Celanese (CE) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool.

Date

Wednesday, Feb. 18, 2026 at 9 a.m. ET

Call participants

• President and Chief Executive Officer — Scott A. Richardson
• Chief Financial Officer — Chuck B. Kyrish
• Vice President, Investor Relations — William Cunningham

Takeaways

• Free Cash Flow Guidance -- The company reiterated a 2026 free cash flow target of $650 million to $750 million, with Chuck B. Kyrish stating, "we feel very confident, in that $650 to $750 range that we put out there."
• Working Capital Reduction -- Management is targeting an additional $100 million reduction, principally through inventory, after $390 million was achieved in 2025.
• Interest and Tax Expense Outlook -- Cash interest is expected to decrease by $50 million and taxes by $50 million to $60 million in 2026.
• Engineered Materials Pipeline -- Electronic end markets were described as "a net positive on a global basis" driven by AI and data center demand, though auto remains larger and mixed, especially with market uncertainty in China.
• Cost Benefit from Lanaken Plant Closure -- Management expects annualized cost savings of $20 million to $25 million, with $5 million to $10 million to be realized in 2026.
• Divestiture Progress -- The company is approximately halfway to a $1 billion divestiture target by 2027, with "robust slate" and confidence in completing an additional transaction in 2026.
• Segment EBIT Declines in 2025 -- Adjusted EBIT for the Acetyl Chain fell by about $400 million, and Engineered Materials by about $120 million, primarily due to price and volume; margin compression was noted, particularly from China and the acetate tow business.
• Second Quarter 2026 Earnings Drivers -- A $30 million inventory tailwind in the first quarter is expected to reverse in the second quarter, with higher turnaround expenses also impacting results.
• Acetate Tow Pricing and Demand Outlook -- Contract pricing for 2026 is described as seeing "very little change," with most competitive pressure occurring in the spot market following last year’s added capacity; stabilization is expected by mid-year.
• EPS Growth Expectation -- "Our team is still focused on $1 to $2 of [EPS] lift," primarily via Engineered Materials growth, cost actions, and incremental volume effect, with a 1% volume change in Acetyl Chain equating to $15 million to $20 million and in Engineered Materials to $20 million to $25 million per year.
• Polyacetal Turnaround -- The second quarter will absorb a turnaround cost "similar to the lift" of $30 million, which is not an annual event due to improved reliability cycles.
• Western Hemisphere Priority in Acetyl Chain -- Management emphasized that volume improvements in the Acetyl Chain are now modeled largely for the Western Hemisphere, excluding China due to persistent overcapacity.

Need a quote from a Motley Fool analyst? Email pr@fool.com

Risks

• Adjusted EBIT in the Acetyl Chain declined by about $400 million and Engineered Materials by about $120 million in 2025, primarily due to price and volume pressures, with further risk from continued margin compression, especially from China and the acetate tow business.
• Management highlighted ongoing "softness in auto in China" and residual uncertainty due to EV subsidies rolling off, affecting near-term auto demand visibility.
• Competitive intensity persists in acetate tow spot markets following new capacity, contributing to protracted demand stabilization and margin pressures expected through at least mid-2026.
• The second quarter will be negatively affected by the reversal of the Q1 $30 million inventory benefit and by elevated turnaround expenses, with management stating, "Q2 flattish to Q1."

Summary

Celanese Corporation (NYSE:CE) is maintaining a disciplined cash flow focus with a free cash flow target of $650 million to $750 million for 2026, supported by additional working capital and cost reduction measures outlined on the call. Management reported meaningful declines in 2025 adjusted EBIT for both the Acetyl Chain and Engineered Materials segments but identified volume and price drivers behind these results and detailed actions for partial offset. Divestiture activity remains on track, with an explicit goal to complete $1 billion of asset sales by 2027 and progress already halfway towards this mark. Executives offered strategic clarity on cost savings from plant closures, continued prioritization of Western Hemisphere improvements in acetyls, and proactive measures in Engineered Materials to capture demand from higher-growth electronics and automotive applications despite geographic demand challenges. The company expects EPS improvement of $1 to $2 per share, contingent upon pipeline execution in Engineered Materials and modest recovery in underlying volumes.

