Earnings Call: Q1 2019

Apr 30, 2019

Greetings. Welcome to Huntsman Corporation's 1st Quarter 2019 Earnings Call. Call. Please note that this conference is being recorded. I would now like to turn the conference over to your host, Ivan Markusea, Vice President of Investor Relations. You may begin. Thank you, Brock, and good morning, everyone. I am Ivan Marcuse, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's first quarter 2019 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO and Sean Douglas, Executive Vice President and CFO. This morning, before the market opened, we released our earnings for the 1st quarter 2019 via press release and posted 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. Also, 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 adjusted net income or loss in free cash flow. You can find reconciliations in the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website at huntsman.com. I'll now turn the call over to Peter Huntsman, our Chairman, President and CEO. Thank you very much, Ivan. Good morning, everyone. Thank you for joining us. Let's turn to Slide number 3. Adjusted EBITDA for our polyurethanes division for the fourth quarter was $140,000,000 versus $261,000,000 of a year ago. Our MDI Urethanes business, which includes our MDI polyols, propylene oxide and formulated systems businesses, recorded adjusted EBITDA of $149,000,000. This compares with $245,000,000 of a year ago $175,000,000 for the previous quarter. As a reminder, and as we called out throughout all last year, in first quarter of 2018, we were still experiencing exceptionally high margins in the component end of our MDI portfolio. These spike margins, including above normal operating rate conditions in the prior year period accounted for approximately $70,000,000 to $75,000,000 we experienced across all of our core regions we grew our overall MDI volumes by 6%. Our downstream differentiated strategy is performing as we've intended, as we saw continued stable margins in the predominant differentiated end of our portfolio. Expanded operations and regional diversification. Let's turn to Slide number 4. In the first quarter, our total differentiated systems volumes increased 2% compared to last year and our overall differentiated margins remained fairly stable. Our global component MDI grew 15 percent year over year primarily due to our new capacity addition in China. On our earnings call, we indicated difficulty in visibility given the softer markets and destocking conditions that remained in the few months quarter 2019 earnings were expected in the month of March. As both expected and communicated, we saw results improve meaning as represented a significantly larger percentage as we are seeing and the rest of the year as restocking is replaced with renewed growth. Let me point out, but for our China facility where new capacity has been added, Looking at polyurethanes regionally, our Americas volumes increased 6%. Our 2018 acquisition of Demilec accounts for this increase in volumes. The integration of our DemoC acquisition is fairly on track and we are now in the process of adding this technology into international markets to accelerate the growth of this business over the coming years. Positive markets in the Americas include insulation due to Demilec, elastomers and the composite wood board market. This was partially offset by our adhesives and coatings markets. We have seen U. S. Automotive market slightly down in the construction market started slower than we initially expected due in part to adverse weather. As we announced last quarter, we are investing in a splitter at our Geismar, Louisiana facility, which is expected to be completed in early 2021. This is fundamental to our North American downstream strategy. Does not increase our MDI capacity, but rather provides us with more variance and the opportunity to further differentiate Turning to the Asian region of polyurethanes, the startup of our China expansion has fueled our growth in Asia. This region continues to benefit from large scale infrastructure projects and application. The adhesives, coatings and elastomers and footwear markets in this region were also contributors to our growth as we continue to gradually shift Additionally, our automotive market was roughly flat with the prior year despite a significant decline in the overall market given our ongoing downstream penetration. We continue to benefit from market share gains and product substitutions in the automotive market. We believe that customer destocking in the region has ended. We are seeing inventory restocking as customer visibility and confidence improves. Component MDI pricing improved through the quarter in the Asian region. Now turning to Europe, our downstream margins in Europe were stable. However, our volumes were negatively impacted by weak demand primarily in our construction and adhesives business, as well as lower volumes in automotive. The European region has been slower to improve than we had expected, a tougher macroeconomic environment, combined with geopolitical issues such as Brexit have weighed on customer behavior. European Automotive has been impacted by regulatory changes impacting production schedules as well as lower demand. However, we are seeing some signs of improving trends starting to show up in markets such as insulation. It should also be noted that we tend to see component MDI pricing in Europe typically lag Asia pricing by about 1 to 2 months. While we remain cautious on the European region, we are seeing some glimmers in certain construction related markets and elastomers that could lead to improved demand in the region as the year progresses. Let's turn to Slide 5. As indicated in these four charts, the margins in our core base differentiated business continues to remain stable. The graph lines reflect the margins experienced globally and by region within affected by the short term volatility of polymeric MDI margins. Within our polyurethanes division, we remain focused on what we can control and executing on our downstream strategy. We've not seen a material change in the long term fundamentals of the MDI market, and we continue to see industry growth of 5% to 6% per annum. We will continue to invest in our more stable and faster growing downstream businesses both internally and through bolt on acquisitions. In addition to increasing our splitting capacity in the Americas, we continue stream will ebb and flow we expect the industry to remain urethanes business to be clearly above the first quarter due to seasonality and modestly improving MDI fundamentals. Our MDI Urethanes business is expected to be well in excess of 20% stronger in the 2nd quarter when compared to the 1st