Earnings Call: Q2 2020

Jul 28, 2020

Greetings, and welcome to Huntsman's Corporation Second Quarter 2020 Earnings Call At this is being recorded. I would now like to turn the conference over to your host, Mr. Ivan Marca, VP, Investor Relations. Thank you. You may begin. Thank you, Laura, and good morning, everyone. Welcome to Huntsman's 2nd quarter 2020 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO Sean Douglas, Executive Vice President, CFO and Tony Hankins, President of Polyurethanes. This morning, before the market opened, we released our earnings the second quarter 2020 via press release and posted it to our website, huntsman.com. We also posted a set of slides on our website, which we will use on the call this morning while presenting our results. During this call, we may make statements about our projections or expectations for the future. All such statements are forward looking statements. And while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward looking statements during the quarter. We will also refer to non GAAP financial measures such as adjusted EBITDA, which adjusted net income and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. I'll now turn the call over to Peter Huntsman, our Chairman, President and CEO. You very much Ivan. Good morning, everyone. Thank you for taking the time to join us. Let's turn to slides 34. Adjusted EBITDA for our polyurethanes division in the 2nd quarter was $31,000,000 versus $156,000,000 of a year ago. This is better than we had expected shared that our 2nd quarter volumes could be down in excess of 30% versus the prior year and that our adjusted EBITDA could be about breakeven. At that time, while China was in the early days of recovery, the April actual and May outlook for orders outside of China in adjusted EBITDA versus the prior year was not surprisingly driven by expected sharply lower volumes as a result of the economic impact of COVID and lower margins due to an increasingly competitive environment in the opponent side of our Urethanes business. MDI volumes in the quarter declined 15% driven by declines in the Americas and Europe were continue to hold up well, the volumes in the differentiated end of our business fell as COVID related shutdowns across the globe negatively impacted our key markets such as insulation, automotive, and elastomers. However, we experienced a notable inflection in adjusted EBITDA within the quarter. Our full year things adjusted EBITDA was negative in April, slightly positive in May and greater than covered better than we had anticipated in the Americas, largely led by our spray polyurethane foam insulation business. Additionally, the recovery in China continued at a pace above our initial expectations specifically in automotive and insulation. As we have shared before, we estimate that roughly half of our polyurethane business is impacted by trends related to construction with our largest direct exposure being our insulation business, which makes up close to 40% of our total global polyurethane segment. Demand for greater energy efficiency continues to grow globally, driven by increasingly more stringent building codes around energy conservation. More widely adopted sustainability standards as well as government mandates and stimulus into energy efficiency. Our portfolio is well positioned to benefit from this expected tile world class insulin, that has an ability to achieve an R value well in excess of nearly any commonly used competitive insulation material. Insulation is our single biggest market, and we expect it to be one of our highest growth markets over the coming years. In North America, our fastest growing business is our relatively new spray polyurethane foam insulation business, that we have recently rebranded to be Huntsman Building Solutions, a global leader in spray polyurethane foam insulation. Huntsman Building Solutions is the combination of our 2018 spray foam acquisition of Demilec and our early 2020 spray foam acquisition of Isanine Lupola. Upon closing, the Isanine acquisition this past February, we immediately began integrating the 2 businesses. The integration of the 2 businesses is ahead of plan and we currently expect to exceed our initial synergy target of $15,000,000. We are now looking for annual life synergies of $20,000,000 by the end of 2021 Huntsman Building Products, now captively consumes approximately £125,000,000 of polymeric MDI on an annualized basis. The benefit of which is not included within this $20,000,000 synergy estimated amount. Although Huntsman Building Solutions sales in the second quarter were down versus last year due to the temporary impact of COVID related shutdowns, we saw improved trends as the quarter progressed. And in June, we saw a slight growth over the prior year. Even with the COVID impact, This business contributed approximately $15,000,000 of adjusted EBITDA in the quarter despite the ongoing near term economic challenges, we still expected that our Huntsman Building Solutions business will be operating at $100,000,000 of EBITDA annualized when we exit 2021. And While our international growth efforts are still in the beginning stages in both Europe and Asia, we've seen some early success and positive EBITDA contributions globally. It is a remarkable eco friendly product, especially when integrated with our Terrell Polyole's business, wherein we take the equivalent of 1,000,000,000 used PET bottles otherwise wasted at feedstock. And produce a polyester polyole that is blended with our MDI to produce the best insulation in the world. This is a very compelling, sustainable and eco friendly alternative to traditional insulation products. We look forward at Wood Products business rebounding nicely from being significantly down in April to being down only single digits in June. During the quarter, we also saw Asia is ahead of the pack ending the quarter at levels largely flat year over year. While both are still meaningfully down year over year within auto, we see a bit quicker recovery within the Americas over Europe. Within our elastomers business, global footwear continues to be significantly weaker than a year ago, as it largely follows trends in global apparel. While we remain optimistic about the long term growth opportunities for our polyurethanes business, several key markets in the near term are likely to remain challenging and make it difficult to meet last year's profitability. Visibility remains