Prepared remarks
Greetings, and welcome to the Celanese Q2 2026 Earnings Call and webcast. Operator instructions were provided. Please note that this conference is being recorded. I will now turn the conference over to Bill Cunningham. Thank you, Bill. You may begin.
Thanks, Darryl. Welcome to the Celanese Corporation Second Quarter 2026 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations. With me on the call today are Scott Richardson, President and Chief Executive Officer; and Chuck Kyrish, Chief Financial Officer. Celanese distributed its second quarter earnings release via Business Wire and posted prepared comments as well as a presentation on our Investor Relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both the press release and the prepared comments. Form 8-K reports containing all these materials have also been submitted to the SEC. With that, Darryl, let's please go ahead and open it up for questions.
Questions and answers
Operator instructions were provided. Our first questions come from the line of Patrick Cunningham with Citi.
I was hoping you could talk through the normalization of some of the supply-related opportunities in the Acetyl Chain; perhaps it's a bit more pronounced than we expected. How would you characterize the operating environment, Western Hemisphere versus Eastern Hemisphere? And we've also started to see some upward movement in Asia spreads in recent weeks. So what is driving that? And is any of that contemplated in expectations for the balance of the year?
Yes. Thanks for the question, Patrick. I think our team showed a really strong resiliency and flexibility in the quarter. It was evidenced by the opportunities we had that the global production and supply chain network that we have at Celanese in both businesses gave us benefits in the quarter. In the Acetyl Chain specifically, the team took actions at the end of Q1 and the early part of Q2 to ensure that we would be able to provide our customers with a reliability of supply, and we did that up and down the value chain, particularly in parts of the world that were more acutely impacted by the supply chain crisis like Europe. The team did a good job of that. We called out an expectation of moderation in the second half of the year, and that was contemplated in our $6 guide back when we did our call in May. As we look at things today, I wouldn't say that moderation has been any more acute than what we expected. We did get a little more benefit in the second quarter than we had originally guided to. Some of that was a slight amount of EM prebuying that we called out. For Q3, maybe a little lower than we had originally guided to, really driven by the fact that we've been able to accelerate the plant closure in Lanaken and pull forward a little bit the EM closures as well, which is driving more of an inventory absorption hit in the second half than originally anticipated. In addition, because Ibn Sina didn't operate for much of the second quarter, our equity earnings are going to be about $10 million lower than we had originally anticipated this year, which is all pretty much hitting in the third quarter. So that's the dynamic of Q2 to Q3. But from an expectation perspective, the moderation that we had anticipated is about as expected.
Understood. Very helpful context. And then just on the Engineered Materials grow and fortify strategy, you've been calling out data centers, medical, electronics. Maybe it would be helpful to get some context on the base levels of revenue here of this potential growth platform. How do you plan to grow and protect market share in these high-value applications? And what sort of long-term growth rates do you expect there?
Yes. Our overarching objective in the Engineered Materials business is to align our unique capabilities and products with a deep understanding of key end markets and have segment strategies that go deep. The macro end uses we go into may not have a lot of growth at a very high level, but when you dig into subsegments, there are great pockets of opportunity. We've been reorienting our team for more than a year to penetrate these subsegments. For example, electronics today is about 10% of the revenue of Engineered Materials, but makes up about 10% to 15% of the contribution margin. Medical is less than 10% of the revenue but about 20% of the contribution margin. These two segments are foundational today and show strong growth and differentiation potential. With the work we're doing to align around the right customers and penetrate differentiated opportunities, we think this sets up nicely for the future.
Our next questions come from the line of Ghansham Panjabi with Baird.
Just as a follow-up to Patrick's question and going back to the Acetyl Chain. Obviously, it's been a very volatile year. Scott, as you sort of zoom out, how have things changed relative to the pre-war baseline as you think about the various product lines and geographies you have exposure to? I'm trying to disaggregate day-to-day complexity versus the high-level changes that have actually been happening.