quarter. Our MTBE business reported an EBITDA loss of $9,000,000 in the first quarter. We expect MTBE to be slightly profitable in the second quarter due to improved C factors and seasonality. Let's turn to Slide number 6. The Performance Products segment reported EBITDA of $80,000,000. Total volumes were 9% lower versus the prior quarter of 2018 due to Hurricane Harvey. The largest decrease in volumes occurred in our upstream intermediates business, as new petrochemical capacity started up. Our ag chemical sector was also soft due to adverse weather patterns, which reduced volumes in surfactants and certain of our amines. We expect the ag chemical segment to recover throughout the year. However, we did see growth in our downstream targeted markets of gas treating, oil field services, and urethane additives. Our overall downstream margins were up year over year, offset by margins decline in our intermediate businesses. Our strategy to push more products. Malay and hydride remained stable in our North American and European markets. We believe that the underlying fundamental of our differentiated business will continue to improve. This improvement will be somewhat masked by lower results in intermediate margins when compared to the prior year. Let's turn to Slide number 7. Our Advanced Materials business reported adjusted EBITDA of $53,000,000, a decrease to last year's space markets helped to offset lower sales in other markets such as power, automotive, and construction which were driven by weak macroeconomic fundamentals. EBITDA in the quarter was impacted by higher raw material costs and the form for both organic and inorganic growth. Higher raw material costs and currency was all also a $4,000,000 headwind in the quarter when compared to last year. We believe that the destocking that we experienced two quarters is essentially complete, we are now seeing a stable to modestly improving level of demand. For the second quarter, we expect results to be somewhere between last year's record second quarter of $61,000,000 and our first quarter results. Let's turn to Slide number 8. Our textile effects division reported EBITDA of $22,000,000, which is $4,000,000 down from the prior year. This is the first quarter out of the last fourteen that EBITDA has declined versus the prior year. This decline was driven by 14 of many across many of the Asian markets causing, causing softer customer demand and significant destocking. Also impacting volumes has been the knock on effect in China of environmental regulations resulting in mill shutdowns. Additionally, a recent fatal explosion in China has resulted in many chemical shutdowns having a temporary effect on raw material prices. While volumes were down 14%, net sales were down only 3% because of proactive pricing initiatives. These price increases have significantly helped to offset the higher raw material costs and currency headwinds during the quarter. It is important to note that while total volumes were down mid teens for the segment, our specialty volumes were down only 3% for the quarter's customers continue to move towards more sustainable and environmentally friendly solutions that we offer and can supply on a global basis. We believe the long term fundamentals for the business We are seeing improved order patterns in the early part of this quarter, which gives us confidence of a seasonally stronger quarter. We expect this year's 2nd quarter adjusted EBITDA to be near last year's second quarter adjusted EBITDA, which turn a few minutes over to Sean Douglas, our Chief Financial Officer. Sean? Thank you, Peter. Turning now to Slide 9. 1st quarter adjusted EBITDA declined year over year by $148,000,000. Our polyurethanes division accounts over 80% or $121,000,000 of this decline. Within the polyurethanes adjusted EBITDA, approximately $70,000,000 of the decline is due to the loss of spike and tight margins within polymeric MDI, and $25,000,000 from MTBE, largely due to a lower seat factor than a year ago. In addition, our polyurethanes provision experienced additional negative variance due to FX. As Peter commented, business by business, our overall margins and volumes were moderately lower year over year. We were unfavorably impacted by $22,000,000 by the weakness costs were up a bit largely because of new business operations in China and our bolt on acquisition in our polyurethanes division. Turning to Slide 10. Free cash flow for the first quarter 2019 was a use of $101,000,000. Notwithstanding this 1st quarter usage of free cash flow, we confirm our target free cash flow conversion of near 40% for the full year 2019. While the first quarter is typically a seasonally weaker quarter for free cash flow because of inventory build, This year, we ended the quarter with a higher than targeted networking capital. Our days inventory was higher than we had expected by over 5 days. We believe the net negative temporary impact to working capital was over $100,000,000 during this quarter. Our performance products and textile effects divisions were the most impacted by higher than targeted inventory levels. Plans are well in place within divisions to quickly improve this and we expect to revert back to near target metrics over the next few quarters. As we look into 2019 assuming the current raw material environment does not change materially, we would expect the net total primary working capital change to be more favorable this year than in 2018, as we should benefit from overall lower raw material prices. For the full year 2019, we expect to spend around $380,000,000 in capital expenditures, including the construction of our new MDI splitter at Geismar, Louisiana the total cost of which is estimated to be around $125,000,000 and which is expected to be in operation by early 2021. For the full year 2019, we would expect cash interest and cash pensions to be similar to last year. For similar to the last rate relative to adjusted EBITDA cash tax rate of approximately a few percentage points lower than For the first quarter 2019, our We expect that our We have adjusted this We ended the quarter with over and a net debt leverage of and issued our 1st investment grade bond offering. We refinanced our 2020 bonds by issuing $750,000,000 extended to April 2022, our U. S. And European accounts receivable securitization facilities with the combined commitment of over $350,000,000. These facilities permit us to borrow at lower rates. Our debt maturity horizon is in good shape. During the first quarter, we repurchased roughly 1,500,000 shares of our stock for approximately $34,000,000. At the end of March, we We expect to continue Venator, which represents approximately 52,000,000 shares of Venator. In conclusion, Our investment