• Interest and tax expenses are expected to decrease by a combined $100 million to $110 million in 2026, potentially contributing to free cash flow preservation even if demand remains subdued.
• Divestiture proceeds and continued asset portfolio rationalization are central to deleveraging plans, including a specific focus on joint venture stakes outside core operating models.
• Inventories and working capital levers remain key tools to deliver free cash flow in multiple macroeconomic scenarios, as restated by management confidence regarding target achievement.
• Price increases in engineered polymers are positioned as necessary responses to "unsustainable" margin levels and defaults among competitors, with incremental improvement in returns expected through 2026.

Industry glossary

• Acetyl Chain: A group of products based on acetic acid and derivatives (e.g., vinyl acetate, acetate esters) used in manufacturing adhesives, paints, and chemical intermediates.
• Engineered Materials (EM): Celanese's segment focused on high-performance specialty polymers used in automotive, electronics, medical, and industrial sectors.
• Acetate Tow: A fibrous form of cellulose acetate used primarily in cigarette filters and other filtration applications.
• Polyacetal (POM): An engineering thermoplastic polymer utilized for high-precision parts in automotive and electronics.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Celanese Corporation Q4 2025 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the brief remarks. Please note this conference is being recorded. I will now turn the conference over to William Cunningham. Thank you, William. You may begin. Thanks, Daryl. Welcome to the Celanese Corporation fourth quarter 2025 Earnings Conference Call.

William Cunningham: My name is William Cunningham, Vice President of Investor Relations. With me today on the call are Scott A. Richardson, President and Chief Executive Officer, and Chuck B. Kyrish, Chief Financial Officer. Celanese Corporation 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 will 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 us please go ahead and open it up for questions.

Operator: Thank you. We will now be conducting a question and answer session. The star keys. Our first questions are coming from the line of David Begleiter with Deutsche Bank. Please proceed with your questions. Thank you. Good morning. Scott, now that the business has been stabilized, you have done some improvements on the cost and balance sheet side, what are your updated thoughts on potentially selling some equity to get ahead of this balance sheet issue? Thank you.

Scott A. Richardson: David, focus continues to be on the plan that we have 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

Operator: in 2025 despite the earnings decline year over year, was evident. And the fact that I think we built, you know, the right elements

Scott A. Richardson: that can keep that going, here in 2026 and beyond. And we are extremely well poised for recovery. So you know, our focus really continues to be on using know, you know, debt and, you know, we have been able to refinance, our bonds and continue to pay off what is right in front of us. So, you know, given, you know, the fact that our maturities now coming up over the next couple of years are significantly lower than they were. And, you know, the cash generation that we have from the business as well as what we have coming from divestitures, we believe

Operator: is strong. We feel like we are in a really good position. Very clear. And just on tow, what are you seeing for pricing in your contracts for 2026?

Scott A. Richardson: Very little change in contracts pricing, David. And I would say more of the spot part of the business, that is where we have seen more competition, with the additional capacity that came on in the market last year, which drove the actions that we are taking. And I think the team with the action we announced last quarter about

Operator: the Lanakan plant closure, we are going to be able to drive enhanced cost benefit into the business of about $20,000,000 to $25,000,000 on a full year basis, of which

Scott A. Richardson: we should see about $5,000,000 to $10,000,000 of that this year. And we are trying to bring as much of that forward as possible.

Operator: Thank you. Thank you. Our next questions come from the line of Patrick David Cunningham with Citi. Please proceed with your questions.

Scott A. Richardson: Hi, good morning. Thanks for taking my question. I guess

Operator: 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?

Scott A. Richardson: Yeah. What I would say is electronics is what I would say the bright spot right now, Patrick. I would say it is a net positive on a global basis. You know, we are seeing a global build out from, you know, AI, as well as data centers, and that is positive in the electronic space. But it is a small part of the overall base

Operator: of the business. So, you know, certainly, auto is a much

Scott A. Richardson: 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.

