Celanese Corporation Class A Aktie

Greetings, and welcome to the Celanese Q1 2026 Earnings Call and Webcast. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to Bill Cunningham. Thank you, Bill. You may begin.

Thank Daryl. Welcome to the Southern East Corporation First Quarter 2026 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 first 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, Daryl, let's go ahead and open it up for questions.

[Operator Instructions] Our first questions come from the line of Ghansham Panjabi with Baird.

I guess, first off, based on your first quarter operating results, it seems like your major end markets are basically weak apart from some order pattern distortions specific to prebuys, et cetera. As it relates to your guidance for the back half of the year, are you basically assuming that the operating environment reverts back to what you were seeing prewar? And I guess I'm referring specifically to the $3 per share in EPS you're guiding towards for the back half of the year.

Yes. Thanks for the question, Ghansham. I think we've been pretty consistent with where our focus is. And it really remains on cash generation while we position our businesses for long-term success. And that's because we're in a world where demand continues to be low at an end use level. And certainly, with some of the supply chain disruption, that we're seeing here in the second quarter, we're going to go capture that.

But we are really building something that we believe is very resilient as we go forward. So as we look to the second half, we ran a lot of different scenarios. And as we look at the scenario, we do believe the right one to assume in the second half is one where supply chains start to unwind here by the end of the quarter here in Q2, and you see that kind of moderate on where volumes and margins are in the second half. And we just believe that's the right assumption at this point.

And then as it relates to some of the network moves you've made in terms of ramping up capacity in certain cases in Frankfurt, et cetera, VAM, VAE and so on and so forth. What happens in the scenario that demand normalizes, would you adjust accordingly given that you're ramping up this capacity again, obviously, based on search demand, et cetera?

Yes. The words we use internally, Ghansham, are being positioned to respond. And that's not just here in Q2. This is how we operate every single day. And we've run Frankfurt, we've run Singapore as swing units, but we also swing our operating rates in the acetyl chain as needed. We pivot our supply chain in Engineered Materials as customer demand shifts and changes. And so we're going to continue to position the company and the day-to-day business where it needs to be to respond. And so if demand continues to stay where it is, we've got the assets running where they are. Demand changes, then we'll pivot as needed.

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

Your U.S. production at Clear Lake has a pretty significant advantage. I guess how have operating rates trended in the first quarter? And how are they progressing into 2Q and I'm just curious if there are any limiting factors to maximizing those rates or any logistics bottlenecks you foresee across the complex.

Yes. Thanks, Patrick. It really is about reliability of supply for our customers. And Clear Lake is a great asset that can flex really across the products that we make there. And then we've got downstream assets positioned around the world that can also flex. And as I just mentioned on the previous question, Frankfurt is one of those assets that we block operated in a way that can flex as needed. And we're going to continue to adjust those rates as needed, as you can imagine, just given where some of the supply chain challenges have been this quarter, Clear Lake is running at a relatively high utilization rate.

Got it. And then just on EM. Can you talk a little bit about the playbook in sort of response or in context of the crisis in terms of pricing, share gain opportunities how is the Nylon 66 market performed? And any meaningful change in supply or trade flow dynamics at this point?

Yes. Look, how we look at our EM business, these are the right products at the right time to drive growth in a world that is challenged for growth. And we do that by ensuring that we've got the right segment focus and then kind of drill down below that into a subsegment focus. And we are extremely well positioned with the asset base from a compounding standpoint, which is where we create the most value in that last step of the process, our assets are extremely well positioned in each region.

And so we are able to move polymer or buy polymer in each region to be able to adjust as certain products may have scarcity because of supply chain challenges, or be able to adjust pricing to deal with rising feedstock costs. And it does tend to take a quarter or 2 for those feedstocks to really fully flow through in the Engineered Materials business. And so it was important that we work to try to get ahead of that from a pricing standpoint now.

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

Can you talk about prospects for [ benzene ] and how that will affect your Engineered Materials EBIT or EBITDA or equity income?

Yes. Thanks, Jeff. When you look at benzene, in 2025, they actually had a fairly large turnaround. So earnings were a little bit lower last year. And so right now, as we estimate earnings 2026 versus 2025, we're assuming pretty much flattish, Jeff, on what rolls through equity earnings right now.

Now the plant -- most of the assets there have not been operating for the last 6 weeks or so because of shipping constraints as well as a raw material feedstock disruption. And so you'll have to see kind of where that goes here into the second half, but given the fact that we are on a 1-quarter lag, there. And the fact that 2025 was a pretty low number, we're right now assuming flattish.

Okay. Great. And then in the acetyl chain, in the second quarter, you're going to make maybe a little less than $200 million more. Can you analyze that in terms of -- is it more acetic acid? Is it more VAM? Is it more China? Is it more U.S. exports? Can you give us an idea of how that improvement in the acetyl chain flows?

Yes. So I would say it's not really dissimilar to kind of fundamentally how the business operates in most quarters. The majority of the profit, as we've said in the past, comes from the Western Hemisphere. And I think the lift here from Q1 to Q2 is definitely weighted heavier towards the Western Hemisphere as well. And it's that low-cost advantage that we have in our asset base in Clear Lake and being able to utilize that across the Western world.

We have seen margins move up in Asia as well. I would say from a product standpoint, Jeff, very much disproportionate to the vinyls chain. So think VAM downstream into vinyl emulsions and then redispersable powder. So again, not dissimilar to how we've talked about the business to being a lot of the profitability coming less from selling acetic acid as acetic acid, but really monetizing downstream and then seeing pockets of growth opportunity.

We've talked over the last year or so about the importance of vinyl emulsions as well as powder is kind of being a very small pocket of growth in certain parts of the world, and we're definitely seeing that right now. And vinyls chemistry has a nice advantage in a higher oil environment over competing systems. And so we're seeing and working with customers on growth opportunities to drive some switching as well. And so that's really where that focus is much more downstream in the product portfolio.

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

I wanted to ask on the second half in EM. There's some comments in the prepared remarks about what you're doing on the nylon side of the equation that you expect some inventory drawdowns and some structural inventory reductions that were already underway. So is that coming on the customer side of the equation? And you think that's going to accelerate because you're going to be reducing capacity? If you could just color on some of those lines for us, that would be helpful.

Yes. Vincent, yes, in the second half, in Engineered Materials, we would expect an additional $50 million of absorption hit on the income statement. That is from drawing that nylon from the transition. But we've had, as you know, some other structural inventory production actions underway, right?

So yes, I would say, even with all that, we are targeting to grow at the end of the year, which will more than offset these -- so absorption hits over the year, which is about $35 million, the turnaround expense, which is about $15 million here coming in Q2. Potential raw material cost pressures that Scott talked about or even demand pull back and also offsetting the Micromax earnings, right?

So at the same time, I think it's important to remember, we're also fortifying the base in EM, reducing costs, reducing complexity, taking this inventory permanently out of the system. So it's really been in the plan and in place for some time.

Okay. And if I could just follow up on the Acetyl Chain. I didn't -- I don't think I saw this in prepared remarks. Does the second half assume that you're still running Frankfurt for the full second half? Or does it assume some reduction in operations there?

Vincent, there's different scenarios that could potentially play out. And so we are assuming that Frankfurt is going to operate into the second half at this point. We do have some turnaround activity in two of our VAM units around the world. We've got both the U.S. VAM units in turnaround between now and the end of the year. And so just depending on where demand is at, we'll determine what that Frankfurt operating rate schedule will look like. And -- but certainly, the expectation is that it's going to operate into the second half.

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

Nice start to the year. In terms of the second half, just curious, if nothing really changes in terms of the conflict here, does the run rate in 2Q for EPS kind of mirror third quarter, meaning does third quarter look like second quarter and then you sort of have a bigger drop in the fourth to get to your $3? Or is it -- are you assuming things get better and we're kind of $1.50, $1.50?.

Yes. Let me hit kind of a high level there, Mike. And then I'll turn it to Chuck to talk about kind of the cadence. As we look at the second half guide, it was really kind of looking at a scenario where we start to see some of the unwinding of the supply chains here by the end of Q2 and then kind of continuing into the third quarter and then into the fourth quarter.

Your question is, if we see things kind of stay where they are, I would look at how we think about our business. I mentioned that position to respond earlier. It's kind of like a coiled spring. And if the opportunity is there, then we're going to release that spring. And so if things stay where they are from a demand and a supply chain standpoint, then there's certainly upside in the second half.

Yes, Mike, based on the guide, there's a lot of moving parts and a lot of uncertainty. But I think probably the easiest way to think about it right now is if you look at normal seasonality in any given year, Q3 versus Q4, it's about $25 million, $30 million in each business. I think for now, that's a pretty good place to start. I wouldn't be surprised to see a similar pattern this year.

Got it. And then just a follow-up on Clear Lake. I recall Clear Lake II was running full out or running pretty high. Is Clear Lake I now sort of ramped fully up to sort of take advantage of the higher pricing and such? And then where are industry margins now relative to the past peaks?

Yes, Mike, let me answer your last question first. Certainly, we are nowhere near kind of what would be past peak demand levels globally or mid-cycle demand levels globally. And so I would not necessarily compare that to past periods from a margin or a volume perspective.

And in terms of your first question, I would go back to the answer to Jeff's question is the majority of the opportunities that we're seeing are more downstream for acetic acid in the vinyls chain. And so as we look at Clear Lake operating rates, we've got both of those assets that we have there kind of dialed in at the right level to get the optimal usage, et cetera, and efficiency that we want from both assets and being able to pivot up or down as needed. So really, it's more of a downstream opportunity that we're seeing as opposed to fundamental acetic acid demand.

Our next questions come from the line of David Begleiter with Deutsche Bank.

Scott, some of your peers have talked about 9 to 12 months until supply chains normalize post the end of the conflict. It looks like you're targeting maybe a shorter time line to normalization acetyls. Can you talk to that time line you're looking at?

Yes. Thanks, David. Look, it's about scenario planning, and there's a lot of different scenarios that could play out. And as you kind of look at the assumptions that we've made here that we start to things begin to unwind and that begin of that unwinding. It just -- it depends on what that kind of decline curve looks like in terms of volume and price based upon the speed of that unwinding.

And I think that is uncertain right now. But we felt like it was important to be prudent in terms of how things could play out because there's also a potential offset to demand with feedstock prices high and where they are, there could be an impact to underlying demand. And so we kind of put all those things out there. And again, felt like it was the prudent guide for the second half. But also, as I said earlier, look, we are ready. And our team has done a great job of responding to the environment here in the second quarter. And if we see that environment continue, then we'll go capture that upside.

Very good. And just on EM, you've announced some price increases. So what's the cadence of price cost as we go through Q2? Are you ahead behind or neutral? And how is it go into the back half of the year?

Yes, we're starting to get some of that price flowing through as it is kind of a slow uptick here in the second quarter, but it's important that we really begin to achieve that because the cost, while flowing through a little bit here in Q2 is going to hit us heavier in Q3. And I think we should see that hopefully fully materialize in the P&L in the third quarter. And so it's important as we exit Q2 that we're achieving the maximum amount of that price. So we're certainly on the trajectory there. But the next 6 weeks here as we finish the quarter are going to be really important in that equation.

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

Terrific. And actually, David's question leads nicely into what I wanted to ask about, and that's on the acetyl side of things. I mean, as you look at the second quarter, my assumption, and please correct me and expand upon it is that you're raising price in the acetyls upstream and downstream.

And the expectation would be that you're going to end the second quarter at a higher price level than what the 2Q average would be such that we're going to start 3Q at a higher level. I mean -- so a couple of questions. Is that how you're thinking about it as well? And based on your prudent guidance, are you factoring some measure of price degradation in the third quarter? Or how do you think about the price balance on acetyls and how we're going to enter the second half?

Yes, Frank, I don't know on a global basis that, that necessarily is right assumption. We've already seen pricing in China start to moderate as from where it was in -- at the beginning of April. So actually, I don't think on a global basis, that's actually kind of the case of where things will be. I think we'll probably see that price in Asia, stay where it is or possibly moderate a little more as we work our way through the quarter.

In the Western Hemisphere, where pricing is now is probably similar to where it will be at the end of the quarter, depending on where competitive dynamics are. So I actually think where we were in April was probably the higher watermark just as we look at the cadence today.

I understand what you're saying about China. My understanding is that some of that was also demand destruction. So they actually don't have -- you can't sell the products downstream at least here in the near term. But from -- in the Western world, would you assume that in North America, that you would give back something on price in the third quarter?

I think it's TBD, Frank. I think volume, we've got a moderation of margins and price as you work your way through the third quarter. Just from a normal seasonality standpoint, Q2 tends to be the highest quarter from a volumetric perspective, typically in acetyl. So you would normally have some volume come off in Q3 from a seasonality perspective through the holiday period. And so we've kind of factored some of that into the assumptions for Q3.

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

Just wanted to sort of dig a little deeper about this sort of uneven sort of pricing dynamic regionally that you guys talked about within acetic. I mean my understanding is that as I take a look at the raw material side of things, just in the Middle East alone, there seems to be 26 million to 27 million tons of methanol capacity that is off-line, right? And obviously, methanol pricing across the globe has risen quite rapidly, including China, right? So I'm just trying to understand this recent dip that we've seen, particularly in Chinese spot acetic pricing. Where are the margins there? Are operating rates still relatively elevated? Just trying to sort of make sense of this uneven sort of pricing environment by region.