obscure and depends on the ability of broad global economies to reopen and navigate the various geopolitical challenges currently being expect some benefit from lower benzene rolling through the third quarter. Assuming this and if economic activities remain somewhat consistent with the trends we have experienced in June and are seeing in July, and I emphasize that this is an uncertain assumption we could anticipate Let's turn to Slides 56. Our Advanced Materials business reported adjusted EBITDA of $30,000,000, down from $55,000,000 in in space are practically halted instantaneously in response to the global impact of COVID-nineteen. For the first time in over a century, the North American and European Commercial Aerospace Industry came to a complete standstill. The singular event caused a rapid build in the inventory from the airlines on through the supply chain to suppliers like Huntsman. We anticipate the next few years. Our high margin DIY business largely in India was also significantly impacted due to of our DIY business once the Indian economy returns to more normalized levels. Our power business largely going into power grid infrastructure was least impacted with volumes down approximately 2%. We did see modestly improving trends in most other markets in June. Despite the significantly lower sales, the business was able to generate an adjusted EBITDA margin of 16% owing to stable pricing and the business's ability to quickly adjust certain fixed costs. On May 18th, we closed on our CBC thermostat specialties acquisition, weighted to auto and approximately 15% weighted to aerospace. The business had built inventory prior to our close. And as a result, we estimate a related incremental cost of nearly $5,000,000 during the second half of 2020 as the us. And we are confident that we will be able that we will be at synergy run rates of approximately $15,000,000 when we exit 2021. We would expect to exceed our $15,000,000 target as we move through 2022 and beyond. We've identified additional cost savings within the segment and are very focused on identifying additional organic and inorganic growth opportunities. As we look at the at quarter 3, improving trends quarter over quarter, most of our industrial markets will be more than offset by the in Advanced Materials are likely to be slightly lower than the 2nd prior quarter. Let's turn to Slide 7. The Performance Products segment's reported adjusted EBITDA of $29,000,000 compared to $42,000,000 in last year's second quarter. The decline in EBITDA was largely due to 20% lower volumes, partially offset by lower fixed costs. Our performance amines, which make up about half of the Performance Products segments, declined approximately 8% in the quarter. This better than average performance is related to the rest of the portfolio was primarily due to isolated strengths in some of the niche markets, such as composites going into the Chinese wind market, ag chemicals and electronics. We plan to which allowed for VOC free urethane production. Volumes and margins in our ethylene amines business continue to be weak due to the overall economic environment and competitive pressures. Malayic and hydride volumes were down sharply in the quarter. But overall margins remain relatively stable. We expect volumes in our Malay business to improve quarter over quarter as sales into UPR markets such as construction and recreational vehicles are improving. While we expect 3rd quarter EBITDA to be similar to the 2nd quarter, the 3rd quarter is expected to see an improving trend across the quarter unlike Our textile effects division reported an adjusted EBITDA loss of $4,000,000 for the 2nd quarter. We saw unprecedented conditions in the textile and apparel markets. This loss was a result of a dramatic decline in volumes, only partially offset by lower costs. Total volumes in the quarter fell 48% year over year as a shutdown of economies across the globe significantly reduced retail traffic, especially in our key regions in North America and Europe. Additionally, government mandated shutdowns and keep textile producing regions such as China, India and Bangladesh also contributed to the decline in overall demand The drop of volumes during the second quarter was unparalleled and was well below the worst quarter we experienced in the 2008, 2009 recession. On a positive note, we are seeing and have seen some improving trends in June continuing into July. While we are seeing improvements, we expect the recovery to be choppy depending on how quickly regions reopen and the comeback in retail traffic, most specifically for apparel. While timing is unclear, we are optimistic that the industry will recover over the coming quarters. We will continue to invest in for PPE as well as continuing to capitalize on our core strength and leading technologies and water reduction and 0 discharge as the prior year, but improved versus the second quarter. We expect the business to return to a modest level of profitability in the third quarter. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer. Thank you, Peter. Turning now to Slide 9. As covered by Peter, volumes were sharply down year over year. We also saw MDI margins, which largely account for the decrease in variable margins year over year. Margins in our differentiated polyurethanes and other businesses remained fairly $25,000,000 during the quarter. Now turning to Slide 10. During the quarter, we spent from available cash approximately $300,000,000 to acquire the CBC thermostat Specialties business and ended the 2nd quarter with $2,600,000,000 of liquidity, including approximately 1 $200,000,000 of cash. Despite having a modest positive EBITDA for the quarter, we still managed to generate a positive free cash flow. In line with our expectations for the quarter, we benefited from favorable networking capital change of about $125,000,000. Our business divisions continue to place a high priority on efficiently managing all components of working capital. We paid $55,000,000 in capital expenditures during the second quarter and still estimate to spend between $225,000,000 $235,000,000 for the year. As shared on our previous quarter's earnings call in response to the global economic conditions, we reduced 2020 capital spending by approximately 30%. We still expect to spend approximately $175,000,000 in total to construct an MDI splitter at our Geismar, Louisiana site that will provide us meaningfully more flexibility