Operator: You have got,

Scott A. Richardson: know, some uncertainty in China with some of the EV, credits and stimulus rolling off in China. To start the year. So we have seen some softness in auto in China. Europe has been relatively stable to start the year, and US with the fleet mix becoming a little more certain and a focus of the OEMs around ICE and hybrids, that could be a net

Operator: good thing for us. But I would say to start the year, it is about as expected.

Scott A. Richardson: Got it. That is very helpful. And then with

Operator: halfway to your $1,000,000,000 divestiture target, just any ideas on timing, potential assets that you would look to explore to achieve that divestiture proceed target? Yeah. And just to kinda restate, you know, we called out a billion dollars by the 2027. And to your point, we are about halfway there.

Scott A. Richardson: You know, we feel like, you know, 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 2027. And you know, again, we are prioritizing you know, parts of the business that do not fit, you know, 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 we have talked about in past quarters.

So, you know, we have a what I would say is a pretty robust slate of things that are being worked, but it is hard to get deals done in this environment. But you know, I proud of the team for what we did on MicroMax, the speed at which

Operator: you know, we started that process to when we got it closed was approximately nine months, which is which is pretty fast.

Scott A. Richardson: In any M&A market. And so we are going to continue to work this with a sense of urgency.

Operator: Thank you. Our next question is coming from the line of Jeffrey John Zekauskas with JPMorgan. Please proceed with your questions. When you take a step back and look

Scott A. Richardson: at 2025,

Operator: I think in the Acetyl Chain, your adjusted EBIT was down about $400,000,000 and your Engineered Materials was down about 120. How do you analyze those changes? That is, how do you see the

Scott A. Richardson: larger

Operator: factors that were at work in those changes?

Scott A. Richardson: Yes. Let me start with acetyls, Jeff.

Operator: Of that, it was pretty much all driven by volume and price.

Scott A. Richardson: And you have got a mix element that goes into that. So it is largely spread relatively evenly between those two of which

Operator: a good chunk of that was driven by the acetate tow business. And so that was, I would say from a product line perspective, was

Scott A. Richardson: 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 did not have as much

Operator: margin compression in the non-tow part of the in the Western Hemisphere. So those are the biggest components in Acetyl Chain. In Engineered Materials, volume and price were, you know, the both I would say semi

Scott A. Richardson: equal overall in terms of

Operator: of how much they were down. And then it was offset by cost. And we had some cost benefit in NAFTA deals as well. But those are the largest drivers, I would say overall in both

Scott A. Richardson: business. It really comes down to above-the-line variable margin. Okay. And then for 2026,

Operator: is your base case that you can get some EBIT growth out of Engineered Materials but the Acetyl Chain might be challenged to grow in 2026? Or do you have a different

Scott A. Richardson: approach in? And what are the key markets that you really need to have improve in order for Celanese Corporation to excel in 2026?

Operator: Yeah. 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 was really important with a focus on cost reduction and free cash flow generation. This year, we are still going with Act Now Win Together.

Scott A. Richardson: And grow. That growth piece that you highlight is important. And I do believe Engineered Materials in the current demand backdrop has, you know, more controllable ways to grow through our pipeline model.

Operator: You know, it does not mean we will not be able to drive growth in Acetyl Chain. I just think that the groundwork that we have been laying in Engineered Materials and our ability to drive innovation

Scott A. Richardson: and partner with customers and designers and engineers around innovative solutions. Just we have more degrees of freedom to do that. In Engineered Materials. You know, it is likely to be in, you know,

Operator: you know, 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

Scott A. Richardson: 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. You know, I do think we will have some

Operator: growth in medical as well. But I would say electronics and elements of automotive, are going to be the key components. Okay. Thank you very much. Thank you. Our next questions come from the line of Vincent Stephen Andrews with Morgan Stanley. Please proceed with your questions. Hi, this is Turner Hendricks on for Vince. I am just wondering, could you provide more

Scott A. Richardson: color around your expectations for

Operator: higher than first half earnings and

Chuck B. Kyrish: whether you still expect to see $1 to $2 of EPS uplift versus 2025. Yes. Thanks for the question, Turner.