Yes, Hassan, I think that's a good time to really call out the decisive actions that our team in acetyls has taken around the world in the quarter. They responded really quickly at the end of Q1 in order to take advantage of the margins started to move up there in China, in particular, and that's really the only place that we saw benefit from some of the supply chain disruption in Q1, but they were really working to position for the second quarter.

And as we kind of look at it, your margins were highest probably here in Q2 in China at the very beginning of the quarter, and they've come off. But we're certainly not at margin levels where they were at the beginning of 2026. So you're kind of in between that -- where they were at the beginning of April and where they were when we started the year.

And so it's somewhere in that zone. We did see -- China was in holiday last week, came back today. Pricing did move up a little bit. So we're going to have to kind of see where -- how that holds and where demand is. But demand has held relatively steady from what we can tell through the value chain in China.

Very helpful, Scott. And as a follow-up, can you just give us an update on where you guys stand with regards to any further potential divestitures?

Yes, Hassan. Yes, we continue to work that very aggressively. And I would say the current events haven't helped the M&A market. But regardless, we do feel good about signing another deal this year. It could be a smaller deal, but we're working hard to get one signed. We have not baked in any assumption for cash proceeds from a deal just from the uncertainty of kind of signing versus closing.

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

Scott, can you speak to your mix of contract versus spot business within acetyls on a pre-war basis and speak to how that is evolving, if it's changing at all post war. For example, if we consider VAM and some of the parabolic price action there, is your philosophy to sort of strike while the iron is hot and take advantage of this windfall opportunity, you might say? Or is it to really focus on upgrading your contracts and the terms and the mix with an eye toward the medium to longer term or some balance of those? Maybe you can just kind of talk through that and how you're thinking about it..

Yes. Let me just kind of step back a minute, Kevin. Our team is first focused on being the most reliable supplier in each region, in each product. And I think we've developed a network pretty deliberately for over many, many years that can achieve this and give us flex to be able to respond to what happens and what kind of landscape changes happen.

And so the pricing mechanisms that we have are different in each region, in each product, to be honest. We've got some formula pricing in certain regions, particularly VAM in the United States that we've talked about. It kind of moves with raw materials, gives us a nice base, gives us cost pass-through. We've got a lot more contracted business in Asia, but moves with how the market is moving very quickly. And then we've got blends in the balance of the business in the U.S. and in Europe on different mechanisms.

And so this is about being ready in an environment like we are now. And so being able to flex with some extra volume gives us that ability to be that reliable supplier for customers and for new customers that are just coming to Celanese or just coming back to Celanese. And so it is about how do we get that business secured longer term. And we are securing business that we had -- didn't have under agreement for the second half.

And so as that process works here in the second quarter, it will give us better clarity on what the third and fourth quarter are going to look like as we are able to utilize this flex capacity that we have.

And then secondly, I wanted to ask about your new strategic initiatives in nylon that you announced last night in the U.S. and Singapore, I think you're targeting incremental cost savings of $30 million. So maybe you can step through what you're doing there and comment on the cash cost to achieve those savings? And the timing of the flow-through of the $30 million in coming quarters or years?

Yes. Let me hit kind of the philosophy and the strategy around the changes, Kevin, and then I'll turn it to Chuck to talk about some of the details. When it comes to Nylon 66, we've been very open about this now for more than a year. And as we said in the past, our value is in the compounding step of the process. And that's not changing here.

And in fact, we're enhancing our compounding capabilities in our specialty products where we need to, to ensure the reliability of supply to our customers. And we've had a very thoughtful step plan to ensure the short- and long-term sustainability of how we get polymer. And so being able to optimize this make versus buy on polymer is critically important. And so these announcements around polymer capacity for us is really the next big wave of that commitment to improving the fundamental profitability of the Nylon 66 business, and we believe these are the right news for us right now.

I think as we go forward, we would expect about $30 million of savings. As you mentioned, about 1/3 of that will probably hit here in the second half of the year.

And I'll turn it to Chuck to talk about the other details.

Yes. Thanks, Kevin. Yes, like Scott said, about 1/3 of that $30 million starts rolling in this year. Your question on the cash costs, think about that as sort of less than a 1-year payback of that $30 million. That's been in our free cash flow forecast this year. So nothing incremental there.

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

Just wanted to flesh out how you're thinking on working capital. How much you think in your base case, working capital will be a use of cash for this year? And as you think about this year and next year, is working capital just ebbing and flowing with your expectations around input costs? Or is there going to be some net drag on EBITDA at some point to work to reduce your working capital position?

Yes. Thanks, Laurence. Let me talk about free cash flow this year and sort of talk about working capital within that. If you look at our midpoint of our earnings guide, that's about a few hundred million of EBITDA growth this year. That will translate into free cash flow, but it is likely that -- it will be split between '26 and '27 as it works its way through working capital.

Right now to simplify, we're assuming we collect about half of that increased EBITDA this year and half next year. So that would mean about half of that gets tied up in working capital. I think before that, we were assuming this year actually that working capital would be a source of cash of, say, call it, $100 million as we continue to reduce inventory in EM.

So maybe working capital in this scenario is closer to flat for the year. And then I think you kind of ebb and flow with demand, but we do expect to continue to take inventory out of the system and generate tailwinds in working capital.

Our next questions come from the line of John McNulty with BMO.

So on EM, with all of the work that you've been doing and I guess, some incremental work even this year, I guess, is there a way to think about -- maybe this year is not necessarily a normal year, I guess, is there a way to think about what you think the mid-cycle earnings power of the business is now just given all the changes that you're completing and also maybe a more normalized demand environment?

Yes. Thanks, John. The words that we used in the prepared comments, I think, are important to think about here. It's really about growth and Fortify. And as we think about the Fortify piece, I mean that's -- we've been working that hard with the cost reduction actions that we've taken out, the efficiency that we've been able to drive, how we're adding technology to the business with our CAMIL platform, there is -- we are strengthening this business and positioning it to be able to ready to respond to customer needs.

The other thing that the team has been working really hard on is kind of building a really deep segment approach focused on where we can win and where we can hold that business. So where we have a differentiated offering in growth subsegments in things like medical, electronics, data centers, some key growth industrial applications, high-performance athletic wear, there's just a lot of really great work the team has been doing in these high-growth areas.

And so positioning well there, building the pipeline so that we can hit that growth piece going forward. And look, growth is always hard. Growth is even harder when the world around you isn't growing broadly, but there are pockets of growth here, and that's really where that focus is. And so it's hard to say what mid-cycle will look like.

We do not believe we're anywhere near mid-cycle demand in kind of our historical key end uses as well as some of these emerging growth areas. So as we work that, as we continue to build out what we think the addressable market space is there, then we'll provide that color in the future.

Our next questions come from the line of Matthew DeYoe with Bank of America.

I think there's a desire amongst investors really sell side as well to just get a better handle on like what EM is now, given just the kind of asset aggregation and then closures and repolymerizations and closures. I get the core identity and thesis behind Fortify. But like at the end of the day, what is an achievable -- I don't know, I don't want to call it mid-cycle because it's not necessarily a pure commodity business. But what should the people or what should the market think about as like a reasonable expectation on profitability for this business under normal demand, normal kind of margin structure?

Yes. Thanks, Matt. There's a lot to unpack there. What I would say is this is a business that is customer-focused with an eye towards building unique solutions. And it's a business that we've been working hard over the last 3.5 years to make sure that we're well positioned in the environment that we're now in globally with a lot of the competitive landscape that's changed to be able to win.

And it's a business that has unique capabilities. It has unique products and it has a unique ability to be able to get polymer solutions to do just about anything. And we've got a great model that I think ensures that the things that we're working on are going to drive the profitability on our worth the time and effort that it takes to work these solutions. And so I think what we've been able to do now is take a business that was performing on an EBITDA basis in the low teens now to one that's now consistently performing north of 20%. And the idea is to keep moving that upward.

Even if the world around us is not growing, we are focused on growth. And when you look at and kind of back into our assumptions for this year and you normalize out Micromax and the $40-or-so million of EBITDA that comes out of that, this is a business that's going to grow year-over-year, even though its end markets are not growing. And so I think that's the way to think about it.

It's a business that should be able to grow like we did in the past, going back 5, 10 years ago at 5% to 10% minimum on the EBITDA line and a business that's consistently going to find a way to be able to deal with whatever the global environment is. And if we see a normalization of demand back to mid-cycle, and it's hard to say what that looks like because the world's changed quite a bit, then I think you also possibly get kind of a hockey stick lift on that at some point.

So it's about being consistent. It's about being ready, and it's about continuing to take the hard steps to ensure that we have the cost structure in place to be able to win in a very competitive landscape.

If I could just ask on the acetic side, right, like I've never really trusted some of the consultants when it came to U.S. acetic prices. But to your point, Asia is off peak. And that would lead me to believe like absent another leg higher, it remains maybe a bit curiously below Western markets.

So how does that sustain -- well, first off, is that right? Because, again, I don't have confidence in the U.S. pricing, I get. But how does this sustain? And then how does weaker acid pricing not translate to weaker VAM? Or would that weaker acid back up into methanol? Like how possible is this just stays kind of relegated to one market? I would assume it's not, but I don't just want to hear you opine on it.

Yes. Matt, as you know, I'm old, and I've been here at Celanese for 21 years. And when I joined Celanese, you are what we now call Acetyl Chain business was an acetic acid business. And now it is an acetyl chain business. And it's a business that doesn't rely on us just selling acetic acid in order to be successful.

And back then, 20 years ago, over half of what we sold to an end customer in this business was acetic acid. That is very much not the case anymore. And so some of the dynamics that you talk about, we are very much less susceptible to those acetic acid movements. And yes, you are going to see acetic acid pricing in some regions roll through into the downstream, but it usually takes some time, both on the way up and on the way down.

And so it's about managing that, and it's also then continuing to position for the pockets of growth that are in this business. And yes, they've been small, but there have been pockets of growth for us in the vinyl emulsions part of the business as well as in redispersible powders. And in the environment we're in now, we're finding ways at which to expand that. As I mentioned earlier, with some of the switching that customers want to do away from oil-based systems, this is giving us a nice advantage and the opportunity is now for us to go get that business, get it contracted and extend it into next year and beyond.

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

This is [ Eden Badiger ] for John. My quick one, Scott. So in this inflationary environment, like how concerned are you about demand disruption in the later parts of the year? And related to that, are you seeing any signs of prebuying by customers that trying to get ahead of price increases that they're seeing coming?

Yes. Thanks for the question. Yes, look, it's something that we're very much concerned about, and we're watching very closely. And it factors into the scenarios that we put out for the second half. And there's no doubt that's something that we are looking at. And we put it in our prepared comments that particularly in Engineered Materials, that we may be seeing a front-loading of some of that volume.

And so that certainly factors into the guide that we made for the second half. I don't think we're seeing much of that in acetyls, to be honest with you. I mean the products that we have there largely are liquid bulk chemicals. They have some element of shelf life as well as storage limitations around the world. So I don't think it's much of a factor there, but it's certainly something that we're cognizant of on the Engineered Materials side of the house.

Daryl, we'll make the next question our last one, please.

Our final question will come from the line of Josh Spector with UBS.

It's Chris Perrella on for Josh. Can you size the Palm turnaround impact in the second quarter there? I might have missed that earlier. And is the later restart dependent on the ability to get speed out of benzene? Or can you make the economics work buying methanol to feed the plant there? And I guess the corollary is, are you seeing raw material sourcing issues, particularly in Asia at this point?

Yes, Chris, let me start, and I'll let Chuck fill in the details. Let me hit the second part of your question first. No, we are -- we have already moved and we are moving methanol from our plant in the United States over to Europe. So our Palm unit in Europe either uses sourced methanol from the market or uses our own cost-based U.S. natural gas-based material.

Yes. Let me talk about kind of walk Q1 to Q2, both the turnaround and some of the other inventory. So in Q1, we built POM inventory, hit the income statement, $25 million benefit in Q1. Now in Q2, we're going to draw that POM inventory down, but we will build some nylon for the transitions that we've talked about. Expect a net $10 million absorption hit to the income statement in Q2, plus about $15 million of turnaround expense. As you know, from the guide, we do expect to offset the majority of that $50 million sequential headwind through the volume improvement and pricing actions we've talked about.

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

Ladies and gentlemen, thank you so much for your participation. This does conclude today's teleconference and webcast. Please disconnect your lines at this time, and have a wonderful day.

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. And 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 [indiscernible], what are you seeing for pricing in your contracts 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 said 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 in 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.

And 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 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 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 Acetal Chain 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 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 question has 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 the 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 polyacetyl 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 dry 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 equal 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 market -- the industry didn't get the benefit of that overnight. It's actions that we're taking 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 was big for the year in terms of driving the free cash flow performance 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 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 into our target range that we provided, either through modest earnings growth or through these additional levers 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 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 you guys deviate from that as a base case?

Yes. So how I 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've run a number of different areas 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 depending 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 [indiscernible] this change? 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. So 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 any 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 just 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'm just curious what the specific levers that, I guess, you can do to stabilize on basically like regional mix shifts any capacity actions, customer inventory normalization, 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 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 question is 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 are 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-value 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's a lot of new capacity over the last couple of years. As those plants are starting up, they run at high rates that 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 question has 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 uplift. 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 -- 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 on 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 I 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. So 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 in 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 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. 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 or 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, 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 costs.