grade balance sheet remains strong and we should see significant improvements in free cash flow in the remaining quarters of this year. Peter, back to grade rating from both Moody and Fitch this past quarter. We remain committed to maintaining this investment grade balance sheet, Our net leverage ratio ticked up a bit in the first quarter due to a softer global economic backdrop impacting EBITDA. We continue our rigorous focus on generating free cash flow and expect that 2019 full year will be near 40% of EBITDA. Our financial strength will allow us to invest organically in high return internal projects as well as bolt on acquisitions to expand our downstream portfolio. To share repurchase and maintaining a competitive dividend as a high priority. As with every company, It is not what is not in our control are global economic conditions as well as major weather or other grow events, which can impact our underlying demand for our products. So far this year, overall, our Asian business is slightly ahead of our initial sentiment with our customers in this region has improved as compared to the end of last year. Our overall business in the Americas is slightly off our initial expectations due to a few specific conditions, including adverse weather that impacted our construction and related markets as well as lower overall automotive demand. Although economists have adjusted growth modestly downward, the fundamentals remain intact and we expect the Americas will get back to plan as the year progresses. Like others, We are seeing softness throughout Europe. As a result of a few exceptions, with the result of a few exceptions, our European businesses are generally performing below our initial expectations. We have experienced headwinds in markets such as construction, automotive, and several other areas that have more than offset the positive results in growth markets such as aerospace. While we are seeing some initial indications that our business in this region may be starting to improve, we remain cautious We want to see signs of this as more of a more than a restocking exercise. Putting it all together, If Europe does improve as the Americas returns to plan, our full year EBITDA will be close to the lower end of our initial EBITDA guidance of down 5% to 7% from 2018. However, if the economic conditions within those regions stays at current levels, our current year EBITDA may be down 10% or so roughly where consensus today is estimated. Either way, we are focused on executing our strategy on what we can control. This year, 2019 is projected to be our 2nd best year on record. In conclusion, we are pleased with the resiliency of our core downstream portfolio While we remain cautious of certain regions of the world, notably in Europe, we see momentum returning to Asia, especially in China. Our balance sheet is strong. Our dividend yield is attractive, and we continue our balanced approach to capital allocation, including share repurchases. We remain optimistic about our future and believe that we are in position we're positioned well to grow our downstream businesses and deliver substantial shareholder value over the coming years. With that, operator, we've concluded our report and we'll open the time up for any questions. Thank you, for questions. First question today comes from Kevin McCarthy of Vertical Research Partners. Please go ahead. Yes. Good morning. Peter, I just wanted to understand the trend in your polyurethanes EBITDA a little bit better. I think in your prepared remarks, you called out the $70,000,000 to $75,000,000 from the prior spike and tight market conditions that have been unwound. I heard another $25,000,000 as an MTBE variance. So if we adjust for those two things, it looks like the balance of your segment was down somewhere in the low 20s, 21000000 to 26000000 Should we attribute that to what is going on in systems as well as PO and polyols, any color on those other moving parts would be helpful. Yes, let's also, Kevin, first of all, thanks for the question. I hope you're doing well. Let's also remember there was a $10,000,000 FX, as part of that number as well as part of that remaining delta that you made reference to. And, look, you know, when we talk about the loss of spike margins, as we pointed out in our previous calls, We also would say in the chart that you look at, there's a color that represents our spike margins, color that represents what I consider to be tight market conditions. That would be when the industry is operating at around 90 ish percent capacity utilization or better. And then what I would consider to be our core business as well. So, I think that as you look at the compression that's taken place, I believe that our core business our downstream business, our core MDI business, has remained, has remained intact. And what we've seen is the loss of the spike margins, which we we, I would say we fully saw that end in the fourth quarter. And, and we've seen what I would what I would call that tight market conditions. We saw that throughout 4th and certainly, throughout the first quarter as well. Okay. And then as a clarification on slide 5, what is in the blue line on those 4 charts. It's labeled as all other margins. And I'm just kind of curious as to how you're disaggregating the segment between the red and the blue there? Well, I would say that, the other margins that we have in there really are everything that is related to, to locked in formula pricing all the way down to our downstream businesses. And you do get into something a little bit of a gray zone there, right? I mean, not every ounce of, or every kilo of MDI that you're selling is going to be, is going to be in 1 or the other. But I think that when we look at the stable end of the business, it certainly is our downstream end of the business and it's the end of the business where we also have the ability to put through raw materials and take that volatility out of the business. Again, that's really where we want to make sure that we're focusing on that blue line, which makes up the majority of our business. It's stability. It's growth. And, in taking some of the certainty out of the markets. The next question comes from Robert Koort of Goldman Sachs. Please go ahead. A couple of quick ones, if I could. In Advanced Materials, you guys cited raw material pressure. And I guess if I look through the epoxy chain, things like benzene lean phenol are all down year on year. So was this just selling inventory that had been produced back in the fall or is there some other raw materials or some other reasons you might be still seeing raw material pressure? Mostly, it's all of our raw materials in China. Really across the board. I'd say it's a regional