Vincent Andrews: Okay. And I have just a follow-up on the nylon business. In the prepared remarks, there was a comment about higher variable costs for higher-velocity products. That’s quite a mouthful. Could you just unpack that for me?
Scott Richardson: Yes, Vincent, it’s really related more to the POM business. And it’s really the flow-through of methanol, since we weren’t producing as much of our own methanol in the first quarter. It’s the flow-through of that higher-cost product into POM that gets sold here in the second quarter. That’s really the main impact.
Vincent Andrews: Okay. Thanks very much.
Operator: And our next question comes from Josh Spector with UBS. Please state your question.
James Cannon: Hey, guys. This is James Cannon on for Josh. In your prepared remarks, talked about the price-to-cost benefit in the first half. Are you expecting much flow-through into the second half, or does lower pricing kind of erode that?
Scott Richardson: I wouldn’t expect lower pricing to erode that, James. A lot will depend upon what happens with the raw material complex. We kind of know for the first thought what the flow-through of that’s going to be, so a lot just depends upon how raws develop in the second half to see how much of that continues or not.
James Cannon: Okay. So just as a follow-up to that, I think if I look back a quarter or two, you gave in your prepared remarks comments on price-cost being potentially the highest part of the year-over-year bridge, is that still possible, or just given where we stand, is that maybe a little bit more in question?
Scott Richardson: It’s definitely still possible based on what we’re seeing for the first half. And then again, we’ll just have to see how raws develop in the middle part of the year to see what then gets expensed towards the back half of the year.
James Cannon: Got it. Thank you.
Operator: Our next question comes from Kevin McCarthy with Vertical Research Partners. Please state your questions.
Kevin McCarthy: Yes. Thank you, and good morning, everyone. In your prepared remarks, you talked about two key synergy drivers for engineered materials, namely, shutdown in Nylon 66 in Germany and the SAP ramp. Can you address those and maybe translate it to how much earnings uplift you might be anticipating in the second quarter through the fourth quarter? It didn’t sound like there was much in the first quarter from those items.
Lori Ryerkerk: Yes. Look, I would characterize it as, for the footprint actions we’ve taken, and there’s been a number of smaller actions that we’ve taken as well, not including Macklin [ph] which we’ve just announced, because that will really show up in next year’s number. We expect about a $50 million synergy lift on a full-year basis from those. And you’re right. I mean, we’re just now starting to see the benefit of Uentrop, which is the biggest piece of that. So, there’s that. And then, I would say, on the SAP, you know, the direct impact, I mean, obviously we get rid of the TSA, but we’ve had to add our own people. So, that’s a smaller number than you might think, although significant. The real benefit is that we now have one view of the data, and we have everything in one system, and it is really helping us with our planning and scheduling and forecasting of demand in future materials.
And so, again, all of that kind of gets rolled into our synergy number, and we’re looking for the full year at the 150 lift from last year
Kevin McCarthy: Okay. Thank you for that. And then secondly, for Chuck, perhaps, can you talk about how your free cash flow outlook has evolved? And specifically, I’m interested in any guidance you might be able to provide on cash taxes or the expectation, therefore, in 2024. It sounded like maybe there’s some timing issues around taxes we should be thinking about?
Chuck Kyrish: Yes. Good question, Kevin. Yes, let me walk through how we’re thinking about ’24 cash flow. Now, I would say we do expect the same cadence as we saw last year, where our cash will be second half weighted. Teams are working hard to generate a total result for the year that’s roughly consistent with last year. It’ll be subject to a few timing elements, of course. Outside of EBITDA growth, I would point to these drivers. We are working really hard to produce a working capital benefit to free cash flow this year. And that would be driven by further inventory reductions. Right now, we’ve assumed $100 million working capital benefit for the year. And it’ll depend on a few factors. I would say working capital, though, it’ll be back end loaded.
It should be a use in the first half, particularly as we’re preparing for some of these connections and then a source in the second half. Either way, I would point out, that’s a significant headwind to free cash flow versus 2023, as we had a tremendous year in working capital benefit to free cash flow last year. That was really driven by about $400 million positive cash from reducing our inventory. So I just wanted to point that out. You’re right, cash tax. It is an unusual year for us for cash taxes. In total this year, there’ll be about $300 million. That’s higher year-over-year by $75 million. One unusual item that we have that will hit us in the second quarter. We’re going to pay almost all of a roughly $90 million transfer tax that’s related to the previously announced debt- redomiciliation projects that are currently in execution phase and are key to our cash repatriation plans.
