Earnings Call: Q1 2019

Apr 23, 2019

Greetings, and welcome to Sceloni's 1st Quarter 2019 Earnings Conference Call. At this time, As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Chuck Karush. Thank you. You may begin. Thanks, Rob. Welcome to the Salanese Corporation's first quarter 2019 earnings conference call. My name is Chuck Kyris, vice president, investor relations and treasurer. With me today are Mark Horr, Chairman and Chief Executive Officer Scott Richardson, Chief Financial Officer, and Todd Elliott, Senior Vice President, Assetfield Chain. So on this corporation distributed its first quarter 2019 earnings release via business wire that posted a slide presentation in prepared remarks about the quarter in the Investor Relations section of our website yesterday after market close. Today's presentation will include forward looking statements. Please review the cautionary language regarding forward looking statements, which can be found on Slide 2 of the slide presentation under important information. We will also discuss non GAAP financial measures today. You can find definitions and other important information and reconciliation to the comparable GAAP measures on our website in the Investor Relations section. Form 8 K reports containing all these materials are also available on the SEC's EDGAR system and our website. Because we published our prepared comments yesterday, we will now open the line directly for your questions. Hello? Thank you. At this time, we'll be We ask that you please limit session. Our first question comes from John Roberts with UBS. Please proceed with your question. Thank you. In engineered materials, the affiliates underperformed the wholly owned op there's obviously some big regional differences between wholly owned and affiliates, but could you remind us of some of the application and plastic mix differences between the two? Yeah, John. This is Mark. I'll start that maybe, maybe, Scott Richardson could have some comments, but, we did see our affiliate struggle. A bit. In the quarter, I think the real issue there, it said, if I can say this, I don't have the product breadth, are the global reach, that we do, selling primarily into chime and selling in the limited application. So we continue to work with them through to see if we can help them improve that performance. Yes, John, just add a little bit more color. If we look at on a year over year basis, I'm going to see the entire decline in the equity earnings for Engineered Materials was due to our, polyplastic affiliate, and really is, as Mark said, largely related to to demand in China. And then, could you remind us how much you paid for the Linda Sun gas unit is that going to be in the cash flow statement when the Q comes out? Yeah. It is. It's it's lumped together there, Don. We haven't said exactly what that amount was. It'll be in the cash flow statement with, our next polymers acquisition as well. Is a very, low capital, kind of optionality type investment that we made, which we we commented on that. The next question comes from Mike Sison with KeyBanc Capital Markets. Please proceed with your question. Hey guys, a nice start to the year and Mark congrats and hope you have a lot of fun things lined up going forward. But, I I guess I wanted to ask how, you know, Lori's role will will differ from yours, if any, and and in terms of focusing on extracting value for the company and given your portfolio businesses? Sure, Michael. You know, you know, our business pretty well. And the thing about Celanese is that we, we have a great, great business machining out there that brings a number of opportunities to us and the ability that machine to bring opportunities actually has the really to overwhelm our, our internal mechanisms, you know, be the unit operations, the logistics systems, and processes ability to innovate as fast as we need to. And, and, I spent a lot of my time on that, and I'm sure that Laura spent a lot of her time working those areas. We think in many ways, there's some extra on here for Celanese to learn how to go from 20,000 SKUs to 30,000 managed that better than maybe 20, is going to be a big part of what's continuing to drive us to drive value going forward. So I think that's a major area of focus for The second one I would say is that when you look at, at the opportunities of Fora, as you know, deploying cash continues to be the main focus of my main focus and will be hers as well. And we have more and more opportunities focusing, M and A that are bigger and structurally more complex. And Lloyd brings a lot of capability and skills really to facilitate that and help that be, be a reality for Celanese, which would be a big part of unlocking shareholder value. So I'll say those 2 things are top of mind, but you'll get a chance to mute us soon and ask the same questions. Okay, great. And in terms of your outlook for 2Q, you noted that it should look similar to to 1Q, but it does sound like the, you know, the acetyl Chain Industry operating rates could improve. Given outages, you noted in your prepared remarks. And then, yeah, and I guess thoughts on Engineered Materials, your outlook still looks for good organic volume growth given project wins. And just wonder wondering what maybe headwinds that you see in 2Q that wouldn't see a normal, say, improvement sequentially. Yeah. Well, good. I'll start that, and I'm sure that that Todd and Scott will have some comments here. But let me one of the things that's not readily apparent is entirely the things that we deal with. So in Q2, we have a number of turnarounds in front of us. Those turnarounds will costs us $25,000,000 to $30,000,000. They call it $0.15 to $0.20 of headwinds baked in there. We're expecting raw materials and probably seeing raw materials and nothing all to go up. Those kind of things, the net net that'll probably wack us for another $10,000,000. And John asked a great question on affiliates and we see that affiliate number sliding a bit further. So before we even started this quarter, we've got at least $0.25 of unusual headwind items that we didn't have in the first quarter of the year or probably strong in the first quarter of the year. So, you know, I think