. Yes, our pass-through pricing reminds you that just under about 50% of our overall North American volume is on some form or another of pass-through. So I think it's kind of -- I'm not going to say it's standard in the industry, but there's some segments that have longer term commitments to customers and so forth where they favor that and others that do not. Typically those contracts, I'm not going to speak to all of them because they all vary contract to contract, but typically you have anywhere from a three, six months, what I would call a pit stop, where you can pull off from the contracts and you can readjust the portion of that contract that is not related to raw materials. I would call that would be a margin expansion. Or you can just choose to get out of the contract altogether. But, again, that's going to vary customer to customer, term to term. But you typically, every couple of months, you'll have a pit stop. So, again, if you see a dollar drop in benzene that happened, let's hypothetically say today, I would say that you probably have anywhere from a 30- to 45-day time period of where your existing inventory is going to have to be worked through the system. You've got benzene that if that price were to drop today. You've got benzene that you bought yesterday, benzene that's on the water in shipment to your plants. You've got benzene in the form of nitrobenzene, crude MDI, finished inventory. All that's priced at that more expensive inventory. So, the impact of that dollar cheaper benzene as of today is not going to be felt for some time. And then when it is, you'll instantaneously feel it on that 50%. And, again, that's a much higher percentage than what you see in Europe or in Asia in the U.S. market. At 50%, you would feel that instantaneously. And then the other 50%, you would see that probably over a three to six, maybe in a very few contracts as much as long as a nine-month sort of a term contract in that. So, that last 50% would be tailing off there. So, again, I'd like to be able to say you see a dollar drop today, you're going to see the benefit today. Conversely, when prices go up, we're not going to fully see the impact of that taking effect. And when prices go up, people are panicking and so forth. We usually, it gives us that amount of time inversely to be able to respond to the markets and to be able to calibrate our production, our costs, and so forth. So, it works in the opposite when prices are going up.

Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Thanks. Good morning, everyone. Peter, to continue with this line of questioning, can Chinese exporters shift to moving MDI to Canada and Mexico? And would your customers be able to shift their consumption to those two countries?

Well, not if they become the 51st and 52nd state, Aleksey. Okay, I'm just kidding. No, that's, look, there's obviously going to be -- there would be an advantage, I assume. Each of those countries have their own independent trade tariffs and so forth that are going to be put into place. There have been some recent rather public MDI consumers that have taken MDI finished product in the form of building materials and other products. I don't want to get customer or company specific that have brought that over the border and have been fined and under investigation for trying to avert duties that way. So, again, when you look at what you produce in Canada, you're going to have to be consuming that in Canada as well. If you bring a finished product into the United States on, I guess, every single application but on most of the applications, you're going to have to be paying a duty on that proportion of MDI.

Makes sense. Thanks for this. And I wanted to ask you about the dividend. Could you share anything about how the board thinks on this topic? Is the dividend something you're really determined to keep at this level, or is there a good argument to sort of de-risk the balance sheet and adjust it since free cash has been weaker for a while?

I think if you look in the past, in our company's past, all through COVID and even through the economic recession going back 15 years ago, the dividend has been something that this company has always held to be something very close to sacred. We as a management team, as we look beyond just the cash generation of the company itself, we look at the $75 million we've collected so far to date from a Praxair legal settlement, from our slick dividend, from other initiatives that we'll have between now and the end of the year. We feel very confident that we will continue to generate the amount of cash necessary. We have a strong enough balance sheet, and we certainly have confidence in the future as to where the company is going to maintain the dividend. So at this time, that certainly is not a question that we're grappling with.

I mean, we recognize the yields are high right now. Well, actually they always are in trough conditions, as Peter indicates. We've got $1.3 billion of liquidity. Our debt maturities are 29, 31, and 34. So we're managing the cash side appropriately.

Our next question comes in line of Mike Harrison with Seaport Research Partners.