Got it. And then if you take a look, as we head in 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, 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 question has 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 question is 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 in 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 question has come from the line of John Roberts with Mizuho.

Have you actually guided for the China to 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 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?

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 question will come from the line of Arun Viswanathan with RBC Capital Markets.

This is Adam on for Arun. If I could ask maybe 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 [ 4 50 ]. 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 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 have 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.

Greetings. Welcome to the Celanese Corporation Third Quarter 2025 Conference Call.

[Operator Instructions]

Please note, this conference is being recorded. I would now like to turn the conference over to Bill Cunningham. Thank you. You may begin.

Thanks, Daryl. Welcome to the Celanese Corporation Third Quarter 2025 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations. With me on the call today are Scott Richardson, President and Chief Executive Officer; and Chuck Kyrish, Chief Financial Officer. Celanese distributed its third quarter earnings release via Business Wire. 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, Daryl, let's go ahead and open it up for questions.

[Operator Instructions]

Our first questions come from the line of David Begleiter with Deutsche Bank.

Scott, looking at '26, can you give us an early look at what you can see your control of '26 and what's not in your control for '26 relative to earnings?

Yes. Thank you, David. Let me just start by saying how we have focused on 2025 continues into 2026. The priorities of increasing cash flow, intensifying our cost improvements and then driving top line growth. And that third piece, I think, is going to continue to be more important as we're seeing progress from our EM pipeline. Those are going to be our priorities going in to '26, and we've laid a really nice foundation here in 2025. And so that foundation, even if we're in an environment where we see flattish demand.

And I kind of look at flattish demand on what we've seen, say, Q2 through Q4 here in 2025. If we're in that type of demand environment just to make it easy, I believe we're going to be able to grow EPS by $1 to $2 next year. And that's going to come from the cost actions that we've already put in place and not yielding increments next year. And then the second big piece is going to come from EM pipeline and the success we're seeing driving that including the high-impact program growth, which is starting to yield results. And certainly, we won't have the Micromax EBITDA, but I think that's going to be offset by the fact that we don't expect to have the significant auto destocking that we saw in Europe in Q1 of this year. So I think when you put it all together, we feel confident in about $1 to $2 even if the world around us isn't growing.

Very good. And just on EM pricing, the best in 8 quarters. Can you discuss how much more there is to go in EM on the pricing front?

There's always more that can be done here, David. We have gotten price in some of the standard grade materials in the Western Hemisphere, not as much across the board as we want to see. So I think there's still going to be opportunities there. In addition, where we're seeing good nice benefit is on the price for the new elements from the pipeline that are being launched. So this is going to continue to be a very critical area of focus for us as we go into 2026.

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

Could you speak a little bit about the operating rates and the AC chain? I know there was a comment in the prepared remarks about sort of flexing Singapore based on demand and Frankfurt is going to be, I guess, off-line for the balance of the year. But what do you anticipate or maybe just back up and how -- what rates did you run at in the second half of this year? And then what do you anticipate in the first half of next year.

Yes. Thanks, Vince. Not to be flippant, but every day is different in this business. And I don't say that as hyperbole, it's true. When you look at our lowest cost assets, our lowest cost assets are running at 100%. And then the balance of the network, which is really our asset base outside of the United States, is being flexed to meet demand of flex to meet industry conditions. And we're going to continue to operate that way. We block operated Singapore as well as Frankfurt. We would expect that to continue going into next year.

And part of that is our manufacturing team has done an excellent job of being able to continue to operate with high degrees of reliability as well as find ways to know capital to debottleneck our assets to where we have more capacity at those lower-cost assets. So we're going to continue to flex that to meet demand, but I'd really look at lowest cost asset base running full and then the rest of the network operating as needed.

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

Thanks very much. In the cecal chain, when you look at sequential pricing, through the year, it's gotten tougher. And prices had come down a lot in China earlier in the year. Where is the sequential price pressure coming from in the acetal chain, either by product line or geography?

Yes. Thanks, Jeff. I think we've seen a little bit of pressure in Europe in kind of what I would say more of the downstream. So getting into the vinyls chain, VAM and emulsions as we've worked our way through the year, and that was really demand-driven as demand has off. We've seen a little bit of pricing pressure there. We've seen a stabilization of pricing in China now over the course of the last quarter or so. And in fact, pricing went up a little bit here at the beginning of this quarter. Not significantly, but we did see a price lift as we got into October, really across all product lines in China in acetyl. So the U.S. has been relatively stable. So that's kind of how I would look at it. It's been more around a function of demand where demand has been weaker and we've seen a little bit of softening of price in Europe.

Okay. And in Engineered Materials, year-over-year, your consolidated volumes were down 8% and which product lines are, I guess, falling more than that? And which product points are falling less than that? Can you help us -- I mean it might be that there are particular pockets of weakness? Or is it across the board? Can you talk about that?

Yes. It's mainly the product lines, Jeff, that we have higher levels of volume and have just generally more market exposure in the standard grade materials. And so that tends to be more of your engineered thermoplastics. So that's your palm, your nylon and then into GUR and polyesters our thermoplastic elastomers have held up extremely well, and the team has actually found nice pockets of growth there. It's just -- that's not where we have as much volumetric exposure. So it tends to be more on the engineered thermoplastics side of things.

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

Nice third quarter as well. For 2026, if I take a look at Slide 11, it looks like cost savings could represent somewhere between $0.40 and $0.50. How much -- in terms of the rest of the dollar to $2, how much comes from potentially lower interest expense and -- just trying to gauge how much could come from volume growth and new products.

Yes. I mean, given kind of the $1 to $2 that I talked about earlier, Mike, I would look at that really split largely in 2 areas. One, about half of that is cost. And we didn't put all of the cost actions on that slide. We have kind of an ambiguous bucket there on that last line of that graph. And I think I would look at it, there's more to come. We had the announcement last week about the Lanaken closure. We're continuing to work the cost side of the equation extremely hard, and we'll talk more specifically about those as we complete those actions.

So about half of its cost and the majority of the rest of it is really coming from the pipeline. And that's kind of how we're thinking about things right now. I mean there's -- there's definitely going to be some things around the edges like interest, et cetera. But those are the 2 big buckets that we're looking at currently.

Mike, this is Chuck. For interest expense, I would [indiscernible] $30 million to $40 million reduction year-over-year.

Okay. And then a quick follow-up in EM in terms of the volume growth potential, how much is that coming from sort of the legacy, if you can think about that way, the Celanese businesses? And then how much comes from some of the depot?

I'll be honest with you, Mike. Right now, we're looking at that portfolio as all Celanese. And we're not breaking it out. We're not operating the business of the company that way anymore. It really is about Celanese and products. What I would say is that engineered thermoplastics piece and the portfolio we have there, has proven to be a really nice add for us. Part of that came from M&M. Part of that came with Santoprene, and that's a really nice area of growth going into next year. It's a really important area for us to be differentiating the offerings that we have.

And then -- so that's been a really nice driver for us. And then we are seeing really, as we look at this high-impact program area, I mean there is there's end uses there that are extremely attractive where we're bringing both the engineered thermoplastics. So that's both historical Celanese and M&M as well as the elastomer portfolio to bear -- in really high-performance type applications, whether that's data centers or in high specification EV opportunities, medical opportunities.

So there's across these spaces, we're really seeing, as we've gotten extremely focused from a commercial team perspective on these areas, we think we're going to have nice pockets of growth in '26.

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

Scott, just given the evolution of the macro throughout the course of the year end markets such as building and construction and autos and so on, sequentially weakening. Are you starting to see more accelerated inventory destocking at the customer level throughout the year-end? Or our inventory is already pretty low, so what you're mirroring is just basically the end markets themselves at this point?

Yes. Thanks, Ghansham. As I look at where demand is on a lower base than what we've seen historically. But if we look at what we called out for seasonality from Q3 into Q4, on a volumetric and percentage basis, it's very similar to what we've seen in the past from Q3 to Q4. So we're not necessarily seeing accelerated destocking. There's a few pockets, for example, our channel partners here in North America came to us at the beginning of the quarter and talked very openly about wanting to bring inventories down a little bit by year-end. And so that was great that we're able to partner with them.

We can take rates down at our asset base and do it really in a thoughtful way over the course of the quarter and not just get to the end and have this big slug down. So I think there is there's definitely, I would say, what pockets, but I wouldn't say it's something we're seeing extensively across the board because we've been seeing this kind of work its way through the value chain in various areas now for about 6 months.

Okay. Got it. And then maybe a question for Chuck on free cash flow. What's the expectation for working capital contribution for this year in 2025? And then how would you have us think about some of the parameters for 2026 free cash flow? I think you said at the low end of your guidance for this year?

Right, right. Yes. So working capital so far this year has been a has been a source of cash of $250 million as we've really focused on cash generation. I really don't expect much change in working capital, either source or use of cash in fourth quarter. So I would just -- I would model then 0 at this point for working capital. As you look ahead, for 2026. With that, we don't expect with similar demand levels that we would repeat that $250 million of working capital source of cash.

But we are continuing our inventory actions in Engineered Materials. So there will be some level of free cash flow source there. At this point, Ghansham, our cash outlay of restructuring which is adjusted out of EBITDA is looking to be lower in 2026 as we have some projects that have rolled off from prior footprint. So adding to that, the EBITDA improvements that Scott has talked about on the cost and commercial side, that gives us confidence next year in free cash flow, at least at the low end of that $700 million to $800 million range. And I think it's important to understand, as we look ahead in the next few years, we think this level of free cash flow is sustainable.

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

The decision for the linac enclosure, you cited a valuation of longer-term end market trends. I guess, did anything change in terms of your forward view on either the demand or supply side. And then as you look to evaluate other more targeted measures and AC, should we be looking to the Frankfurt facility? Or do you expect more of a smaller collection of savings across the asset for

Thanks, Patrick. First of all, I think it's important. Look, we don't take any of these types of decisions lightly. We look at where things are in the near term, long term and we study them. And we also look at our ability to continue to supply our customers. And acetate tow has faced challenges including decline demand over a period of time, Lanaken is our highest-cost asset. And so as we looked at where things are, we're able to meet all of our customer needs from our network and subsequently drive productivity savings with this move, both in the short term and long term.

No matter what may materialize from a demand perspective. And so this closure will yield probably in the neighborhood of $20 million to $30 million of productivity savings in 2027. We get a little bit at the end of next year probably on that. But certainly for the full year of '27. That's the types of savings we're looking at. And we're going to continue to look across our whole footprint in both businesses for similar types of examples. And so there's no specific asset, I would say that we're looking at right now. It continues to be kind of crosschecking where industry demand is, where is our capacity, where do we maybe have excess capacity in the network that will allow us to drive that productivity, but still be able to meet customer demand even if we were to see a big increase down the road in a recovery period.

Understood. Very helpful. And then maybe one for Chuck, just in terms of progress on inventory reduction, they're still tracking well towards that goal. And then just in some the context of some of your comments in the prepared remarks, what percentage of SKUs are made to order today versus made to stock? And what goal are you looking toward there?

Patrick, look, it's an ongoing effort to be more efficient with inventory. I don't have that percentage right in front of me of the number of make-to-stock SKUs, but it's one of the several levers that EM is working on to reduce inventory. It also includes logistics and warehousing and testing lead times, et cetera.

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

I think you identified to $50 million of additional savings that you're targeting in Engineered Materials. Can you elaborate on the sources of those and the flow-through timing and remind us if those figures are gross or net of inflation?

Yes. Let me hit the last part of your question, Kevin, I would look at those as net of inflation because we will work inflation through our productivity pipeline to offset that. So look at these as definitely being net. And it is really looking across the board. There is continued SG&A and R&D savings there as we optimize that side of the business on a global basis. footprint continues to be an area of focus that will be in there. And then the last area is really things that we kind of call complexity reduction.

So streamlining of our supply chain and our logistics network and really getting that optimize. I mean Chuck just talked about the benefits we get from that on an inventory reduction, we also get cost reduction from that. And so a good chunk of that, we're going to get for full year 2026. Some of it will phase in through the year, but we definitely are confident that we'll be able to get to those levels next year.

Great. And then second question for you on divestitures, if I may. Congrats, first of all, on the Micromax deal, it looks like you got a nice multiple for that relative to your own trading multiple. Can you talk about the after-tax cash proceeds from that $500 million deal? And then more broadly, if we remain in the current environment of, I'll call it, industrial malaise globally, what additional portfolio actions or at least the magnitude thereof are you thinking about over the next several years? I think you said in your prepared remarks, you are actively pursuing additional. So any color on that would be appreciated.

Yes. Kevin, let me start, and then I'll turn it to Chuck to answer the tax question. Our principles really around divestitures had not changed. We have what we believe are 2 leading franchises here at Celanese and in acetyls, it's about leveraging kind of this integrated up and downstream operating model that starts with methanol and acetic acid and goes downstream and it is really uniquely globally positioned to kind of operate to drive value on a daily basis. In Engineered Materials, it's about driving unique customer solutions and leveraging the globe's leading portfolio around engineered thermoplastics and thermoplastic elastomer. So if we have things in the portfolio that are not part of that acetyl value chain, or not a differentiated thermoplastic or thermoplastic elastomer.

Then we are going to look to see if it's worth more to someone else than what it's worth to us. And that has been the principle that we've been operating on now for a number of years around divestitures. And that's what led to the Food Ingredients transaction. That's what's led now to the Micromax transaction because they didn't fit in the Engineered Materials business in that thermoplastic or elastomer bucket. JVs is another area that -- where we don't have as much control and that value that they create to the enterprise is not what the rest of the portfolio creates. So that's the principle that we're operating under, and that's the principle that will continue to look at being able to monetize different assets around.