Thanks, Ghansham. We've said for a long time that the majority of our profitability in the Acetyl Chain occurs in the Western Hemisphere. Over the last 15 years, roughly 80% plus of profitability being generated by the West has played out for most of that period. We did see margins in Asia move up in the 2021 through 2023 time frame, but outside of that this has been the environment we've managed for a long period. The team has been pivoting the operating model so more of our tons are sold as downstream derivatives where we have more differentiation. That enables unique innovation opportunities and helps keep profitability where it has been even when the macro backdrop isn't strong, while still giving us ability to flex up where needed. With capacity in the Western world, and flexing like we did in the second quarter, we captured benefits. The profitability increase in Asia from late February to today was very short-lived; by mid-Q2 we were kind of back to pre-war margins. We are not back to those pre-war levels in the Western world, but we expect markets to remain relatively constructive through the balance of the year, albeit supply chains have normalized to some extent. Product may not be flowing out of the Middle East, but it's flowing from other places, which creates compression in margins, but they still are at higher levels in that business. The team continues to contract business where we were able to get additional business because of our reliability of supply, partnering with customers to get business under contract for next year and beyond.
Okay. And maybe a question for Chuck on free cash flow and the $700 million to $800 million guidance for 2026. How have the moving parts there, working capital, etc., changed relative to your view three months ago as it relates to that guidance?
Thanks, Ghansham. Not a lot has changed. We're very confident in the free cash flow range we've put out for the year. $140 million of free cash flow in the quarter is pretty good considering the amount of working capital we've built up, almost $200 million use of cash in the quarter, primarily accounts receivable. Year-to-date, we sit at a use of cash of almost $300 million in working capital, which will normalize over the second half. We're seeing that normalization now. We talked about earnings increases this year benefiting free cash flow both this year and next year, and that's still the right assumption. Right now, I'd say working capital for the year is somewhere between neutral—meaning 0—to slightly positive. So not a lot changed. I feel really good about the free cash flow range. I would point out that the $700 million to $800 million of free cash flow is our baseline sustainable level. As we look into next year, we are not done on working capital reduction efforts, particularly targeting structural inventory reduction in Engineered Materials. We expect cash cost of restructuring activities, which is adjusted out of EBITDA, to continue to decline next year. We also expect some benefit from 2026 to 2027. So confident in this year's free cash flow range, and I consider that our baseline sustainable level over the next few years.
Our next questions come from the line of Jeff Zekauskas with JPMorgan.
Your Acetyl Chain volumes were flat year-over-year in the quarter. Why didn't they grow? I would expect that in the June quarter you had capacity available and were low cost. There were competitor outages. Why wasn't volume better?
Jeff, I think a lot of it is mix. We've continued to see some destocking in the acetate tow part of the value chain, so that volume was lower year-over-year, which offset gains in the vinyls chain. We did see higher volumes in vinyls, but the acetate tow segment offset some of that. In Q2 last year we saw some seasonal improvement from Q1 into Q2 in the emulsion side as well, so from a comp basis it was already a slightly higher quarter Q2 to Q2. Those are the dynamics playing out.
In Engineered Materials, exclusive of the divestiture, if you had to describe your volumes to the auto sector and all your volumes to the non-auto sector, what would those growth rates be in the quarter?
Auto generally moves with builds. On a year-over-year basis, we saw builds down Q2 to Q2, so you saw an impact of a few percentage points, which was offset by volumes in other places and some penetration into growth areas of automotive, such as electric drive units. When you exclude the divestiture, volumes were pretty much flattish year-over-year. So non-auto was up, and auto moved with builds.
Our next questions come from the line of David Begleiter with Deutsche Bank.
Scott, on Engineered Materials, you've announced a few price increases. Where do you stand on price versus cost in Q2? And where do you think it will be in the back half of the year on price versus cost in EM?
David, I said on the last call that an important focus was getting ahead of rising raw material costs in Engineered Materials. The team worked tirelessly through the quarter. We exited Q2 on a strong level from a price perspective, which led to margin expansion because pricing largely occurred in the second half of Q2. That positions us to offset a chunk of the raw flow-through we're now seeing in Q3. We said this would be a second-half impact from raw materials, and that's what we're seeing. Raw materials have been volatile—some came down and then some went back up. We'll see how this flows through into Q4, but we will see some compression relative to Q2 in Q3, as expected.
Great. And just on your Q3 guide, what gets you to the top of the range and what gets you to the lower end of the range?
David, there are many factors that flow through our P&L every quarter. Let me talk about priorities that affect the range. First, maintaining pricing to offset raw material inflation in Engineered Materials. Second, providing reliability of supply to customers in the Western world in both businesses as supply chains remain volatile, enabling us to move a bit more volume while maintaining higher margins than when we started 2026. Third, continuing to focus on productivity across both segments and tenaciously working the cost side. The growth piece is that we're on a multi-quarter trajectory of mix improvement in Engineered Materials, and we fully expect that to continue. These three priorities are critical to land at the higher end of the range.
Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.