Scott A. Richardson: Our team is still focused on $1 to $2 of lift. As I talked about in Engineered Materials, it is

Operator: going to be around driving growth there and getting volumetric growth continuing to push

Chuck B. Kyrish: price where we can and the team continues to be focused on doing that in the pockets of the business where we can achieve it. Then also continuing to drive our cost reduction programs. In Acetyl Chain, it is about looking for those opportunities where the supply-demand balance we can be opportunistic around to be able to drive volume and price, and start moving kind of that sequentially on a quarterly basis back in a more positive direction. Look. Since the last time we spoke, there have been some things that changed. You know, 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 is 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

Chuck B. Kyrish: it is

Chuck B. Kyrish: I do think that we are working a plan, know, to be able to drive growth here this year. And you know, certainly, if we get any help whatsoever from the macro, you know, we are leveraged to be able to move up, you know, very quickly from an EPS perspective. You know, I will just kinda remind you, that a 1% improvement in volume in the Acetyl Chain is about $15,000,000 to $20,000,000 a year and a 1% improvement in volume in EM is about $20,000,000 to $25,000,000 a year. So, yeah, these are small changes drive, you know, significant, you know, uplift for the business.

Chuck B. Kyrish: Great. Great. That makes a lot of sense. Thanks for the color. Also when thinking about the difference between first quarter and second quarter earnings, I am wondering whether we need to reverse the $30,000,000 inventory tailwind that is benefiting Q1 as well as the size of the polyacetal turnaround and any other bridge items that you might call out?

Chuck B. Kyrish: Yeah. I think you know, that is probably the right assumption, Turner, is that $30,000,000 benefit we are going to get is going to likely draw out there in the second quarter. And, you know, we are going to have some turnaround at higher turnaround expense certainly in Q2. So I think, you know, with the dividend coming back in the second quarter, you know, all of those things relatively even out. I mean, Q2 flattish to Q1 and certainly depending on where the demand environment is, you might get some sequential benefit. But until we have better line of sight to that, I do not 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 have got in the second quarter.

Chuck B. Kyrish: Great. Thank you for the color.

Operator: Thank you. Our next question has come from the line of Ghansham Panjabi with Baird. Please proceed with your questions. Thank you, operator. Good morning, everybody.

Scott A. Richardson: Scott, just on the Acetyl Chain and just zooming out a little bit and

Ghansham Panjabi: think about EBIT margins, which were sort of mid-teens last year versus the previous trend line in the mid-20s,

Operator: how much of that differential do you think is cyclical versus

Ghansham Panjabi: something having changed in terms of obviously, supply coming on and also some of the challenges that you are seeing on acetate on the spot market?

Chuck B. Kyrish: Yes. Ghansham, how I view these things in our business, over the last twenty years, we have seen structural changes. We saw and these could be headwinds, they can be tailwinds. And shale gas revolution in the U.S. certainly was a structural change. The industry did not get the benefit of that overnight. It is actions that were taken to be able to take advantage of those structural changes. We saw overcapacity in China, for example, come into the market the first time, you know, 2009 through, you know, 2017. And it was actions and business model changes that we and others made to be able to, you know, drive a more sustainable and higher level of earnings.

And certainly, even today where we sit now in the current market with overcapacity where it is in acetyls, you know, 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 know, you will see things start to move back up. Now each cycle is different. Each cycle is shorter or longer, and, you know, 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 have seen changes as well.

You know, the move from ICE to EV in China in particular is a big structural change. It is 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.

Ghansham Panjabi: Okay. Got it. And maybe a question for Chuck on free cash flow. Obviously, 2025, working capital is big for the year in terms of driving the free cash flow outperformance there. What are you embedding for 2026 for working capital? And just, you know, more broadly, what is 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

Operator: Thanks.

Scott A. Richardson: Yeah. No. Thanks, Ghansham. I think what is 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 2025 to $390. We are targeting another $100,000,000, Ghansham, primarily from further inventory reductions. Know, tax is going to be lower this year.

Chuck B. Kyrish: $50,000,000 to $60,000,000, cash interest down about $50,000,000 and the cash that will outlay for cost reduction programs that are that is adjusted EBITDA, that will be lower by about $25,000,000 to $50,000,000. So as you know, we plan for a number of different scenarios, Ghansham, and we feel confident that we can drive free cash flow into our target range that we provided. Either through modest earnings growth or through these additional levers that we know how to pull.