to further expand the mix of higher margin differentiated products within our North American business related to this project, $15,000,000 was spent last year. Approximately $40,000,000 is projected to be spent this year, and the remainder will be spent in 2021 in the first half of twenty twenty two. This project is still on target for mid 2022. Relating to the gain on sale of our chemicals and intermediates businesses business earlier this year, we have paid approximately $10,000,000 of tax year to I'd like to point out statement of cash flows. Just as a reminder, we have a built in capital loss within our approximate 49% interest in Venator that is available to us result in an up to approximately $150,000,000 in cash tax savings at the time of our divestiture of the shares. Our Huntsman share repurchase effort remains suspended since early 2018 under our Board authorization, we have repurchased approximately 26,000,000 shares for approximately $580,000,000 representing well over 10% of our total shares outstanding. Our adjusted effective tax rate for the second quarter was approximately 18%, We project that our 2020 adjusted effective tax rate will be around 20% and thereafter it will remain between 22% 24%. From where we sit today and certainly, depending on multiple key variables, most importantly, the degree of economic recovery in the second half of twenty twenty. Adjusted free cash flow for the year may be near break even to modestly positive. We remain committed to generating consistent strong and a balanced approach to capital allocation, creating and returning value to shareholders. Peter, back to you. Thank you, Sean. As we emerge from the economic carnage, what will no doubt be one of the most volatile quarters since the ill fated whiskey rebellion of 1791. I think it is important to ask not just how we intend to survive, but rather emerge from this cacophony of chaos as a stronger and more able company. At the outset, let me repeat what others have said. We're still dealing with very limited visibility and uncertainties come and go as often as guidelines from the CDC. However, there are a couple of signs that are emerging, and I want to review with you I can say that for the first time in the past 6 months that all of our 4 operating divisions are showing anywhere from slight to modest improvements over the previous month. This leads me to believe that we are seeing a real recovery Now while we may still have a long road ahead of us, that we are coming off the bottom. Having said that, I'd like to remind you what we said in the past quarter's call. We continue to believe that we will see a W shaped recovery. As we see society reopen and people emerge from hiding, the economy will resume its recovery. Conversely, we will see a temporary spike in Globally, some geographies such as China and much as Southeast Asia are returning to more normalized conditions. I stated during our I believe rather than the European Union. There are 3 fundamental areas in which we will be focused in the coming months. First, among these is preserving a strong balance sheet. We will remain focused on managing our inventory as well as working capital and also to take advantage of what has been and likely will continue to be weak energy prices. Early in this crisis, as we pointed out in May, we unloaded some of our larger positions of raw material and we'll see approximately $20,000,000 of benefit in the 3rd quarters, we take advantage of lower price spending and other raw materials. In the second quarter, we generated $38,000,000 of adjusted free cash flow largely due to effective inventory management of finished materials as well as focused efforts to manage for 2020, we've delayed projects to better coordinate them with this economic slowdown, which suspended our share repurchase program until a time when we have clear market visibility. We are prudently suppressing costs, while such uncertainty lingers. We have implemented a hiring freeze and suspended merit and salary increases. In addition to strengthening our balance sheet, we have suppressed between $20,000,000 $25,000,000 of costs in the second quarter. Our second focus will be the implementation of a cost reduction and alignment program that not only will address the stranded costs from our recent divestitures, but also the opportunity to create synergies from our recent acquisitions in our polyurethanes and Advanced Materials divisions. During our last quarter report, we outlined several areas of focus totaling $45,000,000 of cost synergies, reductions, redeployment. We said that we were reviewing our structure and cost to allow us to obtain further economic efficiencies, better downstream growth. As we further this review, we feel confident about exceeding our $15,000,000 of synergies with our recent CBC acquisition in our Advanced Materials division. We have increased our $15,000,000 target for synergies from the Isenging Lupola acquisition to $20,000,000. We've also increased our target for cost optimization realignment from $15,000,000 to $70,000,000. Combining these projects will deliver a run rate savings of over $100,000,000 by the end of next year. We estimate that this will add approximately 1.5 percent to our adjusted EBITDA margin. Our 3rd objective will be to continue to focus on building out our downstream and differentiated capabilities and product innovation I think the right model for this is what we're doing around our newly formed Huntsman Business Solutions. We combine the best of our existing knowhow and polyols and MDI with acquisitions of Demilec and Isanine Lepola to create the largest spray foam insulator in the world. This combination has exceeded our expectations and we now move approximately 125 £1,000,000 of commodity MDI grades into our own spray foam business where we are where we also consume our own polyols and the main catalysts from our Performance Products division. While I'm disappointed to see the effects that this pandemic is having on the aerospace business, I like the pipeline of products and innovation that we will capitalize on with regards to energy conservation throughout Asia. In the textile industry across Europe We will continue to invest in light weighting of materials and electric vehicles, power infrastructure, and this new aerospace applications come to market. We continue to expand in our formulations of adhesives, coatings, elastomers and other products where we will see better than GDP growth as we displace other materials. We are also looking forward to making further global progress in waste reductions as we will be opening spray foam insulation across Asia, but when combined with our Houston facility, will give us the capability to consume the equivalency of 1,300,000,000 used PET bottles a year that otherwise be going to a landfill. In short, we'll be focused on maintaining a strong balance sheet, expanding our margins and building out a changing and improving company that will create value faster than these markets will recover. With that, operator, we'll open the line up to any questions or comments. At this time, we will be conducting a question and answer The first question comes from the line of Frank Mitsch with Permian Research. 