effect that we're seeing on the business and also BPA, in the quarter is up over, where we were in previous quarters. And, as you know, we've got a lot of contractual business there. Sometimes our raw materials will take us a quarter, so to drag through those raw material increases. But for the most part, that, that headwind is in China. And, and I would expect in the second quarter that headwind ought to be flat. Just again, where I'm looking at the business today, barring any explosions or government closures or anything. We ought to be pretty pretty safe in the second quarter. I think as far as raw material volatility. And then if I could follow-up, you mentioned the weak ag season Is there at some point a risk of missing sales there? And then I thought I heard you say your auto sales were flat. Can you give us a little more regional color on that? That seems pretty remarkable in light of build rates. Yes, when we look comparison to the prior year, our our Asian business, we see. And again, most all of this is MDI. There's some other businesses in there. In MDI, we're seeing flat in Asia. And I would say in our Advanced Materials business, which is really the only other business that has a high degree of automotive, well, I wouldn't say a high degree, but a degree of automotive exposure. That was down, low to mid single digits in Asia. Americas was largely flat down 1% over the prior year in polyurethanes. And Europe was down about 5% or 6%. And so we're overall automotive was down 3% globally, but virtually all of that was due in Europe. Yeah, I think that we're seeing a lot of displacement there of other products. And we're seeing, even within the polyurethane segment, shipped over from TDI to MDI in the savings and so forth. So Automotive continues to be a good market for us. And as I look at it overall, it's something that we're going to continue to focus on. And is the risk of missing ag sales? When does that mean? Yes, I would say that I'd like to think that that all comes back later in the year, but I don't think that it will. I think that as I look at our Performance Products business, I think that we looked at that And again, it's early in the year and I hesitate to adjust things here as I look at it throughout the year. I think earlier in the year, that we gave that, our 2019 numbers would be slightly better than they were in 2018 in our performance products. I think because of Ag and and maybe a little bit of that intermediates end of the business olefins and ethylene oxide and so forth, probably going to be slightly down would be my guess. As you look at 2019. Again, if that all comes back in the second half, great, I'd love to be able to correct myself and call that out. But I think that a lot of what we're seeing in ag is probably a lost business. The next question is from Aleksey Yrumov of Nomura Instinet. Please go ahead. Thank you. Good morning, everyone. Peter, how does March typically compare to 2nd quarter average run rate in your polyurethanes business, because you mentioned that you saw improving trends in March. Should we expect those trends to continue into 2nd quarter? Yes, I think that we're continuing to see positive pricing, taking place in Asia. I, it's we've got a lot of, we've got a lot of facilities in Asia, a big chunk of the capacity in Asia, probably in excess of a 1,000,000 tons of capacity that's down over the next couple of months for scheduled TNIs or turnarounds. So they shut the plan down for a month to 3 months. Depending on the maintenance needs of the facility. Those will come up early in third quarter of this year. Latter part of the second quarter this year. And the impact of all of those facilities starting, assuming they all start on schedule roughly within a month or so of each other, I think that'll be the real test as to the strength of pricing and the traction that we're seeing in Asia. But right now in the second quarter, I think that we're seeing we're feeling pretty good momentum. I'd like to think that that will last all year, but, I think we'll know a lot more here early part of the second early part of the 3rd quarter, the end ending part of the 2nd quarter. Got it. Thank you, Peter. And maybe as just a follow-up on slide 4, you showing that March was 47 percent of $149,000,000 of EBITDA in MDI polyurethanes. So it's about $70,000,000 in March. So if we just extend that run rate, that's about $210,000,000 for the second quarter and just sustaining it. What are the offsets? Because it sounds like you're guiding to somewhat lower number in Q2 I'm guessing somewhere around 170,000,000 dollars, $175,000,000 in EBITDA? No, in my remarks, I said that we'd be up about at least 20 sense. So I would say that, that, that, I would think it would be very close to $200,000,000 in the second quarter. As I look pricing now as I look at momentum now, again, that may change in the quarter, but if I look at the pricing, the volume, everything, you're probably looking at $190,000,000 to $200,000,000. And, the pricing momentum continues, that we're seeing, might be close to that $200,000,000. Understood. Thank you. The next question is from Frank Mitsch of Fermium Research. Please go ahead. Good morning folks. How are you doing today? Doing well, Frank. How are you? Very good. Thank you. Very good. If I parse out some of the guidance on the free cash flow, it looks like you're looking at just over $500,000,000 or so in free cash flow after dividends, you're somewhere around $350,000,000 or so dollars. How should we think about where you're going to spend it. Obviously, you talked about share buybacks, but how do we account for the use of that 350 or so? Well, I think that obviously, that's going to be a moving number. If I'm candid with people on the call, I was rather disappointed with our performance in the first quarter on free cash flow. I think we could have done a better job in matching our production with our sales, but That's something within our control and it's something that we'll see fixed in the second quarter. And as we look at our working capital adjustments and so forth, but we look at our overall number throughout the year, I think that that's going to be a chunk of that will be spent on on CapEx on the expansion that we have, taking place in Geismar, Louisiana with our splitting capacity. I'd like to try to move that project forward as much as possible and bring that project online as much as possible. And then we'll look at an allocation of, of, some, some share buybacks We'll look at an allocation of possible bolt on acquisitions. And, we've always got plenty of of internal projects as well that have a very strong return. I'm rather than to spend money on new capacities and so forth unless