on one hand, it's easy to say, well, well, lots would be good. You built this point. I think the first half of this year is going to be a struggle. And I think maintaining numbers in flat is a push for us. So I certainly wouldn't recommend anyone go higher than that number for the quarter. I just don't see that right now materializing. If I take a stab at EM quickly, yeah, we're we're pushing price really hard and we're pushing our mix really hard. And and the repercussions of that you know, will not be that great as long as business starts to recover. We don't expect a full recovery in the EM to start until more in the second half of the year as well. You look at that as auto bill projections, those things, we're still, we're still down in the second quarter. We should start some rebound going in the third quarter. So our fundamental belief is Mike, is that we've got a bit more broad here, before we get into the back half of the year where things will should be starting to improve. But Bob, do you make some comments on AC this quarter? Yes, Elliot, regarding acetyl. We actually had a pretty good mark as we wrapped up Q1, most of our, almost 40% of our business occurred in March as we look at that profile. So we ended on a pretty good note, as we wrapped up Q1. As we get into the 2nd quarter, Mark mentioned that selling these has turnarounds, the pretty typical for the industry to have turnarounds during the second quarter. We've got turnarounds at Bay City, Texas already underway on VAM, same thing in Nanjing, China on VAM. We've got a week, a little more than a week in Frankfurt on band as well. So that'll that'll present the headwind. We've got an aggregate navigate around. We've got fantastic network to do that with. I think the bigger issue right now is just how China will unfold from a demand perspective as the quarter materializes. It's a little bit of a slow start in April. There have been a series of safety checks and audits following explosion in Yum Chung and Jiangsu province at the end of March. That's put, probably appropriately so at the damper on operation Jupy province. So that's affected some of the downstream demand at the start of the quarter. So we gotta see how that will, but we'll certainly, activate our network around these things and try to try to deliver the quarter. Kind of in line with Q1. Great. Thank you. Thanks Buck. Our next question comes from Bob Koort with Goldman Sachs. Please proceed with your question. Thanks. Martha, Todd, you guys have talked in the past about maybe some of your competitive competitors in China being subject to some challenges, whether environmental or economic profile, etcetera. In light of the, you know, the recent developments in China and maybe a little bit more discipline in enforcement, does this hacing your expectation of seeing some capacity out, in China and maybe tightening operate operating rates even sooner and for longer? Yeah. You know what? And, again, I'll start just to talk maybe about some of the closures and stuff that come up from Industrial Parks. But, you know, Bob, the movement in China is fundamentally 1. And my personal view is of driving inflation. And if you if you think about that, you know, the economy needs higher pricing to get a decent return on the older investments they've made for a long period of time. So when I when I kind of work through that, myself, what I see them doing is putting pressure on the 150,000 or so state and run enterprises there to continue to lift those earnings. There. So, that means environmental restrictions that are going on. That means safety restrictions. And you've seen those sort of occur episodically. So we've gone through a period of of safety events. It seems like every 6 months to 9 months, and they continue to ratchet up. The impact of that and they're directing that. We are very public about the number of closures of chemical parts that are going to occur, directly to that that will impact some of our competitors, we think, but Todd, do you want to carry on with that? Yes, just a specific follow-up on this situation. So remember before we talked about other provinces going through these steps to examine environmental policy, you know, that that continues. But in Jiangsu, we had not yet seen anything specifically around park policy. So what we're hearing, we have not seen anything published yet, but we're hearing that the Jiangsu will reduce the number of chemical parks from 49 down to 20. Starting sometime in 2020 forward, how that ultimately is laid out and executed and started and remains to be seen. And it's just specifics remain to be seen, but that's a significant, development, a key set of steps following this strategy in Jiangsu. So that's probably the most impactful in our space. We've got to watch that to think about where parks are, near the Yancey River or close to population centers. And as that gets more specific in terms of details, we'll we'll share that. Yeah. And the only thing I'd add to that, Bob, is, yes, it impacts our competitors, but it also can impact our customers. Too. And so there is kind of, I would say, a near term, you know, demand impact of, on our customers as well as we see these audits and scrutiny continuing to ramp up. Yeah. Just to follow that, so the specific kind of watch out downstream, you know, into CAA, monoclonalactic acid, acetate esters, pharmaceutical intermediates kind of whole host of downstream applications are slow as these safety checks unfold and inventory levels are brought down. Part of the one bright spot would be dry bulk acid over the PET. That's held up pretty strongly. Period. This is Scott's point that's put an damper on April, but we'll just get that, that unfolds here as we get into the engine. Can I ask an EM question mark? It seemed like maybe over the last few quarters, you guys had been, working hard on getting your price to offset raw materials. I suspect towards the end of last year when oil, you know, went down. Maybe some of your customers know we were destocking from macro fears and trying to tighten up their inventories, but also maybe hoping they'd see some relief on price. Well, we've had oil rally now. I'm wondering if you give