Hi. Good morning. Peter, along with all the tariff-related uncertainty, you guys had a turnaround going on at Rotterdam that I think led into the second quarter too, the unplanned outage at the maleic facility in Germany. It sounds like there was a fire at an automotive customer facility. Can you quantify the impact of those disruptions to EBITDA in Q1? And then Phil mentioned some more planned turnarounds for Q2. How much headwind is baked into the EBITDA guidance from those planned, I guess, disruptions or turnarounds?

I would say Rotterdam, as we've guided, I think on our previous call, we talked about a $15 million hit in the first half, kind of $5 million in the first quarter, $10 million in the second quarter. I think we continue to stand by that, though. We are literally, in the course of the next few days here, we are literally going through a startup of our lines as we speak. And equally as important as our lines, the lines of our customers and suppliers who are also starting up their facilities. Rotterdam is a particularly tricky one because we can only run as far and as fast as our customers do on this whole thing. As far as the fire is concerned, yes, that probably is around a $3 million hit. Again, we don't have anything to do with the fire, but it did impact some of the order flows coming from our vast materials going into, I think particularly into the EV applications.

Yes, and on maleic, I think you're aware, Mike, that the margins are incredibly thin in European maleic, given the demand that we see there and given imports into China. So that's a negligible impact. It does have a large impact when you look at sort of year-on-year growth numbers where it looks quite dramatic that PP was down 16%, but once you strip out the maleic European side of the business, it was down more like 3% to 4% overall.

Yes, virtually all that was European on a single site, yes.

All right, and then the Geismar in China, and I think you mentioned another facility for Q2. Are those pretty modest in terms of impact for Q2?

Yes, relatively small, Mike. You should focus on the Rotterdam and the Rotterdam impact for us.

Yes, the impact on the others will largely be around the movement in stock and inventory, which is still already addressed.

Our next question comes from the line of Michael Sison with Wells Fargo.

Hey, good morning. Peter, some of the consultants see a pretty good increase in MDI margins sequentially in 2Q versus 1Q driven by pricing. What are your thoughts in terms of industry profitability heading into 2Q?

Well, again, if I take a snapshot of today, as I said earlier in my comments, it's around volume. Again, as I look at pricing, Europe where prices is kind of matching raw materials. As I look at the U.S., I think that we have an opportunity to expand margin if we're able to maintain our price or slightly increase our price, hopefully get it up even further, and take advantage of falling raw material prices. Asia, again, I've talked about the falloff that we saw going into the second quarter. It's been a whopping eight days now that we've celebrated the price has either not been falling or gradually been coming up. So I'll continue to take that one day at a time, but I want to emphasize that we're eight days into either a dead cat bounce or –sorry, I might just have sent a bunch of cat lovers out, dead cat bounce, or it might be something the product it was destined for North America that was being put on ships early in the first quarter. It was taken off ships and put back into the Chinese market. That product has been adequately absorbed into the Chinese market, and the Chinese markets are now better balanced. So we kind of look at a price going from $18,500 per ton down to about $14,200, today sitting at like $15,200. Again, that's a lot of volatility, but that price is to where we were a month ago or so. It's been pretty stable for the last couple of months, and it's been fairly healthy given where we are in the other parts of the world. So I think Asia continues to be, it'll be interesting to see what happens here over the next couple of weeks on pricing.

Got it. And then I understand that it's difficult to take a look beyond 2Q, but what do you think you need to see or want to see to have a better second half in terms of earnings versus the first half? And if the U.S. economy goes into a recession, albeit it seems like we've been in a chemical recession for quite some time, what happens? What do you think you need to do to keep earnings at these levels?

Well, I certainly would like to see earnings improve materially from these levels. And again, as we look at the single biggest variable in the second quarters, we kind of look at it around where we had hoped second quarter would be versus where we see second quarter today. The biggest single variable that we see is around volume and pricing. And that's going to be, in my opinion, not 100%, but largely a function of certainty. If you see certainty in the market and if people have an idea as to where tariffs are going and where supply chains are moving, and that entire impact, you'll see volumes recover. And I believe that as you start seeing more and more trade deals get completed, that certainty slowly recovers back into the market. I hope that by the end of the quarter that we'll be surprised at the improvement volume. But that volume does have to improve, and I believe that it will eventually improve, just simply because there's a massive disconnect, as I've said, between what consumers, what people are using, what they're buying, what they're spending on, and what we're supplying into those markets. There's just not that much excess inventory in the system.

