Vincent Andrews: Thanks very much.
Operator: Our next question comes from Patrick Cunningham of Citi. Patrick, please go ahead.
Patrick Cunningham: Hi, good morning. You told your 2024 CapEx guide is relatively flat with this year and I’m curious what this means for your additional recycling facilities. Do you expect any meaningful CapEx to be deployed towards site construction next year or — and is there any sort of updated timeline on site selection for the second facility?
William McLain: Yes, I would — again, 2024 we expect it to be similar to slightly below. Our choices on CapEx will be influenced by the external environment. As Mark has highlighted, we’re pretty neutral on the external environment and we can ramp that up or take it down as needed and I think we’ve demonstrated that discipline overtime. We are committed to beginning construction for the France project, as well as the second US project, as we just discussed. We expect to start construction probably in that middle of the year timeframe. Also we have some other specialty growth investments within the year and we’re waiting on the macro environment to ultimately set the pace of those. So I think what you’re seeing and hearing from us is, we’re going to be disciplined.
We’re finishing the year strong with the cash flows that we just talked about from the divestiture. Also we expect to have about $250 million of free cash flow here in Q4. So we’re positioning ourselves to be just on capital allocation, which will be a mix of organic growth, as well as share repurchases as we look into 2024.
Mark Costa: We feel-good about our organic growth strategy. We think that kind of growth clearly creates a lot of shareholder value with great returns on capital. It’s unfortunate the macroenvironment took a turn on us just as we were launching into the circular programs and a lot of that are specialty growth. But as we’ve talked about with our view 2024 and the expectation that markets will normalize as you go into 2025 and 2026, we believe earnings and our cash will come back significantly as we move forward. You got to remember, this year a lot of our headwind in earnings to 2022 was noncash, $110 million of pension, $75 million of asset utilization to generate cash. So we are just looking at earnings. A lot of it is a non-cash hit relative to 2022. So we feel very good about our cash earnings and how we’re doing in this environment, as well as how we look forward to the future.
William McLain: And maybe just to build on that, Mark, on the cash. As we think about 2024 cash. As Mark highlighted, our baseline is starting at approximately $1.4 billion of operating cash flow. That’s through the combination of higher cash earnings, combat roughly $250 million. We always assume working capital is flat. So that would be a reduction of about $100 million year-over-year. And then, we’ve got higher cash taxes, which also includes some of the taxes on the Texas City divestiture.
Patrick Cunningham: Got it. That’s very helpful. And then I appreciate that the sort of forward outlook doesn’t have any restocking expectations embedded, but based on your conversations with customers coming out of restocking, do any end markets have precariously thin inventories or do you get the sense that this has just been a trimming of safety stocks built over the last couple of years?
Mark Costa: No, it’s definitely both. There’s definitely safety stocks that were built up in supply chain crisis more than customers were sharing with us. And so, hence the sort of destocking we’re seeing this year. But we’re seeing signs where suddenly we get an order from a customer, some of our big customers where they’ve brought inventory down so low, they can’t actually make product and they need an urgent shipment sent to them. So you’re starting to see people hitting bottom, which is encouraging. If you look at all the data we put together here around destocking and the underlying markets, you definitely can see that we’re turning in the back half of this year where the destocking has played out. As you look at next year, when you get into this question of restocking, we wanted to build a really conservative view of how it could perform next year because the macro economy, frankly, is so uncertain.
So we don’t have any restocking in there, but it’s reasonable to expect that some restocking is going to have to happen with some of these customers if the markets start to stabilize and grow at all. And so that will happen. That would be upside to sort of how we look at next year. It’s certainly going to happen in ag as I think about it. That’s one place we know for sure that a rebuild in inventory will occur.
Operator: [Multiple Speakers] Our next question comes from Jeff Zekauskas of JP Morgan. Jeff, please go ahead.
Jeff Zekauskas: Thanks very much. How much did the methanolisus plant in Kingsport cost?
William McLain: So Jeff, on the methanolisus in Kingsport, I think as we’ve highlighted earlier this year, we had a range of $700 million to $800 million as we started the year. And we went to the higher end of that estimate. We’ve been able to manage the increase for the Kingsport methanalysis within that disciplined budget that we’ve been able to demonstrate through the year. That’s how I would summarize that.
Mark Costa: We don’t disclose specific project capital for competitive reasons.
William McLain: The additional thing that I would continue to highlight, Jeff, is, as we think about $450 million of EBITDA, also the fact that we’re going to be generating $75 million of EDITDA on the first plant here from a year-over-year basis in 2024, I think that demonstrates that velocity of EDITDA and we think that that’s $150 million by the end of 2024. That sets us up well for strong returns on this investment.
Jeff Zekauskas: So my memory is that you had planned to expand your Triton capacity in Kingsport with the building of the methanolysis plant, but chose not to do that. In your Normandy [Multiple Speakers]
Mark Costa: I know, we didn’t choose to — I’m sorry, go ahead. Go finish your question, I thought you were done. Sorry, go ahead, go ahead, Jeff.
Jeff Zekauskas: Thank you very much. Yep, in the Normandy plant, I thought that there was also a Triton component there as well. Since you didn’t build the Triton — the extra Triton capacity in the United States, are you still going to build the Triton capacity in Normandy, in that, I would think that Triton would be more favorably made in the United States. That is — are you going to scale back whatever it is that you thought you were going to build in Normandy, given the way that economic conditions have evolved?
Mark Costa: So, yes, let me clarify a couple of points there, Jeff. First, with the Kingsport methanolysis plan and the Triton expansion that we intend to do here at Kingsport, we’re still doing it, right? We’ve just pushed the construction timeline of that plan out to better align with the macro economy. So our intention here is to still have 85,000 tons of capacity being brought online of additional Triton capability. It’s just going to come online more in 2025 than in 2024, because the durable market where a lot of that Triton is sold is obviously down. So there’s no change in our strategy whatsoever. It’s just an adjustment of timing and that’s part of what Willie was getting at in sort of how we adjusted our spend rate on capital this year to make room for the higher cost of finishing methanolysis by pushing that capital on the Triton project out into the next year.
And so, that’s what we’ve done here. So no changes at all in how we think about the value creation from the first investment. It’s just a shift a little bit in timing in the short term. The good news around our assets in Tennessee is, they’re flexible, right? We can swing our Triton lines between Triton and making copolyester. We can make PET. We can assign that recycle content to whatever products we want across our integrated system. So that allows us to monetize the value of the recycled content as quickly as we can make it as we ramp up the facility. So that’s not going to be hindered by the macroeconomic environment and durables, because there’s plenty of packaging out there that we can make both in our co-polyester applications like our shrink or in some PET.