us a sense of where you see customer inventories destocking, restocking, or, you know, ability to defer purchases in light of volatility in in pricing. Well, that was you you called that right, Bob. There was definitely, destocking going on as people wanted to, has a view generally, the price does not come down. And of course, we rallied in the right kind of way to continue to drop higher prices. Through that period of time. So we're now in that kind of aftermath of that and waiting for a fundamental demand to pick up, which it seems to be in some areas. But again, it's a bit too early to tell with that. As it relates to pricing, Bob, what we've really done is, yeah, generally, you always make sure you work hard to cover really, we've done as we went out and, starting last year, just had a really hard look at where we were adding the most value. And where we felt we were impacting customers in the most important way. We wanted to make sure that we're getting, our shareholders getting the right compensation for that. So we were very directly with pricing. Into those areas where we felt that, that, the values were being brought by selling these and the uniqueness of our applications. And, the molecules we have. So that approach is still ongoing, and we don't intend to, to move away from that. You've asked me in the past to delete loose buy and we do that. And, yes, for sure. But we were looking at a way to drive money. So everything that we do relative to pricing and our free electric notch just pay on volume. It's a thoughtful process we go through to try to maximize the value back our shareholders. Perfect. Thank you. Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question. Thank you. Good morning and nice quarter. Thank you. Mark, would you expect E and volumes to be up year over year in Q2? Oh, geez. I don't know. Scott, who do you want to have? I mean, I think, yeah, I think we're going to be flattish David right now. I mean, we're still working, as Marcus talked about, we're still working the price equation, very hard. You know, the one thing that is going to change probably slightly from Q1 into Q2 is I have a little less destocking that occurred. I mean, it takes a good 6 months or so. You know, when oil fell as hard as it did, for that to kinda work its way, through the value chain. And, you know, while our volumes were down year over year kind of in the 3% range, a lot of our customers that we've talked to were kind of down more in kind of a 10% to 15% range. And then we were able to offset that largely through the new project wins that we had, that started to flow through in the quarter. So I would say at this point, you know, we're kind of looking at Lattice. Yeah, the big wildcard, at least from the discussions I'm involved in daily on really is China. In China, if you, if you look at projections in China, there was a view that in this quarter, they'll start digging out of the hole that all those in in China. And start that recovery down, you know, mid teens sort of number in the first quarter, down less the second quarter and actually being positive in the back half of the year up down 3% to 4%. So that, that has got to start happening. If that starts happening, we're in good shape. Let's say that doesn't happen when you make these little volumes, we can we got this quarter. Got it. And Mark, in yours and Scott comments, you mentioned actively considering strategic transformational options for your businesses. Has anything changed of late or have have discussions picked up recently to drive these comments? Well, I think we have, when I look at the bolt ons suck that for a minute, we're seeing the size of bolt ons increase. And those are opportunities. Does that make sense? So, we're working a few now that would be in that $30,000,000 to $70,000,000 of EBITDA kind of range to $100,000,000 where we've been doing that deals that have been sub- sub-thirty. And EBITDA. So that's encouraging for us. We continue to work hard to position Celanese to be able take advantage of transformational opportunities. And that's a, that's a big personal thrust of mine. So as Lori comes in and takes over the the helm as CEO. I'm I'm gonna be developing myself to that along with I'm gonna talk at our new General Counsel. So we'll be working that hard. And, We're, optimistic that as this deal this year unfolds, we get into the next few more opportunities come available, and we'll work hard to see if we can capture one of those installments. Thank you very much. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question. This is Angel Castillo on for Vincent. Just a quick question for me on around your comments on VAM in terms of focusing on One BAM was also the Western Hemisphere and your ability to, sell more in this area. I was just curious because my understanding was that at least on the U. S. Incremental van would likely be exported. So just in light of your expansion, and again, the comments on the Western Hemisphere, I was wondering if you're able to sell. On your capacity in the U. S. Over the particular factors that facilitated for you to be able to sell in the region? Yeah. Let me start that, Mark. Yeah, yeah, the expansion in Fairlight, which we brought online in December of last year. So we added 150,000 tons of capacity. That's a, that's a key value up among several, that were, underway with an acetyl. And so the work around that started way before you know, the plan ultimately was commissioned. And that was to position our business in the most, sort of attractive way as you think about contract mix around the world. Key customer growth than mixing on the world. So, yes, we did shift some of our profile when we're through Western Hemisphere following that startup. So again, intentional steps keep our core value enhancement efforts and, that'll continue into 2019 as well. Great. Thank you. And then in terms of, your comments on China, you mentioned the high inventory that obviously has continued to But then at least on the CDEC side, just curious, you know, your thoughts about how long it'll take for the industry to work out of that inventory. And then also just in regards to your comments about a slow start to April, I