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Great. Thanks for taking my question. I hope you guys are doing well. I guess I had a question about the guidance. So it looks like your first half now will be coming in around $150 or in that range, and if you were to annualize it and add in some seasonality, you get to a $350 range, which is, I think, quite a bit below what we started the year expecting. So, obviously, Peter, you went through a lot of the potential pullback amongst your customers and then the potential positive bullwhip effect that can follow that. But am I thinking about your level of confidence in EBITDA for the year in the right way? I just don't want to get ahead of our skis here, just given all that uncertainty out there. Thanks.

Yes. Personally, Arun, yes, we're doing very well. Thank you for your comments. Personally, I would hope that we certainly finish the second half of the year better than the first half of the year. I think that the guidance that we gave in the first quarter call, we purposely avoided giving yearly direction just because it was so hazy then, and I think it is far hazier today than it was then. I hate to say that, given the fact that we're three months further into the year. So, I mean, I have a lot of hope for the second half, but I can't sit here and say that we've seen a bunch of orders that are going to give us a great deal of confidence. So I probably would just avoid trying to tell you where we're going to end the year. My personal opinion, [Tech Difficulty] I think, is true. I think inventories are low. I think the backlog of demand and housing and a lot of the products we produce, the build-out of aerospace and the recovery of it, the build-out of our electrical grid, the components and so forth going into that, the expansion that we're going to continue to see in technologies and EVs and so forth, these all would tell you that there's going to be a growth in demand and there's going to be a [Tech Difficulty] Operator, any more questions?

Our next question comes from the line of John Roberts with Mizuho Securities.

Thanks, Peter. Are you seeing uniform weakness across composite wood versus automotive versus insulation, or is there some differentiation there? And then, secondly, during 2020, a lot of the small spray foam customers got stimulus, at least to keep them going. Do you think they survive this kind of correction right now?

Yes, I've got no idea as to what our competition will be doing in spray foam. I've not heard nor seen any talk, legislation, or anything around any sort of stimulus that would be directed towards a particular segment of any of our customer bases. So I'd kind of be surprised to see that. Yes, and as we look at the difference between OSB, insulation, automotive, I think that there's just a general trend right now of uncertainty, and that uncertainty right now just has people bringing down inventories, bringing down orders on the short-term, preserving capital, strengthening their balance sheet, doing those kind of emergency steps that you see in moments in times of uncertainty until there's greater certainty. So I'm not sure that it's all necessarily tied industry to industry as much as it is just the general sentiment of the industry.

Our next question comes from the line of Frank Mitsch with Fermium Research.

Good morning, and thanks. Congrats to Tony Hankins on his pending retirement. It was a pleasure to work with him. And by the way, I'm not sure if it was just me, but in the last five minutes or so, the conference call has been coming in and out. Perhaps it was just my phone. Peter, I appreciate the reference to COVID in terms of the paralysis that we're seeing now, but I took a look back at COVID, and really it was just one quarter. It was the second quarter of ‘20 that was very poor. The first quarter and third quarter of ‘20, you posted very strong results. And here we are. It looks like the second quarter is the third quarter of really poor results. I mean, is this systematic or you believe that it is episodic and that we're going to get out of it and you're going to go back to posting kind of $200 million type EBITDA quarters? What gives you confidence that this is not a systemic decline in your business lines?

