Celanese Corporation Class A Stock

Greetings, and welcome to Celanese's Q3 2026 Earnings Call and Webcast. [Operator Instructions] 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, and welcome to the Celanese Corporation Third Quarter 2026 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations. With me today on the call are Scott Richardson, President and Chief Executive Officer; and Chuck Kyrish, Chief Financial Officer.

Celanese distributed its third 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 of these materials have also been submitted to the SEC.

With that, Darryl, let's go ahead and open it up for questions.

[Operator Instructions] Our first questions are coming from the line of Ghansham Panjabi with Baird.

Thank you, operator. Good morning, everybody. I guess, first off, in terms of the EBITDA underpinning your $700 million to $800 million free cash flow assumption for next year, can you just give a sense as to what you're assuming in terms of underlying assumptions. Is it basically some version between 2025 and 2026, adjusting for the cost savings. What is your initial view on that?

Yes. Thanks, Ghansham. Let me start, and then I'll turn it to Chuck to talk a little bit about how he's thinking about free cash flow generation. The team is really being very intentional about how we engage with customers right now to finish the year so we can plan and position for what is still some uncertainty as we go into 2027. I think acetyls continues to focus on contracting business and with some of the benefits that we've seen from the reliability getting that business contracted for '27 and engineered materials being really deliberate and intentional with how we build the pipeline with high quality, particularly in some of these growth segments.

And so I think with that, when you combine kind of that focus of top line with the cost actions that we called out, pushing approximately $100 million between cost and interest next year, we do feel like we can make 2026 a base that we can build off of going into 2027.

Yes. Thanks. And Ghansham, look, I think we're demonstrating our capability to generate $70 million to $100 million of free cash flow in 2 very different environments the last couple of years, right? As the last couple of years, there's a few different scenarios that we can hit that. It's the earnings or some levers that we have on working capital. So we're confident in this $700, $800 range for next year. A little bit more context. I think to start, there's really no need to increase our CapEx. At those levels, we're able to maintain reliability, safety, and -- but still pursuing a very targeted low capital investments in either productivity or very targeted growth areas.

I think going forward into '27 from '26, there is still a lot of opportunity in working capital because as you look at our inventory values, I mean, they're still elevated. And we still have structural opportunities there as well. In addition, I'd point out that at Celanese, it's productivity every day. But a lot of the large cost savings programs that needed large cash outlays, they're kind of running their course, right? So that cash outlay for restructuring activities should continue to decline next year, call that $30 million to $40 million, right? So all those things considered, Ghansham, we feel that $700 to $800 is really the right range for next year.

Okay. Perfect. And then just for my second question. On the electronics and health care piece, obviously, that's had substantial growth and profit mix is clearly quite favorable and that some of the offset towards perhaps to and some of the mix backdrop there, the forecasters are calling out in terms of builds, et cetera, certainly for 4Q. But as we think about 20 you're going to have tougher comps for those 2 verticals. Just your thoughts as it relates to the momentum on the sales side for both electronics and health care into '27 would be helpful?

Yes. Our EM team is staying very close to customers right now and staying close to customers and matching our capabilities that we have, which we believe are immense with the opportunity sets that are out there. And it really is a focus on quality and quality into the pipeline and moving that through as quickly as possible to get to commercialization. And when you look at electronics and medical, we still see tailwind going into next year, Ghansham. And we don't think that, that stops.

And certainly, we are working many different end-use areas, and we continue to partner with customers on some really interesting new development programs really across every end use that we have. But certainly, medical and electronics has been a bright spot for us this year. and we expect that to continue into 2027.

Our next question has come from the line of Patrick Cunningham with Citi.

Really compelling slide on the margin contribution from downstream derivatives in the Western Hemisphere. Do you need to build any more capacity there if you have any line of sight into North America building and construction demand. And then I'm just curious on the downstream capacity specifically, how would you assess the risk longer term of those businesses being disrupted by Asian supply?

Yes. Thanks for the question, Patrick. Our operating model in acetyls has been 1 that we have continued to enhance over the course of the last several years. And where the opportunity set has been has really been further downstream and specifically in our Molsons and Powders part of the portfolio. As that business continues to penetrate further with differentiated opportunities, particularly in the Western Hemisphere, there could be a need for additional investment. We'll be very thoughtful about that. As we announced earlier in the year, we have added another reactor for the emulsions business in Europe, and we've continued to debottleneck our redispersable powders assets with very low or no capital over the course of the last 18 months.

So we'll continue to do that and then be very thoughtful about investment. But even if we needed to make investment, we still believe it will fall between kind of this -- our capital will fall between the $300 million and $350 million. One of the reasons to answer your second part, 1 of the reasons why we like the downstream portfolio is because it allows us to have more differentiation with products. Partner with customers, formulate, develop solutions that fit their needs in some of these key growing end markets, and that provides us with a little more resiliency even with the global length that we've seen more upstream, particularly out of China.

Got it. Very helpful. And then you characterized the Asian actuals environment is a bit more dynamic in the quarter, and it's been a volatile year overall. I guess, with the exit rate maybe a bit better towards the end of the quarter, can you help us with what's embedded in guidance in terms of the direction of prices and spreads there? And how much upside there would be if we sort of see persistent movements in prices and spreads here?

Our acetyls team wakes up every single day ready to tackle whatever is in front of them. And it's a team that works to stay very globally connected as well because oftentimes, there will be connections between what happens in 1 product and moves downstream or in what happens in 1 region impacting another region. And so that tightness and readiness is really the hallmark of that team. And so they've approached this quarter, much like they approach every quarter, which is be ready and be ready to no matter what transpires as we started the quarter, we've had a healthy margin environment.

We've got an unexpected turnaround from 1 of our key pipeline suppliers in China that is having to take an extended outage due to some government inspections that was unplanned. And so we are running at lower rates here in the quarter because of that outage. And then we do have margins coming off through the quarter and finishing at lower levels at the end of the quarter. And so that's what we've embedded into the guidance, Patrick. And I hire those 2 things were to change, and certainly, that would potentially drive a little higher margins in the back half.

Our next questions come from the line of Jeff Zekaukas with JPMorgan.

It seems that the EU is dropping tariffs on VAM into the EU from the U.S. Is that a benefit to you or it goes to the customer? How do you see that?

Yes. Jeff, right now, we're not seeing a huge impact to the bottom line for us of some of those changing dynamics we don't see it really being material at this point. And oftentimes, that ends up flowing through over time.

Okay. And can you tell us how your auto-related businesses in engineered materials have performed through the year. How much are volumes down? What's going on in the nylon business what's going on in the polymer business? And what's your outlook?

Jeff, we -- as we look at the auto business, we like the quality of our auto business today better than we did a couple of years ago. Now our volumes are down this year in automotive, largely driven by China. And with the builds declining in China, that's been the biggest driver. Things have been pretty stable in the Western Hemisphere, both from a build perspective as well as our overall business. But the quality of the pipeline continues to improve. And the mix has improved in really the specific auto business this year.

The team has done a great job with the changes that we've had in our manufacturing footprint, it's really given us a lot more flexibility to be less focused on grabbing volume and really focus on developing those more differentiated applications and continuing to push for value. So the quality is strong, and we're exiting the year, I think from an auto perspective, certainly better on an overall mix and portfolio than when we entered the year.

How about nylon?

Nylon fits very much in that, Jeff, because of the changes that we've made around our footprint and the fact that we're buying as opposed to making more polymer, we just have a lot more flexibility there and margins have significantly improved. And the pipeline continues to be good for nylon in key applications, both within auto, but also outside of auto.

Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.

A couple of questions on your joint ventures. Maybe on the operational side, curious to hear your thoughts about Ebensena. We've seen MTB prices very volatile first in a good way and now kind of coming off a little. So does that create a surge in 4Q and maybe an ebb to start next year? And then a second question on JVs, as you think the deal regarding NutraNova, expected to bring in, I think, $152 million. Maybe you could just talk a little bit about that deal and prospects for other similar sort of cash generative transactions as you see it today?

Yes. Thanks, Kevin. Let me hit the benzene part first. Evensen, we view that as a very important kind of natural hedge or offset in the Engineered Materials business. So when energy prices rise have been seen tends to do better energy prices fall, then we see those earnings decline, but the base business tends to kind of move in a counterbalanced way to that. So it kind of provides that. With kind of the low operating rates that Evansena had had earlier in the year, it wasn't providing that offset that we've seen historically.

I think as you go into the fourth quarter, you will see more of that. I've been seen as on a 1-quarter lag for us. There was better performance in Q3, which will roll into the fourth quarter. We continue to see inconsistent operating rates, I would say, with Evensen, shipping out continues to be very difficult, particularly in some products. And so it has been operating, but it has been operating in consistently. I think last quarter, we expected EM affiliates to be down about $10 million year-over-year.

And now we would see EM affiliates being pretty flat on a year-over-year basis -- on an adjusted basis to what we had last year. Then on to your question about Nutranova, it's certainly a good partnership we have with Mitsui, both with the methanol joint venture in Clear Lake. And now with the partnership we have on the Nutranova joint venture, they were interested in taking a larger share and so we came to an agreement to sell an additional share where we're going to get a little over $150 million of proceeds.

