Earnings Call: Q2 2018

Jul 31, 2018

Good morning, ladies and gentlemen, and welcome to the Q2 2018 Huntsman Corporation Earnings Conference Call. My name is Derina, and I'm your even manager. During the presentation, your lines remain on listen only. I would like to advise all parties this conference is being recorded for replay purposes. And with that, I'd like to hand over to Ivan Marcus, Vice President of Investor Relations. Thank you, Dorena, and good morning, everyone. I am Ivan Markouza, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's 2nd quarter 2018 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 second quarter 2018 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. 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, adjusted net income and free cash flow. You can find reconciliations the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. In our earnings release this morning, reported 2nd quarter 2018 revenue of $2,400,000,000, adjusted EBITDA of $415,000,000 and adjusted earnings of $1.01 per share, diluted share. I'll now turn the call over to Hans Peter Huntsman, our Chairman, President and CEO. Thank you very much. Hi, then good morning, everyone. Thank you for taking the time to join us this morning. Let's turn to Slide number 3. Adjusted EBITDA for our Urethanes division for the 2nd quarter was $269,000,000. Our MDI EBITDA of $246,000,000. This compares with $165,000,000 of the year ago and $245,000,000 for the previous quarter. Our MDI Urethanes business delivered 9% volume growth year over year. We grew our differentiated portfolio 13% year over year, Because of our ongoing portfolio shift downstream, we grew our component MDI 2% year over year. Demand remains strong and we continue to operate at a high rate of capacity, selling what we are able to produce. Let's turn to Slide number 4. Fully consistent with our strategy, we continue to see robust growth in our downstream specialty and formulation businesses as we shift more MDI from components to systems. In the second quarter, we saw 13% year over year volume growth in volume within our differentiated systems business. As you know, on April 23, we completed the acquisition of Demilec. A downstream spray foam manufacturer and a high growth market. Excluding Demilec, we grew 10% year over year in our downstream business. Looking at growth regionally in the quarter, Our recent acquisition of Demilec added about deposit wood products, insulation, and adhesive product sectors. With the continued startup of our new Chinese MDI capacity, we are shipping less MDI from the U S to China, helping to feed our growing North American customer base. Demand remains strong for our MDI in this region, driven by construction, housing and continued substitution for other materials. Asia volumes increased 8% versus the prior year. Growth in this region is being helped by strong automotive demand for MDI systems in high growth and large scale infrastructure projects, such as district central heating insulation. The ace and footwear markets in this region also continue to be significant contributors to our growth. Our new China facility continues to progress through the startup phase, and we expect it to be fully operational by the end of the year. We will bring on this new capacity as demand dictates. In the European markets, operating problem at a third party raw material supplier impacted our 2nd quarter production volumes. These outages are fully resolved. We believe that these production outages in the quarter impacted our EBITDA by approximately $20,000,000, Underlying demand fundamentals remain positive in the European region and the market is growing. Specifically in automotive and ACE as well as differentiated insulation systems. We expect to see growth in this region moving forward. Over the past three quarters, we have pointed out what we believe is a short term spike in commodity component MDI prices in Asia and Europe. Believe that the remaining spike in margins to be eliminated by the end of the year. Industry capacity utilization will remain balanced for the foreseeable future. This balance does not anticipate any supply disruptions. Our outlook on global demand growth has not changed as we anticipate future growth at about 6% in the coming years. This demand growth translates roughly 400,000 tons annually, which is the equivalency of a new world scale plant being built every year. Assuming all the debottlenecks and brownfield capacity additions that have been announced to date come on exactly on time and at full capacity. We believe the capacity will be growing at about 5% through 2022. Therefore, industry supply demand dynamics will remain tight for the foreseeable future, as we have good visibility, do not see any new greenfield capacity entering the market for several years to come. Let's turn to Slide number 5. It is important to remember that about 75% of our MDI is in differentiated systems. Margins in our differentiated businesses are fairly stable and behave differently than margins in our component MDI business. Which is more volatile. We've been transparent in calling out we experienced within the China and European regions. While these while there has been expected volatility within with this declining portion of our Europe Fains portfolio, we see margins within our expanding portfolio of variance and differentiated systems being stable and steady. While there are times when we could generate higher earnings, in the short term by selling component MDI, we are focused on what we can control and on long term growth and steady earnings. Our long term strategy to keep moving is delivering the intended consequences of high quality Our business will be impacted by MDI Urethanes business. Our differentiated systems provide value added solutions and technology to our customers. In addition to organic growth and high margin formulations. These acquisitions will give us entry into new markets and an opportunity to leverage our global platform to grow the existing business. We have a proven track record of downstream urethane bolt ons acquisitions that provide significant synergies through MDI pull through and global scale up. Looking forward to the third quarter, we expect our MDI Urethanes business to experience good volume will be modestly down from both the third quarter