Ghansham Panjabi: Okay. Thank you so much.

Operator: Thank you. Our next question has come from the line of Salvator Tiano with Bank of America. Please proceed with your questions. Yes, thank you very much. So firstly, I want to come back a little bit to the EPS growth this year. And you have in 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

Salvator Tiano: that points to probably net income or EPS change EPS this year of around mid to high fours. As a base case. Does that make sense? And are there any items we may be missing that would deviate, you know, that would make your EPS deviate from that as a base case?

Chuck B. Kyrish: It is how I look at it is our prior right now is around free cash flow and continuing to drive, you know, sustainable changes into our business models. As we look at the year, we have run a number of different scenarios, on kinda where things could play out from a demand standpoint, and then what that translates into to EPS. And know, for us, we are confident in being able to, you know, generate that free cash flow between $650 and $750.

So there is a number of different EPS scenarios that gets you to that number just depend on the movements and timing and the fact that we are, you know, second half weighted also certainly plays a little bit of a role just in terms of, you know, how much AR is sitting on the balance sheet as we model it out. So all of those factors go into play, you know, in terms of how we model it. So, you know, we are not looking at, you know, 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.

Vincent Stephen Andrews: Okay. Perfect.

Salvator Tiano: And I want to ask a little bit about capacity additions on the nylon and the POM chains, specifically because these are something you had to face the past few years. Can you provide us with some information on what may be coming online particularly in Asia in these chains? And what is kind of your exposure given you moved away from some chains such as nylon polymerization, what would be your exposure if there is more capacity coming online in these chemistries?

Chuck B. Kyrish: Yes, Sal. As we have 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, you know, what we make, but also what we buy. And so the additional capacity, you know, that may come on in Asia and, you know, to be very honest, it is already over-capacitized in China.

And you know, we are taking advantage of that by, you know, buying as much polymer as possible because, you know, that is a more advantageous way for us to, you know, be able to supply, our business in that region of the world. It is about being opportunistic and about building flexibility, you know, into our model. And what I would tell you is we are gonna continue to evaluate options to be able to enhance and maximize profitability, in all our value chains, including not

Salvator Tiano: Thank you very much.

Operator: Thank you. Our next questions come from the line of Laurence Alexander with Jefferies. Please proceed with your questions.

Salvator Tiano: Good morning. This is Kevin Estec on for Laurence.

Scott A. Richardson: So just on working capital inventories again,

Chuck B. Kyrish: obviously, you are targeting

Kevin Estec: an 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 is the timeline to reach a steady-state inventory model?

Chuck B. Kyrish: Yeah. So it is a very coordinated approach. Internally. Right? We are never going to take too much risk on service levels and delivering to our customers, right? There are many different ways you can use inventories, can use raw materials, you can change your offtake agreements and you can reduce finished goods, right. So in a multiyear journey, on that, so we do not ever like to think that we are done. Know, we think we do have a $100,000,000 this year, but we are not going to stop there. There is a lot of efficiency that EM is driving within the organization. You are just going to need less and less inventory as you go forward. Right?

So it is a constant it is a constant activity of ours, and we feel good about continuing that progress.

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

Chuck B. Kyrish: Look. We are 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 or, you know, future contracts in this business. You have to take both a short-term view and a long-term view of how, you know, 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 think mid-year.

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.

Chuck B. Kyrish: Okay. Thank you.

Operator: Thank you. Our next question has come from the line of Aleksey V. Yefremov with KeyBanc Capital Markets. Please proceed with your question.

Kevin Estec: Thanks. Good morning. There is 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 material costs or actually expand margins.

Operator: Thank you.

Chuck B. Kyrish: Yes. In some of these polymers, Alexei, margins have got to where they are at unsustainable levels. And I think you can look at challenges we have seen in the industry and you have seen some folks in the marketplace go into default and I think that has just shown that things are at an unsustainable level. I am proud of the way the team, you know, got ahead of this a few years ago by taking action in our footprint, in our highest cost locations. And so that has, you know, certainly helped us be able to weather that storm. But, you know, as we go forward, you know, the returns need to improve here.

