Ingevity (NGVT) 1 Aug 24 2024 Q2 Earnings call transcript

Ingevity, a leading chemical company, recently held its second quarter 2024 earnings call, revealing a mixed performance across its three business segments: Performance Materials, Advanced Polymer Technologies (APT), and Performance Chemicals. The call, led by John Nypaver, President and CEO, and Mary Dean Hall, CFO, provided insights into the company's financial health, repositioning efforts, and future outlook.

Performance Materials Shines Amid Challenges

The Performance Materials segment, which accounts for a significant portion of Ingevity's business, showcased resilience with a fourth straight quarter of 50% plus EBITDA margins. This success can be attributed to the value of its products in the market, lower production costs, and increased hybrid adoption, which has more than offset soft auto production and full BEV vehicle market penetration. However, the company's reliance on China and the U.S. markets, which are currently impacted by slower industrial demand, remains a concern.

Repositioning Performance Chemicals

Performance Chemicals, which has faced its fair share of challenges, underwent significant repositioning efforts, including the termination of a long-term CTO supply contract and the closure of the DeRidder, Louisiana facility. These moves, aimed at reducing exposure to low-margin cyclical end markets and optimizing the physical footprint, are expected to create a more profitable and stable business segment in the future.

CTO Repositioning and Cost Savings

One of the most notable developments in Performance Chemicals was the termination of the CTO supply contract, which had been a significant drain on the business. The decision to exit this contract will enable Ingevity to purchase and use CTO at market prices, expected to be significantly lower than the previous contracted price. Additionally, the company announced the transfer of oleo-based raw material refining to its North Charleston facility, resulting in the closure of the Crossett, Arkansas site. This move is expected to reduce costs, improve operational efficiency, and free up capacity for growth in oleo-based products.

Financial Performance and Future Outlook

The financial performance for the quarter was impacted by these repositioning efforts, leading to a net loss for the period. However, the company remains optimistic about its future prospects, with plans to deliver mid- to high-20% margins on a consolidated basis and generate over $150 million a year in free cash flow. This will be used to delever the balance sheet and return cash to shareholders.

Key Takeaways

Ingevity's second quarter 2024 earnings call highlighted the company's strategic repositioning efforts, particularly in the Performance Chemicals segment, aimed at improving profitability and stability. The termination of the CTO contract and the relocation of oleo-based raw material refining to North Charleston are significant steps towards achieving these goals. Despite facing challenges in certain markets, Ingevity remains confident in its ability to navigate through these difficulties and emerge stronger in 2025.