3 assignment. I've gotta go back and and figure out what exactly happened during the whiskey rebellion of 1791 and the and how how it remained it is to the current environment. So appreciate the homework there. Frank, I have no doubt, Frank, that your relatives were probably from center in that rebellion. I will definitely go back on the Ancestry tree. So we're looking at a nice improvement in polyurethanes from $30,000,000 EBITDA in 2 to $100,000,000 in 3Q. And you gave some color in terms of, the improvement a benzene sourcing, and and volumes. I was wondering if you could step through a little bit more, on on the on the ability to continue that trend in 4Q and beyond. How should we think about that recovery in polyurethanes? Sustainability of that recovery? Yes, let me just comment a little bit on the 3rd. And as we start getting into the 4th quarter, my optimism will most likely get the better of me. But, as I think about the third quarter, we ended June at somewhere in the low 20, let's say 23, sort of EBITDA for the month. And if I can't triple that for the third quarter, here at about a $70,000,000 run rate. I'm assuming that the third quarter will, will remain kind of the equivalency of June. Typically July is a little bit better month. August is typically a slower month as you have much of the European and the U. S. Markets take a holiday during that time. And then you see something of recovery in September. So, I couple those seasonal trends, with an idea that as I look at July, I think that we started July probably from a fundamental point, stronger than we ended July. I think that there was a lot more enthusiasm going into early July markets were reopening. People were kind of going back to work and so forth. And then you saw this increase in the number of COVID cases. You saw shutdowns. I think that affected consumer sentiment. So as I look at July, I'm kind of started the month a bit more optimistic than finished a month. But as I said in my comments, I really do think this is almost going to be a week to week sort of of a battlement. I mean, if we have a really strong announcement about vaccinations or something in the next week or so. I think you'll see a lot of consumer optimism all of a sudden flow into the market. But anyway, so I take that $23,000,000 of June. I triple that in, in Q3. I kind of come to 70 $1,000,000. I look at the benzene benefit of around $20,000,000. That brings me to $90,000,000. And I think that over the third quarter, you're going to continue to see growth and you're going to continue to see, synergies cost cutting coming about in polyurethanes. I give that number probably around a 10,000,000 dollars. So I'm that's where I come up with the $100,000,000. As I look in the, in the overall fourth quarter, we won't have that $20,000,000 of benefits coming from benzene. But I do think that you'll continue to see the momentum coming of insulation and a further recovery, particularly, of footwear and some of the apparel. Now, I base that purely on, that's where my optimism may come in here. But I think that you'll see a more fulsome, retail recovery point. Maybe you'll see something of elastomers coming back more aggressively, automobiles and so forth coming back more aggressively. I'm hopeful in the fourth quarter that you'll continue to see the core business grow, but the synergies and the growth of that business ought to offset the benzene and I would hope that we'll see a 4th quarter number that then in MDI at least that will exceed, where we were in the third quarter. That's, that's very helpful, Peter. And if I could just follow-up to you ethically on the polyurethanes business, how are you seeing the trends play out? You'd mentioned that you start to see growth in in China. Can you talk about the that that segment on a on a geographic basis in the outlook? Yes, I think that as we look at that on a geographic basis, I mean, as we look at construction insulation, which I think is perhaps one of our our better, focused businesses on a prior year basis as we look at Q2, for Asia, we really we were up our prior year by about 12%. Europe, we're down by about 12% in the Americas down. Mid single digits. And, as I look at that going into the third quarter, I've got Tony Hankens here who's our divisional, president. So I'm going to ask him for some of the sentiments. This is what we see going to the third quarter when we look at the on a regional basis. But I'll just say that as we look about what I would say are some of our stronger areas, in areas of concern, when I look at year over year second quarter, the ace in the footwear, That's our Adhesives, coatings, elastomers, growth in China, growth in China both year over year and over prior quarter, but 30% to 40% down in the Americas, in Europe. Which tells me a lot of that is footwear. And, you're seeing shoes are one of those things that people typically don't buy online. They want to go in. They want fitted and they want to make sure they're buying something. And until you see a retail recovery, I'm not sure that you're going to see a great deal of recovery in that area. That's why I say you, but I maybe in the fourth quarter, latter part of 3rd quarter, but I think that there'll be a material recovery because in Asia, which is a month or 2 ahead of Europe and the U. S, we saw 42% growth over the prior quarter when it came to these similar applications. Composite wood, again, we're seeing strong growth in the second quarter over the previous quarter Asia and pretty much flat in Europe. The Americas where we have the majority of our deposit would, we're down about 20% year over year and over to the prior quarter. But again, we're seeing, I think we're finishing the quarter much stronger. In automotive, it's, it's, I think we started the beginning of second quarter in a very tough position, down 60, 70 some odd percent, and we're ending the quarter, 2nd quarter, and I think a much better condition of being down 25% to 30%. So, promising trends, but still, still some tough market conditions. From a macro basis, Tony, do you want to just comment on what we're seeing going into the third quarter? Yes. Thank you, Peter. Frank, good morning. Let me just come back to your first question around China where we see 2 a real bright spot for our business. 