We’ll pay this one-time tax in the second quarter, but we would expect to be able to recoup that tax in future years through the associated foreign tax credits. It is a big payment here in the first half, so I did want to call that out. If you think about cash tax of the $300 million, three-quarters of that will be in the first half. I would say cash costs of synergies should be $100 to $150 million this year. That’s higher year-over-year by $25 million to $75 million, which we’ll just kind of depend on what that final number ends up being in the timing of some of those actions, a positive offset to free cash flow this year, a lower cash interest by about $50 million and a benefit of $100 to $150 million in lower CapEx versus last year. I hope that helps in terms of some of the drivers and how we’re thinking and especially the timing associated with those.
Kevin McCarthy: Very much. So, thank you, Chuck.
Operator: Thank you. Our next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Please state your question.
Aleksey Yefremov: Thanks. Good morning, everyone. Now that Clear Lake is up and running, is rationalization of your asset yields assets firmly off the table? Or is that an option to be considered as this tough supply to the environment?
Lori Ryerkerk: Aleksey, thank you. I would say, we’re pretty satisfied with where we are with our footprint for asset yields. I mean, everything we have is specifically designed to serve a certain region instead of our customers, and we like having the optionality and flexibility that we have. We’ve also continued to build out our downstream. We saw the announcement about new VAE in China, some of the RDP debottlenecks that we’re doing, and that really is all about how do we continue to build the foundational level of earnings in asset yields and really kind of stabilize our earnings from asset yields. But if you look at just specifically, acetic acid for example, Clear Lake, clearly, we believe the lowest cost, lowest carbon footprint, really important to meet our needs in the U.S. and now into Europe.
China really serves China, again, because of our technology there, we believe one of the lowest cost producers in China. And then Singapore meets the needs for the rest of Asia, particularly India and some other areas, and is still very competitive with other sources of supply into that region. So, again, I would say we’re always looking at our footprint, what we need to add if there’s opportunities to debottleneck, but also opportunities to rationalize. But right now, I would say our footprint is pretty good for purpose.
Aleksey Yefremov: Thanks, Lori. And the follow-up it used to be fairly transparent to investors to see outgrowth in engineered materials versus end markets. It’s been harder to judge through the last few quarters. Are there any metrics such as wins, I don’t know, your size of your pipeline that you can point us to kind of demonstrate that you keep outperforming your end markets or that outperformance will resume perhaps in future periods?
Lori Ryerkerk: Look, I would say the pipeline is our winning factor, if you will, for engineered materials and what is the loudest to outperform in our sector. I think that continues to be true, especially now that we’re one year since we went into a common system for both our heritage assets as well as our acquisition of M&M. And we do continue to look at it very closely. I will tell you the number of projects being generated is consistent. More importantly, the value of the projects that are being generated is very strong. But maybe I’ll ask Scott if he has any more details on that he wants to add.
Scott Richardson: Yes. I mean, we gave a stat last quarter about the fact that we created about 20% more revenue opportunity per sales employee in the second half of last year compared to what we did in second half of ’22. And so that is, I think, a really good proof point to how things are moving. The only other thing I’d add is we’ve been doing a lot of really cleaning up of this new kind of integrated business over the course of the last 18 months. And that will start to stabilize as we get the footprint actions in place and really get our inventories now kind of back in line with where they need to be. So I think it’ll be a little more visible, Aleksey as we get into the end of this year and into the next year as to being able to see that outperformance versus the various end markets.
Aleksey Yefremov: Thank you.
Operator: And our next question comes from Arun Viswanathan with RBC Capital Markets. Please state your question.
Arun Viswanathan: Great, thanks for taking my questions. I guess first off, just curious about comments around volume. It sounded like the activity in Q1 was seemingly getting slightly better in the earlier part of the quarter and then maybe it’s sold out in March. And then, are you seeing a similar pattern here of things maybe getting better in April? I mean, how would you kind of characterize Q2 thus far versus your comments and then what you saw in Q1? Thanks.
Lori Ryerkerk: Yes, look, I would say from a volume standpoint, both for Acetyl acid and EM, it was very much as expected in Q1 throughout the quarter.
Scott Richardson: And as we look to Q2, the order book is in line with the guide we’ve put together right now, Arun. I mean, we’re through the month of April and we have good visibility here to May. So I think we feel comfortable with the comments we put in the prepared comments.
Arun Viswanathan: Okay, thanks for that. And then just a question about the second half and as you look into ’25. So it looks like you’ll be, you know, ending the year on say, 660 rate for EPS for the second half. If you were to annualize that, maybe you’re$13.25 or so. If you add some volume and maybe some deleveraging on top of that, it seems like you could get close to 14 bucks. So is that kind of how you’re thinking about ’25? I know it’s a ways off, but just maybe got some, wanted to get your initial thoughts? Thanks.