last year and the recent second quarter of this year because of the declining component fly up that we've already discussed. Lastly, our MTB business improved versus last year and reported EBITDA of $23,000,000. C factors have meaningfully softened in the third quarter. We currently expect MTBE to be modest to be a modest contributor to EBITDA next quarter. Let's turn to Slide number 6. The Performance Products segment reported EBITDA of $94,000,000. This segment remains firmly on track to show substantial growth this year, which is consistent with the outlook we communicated to the market in our more stable and higher margin derivative businesses, which include amines, surfactants and maleic and hydride. These businesses are benefiting from growth in markets such as oilfield, catalysts and construction. So previously disclosed, we recently completed a multi year maintenance turnaround, which impacted EBITDA by about $15,000,000 in the quarter. Was somewhat offset by favorable margins in our upstream ethylene glycol business, which we expect to moderate over the coming quarters. Looking toward the third quarter, we expect the underlying fundamentals for our derivatives business and performance products to remain favorable. As a reminder, Hurricane Harvey impacted this segment in last year's third quarter by roughly $35,000,000. We would expect 3rd quarter EBITDA to be slightly higher in 2018 than the pro form a 2017 results of $98,000,000. Reported EBITDA of $62,000,000, an increase of 10%. The higher EBITDA was driven primarily by growth in our specialty volumes increased businesses, including Aerospace And Industrial Adhesives. We are seeing continued growth in our coatings and construction businesses as well. The consistent growth we are seeing in specialty is being driven by investments made in technology within the last several quarters in order to add effects to our portfolio and offer longer term opportunities to expand into new markets with new and existing customers. Positive, secular trends in regards to light weighting and energy efficiency remain long term drivers of growth for this segment. Growth in the 3rd quarter over the prior year's quarter will be partially offset by higher raw material costs but we are still on pace to deliver full year EBITDA well above the prior year. Let's turn to Slide number 9. Our textile effects division reported EBITDA of $29,000,000, up 21% versus the prior year. Business continues to grow at above market rates driven by specialty and differentiated products, where these volumes were up 7%. This marks our 9th straight quarter of volume improvements. This business is benefiting from the macro trend of increasing environmental and sustainability standards in chemicals and dyes demanded by retailers. Global textile demand remains firm even in light of increasing cotton and synthetic pricing. We do not expect these demand fundamentals to change anytime soon, And this segment should keep experiencing above market growth for the foreseeable future as its global footprint and technology leadership offers statable solutions to its customers. We continue to see steady EBITDA margin growth in spite of significant raw material leases over the third quarter of last year, we expect this year's third quarter to be similar to last year. 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 10. In summary, each of our divisions showed good growth in EBITDA over the prior year period. Including Performance Products after adjusting for the expected $15,000,000 impact from our scheduled multi year turnaround at our Port Natus, Texas site. Our adjusted EBITDA increased by 116000000 dollars or 38%. Price and volumes combined offset increases in direct costs. A stronger euro versus the U. S. Dollar resulted in a translation benefit of approximately 25,000,000 Spike and MDI margins, the favorable variance in MTV and excluding the impact of currency. Adjusted EBITDA increased approximately 16% year over year. Versus the first quarter of 2008, each of our businesses increased in EBITDA, including performance products after adjusting for the planned turnaround impacted our impact already mentioned. Turning to Slide 11. At the end of the quarter, As announced at our May 23rd Investor Day in New York City, on May 21st, we closed on a new 1.2000000000 5 year unsecured revolver, revolving credit facility that replaced our senior secured credit facility. This is an investment grade style credit facility. We remain committed to maintaining an investment grade profile and securing investment grade ratings. We remain focused on generating strong, consistent free cash flow. In the second quarter, we generated $174,000,000 second quarter of 2017, in spite of a prior year approximate $90,000,000 one time benefit from tax refunds. We remain for the second quarter of 2018 were moderately better than 2017. As highlighted would be the case on previous period calls, This year, we have incurred higher cash spend on planned maintenance, largely due to the planned outage at our Performance Products, Port Nature's Texas facility. Now with the first half We are narrowing our target range of expected free cash flow As discussed expect to the second quarter, we had an adjusted effective tax rate of 18%, slightly better than we had expected. We still anticipate tax rate to be between 23 percent 25 percent. As anticipated would be the case during 2018, and as mentioned in prior period calls, within the second quarter, we released certain valuation allowances pertaining to Switzerland and the UK. The total release was approximately $95,000,000 within the quarter resulting in a gain. These net operating loss assets were brought back on balance sheet as a result of an ongoing and updated view of the future profitability of our polyurethane and advanced material businesses in these jurisdictions. This has no net effect on future cash taxes paid, but will honestly impact the long term effective tax rate. The associated impact is included within the long term At our Investor Day, we announced that our Board of Directors have authorized potential share repurchases of up to $1,000,000,000. Through the end of the second quarter, we have repurchased approximately 4,600,000 shares or $138,000,000. This equates to an average price of approximately $29.75. Given the relative