What gives me confidence is the disconnect between if our sales were down, the automotives were down 10%, and their sales were down 10%, and the whole value chain was going down 10%, I'd say this is systematic. I'd say this is probably longer term and we ought to be getting ready for it. I'm simply not seeing that. And as I talk to customers, and I talk to board members, and I talk to people that are involved in the auto, into the aerospace, and even into the home builders, I don't get that indication. Now, frankly, I'm not going to sit here and say that I've talked to everybody and I can roughly accurately reflect everybody's sentiment in this, but I do believe that I've only seen this sort of disconnect between the panic and orders that we've seen today and that which we've seen previously. I would also just note that COVID, we kind of saw a lumpiness of the impact of COVID. There's no doubt North America was certainly a second quarter phenomenon. I think it happened a little bit later than that in Europe, the impact on the European P&L, and it happened previous to that on the Chinese P&L, and the Chinese P&L also spilled again kind of a second time in the latter part of 2020. So I don't want to get too technical with the comparisons between COVID and where we are today. I will just say the only comparison that I was trying to make was more just around the couple of months that we saw a disconnect between inventories, customer demand, and pull through of the ultimate supply chains.

Okay, understood. And can you provide an update on the maleic facility in Europe? It seems like a couple things happened there. One, you're looking to make a decision on it I think by midyear, but then you also had an unplanned outage. What's going on there? How should we think about that?

Well, I would think about that we think that by the middle part of this year that we will be in a position to announce a permanent decision as it pertains to that asset, and that Europe continues to be flooded with maleic coming in from China and coming in indirectly from Russia via Turkey. And it also continues to be flooded not just with maleic, but also downstream UPR materials as well. So it's kind of getting hit in multiple areas. And so in addition to our operating issues that we have in Germany, certainly are seeing headwinds in just the overall demand in the margin erosion that we see in maleic in Europe.

Our next question comes from Salvator Tiano with Bank of America.

Yes, thank you. Good morning. So firstly on MDI, I wanted to ask how are you so far in Q1 or in Q2 managing your MDI system, your upstream MDI plans given the reduced demand, and specifically on Geismar, I remember a little bit over a year ago you broke on line or you restarted the smaller of the units there. So is this something that you may have to stop using again or you stop producing in Q1?

No, I would say that if anything, we're hoping to see greater capacity utilization. We brought line one down in Q1 in part because obviously of low margins and in part because we believe that there was a lot of uncompetitive material being imported into the United States, and that was having into the Americas market and that was having an impact on it. So with tariffs that are in place, with the change of imports and so forth that we're seeing, if anything, I see that demand ought to be picking up for domestically produced MDI. Our downstream system houses in the U.S., I would remind you that we don't have too many in the U.S. We produce polyols, and that's a raw material that's going into our spray foam and our other polyols business. That continues to be a great business for us. We're consolidating. I would say that our HBS business is a separate business. We look at it internally, but we try to run it as competitively as we can and integrate with the rest of our business. In some regards, I would look at that as a downstream systems business as well, and we're obviously consolidating that operation, making sure that our costs are aligned with the market realities. In Europe, we've announced the closure of our Deggendorf, Germany, and the reduction of some of our other sites and facilities around Europe, and we'll continue to look at our overall footprint there. So, yes, we'll continue to look at our costs. We'll continue to look at the overall structural demand and profitability of our entire chain. But this year, I think that even if we remain in somewhat sluggish economic environment, that the opportunity to increase domestically produced MDI in North America will likely improve through the year.

Great. Perfect. I want to follow up on the PO/MTBE JV in China, and if you can give a little bit more outlook now on what you expect for perhaps the next two quarters and if there's any more clarity, I guess, on what would be the dividend you receive on 2026 based on what is happening right now in earnings.

Yes. So, I mean, as we said, our equity dividends for 2025 will be a lot lower than they were in 2024. MTBE margins started to decline towards the back end of last year, and you can follow those margins via CMA, via ISIS. They're close to breakeven today as oil has come off WTI is now below 60. Brent's down at about 60. So, they're close to breakeven right now, and that's why we've guided to where we have in the second quarter. And that second quarter, XC income will be about $20 million below where we were in the second quarter of last year. So, there's a large bridge there just on the XC income side. How that plays out for the remainder of the year, I think, will be dictated by economic activity, certainty around tariffs, where oil heads overall. MTBE has had a long history of being low margin and then being able to turn around to higher margins. So, we're not in a position today to guide how our dividends are going to look in 2026 over 2025. That's an extremely volatile product and market.

Our next question comes from the line of Matthew Blair with TPH.

