Trinseo PLC (NYSE:TSE) Q2 2025 Earnings Call Transcript

Trinseo PLC (NYSE:TSE) Q2 2025 Earnings Call Transcript August 9, 2025

Operator: Good morning, ladies and gentlemen, and welcome to the Trinseo Second Quarter 2025 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich Frank Bozich, President and CEO; David Stasse, Executive Vice President and CFO; and Bregje Van Kessel, Senior Vice President, Corporate Finance and Investor Relations. Today’s conference call will include brief remarks by the management team, followed by a question-and-answer session. The company distributed its press release along with its presentation slides after the close of market on Wednesday, August 6. These documents are posted on the company’s Investor Relations website and furnished on a Form K-8 filed with the Securities and Exchange Commission. [Operator Instructions] I will now turn the call over to Bregje Van Kessel. Please go ahead.

Bregje Roseboom-Van Kessel:

SVP, Corporate Finance and Investor Relations: Thank you, Amy, and hello, everyone. Our disclosure rules and cautionary notes on forward-looking statements are noted on Slide 2. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described or implied in these statements. Factors that could cause actual results to differ include, but are not limited to, risk factors set forth in Item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise its forward-looking statements.

Today’s presentation includes certain non-GAAP financial measurements. A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the company’s Investor Relations website shortly following the conference call. The replay will be available until August 7, 2026. Now I would like to turn the call over to Frank Bozich.

Frank A. Bozich: Thanks, Bregje, and welcome to our second quarter 2025 earnings call. Our core business results in the second quarter were slightly below the expectations we had due to weaker-than-expected demand across most applications and unfavorable net timing associated with falling Feedstock prices. The seasonally higher volumes that we normally see in the second quarter were dampened by trade uncertainty after the April tariff announcements in the U.S. We experienced high order cancellations early in the quarter, which we believe was linked to increased geopolitical and trade uncertainty, but saw the magnitude of cancellations dropping significantly during the quarter. In this environment, it’s critical that we remain intensely focused on two things: controlling the things we can control, which are fixed cost and working capital, and cultivating our key growth and sustainability platforms.

In 2025, we expect to realize $105 million of EBITDA benefits from self-help actions. Specifically, we expect to see $35 million in fixed cost savings from previously announced restructuring initiatives, $30 million of mix improvement and commercial initiatives and $40 million associated with our change in the polycarbonate business model. We expect these actions to offset most of the incremental demand weakness and margin degradation we’ve seen so far in 2025, resulting in roughly flat year-over-year adjusted EBITDA. On working capital, I’m very proud of the work our team has done over the past 3 years to drive structural improvement through systems and processes. Over this period, we’ve reduced working capital by $560 million, with about half of that coming from a 17- day reduction in our cash conversion cycle.

We’ve also made outstanding progress in our transformation strategy by driving growth in higher value applications. Recycled plastic containing products grew 7% in the first half of 2025 and command premium margins. For binders, CASE and battery binders with two bright spots this quarter with year-over-year volume growth of 3% and 19%, respectively. I’ll elaborate more on our relatively new battery binder technology later in the call. I’m also pleased to report that we released our 15th Annual Sustainability and Corporate Social Responsibility report. We continue to make progress on our 2030 sustainability goals as we remain committed to our investments in advancing recycling technology and sustainable product offerings. Before I turn the call over to Dave, I’d like to elaborate more on our new and unique battery binder platform.

Trinseo opened its global battery application lab in Shanghai in 2017 and started selling our first-generation high-performance binders for lithium-ion EV battery and energy storage solution applications in 2020. Our Latex Binders function in the lithium-ion battery is to find the anode active materials, which are predominantly graphite and silicon into the current collector, which is a copper foil. The polymer needs to provide strength, ionic connectivity and formulation compatibility while at the same time, having the ability to withstand a harsh battery cell operational environment to ensure long battery life. To do this, it must resist mechanical, thermal, chemical and electrochemical stress. Consequently, despite the binder typically accounting for less than 2% of the total battery cost, it holds a critical — a highly critical role in enabling both strong battery performance and efficient battery manufacturing.