And we committed to $1 billion of divestitures by the end of 2027. And this Micromax transaction gets us around halfway there. And so we are very much in line with achieving that target. And we're going to continue to focus on that here as we finish this year and get into 2026.

Yes. On the tax leak, it's Kevin, that that's expected to be 5% of the final gross sales price.

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

Firstly, I want to continue on Kevin's question on divestitures and you mentioned JVs as a specific area of focus. I'm wondering, though, how are you thinking about the methanol JV? Because on one hand, it is one where you are a partner with someone else. On the other hand, it is against your main way of being integrated into methanol in the U.S. So how strategic is that business to you?

Look, I'm not going to comment on specific joint ventures. What I have said around methanol in the past is it really is about leveraging methanol and acetic acid. And so as we look at all of our joint ventures, we have a partner that is in those JVs. And so JVs can be harder to monetize across the board. And we'll continue to look at the partners.

We'll continue to look at other potential counterparties who are interested in having ownership of our joint ventures. But our focus really is around value creation. And so if value is there to be created, and it is higher than what we believe is inherent in the current and potentially future stock price, then we will definitely look at it.

Great. And I also wanted to ask about your nylon chain. I know you've been deemphasizing nylon polymerization instead of doing compounds. So at this point, how much of your nylon volumes and sales, perhaps profit comes from actual nylon standard grades versus the compounded value-add products.

Yes. So almost all of our profit in that business is really created by compounds. And so now to make a compound, you need polymer. And so whether we make that polymer buy that polymer, the key is getting that polymer at the most optimized economics possible because we create our value really through that compounding step.

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

I just wanted to continue down this line of questioning. I think you just earlier said, Scott, that you don't foresee any major capacity closures. But I recall earlier, there was a discussion about maybe buy versus make and polymers and potentially some rationalization there. So should we take it that rationalization of polymer capacities off the table for now? Or that's still being considered?

Let me be very clear, Alex, we are taking bold actions across the board, and we have continued to be, I think, through year, every single quarter. We have had another cost reduction announcement. We are looking at all elements of our business in both acetyls as well as in Engineered Materials, and we will take action around cost, including footprint, if there's value creation opportunities there.

Okay. Makes sense. And then as a follow-up on your EM pricing, I realize it was relatively modest, but do you see any signs of more rational competition, sort of improvement in competitive environment maybe across any of the end markets or types of polymers.

Look, we can't control what others are doing. What I will say about our EM commercial team is they are energized by the opportunity that's in front of them, not just around making sure that we're getting full value for the materials that we sell but on partnering with our customers, about being connected to our customers, being current about what's happening in the marketplace. And being able to respond to customer needs and leverage and drive new solutions.

And I think we believe that, that team is going to continue the trajectory that they have been on this year despite the fact that through the year, the volume side of the equation has been difficult, but to be able to drive price, drive mix improvement through the year, I think, is a great accomplishment and is a really good starting point for us going into 2026, and we think we will be able to drive volumes through the pipeline next year.

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

Congrats again on the Micromax sale. To that end, Chuck, I believe you indicated that with the $3 billion plus debt to '26, '27, you were fairly comfortable being able to pay that or you indicated that you -- given the free cash flow and expected divestitures that you would not need to tap a revolver and that you felt like you would or issue more debt, you'd be able to cover that. Do you still feel that way today?

Yes, Brian, I mean, if you look ahead at our 2026 maturities, we've got about $900 million due. So when you look at between the Micromax proceeds, the cash -- excess cash we have on hand, Q4 cash generation those are spoken for. We've already been looking ahead of the 27s, and we made several payments to our term loan over the last few quarters. We're confident in the cash generation ability to pay off the 27s. We do know that sometimes that cash is back-end loaded in a given calendar year. So as we've done a few times, we'll continue to be prudent and opportunistic in the debt markets, refinancing a small portion of our maturities to align the maturities 1, 2 years out with our free cash flow generation. And that's just to bridge the timing of those repayments. But we're confident in how we can generate the cash to pay those off and continue to deleverage.

Helpful. And then, Chuck, if I could ask you a more esoteric question. Very sizable write-down this quarter. I'm reading the press release and it's tied to [indiscernible] and nylon, and then in the prepared remarks, it's talking about your stock price and so forth. I'm sure others understand what's going on there, but I don't. Can you please expand on that?

Sure, Frank. Look, the third quarter is our annual reported a test or goodwill and certain intangibles like trade names. We did this using the same third parties that we that we always do. We did record an impairment. I think what's important, Frank, is there was not a reduction in the projected cash flows of Engineered Materials since the last time we did this test. This impairment was really driven by a reduction in our market cap created by a reduction in the stock price because part of the test is sort of a market to book analysis this use. So no change, no decline in the cash flow projections, but it was really driven by the market cap of Celanese.

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

So just wanted to get a bit more granular about the sort of near-term guidance. I know in the past, you guys have talked about trying to get to a quarterly EPS run rate of $2 per share imminently, right? So I know the guidance, obviously, for Q4, $0.85 to $1, bakes in seasonality, it's not really in an otherwise abnormal environment, it's not really sort of the right starting point. So maybe if we could start with like the $1.34 you guys reported in Q3, right? Where in the near term, you see that going on a quarterly run rate basis via self-help via, obviously, now with Micromax, almost about to close. Reduced interest expense there and the like. And again, I understand that you guys are talking about an incremental $1 to $2 from self-help, which is $0.25 to $0.50, but would love some more granularity around that.

Yes. Thanks for the question, Hassan. We continue to be focused around driving controllable actions that will, as a first step, get us back to that $2 a quarter run rate. That hasn't changed. Even with where demand is at from a seasonality perspective, and we will get there. If demand stays lower, it may take us a little bit longer to get there. But if you look at where we were performing in the middle part of the year, Q2, Q3 from an EPS perspective, and you just take the actions that I've talked about we have going to next year, it starts to really get to a point where you're approaching kind of that level as you're getting up into the $1.75 to $2 range.

And that's where continuing stack wins, as we called them in our prepared comments, additional costs continuing to drive the pipeline. And then if we get any inkling of of demand improvement. And even if you were just at the demand levels we saw in the second quarter, you're effectively there. And so the multiplying effect of the actions that we're taking are significant. We look at our enterprise right now as a coiled spring that win release is going to really drive very substantial and increased earnings levels as we go forward. It's tough right now. Demand environment is not tough, but I'm extremely proud of the resilience and the actions that the team here at Celanese has taken this year to position us going into next year and beyond.

Very helpful, Scott. And as a follow-up, I would love to hear your views about anti involution as it affects the acetyls chain and you guys. And more specifically, what I asked this is that it seems a bit -- just yesterday, PetroChina, it seems came out and announced that they're studying 19 sort of different refining and petrochemical assets. to potentially retire and those include methanol assets as well, right? So it seems moving away from the pipe dream phase and actually becoming real. So how do you see anti-evolution impacting you guys?

It's hard to say exactly how it will materialize, Hassan. But Look, the dialogue on the ground in China, and I was there in the quarter and was talking to the team, it's palpable more so than I would have expected. I don't know that it's had a really direct impact thus far. I mentioned we've seen some price movement, albeit small, but some price movement in the quarter. I don't know how much of that is anti-evolution or just kind of normal market changes and some of the inventory getting absorbed after some new plants started up, but the reality of it is, is that people are talking about it there.

And I don't know how it comes in fruition to the business. But I do expect that we're definitely going to see this be an important step going forward because I do think the profitability of assets in China need to be higher than where they are today.

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

I wanted to follow up just on the acetyl utilization rates. I think my understanding prior was maybe you had rates lower in some of the western markets. So some of your low-cost regions like the U.S. to basically react to some of the weaker demand. I guess your earlier comment was that it's your low-cost assets running full out. So specifically, can you comment on that and maybe your U.S. asset base utilization rate where that is today? And then related with that, if we think about what gets utilization rates higher, if you're running at a high rate in the U.S. today, does U.S. demand improvement help you? Or do you really need Europe or other regions to improve to get your utilization rates up?

Yes. I mean, look, Josh, we've always run our U.S. assets at pretty high rates. That really hasn't changed dramatically. And I'm not saying we don't have room there. We probably have a little bit of room, but you definitely see the uplift. And when you see Western Hemisphere improvement, the netback is significantly higher than moving that product around the different regions where it's better than running other assets, but certainly, U.S. demand flows directly to the bottom line in that case.

So we do think assets are extremely well positioned. We've done debottlenecks of the U.S. asset base over the last 5 years. And so we have the ability to move those up. And when I said full rates, I was really particularly on acetic acid in the U.S., really referring to, we kind of operate that at kind of the capacity that we've historically had, not necessarily operating both acetic acid plants at full rate. So we kind of look at those still operating kind of at the levels they historically did on a combined basis with the ability to ramp up going forward.

Okay. No, that makes sense. So just a quick follow-up on the cost savings side. Just I mean...

Apologies. It looks like we lost Josh. Our next questions come from the line of Arun Viswanathan with RBC Capital Markets.

So if I just go back to that $1 to $2 of uplift, can you just frame that out I think in the past, you had said maybe $0.35 from some of your cost actions. Is that accurate? And then maybe what would be kind of a restocking amount? Is that also included in there? Or maybe -- or could you maybe frame it as what the destocking amount was for '25?

Yes. Arun, as I said earlier on the call, we look at that $1 to $2 really as a rule of thumb, if we're not seeing the market really changed at all off of where we've been over the last several quarters. So there's no kind of restock element in there. And what I said earlier is make the assumption about half of that is coming from cost actions and then the balance coming from the EM pipeline and then some other things, as Chuck mentioned, maybe interest expense.

And then could you just also provide an update on maybe some of your recent actions to maybe change the commercial strategy or extend your legacy commercial strategy within EM, maybe on the project pipeline or anything else that we would find relevant to track your progress there?

The EM team has been modernizing its strategic orientation. That's the best way I can put it. We're evolving. And just where our world is, where we have the ability to really win is in the differentiated spaces where we can leverage our widespread unique portfolio. We have more engineered thermoplastics, more thermoplastics elastomers in our portfolio than anyone else has in the world. Bringing that full portfolio to customers to meet unique challenges that they have around solution sets.

And it is about partnering and really getting focused around where we spend our time and then leveraging innovation that we've had. We've launched publicly our grade selection tool for customers called Chemille, where it's an AI-driven tool which is allowing great selection around our materials for the customers as well as our commercial organization to very quickly meet the needs and streamline that commercialization cycle. And so it's investments we've made in areas like that, that are really bringing the EM team to the leading edge as it comes to creating new opportunities and partnering with our customers.

Daryl, we'll make the next question our last one, please.

Our last question will come from the line of John Roberts with Mizuho.

Well, the European acetate tow closure have any ripple effects across the rest of the Acetyls network, either upstream or even downstream, maybe some of your JVs?

No, I would not look at it that way, John.

Thank you. We'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions.

Daryl, please go ahead and close out the call.

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

Greetings. Welcome to the Celanese Second Quarter 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. You may begin.

Thanks, Daryl. Welcome to the Celanese Corporation Second 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 second 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 prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC.

With that, Daryl, let's please go ahead and open it up for questions.

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

Scott, in your prepared comments, you referenced order books beginning to weaken in June and then the trend continuing into July. Can you provide a little more color on really what end markets and you saw that weakening and how severe has that weakening been?

Thanks, David. We talked in early June about starting to see China automotive orders pull back a little bit. That has continued into the third quarter here. The other area in Engineered Materials that we've seen a little bit of weakening versus the second quarter is in European demand. The Americas has remained relatively stable there.

And then the other bucket I would call out is in the Western Hemisphere in the [indiscernible] chain. I think we've seen volume weakness towards the end of the very end of the quarter, and that has continued into July. I mean those are the, really, I would say, kind of the big buckets of where we've seen that demand change.

Very good. And just on the $2 per share quarterly EPS run rate, how do we get there via a bridge? And when do we get there, do you think?

I think it's important that the $2 for us is really an achievable target. We're talking a lot about it internally. It's not aspirational. We have concrete plans to get there. And I would say those controllable plans fall in 2 buckets. The first cost structure items and the second is really executing our differentiated business models.

And so if you kind of start with the midpoint of our Q3 guide of $1.25 a you get about $0.25 to $0.30 going into next year or really into the fourth quarter as well from the inventory movement as well as not having kind of the order timing and the pull-ins we saw into the second quarter.

Next year, we called out an additional around $0.10 per quarter of additional cost actions. So that kind of gets you into that $1.60, $1.65 range, which is quite honestly, about the range that we had walked into the third quarter with where Q2 demand had held. And we still had a gap to close there. And that gap for us is really around 4 controllable areas.

The first, additional cost in footprints. Some of these are more complex than the ones we've already actioned but they're doable. They just take a little bit more time, but we're working these really in earnest right now. The second is high-impact programs, driving additional value in high-margin spaces, spaces where we have a real differentiated position.

The third, additional price opportunities in Engineered Materials. We are getting some price. Certainly, we want to get more. There are certain products and grades that we have where pricing is really at unsustainable levels. So continuing to find ways to move price in discrete pockets of the business there. And the third is that there are pockets of opportunity in the acetyl chain, particularly more in some of our downstream products for us to find additional opportunities there to drive more value -- more volume or price.