Scott, you indicated there was still some destocking pressure in Q2 in the acetate tow business. Can you discuss the outlook for the back half there in terms of sales and earnings and the impact of the upcoming closure of Lanaken?
The tow business saw some stabilization ahead of the planned Lanaken closure. We saw moderation of destocking in Q2. Order patterns are beginning to normalize versus last year, but we do expect some level of destocking to continue in the back half based on customer conversations, though the pace has slowed considerably. We feel good about the position going into 2027 because of the cost actions we're taking. We expect to have the Lanaken plant closed during the quarter, faster than originally anticipated. That will drive a higher-level inventory absorption hit in the second half, but we felt accelerating the closure was the right call because it gives us a cleaner 2027. Some cost benefits will arrive in Q4, and the majority will be realized in 2027.
Very good. And as I look at the balance sheet, it strikes me that you've done a nice job of deleveraging pretty consistently over the last five quarters or so. My sense is that you're still evaluating additional opportunities for divestitures, Scott. Any updated thoughts on that topic as well as your joint ventures and how you're looking at those strategically?
We are committed to the $1 billion target of divestitures by the end of 2027. That hasn't wavered. We're about halfway there after the Micromax transaction we announced last year and closed earlier this year. We're working a portfolio of items of various sizes—some smaller, some larger—and we believe a combination will get us the additional $500 million. We're still confident about announcing at least one deal by the end of this year. That has been consistent and the projects are proceeding well.
Our next questions come from the line of Frank Mitsch with Fermium Research.
I want to come back to the third quarter guidance, $1.35 to $1.75. We're roughly 40% through the quarter. How much visibility do you have on your order books for the balance of this quarter?
Each business is different. Acetyls continues to have a couple of weeks' visibility on the order book; that hasn't changed. In Engineered Materials, we have pretty good visibility three to four weeks out, but it can change. We have a decent idea of how things will finish through August, but September is important; the last month of every quarter tends to be the strongest, particularly in Engineered Materials. The team is preparing after a typically slower August with vacations in Europe and Asia and is ramping up for a strong September. We'll have a better idea in the next two to three weeks.
Understood. Can you speak to total company turnaround expenses in Q2 and expectations for Q3 and Q4?
The biggest turnaround expense in the quarter was Engineered Materials—about $15 million—primarily from the POM turnaround. That will not reoccur. We have some other smaller turnarounds, but that's the main one to highlight. Part of that was significant moves in inventory absorption quarter-to-quarter. EM had to offset about $65 million of total absorption plus turnaround from Q1 to Q2 and still more than offset that by driving margin expansion. So, focus on the POM turnaround, roughly $15 million, plus some smaller ones. The balance of the year looks relatively clean in terms of turnaround expenses.
Our next questions come from the line of Vincent Andrews with Morgan Stanley.
I'm wondering if you could give us an update on Frankfurt and your plans for the asset. It sounds like it will probably run for the rest of the year, given ongoing dislocations. Is it part of your broader strategy to maintain some of the share you've gained this year from a reliability perspective? What's your overall thought process with that and the rest of the footprint?
The agility the team showed in Q2 was strong. The Frankfurt plant had been down for more than six months. We had to put equipment back into service; the team got it back up and operating in about five weeks from the decision to restart. That demonstrated speed and coordination, including ensuring raw materials were available. I'm proud of the group's response. Going forward, Frankfurt will operate depending on demand. We will match supply to demand to decide whether Frankfurt runs for the balance of the year. We haven't made that final decision because it depends on where demand and industry supply land in Q3 and Q4. Frankfurt and the Singapore unit have been block operated for several years based on needs.
As a follow-up, you outlined roughly 20 subsegments within Engineered Materials that you can expand into. Are there any in particular where you feel undershared and could be more aggressive to see quicker success, or are they all similar?
One of our mantras is that we can always do more. Technology and innovation are moving rapidly, so current share is less relevant because the opportunity set is changing fast. For example, data centers and servers: we've supplied connectors and other materials into servers for a long time, but AI data center servers are very different. The chip in each server is extremely expensive, and protecting that chip requires protection from signal loss to maintain speed, and thermal management, which creates three times the opportunity for our materials in connectors, thermal management systems, wire and cable applications. It's a multiplying effect leveraging key customers as they innovate, and it creates new ground for penetration. Our commercial leaders are accountable and energized about commitments to penetrate and drive growth. This is a value play, and you've seen mix enrichment happening for about a year; we think we can multiply this going forward.
Our next questions come from the line of Hassan Ahmed with Alembic Global.