value of our stock, we see these purchases as We continue to hold our 53 percent interest in Venator. This has been treated as held for sale in our financial statements. In conclusion, as we via consistent strong free cash flow generation, strong core organic growth, maintaining an investment grade profile and keeping with a balanced capital allocation for consistent long term growth and shareholder return. Our second quarter is fully on pace with these commitments. Peter, back to you. Thanks, Sean. Let's turn to slide number 12. Over the past year, our company has gone through a significant amount of change as we have separated our cyclical pigments and additives business continued our downstream expansion, raised our margins and generated a cash conversion of 40% of EBITDA, allowing us to pay down considerable amount of debt. We are now a company with balance sheet strength and flexibility generating a substantial amount of cash from mostly differentiated and downstream businesses. Our portfolio is now more stable and consistent than what it has been in the past. Slide 12, we show the growth that our existing differentiated businesses have generated over the last several years. This steady growth has been previously masked by the most part for the most part by volatility in our cyclical businesses that have now either been sold, separated, or in the case of MTBE currently are sitting at trough pipe Economics. We greatly appreciated the opportunity to host our Investor Day on May 23 this year. We remain very confident in delivering on the 2020 plans that we shared with you then. We're committed to the significant value creation upside more than $27 per share with the remaining monetization As you can see from Slide 12, our core downstream differentiated business provide a platform for steady core organic growth ahead with urethanes, our specialty, advanced materials and textile effects businesses, seen growing at double GDP. And our performance products at 1.5 times GDP. We will see $11 per share upside for more growth alone. From this core growth alone. As we discussed in detail at our recent Investor Day, we expect that these businesses will continue to show consistent growth going forward, and we remain confident that our EBITDA will exceed $1,600,000,000 by 2020. We are focused on generating cash, which will produce greater value upside of about $5 per share and we will deploy this cash in a disciplined and balanced manner. In addition to investing in organic growth, we continue to look for sound accretive bolt on acquisitions that align strategically with our businesses. Transaction multiples remain overly high, and we will be certain that any acquisition makes very good economic sense. Additionally, we have continued to prudently buy back shares of Huntsman to focus enhanced longer term shareholder returns. As of the end of the second quarter, we purchased approximately 4,600,000 shares at a cost of approximately $138,000,000. As a reminder, our board authorized up to $1,000,000,000 share repurchase over the next couple of years. As Sean pointed out, we remain solidly within investment grade credit metrics, we can't Folio. In short, we're well on track to meet our forecast as we shared with you at our Investor Day. With that, operator, would you please go over the procedures for initiating the Q And A? Absolutely. Thank you very much. The first question in the line is from Kevin McCarthy Please go ahead. Your line is open now, Kevin. Thank you and good morning. A few questions on MDI. Can you comment on how your assets are running thus far in third quarter? Whether or not there was any spillover from the Rotterdam issue you mentioned and whether you have any planned outages in that business in the back half of the year? We don't have any outages that I would consider to be material that should impact our earnings. I would just know in the second quarter, the outages that we had were, for the most part, due to 3rd party, operations and so forth. And this is something that will affect our MDI facilities as we are highly dependent on, third parties being able to supply our hydrogen and our oxygen and raw materials and so forth. But having said that, I think as we look at our Geismar facility, MDI facility in North America, that is running strong at the present time. We I don't foresee any issues there. Rotterdam continues to run well. And our Chinese facility continues to come up as we had planned for it to come up. And I think we said over the course of the last couple of quarters, we see that facility being capable of operating at full capacity by the end 2018. And we will put those pounds into the market, as a prudently needed. And just as a reminder, we used to have a fairly material section of our Geismar production that used to go to Asia to feed our growing Chinese appetite there. And obviously, as we have those pounds now coming back into North America, this was a a concern that we posted a couple of quarters ago, that we'd have quite a few of those pounds coming back in the North America. I think it's fairly safe to say this point. Those pounds have come back to North America. They come into the market and, we feel that they've been placed effectively and efficiently in the market And so I think that we really see regional production matching regional demand. That's helpful. Peter, as a follow-up, I realize you're only a bit more than 3 months into the integration of Demilec, but perhaps you could provide an update into how that's going and how your ambitions are progressing with regard to growth in cross selling here? Well, we, we initially, I think it was a quarter ago when we announced the acquisition, we talked about being at a run rate of close to $40,000,000 on an annualized basis by the end of the year. We continue to be pushing towards that. And I think that we will meet that by the end of the year. Again, that that is a an improvement in the business as we look at the cost improvements that should come in the business, the integrations should come in the business. I think our priority in 2019 in going to 2020, we'll certainly be, how do we globalize that business? We've already taken steps, introducing the product and the knowhow and so forth in Europe and in Asia. That's not going to be an overnight success, but I we feel very