So those are the 4 controllable actions we're working. These actions will get us to $2 per quarter. It just may be a few quarters delayed versus where we were when demand was a little stronger in the second quarter. But the path, we believe, is strong. And if demand changes, we're ready, and we're ready to pounce and grab that volume if it's there for us.

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

Scott, the $25 million inventory reduction impact in the EM segment, you called out specific to 3Q. I mean I know you're focused on reducing inventory levels, but is the magnitude of the impact, a function of just the weaker demand you kind of went through as it relates to order patterns for 3Q and late 2Q?

Yes. I'm just going to make a few high-level comments on that, Ghansham, and then I'll let Chuck walk through the specific details. On our fourth quarter earnings call in February, I called out that free cash flow generation was our top priority. And no matter how the year played out, we -- there were a number of scenarios where we were going to pivot to drive free cash flow. And I'm proud of the team here. I'm proud of the team around the actions that are being taken. And if you look high level at our free cash flow guide of $700 million to $800 million, when you look at that on a free cash flow per share basis, that's somewhere in that $7 free cash flow per share. That is unique and strong. And so I'm proud of the actions we're taking, and we're going to continue to prioritize cash. So if we need to pivot with demand, we'll do that.

Yes. Ghansham, let me talk about some of the income statement impacts of this. As context, look, we've -- our inventory reduction efforts in EM, we're on a multiyear journey here and it's allowed us to sustainably operate the business at lower inventory and maintain our customer liability standards. We're doing this in many different ways, warehouse consolidation, SKU rationalization, safety stock optimization, raw material reductions. As for the third quarter sequential headwind, mix plays a pretty big role here. Some of our products in EM run on a semiannual production campaign. We ran 1 of those campaigns in the second quarter on products with a little bit higher associated fixed costs as just part of our normal production plan for the year.

This actually generated, Ghansham, a benefit in the second quarter of about $10 million to $15 million to earnings and that was always part of our Q2 earnings guide. So with the current demand trends, we'll actually draw some of that inventory in the third quarter, which will then generate a similar size negative earnings impact of $10 million to $15 million. And so that's how you get the $25 million net sequential negative impact in Q3.

As for the full year, the earnings impact from 2Q and 3Q basically offset, as I explained. We do expect a small impact in Q4 negative but no real significant impact for the year. It's really important to remember that we're also getting contributions to our inventory reduction through areas like these raw materials and even offtake arrangements, some of which don't have any impact on the income statement from an absorption standpoint.

Okay. Very helpful. And just for the second question, as it relates to the 2Q pressure points for the AC segment that you called out, right, so acetate tow and vinyls, how do you expect those 2 dynamics to evolve sequentially?

Yes. We're not expecting a big change right now, Ghansham. We're expecting that to continue, particularly in tow. I mean, as I called out on the first question, we are seeing a little bit of softness in demand to start the third quarter even relative to the second on an acetyl non-tow products. So that's really in that vinyls chain.

So I think it's relatively similar with potentially a little bit of downside on the volume side. Now that will be offset in acetyls with us not having turnaround. So that's why you've got the sequential guide up versus where we finished in the second quarter.

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

Are tariffs in China affecting your tow business that is there material that you normally ship into China that's now more difficult because of tariffs or not really?

No, Jeff. Our tow business in China is really done entirely through our joint venture and our joint venture partners. So we're seeing no impact from tariffs.

Okay. And in VAM and acetic acid in China, are you at least breakeven? And of your Asian sales in VAM and acetic acid, is there any that comes from the United States?

Yes, we are breakeven. We're above breakeven still, Jeff. Now what I will say is we are selling less third-party acetic acid than what we have historically. We are, as I called out last quarter, continuing to pivot further into the downstream products like emulsions redispersible powders because we've seen more pockets of value where we can differentiate ourselves.

So we continue looking at that landscape and kind of working that wheel of products that we have. And that's really pushing us further downstream. We are selling a little bit of U.S. material in Asia in certain regions. Now that may be direct ship or it could come through swaps, et cetera. So whether it's actual or virtual, that has been something that we have been doing since we started up the Clear Lake expansion last year.

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

So just curious, in terms of your third quarter outlook, I recall you had thought you'd get $0.15 to $0.20 or so in cost savings, another $0.15, $0.20 in less turnarounds. Is that still the case, and that would imply sort of this minus $0.50 to get to the midpoint from weaker demand and inventory destocking? So if that's sort of the math, does that minus $0.50, I don't know, maybe come back in the fourth quarter and maybe the seasonality that you typically get isn't as bad as we head into the fourth?

Yes. Thanks, Mike. As we kind of look at this, I mean, if you normalize for the inventory and some of those accelerated orders that we saw in the second quarter, that kind of gets you $0.25 or so up off of the Q2 guide. So that basically puts the third quarter, as we're looking at it, it's really from an enterprise perspective, the underlying company is performing kind of at or even slightly better in the third quarter than what we did in the second quarter because of those cost reductions, not having the turnarounds that you talked about. That's definitely rolling through in the numbers as we work away into the third quarter. It's really just that change in demand. And that is kind of in that $0.25 range as you kind of look at what was in the second quarter to the third quarter. And that's probably somewhere 60% acetyls, 40% Engineered Materials as I would look at it right now.

Got it. And then as a quick follow-up. I know pretty much all your peers have talked about a [ weaker ] third and 2025 is coming in pretty disappointing relative to everybody's expectations. But do you think there's anything structural in your businesses that maybe some of the earnings power just won't come back, maybe nylon or parts of EM? I just -- I would have never thought folks to be at this level of earnings. So I just wonder if there are some structural issues in the businesses or that could be persisting over several years versus just this year?

Mike, I'm energized by what our team is executing this year. And I'm energized by what we're doing on free cash flow. And we are building, I think, the enterprise in a way that is increasing the earnings power, and we are ready when demand changes. And what we're doing on the cost structure side of things, I mean, just as an example, in acetyls, I think our Western Hemisphere cost structure has never been as low as it is today. With the fixed costs we've taken out of the business, the expansions, the low capital debottlenecks that we've done, the low carbon footprint products that we have.

In Engineered Materials, for example, the actions that we're taking, we're going to be operating on an S&A plus R&D percentage of sales next year in the range of 8%, which is equivalent to what we were doing pre-COVID in 2019 in a very different demand environment.

And if you kind of normalize and apply that demand environment to today, that S&A plus R&D percentage of sales would be 100 to 200 basis points lower than that 8%. So the things that we're doing are going to give us the ability to respond when demand changes. And certainly, there's pockets of the business that given where things are at today, are challenge. Are they long-term structurally challenged? I don't know about that because actions will be taken. And I think for us, we are really working to ensure that we don't have a set it and forget it mentality on how we operate the company. There's always more that can be done. And if business isn't performing, then you've got to take action. You've got to drive change. And so that's just -- that action orientation is really kind of what we're building into everything that we're doing here.

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

Scott, I wonder if you have any thoughts on the acetic acid business in China and some of the anti-involution policies that have been proposed. Are you seeing or hearing or thinking that there could be some capacity rationalization in the Chinese market as a function of those policies?

Vincent, I can't speculate, but [ will or won't ] happen in the market. But definitely, where things are at today, it's extremely challenging, I think, for the entire industry. And I think certainly, China has has taken note of that. And the anti-involution policies that really started to get talked about more a few weeks ago, certainly, in those kind of more establish concentrated, less fragmented spaces are certainly already seeing change. I mean coal, for example, has -- coal pricing has gone up 3 weeks in a row. I think it's up about 5% in the last month.

And so I think those first order elements you're already seeing elements of that. How that applies then into our businesses, in particular, acetic acid, I don't know yet. But certainly, coal as an indicator, is going to drive cost up over time for everyone. And so I do think those dynamics, I think it's important that we continue to stay close to what's happening in our markets. We're going to keep trying things. And we're going to keep finding ways at which to pivot and find pockets of value, and that's probably going to be different today than it's going to be next week. But the team has to kind of work that daily operational execution model in order to be successful.

Okay. And then just as a follow-up, there was a call out in the prepared remarks about medical being weak. And I recall that there had been overstocking during COVID, and that seemed to normalize last year. So is there anything in particular that's causing that end market to be a little sluggish right now?

No, Vincent, it's just really timing. We had a little stronger volumes early in the year than maybe what we're seeing right now. But fundamentally, no, demand is stronger today than it was coming out of COVID for sure. And I don't -- everything that we see doesn't indicate inventory through the chain and end-use demand continues to be pretty stable there.

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

I had a follow-up on the earnings power, I guess, questions around the acetyls business. I guess I mean, that's kind of been the bigger gap in 2Q and 3Q. If you can maybe break apart the pieces between -- you talked about some of the tow destocking impact. It sounds like you're expecting that to go on in the rest of the year. But then like the core acetyls earnings power, is it utilization or demand or something that really needs to drive this? And how much is there in your control to maybe lift that earnings versus you need to wait on the market, noting that you shut down or at least delayed the start back up of your Frankfurt facility, you're batching Singapore? Is there more that needs to be done or some impaired earnings on that side of the stream that needs more actions? Or is it all market in your view?

Josh, the team is driving greater than 20% EBITDA in a business that's probably seeing Western Hemisphere demand at the lowest level it's been in 20 years. And that's certainly not easy to do. As we look at the business, in particular tow, we did see higher volumes in the second quarter than we saw in the first. It just wasn't as strong as what we had originally called out. And the order book indicates that kind of those Q2 volumes are going to be pretty similar into the third quarter. We're seeing kind of the weakness I talked about earlier in the other acetyl products in the Western Hemisphere.

I do think this is about volume in the Western hemisphere. I mean given the overcapacity in Asia, I mean, we're going to continue to find ways, as I mentioned earlier, to squeeze out more profit there. But for us, this really is about the profitability in the Western Hemisphere and given how volume is so weak, we do believe that's an area that will change over time. And just to kind of give you an idea of that earnings power and where things are at, a 3% volume change in just the Western Hemisphere non-tow in this business is about $10 million per quarter.

So it's not insignificant just as a -- to give you a rule of thumb in Engineered Materials, a 3% improvement in that business on a global basis, about $15 million a quarter. So real earnings power from very small volume changes in where these businesses can have success going forward. And we're only improving that equation with the cost structure changes that we're making over time here.

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

So firstly, I wanted to check specifically as we think about Q4, how should we think about any buckets on earnings Q4 versus Q3. I think you mentioned that there could be some inventory with action initiatives still flowing through. But can you clarify what you -- we should expect there, either items such as seasonality, turnarounds, et cetera? So how should we frame Q4 versus Q3?

Yes. Thanks, Sal. I think it's important to understand the visibility right now is very short in both businesses. Historically, acetyls, visibility of the order book was kind of 2 to 4 weeks. Today, it's very much on the short end of that. Historically, in Engineered Materials, the visibility and confidence in the order book could be 4 to 6 weeks.

Today, I would say the visibility in Engineered Materials is more like 2 weeks of orders you can really count on. And so that's hard to predict what's going to happen in the fourth quarter. We have not seen normal seasonality so far year-to-date in anything right now. So it's hard to say, are we going to see real normal seasonality or not? The inventory value chain is extremely light. We do not see big pockets of inventory really anywhere in the value chain in the areas where we have stronger profitability.

Chuck did mention a little bit of an inventory draw in the fourth quarter. It's likely on a sequential basis to be actually a positive when compared to the third quarter because it will be then less than what we're seeing here in Q3 based upon how we're seeing things right now from a demand perspective.

So I do think it's hard to say what seasonality will be, but I don't think it's unrealistic to think that Q4 would be similar to what we're seeing in the third quarter or even better depending on how things materialize from a demand perspective.

Perfect. And I wanted to also ask a little bit about the balance sheet. And specifically, we saw that you extended your revolver to 2030, [ $1.75 billion ]. So is it fair to say that right now, if we do the math, '26, '27 maturities, they could fully be addressed by everything you have on hand, cash, free cash flow and the revolver? Or is there anything else we're missing? And is there any chance, any reason why you cannot draw the entire $1.75 billion, for example, to repay your 2027 bonds?

Sal, look, we're focusing on paying down our debt maturities through '27 with our free cash flow generation and then our $1 billion of divestiture proceeds. We're not relying on revolver to pay off those maturities. We have used our revolver temporarily from time to time for a short-term bridge, but then have quickly paid that off. So I would think about paying down those maturity to '27 through our own cash generation and not using the revolver.

Now we know that sometimes our cash generation in any given year can be a little bit back-end loaded. So we'll continue to be prudent and opportunistic in the debt capital markets if we need any further refinancing transactions to kind of bridge some of that payment. But think about those '26 and '27 through our own cash generation.

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

Pretty consistent price declines in acetyl chain over the past several quarters. Is the bulk of this from just China oversupply and impact from the upstream pieces of the portfolio? How would you characterize the optionality model and success for downstream sales? Have you been getting both price and volume there relatively consistently.

Yes. Thanks, Patrick. I think on the downstream sales, pricing has been harder to get there. I mean I think that's been more about volume and finding ways at which to create new opportunities in certain spaces, some out-of kind substitution as well. We've seen success, particularly in parts of Asia, there. I mean there definitely has been some margin compression that we've seen since the beginning of the year on some products from a margin perspective in China. And then -- and we've seen a little bit in certain pockets in the Western Hemisphere, but that's largely been more of a volume story as opposed to a margin decline.