was wondering if you could give us more color. Is that just entirely related to planned explosion or was it one of the things that you're seeing that is perhaps causing more of a slow start? Yes, I mean, there's lots of trade, question marks, process. But I think I think the main event followed the, the explosion in the subsequent audit and focus on inventory control throughout the country. We're really just more specifically in the province of Jiangsu. So that's, that's what we're watching now. Like I said before, we had 40% of our business in Q1 happened in March. We thought we were starting to dig out of the softness at the start of the quarter. So I would point to that, point to derivatives, off of acetic acid. I mentioned 3 before those are probably the ones to watch. And that's linked to the inventory that we find in any quarter. Yes. So there's still adequate inventory. We think it's working its way down, but it's not down yet, if that was an attribute question. So there's still plenty of not funny. There's still excess material out there, and I think that needs to, that needs to be resolved. The way it will be resolved is the Chinese economy needs to pick up a bit. It will pick up whenever they're trade agreement in my opinion. So I think we saw we saw the favorable trade discussion moment in March. We saw business pick up China as a result of that damage explosion. It slows back down again. I think there's still this waiting that's been going on personally going on in China. So, so hopefully we can get that resolved in the next month or 2. And I think that would be good as we end of the second half of the year. Yeah. And the other thing is the turnaround for energy for. So in addition to ours, there's multiple industry turnarounds in Q2, so that'll play a role in the inventory dynamics as well. We count something like 17 or 36 acid plants for the turnaround in Q2. So many of those are in China, though. We'll have a play a role in inventory dynamics. Our next question comes from P. J. Juniper with Citi. Please proceed with your question. Yes. Hi. Good morning. Good morning, Raj. It's a question. My question and answer to you is in the last quarter, you announced rationalization of acidic capacity in Asia, and then you announced in the US of RAM asset and now methanol. So it seems like you're moving production back to the US. Presumably because of the energy advantage here. So is that true? And would you be exporting some of that material back to Asia? Yeah. Yeah. Well, no, that's that's, that's that's definitely heck yeah. That's exactly what we're doing. When you when you look at the economics of that, pretty profound for us. The assets we have in China are in Singapore are higher costs than the asset base we have in Europe. And not only is it at higher cost. If you look at just the strip today for net gas, you know, out past 6 years, when you just roll that out, you know, you can see that variability lasting for a very, very long period of time. And I just went through some economics of the day that that shows how solar power is actually offsetting incremental gas being consumed for utilities in the state of Texas. I mean, so We have this low cost energy base here on the U. S. Gulf Coast. It's pretty phenomenal. And, and the moves we're making really are moves to as Todd has said, it says it much better than I can. The step is up from that base of, let's say, $800,000,000. It's kind of our trough earnings level. For this business back up about $1,000,000,000, about $100,000,000 of that locked up in the acetic acid, primarily productivity just associated with that switch. From Asia to the U. S. And then you add on top of that incremental methanol incremental band, those kind of things, all those contribute towards again, without any change in the basic business, closing that gap gets you back to $1,000,000,000 and then of course a $1,000,000,000 and beyond goes from that. So Yes, that's what we're doing. So most of that material will end up offshore. The demand in the U. S. Is not really increasing. Great. Thank you for that. And then post all these expansions in the US, how integrated would acetyls be with your EM business? And how quickly can Scott separate these two businesses if you decide to take any strategic strategic action on any of the pieces. Thank you. Yeah. The business are not not, you know, there's there's there's organizational, integration that has to be related and there's efficiencies associated with a single instance of SAP and those kind of things that you have to work through with some tax I think once before we talked about the penalty associated with that being well north of $100,000,000 per year. Call it a $1,000,000,000 of negative net present value. There's been a lot of work that Mr. Richardson has led over the years and we really dramatically drop that down. Maybe it's $50,000,000 today. And we'll continue to work that down. But I think we'll get into a point where should, should an opportunity arise and would facilitate, you know, value creation step that way, it would be certainly possible without the kind of huge negative consequences, the corporations often see, when that happens. At the same time, we're seeing investment opportunities in AC we're being very thoughtful with those. Everyone will be doing this incremental at very, very low cost. But, but certainly it's getting to that point where it could, it could be something else needed something else to add if it made sense for that organization and for our shareholders. Yes, I mean, thank you. Depending on the DOP, Jay, that we would do if we got to that point, you know, it's probably, you know, kind of a 6 ish month process for us to get something pulled off. Our next question comes from Duffy Fischer with Barclays. Please proceed with your question. Hey, guys. It's Mike Lehead on for Duffy this morning. On acetyls. First, I was hoping maybe you could remind us what your backwards integration into methanol would be after the recently announced methanol and is needed to get acid expansion. And second, is it fair to assume with your methanol expansion announced that a potential investment in the 2nd methanol unit is off the table right