confident if I had this acquisition to do all over again, I certainly would do it. And we are achieving the objectives that we set out And so I think it's gone very well thus far. Thank you very much. And the next question is from the line of Mike Sison. Hey guys, nice quarter. Thank you, Mike. The volume growth in differentiated MDI continues to look really good. If you think about the MDI demand, it's going better than the market. Do you think that is sustainable over the next couple of quarters and maybe give us a little bit more color on what's driving that growth? Well, I would say that it is sustainable. There's no one particular area. I'd say that if you kind of look at it on a regional basis, is the way we're seeing a lot of the growth. It's largely in the UF, where we're seeing strong construction in the U. S. And certainly benefiting from that. As we look at the downstream construction appetites and we talk to those companies I don't see in 2018 2019 as we look at the basic raw materials that are going to OSB in the construction industry. I don't get a sense that there's a great deal of inventory, neither on our end nor on the contract that are making the OSB and making a lot of the paneling and boards and installation and so forth. The demand right now in the construction field feels quite healthy in the Americas. I would also just note that a lot of the growth that we're seeing is also in product substitution. And as we continue to make inroads into the replacement of formaldehyde and the replacement of expandable polystyrene and existing insulation materials, Not all of this is just GDP growth. I'd say it's a rule of thumb. And again, I don't want to apply this just to any one particular quarter. I've always kind of thought that as a rule of thumb, about half the growth that you see in demand in MDI is GDP related and half of it is kind of product substitution related. And I see that driver and I see that that engine of product substitution, remaining quite strong. Okay, great. And a quick follow-up on the differentiated side of the business. As the short term spike in margins or pricing, what do you want to call it, fades in the second half of the year. Would you expect the margins there to maybe expand or just stay stable? I think that they're probably looking to expand. I think that we're, we're facing with higher crude prices and so forth. We're facing a lot of raw material pressures. And so any expansion that we're making, I think that it's important just to note that when we talk about those expansions, we're making them in the face of of raw material price increases. As I look at our Advanced Materials group, year over year, quarter over quarter, We've absorbed about $5,000,000 or $6,000,000 in advanced materials, about the same amount in textile effects. So the fact that we're looking in the third quarter of either kind of flat of a year ago or slightly up from a year ago in reality, we've we've boosted margins of 5,000,000 dollars, $6,000,000, just to offset the cost of raw material. So That would certainly denote that there continues to be strong demand in those areas when you're able to take that large of raw material price increases. Great. Thank you. Thank you. And the next question is from the line of Hassan Ahmed. Please go ahead. Your line is open now. Good morning, Peter. Hassan, how are you? I am well. Thank you. Obviously, a lot of back forth about, raw material price escalation and the like. And, you know, here you are sitting on a relatively balance sheet, you know, continue to generate very solid cash flow. Now I understand, you know, you've talked about in terms of M and A strategy, sort of bolt on acquisitions, further downstream and the like, But in light of some of this sort of raw material price escalation that we are seeing, broadly speak, some of the sort of more specialty companies within chemical land, I mean, one of your sort of competitors was talking about, not in the polyurethane space, but within the specialty space, maybe considering a tie up or a build out of a greenfield methanol facility. So what's your thought process in terms of maybe sort of upstream integration, particularly in light of some of the trends we're seeing here? I don't believe that that's a prudent place for us to be putting our money. As I look at the raw material pressures that we see right now, I think that there are 2 factors that are pushing raw material prices up, and I don't see them as long term, issues. One of them, of course, is a short term demand and consumption of crude oil. I think OPEC's been a little more disciplined than they have been in past years, but I see the wave of what we're seeing in our oilfield services and so forth, I think that there'll be a wave of capacity, crude capacity that is coming on to the market in the next quarter too. And I think crude oil price is probably, in my opinion, it probably peaked, stabilized and maybe even, you're probably gonna see some erosion in that pricing in the next couple of quarters here. The other raw material pressure that we're seeing is largely coming from Asia and it's raw material pressures that we're seeing on our advanced materials and in our, in our textile, divisions, these are raw material price increases that are largely being implemented because of stricter environmental policy in China. In India and throughout Southeast Asia. I think these are environmental changes personally that I applaud taking place. I don't like the the short term volatility. But I think longer term, these countries and regions are implementing the right decisions by enforcing these tougher environmental standards. A short term that's providing some volatility. But I think that these companies that are being shut down, they'll either be replaced or they'll make the investment and they'll come up as a stronger company. So when I look at the raw material pressures that we're facing and if I had to say, am I better off trying to invest in new capacities, you'll counter those, those raw material pressures I don't see in both of the in both of the scenarios I just talked about. Some of the specialty raw materials and so forth that we have had coming out of China, and crude related raw materials. I don't see either one of those is being long term issues that are going to be elevated for the next couple