Understood. And then just on the free cash flow outlook, can you help us understand what's driving the reiterated $700 million to $800 million there? If we take a further leg down here, do you think you can manage to the low end of that range with further working capital actions?

Yes. As we entered the year, we looked at a number of demand scenarios, and this goes back to Q4 of last year even. And the commensurate inventory actions around each of those demand scenarios to generate $700 million to $800 million of free cash flow. So yes, as you mentioned, as we've kind of seen demand soften here, we're prepared to take further those actions and increase the benefit from inventory working capital and currently are confident in that $700 million to $800 million in any demand scenario.

I also think, Patrick, it's important to clarify, I mean, particularly in the second quarter here, the majority of that free cash flow was generated from operations, not from working capital. Our cash generation is coming from operating cash flow is strong, even despite the fact that we have $650 million to $700 million of interest expense this year. And I think it's that conversion to cash which really shows the strength of these operating models, and that is sustainable.

And given that we do believe we're on a multiyear journey of inventory in the Engineered Materials business, even that working capital piece going into 2026 is sustainable. So we feel really good about the cash generation here, and we're going to be continuing to find ways at which to maximize how much cash we're generating from operations.

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

Scott, you gave some interesting rules of thumb regarding volume movements, impacts on acetyls and EM. Just curious, where do you think we are right now on a volume basis relative to historic norms in both of those segments?

We're significantly lower, Frank. I mean obviously, I called out earlier, I think we're at least in the Western Hemisphere and acetyl demand, we're probably at the lowest levels we've seen in 20 years. Engineered Materials certainly is weak. I think the first half volumes versus first half last year even, I think, were down 5% to 6% volumetrically. So I mean, if you just kind of think about those, those are big significant changes that we've seen in the business.

Now I know it's just rhetoric right now, but what we are hearing from our customers is that people are looking more at manufacturing in the U.S. We're hearing from customers that going forward. Now when this actually hits, we don't know, but the people are looking at making more cars in the U.S. People are looking at making more appliances in the U.S. We are seeing even the German automakers now rolling out their next wave of electric vehicles, which have a really strong ability to win, particularly in the Western Hemisphere. Those things will be really beneficial for our businesses on the acetyl side of things, whether it's interest rates or more government spending in Europe or stability in Eastern Europe, any catalyst like that, it's our lowest cost part of the world, our highest margin business, we're going to be able to be able to capture that demand relatively quickly.

And so our focus right now is really on in this low demand environment, what are we doing to ready to ensure that every dollar or every ton we sell in the future is worth more than it was in the past.

Got you. That's very helpful. I must tell you, I was surprised to hear the low level of visibility on your order books seem pretty surprising. So to that end, how much visibility? Just curious as to what the general thinking is in terms of the low end or the high end of that $1.10 to $1.40 range for the third quarter. What sort of expectations are embedded on both sides of that?

Frank, for us, I mean, the controllable actions that we're taking and the things that are rolling through the P&L already do give me confidence. So certainly, where demand could pivot here in the last 6 weeks of the quarter and can go a number of different directions. But I think where we're performing from a controllable perspective, certainly gives me confidence in our guide right now. And we have to kind of take that mentality and keep that focus going forward.

The good thing for us as well is now we're multiple years into this Engineered Materials integration, for example, which means we're now finally starting to get historical Celanese products on M&M assets and historical M&M products on Celanese assets, which gives us a lot better cost to serve. It has kind of given us the ability to lower the inventory. But what it also does is it gives us the ability to do more make-to-order products. And so it's less inventory that we have to carry so we can respond to that demand. And so it's those types of things that I think we're being a lot more efficient with the business broadly, which does give me confidence that no matter what happens with demand, we can find a way to at least hit our cash flow numbers.

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

Scott, I wanted to ask you about this demand pattern of stronger second quarter, weaker third quarter in EM. Do you have a view of what's sort of underlying reason for this? Is this terrifying? Is there just weaker production schedules or consumer or any color here would be great.

Aleksey, I hate to do this to you, but your line kind of cut out for us on my end. So do you mind repeating your question for me?

Yes. Sorry. Just underlying reasons for stronger 2Q and weaker 3Q in Engineered Materials. Is it tariff or something else?

Look, I think it's hard to say how much is really driven by tariffs. I think some of the order timing, particularly on volumes that for products that were ordered in China that are made in the U.S., that's probably the majority of that kind of $10 million to $15 million or so that we saw that we think kind of moved into the second quarter. I would characterize demand right now really across both businesses is uncertain, and that's what we hear from our customers. And so in that time, what customers are doing is they're lowering their inventories.

And you've seen, obviously, a host of announcements in our sector here this quarter and from our downstream customers and almost everyone is pulling back on inventories. And when they pull back on inventories, it's going to certainly impact how much product we end up selling. And I think it's that uncertainty and whether it's tariffs or geopolitical reasons, people are just certainly being a lot more prudent. Now we saw this as we entered the year. And as we entered the year, we knew it was going to be about cash and lowering inventory. And so that's kind of how we've been operating. And again, as I said earlier, I'm really proud of the actions our team has been taking to really focus on reducing our cost structure and generating cash.

And then filter tow, how much certainty do you have that this is not a share loss but a destock? How much visibility do you have in these competitive dynamics?

From the visibility we've seen thus far, Aleksey, I don't think we've seen significant share loss. I mean there's some additional capacity that's being sold in the market, is not a new entrant, but just some additional debottleneck capacity that's in the market, but that's not really impacting our demand per se.

I think where it's having an impact is customers don't need to hold as much inventory and at least that's a perception right now. And so I think people have been comfortable operating at lower inventory levels, and that's kind of what materialized through the second quarter.

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

I want to go back to the bridge, Scott, that you provided from $1.25 to $2. But I think you said the inventory actions, that was maybe $0.25 to $0.30. The current cost program was $10 to $15 million, and that got you to $1.65. So I think you then said that, that would have gotten you to $2 if were not for the volume shortfall and then there are the 4 controllables. So I guess, if volumes do come back, or would normalized volumes get you to $0.35? Or given that volumes are at 20-year lows, would normalized volumes get you closer to maybe $3? And then with your controllables, you maybe have like very, very long-term line of sight to north of $3. Is that the right way to think about it? What was the volume kind of shortfall from a normalized perspective?

Yes. Arun, we're waking up every day and just trying to put 1 foot in front of the other, and we've got to look at what's in front of us right now. And our next milestone is $2. And once we hit $2, then we'll set the next milestone for where things are. And we've been building a plan here that to get to that $2 per quarter level, that is through controllable actions as I kind of walked through. The walk I had done earlier in the year got you in that $1.70, $1.80 range keeping Q2 volumes flat and through the balance of the year. And that's not what we're seeing right now. It's hard to say what normalized volumes are right now, but just Q2 volumes and that dynamic is worth about $0.25, $0.30. So it kind of gets you into that range certainly, but we're not going to count on that. We have to continue to work the controllable items that we have in front of us to get to that level. And if demand is there, we're going to be poised to capture it.

Okay. That's helpful. And then just as a quick follow-up. I think the other actions you mentioned, I get the additional cost, but I just wanted to ask about the second and fourth items. So the second item, I think you mentioned really harnessing some of your value-based programs. Could you just provide a little bit more detail there? And then similarly, on the acetyl chain, is the uplift that you see there going to require a better construction and [indiscernible] environment? Or what would you say would lead to better acetyl chain results?

Yes. Let me hit that point first. I mean certainly, the paints, coatings, construction demand in the Western Hemisphere that we're seeing is extremely weak. And so any change there would be pretty attractive from an incremental perspective given that rule of thumb that I mentioned earlier. That's probably the weakest part of the business versus today versus when we started the year. And so certainly, any change that we would see there and anything to catalyze demand on that side of things would be extremely beneficial, just because that is our highest margin area.

When it comes to high-impact programs in the Engineered Materials business, I mean, we are committed to broadening and diversifying the business, finding additional pockets of opportunity outside of automotive within the automotive business. And we have a lot of different examples of the things that the team is working on. And the non-auto, that could be things like drug delivery, performance footwear, fibers, hydrogen clean energy, oil and gas, I mean these are spaces where we've had wins recently, nice wins, and it's about multiplying those wins.

In automotive, EV propulsion, batteries, cooling, advanced suspension systems. These are all unique areas where our products fit extremely well and where we're gaining traction. Now some of those auto opportunities take longer. So it is really about accelerating kind of the full pipeline of opportunities in the hips to ensure that as we get into 2026, we have new demand materializing to the bottom line.

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

I appreciate the details in the presentation you gave around the acetyls chain and over the years showing us how you've imparted sort of earnings stability and the like and also how 70% now of your revs come from the Western Hemisphere and 70% of those are contracted out. And you're obviously seeing that even in the near-term results, right? I mean the guidance that you gave for us at us than relatively flat with Q2. So my question is if you sort of take that model and try to incorporate those best practices within the EM side, how would it look?

And particularly in light of some of the comments that you just made about hearing rumblings about manufacturing moving more to the Western Hemisphere and the like.

Certainly, there's areas of Engineered Materials, Hassan, that have elements of the elements of the acetyls business, particularly in standard grade materials, areas like Palm, our polyester business, nylon. The standard space is do have some of those kind of daily operational elements. And the Engineered Materials team really is looking at the segments of the business within each product line on how we drive and compete. And I think nylon is a perfect example of using some of those elements and looking at do we make versus buy? Do we buy polymer from the market and compound for standard compounded products because that gives us a lower cost structure? Do we find different ways to buy materials cheaper? Otherwise. Do we pivot materials to our lower-cost elements of production, and we've done some of that through the shutdowns of higher cost capacity that we've done in maximizing production in our lowest-cost assets.

And so there definitely are elements there. Our U.S. footprint that we have in both businesses is extremely low cost, and it is advantaged. And so as we see demand pivot back to the U.S., if that occurs, I think we're well positioned as anyone in our competitive landscape to be able to capture that demand very quickly.

Very helpful, Scott. And as a follow-up, I mean, obviously, the macro continues to weaken, a fair degree of uncertainty in the marketplace. And obviously, the chemical industry sort of valuations keep coming down as well. Where do you guys stand with regards to the $1 billion in divestiture that you guys had sort of flagged to sort of accomplish within the next 2.5 years?

Thanks, Hassan. The Micromax process we announced publicly a quarter ago is going very well. We have worked our way through the first round of bids. We narrowed that down to a nice diverse group for the second round. Management presentations are completed. We've -- we're working through site visits and expert calls and kind of fully through the diligence process right now, and we expect to have second round bids in the next month or so. And they we'll narrow that further to a third round and work to conclusion, we think, at some point here in the second half of the year.

So we feel really good about the Micromax process. I actually asked the Head of M&A yesterday as a matter of fact. And I said, you feel more confident today in our non-Micromax projects than you did a quarter ago, and he said, absolutely. And I do think we've seen some traction there. I mean a lot of the deals we're working there are are a little more complex, some are with our joint ventures, and those are harder to get done. And so they do take longer, but I do think the work the team is doing to keep the focus on those with the highest degree of profitability, I would say we feel more confident in that today than we maybe did a few months ago.

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

Selling third-party acetic, what you used to call parlay, was a core part of the acetic acid strategy. Is the lower third-party sales, something Structural here, just the industry has changed enough that doesn't make sense? Or is it just a cyclical decline because it requires working capital, which maybe you don't want to extend right now? Or maybe there's just -- there's less margin, obviously, at lower prices. So how much of this third-party decline which used to be part of the core is cyclical versus structural?

John, you've covered us for a long time, and you know that this business changes every single day. And is it structural? No, I don't think it's structural. It may take a while for that dynamic to change. But there's a lot of moving parts here and margins are really at unsustainable levels. So I do think that's why you're seeing us make the choices that we're making to further pivot downstream. And I think the work that we've done there and debottlenecking capacity downstream has given us another outlet, so they were not so reliant.

And 10, 15 years ago, we were extremely reliant on selling third-party acetic acid, and we're not today. And that business in some years was well over 50% of the end products that we're selling, and now it's less than 30%. So I think for us today, I think having more diversity in the business is a good thing. Certainly, we'd like acetic acid margins to be better than they are. But this things pivot here, and we're going to make sure that we continue to pivot with the market as opportunities present themselves.

And then can you say that the Micromax deal will be simple, all cash or do you think there might be an earn-out or something a little bit more complicated with that deal?

We're working deals, John, to keep the complexity at a minimum on the deals that we're doing. And I think for us right now, we're quite confident that we won't have an outcome that's super complex.

Our final question will come from the line of Matthew Blair with Tudor Pickering and Holt.

You mentioned Auto [indiscernible], but could you talk a little bit about the mix within autos? Historically, Celanese has enjoyed some nice tailwinds from things like hybrids and EVs. Are those tailwinds still present? Or are they starting to reverse? .

We're not seeing a big reversal right now. Certainly, with demand pulling back in China, our sales into EVs on a global basis are probably a little bit less today just because of more where the end user demand is. Electric vehicles are definitely here to stay. I think each region is going to be a little bit different. Certainly, EVs are going to play a big role in Europe for us. And we feel really good about the portfolio that we have developing from a pipeline perspective there.

In the U.S., it's going to be a mixture. There's going to be ICE, there's going to be hybrids and electric. And so we have to make sure that we're remaining nimble and flexible with our customers so that we can meet those needs because I do think it's going to be a changing mix here for [indiscernible].