there's just a crying need for it. And frankly, right now with growth, where it is in Europe, and if there's, if you're looking at 1.5% to 2% GDP growth in North America. I think I'm hoping it'll be better than that. I'm not sure that there's a whole lot of need for new capacities. So it'll be a combination of those things, Frank. Got you. Got you. And speaking of new capacity, I think you indicated that MDI operating rates found that we're in the mid 80s. You expect that trend to be stabilizing just to put a finer point on it, with, your commentary about turnarounds in 2Qs into 3Q. On an effective basis, should we see that number moving up in 2Q and, and, and, you know, can you broadly outline where you think that number is going to be as we progress through the year? Yes, I think that that number will tighten in the second quarter. It'll probably loosen in the third quarter. But fundamentally, I think that, MDI is going to continue to grow at a 5% or 6% growth rate. You're going to see a kind of a 4% to 5% growth rate new capacity coming on. And that's not all going to be, imperfect sit you with each other. You're not going to see growth come exactly as the capacity comes on. But yes, and for quarter rates are typically your, lowest capacity utilization throughout the year as demand picks up in second and third quarter. So you typically run tighter you run tighter markets in the second and third quarter. And therefore, you're putting more strain on your plants and so forth. You typically have more mishaps and what have you in the summer fall of the year. So as I look at Kevin that mid-80s, mid to upper-80s, throughout the year, I think the Americas is going to continue to be tight operating in the upper 90s. Europe's probably going to be somewhere right around 90, high 80s, 90% in Asia is probably going to be around 80%. Very helpful. Thanks Peter. The next question comes from Lawrence Alexander of Jefferies. Please go ahead. Good morning. Could you remind us just how much volume uplift remains from ramping up the Caojing JV over the next few quarters? Yes, Lawrence, I hope you're doing well. We're running that facility today probably between 80% 85% capacity utilization. I'm not sure you're going to see a great deal of volume improvement coming from that. I think our real opportunity, capacity in China. And our focus there isn't really selling more volume. It's uplifting the volume that we to get higher margins. Moving further downstream, we've got, great, polyols joint venture there, and we've got a real opportunity to expand our demo technology in China and, working in our downstream business in China. So if you think about that overall capacity of what's left between now and the end of the year. I think you'll see some incremental growth coming from that, but our focus is mostly going to be improving quality and not necessarily quantity. And what's your current thinking around how U. S. Margins evolve, as the new capacity that's the pipeline comes on stream over the next, go 3, 4 years? Well, I think the Americas continues to be very strong at it. It's, I think if you look around the world right now and as you look at the growth rates of GDP, given the size of our overall economy, we'll probably be adding more we'll be adding more demand into North American markets. And if you look at the amount that is coming on to the market, I think again, it's never going to be, demand will go gradually throughout the year. Capacity when it comes into the market doesn't come in throughout the year. It usually comes in in one big block. And so, it can be messy for a quarter or 2. But by and large, I would see, stable to perhaps gradually improving margins in the Americas. And our focus in the Americas is going to be on improving our, the tonnage that we have. It's not going to be bringing more tons into the market, but rather bring more value on those tons that we have. Thank you. The next question is from Jeff Zekauskas of JPMorgan. Please go ahead. Thanks very much. I think your operating expenses were up 4% in the quarter from $242,000,000 to $251,000,000, but your revenues were down 11. And probably with the weakening of the euro, there was an expense benefit to the operating expense line. Why were operating expense is so high? I think that operating expenses, when you look at the, impacted Demilec, adding in the expenses of running Demilec and the expenses of China, bringing China on year over year. In our first, obviously, those expenses are with us on an annualized basis quarter after quarter. You look at our sales in the, in the first quarter, typically just on a seasonal basis. Sales were sluggish at the beginning of the quarter. I think they had a nice recovery at the back of the quarter. We had a little bit of FX headwind as well in there. And so, I wouldn't be overly concerned about that. Okay. And then in your other non current life abilities, they went from $1,360,000,000 to $1,736,000,000. What accounted for that roughly $370,000,000 increase in non current liabilities, other non current liabilities? Jeff, this is Sean. I'm just going off the top of my head, happy to circle back with you. I think that the change materially there is that it's the new change in accounting for lease accounting. And we brought on balance sheet, all of those operating leases, which everybody is having to do now. Under U. S. Accounting standards. So you're going to find that we increased it by about $490,000,000 in terms of operating leases and we created an an asset that matches that, but it's not that. It's another long term asset. There's a current piece as well. The next question is from John Roberts of UBS. Please go ahead. Mr. Roberts, your line is open. Our next question is from Mike Harrison of Seaport Global Securities. Please go ahead. Hi, good morning. Hey, Mike. Peter, wondering if you can give us a little more color on how you're seeing things play out in do you feel like the recovery there is something that you have confidence in or strong visibility in? Or do you still feel like there's a little bit of a cautious or maybe a sense that a sustainable recovery may require some government stimulus or some kind of a trade resolution order to really stick? Well, I think that I would say that our I'm guardedly optimistic right now But I do believe that for me to be really optimistic about what's having Chime, 2 things need to take place. And I think that you're already seeing both of those things start to take traction, if you will. The first one is the resolution of a trade agreement. I can't express when you look at an economy that for the last 25 years now has seen a very solid single digit growth year over year, when all of a sudden you throw