Thank you, and good morning, Peter. Can I ask a question on the debt picture here? So, you took care of some notes in the first quarter. I think you stand around 4x net leverage on an LTM basis. If we look at that more on an annualized first cap basis, you're around 5.5x net leverage. Do you need to reduce debt, or are you still comfortable with where you're at?

Well, I'm certainly not comfortable with the margins that are being earned in the business. They ought to be higher, and I believe that they will be getting higher. And I think we're taking a snapshot of time as to where our debt levels are at what I would think right now would be certainly a low as we leave the first quarter going into the second quarter and would hope for some improvement there. But no, I think as we look at our longer-term debt levels on a normalized EBITDA basis, we continue to be in a position where I believe we have a very strong balance sheet.

If you look, we've got bond maturities 29, 31, and 34. $1.5 billion of net debt for this portfolio and over a cycle is a good number to be at. We're obviously at trough economics now, well aware of that. Our liquidity, as I've said, is $1.3 billion. It's also ample, and we'll do all the relevant things that you'd expect to adequately protect the balance sheet. But that longer maturity profile that we have on bonds is helpful.

Sounds good. And then I think the prepared comments mentioned that your construction volumes for your overall business were down 6% quarter-over-quarter in Q1, which seems like an unusual, counter-seasonal move. Was that weakness coming more from commercial or more from the residential side?

I believe that was mostly from the residential side of the business. And I would think that a lot of that, again, had to do more with the buying patterns rather than the demand patterns on the construction side.

Yes. Normally, you do actually expect a slight decline when you move from Q4 to Q1. We look at it relatively simply. In Q4, you have December as a low month, whereas in Q1, you have January and February as low months, particularly with Chinese New Year. So that's the way to kind of think about that sequential movement when it comes to construction globally.

Our next question comes from the line of David Begleiter with Deutsche Bank.

Hi, good morning. This is Emily Fusco. I'm for Dave Begleiter. You announced a doubling of your cost savings to $100 million. Do you have any sort of early preview of where these savings will be coming from?

Well, very good question. We'll be giving more details about this. I don't like announcing cost savings until we literally have it down to exact numbers and details and so forth. We feel very confident that we're heading there exactly where that is. We'll be located and so forth. I think I gave some indications about having to calibrate our cost structure to the market realities, particularly in Europe. But I think we'll be giving more light and more color on that as the quarter progresses.

Our next question comes from the line of Hassan Ahmed with Alembic Global.

Good morning, Peter and Phil. Apologies if someone has asked this question previously. My line was cutting in and out. I just wanted to revisit some of the commentary around MDI. Specifically, you talked about 20% to 25% of U.S. MDI demand being met via exports from China. I mean, look, I completely understand that it's highly unpredictable what the future of these tariffs will be. But I mean when I sit there and think about the impact of tariffs and above and beyond that, more specifically for MDI, the whole anti-dumping investigation that's going on, I think it's obviously fair to assume that that Chinese product, in a tariff world and an anti-dumping world, there will be duties on that product. Am I missing something? Because it just seems beyond some of these very near-term trends of loading up on sort of Chinese exports into the U.S. market and sort of the issues caused by that in the near term. I mean, beyond the near term, the setup actually seems highly favorable if you're producing product in the U.S. Am I thinking about this the right way?