of years. Understood. Understood. Now as a follow-up, obviously within Performance Products, the turnaround behind us, But one of the things you guys talked about in the press release was, the division of the segment benefiting from continued strength within cycle. Can you just talk a bit about what your views are about the sustainability of these sort of strong glycol margins that we are seeing today? Yes. Let's remember Hunt, I don't want Huntsman to be thought of as an ethylene glycol company. I mean No, no, I know, but enough has been talked about on the MDI side, so hence I'm sort of As we think about glycol today, remember that about 75% of our glycols are locked in on a tolling basis. Where we'll never make the peak that is out there nor will we ever lose the money that potentially can be lost in glycol. And about 25% of the glycol we produce is on a margin sharing basis. And so we'll benefit from some of the upside And, in some of the downside, we've tried to cap that downside, with a tolling base floor, But I think longer term, as I said in my comments, I don't see that as being sustainable, for the next couple of years. I see it being sustainable for the next few quarters. I think there is going to be glycol tightness and so forth. The demand right now in Asia is particularly strong polyester and some of the textiles we're seeing. Very helpful, Peter. Thank you so much. Thank you. Thank you very much. And the next question is from the line of Jeff Zekauskas Please go ahead, Jeff. Your line is open now. Thanks very much. I think in your prepared remarks, you said that your quarter polyurethanes EBITDA as best as you could tell would be below the 245 $1,000,000 that you reported last year. Can you talk about the sequential degradation in EBITDA And I suppose the fourth quarter would be weaker still on a sequential basis for seasonal reasons or is that not correct? Well, I think that what we're really trying to point out in EBITDA when we talk about our excuse me, our MDI is the effects of the the fly up that we side. I'd ask you, Jeff, to go to slide number 5. I think that's a, I think it's a very interesting slide. And if I had to pick out one slide in the deck while they're all great slides. Slide 5, I think we tried to break out to kind of show the market because there were some press reports a month or so ago that I think gave kind of a misleading guide that MDI prices were collapsing in Europe or in China and so forth. We tried to break out on this, slide number 5 that you can see the impact. It's about 30s is that red line, depending on region, depending on the blend, depending on the application. That red line is anywhere from 30% to 40% of our business, in the regions and so forth. And the solid, dark line is kind of the all of our other margins. And if you look globally, you look at that solid dark line there, and it's a very steady foundation to the business. And when you look at what we're talking about on that short term spike margins, look at Asia, look at Europe, and Asia largely has come back down to, I'd say to normalize margins. As a matter of fact, as I look at Asia, component commodity prices today, if anything, Asian prices are inching up a little bit. And as I look at that, that spike that we saw about a year ago this time, again, really just getting back to normal. And so when I when I when we talk about being equal to or down from a year ago, in polyurethanes. I just want to make sure that that it's not the overall business. It's not the foundation of the business. It's not the overall strength in business. It really is just that spike that's being moderated. And that's what we're going to see. So it's the last of that fly up spike. Okay, great. Thank you for that. And your corporate costs were lower. I think by about $11,000,000 in the second quarter. And if you look last year, your corporate costs were quite high in the fourth quarter. Is there some positive variance that we might see? And what was your MTBE EBITDA in the 2nd quarter? Jeff, I'll take the corporate cost questions. Sure. I will tell you what you see in corporate costs is a little bit of LIFO change and you'll see that in the second quarter, we actually had a benefit of LIFO and year over year. I think that amounts to around $6,000,000 benefit. So LIFO does have a chance to move those corporate costs a bit. Overall, I don't see much much of a change really in our fixed costs that fall into corporate. So that would be the biggest change there. And then as far as the MTBE E EBITDA for the quarter, we're looking at an MTBE E E EBITDA of 23,000,000. And again, Jeff, that, that NPB was versus the last year of about $2,000,000, $3,000,000. I think as we look at the 3rd quarter, As you look at butane prices, mysteriously going up 20 dollars, $0.25 a gallon in a couple of hours, a few weeks ago. I always get wary when I see jumps like that, there's a sustainability of them, but obviously that's, that's cutting into MTBE margins in the third quarter. And if those sort of prices hold in raw materials, I think you'll see MTBE in the third quarter look pretty similar to the second quarter of last year. We'll make a few $1,000,000 on it. And the next question is from the line of Alex Yankerco. Please go ahead, Alex. Your line is open now. Good morning. Thank you. Peter, I just wanted to go back to slide 5. In Europe, it shows an increase in margin at least in July. And if we look at sort of independent price services, they've talked about a price decline, Is it a correct way to read that that you've actually in your system in both components and systems saw a margin and price increase? Yes. As we look at the business right now, we're seeing decent as to strong demand in Europe. And, and also mind you in the second quarter, we did suffer a bit of outage in our own facility in Rotterdam. So if anything, we were short materials and, the MDI right now it feels, it feels tight in Europe. Also, there'll be a little bit in those numbers when you look at that increase, a little bit, that's going to be around product mix as well. We saw a very good, automotive demand. And, our footwear, our ACE business coatings and elastomers. Adhesives business was strong. And so some of that upward trend is going to be supplydemand related. That's going to be the mix of the products where we're