something in there like a trade war and the uncertainty that that brings to the at the consumer level, the brokers, the distributors, the freight forwarders, and so forth. That's a large segment of the Chinese chemical industry. You have a lot more firms and people that are handling each step of that sales process for many chemical companies. And when they don't have confidence in the future. And they don't have confidence in the next quarter. Typically, they're going to be, de inventorying And there's going to be a very negative sentiment. And I think what I've just sensed in my trips there in And those of our senior officers that have spent a considerable amount of time in China, that sentiment is changing and there's a lot of optimism about a trade deal getting done. And I think that when that deal does get done, I think that there will be, I'm not sure there'll be a massive uplift in margin and profitability, but more a sustaining of the higher prices that we're already seeing put into place. The second area is that around, government stimulus packages and a lot of lending that is going to smaller institutions, not the big OEs, but to smaller institutions and the smaller customers that we're seeing are getting the funding and, and are investing and we're seeing a lot of our end use, applications that are going into infrastructure projects like insulation on hot water facilities and so forth that are supplying communities, what have you across China, a lot in the energy 3 producing electricity and so forth. So as we as I think of those 2 things, a trade agreement and the stimulus that's coming from the government, I think both of those the foundation set for both of them, the stimulus is already starting to go into the Chinese economy. And I remain, optimistic. It'll be nice to see both of those, particularly the trade agreement get done here in the coming weeks, if not month or 2. I believe that when that is done, it will provide us with greater certainty, throughout the between now and the rest of the year. All right. Thanks for the color there. And then, just curious on the share repurchase outlook, understanding you want to be opportunistic going forward, but it would seemed like there was a really nice opportunity during the first quarter. Why did we not see more repurchase activity during Q1? And can you maybe give us any better sense on the outlook for share repurchases in the rest of the year? Thank you. Well, I think that, again, we're going to be we're going to continue to look at this very opportunistically. I think the shares that we did purchase in Q1 were at a, at a favorable price. But, my biggest concern is making sure that we have a balance sheet that will get us through the best of times and the worst of times, particularly the worst of times. And I want to make sure that we've got cash on the balance sheet that means we've got to make sure that we're disciplined on our working capital. We keep that balanced and, and Frankly, I'd before I go and spend a lot of money on share repurchase, I want to make sure that we remain in a strong cash generating position, to do so. Again, I think we could have done better in the first quarter in that particular area. And, I just, I want to make every quarter is not going to be the same for us. Thank you. The next question comes from Jim Sheehan of SunTrust Robinson Humphrey. Please go ahead. Thank you. Good morning. Regarding Venator, can you talk about plans for monetizing that asset either in the near term or long term? Sure. When the price gets substantially higher than it is today, we'll make a decision to sell. I don't mean to be glib on that, but obviously, at these levels today, TiO2, in my opinion, as I've said in the past, I think that it pretty much has hit its path the industry seeing consolidation. And, and, and I think it'll gradually see improving fundamentals here. And, and, we will judiciously look at our shares and we'll sell them at a time that makes sense for us. Terrific. And then on the dividend, I think this has been unchanged for the past 5 quarters or so. What is your thinking on when it might be appropriate to raise the dividend? I think that again, we want to make sure that we balance that with with where we are, with our needs as a company, our growth opportunities that are before us, our share buybacks And, as I look at our dividend rate today at around 2.3%, 2.4%. I think versus our peers, we remain very competitive. Thank you. The next question comes from Mike Sison of KeyBanc. Please go ahead. Hey guys. In terms of polyurethanes, heading into the second half of the year, you're going to need some improvement sequentially from 2Q So when you think about the improvement you need to see in the second half, how much of that do you think you can drive in the differentiated businesses and how much help do you need kind of in that operating rate outlook for MDI? Well, I think we needed to have a combination of both of those, right? It's not just all downstream. I think that downstream, I'm not sure we need better margins as much as we need better volumes. And that is going to be a driver. Again, when you look at our downstream business, about 40% of that, 35% of that is in Europe. And so we gave you guidance at the beginning of the year that we thought that polyurethanes would be down about 8% to 12% from last year's, very strong performance. To this year. If we see Europe continue to languish growth and Europe making up as much of the MDI business as it is. We're probably going to be much closer to that 12%, down year over year. So it's not the margin I'd like to say. I've always liked to see better margin, but it's the volume that comes through the GDP growth of Europe. That would be is there's a single thing that I look at on the second half performance. Now, again, Asia is performing better. And I when we were here 3 months ago, on our fourth quarter conference call, I think the biggest concern of everybody was Asia at that time. And as it's as Asia was going to recover, and I think that we I don't try to say it bosefully, but we were seeing signs at that time that Asia was coming around that Asia was starting to pick up What we didn't know is if it was just restocking or if it was actual growth that was coming back. And I think as we look at Asia today, I think it's a combination of restocking. So I think that's coming to an end. And it's real it's genuine growth and tightness in the market. So I feel much better about Asia. U. S. Is pretty much where we thought it would be. Though I'd like to see that pickup in the 2nd half. And the biggest concern I've got right now is Europe. And that's because of volume, not because of loss of margin. Okay. And then just real