And we've talked about it's likely to get to close the gap on the remaining $350 million or so, $340 million of additional divestiture proceeds that we have called out by the end of '27 that it's likely a series of transactions, probably in the range or maybe smaller or a little bit bigger than what we just announced with NutraNova. And so a continued emphasis continues to be around joint ventures to where we could extract more value and not impact some of our base operating models.

Our next question has come from the line of Frank Mitsch with Birmingham Research. .

Scott, I'd be curious as to how you think about the acetyls business for the full year of 2026. Obviously, last year was very disappointing. However, you posted some eye-popping results in the post-covid environment? I just have a quick look. If I average out the 2019 and 2020, if I average out those 2 years, you're basically where you are in 2026. So I'm curious as to what your thoughts are. Was 2026 a year that you overearned and if so, by how much? I mean, how do you think about that?

Frank, I see and I said this to our acetyls team. I believe this is the business that never sleeps. It's a business that really has to be on point every single day, given how we've created this operating model to be able to flex. And I don't think we're going to put labels on 2026. Our team is really focused heavily on looking forward, finishing the year very strong. And then looking forward, to how we can build on '26 going into '27. We're going to see cost savings from the Lanaken shutdown. We're only going to get about 1/3 of those in '26 and the other 2/3 rolling into next year.

We've contracted new business by showing that we can be the most reliable supplier of acetyl products in the Western Hemisphere. We are leveraging our flexible network and maximizing our low cost base. We continue to work a number of reliability and productivity projects in the U.S. assets to be able to get more out of those assets as we go into next year to hopefully improve margins. And we're doing some really creative things around AI to help the manufacturing with that focus around reliability and productivity. So are just some of the things that we're focused on right now, getting executed here in the fourth quarter and the early part of next year to hopefully provide some tailwind to offset what could be some headwinds, particularly from the strong Q2 that we had.

And then yes, just coming back to EM, you highlighted 3 projects that I think are going to be commercialized in the first half of '27 in Asia, 1 in Europe. Curious as to what sort of order of magnitude might investors expect to see out of these 3 EM projects?

Human ingenuity never stops, Frank. And our Engineered Materials team is really focused on partnering with customers on unique solutions differentiated products that we offer to be able to provide kind of a long-term and sustainable growth base for the corporation. And these 3 projects are necessary because of the great work the team has done to continue to grow in some of these high-margin areas, particularly in electronics and medical. And those 3 investments that we've made are really a focus on specifically electronics and medical application areas.

And so as we go forward, it's really about how we use, again, '26 as the base to continue to grow. I mean we're going to grow, when you adjust for Micromax, EBITDA approximately 20% or so on a year-over-year basis versus 2025. And even if you included Micromax, that EBITDA growth would be about 15%. And so it's how do we continue to kind of get that moving into '26 or '27, which is important for us from a corporation standpoint, to be able to build off of the EPS that we generated here in '26.

Our next questions come from the line of Vincent Andrews with Morgan Stanley.

Maybe just to start off with, could you talk a little bit about the seasonality you're expecting in the fourth quarter? And is it different by region? Like, in other words, you're expecting Europe to be softer than maybe North America and just sort of what you've baked in there. Obviously, Europe is going to struggle with the higher energy costs plus there's been a backup in rates from 3Q to 4Q. So I would be curious, number one, to hear your thoughts on seasonality. And then two, the press release -- or sorry the prepared comments, you mentioned a relationship you have formed with I think the company called Vigor, in robotics.

So I'd be curious to hear a little bit more about that. I suspect that's with your PAM molecule, and I'm just kind of wondering when you think that would become interesting to your P&L? Is that a 2028, 2029, 2030 plus? Or just what the opportunity set is there.

Yes. Let me hit the second 1 first, Vincent, and then I'll come back to your first question. Look, we believe we have really enabling capabilities in our Engineered Materials business. And it's how do you match enabling capabilities with kind of -- that includes really the most vast polymer offerings that anyone has in the space. And how do you match that with customer needs. The robotics example there is a good 1 in that. And it's not just about 1 product. It's really about kind of a multiproduct offering.

And we gave the example, I think, of the continuous glucose monitor in the prepared comments, where it's not just about 1 part, and it's not just about 1 polymer that we're selling. It's about a myriad of offerings there. And so by building that relationship, by really being at the bench with the customer in the development part of that process is not just about winning one. And that is how we believe we can scale this business and how we can build that quality we can build that differentiation because of the offerings that we have.

And by being a part of that design team with customers. And so we are excited as we look forward about areas like robotics, which is really about how do you turn artificial intelligence from the digital form into the physical form. And that's really what robotics is about. And that's 1 example with one customer that we're working and we're working with a number of customers around the world on those types of application areas.

Now to get to seasonality I think what we've baked in, Vincent, quite honestly, is very similar to what we've seen historically. So in Engineered Materials, I think we've got between about a 6% and 7% volume decline baked in to the fourth quarter, that's pretty much right on what we've seen historically. And I think the early indication for the order book towards the end of November and into December would certainly match up with that forecast.

In acetyls, it's usually about a $25 million plus/minus decline from Q3 into Q4, largely driven by paints and coatings and building and construction seasonality. That really is pretty heavily contained to both the U.S. and Europe, and it's pretty evenly split, I would say. We are seeing pressure from raw materials. We are seeing pressure on cost from the low Rhine water levels, and we've baked kind of both of those into that seasonality guide that we put out.

Our next question has come from the line of Hassan Ahmed with Alembic Global.

Scott, a question on AC. One of the things that obviously transpired post the Middle East conflict was a fairly rapid escalation in methanol prices. And unlike certain other commodity chemicals, we really haven't seen much volatility there. Methanol continues to remain fairly high. Expectation is that at least for the next couple of quarters, you'll stay there. So just how have you managed those higher methanol prices and I know in the past, you guys have talked about how potentially sort of volatility in feedstock prices, methanol in particular, tends to be a positive for you guys.

So just trying to reconcile high methanol prices, those strong AC results that you've gotten with the net short global methanol position you guys have?

Our philosophy on methanol, Hassan is to be about 40% to 50% integrated. And we have a methanol joint venture in Clear Lake, and then we've got the joint venture in Saudi Arabia with Abencena, which also produces methanol. So those are our 2 kind of investment positions that we have in methanol, and we believe being a merchant buyer of a little bit more than 50% of our global needs is the right position to have, and I would expect that to continue to be the strategic path forward that we have.

What we have seen occur, specifically in the third quarter was a very rapid escalation in the beginning of the quarter. We saw margin compression that occurred at the very beginning of the quarter. And then over the course of the quarter, we were able to move pricing up to where we saw margin expansion overall as we exited the quarter. We've seen some compression on that as we started here the fourth quarter through most of the month of October, but we're still seeing margins at elevated levels.

And I think for us, as we go forward, certainly, we're going to do everything we can to hold here just with yes, the potential for length in the back part of the quarter, we have baked in margin compression in the steel chain into our guide here for, kind of, the balance of the quarter as we move forward. So if we can hold margins and pricing, then certainly, there could be some upside as we exit the quarter. But as I mentioned earlier, we do have that unexpected outage from our supplier in Asia. And then we are seeing some cost pressure in Europe from both energy as well as from the Rhine River levels. And so with kind of all of that, that's kind of where we netted out on the Q4 guide.

Fair enough. And Scott, as a follow-up, with the cost-cutting sort of exercises that you guys have carried out, productivity improvements and the like, just trying to get a sense of what that equates to in terms of EBITDA tailwinds for 2027?

Yes. Let me start, and then I'll let Chuck get into the details. We never stop looking for ways to be more effective and efficient. I think I've been with the company for over 20 years, and I think it's been a part of our DNA to focus on driving as much productivity as we possibly can and getting creative. And once we've implemented a project that creates a new normal and then how do we optimize around that and continue to get creative.

And some of the things that we're doing, we kind of call it next-generation productivity. So how do we use technology like AI within our manufacturing assets to get better at raw material efficiency, get better at energy efficiency. We get lower our maintenance costs, et cetera. And we're starting to see early returns from that, and we would expect to be able to build on that to create new opportunities into '27 and beyond. So that's kind of how we philosophically think about productivity and cost reduction. Chuck, do you want to hit on?

With the cost actions that we've already done in both Engineered Materials and actual chain, we're seeing around now $70 million flow through this year. But with just those same actions we have another $30 to $40 million that will hit us next year in cost savings. And it's on the vast majority of that is EBITDA. We also expect functional costs to normalize somewhat in '27, call it, $20 million or so. That's EBITDA. Below EBITDA, we also do expect interest expense savings to begin, and that's $40 million on a net basis, not on EBITDA, but certainly another cost savings. .

Our next questions come from the line of Josh Spector with UBS.

I'd be curious if you can characterize where Engineered Materials price cost is in the second half. I know in the prepared remarks, you said in 3Q, you offset it through mix and some other factors. But if we just think we're pricing is relative to costs. Is there still a meaningful gap to close in second half as we're looking at '27? Or where does that stand?

Yes. Thanks, Josh. If we go back, pricing was a critical part of the second quarter. And we talked very openly about the need to exit the second quarter with strong pricing to be able to offset the cost headwind that was going to hit us with kind of the delayed flow-through of raw materials in the third quarter. And that's exactly what happened. And as you can see from the numbers, we are -- we were able to get a little bit more incremental price in the third quarter as well to help offset some of those cost pressures that we saw.

