Orion SA Q1 FY2025 earnings call

• Central themes: Q1 results were challenging but not indicative of underlying strength; tariffs to benefit Orion due to regional trade shifts; resilience in recessions shown by past performance.
• Q1 results: Multiple unplanned plant outages masked earnings power, plant operations improved sequentially, rubber demand slow due to tire imports, specialty demand choppy.
• Tariffs impact: U.S. as net importer of tires puts Orion in advantaged position; rebalancing of tire trade flows could benefit demand in 2025 second half.
• Resilience: Past performance during COVID and Great Recession showed volume resilience.
• Plant operations: Completed headcount reduction, progress in China facility, debottlenecking projects, need to improve plant reliability, maintenance projects prioritized for improvement.
• Brazil plant: Pilot success with improved operating metrics and awarded additional lanes.

Rubber Segment: Volume improved 2.5% year-over-year and 13% sequentially. Impacted by unplanned downtime and related effects over $13 million, with gross profit per ton affected by downtime, pass-through timing, and regional/customer mix. Specialty Segment: Volumes improved 3% sequentially but declined 2% year-over-year. Characterized as choppy demand, with volumes in North America impacted by operational challenges and cautiousness in certain value chains like automotive coatings.

• Reaffirmed free cash flow guidance of $40 million to $70 million.
• Revised EBITDA range with $20 million reduction, split between Q1 actual and Q2 expectations.
• Reduced CapEx spending by $10 million to $150 million.
• Anticipate negative inventory adjustment in Q2 due to lower oil prices, but potential upside in working capital if oil prices prevail.
• Expect stepup in performance in third quarter without Q1 operational and inventory revaluation impacts.

• Aged plants and equipment failures impacting Q1 results.
• Compliance burden from EPA equipment overlaying existing plants, causing equipment failures.
• Economic recession possibility affecting demand.
• Uncertainty around final tariff environment and underlying economic conditions.

Q: What's the impact of outages in 1Q and if costs linger into 2Q?

A: Q1 outages were a clustering of issues, seen as unusual, with Q1 costs contained in Q1.

Q: Expectations for 2Q and macro assumption?

A: 2Q will have inventory hit due to lower oil prices, and lower demand in specialty; stepup expected in 3Q without Q1 impacts.

Q: Time frame for tariff benefit?

A: Expect to see benefit in second half as inventory of imported tires is worked through.

Q: Specialty Black business demand?

A: Distributors slow down a bit, demand choppy with mixed trends like ink being strong.