So we feel good about how this on a tow business is going to provide stable earnings and cash, a lot of cash out of this business. And then as you just noted on top of that, you now have growth in the Fibers business that’s part of that equation that allows us to sort of push our assets and utilization and value. And then Aventa which is something we’ll probably talk to you more about in the spring is really on a great path. This is where we figured out how to take our cellulose acetate and foam it, where it’s a drop in replacement to polystyrene for protein — chicken and pork trays in the grocery store that you see all the time or other sort of foam, clamshells, et cetera. And that industry has a serious issue about getting out of polystyrene.
We have a great value proposition with a cellulosic material where it’s a drop in to their existing equipment and is certified to biodegrade not just in industrial settings but also in home settings which is equivalent to landfill. So you really have a biodegradable solution to throw this stuff away with all the sort of — and everything else that’s with it that can’t be recycled. So very big market, a lot of opportunity, good margins and something that we think will be commercial and grow this year and build into something meaningful next year. So we’ll tell you a lot more about that once we have the customer announcements to go with it. But when you put all that together, it does turn the cellulosic stream into a growth stream along with the polyester stream, both tied to sustainability and circular economy trends that are presenting a huge amount of volume growth.
Like Tritan replacing polycarbonate BPA, we can have much higher growth rate than the underlying markets as we’re replacing polystyrene or we’re replacing other plastics of the recycled-content-made products that can give us a lot of levered growth. And the one thing you know about Advanced Materials on both sides is there’s a lot of fixed cost leverage. So you’ve seen the sort of pain of that in the fourth quarter of ’22 and ’23 but it looks exactly the same on the way up. So as you get volume coming back, the fixed cost leverage of these very high-margin products across specialty plastics and now some of it inside cellulosics which also has a lot of fixed cost is very attractive.
Operator: Our next question comes from Mike Sison of Wells Fargo.
Mike Sison: Nice outlook for ’24 so far. Just curious, Mark, your volumes were down mid-single digits in the fourth. It’s been quite some time since we’ve seen volume growth. When do you think AFP and AM will sort of turn the quarter? And what type of volume growth do you think the businesses need to generate to hit the midpoint of your guide?
Mark Costa: Yes, it’s a great question. I think that we’ll certainly turn the quarter in Q2 and the back half of this year. It’s a much closer call in Q1 because of some of these unique things I’ve talked about overall. These timing on fills and customer buying and Fibers is a bit bumpy. And you still have some destocking going on in ag and medical, those kind of things that are certainly weighed on Q4 and will weigh on Q1 to some degree. But we are seeing volumes improve in sort of the core businesses, are the — ones, especially the ones that all started destocking earlier, whether it’s consumer durables, building construction, et cetera. You can definitely see that destocking is over. We just don’t have everything done with that topic.
I’ll be happy to see it. It is extraordinary when you think about it. We’re sort of in the sixth quarter of destocking. 2020 had like 2 quarters and 2009 had like 3 quarters. So we are in unchartered territory on this destocking thing and we all need to own that. But you can definitely see it’s coming to an end and we’re happy to get our production volumes connected back to markets. And that will give us a nice recovery this year.
Mike Sison: Got it. And then just a quick follow-up on adjusted EBIT margins for AFP and AM, it. Looks like you’ll see some improvement in ’24 versus ’23. But historically, there have been — both of those have been closer to 20%. Is that sort of where you think margins can get to over time?
William McLain: Mike, this is Willie. As Mark highlighted, as we get the benefits of the fixed cost leverage as well as we get the mix upgrades with our circular solution. We definitely believe both AM and AFP can grow back to those and towards those 20% type margins.
Operator: Our next question comes from Aleksey Yefremov of KeyBanc Capital Markets.
Aleksey Yefremov: Are you likely to stagger construction of methanolysis number 2 and number 3? Or do you think you’re in a strong enough capital position and confidence in this business to build the two simultaneously?
William McLain: I would highlight, we would expect that we would stagger these, Aleksey. There is not going to be a significant difference but they will definitely be staggered with the France project as Mark said, breaking ground in late summer. And then as we make progress on that, we would look to then shortly after that to start our second U.S. project.
Aleksey Yefremov: And staying on the same topic, do you have any significant number of customers who might be on the fence right now telling you they’d like to see the Kingsport plant start-up and then if that works well, there could be a lot more customers willing to sign up for the other two?
Mark Costa: No, we definitely think so. I mean this industry doesn’t have a lot of examples of inventing and having successful environmental technology solutions, whether it’s recycled content or carbon efficiency. So customers are cautious about how much they want to sign up and buy until they really have proof that it’s going to be available reliably at prices that make sense to them. And so I think we’re already in the market, fortunately, confirming our price expectations with the Pepsi contract, with the specialties that we’re already selling. So we feel good about that. But I think there is a lot of potential pent-up demand once the plant is up and running and validated, that will certainly help load this plant. Obviously, that’s part of our assumption around the $75 million of incremental EBITDA this year and that will help give us upside to it.
The downside, of course, is markets are weak. And so there’s just a limitation at the rate at which customers are going to launch products in a weak market. And so you have to net those together in trying to come up with the appropriate forecast which we’ve attempted to do with this $75 million EBITDA guide for the first plant for this year. And then obviously, that will continue to ramp up and be a significant tailwind in ’25 relative to ’24.
Operator: Our next question comes from Kevin McCarthy of Vertical Research Partners.
Kevin McCarthy: Mark, if the methanolysis start-up and ramp goes smoothly such that you earn $75 million in EBITDA, as you’ve indicated, what could that earnings level become in 2025?
William McLain: Kevin, this is Willie. What I would highlight is as we’ve talked about, roughly $50 million of EBITDA will come in the Advanced Materials segment. That’s primarily in the second half. So as I think about where we’ll be, effectively we’ll be at greater than a $75 million EBITDA run rate within that business. We’ve got a strong pathway to exiting 2025 as we think about brands and being able to connect them to even more brand launches in ’25. That will be at roughly a $150 million run rate as we exit ’25. And then ultimately, we expect greater than $150 million of EBITDA from this facility on an annual basis.
