Orion Engineered Carbons S.A. Q3 FY2025 earnings call

• Hired a new CFO, starting December 1, with Jeff Glajch staying until end of year for transition support.
• Q3 adjusted EBITDA was ~$58M, slightly better than mid-October preannouncement but below expectations, driven by reduced Rubber segment demand in key Western regions, soft premium Specialty markets, and fixed cost absorption variances. Also, inventory revaluation due to lower oil prices affected results. Plant reliability was strong throughout Q3.
• In Rubber segment, customers faced pressure from elevated imports, affecting carbon black demand. Specialty segment deployed resources to drive customer qualifications for conductive carbon products, with some qualifications in place.
• Actions to navigate current environment: not assuming recovery in key end markets, implementing cost structure improvements (rationalizing underperforming production lines, reexamining non-plant headcount, work processes, etc.), and focusing on generating free cash flow with improved plant operating performance reducing inventory and unlocking working capital.

For the Rubber segment, volumes were up 7% but revenue was lower due to oil-related pass-throughs. Gross profit declined primarily due to adverse geographic mix, reduced fixed cost absorption in key Western regions, pricing, customer mix, and inventory revaluation. In the Specialty segment, there were year-over-year and sequential volume gains, but the improvement was skewed towards lower-margin applications. Demand in the coatings market (a premium segment) was impacted by soft OEM vehicle builds and hesitant customer demand behavior. Adverse fixed cost absorption, largely due to inventory control efforts, was a big cost factor in Specialty's EBITDA bridge. Revenue was down 3% compared to the previous year despite 5% higher volumes, gross profit was 20% lower, with lower demand in key regions and adverse fixed cost absorption being major drivers of profitability decline.

• Adjusted EBITDA was ~$58M in Q3, slightly better than mid-October preannouncement.
• Expect positive full year free cash flow in the $25 million to $40 million range.
• Savings from cost competitiveness efforts will start building in current quarter and achieve run rate savings in mid-2026, with more detail on expected benefit in February guidance.

• Soft demand in key markets, including global industrial activity malaise affecting Specialty end markets and Rubber segment due to tire production declines in key regions.
• Impact of tire imports on Rubber segment, with surplus channel inventories affecting carbon black demand.
• Inventory revaluation tied to lower oil prices impacting gross profit.
• Legal and trade uncertainties, such as ongoing negotiations around trade agreements and potential antidumping situations in Europe.

Q: What are some of the recurring costs in 2025 that won't be there in 2026?

A: Inventory adjustments related to oil pricing have been a drag this year. Also, some variable comp components of cost savings won't be permanent, but aggressive cost actions in 2026 will help reduce costs and increase competitiveness.