1 is automotive. And we've seen quite a significant recovery in automotive compared to quarter 2 last quarter 2 quarter 3 last year. The premium luxury brands seem to doing well. We supply BMW Audi and Mercedes in China. We've recently won the seating contract for the new Tesla Gigafactory in Shanghai. And as things stand at the moment, I would say that in quarter 3 we're going to see 5% growth over the similar quarter last year. So, you know, automotive is doing well for us in China. The other area is insulation and construction, where the Chinese governments are investing heavily in infrastructure to boost domestic demand. And again, the growth there over last year we're seeing is is it is very positive. So China has really been a V shaped recovery in that respect for our business. As we look into quarter 3 and right now we have pretty good visibility to the end of August, September. Obviously, it's very difficult to call with things that are going on, but Quarter 3 plays out the way we expect to do it now. On a macro level, I would say that compared to quarter 3 last year, Asia is going to be down about 7% North America is going to be down 5% and Europe will be down 9%. So overall, we're projecting round about 7% down compared to quarter 3 last year, which is honestly significantly better than I was expecting a couple of months ago. So real positive trends here as Peter said in automotive and construction and insulation. And our furniture business mattresses have been satellite hotcakes in North America, particularly over Amazon and internet sales, we've seen a very significant uptick in our fiscal phone business. So all in all, things are looking much better than we expected a couple of months ago. Thank you so much. It's very Our next question comes from the line of Alex Jim from Wells with KeyBanc Capital Markets. You may proceed with your question. Thank you. And, good morning, everyone. In your construction businesses, Did June July benefit from pent up demand, that accumulated during the shutdowns and do you see activity for new projects maybe reflecting out or declining going forward or remaining robust? I think that we're seeing a gradual recovery. I think that in construction, I wouldn't say that it is robust, but it is probably of all of our segments. And in spite of the opportunities we're seeing in spray foam and so forth, I just as we look some of our areas like appliances and our footwear and age and so forth. Those things are on retail. Still struggling quite a bit. As you look at construction, a lot of the DIY materials are doing pretty good. And, home building is pretty good. And a lot of the non residential commercial buildings and so forth. I think these are really tough to project and I think there's probably, I mean, as you can well imagine, if you're you're in the process of building an office building right now, you're probably putting the brakes on that. And you're probably wondering if you really want to be building office capacity. So in certain areas of construction, you're seeing, I think, much slower growth than you would in home construction. Understood. Thank you, Peter. And your comments about benzene, being a benefit in the 3rd quarter and fading in the fourth quarter. Is this conservative? Is it are you projecting kind of benzene prices to Prazing? What was kind of implied by by that comment? Could there be perhaps upside to to that outlook? Well, no, I wouldn't say that there's upside that outlook. I think where we benefited when we looked at benzene in the first quarter, we were looking at when you look at it on a quarterly basis, you'll see that there was a movement of around a dollar, a dollar and change. When you look at it on a monthly basis, there was some really severe volatility, especially when you look at it on a monthly basis by region, there was real severe volatility. And we learned in the 2000 and 8 and 9 recession, when we were stuck frankly with too much benzene, at the beginning of some, when the alarm bells started to sound, when the alarm bells sounded here in early part of a latter part of first quarter, we sold off our benzene inventories to see that the price is going to be falling. I think that we probably did a better job buying in the early part of the second quarter than we normally would have done. And I think that we have an extraordinary opportunity during about a 30, 40 day period when benzene prices, on a spot basis were significantly lower than in the first quarter and are significantly lower than today. So, that's it as we explained on our last call, that inexpensive benzene that we purchased in the 2nd quarter would flow through our economics in the 3rd quarter. Now as we look at benzene prices, as they made it through most of the quarter now going to the 3rd quarter, those prices are more right around a a $1.50 to $2 per gallon. I think that's where they'll be probably for the next quarter or so. And I'm not sure that we're going to have any any more benefit than what the market would be calibrating for, if you will. So I would say that $20,000,000 is really more of a one time benefit. Our next question comes from the line of Mike Cason with Wells Fargo. Glad to glad you all sound healthy. In terms of the sequential improvement in polyurethanes EBITDA to $100,000,000 from 30 ish in 2Q. Is that all volume and do component MDI and Polymerx System margins stay depressed sequentially in the third quarter? Yes, I think that it's largely as we've said, I think it's a largely continuation of June going through third quarter. I think that you might see, some component, price improvement in Europe where we're out trying to push for some price improvements, but you might also see some erosion elsewhere globally. But no, as we look at that $100,000,000, we're not expecting