quick one on your 2020 outlook. You've expressed confidence to some degree in being on plan for that. Any updated thoughts on, your outlook for 2020 or your goals for 2020? No, I think that as we look at that, we've got an opportunity, I think, in China, not to sell out our capacity, but to sell up our capacity and to further move that downstream, into further businesses. I think we have that, that same opportunity in, in Europe and the Americas. As we look at Demilec and being able to grow our spray foam business, our downstream businesses are taking our systems houses, and the best of our technologies on a global basis. I remain very optimistic about, our 2020. Again, barring an economic something that's completely out of our control. I remain optimistic as we look at our 2020 objectives, our performance products I think we're making some real headway there. We'll obviously we'll see some headwinds this year with some of the ag I've mentioned earlier in our intermediate businesses, as we see a lot of new capacity coming on. But I think through 2020, some of that's going to be absorbed. And little of that will come back, but mostly we're going to see in 2020 of an improvement in our surfactants and malaig businesses. And textile effects, and particularly advanced materials as we start to see the product pipeline that we have in place today coming into the market and so forth. I think that we're, we're going to be on track to meet those objectives. Great. Thank you. The next question comes from Neel Kumar of Morgan Stanley. Please go ahead. Hi, good morning. Good morning, Neil. It looks like FX was a $22,000,000 year over year headwind for EBITDA in the 1st quarter. What are you incorporating in your guidance for the full year FX impact and how should we think about that flowing through on a quarterly basis? I think that that's probably, we look at the well, first of all, if I knew where FX is going to be for the entire year, I wouldn't be doing the job I'm doing right now. That's for sure. But as I look at the second quarter, probably the things stay pretty stable, we'll probably see a similar number in the second quarter that we saw in the first quarter. And then I think through 3rd and 4th quarter, that ought to be cut in half in the 3rd quarter and probably half again in the 4th quarter. But Again, by the time you get out that far, I've just got, I've got no idea what monetary policy is going to be in the U. S. And we're a tweet away from massive disruption one way or the other. But right now, as I look at our internal assumptions and planning, kind of a repeat in Q2, cut it in half and in Q3 and cut it in half again in Q4. That's helpful. And then in terms of the new MDI splitter in Geismar, Can you quantify for us what type of impact that should have in terms of the split up your U. S. Revenues between differentiated and commodity? I think that we'll see a business in the U. S. That it looks a lot like our European business. And you'll probably in our European business, you have about, you know, 65% to 75% is differentiated and you'll probably see that 70% to 75% movement. Eventually, that we would hope over a few years after that is up and running, you're probably closer to 80%. And again, I wanted to be absolutely clear here. Not all differentiated business is good or bad and not all of the downstream or the upstream is good and bad. So in the U. S, we have a lot of volume. We have some very strong customer relationship in our OSB and some of our areas that aren't, I would consider to be differentiated, but those are relationships that we really value and we want to keep them going for for many years to Matthew Blair of Tudor, Pickering, Holt And Company. On Slide 3, you show polyurethanes volumes down 9% quarter over quarter. Could you provide any more color on that? Was there an impact flowing through there? Yes. This is Sean speaking. There was. There was just a lot of times there's a little bit of lumpiness in terms of the large MTBE shipments that go out at quarter end. And because of a dock issue and some seasonality in MTBE we had a delay in a shipment that went out at the end of the quarter, which affected volumes. And there's such large volumes that it weighs heavily on the skewing of the overall weighted average. Makes sense. And then Peter, you talked about your expectations of a favorable resolution to the trade war. If that does not happen for whatever reason, what kind of downside would you expect to see on your down 7% to down 10% EBITDA guidance? Well, Matthew, I mean as I just look at this kind of anecdotally, I would say that I kind of think of the world in 3 large quadrants that make up 90 plus percent of our business. The Americas, plural, that's just not the United States. Europe and in China. And if Europe continues to be down through the year, I kind of see us down 10% over 2018. If, if we see another drop of 1 of those other regions, if China were to slow or if the Americas were to slow, accretively, you'd probably see that 10% drop to around 12%. Now, again, that's really anecdotally. It could be a percentage point or 2 on either side of that. But I think that if we kind of think of China, slowing down and kind of going back to where it was. Again, I don't know the severity. When I say back to where it was, I'm not really sure that takes it to what level I have in mind, but I think it could impact our overall, earnings impact by another 2%, 3% or so. Very helpful. Thank you. The next question comes from Arun Viswan of RBC Capital Markets. Please go ahead. Good morning. Thank you. I just have two questions. 1 kind of medium term, one longer term. So first on the near term, medium term, I guess, you know, have you seen this kind of bifurcation behavior in in Asia and Europe and North American pricing and, polyurethanes activity And if you do see a pickup in China, from an automotive standpoint, would that also help your European business? Thanks. Yes, on both accounts. I think that you will see seasonal tightness. Polyure thing does or MDI does not ship easily nor cheaply. And so if regions get tight, you will occasionally see certain regions where you'll see pricing and margins will move up. And it's not ethylene glycol or polyethylene. We just fill up tankers or ship loads of it and ship it out in a week's time. A lot of it requires cryogenic storage and, and, shipping again can be expensive and can cause discoloration depending on the amount of time that takes to ship it. So typically, if you see a spike in a particular region, usually within a month or 2, it either starts to to settle down, if you will, or it starts to spread into the other regions. And, I think in my prepared remarks, I talked about that Europe