2025 Q3 Earnings Call: Contradictions Emerge on EPS Growth, Working Capital, and Divestiture Plans

Guidance:

• Expect to grow EPS $1 to $2 in 2026 even in a flattish demand environment, with roughly half from cost actions and the remainder from the EM pipeline.
• Targeted EM savings of $30-$50M (net of inflation) plus SG&A/R&D and complexity reduction; rendered expense reduction penciled at $30-$40M.
• Committed to $1.0B of divestitures by end-2027; Micromax sale represents about half of that target (expected ~5% tax leakage on sale proceeds).
• Free cash flow targeted at least the low end of $700-$800M in 2026; 2025 working capital was a $250M source YTD and Q4 working-capital modeled at zero.
• Narco acetate tow closure to produce roughly $20-$30M of productivity savings in 2027.

Business Commentary:

• Earnings Outlook and Cost Management:
• Celanese Corporation expects EPS growth of $1-$2 in 2026, assuming flat demand compared to the recent quarters.
• Growth is driven by cost actions and the success of its EM pipeline, including high-impact programs.

• The company plans to leverage existing cost-improvement actions and integrate new products to achieve this target.

• EM Pricing and Cost Reduction:

• EM pricing showed improvement with the best in eight quarters, driven by successful price realization and mix improvement.
• Along with pricing improvements, the company focuses on cost reduction through SG&A and R&D savings, footprint optimization, and complexity reduction.

• These efforts are expected to yield savings flowing through in full year 2026.

• Acetate Tow Facility Closure:

• Celanese announced the closure of its European acetate tow facility, with expected productivity savings of $20-$30 million in 2027.
• The decision was driven by declining demand, aiming to meet customer needs while enhancing productivity.
• The closure is part of a broader strategy to optimize the acetate chain and reduce excess capacity.

• Divestiture and Financial Strategy:

• Celanese successfully completed the Micromax deal, adding cash proceeds that align with their divestiture target.
• The company is actively pursuing additional portfolio actions and committed to achieving $1 billion in divestitures by the end of 2027.
• Cash generation remains strong, supporting debt repayment and ongoing investments in core businesses.
• 

  Sentiment Analysis:

  Overall Tone: Positive

  • Management repeatedly framed progress and confidence: “I believe we’re going to be able to grow EPS by $1 to $2 next year.” They emphasized sustained cash generation: “confident next year in free cash flow, at least at the low end of that $700-$800 million range,” and firm divestiture targets: “committed to $1 billion of divestitures by the end of 2027.”

Q&A:

• Question from David Begleiter (Deutsche Bank): Scott, looking at 2026, can you think of give us an early look at what you can control for 2026 and what’s not in your control for 2026 relative to our earnings?
  Response: Priorities are cash flow, intensified cost improvements and top-line growth; management expects $1–$2 EPS upside in 2026 largely from cost actions (~50%) and the EM pipeline even in a flattish demand environment.

• Question from Vincent Andrews (Morgan Stanley): Could you speak a little bit about the operating rates and the acetyl chain? What rates did you run at in the second half of this year? What do you anticipate in the first half of next year?
  Response: Lowest‑cost U.S. assets run at or near 100%; the rest of the network (outside U.S.) is flexed to meet demand and will remain block‑operated where appropriate (Singapore, Frankfurt) to optimize costs and supply.

• Question from Jeff Zekauskas (JPMorgan): In the acetyl chain, where is the sequential price pressure coming from by product line or geography?
  Response: Price pressure concentrated in Europe in downstream vinyls/BAM/emulsions driven by weaker demand; China has stabilized with modest price lifts recently and the U.S. remains relatively stable.

• Question from Jeff Zekauskas (JPMorgan): In engineered materials, consolidated volumes were down 8% year over year—which product lines are falling more or less?
  Response: Standard‑grade engineered thermoplastics (POM, nylon, GUR, polyesters) drove most of the volume decline; thermoplastic elastomers have held up well and showed pockets of growth.

• Question from Mike Sison (Wells Fargo): Of the $1 to $2 uplift for 2026, how much comes from potentially lower interest expense versus volume growth and new products?
  Response: About half of the $1–$2 is expected from cost actions; the majority of the remainder comes from the EM commercial/pipeline; interest expense and other items are minor contributors (rendered expense down ~$30–$40M).

• Question from Ghansham Panjabi (Baird): Are you seeing accelerated inventory destocking at the customer level into year‑end, and what should we model for working capital contribution and 2026 free cash flow?
  Response: No widespread accelerated destocking—some pockets exist; working capital was a $250M source YTD and is modeled at zero for Q4; combined with EBITDA improvement, management is confident free cash flow will be at least the low end of $700–$800M in 2026.