seeing particularly strong demand in the second quarter. Got it. Thank you. And then on the systems pricing, as you sign new contracts and systems or you extend existing contracts are your margins generally higher than what they were before or your average margin? So what's it just the direction of that systems margins? I think we have an opportunity to make it a little bit higher than before. And, as Alex, as we look at the business, I think what we really want to see in MDI, is sustainability. And if we have an opportunity to go in and lock in a short term price for a longer term, but longer term, that's just going to to force the customer to look for competing products or something like that. We don't want to be in that situation. So we want to be selling value want to be selling your cost, you want to be selling your service, you want to be selling your effect, and all of those come together to make a price. But I think by and large, as we look at it, at the strength of MDI, we probably have more of an opportunity to gradually move up margins on these systems is there being, is there being renegotiated than not. Thank you, Peter. Thank you very much. And the next question is from the line of John Roberts. Please go ahead John. Thank you. Peter, as Chairman of Venator and the largest shareholder, could you give us your thoughts at least on what's going on there with the recent strategic developments and any updated thoughts on Huntsman's eventual exit? Well, again, we continue to look at the overall industry of TiO2. I think that that industry has either been feast or famine. And I think as you look at structure of the business, the pricing of raw materials, and so forth. And again, I'll just speak for my own opinion of it. I think that we're in something of a bumpy plateau in pricing and EOK typical seasonality in the 3rd fourth quarter. But by and large, you're seeing consolidation in the industry. I think that you're seeing, especially in Venator, you're seeing expansion in specialty applications and grades. You're seeing management continue to focus on costs and so forth. And, I continue to be a great believer in Venator. I think it's a great company. And and it's in an improving industry in TiO2 and Pigments. As far as Huntsman, I would just say that we would continue to stand behind the comments that we've made in the past. And given issues around public disclosures and so forth, I wouldn't want to speculate in timing as to when or how we might monetize the remaining 53% only to say that that seems to be a priority of, of Huntsman. And, and I think it longer term can be, you know, willing for the long term opportunity to our shareholders. And then secondly, at the Investor Day, you expressed a hope to reduce the volatility of MTBE on earnings in the future. Would you be willing to structure something to reduce volatility now, even though we're near the trough and you might not be able to get mid cycle economics? Well, look, I'd be willing to look at just about anything, with MTBE. And I'd just remind our our, our shareholders and investors that, our MTB is not a standalone entity. The product that it produces that we're highly dependent on is propylene oxide. Is a raw material to component for our polyurethane system. So as I look at our propylene oxide and MTBE, I'm not sure. I think you have to go back several years to find a quarter when the combination of propylene oxide and MTV haven't been a very strong contributor to our overall business. Having said that, with MTBE, if we had an opportunity, to look at at locking in margins or taking some of the volatility out. Sure. We'd certainly would look at it. I don't I mean, as I look at the long term value around MTV, I'm not sure that at any time soon it's going to get back to that that earnings platform of $100,000,000 to $200,000,000 a year. The next question is coming from the line of Matthew Blair. Please go ahead. Your line is open now. Good morning, Peter. You mentioned that textile effects had showed 9 quarters in a row of volume growth. Also noticed that pricing was up for the first time since 2015, I believe. What drove the increase here? And do you think it's sustainable? Yes. I think it's sustainable. I think it's a combination of raw materials, pushing pricing up. And it's also a mix. That is pushing. And I think that as you look at new applications and new products that are going into the market, it's something that is, is, is very important to the business. And I think that as we also push downstream, when I say push downstream, I mean, pushing with the properties downstream and also, into more specialty applications and working directly with the retailers. It used to be that We'd sell our products to a mill. The mill would sell to a broker, a broker then would sell to another broker, who usually would then sell to a retailer that names to everybody would be very familiar with. And I think that the retailers are taking much greater responsibility of their environmental performance, working conditions, and so forth. And so now we're working directly with the retailers where they're going back to the mills and specifying that they want certain colors, certain grades, certain environmental standards and so forth that maybe weren't still important a couple of years ago that are more important today So a combination of better supply chain opportunities, more specialized products and mix, and obviously raw material prices going up pushing prices up as well. Sounds good. And then Next question might be for Sean, but it looks like the year to date trends in tax, your tax rate well as your CapEx are coming in what would be well below what's implied by your full year guidance. What causes tax and CapEx to really step up in the back half of the year? Well, typically in as we look at our business and this happens usually year to year, nothing different this year. Capital spending goes pretty much as you improve budgets towards the end of the year. And then you get them sort of sanctioned in the beginning of the year and you start spending on these new projects. And so as it goes to the year, spending ramps up and usually that fourth quarter of the year, you'll see as much as 30% to 40% of the total budget being spent in the last quarter of the year. So there's no surprises as we look at capital