And so it really is about, you know, pushing to drive returns to just an acceptable level going forward and, you know, the team continues to push that. You know, I do think it is going to continue to be a, it is going to take some time. It is going to be a step-by-step process. I would not expect us to get all of it at once, but, you know, it is about continuing to work this as we are having dialogue with our customers.

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

Chuck B. Kyrish: Yes. As I mentioned before, I mean, we have 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. Know, I think, you know, the pattern of behavior that we have seen over the last year or so, you know, does kinda tend to trend with what we saw in the past, which is, you know, new capacity comes in. There was a lot of new capacity over the last couple of years. As those plants are starting up, you know, they run at high rates to prove out the technology.

But, know, 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 would say, at higher, albeit still relatively low levels on a margin basis over the last eight weeks or so. So you know, we are not

Vincent Stephen Andrews: you know,

Chuck B. Kyrish: forecasting, you know, huge lifts by any stretch of imagination and, you know, the team will continue to kinda work, you know, near-term and instantaneous opportunities on both the price and volume basis.

Operator: Thank you. Our next question is come from the line of Frank Joseph Mitsch with Fermium Research. Please proceed with your question.

Vincent Stephen Andrews: Hi, guys. Good morning. It is Aziza on for Frank. Scott, I was curious if maybe you can provide some thoughts on Chinese acetyls pricing as we progress through 2026?

Chuck B. Kyrish: Yes, Aziza. I mean, look, we are not going to forecast any huge uplifts. I think, you know, we would expect things to stay in the range they have been over the last several quarters, I mean, or minus kind of where they have been, as I just said, you know, we have kinda stabilized at these levels over the last eight weeks or so. You know, demand right now is extremely low, as we are in Chinese New Year. And, you know, this year’s Lunar New Year is a longer holiday than what we typically see by a few extra days. So be interesting to see how things come out. It is a later New Year, as well.

But certainly, demand was relatively stable going into the New Year holiday, pricing held and that does not always happen. You know, sometimes as you are getting into that New Year period, pricing falls off. Stayed relatively stable as we went in. So, you know, we will see kind of where things come out, but we are not anticipating, you know, really big uplift coming from Asia. As we look at, you know, recovery scenarios in the acetyl business, you know, we tend to really look at Western Hemisphere only. And so those numbers I quoted earlier, about a 1% improvement in volume being $15 to $20,000,000, that is on Western Hemisphere only.

That does not include, any of the business in China. Just because I think with where overcapacity capacity is, if we get upside in volume and price, we will take it. But we are not going to necessarily bake that into our numbers.

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

William Cunningham: No. I mean, what we said earlier

Chuck B. Kyrish: think a number similar to the lift in, that we called out of $30,000,000. So that is the right range. I mean, these the, you know, typically, these turnarounds in the past were about every three or so years. We have worked really hard, on our reliability over the last several years to where, you know, we have been able to extend this to five years between these major turnarounds. So this is not something that certainly happens every year. In the asset. And, you know, so it is a little bit larger than we would typically see. It really is contained to the second quarter.

Vincent Stephen Andrews: Got it. Thank you.

Operator: Thank you. Our next questions come from the line of Hassan Ijaz Ahmed with Alembic Global. Please proceed with your questions.

Salvator Tiano: Good morning, Scott and Chuck. Look, I wanted to revisit

Hassan Ijaz Ahmed: the $650,000,000 to $750,000,000 free cash flow guidance you guys provided. Look, I mean, it is anyone’s guess what demand does, but you know, if we were to take a draconian view and say that demand really does not improve much from Q4 levels, what does that do to the guidance and all the other aspects baked into it? Meaning, you know, the $100,000,000 sort of working capital uplift, that you guys guided to and the

Chuck B. Kyrish: Yeah. First of all, Hassan, I would never refer to you as draconian by any such thing as a nursing. So

Vincent Stephen Andrews: look. I

Chuck B. Kyrish: not to be repetitive, but I am gonna kinda go back. You know, we model out a lot of different scenarios, kinda that low demand scenario, higher demand scenarios. I mean, we kind of look at different permutations. We also have you also have to plot timing. And so as we kinda look at that, you end up range finding for, you know, where you think you can, you move on cash flow given the other actions that you can take. And how, you know, AR and inventory can move and what you can do through the year.