now? Well, I'll, you know, try doing start. You can add to that. I mean, we've talked about roughly a fifty-fifty balance made by and that includes as well our affiliate investment in Saudi. But the profile of the Americas is, of course, heavier and more heavily weighted towards make, as we think about the MetLife, CTV, the arteros in the Americas. But this will nudge us up a little bit. We started that unit back in 2015 with an original design nameplate of about 1,300,000 tons. Now we're looking at 1,700,000 tons once the, these expansions are finished. So low cost right, the things on capital also allows us to do some things in support of our integration near Clear Lake. We acquired carbon monoxide, which we talked flow. We have the expansion, around the corner with acetic acid. So all that adds to our configurability options here in Clear Lake. And Mike, it's all the state of that. It's a cost point. You know, we could we could be full in the United States. And it was totally integrated and it would be our advantage at that point. So there's still room to do that beyond the 1.7, down the increment that we pushed out, with this last expansion. So, yeah, we've got great partners in hand, with Mitsui. We have other plants in industry. We'd like to do something with it. So you know, we're certainly not it's not the top thing on our list today, but it is something we continue to evaluate and look at and, and you know, we'll be willing to take that step if we get the economics where that will make sense, Arturo. Yeah. I mean, that's the important point. If we focus on high return investments, and so things like methanol, it's gotta really make sense from a return perspective. And, you know, when we did the plant, and clearly a few years ago, just as a reminder, we got 50% of capacity for less than 50% of capital given some of the, the assets we were bringing there at the site. So we continue to look for advantageous investments that are going to be really opportunistic for selling. Great. That's helpful. And then I guess just following up on the return element, you talked about superior returns in organic or sorry, in organic investment for Celanese. I was hoping maybe you could touch on the relative investment opportunity set between the two businesses, EM and asset yields, either in terms of higher returns for either business or just a broader opportunity set. For you guys today? No, and we've been very clear in both businesses. We really target greater than 20% returns on investments and, you know, we don't really, you know, look at either one differently from that perspective. And, you know, a lot of what we're doing in asset yields, we've talked at length about focusing on, you know, the opportunities in the Gulf Coast, for incremental, investment that really justified with productivity. And then in Engineered Materials, you know, a lot of these are really incremental capital. So if we're putting compounding, lines in for Engineered Materials generates a lot of value that, you know, keep that paying back in, in a couple of years. So that's really where we're prioritizing our investments right now. I think, you know, we, we've said we've got kind of 9 projects or so going right now in Engineered Materials from a capital perspective. All of those, you know, are pretty small, when you look at each one individually. But as a collective program, it's pretty sizable with, again, a return profile that's greater than 20%. Yeah. And I think the next generation for us too in in EM is going to be 2 restructure our polymer base to better fit the consumption demands that we see in the future. So right now, we're very heavily U. S. And European based in our base polymer production. And we're seeing continued opportunities in Asia and see that growth quite dramatically, which we currently test out from the U. S. So we think there's a whole new round of opportunities that are surfacing that'll be part of the new 3 year plan that they can talk about we'll make those investments out there, and Todd, just talk about some of these guys. So we do believe that our investment opportunities are getting greater as we grow this company. And I think it's pretty evenly split between the two. Our next question comes from Jeff Zekauskas with JP Morgan. Please proceed with your question. Thanks very much. In in Jiangsu over a longer period of time, do you worry that environmental constraints may either close your capacity or limit your capacity in some way or limit the capacity of your suppliers or your customers Do you view these environmental efforts over a longer period of time as a clear positive or a clear negative or neutral, or you can't you can't tell for your business sir. Well, Jeff, that's a great question. Yes. So when we, first off, we're in the Nanjing Park, and it's considered one of the top 2 or 3 parks. Maybe the 4th most favorable park in the entire country. So it's a very good park. It's well managed The role in companies like Celanese play there and BASF and others is we partner with the politicians really to support their moves become more focused on safety and environmental stewardship. So we play a a we play a key role in really helping them put forth the kind of regulations and protocols we have as a corporation and the other multinationals do on that park and on, organizations that work there. So they that relationship is really positive. So so could it end in appropriately or park like that? I suppose it could, but you know, what we do is pretty unique. And I, I have a hard time believing that, that anytime and in your future, it represents these moves to improve China will represent a threat to park are real threat to our asset base there. When you get out beyond, let's say, a park like a big industrial park like chemical park now, Jim, you get to a lot of industrial parks. Industrial parks don't run that way. They have lots of offer smaller operations there. And those are the ones that seem to be feeling the most pressure now. So I think it's really more our customers that could be impacted as time goes on. Every garden. Right now, we don't have a way of willing to assess that, but, but, it's something we're going to keep our