expenditures. And as it relates to taxes, I think we've guided here about 20% to 22%. We hit an 18% rate in the third quarter, a little bit lower than we said we would. It's book tax differences. There's some small stuff there. And there's a better use of maybe some of our valuation allowances that we had in the third quarter. But I do expect in the 4th quarter, you'll see us returning back to that sort of rate that will put us in a 20 percentage year end SRA conclusion. Thank you. The next question is from the line of Arun Viswanathan. Please go ahead. Great, thanks. Good morning. Just a question on MDI, going back to the issue around Europe and Asia, would you expect a similar impact from some recent force majeures in the industry that you saw versus last year? Or is this a much more minor issue? Thanks. I probably should understand the question. You're talking the impact of force majeures on the industry and the impact that's having on pricing. Okay. Yes. I the force majeures, certainly, when you're operating at round. I think the overall industry is probably operating around 90% globally capacity utilization, probably a little bit tighter in North America. Fairly tight in Europe and less so in Europe and Asia, excuse me, And when you look into this is largely, mind you, that MDI is largely a regional, supplying demand. MDI is a tough product to put on a boat And, oftentimes has to be depending on the grades, have to be shipped cryogenically, has to be stored cryogenically. You don't see massive MDI volumes moving around the world, especially in the downstream differentiated higher grades of MDI. So When you see a facility that is 400,000 or 500,000 tons of capacity go down in a particular region, that 400,000 or 500,000 tonne facility can account, for several percentage points. And often that region can go from the low 90s up to the mid 90s or even the high 90% capacity utilization. So I think it's a regional issue. It's a timing issue. It's a seasonal issue. And, what that what impact that has on the market and so forth I think is probably, I mean, it certainly is there and it certainly is absolutely the component side of the business. I think of our downstream systems end of the bone of the business, as you can see, again, going back on slide number 5. You don't see a great deal of volatility in margins on that, that downstream differentiated and where we're focused. And so I would say that on the margin side, on the majority of our business, those force majeures and so forth, we're seeing globally, don't have near the impact just focusing on the downstream steadiness in the margin where we want to grow the business. Great. And then, you noted earlier that kind of upstream capacity expansion isn't really something your best interest. What options do you have to expand downstream in MDI and polyurethanes? I mean, I'll be you have the buy options and you prove that with Demilec. Are there further options like that in the imminent future? And then furthermore, are there options organically to increase your downstream exposure? Thanks. Frankly, I would see that being a good mix between organic growth and, and looking at our downstream growth. And as we is we, look at our biggest one of our bigger areas of our downstream opportunity in our elastomers and so forth We have opportunities where we bought an asset in North America. Now we're taking that know how to Asia and we're taking that know around the world. And so oftentimes we'll see, for instance, with Demilec, we bought an asset, we bought manufacturing facilities, and then we'll take that and organically grow the business. So the growth that I see taking place downstream in MDI is going to be a combination of growing and acquiring new technologies, customers, know how and applications. And then growing that in a buying a regional player and then globalizing as quickly as possible. And so I wouldn't want to sit here and say that the majority of our growth is going to come organically or is going to come through acquisition. I think it's going to be a combination of the 2. Great. Thanks. Next question is coming from the line of Jim Sheehan. Please go ahead. You've commented that multiple seem to be elevated in the acquisition market or the bolt on area that you're considering. So Given that context, how do you think about the balance of share buybacks versus M and A here? Well, I think we'll, Jim, have to look at that on a quarter to quarter and, almost on a deal by deal basis. Again, I don't mind paying a higher price for an acquisition. If we see very clear, opportunities to acquire new technology, globalize that business, we have synergies, and we have supply chain pull through economics. And so as we look at that, we look at it on an IRR basis, you know, and if we can justify a higher price fine, we'll be willing to pay that higher price But I just I have an aversion to just chasing assets, just because we're on the market. So we will continue to be very careful looking at that. And likewise, when we buy in shares, I think it would be rather foolish for us to just say we're going to buy in the same number of shares, regardless of the price quarter after quarter after quarter. We'll look at how we compare to our peers. We'll look at the overall industry. We'll look at our overall cash flow. And, and we'll make decisions on an ongoing basis. I wish it was easy. It's just saying we'll buy X 1,000,000 of shares every quarter, but I'm not sure that's the most prudent use of capital. We've got to look at it in a number of issues. We saw raw material prices spike right now we saw demand, coming for working capital. We might want to, we might want to slow down share repurchase and so forth and make sure that reserving the matrix of our balance sheet. So I think all of those, I mean, I hate to sound evasive, but I think all of those are issues that we look at and take into effect. Great. And in terms of your outlook commentary on the third quarter, what are you guys assuming for currency impacts positive or negative? Yes, Jim, we've had some clearly some benefits. We talked about $25,000,000 year over year. If you looked last year in the third quarter, you kind of see the euro rate pretty much on par with where we see it today. From a year to year comparison, probably pretty neutral. Thank you very much. And