to see a big price improvement during the quarter. And it should something happen I would just remind you, typically, if we were to successfully announce an August price increase, it wouldn't really be falling to the bottom line until the third quarter anyways. Understood. And then maybe Excuse me. 4th quarter. Yeah. 4th quarter. Right. Could you maybe just give us your perspective of where profitability for polyurethanes could get to once volumes sort of return and you've added a lot of businesses. It's a different business from 5 years ago. So, what's the best way to think about and rebuilding some of the earnings power for that segment? Hopefully in a post COVID environment? Well, I think that as we look at that business, I'd like to think that this is a mid teens sort of an EBITDA type of a business. And when we start getting into exactly what does that mean on a a dollars basis. I think a lot of that probably will depend on where your EBITDA and sales and so forth are. But I'd like to think that, you know, as we go back looking at our, you know, 200 plus, you know, $1,000,000 sort of of quarters, and adding in the benefits coming from, the building solutions and so forth. I'd like to think that this should be a the $225,000,000, $250,000,000 a short of a run rate business, during normal times, but I would just remind you that Just seasonally. I mean, we talk about normal times. That's still going to be a fluid number. Great. Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. You may proceed with your question. Good morning. Peter, I appreciate the details that you provided on slide 4 with regards to several of the splits in the polyurethanes business. I'm curious, can you speak of the forward, looking outlook for the insulation growth in particular, and sort of compare and contrast what you expect there in residential versus some of the challenges you mentioned in the non res on the office side? Yes, I think that once we kind of see a greater return to normalization, We expect about a 7% growth rate, taking place in insulation, on average. And that, half of that typically GDP driven and half of that's kind of a replacement of other products. And so I think this is about what we've seen in the past and we would expect this to be around those levels. Okay. And then, for Sean, I want to ask you about, I guess, capital deployments of the cash on the balance sheet at June 30th. Was $1,250,000,000, I guess pro form a for, the upcoming tax payment is closer to 9 100 But can you just talk about, sort of balancing the liquidity, versus balance sheet efficiency moving forward and how you would expect that to evolve? Yes, Kevin, thanks. Look, you pointed out the obvious one, that's the cash taxes that will go out the door the second half of the year. We also have coming due in early next year, and we have not taken it out now because it's not callable. We have about $500,000,000 of debt coming due and it's callable in January. So, that's a slug cash that we'll probably use to reduce the gross debt that we have. And then we'll continue to be prudent in terms of how we evaluate in continue to look at the opportunities for alternative investment options as well as some points when markets bring back more certainty returning to share repurchases and the like. So it will be an ongoing exercise that we look to evaluate the use of those cash between M and A and other avenues available. Our next question comes from the line of Jeff Secaucus with JP Morgan. Can you talk about operating rates in the global polyurethane market? And Do you think that some of your competitors, I guess, one law in particular has restrained production? And maybe those production rates lift up. How do you see the balance between profitability and production by the different Urethane producers? Yes, let me just comment as we think about capacity in the 2nd quarter, I think that as you look at MDI capacity as far as we can see, kind of what's published data out there, Europe's running at about 60% capacity. America is probably in about 70% and Asia is probably about 70%. So globally seeing about a 66%. As we look at at the Huntsman numbers in July. So again, these are just our numbers and they're just for the month of July. Kind of give you some ideas to kind of I'm not sure we're too dissimilar from the overall industry perhaps with the exception of Asia. We see our European rates in July going at about 65%. The Americas going at about 75%. And Asia is for us about 95%. We're moving as much as we can right now, in China. As far as what Wawa and others, producers are doing, all I know really probably what you know is what they're saying on their calls and that is, I think they're probably doing the same thing we are, which is matching production with demand. So I, but I just frankly don't know what plans they would have or what plans they have at the present time. Our next question comes from the line of P. De Juvekar with City. You may proceed with your question. Yes. Hi. Good morning. Peter, I mean, I think you bought CVC thermostats in second quarter. And I think you guys paid roughly 2.6 times sales. So what are the normalized EBITDA margins at CVC? And how did EBITDA hold up in 2Q? Well, as we look at the overall margins, it's around 30%. And that's where we would expect the business to continue to operate, if not better, once we're done with synergies. I would remind you, as we said in our comments, that CVC is largely tracking the rest of our advanced materials business. And, they're down on their sales approximately 25 to 30%. And so as we look at the overall business, we kind of would be taking that sort of a macro view on the business as we proceed throughout the 2021. Thank you. And then you compared recoveries a bit in U. S. And Europe. But if you were to compare recoveries between like construction, automotive, and aerospace, Can you just talk about that? It seems like aerospace is clearly lagging. Do you think it's possible to have a recovery in aerospace in 2021, or is that more like 2022? No, I think that, that, I don't think you'll see a recovery in 2021. Again, that's just my opinion, on the slide that we gave you on, there's, I think it's slide 6. There's a bottom left hand graph there that kind of shows the the total planes that are in service, the total planes that are in storage. And then the total that are on order. And one of the things with the aerospace business is you see it in 9 