• Question from Patrick Cunningham (Citi): On the Narco enclosure decision, did anything change in your forward view of demand or supply, and should we expect other footprint actions such as at Frankfurt?
  Response: Narco was closed because it is the highest‑cost asset and demand for acetate tow has declined; customers can be supplied from the network and the move yields ~$20–$30M of productivity savings in 2027; company will continue to review footprint for similar value‑creating opportunities.

• Question from Kevin McCarthy (Vertical Research Partners): Can you expand on divestiture plans and the Micromax proceeds—how much cash after tax and what are your principles for further portfolio moves?
  Response: Principle: retain two leading franchises (acetates and differentiated engineered materials) and divest non‑core assets; Micromax advances the $1B divestiture target (about halfway); expected tax leakage on sale proceeds ~5% of gross price.

• Question from Aleksey Yefremov (KeyBanc Capital Markets): Should we take polymer capacity rationalization off the table or is footprint rationalization still being considered?
  Response: Footprint and capacity rationalization remain on the table—management is taking bold cost actions and will pursue footprint changes when they create value and still allow customer supply.

• Question from Hassan Ahmed (Alembic Global): You previously talked about reaching a ~$2 quarterly EPS run rate—how should we think about the near‑term path from Q3's $1.34 and Q4 guidance?
  Response: Management remains focused on controllable actions to reach the ~$2 quarterly run rate; with current actions and pipeline the company expects to approach $1.75–$2 if demand stabilizes, though weaker demand could delay timing.

Contradiction Point 1

Earnings per Share (EPS) Growth Outlook

It directly impacts investor expectations and company financial forecasts.

What factors are within and beyond your control regarding 2026 earnings? - David Begleiter (Deutsche Bank)

2025Q3: Expected EPS growth of $1 to $2 in 2026 even in a flattish demand environment, driven by cost actions and EM pipeline success. - Scott Richardson(CEO)

Considering macroeconomic weakness and current trends, how to view your guidance for Q3 2025 and full-year 2025 EPS? - Ghansham Panjabi (Baird)

2025Q2: Despite the slowdown, we expect our 2025 full-year adjusted EPS to be ahead of 2024. - Scott Richardson(CEO)

Contradiction Point 2

Working Capital Contribution

It affects the company's liquidity and cash flow management, which are critical to operations and financial health.

What is the expected working capital contribution for 2025, and how should we approach 2026? - Mike Sison (Wells Fargo)

2025Q3: Working capital contributed $250 million this year; 2026 expectations for similar demand levels may not repeat this. - Chuck Kyrish(CFO)

What are your expectations for working capital improvement in 2025? - Ghansham Panjabi (Baird)

2025Q2: We also expect working capital improvements of $200 million to $250 million for the full year. - Chuck Kyrish(CFO)

Contradiction Point 3

Outlook on Demand and Economic Uncertainty

It reflects differing views on the demand environment and economic uncertainty, which are crucial for investor expectations and strategic planning.

What factors are within and outside your control for 2026 earnings? - David Begleiter (Deutsche Bank)

2025Q3: There are still a lot of uncertainties in the global economy. While our global economic outlook remains uncertain, we do have some bright spots. - Scott Richardson(CEO)

How should we expect the earnings cadence to progress if there's no ramp-up in the back half of the year? - David Begleiter (Deutsche Bank)

2025Q1: If we see a flattish to slightly up demand environment and assuming no major disruption to our supply chain, we would expect the $2 to $2.25 in Q2 and $2 to $2.25 in Q3. - Scott Richardson(CEO)

Contradiction Point 4

Emphasis on Pricing Actions and Cost Reductions

It highlights differing levels of emphasis on pricing actions and cost reductions as key drivers for performance improvement.

For 2026, what factors are within your control versus those that are not regarding earnings? - David Begleiter (Deutsche Bank)

2025Q3: Our focus remains on increasing cash flow, intensifying cost improvements, and driving top-line growth. - Scott Richardson(CEO)

How effective were recent pricing initiatives in emerging markets? - Patrick Cunningham (Citi)

2025Q1: We saw some pricing success, especially in Q2. The pricing in Q1 was mostly mix-related. We'll start to see more carryover in Q2. - Scott Richardson(CEO)

Contradiction Point 5

Divestiture Plans and Strategy

It involves changes in the company's strategy regarding divestitures, which can impact the company's financial structure and future growth prospects.

What's the after-tax cash from the Micromax deal, and what future portfolio moves are you considering? - Kevin McCarthy (Vertical Research Partners)

2025Q3: We're looking at divestitures around the size of our previous Food Ingredients transaction, with some smaller and some slightly larger. We're actively pursuing these opportunities. - Scott Richardson(CEO)

Have your divestiture plans changed in scope or scale, and are you focusing on deep or wide divestitures? - Vincent Andrews (Morgan Stanley)

2024Q4: We're reviewing assets not critical to core operations. The size of transactions could vary, but the divestitures are aimed at facilitating deleveraging. - Scott Richardson(CEO)