Okay. Well, thank you, everyone, very much. We'd like to thank everyone for listening today. As always, we're available after the call for any follow-up questions. Daryl, please go ahead and close up the call.

Thank you, ladies and gentlemen. We appreciate your participation. This does conclude today's teleconference. Please disconnect your lines at this time. and enjoy the rest of your day.

Thank you, and good morning. My name is Dave Begleiter of the U.S. Chemicals team here at Deutsche Bank. Next up is the team from Celanese, led by Scott Richardson. Scott was named -- became CEO January 1. He spent over 20 years at Celanese in various roles in Asia and the U.S., driving value and outcomes.

So a lots happening at Celanese in the last couple of years. We'll have Scott make a few brief comments around where they are today, and we'll go into the fireside portion of the chat. So Scott, all yours.

Thank you, David. And thank you, everyone, for joining us today. It's great to be here and talk about what we're doing at Celanese. And that word do is, I think, the important one. Our focus is on execution. And really around three key focus areas. I mean it starts with EPS and EPS growth. And the way we're thinking about things is how do we find ways at which to drive incremental EPS every single quarter and be adding to that.

In this environment, that means we have to focus on the things that we're doing and that we can control, and we can't rely on that broader macro to be driving that. And here in the second quarter, we had guided to $1.30 to $1.50 of EPS, which is up about $1 over -- or about $0.80, $0.90 above what we did in the first quarter.

And that range is still where we see things in the quarter. And that's with some improvement in demand certainly started in March, kind of continued in April and May. And June is pretty similar to where we're seeing things overall in -- where we saw things in April and May.

The second area of focus is about cash. How do we turn that EPS into free cash flow? We're focused heavily on working capital reduction, the things that we can control, we significantly have cut capital expenditures in a way where we're driving free cash flow. And we called out a guide of $700 million to $800 million of free cash flow this year.

But cash, we believe, can come from divestiture proceeds as well. And we're targeting the $3.5 billion of maturities we have coming up before the end of 2027. And that includes the Micromax transaction that we began marketing here over the last month. And we believe we have a nice portfolio of options and opportunities for divestitures even beyond the Micromax transaction.

And that's going to yield the third element of focus, which is aggressively deleveraging the balance sheet. We did a refinancing transaction in the first quarter, which pushed out maturities. But we're targeting the $3.5 billion of maturities we have coming up before the end of 2027.

We're targeting to pay that off with free cash flow and divestiture proceeds. And that means that we need to continue to grow that free cash flow number that I talked about.

But aggressively bringing the leverage down on the balance sheet is a critical area of focus for us. We're starting here even this quarter. We have a delayed draw term loan that comes due in the early part of '26, and that has largely paid off with cash flow that we generated already this quarter.

So the team is going to keep taking things one quarter at a time, but those are really the three elements of focus. And everything that we're doing across the organization is really focused on those three areas.

Thank you, Scott. Perfect. Scott, so a segue on that point, you've been seeing now for 5 months, discuss your transition to the role, the changes you've made versus your predecessor and some of the other management and Board changes you've made over the last few months as well?

Well, look, it is that we do that I talked about earlier is an important one. We have to be action oriented. And I think we made the decision to make a change with Engineered Materials.

And our commercial model there is critically important. We drive projects that meet unique solutions for our customers. And we felt like we were kind of through the big heavy lifting elements of the integration. But lifting us to the next level, we felt like we needed to make some changes across the organization.

And bringing Todd Elliott into the organization has been a great [ re-add ] with him coming back and really taking a hard look at everything that we're doing and making sure that our resources are pointing on those areas of opportunity, making sure we have reenergized our project pipeline growth model and are really focused on those areas of high impact.

We call them high-impact programs on where we can be successful going forward, things that are going to commercial quickly, areas where we can build unique moats. And Todd is bringing that element to things.

At the Board level, we've actually -- we have 6 new Board directors in the last 18 months. And we're really focused on folks that know the industry, know how to create value in these types of markets, both in kind of the chemical side of things and acetyls or in the Engineered Materials business and those end uses. And so we have a number of new adds, including most recently bringing Scott Sutton back to the company in a Board role.

And I think it's all been additive. We created a committee on the Board called the Finance and Business Review Committee, which really gives me and the management team an ability to work with the Board and really fully utilize the unique talents we have on the Board to really be driving in these three areas of focus that I talked about and really aggressively deleveraging the balance sheet so we can increase optionality going forward.

Very good. Going forward to business trends, Q2, where are you seeing the improvement by region, by end market, by product?

Well, I'm careful with the word improvement. What I would say is it's all a little bit relative. I mean where it's improved versus Q1 is largely auto, largely in Europe. We saw an end to destocking, as we called out on our earnings call, started in February, really continued into April.

We're not seeing, I would say, real improvement in anything else through the quarter. Certainly, that auto stability in the Western Hemisphere is good. It's -- we haven't seen -- even with the China tariff pause, we haven't seen that really drive any kind of inflection or improvement in demand anywhere else.

And in fact, probably a little bit of softness in China demand, which it's pretty low margin for us. So it really doesn't have much of an impact. But certainly, volumetrically, I think it -- there is definitely some weakness there in the Chinese market.

You mentioned June continuing some of the positive trends in May. How are your June order book? Are you seeing any strength or stable or even weakness?

Yes. Typically, the last month of the quarter for us is the strongest volumetric quarter -- or volumetric month. I would say June, right now, it's pretty similar to what we saw in April and May, which is kind of what we have more or less baked in.

And I think that similar nature is some of what I talked about a little bit with where China volumes are. I don't think they're going to be necessarily as strong as we finish the quarter as maybe they have been in previous quarters. But certainly, as I talked about, it shouldn't have much margin impact to us.

Got it. You were at ACC the last few days in Colorado. How is the sentiment amongst your peer CEOs? Pessimistic -- that was optimistic than maybe it was, but how was the sentiment out there?

Look, I think the amount of visibility that we have as an industry right now is pretty limited. We don't even know where orders will end up for June and where things are. And that's very different for us as an industry.

I mean, typically, most parts of this value chain, you would have at least a month or in some cases, 2 or 3 months of visibility as to where that order book will ultimately land. And that visibility is limited because of the uncertainty that's out there really on a macro basis.

And I think that has led a lot of our customers to not be overcommitting in terms of where they're going to need product and when they're going to need it.

And so it just has kind of reduced that visibility time that we have. And the industry has had to certainly take stock of that. And we, as an industry in periods like this, tend to make changes, we tend to do restructurings, look at where our footprint needs to be.

And I think that much like at Celanese, where we have talked very openly about the things we're doing to drive self-help, I think as an industry broadly, I think that's a lot of what I heard in the last week.

Q2 guide, good to hear it's still on track. Is there a bias to the upper half or lower half of the range sitting here right now?

Look, I wouldn't over-rotate on that. At the end of the day, we gave $1.30 to $1.50. I mean that's $25 million at the end of the day on an EPS basis for us. So that's a pretty narrow number. I mean one barge shipment of a product in acetyls can be $2.5 million one way or the other. So it's -- at the end of the day, it's a pretty narrow range. I wouldn't over-rotate too much.

Okay. Very good. On the cost savings, back in May, you increased your target from 80 to 120, [ $120 million ]. What's driving that increase? And what's the cadence of those savings going forward?

Yes, it's split about half, that $40 million, half acetyls, half Engineered Materials. And it's about -- it should be pretty evenly split between Q3, Q4, maybe a little heavier weighted towards the fourth quarter, particularly in Engineered Materials.

In acetyls, a lot of it is operational things, elements and steps were taken around block operating certain assets. So if we saw a demand environment that improved, I mean, that's one, some of that you may actually see it come back, whereas the changes that we're doing in Engineered Materials are really permanent in nature.

And it's really kind of that first step, those additional opportunities that we talked about in our February earnings call of a target of at least $50 million to $100 million of additional Engineered Materials cost savings. And so this is $20 million of that.

And so on a full-year basis, that's certainly bigger, but there's still more opportunity and things that Todd Elliott and team are continuing to work on to be able to get to the upper end of that range as we get into next year.

Got it. On the tariff impact, you called out about $15 million per quarter during Q3. Where are these impacts coming from? And what are you doing to offset them?

Yes. So that is really the direct impact of tariffs, and it's related to some products that we make in the U.S. and ship directly to China. So you can imagine with the pause that we saw happened a few weeks ago, that number in the second half of the year is closer to zero per quarter than it is $15 million just because we're able to take some steps from a logistics perspective now during this period.

So I think, for us, the direct impact of tariffs is really the small one. It's -- what happens to demand, that's the bigger concern and question. And it is leading to some of that uncertainty that I talked about for the industry broadly.

Yes. On that issue, what's the next step to resolving this uncertainty, getting more clarity for you and your customers? Is it just a U.S.-China trade deal? Is it a U.S.-EU trade deal? What do you need to see for that certainty to be reduced?

Well, I think it's just what are the rules going to be going forward, one way or the other. I think that we, as an industry and our customers do a really good job, I think, of working together to come up with solutions, depending on where things are at. And so once we know what they are, then we'll go work those solutions.

And I think mitigating elements and finding ways at which to reduce our cost to serve the customers is something our team is certainly brainstorming with different permutations. But just kind of once we get to a finality, and I think that's sooner rather than later, certainly would be good.

Okay. The key question I get from people is on your full-year guide or the exit rate. So on the Q1 call, you reaffirmed a $2 per share quarterly run rate exit rate for this year. Let's say you make $1.40 in Q2 midpoint of the range, what's the bridge from $1.40 in Q2 to $2 per share exit run rate this year?

Yes. Let me just kind of take a step back. I think that $2 that I talked about is -- it's important. I wanted to talk about it publicly because that's how we're managing things internally. It's kind of that next step, next plateau for us as a team. That's what we did the last couple of years.

On average, we actually did a little better than that. But getting back to that in a macro that's much worse than where it was through self-help actions and cost reduction elements that are sustainable and will continue into the future is very critical and kind of where we're orienting things.

And we know we have to continue to build -- rebuild credibility on where we are and our performance. But for me, I think if we were getting in that level, then we start to get a valuation of what we're doing. And what we're going to do going forward as opposed to being valued on what we've done. And I think that's really important that we kind of hit that milestone.

So that's where we're pushing the organization, and that's where we're driving actions. And once we get there, then we'll put another target in place, whether that's $2.50 a quarter or $3 a quarter, wherever it goes to, but that's where we want to be.

$1.40 in the second quarter, you get about $0.15 to $0.20 from not having the turnarounds. We have a heavy turnaround quarter here in the second quarter. You get about around -- you get a little bit from Acetate Tow seasonality as well. And then you get another $15 million to $20 million from incremental cost actions. And so that kind of gets you in that $1.75, $1.80 range.

And then what's that bridge to that last $0.20 or so? Some of it -- and it could be a number of different things, working these high-impact programs and commercialization there and getting additional volume from our pipeline and having that flow-through and not be offset by other things like -- which has happened the last several years, and making sure that we've kind of put a bottom on those other things.

It could be pricing. We've talked very heavily about the unsustainable nature of margins in standard grade materials and Engineered Materials.

And so we've been very focused on with the price action we took in the first quarter. We got a little bit from that, but we felt like we needed another catalyst and another push. And so we issued a second announcement in the second quarter. And getting price and getting to a point where returns are just even at acceptable levels for standard grade materials is very critical.

So those are some of the big levers, but we're not stopping on the cost reduction side as well. So as I talked about, we have additional things we're working in Engineered Materials and then across the functional side of the portfolio to be able to drive additional cost reduction.

And what's the macro guidance on putting that -- some macro assumption on putting that $2 per share run rate? Is it just flattish volumes from here?

Yes. I mean in this range. And we know they're going to move around a little bit, but it's somewhere in this range. And look, by no means are volumes strong here in the second quarter. They're better than they were in the first quarter, certainly better than they were in Europe, which is our highest margin region in the fourth quarter of last year.

And for us, and we've been pretty open about this, I mean, the majority of our profitability is generated in the Western Hemisphere, not in Asia. And so even some of the volume declines I talked about a little bit earlier and concerned around China demand is really less impactful.

And to be clear, the $2 per share exit rate is not -- doesn't mean you're going to make $2 in Q4. It means you're going to exit the year. So should we think about '26 as an $8 per share type year in the current macro? Or what do we need to get to $8 per share for the full year '26?

David, if I could answer that question, I would be in Las Vegas, not sitting here with you in New York. No, I mean, look, that's why getting into that range of $8 or -- plus/minus is really important for us because it is a very different valuation if we are, and then the growth off of that is very different.

The cash flow generation is also substantially more. I mean we talked about generating $700 million to $800 million of free cash flow this year. I mean if you're run rating on a full year basis in that range, that's several hundred million dollars more free cash flow generation.

And that just is going to allow us to deleverage the balance sheet that much faster. And I was talking to a group of investors a couple of weeks ago, and I said simple rule of thumb, how I think about it is every $1 billion of debt we pay off is worth around $0.50 of earnings.

And that power is -- certainly, I don't love having over $600 million of interest expense, but it's an opportunity. If we can just whittle away at that, I mean, we're really generating EPS, generating additional cash flow. And as quick as we can get that number down and be able to start having a more balanced deployment of cash in the future is really critical.

Good segue into your balance sheet, remain levered obviously. What's your -- you also push on maturities in the next couple of years. So what's your delevering strategy? And what's your confidence in having no liquidity issues going forward?

