Release Date: February 20, 2025

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

Positive Points

• Orion SA (NYSE:OEC) achieved an EBITDA of $302 million in 2024, which is 14% above pre-COVID levels despite a challenging global industrial environment.
• The company has made substantial progress in sustainability, achieving EcoVadis' platinum rating and being a leader in the carbon black industry for ISCC plus certifications.
• Orion SA (NYSE:OEC) expects a sharp improvement in free cash flow in 2025 and beyond, driven by reduced capital expenditures and improved cash flow conversion.
• The specialty segment exhibited strong volume recovery in 2024, with full-year volumes advancing by 11%.
• Orion SA (NYSE:OEC) has reinitiated its share repurchase program, buying back nearly $20 million worth of stock in 2024, and continues to buy back shares in 2025.

Negative Points

• The rubber segment faced demand weakness in Q4 2024, partly due to elevated levels of low-value tire imports affecting local production.
• The economic backdrop remains uncertain with several headwinds, including soft rubber segment demand and mixed consumer confidence.
• Orion SA (NYSE:OEC) experienced a 9% decline in full-year EBITDA in 2024, attributed to soft rubber demand, adverse cogen comparisons, and inflationary costs.
• The company faces ongoing pressure from elevated tire imports, which continue to impact local production in key geographies.
• Orion SA (NYSE:OEC) anticipates a $15 million headwind from currency fluctuations in 2025, impacting their financial performance.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with OEC.

Q: Can you clarify the macro assumptions for 2025 guidance, particularly regarding volumes and import pressures? Are you relying on customer forecasts or assuming current conditions persist? What are the main variables affecting the $20 million range in guidance? A: Jeff, CFO, explained that they expect mid-single-digit growth in rubber volumes due to additional customer lanes and continued recovery in specialty volumes. The guidance assumes a $10 million improvement in China operations and $10-$15 million from specialty and cogen improvements. The guidance is based on customer forecasts but not reliant on changes in import pressures, which are not included in their planning.

Q: Regarding the China operations, how much of the $10 million improvement is cost avoidance versus market share gain? A: Corny Painter, CEO, stated that the improvement involves better absorption and cost performance due to increased sales in specialty grades. They aim to regain previous market positions, especially in premium areas, by leveraging exports from other regions.

Q: What is your perspective on supply additions and competitive behavior in specialty blacks? Are there submarkets where Orion could benefit from demand improvements? A: Corny Painter highlighted conductivity as a significant growth area, particularly in EV batteries, energy storage systems, and high-voltage wire and cable markets. While EV growth has slowed, these markets still present opportunities for higher specification carbon blacks, which could benefit Orion.

Q: What are the operating rates in Russia, China, and India, and how might they change in 2025? A: Corny Painter noted that Russian operations are likely down, with some raw materials used for fuel. China reports high capacity but actual production is unclear. India has expanded capacity, with newer plants likely operating at higher rates. Any normalization in Europe could lead to older Indian plants being retired.

Q: How much discretionary cash flow will be allocated to share buybacks versus growth investments or debt paydown? A: Corny Painter emphasized an opportunistic approach to share buybacks, depending on business cash requirements and share price. The goal is to buy low and be strategic about capital allocation.

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