This year, we’re launching our fourth generation VOLTABOND anode binder, which enables long-lasting, fast charging and high- energy density batteries. This advancement as well as our global footprint with plants in each region are key advantages we have to serve these applications. Additionally, we have our first-generation water-soluble binder prototypes available for testing at key players after demonstrating strong performance in our own labs. Our volume compounded annual growth rate over the past 5 years has been 63%, and we expect this highly profitable platform to continue double-digit growth over the next 5 years. For these reasons, battery binders represents one of our top strategic growth platforms. Now I’d like to turn the call over to Dave.

David P. Stasse: Thanks, Frank. We ended the second quarter with $42 million of adjusted EBITDA, which was below our guidance, driven by a larger unfavorable impact from raw material timing, the lack of seasonal demand pickup that Frank spoke about earlier, and lower equity affiliated earnings at Americas Styrenics. First half 2025 volumes were 13% below prior year, with the largest decreases coming in Latex Binders, paper and board applications, automotive applications in North America and Europe and polystyrene, where we’ve passed on uneconomic volumes. Of the volume decline we’ve seen in the first half, about 2/3 is what we consider transactional volume, meaning it’s generally lower margin with spot- based pricing and not formulated in nature.

At the segment level, Engineered Materials adjusted EBITDA was $1 million below prior year despite lower volumes sold into automotive and building and construction applications. Lower volumes were offset by lower fixed cost and mix improvements from higher recycled content sales into consumer products applications. Latex Binders adjusted EBITDA was $9 million below prior year, mainly driven by lower volume in Europe and Asia as well as significant pricing pressure across all regions. This volume decline is most acute in paper and board applications in China, where we’ve seen demand weaken considerably since the tariff announcements leading to temporary mill closures. On a positive note, our higher-margin targeted growth platforms in case and battery binders continue to outperform the market.

Lastly, Polymer Solutions adjusted EBITDA was $11 million below prior year, driven by lower volumes into building and construction and automotive applications and increased Asian imports into the European market. We are therefore pleased to see that the European Commission recognizes the ABS dumping activity from both South Korea and Taiwan in their pre-disclosure in July. Second quarter free cash flow was negative $3 million, in line with guidance, and we ended the second quarter with $399 million of total liquidity. I’ll turn the call back over to Frank.

Frank A. Bozich: Thanks, Dave. As previously mentioned, we expect full year 2025 adjusted EBITDA of roughly $200 million. While the current demand level is disappointing, we believe there are five triggers for improvement of the demand environment. First, trade certainty in any form should improve consumer confidence and provide a landscape for new investments. Second, an enactment of the anticipated Federal Reserve interest rate cuts, which will lower our own interest expense and improve consumer confidence. Third, a resolution of the various military conflicts we see in Europe and the Middle East. Fourth, our positive regulatory reforms in the chemical space in China, which could result in the closure of older noncompetitive assets and reduced destructive industry pricing.

And lastly, the stronger support for the EU Chemical Industry, as outlined in the EU Chemical Industry action plan. While each of these items are uncertain, we’re encouraged by the dialogue related to each of these that is being reported. So now we’re happy to take your questions.

Operator: [Operator Instructions] Your first question comes from the line of David Begleiter with Deutsche Bank.

Q&A Session

David L. Begleiter: Frank and Dave, you’ve done a good job in Europe, closing some older noneconomic capacity in styrene and polycarbonate. Can you talk to your MMA production in Europe and why you haven’t taken similar action there, given they’re also challenged economics?

Frank A. Bozich: Yes, David, thanks. Look, we continually evaluate each of our assets. We prioritized the taking action where basically on three dimensions: the speed of execution, the magnitude of the benefit and the cost to achieve. So we continue to look at various opportunities, and we’ll evaluate that asset appropriately. And if we make the decision or work with our works councils, We’ll come to a the decision that’s appropriate.