eyes on. Yeah, Jeff, when we started planning for that five 15 years ago. We really, tried to build it both from our own, construction, but also our upstream, gasification suppliers construction with an eye towards the future. So, you know, if if China had an environmental, regulation very similar to what we see in the Western Hemisphere, that's what we built for. And so it's not to say that, you know, to Mark's point, that you couldn't, you know, see, you know, some crackdown top in the future, but we really did build that plant with an eye for the future. Okay. Great. And in Engineered Materials Was there a few percentage points of volume growth from acquisitions in the quarter year over year? I don't know, 4%, 3%? At a sense? It was a little bit there was a little bit from next it rolled in this quarter versus last quarter. Year over year Yeah. It was pretty small, Jeff. I mean, it was, I mean, it's it's more like 1 to 2%, it's probably in there. So And as I talked about earlier, you know, year over year, when you look at it on a straight volume basis, it's it's 3%. What we're hearing from our customers and their demand is down considerably more than that. So, you know, if you if you pull that acquisition, roll that through there as more kind of base base is probably 4% to 5% down. We feel pretty good about that given the environment that we were in that we were able to off that with new projects. Our next question comes from Ghashaan Panjabi with Robert W. Baird. Please proceed with your question. Thank you. Hi everyone. Good morning. I wanted Good morning. I guess first off, you know, going back to the first quarter results, sort of relative to your initial guidance, yeah, at the time of the 4Q earnings report, what truly surprised you of the upside in the first quarter? And then related to that, Mark, in your prepared comments, you mentioned confidence and an improvement in China and just broader underlying demand. Is that embedded in your reiteration of guidance for 2019? I'm just trying to clarify. Yes. So what I would say is that, that, we guided it pretty flat. We were starting the year very, very slowly. And, and so we We were focused solely on what we could bring to the table. And, so what I was pleased about is that we brought a locking table through incremental productivity through incremental sales to, mix shift that occurred in our portfolio. And if I were to work it into that, And you add on top of that a stronger March than we really, than we really kind of anticipated. So that kind of lifted us up a bit. About over that initial kind of view with that. Now it's winter in this quarter and I've just outlined, I think you heard there's probably $0.25 of headwinds today that we didn't have last quarter that are real. So we're starting out not at T60. We're starting out more like T30 ish. I mean, it's that kind of that kind of spot, and we've got to build back into that. What my optimism for the years who was centered upon is that I really do believe that China is going to improve as we get into this year and end this year. I do believe it's it almost seems like the machine is trying to get started. I want something to knock it off course. And, and we know that Chinese people well. We know that region well and our customers well. So there's a desire for them to be better And my belief is, is as you get into the back half of this year, that we'll see we'll see that machine come alive and start to grab more of a foundation, which is not only good for us, but good for our affiliates and things like that. Great. Thank you. And for my second question, kind of going back to the EM segment, volumes down 3%. In the first quarter, you know, obviously, comparisons are much more difficult given years of outsized growth and the and the choppiness and the macro. But the trend line is nonetheless weaker over the past few quarters. I guess going back to the 4000 projects guidance for this year, you know, what sort of visibility do you have towards that number, that gives you confidence on being able to hit that. Thanks so much. Well, I think there remains this overall press to differentiate. Customers very much want to do new things and certain markets in a better way. So what you actually see is you see that trend increasing. The flip side of that is that the numbers tend to start weighing down to be a little bit smaller in size because if people are less confident, in that. So we're we feel very good about the 4 1000. We feel very good about that contribution. And that is not a function of thinking of the business it's going to get better. The market's going to get better. It's just the need for customers to differentiate themselves versus our competition. Our next question comes from Lawrence Alexander with Jefferies. Please proceed with your question. Hi, this is Nick Cecero on for Lawrence. For Engineered Materials, you mentioned that the projects used in battery separators is expected to double again in 2019. I was just wondering if we should expect the current cadence of growth to continue over the next 3 to 5 years? And then maybe if you can just size the potential market opportunity here. Yeah, so we do see that trend continuing. Yeah, that growth trajectory is extremely strong, in that end use. It's probably one of the really good bright spots for us in China. You know, we are in the process of finalizing the expansion of our GUR Ultra High North of the Way polyethylene, unit there in Nanjing, which will help, you know, satisfy that demand. In the near term, but we're already looking at, you know, what is the the next wave of investments because we we don't see that growth trajectory changing, given, the focus around, electric vehicles in China, and any barriers playing a critical role in that growth. Great. Thank you very much. Thank you. Our next question comes from John McNulty with BMO Capital Markets. Please proceed with your question. Good morning. Thanks for taking my question. In the in the prepared remarks, you pointed to 7 project expansions in the EM segment. Can you kind of help us to think about the earnings power tied to them and the cadence at which they, which they may come in over the next couple of