We are seeing -- after seeing a stabilization of costs in the third quarter. We are seeing some costs start to rise. And that cost, particularly methanol has been mentioned here, energy costs in Europe and several other raw materials are moving up now again here as we work our way through the fourth quarter. And so the team continues to be very focused on price and pushing more price because of that kind of next wave of raw material increases that we're seeing.

And so that's going to be important that we push to get some of those key price areas as we exit this year because those raw materials are going to flow through in Q1.

Okay. And I wanted to follow up just on the supply side in Engineered Materials. I mean, if we say the market is kind of flat is so the supply set up better or worse for you into next year? And can you keep your differentiated products differentiated against potential supply out of China, other parts of Asia, et cetera?

Our EM team never stops working this equation, Josh. I mean you do have a fair amount of the business that churns out every quarter, every year. And so it's important that, that innovation engine is always running hard. And and is pushing to get that differentiation. I mean, we've been very open about the fact that there has been new capacities that have been added in Asia, and we've seen more competition on the standard grades.

And so we try to get ahead of that with the footprint actions that we have taken. And I think that is really kind of playing out as the right move for us because it doesn't push that volume equation as being as critical for us as we move forward. And it really allows us to focus on development of the pipeline in those more differentiated areas. And so we can't stop there. And we have to continue to be focused with customers in the areas where we are -- we have better products, we have more differentiated products. And we're very clear about that value proposition to customers to where we become the supplier of choice.

And I think, with the growth that we've seen in certain pockets of the business, both electronics and medical, I would also say the quality of the auto business as well has been very good this year relative to past years. And so those 3 areas, I think, are giving us some tailwind as we finish '26 and go into '27.

Our next questions come from the line of David Begleiter with Deutsche Bank.

Scott, you mentioned some earnings tailwinds for next year. Any cost headwinds you would point out, not including raw materials that you see right now?

David, we have to continue to find more because there's always things that you don't predict that could happen. We are going to see a continued, we believe, inflationary environment on some of our cost at the plant and some of our administrative costs. And so we work the productivity angle they're hard. We are targeting $150 million of gross productivity to offset inflation going into 2027. So it's really critical that we build out that pipeline from a manufacturing and procurement standpoint, to be able to offset that inflation.

Now we're going to push to do higher than the $150 million of gross, so that we can hopefully put some of that to the bottom line just because I do think we are going to continue to see inflationary pressures there. We do have to -- and I know you didn't ask about this, but I do think we have to continue to stay above this -- ahead of this price cost environment because it has been dynamic, and it has been volatile. We saw stabilization of RAS, but now raws has started to move in certain regions as well as energy prices have moved. So it's really important that we work ways to more than offset that as well in order to build off of the EPS that we're driving in '26.

Very good. And just on the divestitures, once you reach the $1 billion target, are you essentially done with divestments?

David, we're always going to be open and willing. And certainly, if something adds value, and it helps us accelerate deleveraging or give us more flexibility going forward. We're not going to stop working divestitures. I mean we had set that target because we believe, one, it was the right target, we believe is a realistic target 1 that we could hit and it was also very important for us on our deleveraging journey, but we are not going to necessarily stop working things that make sense to create value. .

Our next questions come from the line of Matthew Dia with Bank of America.

I want to talk a little bit about the tow market for '27. I know there's some idiosyncrasies across companies and how they've handled some of the capacity and competition. I know you talked about Atlantic and the tailwind there. But ex that, perhaps, what are you expecting for earnings from the underlying tow business and price competition? Do you think you can keep prices flat for next year? Do you think you can grow volumes? How does that look?

Matthew, our team in state two has been keenly focused on actions that are controllable to drive year-over-year improvement for us. And the Lanaken decision was a difficult one, but it was 1 that was necessary for us going into next year to be able to drive controllable cost improvement to help offset some of the challenges we've seen mean the tow market conditions have been challenging.

And as we have kind of worked our way through this year, we are seeing a bit of a stabilization, I would say, of tow volume and margins as we finish 2026 versus where we started the year. And as we go into next year, our belief is that overall tow performance should be improved really driven by the cost actions that we've taken that are controllable. From a market and industry perspective, we do expect continued stabilization as we work our way forward. But we're also looking for ways at which to drive improvement at the variable margin line over time. So -- we kind of look at year-over-year improvement really being driven by cost.

And then if I could, like what is the general sensitivity on the European footprint to gas. I would assume most of that's in AC, but I don't know if you've ever given numbers around that or if you feel comfortable giving numbers around that?

So Matthew, we've worked our manufacturing footprint optimization as a company now for over 20 years. I mean we've been very focused on investing in parts of the world that have the lowest cost inputs in the U.S. We've been focused on investing in parts of the world where growing demand centers like Asia and China. And Europe has been, from a manufacturing footprint, a region that has continued to get smaller for Celanese over time. .

As we started 2026, the largest exposure we had to gas in Europe was the Lanaken facility. So now we noting out of our network, the plant that we have in Germany is the largest exposure to gas. But to be honest, the gas usage is at a lower level. And so our exposure really is kind of split pretty evenly between both Engineered Materials and asset deals. But in the grand scheme of things, when you look at the entirety of the corporation, it's a pretty low percentage of our energy exposure that we have.

Our next questions come from the line of John McNulty with BMO Capital Markets.

Just wanted to dig into the electronics growth in EM a little bit more. I guess can you help us to think about how much of it was driven by just the end markets accelerating from 2Q to 3Q? How much of it was tied to maybe more successful penetration of those existing end markets? I guess, how should we be thinking about that?

Yes, John, we believe it's really being driven by growth. I mean we are seeing kind of a generational spike in demand coming from kind of the global data center build-out around AI. And we believe that's going to be a multiyear kind of tailwind that we should see. And I think what we've seen that -- what we've seen happen over the course of the last 3 or 4 quarters is that has certainly been accelerating. Based upon how our order book has developed for the fourth quarter, I mean, we're seeing that kind of continue at similar levels to what we saw in the third quarter, and we expect that to continue to grow as we work our way into 2027. .

Got it. So when we think about going forward, it's really about the end market growth, maybe a little bit less about just new applications, things that you're targeting. Is that the right way to think about it? Or is your ability to target additional pieces of the market also going to be a decent sized growth driver going forward?

No. Look, the market dynamics are creating opportunities for Celanese products for penetration because of the capabilities that we have. And I talked earlier about it's really about how we look at markets and match our capabilities and then find ways at which to penetrate it. So it's really both things that are happening here, John. It's -- the market is growing. We are penetrating with different opportunities. I mean, if you look at, for example, a traditional server we would have sold kind of 1, maybe 2 polymer families into that server.

You look at an AI data center server. That we've got multiple product families that have opportunity sets within that. And then there's additional volume for each of those polymer families on that because of the requirements that are there. So it really is about finding those application areas with high technical requirements where our capabilities are a really good match.

Our next questions come from the line of Alex Yefremov with Barclays.

Coming back to your EU specialty compounding project. Could you just help us understand what is the current specialty compounding, I presume this is a differentiated type of compounding and if so, in what way? And is there generally a shortage of compounding in EU?

No. Alexi, it really is about putting in a line that is more focused on some of these smaller high-value areas. Oftentimes, the high-value areas have lower volumes. And so you want to make those on lines that have -- that are a little bit smaller and have specific capabilities. And so with the growth that we've seen this year, particularly in medical and electronics, we have -- we're getting to the point of kind of filling out that capacity that we have that can -- that is really appropriately focused on those materials.

And so putting in some additional lines that have those capabilities is something that we identified and the team moved very quickly to go and solve for that here at the end of the year.

And I recall last quarter, you mentioned $45 million inventory related impacts in nylon 66. I think you're seeing those in the second half of this year. Should we think about that amount? I guess, a, is this still a good amount to use? And b, is this a tailwind fully next year?

Alex, so our nylon optimization efforts are right on track. We have seen some delay in inventory reductions and from softer demand in certain end uses. So that $45 million, let's call it, closer to maybe $30 million for this year, Alex. And we're still looking at 2027 and action plans there, and we can update that number for next year as we go forward.

Our final question will come from the line of John Roberts with Mizuho. .

Two questions here. Blackstone is selling its Sig to business to a Chinese company. Does that portend some share shift that may be coming in Sigto? Or do you think it's just a new owner in status quo?

John, as I mentioned earlier, to market conditions have been challenging. We took action with the Lanaken facility. And now we're seeing others take other actions with that announcement that you alluded to. Our focus is going to continue to be unchanged. We don't -- can't predict what's going to happen in the market. We're going to continue to be a reliable supplier to our customers. And we're going to constantly work to take action to elevate the return profile of this product line because it has been over the course of the last year or 2 at levels that are lower than we believe they should be. And so we need to continue to work to drive growth there, and our team is continually looking at ways to do that.

And then secondly, you've always had among the lowest tax rates in the sector. will the regional shift in the portfolio actions affect the future tax rate in any meaningful way?

No, I don't expect those shifts to impact that, John.

Well, thanks, everybody. We'd like to thank you for listening in today. As always, we're available after the call for any follow-up questions. Daryl, let's go ahead and close out the call.

Ladies and gentlemen, thank you so much for participating in today's call. You may disconnect your lines at this time, and enjoy the rest of your day.

Greetings, and welcome to the Celanese Q2 2026 Earnings Call and webcast. [Operator Instructions] 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.