David L. Begleiter: Understood. I know it’s early for next year, but in terms of what’s in your control for next year versus what’s not, can you help us bridge some of the items that could help lead to maybe a higher EBITDA outcome in ’26?

Frank A. Bozich: Yes. So Look, I mean, let me back up a little bit and give you some context for what we’re currently seeing. As we started 2025, our expectation was for demand levels that were similar to 2024, which we believe was low by historical standards with some pent-up demand. However, the impact of trade uncertainty, in particular, has been an incremental headwind. So the resolution of any of trade uncertainty in whatever form that takes as well as lower interest rates, we think unlocks demand and gets us back to a level that we expected and possibly greater. So — and remember, 10% volume increase for us is about $100 million of EBITDA improvement. And I’ll go back to what I’ve said on previous calls, we believe even last year that there’s been pent-up demand in building and construction and automotive, both in Europe and North America, where we have a significant exposure.

If we think about housing, I won’t — I believe the number off the top of my head is there’s 6 million unit shortfall versus household formation over the past decade. And the automotive industry, the car park right now is at historic age. So we think that, that interest rates and tariff certainty get us back to reasonable prior — at least prior year demand levels and sort of stimulate demand recovery from the pent-up demand that’s out there.

Operator: Your next question comes from the line of Matthew Blair with TPH.

Matthew Robert Lovseth Blair: I was hoping you could talk a little bit more about the AmSty business. I understand there were some polystyrene outages in Q2. How much of a headwind was that to last quarter? And then — are there some repair costs in Q3? And if so, how much of a headwind will that be to the Q3 number?

Frank A. Bozich: So there was a mechanical outage in one of the styrene assets in AmSty last quarter, and it had approximately a $5 million impact, and there will be increased repair costs in the coming quarter that’s reflected in the current forecast or current outlook.

David P. Stasse: Yes. Matthew, I think Frank’s great. Yes. Is that a $5 million impact to us to the equity income we recognized from AmSty in the second quarter? I mean, looking forward to the back half of the year, there will be an impact — and by the way, it was a styrene plant. It was not polystyrene. There will be a similar impact, I would say, to the third quarter. So I would expect I would expect the progression of AmSty’s earnings to us over the back half of the year, Q3 will be a similar number to Q2 and then higher in the fourth quarter as we expect better operational reliability.

Matthew Robert Lovseth Blair: Sounds good. And then regarding your 2025 full year guidance, the implied figure for the back half of the year, does that incorporate any of the net timing headwinds in Q2 being reversed? .

Frank A. Bozich: No, it does not.

David P. Stasse: So Matthew, it’s — for us, timing is fairly hard to predict. I mean it’s really — it’s a function of what happens largely to styrene prices, frankly, over the next 6 months. So it’s hard to predict. But standing here today, the guidance we’ve given assumes flat net timing for the back half of the year. Thank you.

Operator: Your next question comes from the line of Frank Mitch with Fermium Research.

Frank Joseph Mitsch: Frank, I was intrigued by your comments that the pace of cancellations due to the trade issues was slowing down as you progress through the quarter. I was wondering if you could elaborate that on that. And if that’s the case, I mean, should we not start to see the pace of business match underlying demand here in the third quarter?

Frank A. Bozich: I think what we saw — I guess what I read into what we saw happening in Q2 was that the order book that we began the quarter with reflected a normal seasonal uptick in demand. And that because of the — as a result of the trade announcements in early April, it was — that uptick was taken off the table. So I think that’s how I read what we saw occur during the quarter.

Frank Joseph Mitsch: So you don’t anticipate that those pent-up orders flowing through in 3Q?

Frank A. Bozich: The — well, as I said, if we see trade certainty and these — in the improvements in interest rates or any of the five factors that we mentioned we believe that’s a trigger for an improvement in demand and a recovery of that — those lost orders. But again, I don’t — it’s impossible to predict — sitting here today, it’s impossible to predict the timing for that or to certain — have any certainty for when that would occur. But yes, I believe that would be a trigger.