Look, the team has done a great job of refinancing, and we've been able to do that a couple of times over the last several years. And we'll continue to be opportunistic. And if the market is there and we can push out maturities, we will. But we need to be paying off debt, and that's the priority here.

And it's a priority for us generate cash first from operations and very quickly be able to reduce the debt, as I talked about. We've been able to reduce some debt this quarter. And then how do we look at divestitures as a way to accelerate that.

And we have certain parts of the portfolio that are not critical to our operating models, either in acetyls or Engineered Materials. And so the value of those assets may be worth more to someone than how they're valued at Celanese today. And so we're looking for things that we can do along those lines to accelerate that. Micromax was one.

We've been very open about finding ways to monetize our joint ventures, where they come in on the equity earnings line really at net income and it's net income after tax. And so it's an extreme discount over our share of the EBITDA that those JVs generate. Now it's hard to sell portions of joint ventures. And so -- but we're going to keep focused and work on that because we think we can unlock value there.

Very good. I guess on Micromax, it's been about a month since the announcement. How has interest been in that asset?

Interest has been very strong. We have never signed more NDAs on any process we've ever run, which is great. We have a high degree of interest, both from sponsors as well as strategics and interest from around the world. So it's a very big process, a pretty diverse process.

So -- and that's why we announced it publicly. I mean we haven't announced a divestiture publicly in a long time, but we did because we -- there was a high likelihood this was going to leak, and we felt like it was important both for investors, but also for our employees to be able to be ahead of that message and be able to message appropriately.

So that gets you probably to half of your $1 billion divestiture target, give or take, my guess?

I'm not going to limit the possibilities, David. But certainly, I think you can get us a good chunk of the way there.

Okay. And the next step, is it 1 or 2 more assets? Is it -- how should we think about the next -- why is it more than $1 billion? You have numerous JVs in Asia, in China. Does it all makes sense for Celanese longer term?

Look, I think it's important to probably weight that number. And certainly, if we can drive value lifting transactions, it's more than $1 billion, we will. But I also want to make sure that we get back to doing what we say we're going to do. And that is a really important mantra for us as a leadership team, not just on what we're doing from a divestiture perspective, but also in terms of our earnings.

Are there other cash or deleveraging actions that could be done, either working capital or other hidden value that could accelerate deleveraging?

Yes. Working capital continues to be a big opportunity for us. We still have higher levels of inventory than I think we need. And there's also work being done on the cost reduction side from our network optimization projects within Engineered Materials, which should also drive working capital opportunities as well.

And as we look at making sure we've got footprint in the right spot, we will take working capital into account as we look at that. We're targeting at least $100 million of inventory reduction in Engineered Materials this year, but we're going to push for more.

And even in the second quarter, I mean, we're taking the opportunity to bring inventories down. We were very open on the earnings call that even with volumes better in the second quarter than they were in the first, we're not taking our plant rates up. It's important that we're very prudent on the inventory side of things right now.

And even if we have a little bit of an absorption hit, we feel like that's worth it to drive incremental free cash flow.

Very good. Let me see if any questions in the audience. If you have a question, please just raise your hand, and I'll keep on going. Scott, just on the cash flow guidance, it sounds like it was still on track for $7 million to $8 million of free cash flow this year. Is that fair?

Yes.

Now on CapEx, you're down to maintenance levels this year. How long should we think about staying here before we go back on to some modest growth activities?

Yes. At the $300 million to $350 million CapEx level, I mean, that's maintenance capital plus a little bit of very quick return productivity projects. And so I would look at this being kind of where we're going to be for the next several years. I mean it's -- I think we can stay at this level for the next several years.

We don't -- we've spent a lot of money. We spent a lot of money on growth capital over the last several years. We spent a lot of money on acquisitions. We're now in a return on capital improvement cycle.

If you -- I liken it to when the company went through the Blackstone LBO and came out of that. If you look at where leverage was and you include the unfunded pension liability that we had, which was sizable at the time, leverage is pretty similar then to where it is today in the 2005, 2006 time frame.

And we went through a period where it really was about harvesting and driving returns, very prudent cash spending and whether it's on expenses, but also important on the capital side.

And that's where we're going to be here. This is about harvesting returns, driving the return profile of the company upwards and driving free cash flow and getting the debt paid down. And once that is done and we get into a different cycle where the company is, then we can look at driving that capital number up.

Very good. Switching to the businesses, on Engineered Materials, you talked about a rebound a bit in European automotive. What's driving that? And what are you seeing in China auto as well as U.S. auto this quarter?

Yes. I don't know it's as much of a rebound as it is just kind of an end to the destock that we saw. And I mean there was inventory that was built, our inventory, our customers' inventory all through the value chain, our supply chain partners, our distributors.

When Q2 volumes were stronger than expected, and there was an expectation that was going to continue in Q3, and it didn't happen. And it took a while to kind of unwind from that, and we really didn't see things start to get better until March.

Volumes have kind of normalized now in the last few months, but it's normalized at a lower level, certainly lower than where we were in the first half of last year. And we're very confident that, that has happened. We look at where our distributor sales have been in the last several months, they've been kind of very consistent from month-to-month. So it's a good sign that we've kind of got the inventories flushed through that value chain.

In the U.S., things have been very stable through the quarter and continuing. Certainly, sales of dealer lots has been pretty okay through the quarter. We haven't really seen that turn into increased production as of yet. So volumes continue to be very stable.

And then China, a little bit of volume weakness. You've seen some things account publicly from some of the OEMs there in China. And so a little bit of volume weakness, nothing substantial.

But I think as we look into the second half, we're not predicting any kind of big increases per se at this point. And kind of how we baked -- what we baked into our free cash flow guide for the year was the auto forecast that were out there back when we did our earnings call, which was expecting some dip in the second half of sales.

Very good. You mentioned -- talk about your efforts to sharpen and accelerate the project pipeline model in Engineered Materials. Talk about that as well as the opportunity that might lead to with the Chinese automakers and EV players there.

Look, not all projects are created equal. There's a very different value that's there. I mean, certainly, with some of the overcapacity that we see in China for everything, our ability to win in standard-grade projects is probably going to be less likely than our ability to win in more specialty applications.

And so it's very important that we have our resources tuned to be able to work on those projects around the globe that are going to have a higher level of return. And it was just kind of recasting that.

And also kind of using data, and we have a lot of pipeline data now for many years that we have been able to create a scoring system and really kind of crosschecking where is industry growth, where is the attractiveness of our applications there and kind of where do those points intersect and making sure that our entire team knows that.

And so they know kind of where to be putting those incremental resources that we have. And that's what the leadership team in Engineered Materials has been working on now for the last several months and just making sure that, that is tuned.

Us being successful in China is very important. It's important for several reasons. One, we're going to continue to see the technical requirements of vehicles in China move up. And that plays really well for our specialty opportunities. And so we have to be winning there.

But also China is an innovator. China is an innovator in some of our key end uses, not just selected vehicles, it is, but also in other areas, I mean things around AI and data centers. There is a lot happening there.

And as customers in the Western Hemisphere driving innovation, there's a lot of success that we're going to have in China and it's kind of -- now there's always innovation that's happening in the West and it meant to our customers into China, kind of an outside-in model. There's a lot more of an inside-out mentality to it today.

And so it's critically important that the team kind of can go both ways and so the things we're having success on that we're driving translation opportunities over into the Western Hemisphere as well.

What's your share of the Chinese automakers versus European or U.S. automakers?

Yes, it is lower. And it's about 40% to 50%, depending on the OEM, at most. I mean -- but there are some OEMs where we have, quite honestly, about the same amount of volume we have with some of our customers in the Western Hemisphere. Now -- but overall, it's kind of in that 40% to 50%.

Now I do think it can be higher, but I also -- we have to be realistic about where the competition is at. And if we have competitors that are willing to sell at or below cost for standard-grade materials, then we're probably not going to win that business.

So we have to kind of recalibrate that a bit. And it's not just going to be about share, it's really about value. And what's very encouraging is if we have like-for-like specialty applications, China versus Europe or China versus the U.S., the margins we make on that is equivalent. It's not like we're having to drive a discount there. So we definitely can get value when we bring it into certain application sets in China.

What is your content value on a U.S., European auto right now?

It just kind of depends. I mean we tend to -- we haven't talked as much about kilograms per vehicle because weight doesn't matter as much in every single application area.

So I would say, I think it's been one that hasn't grown a lot in terms of the value over the last several years just because there has not been as much -- as many kind of new model overhauls and launches in the Western Hemisphere because there's a lot of uncertainty as to what vehicle mix would need to look like, particularly here in the U.S., ICE versus EV.

And I think as some of those questions on what consumer demand is going to be are starting to be answered, I think we're going to see a lot more new model launches, particularly in the U.S. and Europe. And that creates a lot more opportunity for us to drive more innovation. So I do think we have an opportunity for that to grow.

We grew our business in EVs in China last year by about 20% on a year-over-year basis, which is a little bit lower than the overall EV growth in China. But actually, when you look at that standard grade equation I talked about earlier and the fact that the premium segment is still very small and still developing in China, that was actually a lot of growth for us. And so being able to keep that moving is critically important.

And on that point, thinking about the value opportunity on EV versus traditional ICE vehicle, how much larger, greater is that for you guys?

Yes. I mean it's about -- we've said about 50% or so more of addressable space in that range. And it depends on the model. Certainly, those that are kind of more in the standard model vehicles, it's a lot less in terms of opportunities. We tend to play in kind of more of the middle of the market or the premium segments where the technical requirements for vehicles is higher.

And so certainly, there is more addressable space, but we have to make sure we're being successful there. And certainly, hybrids present a much greater opportunity because it has both powertrains. And that is an area here in the U.S. if that's kind of where things continue to move, that's certainly very good for us.

On nylon, you highlighted on the Q1 call, the profit degradation in the nylon portfolio. You've already closed some plant here or to help that. You announced some price increases as well. What do you need to see nylon profitability improve? And how impactful can these price increases be for both the nylon and nylon products in the portfolio?

There's a lot of opportunity here. And I don't know exactly what the end equation is going to end up being. Certainly, plant footprint was part of that with the closures that we announced last year and carried out in Europe. Footprint will be -- continue to be an area that we look at and analyze at all times to say how much polymer do we want to be versus buying.

Buying is not necessarily a bad thing given where things are at from a length in the marketplace, and variabilizing the business is not a bad thing either. And so that could be an equation.

Pricing is certainly an element -- standard grade pricing is at unsustainable levels for the industry, and we've seen that through some competitive actions that have happened in the marketplace. And so we know that margins need to move up. And so there's an element here.

There's also top line volume growth opportunity. Nylon 66 is a really good, strong polymer, and there's a lot of specialty applications for nylon 66. I think a lot of people look at it and say "Okay, that's a commodity polymer." It's not. There are a lot of standard grade applications for that business, maybe more so than other polymers.

But there's also some really good differentiated opportunities. And it is about putting that focus on continuing to work with customers in this good, strong workhorse polymer for opportunities.

But it doesn't have to just be nylon 66. I mean our nylon 66 business improvement may actually come from being successful in other polymers and us growing other polymers because the profitability is stronger there or we can drive different customer solutions and growing end uses stronger there.

So we're not just we want and need to improve the profitability of the Nylon 66 business. But at the end of the day, what really matters is that the whole EM business is moving upwards and profitability.

Right. No, very clear. Just briefly on acetyls, there's been some new supply coming on in China. There's been some investor focus on that. This is not your first rodeo. How are you dealing with a company with new additional Chinese supply in acetyls?

Our team has done a really nice job of being able to kind of push and add capacity downstream. The acquisition of our redispersable powders business, we've continued to add vinyl emulsion capacity. So actually, right now, about 65% of what gets sold to an end customer in the acetyl chain business is not acetic acid or VAM on a global basis.

And so by going further downstream, we get a little bit more differentiation, particularly in emulsions and powders, and we can kind of tailor formulations for what customers need a little bit differently in those businesses, which is just -- which is a little more different than selling acetic acid or VAM.

Look, there's been a lot of capacity added, all really in China. And that product is mainly staying in Asia today because the arbitrage windows just really aren't open, given where pricing is at around the world.

And so that's not a bad thing. But our markets in the West have been pretty depressed. Paints, coatings and construction demand has been pretty weak. Existing home sales, which is one of the most important things that we watch around the world, has been very low, not just here in the U.S., but also in Europe and really low in China. And when people move, people paint, redo a bathroom, usually buy at least one appliance.

And so when that is not happening and those existing home sale transactions are very weak, you just don't have a pull for that demand, and that's really kind of core acetyl demand. And so we're kind of stable at low levels overall. But certainly, the margins have been pretty balanced.

And lastly, how should we think about foundational or mid-cycle earnings for acetyls?

Look, we are kind of focused on putting one foot in front of the other. And that's why I kind of talked at the very beginning about every quarter kind of moving up. And the good thing is I think folks are starting to believe that we can go execute on the things that we say we're going to do in the quarter.

And so we're getting a lot more questions about that. And we'll work to outline that for folks. I think a lot of it is really around the self-help actions. not knowing what the macro is going to do.

Our focus is what does that range of outcomes look like in the future based on if the world didn't change and demand stayed where it was, what would that be based on the things that we can go do? And as we kind of work those actions through the end of this year and get into next year, I think we'll be able to provide a little more clarity.

Excellent. With that, we'll end there. Scott, thank you very much. Thank you all.