[Operator Instructions] 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. And I think it was evidenced by the opportunities we had that the global production and supply chain network that we have here at Celanese really in both businesses gave us some benefits in the quarter.

And in Acetyl Chain specifically, the team took actions as we got the end of Q1, the early part of Q2 to ensure that we're going to be able to provide our customers with a reliability of supply. And I think we certainly did that kind of up and down the value chain, particularly in parts of the world that were more acutely impacted by the supply chain crisis like Europe. 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 kind of our $6 guide back when we did our call in May. I think as we look at things today, I wouldn't say that moderation has been any more acute than what we expected.

I think what we have seen happen is just some changes a little bit in the environment. And we ended up getting a little bit 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. 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 in the second quarter -- for much of the quarter, our equity earnings is 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 really kind of that 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 EM 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. I think our overarching objective in the Engineered Materials business is to ensure that we're aligning what we believe is the unique capabilities and products that we have with a deep understanding of key end markets and having segment strategies that go deep. The macro end uses that we go into, when you look at them at a very high level, don't have maybe a lot of growth. But when you really dig in and get to some of the subsegment areas, there are really great pockets of opportunities there.

And we've been reorienting our team in terms of a focus standpoint now for more than a year to ensure that we can really penetrate these subsegment areas. And so when you kind of look at electronics, for example, today, that's about 10% of the revenue of the Engineered Materials business, but actually makes up about 10% to 15% of the contribution margin that we make in the business. Medical is less than 10% of the revenue, but about 20% of the contribution margin that we make.

So these 2 segments are not just foundational today for us, but where -- with the amount of growth that we're seeing and the work that we're doing to be aligned around the right customers and to be able to penetrate what we think is going to be kind of differentiated opportunities that we're going to be able to really have good long-term sustainable business and growth, we think that sets up really 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 AC segment. Obviously, it's been a very volatile year. But 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 towards? Just trying to disaggregate some of the complexity on a day-to-day basis versus from a high-level standpoint, what's actually been happening.

Yes. Thanks, Ghansham. We've said for a long time that the majority of our profitability in the Acetyl Chain occurs in the Western Hemisphere. And that -- this is not new. When we kind of look back over the last 15 years, that kind of 80% plus profitability being generated by the West have kind of played out for, call it, 12 of the last 15 years. So this is not a new environment that we're in.

We did see margins in Asia kind of move up in the 2021 through 2023 time frame. But outside of that, this has kind of been the environment we've been dealing with for a long period of time. And the team has kind of really been pivoting the operating model in a way with more and more of our tons being sold in the form of downstream derivatives because we have more differentiation there. We're able to create some more unique innovation opportunities and to be able to drive through and be able to keep the profitability where it has been even where the macro backdrop isn't strong. But we have this ability to flex up where needed.

And with the capacity that we have in the Western world and be able to flex that like we did in the second quarter, this kind of goes back to that coiled spring analogy that I used last quarter. When we have the ability to flex that up, we will, and we see the benefits that come from that. The profitability increase that we saw from Asia from, call it, the end of February through to where we are today was very much short-lived. And really by the middle part of Q2, we were kind of back to pre-war margins. We are not back to those pre-war levels from a margin standpoint in the Western world, and we expect the markets to remain relatively constructive here through the balance of the year, albeit supply chains have found a way to normalize to some extent. And so while product may not be flowing out of the Middle East, it is flowing from other places. And so that does create some more compression in the margins, but they still are at higher levels in that business. And the team continues to do everything it can to contract business where we were able to get additional business because of our reliability of supply, we're really partnering with customers to be able 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, et cetera, changed relative to your view 3 months ago as it relates to that guidance?

Yes. Thanks, Ghansham. Not a lot has changed. We're very confident in the free cash flow range that we've put out there in the second quarter, $140 million of free cash flow is actually pretty good considering the amount of working capital we've built up in the quarter, almost $200 million use of cash in the quarter. Understandable, it's basically accounts receivable. We sit today at year-to-date, a use of cash of almost $300 million in working capital. So that will normalize over the second half, Ghansham. And we're seeing that now, right?

So I think we've talked about earnings increase of this year benefiting free cash flow both in this year and next year, and that's still the right assumption. Right now, I'd probably say working capital for the year, Ghansham, is somewhere between neutral, meaning 0 to slightly positive. So not a lot changed. I feel really good about the free cash flow range. And I'd also point out, though, that as we look ahead, I would consider the $700 million to $800 million of free cash flow as our sort of baseline sustainable level.

As we look into next year, we are not done on our working capital reduction efforts, particularly looking to take more structural inventory out of Engineered Materials. We do expect cash cost of restructuring activities, which is adjusted out of our EBITDA, those will continue to decline a bit next year. And again, we do expect some of the benefit of '26 to '27. So confident in the free cash range of this year, and I would really consider that sort of 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 in that I would expect that in the June quarter, you had capacity available, you were low cost. There are competitor outages. Why wasn't volume better?

Yes, Jeff, I think a lot of it's mix. We've continued to see some destocking in the acetate tow part of the value chain. So that volume was lower on a year-over-year basis, which was kind of offsetting the gains that we saw in the vinyls chain. So we definitely did, to your point, see higher volumes there, but you're seeing a level of offset from the acetate tow segment. Q2 last year, we did see some level of seasonal improvement from Q1 into Q2 in kind of the emulsion side of things as well. So from a comp basis, it was already a slightly higher quarter Q2 to Q2, but those are the dynamics that are playing out there.

In Engineered Materials, exclusive of the divestiture, if you had to describe your volumes to the auto sector, and all of your volumes to the non-auto sector, what would those growth rates be in the quarter?

Yes. So auto kind of moves with builds for the most part, Jeff. And so on a year-over-year basis, we saw builds down year-over-year Q2 to Q2. And so you saw an impact there of a few percentage points, which kind of is offset by the volumes we've seen in other places and some of our penetration into some of the growth areas of automotive like we called out like electric drive units. So I think when you kind of look at the macro side, auto down year-over-year because volumes, when you exclude the divestiture were pretty much flattish year-over-year. And so those are kind of everything non-auto was up and then auto kind of moving with builds.

Our next questions come from the line of David Begleiter with Deutsche Bank.

Scott, on EM, you've announced a few price increases. So where do you stand on price cost in Q2? And where do you think it will be in the back half of the year on price cost in EM?

David, I said on the last call that one of the most important things that we were going to have to get ahead of was the rising raw material costs in Engineered Materials. And the team worked tirelessly to do that through the quarter. And we exited the quarter, Q2, I think, on a really strong level from a price perspective that sets us up. And you saw kind of that margin expansion that we were able to get because of pricing that we largely got in the second half of Q2. And that positions us to be able to offset a chunk of that raw flow through that we're now seeing here in the third quarter.

So I think we said this was going to be a second half impact from raw materials, and that's definitely what we're seeing. With raws, raws have been a little bit volatile here. We saw come down, some raws went back up a little bit. And so we'll kind of see how this flows through into the fourth quarter, but we're definitely going to see some of that compression relative to Q2 happen in the third quarter 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?

Yes, David, we've got thousands of million dollar things that flow through our P&L every single quarter. And so there's a lot of different elements that can get you to the top or bottom end.

Let me talk about kind of where our priorities are because I think that kind of answers the question. I think, one, it is this -- what I just answered. It really is kind of maintaining and being able to hold pricing to be able to offset as much of these raw material inflation that we're going to see in the Engineered Materials business, continuing to be able to provide a reliability of supply to our customers in the Western world really in both businesses as supply chains have a level of volatility still that are out there and being able to move a little bit more volume, but also kind of maintain a higher level of margins than we had when we started 2026.

And then I think the third area is continuing to focus on the productivity of the business really across both of our segments here and tenaciously working the cost side of that equation. And the growth piece is really now we're on a multi-quarter trajectory of being able to drive mix improvement in the Engineered Materials business. And so we fully expect that, that will continue here. But I would kind of those first 3 priorities are certainly critical to be able to come in at the higher end of the range.

Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.

Scott, I think you indicated there was still some destocking pressure in the second quarter 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?

Yes. I mean I think the tow business saw some stabilization, certainly ahead of the planned Lanaken closure. But -- and we saw what I would call kind of a moderation of that destocking in the second quarter. The order patterns certainly are beginning to normalize a bit versus where they were last year. But we do expect some level of destocking based upon conversations with customers to continue to occur here in the back half of the year. But certainly, that pace of change that we've seen in the business has slowed considerably in tow.

So we feel good about kind of where that goes as we work our way into 2027 because of the cost actions that we're taking. And so we expect to have the plant closed here in the quarter and which is faster than we had originally anticipated. That is going to drive an inventory absorption hit at a higher level in the second half of the year, but we felt like that was the right answer because it's going to give us a cleaner 2027, and those costs will certainly get some cost benefit in the fourth quarter, but those costs will certainly be much better in '27 than they were in 2026.

Very good. And then as I look at the balance sheet, it strikes me that you've done a nice job of deleveraging pretty consistently over the last 5 quarters or so. My sense is that you're still evaluating additional opportunities for divestitures, Scott. So we would welcome any updated thoughts that you might have on that topic as well as kind of 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, Kevin. That hasn't wavered. We are 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, to be honest with you, some smaller, some a little bit larger, and we believe a combination of those will get us that additional $500 million, and we're still very confident about announcing at least one deal by the end of this year. So that's been very consistent for us, and we feel good about how those projects are proceeding.