Frank Joseph Mitsch: Okay. Terrific. And an interesting comments regarding battery technology. On the Latex side, roughly, how much is the battery business of that segment today? And I believe, David, you also mentioned that there was significant pricing pressure in Latex in 2Q, actually, it was positive price in 1Q, but you flipped to negative price in 2Q. Any elaboration or any color on that would be helpful.

Frank A. Bozich: Yes. So I’m going to give you a number by memory of our Latex Binders case and battery represents approximately 20% of the volume of last year volume but a significantly higher share of our margin. I believe that because of the pressure that we’ve seen in paperboard this year, it’s a significantly higher portion this year, but I don’t have an exact figure, and we can get that to you. Your second question Yes, maybe could you repeat it, Frank, sorry.

Frank Joseph Mitsch: Yes, it was a significant pricing pressure. Prices in Latex were up in 1Q and then obviously down 6% in 2Q. David indicated significant pricing pressures. And I was just curious if you could elaborate on where that’s coming from?

Frank A. Bozich: Yes. So well, what we saw — you can imagine a lot of our Latex goes into paperboard packaging. And in particular, in China, with the beginning of the tariff announcements, you just look at the 35% reduction in container shipments out of China, those are mostly packaged goods, right? So there was a significant reduction in demand in China in paper and board in Q2 as a result of that. And as a consequence, and mill closures. So as a consequence, a lot of the industry was scrambling to fill their to keep volumes and were very aggressive with price. And some of that we declined to. A lot of that is transactional and transitory, and we chose not to participate in some of that volume, and that’s why we saw the volume decrease in the second quarter. But again, we believe that’s transactional and transitory activity that we can get back.

Operator: And the next question comes from the line of Hassan Ahmed with Alembic Global.

Hassan Ijaz Ahmed: Dave. I wanted to revisit, and I obviously understand that it’s early days to give any 2026 guidance. As I take a look at what you guys are guiding to for 2025, I mean it seems for the back half of the year, which typically is a seasonally weaker sort of period you’d be at a quarterly run rate EBITDA of around $50 million a quarter, right? So you sort of annualize that. And again, obviously, this is a seasonally weak period. So you’re at key least at $200 million in a sort of well below normal demand environment, right? Now let’s assume demand doesn’t really improve materially next year. But seasonality maybe kicks in further sort of benefit from your cost-cutting drive and the like. So what’s sort of like the minimum sort of benchmark to think about? I mean, would you guys do at least $250 million in that environment in EBITDA in ’26? And what would that mean at least for free cash flow next year?

Frank A. Bozich: Yes. Look, I think that we — this goes back to the question that was — I give the same answer I gave earlier that we believe that right now, we’re seeing transitory headwinds that affect a depressed demand in the business and suppress it significantly from prior year, which was already low with pent-up demand. So I believe that we will see a resolution of some — one or more of the five items that I mentioned and that will have a significant impact on our end demand in most of our end markets. So again, it’d be very difficult. Again, I believe that we have significant leverage to the upside with volume, and that would come with some more certainty regarding trade interest rates and the various regulatory activities around the world.

David P. Stasse: Hassan, I’ll add a couple of points related more to the free cash flow side. We have a slide in our deck on Slide 14, where we outlined the cash flow components for 2025. If I were to bridge these things to 2026, restructuring costs of $55 million, that will be a much lower number in 2026 than $55 million this year. The other is interest expense, cash interest this year is $200 million. Clearly, since the last call we had, I think there’s been a bias. There’s been a market consensus view that there will be — given the employment statistics, probably more rapid succession of rate cuts than we previously thought. And 100 basis points of rate cuts is worth $19 million a year to us. So I think it’s obviously too early to put numbers on 2026. But certainly, I think the numbers that are listed on this page will be much lower than $365 million of cash outflows next year.