And so, know, as we kinda range find for that, you know, we do feel very confident, in that $650 to $750 range that we put out there.

Hassan Ijaz Ahmed: 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 $500,000,000 of sort of asset sales, you know. So a, what gives you that comfort to achieve that by 2027? And b, if need be, could that number actually be higher?

Chuck B. Kyrish: Yeah. I mean, we are aggressively pursuing, you know, additional divestitures. And Scott mentioned we feel good about, you know, getting another one of those done. There is a lot of things that we can look at. You know, that is part of our cash generation. That is part of our debt paydown strategy. Know, that is a probability-weighted number. So, you know, theoretically, that could end up at a higher number. But we are targeting right now a billion dollars total by 2027 to help us deleverage the balance sheet.

Hassan Ijaz Ahmed: Very helpful. Thank you so much.

Operator: Thank you. Our next questions come from the line of Michael Joseph Sison with Wells Fargo. Please proceed with your questions.

Chuck B. Kyrish: Hey, guys. Sorry about that.

Vincent Stephen Andrews: You sort of noted that

Kevin Estec: the Western Hemisphere acetyl margins are better or holding up better.

Chuck B. Kyrish: How much of your business is Eastern and

Kevin Estec: is there any reason to be there longer term? I mean, this trough in the Eastern Hemisphere has been pretty deep.

Chuck B. Kyrish: Does it make sense to reduce some capacity

Operator: for that area, longer term? Yeah. Mike,

Chuck B. Kyrish: you have known us for a long time. You know that, you know, 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, you know, we will look at what the footprint in both businesses, you know, needs to look like and what the right match is. So you know, I would say we are constantly, you know, evaluating, you know, where we need to be and how we need to be operating the assets. And, you know, the Acetyl team continues to pivot there.

You know, we are block operating, you know, the Frankfurt BAM unit, operating the Singapore acetic acid unit as well. And, just for that very purpose, and finding ways at which to be more efficient and squeeze out cost.

William Cunningham: Got it. And then

Joshua David Spector: if take a look as we head into the second half and we sort of sat here last year, thinking things could not get worse, but if there are areas within EM or the Acetyl Chain that could get worse, what do you think it could be? And it does sound like things are more stable. Sequentially at least. But, you know, one of the things we need to watch out for is things could potentially get worse on the macro side for you?

Chuck B. Kyrish: Mike, we are not going to take anything for granted. And we are going to continue to evaluate, take bold actions, you know, across the portfolio. We knew, you know, as we started last year, that we needed to kinda 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 refocus 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 are 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, you know, 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.

Joshua David Spector: Great. Thank you.

Operator: Thank you. Our next questions come from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.

William Cunningham: Yes. Thank you and good morning. So Scott, in explaining the volume decline of

Operator: 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.

William Cunningham: And so I wonder if you could comment on the degree to which you have seen any rebound or

Operator: you know, temporary restocking in January and early February ahead of the Lunar New Year or has it been mixed

William Cunningham: or just not happening? Just looking for any additional color on kind of incremental volume stability or improvement as you see it?

Chuck B. Kyrish: Yes, let me start with Acetyl Chain. I think we have seen some moderate seasonal improvement largely in the coatings space, and we will 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 is moderate at this point. We have not 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, you know, some destocking from our channel partners here in the Americas. You know, we are starting to see that come back to the order book.

And we have seen seasonal improvement, in spaces like automotive in the Western Hemisphere, you know, improve, you know, to start the quarter. So that is pretty much as expected, and as is typical, you know, as we see from Q4 to Q1.

Operator: 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 have got quite a few of them, I think. Maybe can you provide any color as to where you are in that process?

William Cunningham: And whether or not we might expect something this year or more likely next year? Are you looking at multiple JVs or

Operator: focusing on a primary target? Any color there would be helpful.