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?

Yes. I think each business is different, Frank. I mean acetyls continues to be a couple of weeks of where you can build that confidence on where the order book is. That hasn't changed. It's been pretty consistent for the last several years. In the Engineered Materials business, we have pretty good visibility 3, 4 weeks out, but that can also change a bit. So I think that's pretty consistent.

So we have a pretty decent idea of how things will finish out through August. But September is really important for us. In September, the last month of every quarter tends to be the strongest quarter, particularly in the Engineered Materials business. And so the team is certainly prepared coming out of what is typically a slower part of the year in August with vacations in Europe as well as in Asia and then is ramping up for a really strong September. So that's -- we'll have a lot better idea here in the next 2, 3 weeks, but that's kind of where things stand right now.

All right. Understood. And can you speak to the total company turnaround expenses that you faced in the second quarter and your expectations for the third quarter and fourth quarter for that matter?

Yes. Yes, Frank, really, the biggest turnaround expense in the quarter was Engineered Materials, right? We talked about $15 million. That obviously will not reoccur. We do have some other smaller turnarounds, but that's the biggest one to sort of highlight. And if you think about that as part of that was some pretty big moves in inventory absorption quarter-to-quarter. I mean, EM, if you think about Q1 to Q2, they had to offset about $65 million of total absorption plus turnaround and still more than offset that, obviously, by driving margin expansion. So I would focus on that POM turnaround, $15 million or so plus some other smaller ones.

All right. And so the balance of the year looks relatively clean in terms of turnaround expenses.

Yes, that's right.

Our next questions come from the line of Vincent Andrews with Morgan Stanley.

I'm wondering if you could just give us an update on Frankfurt and what your plans are for the asset. It sounds like it will probably run for the rest of the year, at least just given the ongoing dislocations. But is it part of your broader strategy to sort of maintain some of the share that you've gained this year from a reliability perspective? Or what's your overall thought process with that, and I suppose the rest of the footprint?

Yes. I think the agility that the team showed in Q2 was really strong. The response on Frankfurt, that plant had been down for more than 6 months. We had to go through and put equipment back into service there. The team was able to get it back up and operating in about 5 weeks from the time at which we said go. So the agility and speed at which they were able to -- once we made that decision, get the plant back up and operating and then move the supply chain around to make sure we had raw materials was a pretty herculean effort.

And I'm certainly proud of the group of how they responded. And now as we look forward, Frankfurt will operate depending on where demand is at. And we will match kind of our supply needs and where the demand is on whether or not Frankfurt operates for the balance of the year or not. And we haven't made that decision because I think a lot depends upon kind of where demand is at and where industry supply ends up landing here in the third and the fourth quarter. So that's kind of what we're weighing right now, Vincent. That's no different than past decisions. Frankfurt as well as the Singapore unit are assets that we have been block operating now for several years based upon where our needs are.

Okay. And as a follow-up, you outlined all these sort of I think it was 20 subsegments within EM that you think you can push further into and that are attractive for a variety of different reasons. Are there any in particular that you feel like you're undershared in where you feel like now that you maybe take a more aggressive tack, you'll see sort of a quicker success in? Or is it all about the same?

I mean, Vincent, you've known us for a long time. And one of the mantras we talk a lot here at Celanese is we can always do more. And I think technology and innovation is happening and is moving so rapidly right now that I think it's really irrelevant what our current share and penetration is because that opportunity set as we go forward is changing so fast. And I'll use kind of data centers and servers and data centers as an example here. We've been supplying connectors and other materials into servers for a long period of time. But when you kind of break down an AI data center server, it's very different.

The chip that's used in each of these servers is extremely expensive. And as you kind of -- as they build these things, protecting that chip to ensure that you have protection from signal loss that you maintain the speed that's required, that you can maintain thermal management through that system. It creates 3x the amount of opportunity for our materials in terms of connectors. It creates opportunities around the thermal management system, wire and cable applications. And so it's the multiplying effect of being able to leverage kind of where -- with some of our key customers where we've historically gone and as they're innovating, it just presents kind of new ground for us to be able to penetrate with our materials.

And so that's kind of the mindset that we're having to -- that we're really driving now with our commercial teams. And I -- we had our commercial team leaders in Dallas last month and I got an opportunity to spend with them and the energy that was there and the accountability that they're driving with their teams around the commitments they're making to really penetrate and drive growth for us is really exciting. And it's -- it really is a value play. And you've seen that come through in terms of the mix enrichment that has been happening now for about a year in the business, and we think we can multiply this as we go forward.

Our next questions come from the line of Hassan Ahmed with Alembic Global.

Scott, you guys mentioned, obviously, the lag effect of raw material costs impacting H2. Just could you sort of expand on the lag effect of pricing benefits as well? I guess, asked a different way. Obviously, you guys were pretty aggressive with price hikes through the course of Q2. And I would imagine some contracts are a little longer duration. So as those contracts reset, I would expect some benefit coming from there. So maybe what percentage of your EM contracts are longer duration? What percentage of your AC contracts are longer duration? Any sense around that would be great.

Yes. I mean the acetyl business is a business that moves in real time, Hassan, for the most part. And you don't have significant lag effects. And we saw kind of the peak of raw materials flowing through the acetyl business really in the first half of Q2. So a lot of kind of that lag effect is, I would say, kind of already occurred in the acetyl business. EM, because the raws tend to sit in inventory longer, we didn't really see much of that flow through in Q2, and it's really kind of coming through now in the third quarter.

And so I would say the majority of that price, I talked about last quarter the importance of exiting Q2 at kind of that peak price level, and I feel like we did that. And that's not to say we won't have some lingering effect of positive price here in the quarter. But I would say the majority of it, I think we've achieved. But we'll continue to push there. And a lot of it depends upon where scarcity occurs and where we can -- where we see opportunities and where we're really well positioned. We talk a lot about our global footprint in acetyls, but our Engineered Materials footprint is extremely geographically diverse as well.

And because of our strategy of kind of moving to where compounding is such a critical part of that business and buying more of our polymers versus making with some of the changes we've made in our footprint actions over the last couple of years, that just creates more flexibility and nimbleness for us to be able to be a reliable supplier to our customers in the EM business as well. So we'll continue to look for opportunities on price, but I would say a lot of that, I think we achieved coming out of Q2.

Very helpful. And as a follow-up, I mean, you guys talked about the sort of restructuring and nylon optimization being around a $50 million annualized benefit and then the Lanaken side of things, another $20 million to $25 million. So from a P&L impact perspective, when should we start seeing that benefit? I mean, will we see an element of that benefit in the back half of this year? And how does 2027 look with regards to capturing that?

Yes. Thanks, Hassan. Look, I think the EM footprint actions, think about $30 million, $35 million and then Lanaken $20 million to $25 million. We'll probably get 1/3 or so of the Lanaken cost savings this year and roughly half of the nylon restructuring this year. And so we'll get the rest of that next year, but it really sets us up for lower cost structure in the future and certainly great for our cash flow.

Our next questions come from the line of Matthew DeYoe with Bank of America.

On EM growth rates, clearly, a fair amount of the discussion, at least on some of the GLP-1 pens. You put out a $500 million TAM, and I appreciate some of this TAM commentary. How do we think about the ebb and flow there with the pill, the GLP-1 pill kind of coming in? Is that kind of expected in this $500 million range? And then in autos, Scott, like you used to outgrow auto builds pretty consistently. And I know things have changed a bit with the mix and where the volumes are coming from. But can you take a step back and give us an idea of why the decel in autos is now more transferable or why you're not outgrowing as much as you used to? And if there's a path to getting back to IHS plus growth rates, what is it?

Yes. Thanks for the question, Matt. We've talked now for a while about our focus in Engineered Materials really being about value over volume. And I think with more polymer capacity coming on in China, our ability to be able to keep up with the pace of growth of standard grade materials particularly in China, is going to be challenged. And so we're less focused on the volumetric piece, particularly into automotive. We're more focused on share gains, penetration and really getting the volume and value in some of the non-auto spaces.

So I think when we look at the value that we're getting in the mix enrichment, even specifically in the automotive segment, we feel really good about the penetration and the wins that we're seeing there. And that, we think, is much more important. And then we have now for the last 1.5 years, been taking very corresponding actions around our plant footprint to ensure that we've got the right matchup of the capacity needs with where we think the business is going, going forward. So I'm less worried about kind of are we outgrowing auto or not. The key is, is our revenue really outpacing and so far, it certainly is.

And then when you look at drug delivery, we're really excited about the trends that we're seeing in drug delivery, and it's bigger than just GLP-1. When you think about patient monitoring and at-home health, self-administering that we're starting to see, there is a real growing trend around injectables, but also continuous glucose monitoring, continuing to be an important area of growth. And so I think this is -- you're going to continue to see changes. And the growth rates that we called out and the size of markets does contemplate based upon discussions with our customers, kind of GLP-1 pills and what that means going forward.

So I think we've got a pretty conservative view there, to be very honest, Matt, and we're going to continue to work. And there will be other therapies and treatments that are going to be rolling out here over the next several several years that will be administered at home through injectables beyond GLP-1, and we're excited about the opportunities there also.

Our next questions come from the line of Abigail Eberts with Wells Fargo.

