Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LyondellBasell Industries NV (LYB, Financial) reported a 30% improvement in second-quarter underlying business results compared to the first quarter, driven by increased volumes and low feedstock and energy costs.
- The company generated $1.3 billion in cash from operating activities, demonstrating strong cash generation and disciplined execution of its strategy.
- LYB's new PO/TBA plant in Channelview operated close to benchmark rates, contributing to record quarterly oxyfuels sales volumes.
- The company increased its quarterly dividend by 7% to $1.34 per share, continuing its track record of providing a secure, growing, and competitive dividend for shareholders.
- LYB's value enhancement program (VEP) is expected to contribute approximately $400 million to EBITDA in 2024, with significant progress already made across various business segments.
Negative Points
- The company anticipates a $65 million impact on Q3 EBITDA due to downtime from Hurricane Burrell, with significant effects on the O&P Americas segment.
- LYB's European olefins and polyolefins assets are under strategic review, with potential divestitures or rationalizations, indicating ongoing challenges in the region.
- The refining segment reported lower margins due to decreased distillate cracks and modest second-quarter demand, indicating a slow start to the driving season.
- The company expects to operate its I&D assets at approximately 75% rates during the third quarter, reflecting ongoing market demand challenges.
- LYB's ongoing strategic review of its European assets represents about 13% of its global capacity, indicating potential disruptions and uncertainties in its European operations.
Q & A Highlights
Q: You're planning to shutter the refinery at the end of the first quarter. Are any of those plans contingent on funding from the deal we which could potentially get scuttled? Can you provide a little bit of transparency on the 2 million tonne, 1 billion EBITDA target you have by the end of the decade?
A: We plan to shut down the refinery by the end of Q1 2025. Our teams are making good progress on projects like our second investment in Maritech and renewable hydrocarbons. These projects are proceeding well, and we hope to make a milestone decision on Maritech this year. (Peter Vanacker, CEO)
Q: Could you give us the approximate EBITDA contribution from the new PO/TBA plant in Channelview or at least some guidance on how the run-rate stacks up to your mid-cycle target of 400 to 500 million on an annual basis?
A: The new PO/TBA facility ran close to 90% capacity utilization in Q2, which is a significant success. We have not seen a noticeable rebound from durables yet, but we remain optimistic that rate cuts will have an impact. (Peter Vanacker, CEO; Michael McMurray, CFO)
Q: Given the positive cash flow generation and solid balance sheet, what is your outlook for buybacks for the balance of the year and potential for M&A?
A: We generated 4.4 billion in cash from operating activities over the last 12 months with a 95% conversion rate. Buybacks will continue to be in the mix, probably modestly, but we are committed to our long-term target of returning 70% of free cash flow to investors. (Michael McMurray, CFO)
Q: How do you view the sustainability of the profitability levels in the Intermediates & Derivatives segment given the recent volatility?
A: We expect the I&D segment to remain steady going forward. The new PO/TBA plant is running well, and we are optimizing our assets according to technology. We see potential upside if interest rates come down, which is not currently built into our forecast. (Peter Vanacker, CEO; Aaron Ledet, EVP - Intermediates and Derivatives)
Q: Can you provide more color on the ongoing review of the European asset footprint and the likely outcomes?
A: We are keeping all options open, including divestiture or rationalization. We are having discussions with potential other owners for those assets. We are very diligent and laser-focused on not delaying necessary actions. (Peter Vanacker, CEO)
Q: What are you embedding for polyethylene price increases in your expectation of higher second-half results?
A: We expect ethane to remain cheap and see momentum supporting polyethylene price increases. There are two $0.05 per pound price increases in the market, and we will have to see how much of that materializes. (Peter Vanacker, CEO)
Q: How are you thinking about the supply and demand dynamics for polypropylene and your current views on feedstock costs?
A: Domestic demand for polypropylene in the US was up about 5% versus Q1, the strongest quarter since Q3 2021. We see a lot of growth in China, making it a more regional market. The reliability of propylene supply is a key factor, and we are optimizing our feedstock slate to produce the best value. (Peter Vanacker, CEO; Kim Foley, EVP - Global Olefins & Polyolefins)
Q: It looked like in EI you ran at 60% naphtha. Was that because of attractive naphtha co-product values?
A: Yes, there were very good co-product values, especially in butadiene, which optimized our European crackers at the time. We always look to optimize the feedstock slate week-to-week. (Peter Vanacker, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