years? Well, I left you, John. I don't have it done in front of me. So, You should think of all these as being small and being incremental, all adding, you know, 1,000,000, not tens of 1,000,000 of dollars you know, see that process all baked into that, you know, push, we have to go this thing $100,000,000 per year, which we've been doing. In that scenario. So I think it's, you know, these are small incremental step chains that make, us going from the 690 up into, and, 7.7 years. So this year, we have that number turns out to be 7.60 and then up from that into 850,860 next year. So part of that. Yeah. And it's it's really what allows us to satisfy, the demand growth that we have from the project win, that we've been, you know, very talking about in great detail over the last several years. And so, I mean, to Mark's point, these are, you know, 5 ish $1,000,000 type projects, each one of them, plus minus. So we're not talking a huge capital for each one. Got it. Thanks for the color on that. And then, I guess with regard to M and A, you indicated, I guess, again, remarks, that the pipeline was strong for both businesses. Aside from the Syngas unit that you just acquired, I don't really recall a whole lot happening in the acetyl channel. I guess, how should we be thinking about the opportunities for M and A there and what types of either assets or ventures you might be considering or looking at? Well, we think in that arena, there's partnership opportunities that are available to us in theory on pay FERC. We have come very close to acquiring businesses that would be, derivative like businesses that would fit our motions business. Well and the portfolio of products we sell there well. There's upstream opportunities here that could involve anyway. So, you know, even you need to think of it trying to extend that chain, laterally and also, back integrating that chain. Got it. Thanks very much for the color. Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question. Yes, good morning. Good morning. Mark, would you comment on the size of your investment to expand methanol at Clear Lake by 25% as well as the timing of that project? The timing is several years. I think 2 two and a half years because there's, you know, you've got to do the next turnaround. We haven't, we haven't talked about the dollar amount, but it's, it's, it's well, well, less than $100,000,000. Okay. Yes. So Kevin, think of the timing, similar to the startup timing with expanded acetic acid units. So there's there's configuration benefits with both of those units starting up about the same time. There's some recapture on the CO2 side of the side and high degree benefit at the side. So there's there's all kinds of, integration benefits associated with and the Mark's point capital is within Hudson would be funded through the venture itself. Great. And then I wanted to clarify a comment you made earlier regarding, potential cost to separate your businesses. At $50,000,000 to $100,000,000. How did you reduce that cost? And as a clarification, is it operational cost or is it inclusive of potential tax effects as well? It's sort of all the above. I mean, we look at all of the implications of everything from, the credit arrangements we have and changing of those arrangements out there, the cost of the, SAP systems. Now you reconfigure those systems with positive negative relative to that. People that have joint jobs and how we how we deal with independent women like that in ways to, to take care of them. So every aspect of that we've looked at. And we felt pretty good that the 100 and it's actually a number of hiring that we first started looking at that. We saw ways that we can invest money and improve our ongoing operating efficiency to get that number lower. So our path has been on through productivity to let down. And we think contemporary number today is closer to E50 for that ongoing impact. And, and Scott and others are working to get that lower over time. So that's how we did it. It's not it's not there's no magic here. There wasn't one thing. There's hundreds of small things that we just had to go after. Thank you very much. Thank you. Our next question comes from Frank Mitsch with Fermium Research. Please proceed with your question. Hey. Good morning. And, nice talking to you, gentlemen. Dan, you have to take tow side of the house. The expectation when you, when you offer guidance for the first quarter was that it would be equivalent to the third quarter of last year, which was around $5,000,000. You came in at $72,000,000. Now I noticed in the, in slides, you talked a little bit about, affiliate dividends, perhaps being a little bit larger. Can you talk and, but you also mentioned that business, you believe, has returned to a stabilized earnings profile. Can you provide a little more color on what went right there and, what should our expectations be for that business? Yes, really quarter to quarter. We had, I mean, a couple of things came in a bit higher than we thought. Price peaked up a little bit and there was just, some sort of return to the normalized pricing. So it was pretty flat year over year, but there was improvement quarter to quarter. We had some energy favorability of a few million bucks in there. Sending was down as part of our productivity initiatives came out. Those things all added up. Just a pretty good money. And then I'll talk to that equity owner, it seemed a bit higher. So that was the pop up that you saw there. I mean, it'll settle back down in that mid 60 kind of range. And we think run out the year. We have continue to look at ways to add productivity, you know, do more productivity on arena, and we'll think we'll need to to keep these earnings flat next year. But I I don't know if that's enough color for you, but think the business is performing the way we thought it would and we expect to be flat as we end this year, year over year. Terrific. Thank you. And just a clarification, Mark, obviously, you indicated that you thought China was going to improve. And, just curious, is a trade deal necessary, for you guys? Is it that the 1050 number or not? Well, it's a great question. And I want you to, I'm pleased to understand and I'm talking, this