Looking at your closure in South Korea for EM and then Lanaken in AC, are there other potential candidates for rationalization on your horizon?

Abigail, I'd repeat what I said earlier. There's always more that can be done. We've talked about 3 priority actions for us as a company, increasing the free cash flow of the corporation and aggressively deleveraging the balance sheet, intensifying our cost improvements and driving productivity every day and then driving top line growth in these subsegment and pockets of our end markets that are growing and have uniquely higher growth rates and matching that with our own capabilities.

That second bucket doesn't ever go away. And we've done a lot of the bigger footprint actions. And so but there's still more that we'll look at. And a lot of it depends upon kind of where -- how markets develop, how our position changes and where we can be successful with our kind of our whole value chain and continuing to strengthen our specialty compounding leadership that we have on a global basis is really the key priority. And where we get our polymers is going to tweak and change and making sure we're as efficient with that compounding network as possible.

So there are additional opportunities. I would say they're probably smaller in nature as we go forward. They're probably more in the $5 million to $10 million per site range. But as we work those, we'll certainly talk more and more about it. But there are a lot more additional cost improvement things that we're working. We're finding ways at which to be more efficient right now with our supply chain, for example.

Now that we've kind of made the footprint actions, we're positioning for growth in a different way. You have to then reset your supply chain. And we think we can pull costs out over the next several years, not just from an inventory reduction standpoint that Chuck talked about, but also kind of hard costs from our cost to serve and still provide the reliability of supply to our customers that they expect. So I think it may morph away from plant footprint changes to other kind of efficiency improvements that we have across the network going forward.

Our next questions come from the line of Laurence Alexander with Jefferies.

When you look at your full year kind of estimate, what do you think is kind of the embedded net impact of all of the costs around the divestitures, the inventory adjustments, kind of the net working capital swings and absorption that you've had to go through the downtime. Just when we're thinking about what the actual comparable basis for 2027, is it really [ $6 ]? Or is it a significant difference from that in one direction or the other?

Laurence, let me hit some of the -- by business, some of the things that we're going to see this year. If you recall, so EM entered this year with a need to offset a variety of 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, which was very good for our deleveraging and about $10 million of equity earnings decline really related to the temporary disruptions at Ibn Sina.

Despite that, we do expect EM to grow adjusted EBIT at double-digit rates, I think closer to 15% than 10%. So really nice job for them offsetting that. And AC, obviously, we've talked about the team pivoting and capturing value from the supply disruptions as the most reliable supplier to drive our Western Hemisphere profitability. They did also have an incremental $20 million of absorption that will hit them in the second half. So really great work from the team to drive significant earnings growth on top of that.

As I mentioned, I think the working capital, we entered the year with $100 million target of inventory reduction in Engineered Materials. That's underway. It's being kind of masked right now by some of the increase in raw material prices that you see flowing through inventory. But we think that we'll have a strong year of free cash flow. We'll capture most -- some of that benefit this year and some next year. So we enter next year also with -- we've laid out the cost reductions on a slide in our presentation of $80 million to $100 million of cost reductions as we go into next year, which will kind of help us offset any change in the business conditions.

So I hope that helps with some of the big pieces of how we think about 2026 and going forward.

Our next questions come from the line of John Roberts with Mizuho.

This is Saurabh on behalf of John Roberts. The first question I have is, do you see the Ibn Sina joint venture gradually ramping as the Strait closure continues? Or is it most flatlined until there is significant reopening?

Yes. So the plant is running again. And so there are sales now happening in the third quarter. So that will yield a higher level of dividend expected into Q4. So that -- we definitely see a ramping up happening already. Now obviously, there is a lot of volatility still in that part of the world. And so we'll have to continue to monitor it. But we do expect to see kind of a lift back up in Q4 versus what we have rolling through in the third quarter.

Got it. And I think the second question I have is just the technology road map on data center is continuously evolving. So in terms of your content, how are you in conversations with your customers in the journey?

I mean we have sales that are happening. So it's not just conversations with customers. It's real hardcore intimate development work that's happening because our customers are trying to innovate. The speed at which the changes are happening and the speed at which the chips are changing is pretty dynamic. And so it requires us to stay ahead. We're doing new product development and some of our key polymers as well to stay ahead of that so that we can meet the needs of our customers and what the requirements are.

The technical requirements here are hard. They're tough. And so that is giving us opportunities to be able to bring a much wider solution set to kind of these servers that are supplying into these data centers and then thinking broader about data centers in general and thinking about the cooling systems that are going into them. And then I think it's just creating a very different discussion with our heritage customers in the electronics end use spaces, but then also with some new customers that we haven't historically called on.

So I think we've got, as we said, 30 different subsegments. There's a number of them that are really specifically focused on kind of this data center build-out because it is really driving strong returns from our customers, and we're able to be able to leverage that into wins that are already happening.

Our next questions come from the line of Josh Spector with UBS.

I wanted to ask about some of the corporate cost lines. And I guess I'll apologize in advance since I think these questions have rubbed the wrong way in the past when I've asked about them. But when I look at SG&A and I look at the other activities line, both of them are up about $30 million in the first half year-over-year. I'm sure some of that's timing and some other moving factors, but I'm curious how you'd expect that to trend into second half? Is there any giveback? Does that come down? And I guess, I mean, how does this square with some of the functional cost savings you guys are laying out in your slides?

Yes, Josh, let me talk about other activities because that is definitely running higher in 2026 than it has recently. The primary reason for that is an adjustment that we made to our compensation expense accruals, which was really due to the timing of the change in business conditions and the timing of the increased earnings forecast during the year. I would say compensation expense is higher than average this year. It was lower than average last year, which also helps explain the year-over-year change. So going forward in other activities, I would think about that as roughly $75 million a quarter after '26, recognizing there's a number of things in there that can cause some variability, but I think the $75 million a quarter after 2026 is a good place to start.

So maybe that's unrelated. So is that the same thing that's impacting SG&A then, so then we'd expect that to go up and then that's the right base into next year?

Yes. Yes, that's a lot of it.

Darryl, we'll make the next question our last one, please.

Our final questions will come from the line of Arun Viswanathan with RBC Capital Markets.

Maybe I can ask the medium-term earnings question slightly differently. So I think when you went into Q2, you're thinking about $3 for the back half of '26. It seems like maybe there was a slight outperformance in Q2 at that $2.45, but you're still kind of targeting $6 for the year.

So Chuck, you ran through some of the puts and takes on a onetime front. But also, as you look into Q2, obviously, there's normalization on methanol and some other drivers. So when you put all that together, it seems like '27 could maybe be in a similar range of $6? Or do you see the onetime add-backs and maybe some of the other cost reductions more than offsetting the methanol and other kind of price upside that you saw this year?

Yes. Arun, I think that the objective is we've taken action for $80 million to $100 million of cost reductions for next year, right? The objective is to offset any changes and further moderation in business conditions for next year. We've got a lot to do. We'll know a little bit more later in the year. But with these actions we've taken, the $80 million to $100 million, we'll continue to look for more and continue also to drive growth in Engineered Materials, right? So we haven't talked about 2027 yet, but certainly we are taking actions to drive that as high as we can going forward.

And just on that note, as a follow-up, would you be aggressively taking -- or would you be taking actions to accomplish even more aggressive deleveraging if business conditions continue to moderate? And would you like -- would you -- is the objective to be below 3x eventually? Or maybe how does that kind of relate to the deleveraging plan?

Yes. Arun, let me start, and I'll turn it over to Chuck to talk about long-term deleveraging. The 3 priorities I talked about earlier are going to continue to be our focus areas, increase cash flow, drive as much cash flow as we possibly can. I think what we've proven out over the last year as well as so far this year and what Chuck talked about on kind of a baseline that we're going to build off of $700 million to $800 million of cash flow going forward, we feel like our ability to generate cash here at Celanese is strong, and we can build on that and grow it.

And that's going to come from continuing to drive aggressive cost reduction activities, productivity every single day. And then the last is really kind of adding this top line growth piece and the focus really around the value opportunities in Engineered Materials. We haven't talked on the call really about the opportunities in acetyls.

But in our emulsions and redispersible powders business, there are some applications, albeit small, but they're starting to really grow where we have unique chemistry advantages in areas like tile adhesive, insulation systems, some of the evolving waterproofing technologies that we're seeing, the chemistries that we have are providing unique solutions to our customers there, and we're spending a lot of time and effort on really trying to expand these and make sure that we're well positioned to really help kind of drive some of that growth going forward that's going to be unique to Celanese. So I think that -- what that does is it yields more and more cash every single year to deleverage the balance sheet and give us more flexibility going forward.

Yes. That's right. I mean the aggressive actions of what Scott's talked about, driving free cash flow executing smart divestitures. I would point you to what we've laid out in terms of our net debt. We're going to finish this year around $10 billion. Next year, we feel really good about finishing at $9 billion, right? So making very good progress.

And then the other side of the equation is EBITDA. If we can drive EBITDA growth, that will even speed that further. We still think about the long-term leverage for this balance sheet around 3x net debt to EBITDA. We're going to cross 5 this year. And the next threshold is we're shooting for is to get to 4, right? So as we drive to that long-term leverage target, that's our focus area and driving our own free cash flow and executing these smart divestitures.

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 so much. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Greetings, and welcome to the Celanese Q1 2026 Earnings Call and Webcast. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to Bill Cunningham. Thank you, Bill. You may begin.