11 and you see during the economic recession. So one was obviously an economy driven by terror and war. The other one was an economy driven by well bad economics. And this one's an economy driven by a health crisis. You see that there's a 3 to 4 year recovery. And I would certainly hope that that there would be a sooner recovery than 3 to 4 years here. But as I look in the past to try to figure out the future. I'm not terribly optimistic. Especially when you look at the amount of planes that are in storage, and the amount of number of planes in total service. What we've seen in the aerospace market is just it's unprecedented, what we're seeing right now. You cannot go back in time, in the last 50, 60, 70 years and say, well, this is what happens then. My biggest concern is, as of just yesterday, with Boeing building at an even reduced rate of output that the airlines aren't even taking the planes once the planes are ready to be taken. And they talked in the front page story yesterday of planes being stored off in Victorville and around the country waiting for people to come pick up planes that they've that were ordered and already built. So again, I don't want to be overly pessimistic on aerospace. It makes up mid teens of our entire business here. And there's going to be a core, and this is going to be a longer term, it's going to and it's going to be a great business for us. But I think that of all of our, areas of concern within the business, I think that that's probably the one where I have the most pessimism. And, and I think about footwear, I think about apparel, I think about even oilfield services, that are, I think, are kind of some of those longer recovering sort of items I think once retail, retail sales start to recover, I think you're going to see apparel and footwear not only come back, but it may actually come back with a vengeance sometime later this year, early next year. I don't think it's going to be next month, but I think you're going to start seeing as you start seeing retail, stores and so forth reopen. So yeah, my biggest concern would be around aerospace at this time. And I'm sorry, I forgot the other part of your question. No, we're just about, completing construction or an OEM. Yeah. And I think, I think, OEMs in construction and, essentially, we're talking about OEMs into the automotive markets and so forth. I think that you'll see a consistent recovery. I don't think it's necessarily going to be V shaped, but I think you'll see a fits and starts, but a consistent recovery over time in both of those areas with interest rates where they are and people's aversion to getting on trains ways, buses and so forth might actually see automobiles doing quite well here in the next couple of quarters. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. You may proceed with your question. Hey, good morning. Thanks for taking my question. Peter, I thought it was pretty interesting. Your polyurethanes volumes as well as EBITDA margins, how about better than your peers in Q2? What do you attribute that to? Is that just a function of your your more integrated business model and focus on downstream applications? Well, I'd like to think that it's, due to the competency of the senior management team of that division and Tony Hankins, but, that's all right, Tony. I can't. I think that, look, I haven't tracked our competition, probably as well as I should. I'd like to think that more and more over our last couple of quarters, we've kind of pointed out the fact that we compete more and more with downstream applications. And that this transformation of moving downstream is not going to happen overnight or even over a quarter or even over a year, but rather gradually. And, I think that as we look at our ability to take, 120,000,000 during one of the worst recessions, economic calamities we've ever seen and to be able to move that downstream When we think about our total volume at £3,000,000,000 of MDI, we're already moving kind of 2 thirds of that downstream right now. So call it £2 plus 1,000,000,000 moves downstream, which leaves us with kind of £1,000,000,000 of what I would consider to be the polymeric commodity grade materials. And as we keep shifting away at that and trying to add value to that polymeric, that's not say that all downstream is good and it's not say that all polymeric we want to get out of. There's some great downstream polymeric businesses that we want to stay in, but by and large, we need to stay focused on adding value to the pounds we produce. And I think that I think it would be a real shame if we added if our strategy was, let's see how many pounds we can produce. And every year, we've got to add 5%, 10% more to capacity tonnage, I think we have a I think Huntsman still has a long, long ways to go in adding margin on a per ton basis. That's why in the Americas where we have our project Patriot where we're not adding more tons to America, but we're adding more downstream capability, more downstream tons. So I think very clearly over 2021, 2022, our objective is not necessarily going to be how we sell more pounds, but how we sell better pounds. And how we upgrade those pounds. And we'll incrementally expand our capacity as we can. And as we have opportunities to enter into new MDI capacities, don't type a lot of our cash. We'll look at those opportunities. I don't want to say we're versed to adding more pounds, but I think our focus needs to be on how do we add greater margin, greater consistently see greater reliability to the £3,000,000,000 that we already consistently to 15% to 20% EBITDA market or EBITDA margin in the coming years. That will be a that will be a unique global franchise. They're not just sitting here saying that we produce more pounds, but rather than most profitable pounds. Sorry. Long winded down. Oh, no, it's great. Could you also touch on expectations for new global MDI capacity Looks like Covestro has pushed back some projects. And IHS is now showing some Wawa projects also pushed back. Are you expecting any major MDI capacity come online from now until the end of 2021? No. I'd just be shocked if somebody was trying to add tonnage in today sort of market conditions. I think it'd just be a colossal waste of shareholder money, but that's just my opinion. Great. Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global You may proceed with your question. Question on Slide 12, you know, very helpful getting those sort of charts about, how you guys see year over year volume recovery, I mean, you know, maybe I'm nitpicking a bit, but you know, as you look at July trends, they seem to be leveling off. And conscious of the fact that you said that probably this is a W shape recovery and things may change week to week sort of a thing. But my question is more about as you guys have provided us a Q3 forecast. In that forecast, are you sort of assuming a leveling of these sort of year over year volume trends, similar to what you showed us in those charts for the month of July. Well, I think it's on an excellent question. I'd add slide 12 is I think one of the best slides that that Ivan had put together here. I as I look at that, Simon, I think it's just going to be a really mixed back. I think there are going to be some applications like aerospace and, and, that are going to remain sluggish. Things like, style, you'll see a gradual recovery and things like, the building, services solutions that you'll see an improvement But by and large, again, when we look at that $100,000,000 in the 3rd quarter, we're assuming that 3rd quarter is going to see something of a plateau off of the end of the second quarter. And I think there'll be some gradual growth that will be taking place there. In certain applications that will be offset in other areas. I think the growth will outweigh the pluses will certainly outweigh the negatives, but I, we're not here saying that you're going to see this big V shape recovery in the third quarter and we're going to go up to the roof. I think it's just going to be a a grind forward and upward. And, we'll take two steps forward and one backward, and it'll just depend on where we are in the portfolio. Understood. Understood. Very helpful. And as a follow-up, sticking to the whole volume sort of theme, one of the earlier questions was around, the volumes you guys saw in polyurethanes MDI down 15% or so. And if I were to take a look at some of your Western competitors, I think that number was closer to 25%. And I know you talked about being further downstream, relative to your competitors and the like, but is it also fair to assume your Asia exposure? Just because obviously you talked about operating rates in Asia being far stronger than they were in, call it, Europe and North America. So, again, I'm just trying to get a measure of that 15% to 25% delta. I mean, how much of it came from differentiation, how much of it came from your geographic footprint? I think it's a good combination of both And again, I look to our competitors with a great deal of admiration and respect. I no means I'm pointing out differences here. I'm not pointing out being better or worse or an anything else. But I think as we look at our Chinese, centric Asian footprint, One of the things that we've tried to do with that Asian business is to focus on, on domestic Chinese consumption of MDI. That's harder than market. You've got to have, Chinese customer service. You've got to have Chinese tech support, R and D, sales, marketing, you have to build a real business in China. And I think that over the years, we've been successful in doing that. And I think that right now, that's benefiting us. And you remember in the fourth quarter last year, not everybody was so excited about our Chinese exposure, but right now, I think that it's quite good. I think that, also that our HBS business, our Building Solutions business, is, as we look at that business going forward, I think that we have a lot of opportunities there, not just to manage cost and synergies and so forth, but to take more pounds of our polymeric, and pull that through. I think that the focus of that business is obviously going to be the North American growth opportunities that we have. That's the center. It's the foundation business. But I'm really excited that in the first quarter that we moved that, those that tonnage overseas into Asia and Europe, We saw a positive EBITDA, albeit it was quite small, but, later this year, we will be opening the polyester polyole facility in Taiwan, and will facilitate further installation growth. And so, throughout Greater Asia and particularly China. So, I think it really is a combination of construction down stream and, in Asia. And so, I mean, as we look in the 2nd quarter, China was up 14% from a year ago. And greater Asia was down about the same amount. And so as you look at that, so Asia all in all was up about 8% which kind of So, yeah, I think having that China centric, profile and position going all the way back to the days when when Tony Hankins was, I think, the loan polyurethane employee in China at one point, of really building that out over the last 30 years now. Very helpful, Peter. And as Frank's looking up the history of the whiskey rebellion, I quickly looked it up as well. And I guess it lasted 3 years. So hopefully this downtick doesn't pass as long. Yeah, I think that, yeah, I think that we'll resolve this much quicker than my corporate that we've all moved out in that way. She was saying it as well. So Thanks. Thanks, John. Look forward to seeing you, indeed. Operator, we're at the top of the hour. Why don't we take one more question? And, and we'll wrap it up. Our next question comes from the line of John Roberts with UBS. $62,000,000 negative variance in the variable margin. Is there a way to roughly parse that on how much was the benzene chain margins versus the propylene chain margins versus the ethylene chain margins or the, again, the polyurethane segment versus advanced materials versus the performance products? Yes. Well, let me, let me probably not to go into the level of detail you're asking for there, John. Clearly, as alluded to in my script, the lion's share of that entire margin variance does come from polyurethanes. And it does come from that polymeric end of the equation. That kind of one third portion of the business that we sell that has much more, less resilience in terms of pricing than the downstream. Most of that is coming from the Polymeric end. And there's very, very little effect from the remaining businesses. Margins held up well. The downstream price held up well. And so that's probably the best color I can give you at this stage on that piece. Ladies and gentlemen, we have reached the end of the question and answer session. As well as the end of this conference call. You may disconnect your lines at this time. Thank you for your participation and have a great day.