is a feeling just haven't got back from there recently in the team that spends a lot of time over there. But we, if you look at the data out of China, what you see is you see starts and stops of things. You know, it's, it's like momentum starts to build in something not and the minimum starts to build something knocks up course. So, you know, I see that as an economy, it's not sliding down. You know, it's already taking that step down. It is trying to recover, and there's not a good reason for it to be down. I mean, if you go there, you see that, I mean, it's a thriving economy still today, a $14,000,000,000,000 economy. It's going to grow 6%. That's probably twice the economic contribution globally to the world and is the U. S. So to me, you know, getting that that incremental, $800,000,000,000 or so coming from incremental growth is China economy to be critical not only for China, but it's also critical for the world. So I do believe that for the world to get better China needs to recover And I do think the jump start for the economy in China, the trade deal needs to happen. Our next question comes from Jim Sheehan with SunTrust Robinson. Please proceed with your question. Regarding larger scale M and A is that all, an EM, is that all in the engineered plastics area, or would you consider other kinds of businesses? And then on acetate tow, you once considered a joint venture there, what's your strategy for enhancing shareholder value for that business? Yes. So, yeah, when you look at the bigger deals we're looking at, they tend to be more EM oriented, and that's what the balance of the question. If you look at at AC, we have more control on the growth estimates, AC. And we kind of would be fewer partners. We have already have a machine that we can I'd like to work with people are just throwing investments down. And so, it's going to be more EM oriented. That's what I would say there. Yeah. As regards to, to, the AC, we continue to look at ways to try to involve others in that. We think that's the right thing to happen over a long period of time. Having said that, that business is directionally starting to improve. And we do believe that we can get through the next year or 2 with flat economics, we'll see a period of time without, without what we do with you or not, with somebody else to see us, but to start to get back on course to improve naturally. Yes. And Jim, as we look at deals in Engine Materials, we really are focused on you know, deals in the engineered thermoplastics space. So, you know, other materials or or, you know, similar materials to what we have today. Terrific. And how should we think about the earnings lift from the 15,000 ton expansion in Nanjing? Yes. So it's a few cents on a full year basis, Jim, you know, it's kind of embedded in the projections that we Our next question comes from Arun Viswanathan with RBC Capital Markets. Please proceed with your question. Great. Thanks. Good morning. Just real quickly on the, with this interview, so, like, you you cited there the 59, would you like to see that I guess, go to breakeven, before any kind of, you know, you proceed forward with any kind of in, in the JV transaction or separation? Thanks. Olivia, you were talking about the tow business or the AC business? The AC business. Okay. Yeah. Yeah. Well, I I, you know, I'm, and you guys don't like me very much for this comment, but I I think you don't make money by just blowing something up. You make money only if you catalyze, a unique growth profile. Right now, we we have that underway for AC. We're not holding that money for AC. So I think until we started holding that money from a growth point of view, it's the show is giving you full value for that, within the portfolio. So we would see it as part of some analytic event I do believe, or if there was a need for a lot more money we're going put in place, then you could rationalize it's the right thing to do to bring in a partner and do something else to try. Unlock that shareholder value. Our next question is from Alexei Ratloff with Nomura. Please proceed with your question. This is Matt Skowronski on for Alexei this morning. I'm just following up with Kevin's question, in the past, you mentioned that CapEx in out years of 2020 plus. It's going to be around $400,000,000. Is that still a good number to think about now that you have these expansion projects going on? No. It's drifting up. And I don't know if I'm looking at it, Scott. I think we rolled out a number there, but but, we'll update that shortly. I think, clearly, the the City Casa expansion is in there and that wasn't included originally with those in the 400. So it'll be up a bit. Understood. Thank you. And then within engineering materials, was destocking limited to autos or were there other end markets? Probably, although. Yeah. Auto and electronics, we got electrophies in 2, 2 biggest roadside. You know, we we wouldn't see much impact in our, in our medical business. And y'all, you know, consumer goods has actually held up pretty well, also. So it's really, mainly cell phones, other electronics and automotive. Understood. Thank you. Thank you Ross. The next participant will be our last question. Our last question or is from Matthew Blair with Tudor Pickering Holt. Please proceed with your question. Hey, thanks for squeezing me in guys. Just one for me. You mentioned a pretty heavy turnaround schedule in Q2. It also seemed like you had some downtime in Q1. Does this mean that your turnaround schedule for the back half of twenty nineteen is pretty light? And can you provide any numbers around that? Yes, AC, it's pretty light. We have, I think we have EM outage plan in the 3rd or fourth quarter as well, but, yeah, we tend to let most companies pretend to be more in the 2nd quarter. And so it's pretty normal for us that, that $30,000,000 $40,000,000 kind of hit in the quarter. I would now like to turn the call back to Chuck Kivers for closing comments. So we thank you for your questions and listening in today. Certainly. We're available after the call to address any further that you have, and and that'll wrap us up. Rob, you can close this out. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.