Thank Daryl. Welcome to the Southern East Corporation First Quarter 2026 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations.

With me today on the call are Scott Richardson, President and Chief Executive Officer; and Chuck Kyrish, Chief Financial Officer. Celanese distributed its first 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 of these materials have also been submitted to the SEC.

With that, Daryl, let's go ahead and open it up for questions.

[Operator Instructions] Our first questions come from the line of Ghansham Panjabi with Baird.

I guess, first off, based on your first quarter operating results, it seems like your major end markets are basically weak apart from some order pattern distortions specific to prebuys, et cetera. As it relates to your guidance for the back half of the year, are you basically assuming that the operating environment reverts back to what you were seeing prewar? And I guess I'm referring specifically to the $3 per share in EPS you're guiding towards for the back half of the year.

Yes. Thanks for the question, Ghansham. I think we've been pretty consistent with where our focus is. And it really remains on cash generation while we position our businesses for long-term success. And that's because we're in a world where demand continues to be low at an end use level. And certainly, with some of the supply chain disruption, that we're seeing here in the second quarter, we're going to go capture that.

But we are really building something that we believe is very resilient as we go forward. So as we look to the second half, we ran a lot of different scenarios. And as we look at the scenario, we do believe the right one to assume in the second half is one where supply chains start to unwind here by the end of the quarter here in Q2, and you see that kind of moderate on where volumes and margins are in the second half. And we just believe that's the right assumption at this point.

And then as it relates to some of the network moves you've made in terms of ramping up capacity in certain cases in Frankfurt, et cetera, VAM, VAE and so on and so forth. What happens in the scenario that demand normalizes, would you adjust accordingly given that you're ramping up this capacity again, obviously, based on search demand, et cetera?

Yes. The words we use internally, Ghansham, are being positioned to respond. And that's not just here in Q2. This is how we operate every single day. And we've run Frankfurt, we've run Singapore as swing units, but we also swing our operating rates in the acetyl chain as needed. We pivot our supply chain in Engineered Materials as customer demand shifts and changes. And so we're going to continue to position the company and the day-to-day business where it needs to be to respond. And so if demand continues to stay where it is, we've got the assets running where they are. Demand changes, then we'll pivot as needed.

Our next question has come from the line of Patrick Cunningham with Citi.

Your U.S. production at Clear Lake has a pretty significant advantage. I guess how have operating rates trended in the first quarter? And how are they progressing into 2Q and I'm just curious if there are any limiting factors to maximizing those rates or any logistics bottlenecks you foresee across the complex.

Yes. Thanks, Patrick. It really is about reliability of supply for our customers. And Clear Lake is a great asset that can flex really across the products that we make there. And then we've got downstream assets positioned around the world that can also flex. And as I just mentioned on the previous question, Frankfurt is one of those assets that we block operated in a way that can flex as needed. And we're going to continue to adjust those rates as needed, as you can imagine, just given where some of the supply chain challenges have been this quarter, Clear Lake is running at a relatively high utilization rate.

Got it. And then just on EM. Can you talk a little bit about the playbook in sort of response or in context of the crisis in terms of pricing, share gain opportunities how is the Nylon 66 market performed? And any meaningful change in supply or trade flow dynamics at this point?

Yes. Look, how we look at our EM business, these are the right products at the right time to drive growth in a world that is challenged for growth. And we do that by ensuring that we've got the right segment focus and then kind of drill down below that into a subsegment focus. And we are extremely well positioned with the asset base from a compounding standpoint, which is where we create the most value in that last step of the process, our assets are extremely well positioned in each region.

And so we are able to move polymer or buy polymer in each region to be able to adjust as certain products may have scarcity because of supply chain challenges, or be able to adjust pricing to deal with rising feedstock costs. And it does tend to take a quarter or 2 for those feedstocks to really fully flow through in the Engineered Materials business. And so it was important that we work to try to get ahead of that from a pricing standpoint now.

Our next question is come from the line of Jeff Zekauskas with JPMorgan.

Can you talk about prospects for [ benzene ] and how that will affect your Engineered Materials EBIT or EBITDA or equity income?

Yes. Thanks, Jeff. When you look at benzene, in 2025, they actually had a fairly large turnaround. So earnings were a little bit lower last year. And so right now, as we estimate earnings 2026 versus 2025, we're assuming pretty much flattish, Jeff, on what rolls through equity earnings right now.

Now the plant -- most of the assets there have not been operating for the last 6 weeks or so because of shipping constraints as well as a raw material feedstock disruption. And so you'll have to see kind of where that goes here into the second half, but given the fact that we are on a 1-quarter lag, there. And the fact that 2025 was a pretty low number, we're right now assuming flattish.

Okay. Great. And then in the acetyl chain, in the second quarter, you're going to make maybe a little less than $200 million more. Can you analyze that in terms of -- is it more acetic acid? Is it more VAM? Is it more China? Is it more U.S. exports? Can you give us an idea of how that improvement in the acetyl chain flows?

Yes. So I would say it's not really dissimilar to kind of fundamentally how the business operates in most quarters. The majority of the profit, as we've said in the past, comes from the Western Hemisphere. And I think the lift here from Q1 to Q2 is definitely weighted heavier towards the Western Hemisphere as well. And it's that low-cost advantage that we have in our asset base in Clear Lake and being able to utilize that across the Western world.

We have seen margins move up in Asia as well. I would say from a product standpoint, Jeff, very much disproportionate to the vinyls chain. So think VAM downstream into vinyl emulsions and then redispersable powder. So again, not dissimilar to how we've talked about the business to being a lot of the profitability coming less from selling acetic acid as acetic acid, but really monetizing downstream and then seeing pockets of growth opportunity.

We've talked over the last year or so about the importance of vinyl emulsions as well as powder is kind of being a very small pocket of growth in certain parts of the world, and we're definitely seeing that right now. And vinyls chemistry has a nice advantage in a higher oil environment over competing systems. And so we're seeing and working with customers on growth opportunities to drive some switching as well. And so that's really where that focus is much more downstream in the product portfolio.

Our next questions come from the line of Vincent Andrews with Morgan Stanley.

I wanted to ask on the second half in EM. There's some comments in the prepared remarks about what you're doing on the nylon side of the equation that you expect some inventory drawdowns and some structural inventory reductions that were already underway. So is that coming on the customer side of the equation? And you think that's going to accelerate because you're going to be reducing capacity? If you could just color on some of those lines for us, that would be helpful.

Yes. Vincent, yes, in the second half, in Engineered Materials, we would expect an additional $50 million of absorption hit on the income statement. That is from drawing that nylon from the transition. But we've had, as you know, some other structural inventory production actions underway, right?

So yes, I would say, even with all that, we are targeting to grow at the end of the year, which will more than offset these -- so absorption hits over the year, which is about $35 million, the turnaround expense, which is about $15 million here coming in Q2. Potential raw material cost pressures that Scott talked about or even demand pull back and also offsetting the Micromax earnings, right?

So at the same time, I think it's important to remember, we're also fortifying the base in EM, reducing costs, reducing complexity, taking this inventory permanently out of the system. So it's really been in the plan and in place for some time.

Okay. And if I could just follow up on the Acetyl Chain. I didn't -- I don't think I saw this in prepared remarks. Does the second half assume that you're still running Frankfurt for the full second half? Or does it assume some reduction in operations there?

Vincent, there's different scenarios that could potentially play out. And so we are assuming that Frankfurt is going to operate into the second half at this point. We do have some turnaround activity in two of our VAM units around the world. We've got both the U.S. VAM units in turnaround between now and the end of the year. And so just depending on where demand is at, we'll determine what that Frankfurt operating rate schedule will look like. And -- but certainly, the expectation is that it's going to operate into the second half.

Our next questions come from the line of Michael Sison with Wells Fargo.

Nice start to the year. In terms of the second half, just curious, if nothing really changes in terms of the conflict here, does the run rate in 2Q for EPS kind of mirror third quarter, meaning does third quarter look like second quarter and then you sort of have a bigger drop in the fourth to get to your $3? Or is it -- are you assuming things get better and we're kind of $1.50, $1.50?.

Yes. Let me hit kind of a high level there, Mike. And then I'll turn it to Chuck to talk about kind of the cadence. As we look at the second half guide, it was really kind of looking at a scenario where we start to see some of the unwinding of the supply chains here by the end of Q2 and then kind of continuing into the third quarter and then into the fourth quarter.

Your question is, if we see things kind of stay where they are, I would look at how we think about our business. I mentioned that position to respond earlier. It's kind of like a coiled spring. And if the opportunity is there, then we're going to release that spring. And so if things stay where they are from a demand and a supply chain standpoint, then there's certainly upside in the second half.

Yes, Mike, based on the guide, there's a lot of moving parts and a lot of uncertainty. But I think probably the easiest way to think about it right now is if you look at normal seasonality in any given year, Q3 versus Q4, it's about $25 million, $30 million in each business. I think for now, that's a pretty good place to start. I wouldn't be surprised to see a similar pattern this year.

Got it. And then just a follow-up on Clear Lake. I recall Clear Lake II was running full out or running pretty high. Is Clear Lake I now sort of ramped fully up to sort of take advantage of the higher pricing and such? And then where are industry margins now relative to the past peaks?