Scott, you mentioned the lag effect of raw material costs impacting H2. Could you expand on the lag effect of pricing benefits? You've been aggressive with price hikes in Q2, but some contracts are longer duration. As those reset, I'd expect some benefit. What percentage of EM contracts are longer duration? What percentage of AC contracts are longer duration? Any sense around that would be great.
The acetyl business moves in real time for the most part; you don't have significant lag effects. We saw the peak of raw materials flow through acetyls in the first half of Q2, so much of that lag effect already occurred in acetyls. In Engineered Materials, raw materials sit in inventory longer, so we didn't see much flow-through in Q2, and it's coming through now in Q3. We exited Q2 at a peak price level, and I feel we achieved much of the pricing benefit coming out of Q2, though we'll continue to push. A lot depends on where scarcity occurs and where we are well positioned. Our Engineered Materials footprint is geographically diverse, and our strategy of compounding and buying more polymers versus making creates flexibility and nimbleness to be a reliable supplier. We'll continue to look for pricing opportunities, but I think a lot of the gain was achieved coming out of Q2.
Very helpful. As a follow-up, you talked about restructuring and nylon optimization being around $50 million annualized benefit and Lanaken another $20 million to $25 million. From a P&L impact perspective, when should we start seeing that benefit? Will we see some of that in the back half of this year, and how does 2027 look for capturing that?
Think about EM footprint actions as roughly $30 million to $35 million and Lanaken $20 million to $25 million. We'll probably get about one-third of the Lanaken cost savings this year and roughly half of the nylon restructuring this year. We'll get the remainder next year. These actions set us up for a lower cost structure in the future and are positive for cash flow.
Our next questions come from the line of Matthew DeYoe with Bank of America.
On EM growth rates, some discussion has focused on GLP-1 pens. You put out a $500 million TAM. How should we think about the ebb and flow with GLP-1 pills coming in? Is that expected in the $500 million range? In autos, Scott, you used to outgrow auto builds consistently. Things have changed with mix and where volumes come from. Why is deceleration in autos now more persistent, and is there a path to getting back to IHS plus growth rates?
We've focused on value over volume in Engineered Materials. With more polymer capacity coming on in China, keeping up with standard grade material growth, particularly in China, will be more challenging, so we're less focused on volumetrics into automotive. We're focused on share gains, penetration and getting volume and value in non-auto spaces. We feel good about penetration and wins in automotive where they matter. Over the last 1.5 years we've adjusted the plant footprint to match capacity with expected demand. I'm less worried about outgrowing auto; the key is revenue outpacing and so far it is. On drug delivery, trends are exciting and broader than GLP-1. Patient monitoring and at-home health and self-administered injections are growing. Continuous glucose monitoring remains important. The growth rates and market size we called out contemplate GLP-1 pills and their impact. I think our view is conservative, and other therapies and treatments administered at home beyond GLP-1 will roll out over the next several years, creating additional opportunity.
Our next questions come from the line of Abigail Eberts with Wells Fargo.
Looking at your closure in South Korea for Engineered Materials and Lanaken in Acetyl Chain, are there other potential candidates for rationalization on your horizon?
There's always more that can be done. Our three priorities are increasing free cash flow and deleveraging the balance sheet, intensifying cost improvements and daily productivity, and driving top-line growth in subsegments with higher growth rates aligned to our capabilities. The second bucket never goes away. We've done many of the larger footprint actions, so future rationalizations are likely smaller, in the $5 million to $10 million per site range. We'll continue pursuing additional cost improvements. Now that we've adjusted the footprint, we are resetting the supply chain to be more efficient while maintaining reliability of supply. We think we can pull additional costs out over the next several years—not just via inventory reduction but also by reducing hard costs tied to cost-to-serve.
Our next questions come from the line of Laurence Alexander with Jefferies.
When you look at your full-year estimate, what is the embedded net impact of costs around divestitures, inventory adjustments, working capital swings and absorption from downtime? When thinking about a comparable baseline for 2027, is it really about $6, or is there a significant difference either direction?