Hassan, very good question. Thank you very much. I think that you are. So a couple of things. I don't want to go down a rabbit hole here, but I want to make sure that we kind of clarify what's long term and kind of what's short term. First of all, when we talk about a 20% to 25% supply going to the market, that's for the Americas. That's for North, South, United States. It's for the Americas, right? When you talk about the United States, that number would even be higher than that 20%. So when you think about tariffs and where they are, think about where we were at the beginning of the year, which was what I would call the 301 tariffs. These were tariffs that were put in place in the first Trump administration. They were maintained through the Biden administration. The reason I bring that up is I would consider these to be longer term tariffs. These are about 31.5% tariffs that were in place. In addition to that, I'll then put kind of a second bucket of what I would call the Trump tariffs. Those are the tariffs that were put in place over the course of the last 30 to 60 days. Now, I may be a little bit off on these tariffs because they seemingly have changed back and forth a little bit, but those today are around 145%. The reason I put those in a second bucket is they came rather suddenly. And all of a sudden, you might see Xi Jinping and Trump emerge from a trade summit or something like that and say they're gone. I'm not expecting that to happen, but again, they came suddenly. They can leave just as suddenly. And so I would say that's a Trump tariff around 145%, added to the 31%. It gets you just over the 175%. There's also an anti-dumping case. It's quite separate and apart from what I would call the Trump tariff, and this is around the ITC in the Commerce Department. And as I think about those cases, in March of this year, the ITC ruled that there was a reasonable indication that there had been an impact on domestic industry supply balances, profitability, so on and so forth, from Chinese imports. The Commerce Department is now conducting a preliminary investigation, and that's supposed to be done by around the middle of September of this year. Assuming that they ruled favorably in that investigation, that will then go to Commerce and ITC, the International Trade Commission, will conduct a final investigation to determine the dumping, the amount. That will probably be adjudicated sometime, final decision, sometime around February with a final ruling put into place in March of next year. That could be anywhere from 300% to 500%. The reason I put that in a third bucket is that's quite apart from any sentiment that the President may or may not have or any negotiations that he has with somebody. That's an ITC and a Commerce Department ruling, and if that's put into effect, those go for a period of five years before they are revisited. So you kind of have, again, the pre-Trump tariffs, 31%, the Trump arbitrary, I don't want to say arbitrage, I'm sure a lot of logic and thought went into it. The Trump arbitrary tariffs of 145% that I would say could come and go. And then there's this anti-dumping case that could be anywhere from 300% to 500%. Again, that could be put into place and could be put into place on a long-term basis for multiple years. So, yes, I think that to answer your question, I'm not going to sit here and say that I claim to know the impact of all that because it's all happening as we speak. But I think you'd have to be pretty naive to think that if those were all implemented or if any two of those three were implemented, that would not have an impact on the North American marketplace. And I think that my comments earlier about having to shut down part of our production, when you reopen that production, demand comes back. You're hiring more people. You're spending more domestically. You're producing more domestically. You're paying higher taxes domestically. And you see the impact of that. So, yes, that is all playing out in real time, Hassan, and I greatly apologize for a long-winded answer.

No worries at all. And as a quick follow-up, obviously, uncertainty in, I mean, if I were a Chinese polyurethane producer facing these headwinds, I guess, I would probably be thinking about maybe some rationalization. And adding to those woes, I mean, of course, China sort of imports around 40% to 50% of their LPG needs, propane in particular, from the U.S., right. And obviously, on the surface, it seems that those are going to be tariffed as well. And if you take a look at the last couple of years, China has more than doubled its PDH capacity, right. So, all of a sudden, in that tariff world, I'd like to think that maybe there'll be some shuttering of those PDH units because they'll become highly uneconomic, right, which in theory will impact propylene supply, and which in theory could impact PO and polyurethane economics. So, I mean, again, is that the right way of thinking about it? And are you seeing any indications of rationalization on the back of all of these headwinds?

Yes, it's an excellent point, Hassan, and very well thought through. I think that as you look at these, they're each going to be treated differently. I look at the NGOs that are being imported into China from the U.S., and to what degree those are tariffed coming or going into China. I noticed this last week that China dropped its tariff on ethane, a vital raw material for gas cracking into ethylene and polyethylene. So, yes, you're already starting to see backwards movement in certain areas and certain products that are being freed up, if you will. But there will be a great deal of, I think, of change coming in the next quarter or two. I don't think it's going to play out in the next couple of years. I think it's going to play out in the next quarter or two. And what exactly international producers decide to do is purely up in the air.

Thank you. Operator, I think if we have any more questions, we'll take that. But I know we're beyond the top of the hour, and I think it's a pretty crowded day with calls right now, so.

We have no other questions at this time. So, at this point, I'll conclude our Q&A session and our call. We thank you for your interest and your participation. You may now disconnect your lines.