• Adjusted EBITDA: $80 million, a 7% sequential improvement and 4% higher year over year.
• Rubber Segment Volumes: 11% lower year over year.
• Gross Profit per Ton: Improved by 6% year over year.
• Adjusted Net Income and Diluted EPS: Increased 12% and 14% sequentially, respectively.
• Free Cash Flow: Expected to be negative $35 million for 2024 before the impact of the fraud event.
• Net Debt Leverage Ratio: 3x on a trailing 12-month basis, would have been closer to 2.8x without the fraud event.
• Capital Expenditure: Expected to be $200 million for the year, with a significant reduction by 2026.
• Specialty Segment Volumes: Flat year over year.
• Adjusted EBITDA for Specialty Segment: Growth driven by favorable pricing and regional mix.

• Warning! GuruFocus has detected 7 Warning Signs with OEC.

Release Date: November 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Orion SA (NYSE:OEC) delivered an adjusted EBITDA of $80 million, marking a 7% sequential improvement and a 4% increase year-over-year.
• The company achieved its second-best performance for any September quarter, just slightly below the record set in 2022.
• Improved costs, productivity, and contractual pricing contributed positively to the results.
• Orion SA (NYSE:OEC) anticipates volume growth in 2025 due to favorable contract negotiations and strategic customer mix adjustments.
• The company expects a significant improvement in free cash flow due to reduced capital expenditures and higher EBITDA in 2025.

Negative Points

• Rubber segment demand in the Americas and EMEA remains a significant challenge, with volumes down 11% year-over-year.
• Overall company volumes decreased by more than 3% sequentially and 8% year-over-year.
• The industrial economy has softened, and customers have signaled a weaker December, leading to adjusted guidance.
• Lower oil prices triggered an inventory revaluation, negatively impacting the third quarter.
• Free cash flow for 2024 is expected to be negative, partly due to a fraud event impacting cash flow and balance sheet metrics.

Q & A Highlights

Q: Can you clarify if the current rubber volumes are at a trough and if you expect imports to impact next year? Also, how does this relate to your comments on flat gross profit per ton? A: We are well along in our negotiations, and while not completely finalized, we have had a positive cycle that we can build on for 2025. We see some mix changes in our customer base, which makes us less vulnerable to consumer sell-downs. Given the current high import levels and ongoing efforts to retain market share, coupled with potential duties, we expect a positive outlook for next year.

Q: How conservative is your expectation for gross profit per ton, and is there potential upside with favorable contract negotiations? A: The negotiations have been positive, continuing to move us forward, but not at the earth-shattering level of a few years ago. We are adjusting our customer mix, and while not all negotiations are complete, we are ahead of schedule and will provide real guidance with our Q4 results.

Q: Can you provide your perspective on capacity additions in the carbon black industry over the next few years? A: We don't foresee significant new capacity additions in North America or Europe due to economic and market uncertainties. Maintenance and reliability investments may yield small capacity gains. In Asia, particularly China, the current economic climate is not conducive to expansion, and sustainability concerns add further uncertainty.

Q: How do you see the impact of potential higher tariffs on imports from China and other Asian countries? A: Higher tariffs would be beneficial for us as we have mainly local production. Our customers are impacted by imports, so more local manufacturing would be a positive development.

Q: Regarding the Huaibei plant, how much of a drag has it been in 2024, and should we expect a benefit in 2025? A: The impact this year has been low to mid-single digits, and we expect at least a $10 million positive swing next year as we reload the plant and improve operations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.