the next question is coming from the line of P. J. Juvekar. Please go ahead. Your line is open now. Yes, thank you. Good morning. Peter, can you talk about MTV outlook beyond sort of 3rd fourth quarter? If you look out do you think demand for Oxygenx goes up over time? And then secondly, what is the impact of IMO 2020? On the MTBE demand? I'm sorry, IMO 2020? Yes. IMO 2020, you think that benefits MTBE I think it's probably going to have a neutral impact on MTV. It might push margins up just a little bit and demand up a little bit, but I think by and large, probably going to be fairly neutral. And as we look at MTBE, I think it continues to be a great product And it's going to satisfy. I mean, when I compare it to ethanol and some of the other oxygen aches that are out there, It's doing exactly what it's designed to do. It's a clean burning oxygenated fuel and it's too bad that this country doesn't have a better energy policy that would include MTBE, but we'll continue to ship it overseas and ship it to markets where it's improving the characteristics of gasoline and it's improving the environment. Okay. And then my second question is on epoxies. Can you talk about supply demand in epoxies both on the liquid bulk side and sort of more differentiated epoxies and what's your split there? Well, kind of tough for me to, comment on the BLR on the bulk side. As you know, we've gotten out of most of that. And, and I think it's the right decision, but probably the occasional quarter when there's a short term tightness or something where people may say, well, it's too bad. He got out of it. But think by and large, it's a product that we're glad we're out of it and we're focused on the downstream And we're focused on applications, quite frankly, when I look at our electronics, our coatings, construction, our aerospace, transportation, These really, again, don't have a great bearing, the margins don't on supply and demand on capacity utilization. We, in many of these applications, we're in for a multi year basis. We're one of, of maybe 1 or 2 suppliers globally that can make the products that we're making. And we're going to continue to look at, the Nano Technologies and so forth as we go further downstream in, in our, in our advanced materials. And I think that we tried to highlight in our Investor Day, I think, a very, significant issue is we never said the word epoxy when we went over our entire presentation as to where we see advanced materials going. So I think we see epoxy as is a component of that business. It's going to create value going downstream. But as far as the BLR and the basic epoxy resin industry, good riddance. Great. Thank you. Thank you very much. And the next question is coming from the line of Mike Lee Please go ahead. Your line is open now. Thanks for squeezing me in here. I guess following up on Advanced Materials first, can you just talk to the dynamics you're seeing in the wind market today? I think you flagged that in your earnings release. And second, can you maybe talk about how your progressing on price versus raws in this segment? Well, I'm quite, as I look in the second and third quarter. As I think I said earlier, in the third quarter, we will in the second and third quarter, we'll be taking in about 6,000,000 dollars, 5,000,000 dollars, $6,000,000 of raw materials. So we've got to be raising our prices at least that amount. And again, as I said earlier, we take a lot of our raw materials or excuse me, a lot of our applications. We're not selling it necessarily on the cost of raw material. So typically when raw materials go up, that's the real pressure on margins. When they go down, it's the real opportunity to expand margins. Again, we're looking for sustainability and pricing long term agreement with Silver. Having said that, the markets are such that, I think that as we look at our third quarter performance in our advanced materials. We remain confident that even though we will $6,000,000 of price increases versus last year. We had to do as well as we did last year in our Advanced Materials. And get our pricing up to offset that. On the wind side, it's, it's, I think it's a near breakeven and it's a business for us As we look at the volumes in wind, we continue to reduce our sales into this application. It's a commoditized application. And I would never say that any customer segment is bad. I just don't see it as having the opportunity to expand the margins and to have the sustainability of growth and earnings that we see in so many of our other applications and grades. Great. And then with Venator's impairment this morning of the Augusta Color pigment facility, what's the latest status of your suit against Rockwood or I guess now Albemarle regarding that facility? Thanks. We continue to move through the U. S. Legal system, which moves at the pace of about a Python going across the Sahara. So it I think that we still have a, I'm still very optimistic. I think that it's, I think that our case is very sound, it's very unfortunate, where we find ourselves after acquiring those assets. But at this point, as we're in ongoing litigation, probably best for me not the comment. So, thank you. And operator, why don't we take one more question? We're over the 1 hour mark. We'll conclude here with one more question. Thank you very much. So the last question is from the line of Roger Spitz. Please go ahead, Roger. Your line is open now. Thanks and good morning. In Performance Products, how much of a benefit did you receive from the lower ethylene and perhaps ammonia price levels? Well, it's a very good question, Roger. I'll look over to Sean in hopes that he has some better guidance on that. I would just guesstimate that as we look at raw materials, as you look at ethylene price levels, I think it's pretty flat. I'm not sure that we benefited a great deal from that. And we look at ethane prices and so forth, versus where we were the previous quarter. I'm I don't think there wasn't that much benefit. Operator, I think that pretty much concludes the call here. So thank you for joining us. Thank you for joining us. We look forward to updating you next quarter. If you have any questions, feel free to reach out to Huntsman, Investor Relations. Thank you. Thank you very much. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining. Have a good day.