Chuck B. Kyrish: Yeah. 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. You know, some small, some, you know, getting a little closer to the size of MicroMax. And, you know, as Chuck mentioned earlier, we probability weight that. You know, we feel good about getting another deal done here in 2026. I do not know exactly, you know, where it will fall in the size spectrum. It might be a smaller one, but certainly would be attractive even if it is small. So, you know, we are kinda working all elements.

It may be that, you know, it takes a few of these deals to get to the target and maybe, you know, it takes one deal. So it just it kinda depends upon how these things materialize here over the course of the next, you know, year and a half.

William Cunningham: Thanks very much. Thank you. Our next

Operator: question is coming from the line of Joshua David Spector with UBS. Please proceed with your questions.

Joshua David Spector: Yes. Hi, good morning. I want to just ask on the earnings in Engineered Materials. If I kind of take your comments on first half,

Chuck B. Kyrish: your EBIT is maybe around $200,000,000 a quarter on average. Looking at last year,

Joshua David Spector: it is kind of similar levels to what we saw in Q2, Q3. I am obviously ignoring seasonality in the weaker Q1 a year ago. But I am just wondering that we are not seeing some of the cost initiatives really come through. You are talking about them more second half. You have been talking about the cost initiatives for six, nine months now. So why are not we seeing it as much in the first half and why does it take to the second half on the cadence of timing? 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?

Chuck B. Kyrish: Yeah. Josh, I am going to respectfully disagree with you. I think you are 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, you know, we are still performing at very similar levels. And that really is coming from the mix improvement we have seen as well as the cost reductions the business is taking, and we are going to continue to drive that forward. As I said, you know, there is such a leverage on volume in this business, you know, with a 1% change kind of being, you know, $5 plus million a quarter.

Know, the amount of change that we have seen in that business is sizable on a year over year basis volumetrically. So it really is about, you know, 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.

Joshua David Spector: Thank you, Scott. Appreciate the thoughts.

Operator: Thank you. Our next question has come from the line of John Roberts with Mizuho. Please proceed with your questions.

William Cunningham: Have you actually guided

Operator: for the China SIGTOE dividend expected for the final March 2026 in your in your free cash flow range?

Chuck B. Kyrish: Yes, John. Think, pretty flat to last year. Is what to expect, that $40-ish million a quarter.

Chuck B. Kyrish: Okay. And then

William Cunningham: you once explored some consolidation opportunities in the SigTow. Does the contraction in the industry increase the chance of revisiting further consolidation maybe in a different form or different partner?

Chuck B. Kyrish: Than what you earlier pursued?

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

William Cunningham: Thank you. We will make the next question our last one, please.

Operator: Thank you. Our last questions will come from the line of Arun Shankar Viswanathan with RBC Capital Markets. Please proceed with your questions.

William Cunningham: Hi, good morning. This is Adam on for Arun. Thanks for taking our question. If I could

Salvator Tiano: ask maybe

Chuck B. Kyrish: Hassan and Ghansham’s question in another way,

Hassan Ijaz Ahmed: It seems like

Kevin Estec: you know, the working capital management change for 2026 is almost a $300,000,000 headwind. And you talked about some benefits from lower cash, about 25, taxes lower by 40 to 50. Is the balance of that from earnings improvement

William Cunningham: And if not, where is that coming from? And much earnings improvement are you really expecting to impact your free cash flow? Thanks.

Chuck B. Kyrish: Yeah. Thanks, Adam. Yeah, you are right. I mean the working capital headwind year over year is sizable and then some other things that the loss set it as you mentioned. But again, I will 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 is very similar to what we did this year in 2025, so we are confident in that range.

Adam: Okay. Great.

Kevin Estec: And apologies if I have missed this, but have you guys outlined

William Cunningham: in terms of a cost benefit from the Lanikan closure, you know, kind of market impacts aside,

Chuck B. Kyrish: Yes. So Lanark enclosure for us going to be about a $20,000,000 to $25,000,000 cost benefit on a full year basis. And about $5,000,000 to $10,000,000 of that we expect to get this year.

Adam: Thank you.

William Cunningham: Well, thank you, everyone. We would like to thank everyone for listening in to today’s call. And as always, we are available after the call for any follow-up questions. Daryl, with that, let us please go ahead and close out the call.

Operator: 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.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.