Hassan Ijaz Ahmed: That’s definitely very helpful. Now as a follow-up, I mean, obviously, all sort of fairly recent with regards to the whole sort of antidumping sort of measures in the EU as it relates to ABS. But how do you see this playing out? How do you see sort of the Chinese sort of reacting to it? And how does it all sort of drill down back to you guys?

Frank A. Bozich: Yes. I — well, look, there’s a lot of uncertainty with regard to that, but I know that the EU commission outlined a chemical industry action plan that includes some protectionism and also an antidumping protection to ensure that there is fair competition with imports into Europe. So we’re encouraged by that. We’re waiting to see how that takes place. But — and at the same time, what you see happening in China, the regulatory discussions in China related to the anti-involution policy there which would rationalize the noncompetitive or older nonintegrated assets in China, I can’t again make us optimistic that, that will be addressed. And I want to spend a second on this because there’s some discussion about it, but 21 — the statistics that I’ve seen is that 21% of the Chinese chemical industry capacity is older than 15 years old.

Now those assets would be the ones that would be most likely subject to the anti involution policies. And if that capacity comes off the table, it would help the industry broadly, not only in China but in the rest of the world. The other thing I do want to point out is that the while there’s uncertainty with regard to the trade policies and the tariff policies with the — that have been introduced in the U.S. On balance, we would benefit from tariffs because we produce locally and in particular, we understand that the U.S. government or the policymakers are focused on transshipment of Chinese products into Mexico that would be compounded and then brought into the U.S. as USMCA compliant. Now if that is addressed, that’s a significant upside for not only us, but everybody in the chemical industry.

So those are I think there’s a lot of — it’s too early to tell, but the discussions and the ideas that are being floated are very encouraging.

Operator: And your final question comes from the line of Laurence Alexander with Jefferies.

Daniel Rizzo: It’s Dan Rizzo for Laurence. So I was just wondering with the guidance you give for 2025 and why now you’re finally you’re giving yearly guidance, but you’re kind of not giving Q3 guidance. I mean is visibility improved? Or just why the change in policy from last quarter?

Frank A. Bozich: Yes. I think it’s simply — it’s been a very dynamic and volatile environment from a policy standpoint that’s affected the industry. And at this point in time, we we’ve seen what those impacts that were in Q2, we — I would say, starting Q3, we see it in a similar sort of a similar market dynamic that we had in Q2. So we believe absent certainty around any of those five things that we can anticipate a similar environment to Q2 for the remainder of the year. But clearly, we expect that resolution of any of those five items will change that to the positive.

David P. Stasse: I think, like, from a policy perspective, you’re right, we gave quarterly guidance earlier in the year because we had limited visibility I don’t think anything has really changed, frankly, on our visibility. We still have the same limited visibility, but we chose to give annual guidance just because of where we are in the year. I mean we’re kind of approaching 2/3 of the way through the year, and we thought it was appropriate to give annual versus quarterly guidance. That’s really the only reason why.

Laurence Alexander: That’s helpful. And then just a little more granular. With like corporate costs, I think it’s running roughly $20 million to $25 million a quarter. Is that kind of how we should think about it over the long term, given all the kind of the moves you made the costs you’ve taken out that, that seems to be a decent run rate? Or will it be a little more volatile than that?

Frank A. Bozich: No. I think the current run rate is — we’re at — our current run rate reflects the actions that we’ve taken to date, and that would be — that’s appropriate to use in our forecast.

David P. Stasse: And just one other just minor point that due to kind of the accounting treatment of stock compensation, our Q1 corporate costs are always going to be higher than the other 3 quarters of the year. So you can talk to we’ve mentioned that in prior calls, but I just want to make sure you’re aware of that. So the kind of annualizing the first half of the year probably is not a good approach.

Operator: Thank you. There are no further questions at this time. This does conclude today’s conference call. You may now disconnect.