oftentimes will lag a month or 2. And again, there's no scientific timing behind that, but typically it will lag a couple of months behind what Asia does, assuming that the price increases we've seen in Asia and in polymeric MDI is sustainable. It should. Again, if there's any sort of economic impetus to support it, it should mean higher prices in, potentially in Europe in the second half. Again, that's all condition on a number of different things. So I think that as we see that, it's rather rather see that regional pricing up than, than, than down. There was another part of that question I forgot. No, I was just wondering if, if, you do see continued improvement in Asia that would ultimately help your European business or is your separate? I'd be really shocked if, if, if you didn't see that. Yeah. And you also asked about automotive. And typically, if you see the automotive markets come back to to Asia. I think Europe has shot itself in the foot. Europe is seeing a decrease in automotive demand because the export markets, particularly in Asia, drying up for high end, European cars. And then they've also shot themselves by over regulating, what once was a great industry in Europe. And And, and you look at the downtimes now that it's taking between models and so forth, going from days to weeks, in some cases, now to months. In transitioning that and the uncertainty those regulations will bring on consumers in Europe. I think that there's probably going to be continue to be a great deal of, well, some degree of uncertainty in the European markets, around automotive. So yeah, I, but I think if you see Asia picking up, you're also going to see European exports, pick up on automotive demand. Right, great. Thanks. And then from a longer term perspective, you had noted 6% demand growth and kind of 4% supply growth over the next little while in your last Analyst Day. How do you see supply demand over the next couple of years or so now following some announced on capacity and, the demand picture as well? Thanks. I see it as continuing to be balanced. I don't see anything that has been announced that we haven't taken into our own consideration and the reality of some of those announcements. I think it's going to be. Again, it's not going to be you get 4% growth in capacity and also you see 4% growth in in demand, it never matches that way. So there'll be some lumpiness in it. But by and large, it'll be fairly balanced. Thank you. The next question is from Hassan Ahmed of Alembic Global. Please go ahead. Good morning, Peter. Good morning, Tom. Peter, one of the teams obviously in Q4 was destocking across a variety of product chains. So as I take a look at the MDI side of things, you know, it's spot MDI prices continue to be under pressure through the course of, well, most of 2018, but seemed to have rebounded, in Q1. Now, as I sort of, clearly, no one would want to build inventory in a declining pricing environment, my question to you is, twofold. 1, is, you know, where are inventory levels and is the destocking behind us? And the second question is, if it is behind us, in that 5% MDI year over year demand growth figure, that you cited for 2019, are you baking in an element of restocking as well? Yes, I think that the destocking particularly in Asia. And I think I would feel fairly comfortable saying the U. S. As well is behind us. And, and the restocking, I think is underway. But I and again, I think that by the time we get fully into the second quarter, how much of that is restocking, how much of that is growth? I'm feeling more and more that it is growth oriented rather than just destocking. So I think that as I look at Asia and to a lesser degree, the U. S, you're we're kind of back to those mid single digit sort of growth levels. And we'll see a little bit better than that in Asia because of the destocking. Understood, helpful. And as a follow-up, couple of cross currents on the epoxy side of things, course of the quarter, we saw benzene going up. We saw propylene coming down. How did epoxy margins fare in Q1? And what's your outlook? The balance of the year? I think, again, when we look at epoxy, I kind of struggle with that because it's Not not with our segment, but with us, I think we've gone so far downstream. Traditionally epoxy for us was bulk liquid resin epoxy applications going into wind and sports equipment and so forth. I look at it far more now in aerospace transportation, adhesives, coatings down into those areas. And again, a lot of those have very sticky pricing. So when you see a spike, an unplanned spike in raw materials, as we saw in the fourth quarter, we'll pass those price increases through, but it's going to be over a quarter too. It's not going to be instantaneous, and those contracts will continue to be honored. And, So, we will get the prices up. We will offset the raw material increases, but it's not necessarily going to be on a quarter per quarter basis. Understood. And operator, I think operator, we've gone over our 1 hour. I want to take one more question here. Yes sir. Our last question today will come from P. J. Juvekar of Citi. Please go ahead. Thank you for taking my question. Peter, on Slide 36, you break down your EBITDA between commodity and differentiated products. I guess my question is what assumptions do you make to split EBITDA that way? Are you using cost based transfer price or are you using market based transfer price for that split? We always transfer products on a market related basis, when we look at that. And on an internal basis. We want to make sure that as we make investment decisions that we have, if you transfer everything over to costs, I think that you're probably fooling yourself as far as where you're making your money. And so we've always tried to do it on somewhat of a on a market related basis on pricing. Good. Thank you. And secondly, quickly on MTBE, what kind of seasonal bounce back do you expect in 2Q and 3Q? I think that, again, in the second quarter, we're probably going to be slightly, profitable. And I think in the third quarter, you're probably going to be you're going to be slightly profitable in the third quarter. Again, if crude prices, benzene prices, natural gas prices stay where they are. It's going to be somewhere between breakeven and slightly profitable in the third quarter. Thank you. Thank you. Thanks, P. J. This concludes today's question and answer period. I'll now turn the call over to Ivan CUSA for closing remarks. Thanks, Brock. And if you have any follow-up questions, feel free to reach out to the Investor Relations. Thank you, and we'll see you next quarter. This concludes today's conference and you now may disconnect your lines. Thank you for your participation.