Let me walk through some items by business. EM entered the year needing to offset headwinds: $45 million of absorption hit from reducing inventory as part of our nylon optimization, $35 million of adjusted EBIT loss from the Micromax divestiture, and about $10 million of equity earnings decline related to the temporary disruptions at Ibn Sina. Despite that, we expect EM to grow adjusted EBIT at double-digit rates—closer to 15% than 10%. AC pivoted to capture value from supply disruptions as a reliable supplier in the Western Hemisphere, and they had an incremental $20 million of absorption hitting in the second half. Great work from the teams to drive earnings growth. We entered the year with a $100 million target of inventory reduction in Engineered Materials; that's underway but currently masked by increases in raw material prices flowing through inventory. We expect a strong year of free cash flow and to capture benefits this year and next year. For next year, we've laid out $80 million to $100 million of cost reductions, which will help offset changes in business conditions. I hope that covers some of the major pieces for 2026 and beyond.
Our next questions come from the line of John Roberts with Mizuho. This question is being asked by Saurabh on behalf of John Roberts.
Do you see the Ibn Sina joint venture gradually ramping as the Strait closure continues? Or is it mostly flatlined until there's a significant reopening?
The plant is running again, and there are sales happening in Q3. That will yield a higher level of dividend expected into Q4. We expect a ramp-up already. There's still volatility in that part of the world, so we'll continue to monitor it, but we expect a lift back up in Q4 versus what rolls through in Q3.
Second question: the technology roadmap on data centers is continuously evolving. How are you engaging with customers on content and development?
We have sales and intimate development work happening. Customers are innovating rapidly, and chips are changing quickly, so we must stay ahead. We're doing new product development in key polymers to meet customer requirements. The technical requirements are hard, which gives us opportunities to bring a wider solution set into servers and data centers and to think about cooling systems. This creates different discussions with heritage customers and with new customers we haven't historically called on. Many subsegments are specifically focused on data center build-outs because they drive strong returns for our customers, and those wins are already happening.
Our next questions come from the line of Josh Spector with UBS.
I wanted to ask about some corporate cost lines. When I look at SG&A and the other activities line, both are up about $30 million in the first half year-over-year. I'm sure some of that's timing and other factors, but how would you expect that to trend into the second half? Is there any giveback? Does that come down? How does this square with the functional cost savings you outlined?
Let me discuss other activities, which is running higher in 2026. The primary reason is an adjustment we made to compensation expense accruals, due to the timing of changing business conditions and the timing of an increased earnings forecast during the year. Compensation expense is higher than average this year and was lower than average last year, explaining the year-over-year change. Going forward, think of other activities as roughly $75 million a quarter after 2026, recognizing variability from several items. SG&A includes some of the same compensation dynamics, so that accounts for much of the change.
Darryl, we'll make the next question our last one, please.
Our final questions come from the line of Arun Viswanathan with RBC Capital Markets.
Maybe I can ask the medium-term earnings question differently. Going into Q2 you were thinking about $3 for the back half of 2026. There was slight outperformance in Q2 at $2.45, but you're still targeting $6 for the year. Chuck, you ran through some puts and takes on one-time items. As you look into 2027, could it be in a similar range to $6, or do you see the one-time add-backs and cost reductions more than offsetting methanol and other price upside seen this year?
Arun, we have taken actions for $80 million to $100 million of cost reductions for next year. The objective is to offset any moderation in business conditions for next year. We'll know more later in the year. With those actions, plus continuing to drive growth in Engineered Materials, we'll work to maximize results next year. We haven't provided a 2027 number yet, but those are the actions we are taking to position the company.
As a follow-up, would you take more aggressive actions to accomplish further deleveraging if business conditions moderate? Is the objective to be below 3x eventually, and how does that relate to your deleveraging plan?
Our three priorities will continue: increase cash flow, drive cash flow and deleverage, and intensify cost reductions and productivity every day. We've proven our ability to generate cash at Celanese and can build on that. That will come from aggressive cost reduction, daily productivity improvement, and top-line growth focused on value opportunities in Engineered Materials. We haven't heavily discussed acetyls on the call, but there are applications in emulsions and redispersible powders—such as tile adhesive, insulation systems and waterproofing chemistries—where our chemistry provides unique customer solutions. We're spending time expanding those. Greater cash generation each year supports deleveraging and flexibility going forward.
The aggressive actions Scott described—driving free cash flow and executing smart divestitures—are core. We'll finish this year around $10 billion of net debt and feel good about finishing next year around $9 billion, making good progress. Increasing EBITDA will accelerate deleveraging. Our long-term leverage target is around 3x net debt to EBITDA. We'll cross 5x this year; the next threshold we're shooting for is to get to 4x. Driving free cash flow and executing divestitures are our focus to reach that long-term target.
Well, thank you, and we'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions. Darryl, please go ahead and close out the call.
Ladies and gentlemen, thank you. This concludes today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.