Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Chemours Co (CC, Financial) achieved a 16% volume increase in TiO2 production despite challenges from the Altamira site disruption.
- The company has reached approximately $100 million in cost savings by the end of the second quarter, targeting $125 million for the year.
- Opteon refrigerants saw double-digit quarterly sales growth both sequentially and year over year, now making up nearly 60% of total refrigerant sales.
- The company received a permit to expand Teflon PFA resin production, critical for semiconductor manufacturing, at its Washington Works site.
- The Chemours Co (CC) released its seventh annual sustainability report and received approval from the Science Based Targets initiative for its emissions reduction goals.
Negative Points
- Consolidated net sales for the second quarter were down 6% year over year, driven by lower pricing and portfolio impacts.
- Adjusted EBITDA decreased from $324 million in the prior year to $206 million for the current quarter, impacted by lower pricing and cost absorption.
- The company incurred about $8 million in one-time costs due to the Altamira site disruption, with further impacts expected in Q3.
- Freon refrigerant sales experienced double-digit declines year over year due to regulatory step-downs and elevated market inventory levels.
- Corporate expenses increased due to costs associated with addressing material weaknesses in internal controls and additional litigation costs.
Q & A Highlights
Q: Can you help us understand the impact of the Freon refrigerant inventory and pricing issues on the TSS business?
A: We are seeing significantly depressed pricing in HFC due to high inventory levels. However, with the quota step-downs occurring, we expect this to turn around. Our strategy focuses on driving Opteon growth, which has shown year-over-year double-digit growth without price deterioration. The quota issue this year is tied to the technology transition, causing us to buy quota to meet customer demand.
Q: Can you provide insights into the TiO2 market and how you see it progressing over the next 12 months?
A: We see stable demand and believe we could have sold more in the third quarter. We have confidence that potential interest rate cuts and tariffs in Europe will help as we end the year. We don't see a major catalyst right now but expect some improvement in Europe as we move forward.
Q: Can you contextualize HFC pricing and its future outlook?
A: HFC pricing is elevated compared to prior years but significantly lower than our expectations. The quota reduction mechanism will drive more scarcity, leading to a turnaround in pricing. This pattern has been observed in Europe and with our R-22 product.
Q: What are your expectations for cash generation in the back half of the year and your long-term leverage targets?
A: We expect cash balances to remain stable in the latter half of the year, with some inflows from working capital improvements. Our long-term target is to get below three times leverage sustainably, which will take time as we improve our earnings.
Q: What steps are being taken to make the Altamira plant more resistant to future droughts?
A: We have reduced our water usage and are pursuing engineering solutions locally and with the government. Additionally, we are considering supply chain options and inventory management to mitigate future risks.
Q: Can you explain the fixed cost absorption issue in the Freon product line?
A: Demand for Freon is down year-over-year due to the quota step-down, which is driving the fixed cost absorption issue. This is expected to be a headwind depending on future demand.
Q: How should we think about the profitability impact of anti-dumping measures in the EU and other regions?
A: The EU anti-dumping measures are an opportunity for us to gain share and will accelerate our EBITDA growth. Similar actions in other regions like Brazil will also have a positive impact.
Q: Can you provide more details on the qualification process and timeline for the Opteon 2P50 product?
A: We are in the middle of the qualification process with various hyperscalers, which takes six to nine months. In parallel, we are working on commercial-scale quantities, which will be available by 2026.
Q: What is the size of the immersion cooling market and its potential impact on Chemours?
A: The TAM for the liquid cooling market by 2028 is $2.5 to $3.2 billion. Our technology will take time to develop but is expected to be a significant contributor by 2030.
Q: Can you clarify the current status of restricted cash on the balance sheet?
A: The restricted cash balance has significantly declined to around $50 million this quarter, reflecting the $600 million settlement payment made earlier.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