Yes, Mike, let me answer your last question first. Certainly, we are nowhere near kind of what would be past peak demand levels globally or mid-cycle demand levels globally. And so I would not necessarily compare that to past periods from a margin or a volume perspective.

And in terms of your first question, I would go back to the answer to Jeff's question is the majority of the opportunities that we're seeing are more downstream for acetic acid in the vinyls chain. And so as we look at Clear Lake operating rates, we've got both of those assets that we have there kind of dialed in at the right level to get the optimal usage, et cetera, and efficiency that we want from both assets and being able to pivot up or down as needed. So really, it's more of a downstream opportunity that we're seeing as opposed to fundamental acetic acid demand.

Our next questions come from the line of David Begleiter with Deutsche Bank.

Scott, some of your peers have talked about 9 to 12 months until supply chains normalize post the end of the conflict. It looks like you're targeting maybe a shorter time line to normalization acetyls. Can you talk to that time line you're looking at?

Yes. Thanks, David. Look, it's about scenario planning, and there's a lot of different scenarios that could play out. And as you kind of look at the assumptions that we've made here that we start to things begin to unwind and that begin of that unwinding. It just -- it depends on what that kind of decline curve looks like in terms of volume and price based upon the speed of that unwinding.

And I think that is uncertain right now. But we felt like it was important to be prudent in terms of how things could play out because there's also a potential offset to demand with feedstock prices high and where they are, there could be an impact to underlying demand. And so we kind of put all those things out there. And again, felt like it was the prudent guide for the second half. But also, as I said earlier, look, we are ready. And our team has done a great job of responding to the environment here in the second quarter. And if we see that environment continue, then we'll go capture that upside.

Very good. And just on EM, you've announced some price increases. So what's the cadence of price cost as we go through Q2? Are you ahead behind or neutral? And how is it go into the back half of the year?

Yes, we're starting to get some of that price flowing through as it is kind of a slow uptick here in the second quarter, but it's important that we really begin to achieve that because the cost, while flowing through a little bit here in Q2 is going to hit us heavier in Q3. And I think we should see that hopefully fully materialize in the P&L in the third quarter. And so it's important as we exit Q2 that we're achieving the maximum amount of that price. So we're certainly on the trajectory there. But the next 6 weeks here as we finish the quarter are going to be really important in that equation.

Our next questions come from the line of Frank Mitsch with Fermium Research.

Terrific. And actually, David's question leads nicely into what I wanted to ask about, and that's on the acetyl side of things. I mean, as you look at the second quarter, my assumption, and please correct me and expand upon it is that you're raising price in the acetyls upstream and downstream.

And the expectation would be that you're going to end the second quarter at a higher price level than what the 2Q average would be such that we're going to start 3Q at a higher level. I mean -- so a couple of questions. Is that how you're thinking about it as well? And based on your prudent guidance, are you factoring some measure of price degradation in the third quarter? Or how do you think about the price balance on acetyls and how we're going to enter the second half?

Yes, Frank, I don't know on a global basis that, that necessarily is right assumption. We've already seen pricing in China start to moderate as from where it was in -- at the beginning of April. So actually, I don't think on a global basis, that's actually kind of the case of where things will be. I think we'll probably see that price in Asia, stay where it is or possibly moderate a little more as we work our way through the quarter.

In the Western Hemisphere, where pricing is now is probably similar to where it will be at the end of the quarter, depending on where competitive dynamics are. So I actually think where we were in April was probably the higher watermark just as we look at the cadence today.

I understand what you're saying about China. My understanding is that some of that was also demand destruction. So they actually don't have -- you can't sell the products downstream at least here in the near term. But from -- in the Western world, would you assume that in North America, that you would give back something on price in the third quarter?

I think it's TBD, Frank. I think volume, we've got a moderation of margins and price as you work your way through the third quarter. Just from a normal seasonality standpoint, Q2 tends to be the highest quarter from a volumetric perspective, typically in acetyl. So you would normally have some volume come off in Q3 from a seasonality perspective through the holiday period. And so we've kind of factored some of that into the assumptions for Q3.

Our next questions come from the line of Hassan Ahmed with Alembic Global.

Just wanted to sort of dig a little deeper about this sort of uneven sort of pricing dynamic regionally that you guys talked about within acetic. I mean my understanding is that as I take a look at the raw material side of things, just in the Middle East alone, there seems to be 26 million to 27 million tons of methanol capacity that is off-line, right? And obviously, methanol pricing across the globe has risen quite rapidly, including China, right? So I'm just trying to understand this recent dip that we've seen, particularly in Chinese spot acetic pricing. Where are the margins there? Are operating rates still relatively elevated? Just trying to sort of make sense of this uneven sort of pricing environment by region.

Yes, Hassan, I think that's a good time to really call out the decisive actions that our team in acetyls has taken around the world in the quarter. They responded really quickly at the end of Q1 in order to take advantage of the margins started to move up there in China, in particular, and that's really the only place that we saw benefit from some of the supply chain disruption in Q1, but they were really working to position for the second quarter.

And as we kind of look at it, your margins were highest probably here in Q2 in China at the very beginning of the quarter, and they've come off. But we're certainly not at margin levels where they were at the beginning of 2026. So you're kind of in between that -- where they were at the beginning of April and where they were when we started the year.

And so it's somewhere in that zone. We did see -- China was in holiday last week, came back today. Pricing did move up a little bit. So we're going to have to kind of see where -- how that holds and where demand is. But demand has held relatively steady from what we can tell through the value chain in China.

Very helpful, Scott. And as a follow-up, can you just give us an update on where you guys stand with regards to any further potential divestitures?

Yes, Hassan. Yes, we continue to work that very aggressively. And I would say the current events haven't helped the M&A market. But regardless, we do feel good about signing another deal this year. It could be a smaller deal, but we're working hard to get one signed. We have not baked in any assumption for cash proceeds from a deal just from the uncertainty of kind of signing versus closing.

Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.

Scott, can you speak to your mix of contract versus spot business within acetyls on a pre-war basis and speak to how that is evolving, if it's changing at all post war. For example, if we consider VAM and some of the parabolic price action there, is your philosophy to sort of strike while the iron is hot and take advantage of this windfall opportunity, you might say? Or is it to really focus on upgrading your contracts and the terms and the mix with an eye toward the medium to longer term or some balance of those? Maybe you can just kind of talk through that and how you're thinking about it..

Yes. Let me just kind of step back a minute, Kevin. Our team is first focused on being the most reliable supplier in each region, in each product. And I think we've developed a network pretty deliberately for over many, many years that can achieve this and give us flex to be able to respond to what happens and what kind of landscape changes happen.

And so the pricing mechanisms that we have are different in each region, in each product, to be honest. We've got some formula pricing in certain regions, particularly VAM in the United States that we've talked about. It kind of moves with raw materials, gives us a nice base, gives us cost pass-through. We've got a lot more contracted business in Asia, but moves with how the market is moving very quickly. And then we've got blends in the balance of the business in the U.S. and in Europe on different mechanisms.

And so this is about being ready in an environment like we are now. And so being able to flex with some extra volume gives us that ability to be that reliable supplier for customers and for new customers that are just coming to Celanese or just coming back to Celanese. And so it is about how do we get that business secured longer term. And we are securing business that we had -- didn't have under agreement for the second half.

And so as that process works here in the second quarter, it will give us better clarity on what the third and fourth quarter are going to look like as we are able to utilize this flex capacity that we have.

And then secondly, I wanted to ask about your new strategic initiatives in nylon that you announced last night in the U.S. and Singapore, I think you're targeting incremental cost savings of $30 million. So maybe you can step through what you're doing there and comment on the cash cost to achieve those savings? And the timing of the flow-through of the $30 million in coming quarters or years?

Yes. Let me hit kind of the philosophy and the strategy around the changes, Kevin, and then I'll turn it to Chuck to talk about some of the details. When it comes to Nylon 66, we've been very open about this now for more than a year. And as we said in the past, our value is in the compounding step of the process. And that's not changing here.

And in fact, we're enhancing our compounding capabilities in our specialty products where we need to, to ensure the reliability of supply to our customers. And we've had a very thoughtful step plan to ensure the short- and long-term sustainability of how we get polymer. And so being able to optimize this make versus buy on polymer is critically important. And so these announcements around polymer capacity for us is really the next big wave of that commitment to improving the fundamental profitability of the Nylon 66 business, and we believe these are the right news for us right now.

I think as we go forward, we would expect about $30 million of savings. As you mentioned, about 1/3 of that will probably hit here in the second half of the year.

And I'll turn it to Chuck to talk about the other details.

Yes. Thanks, Kevin. Yes, like Scott said, about 1/3 of that $30 million starts rolling in this year. Your question on the cash costs, think about that as sort of less than a 1-year payback of that $30 million. That's been in our free cash flow forecast this year. So nothing incremental there.

Our next questions come from the line of Laurence Alexander with Jefferies.

Just wanted to flesh out how you're thinking on working capital. How much you think in your base case, working capital will be a use of cash for this year? And as you think about this year and next year, is working capital just ebbing and flowing with your expectations around input costs? Or is there going to be some net drag on EBITDA at some point to work to reduce your working capital position?

Yes. Thanks, Laurence. Let me talk about free cash flow this year and sort of talk about working capital within that. If you look at our midpoint of our earnings guide, that's about a few hundred million of EBITDA growth this year. That will translate into free cash flow, but it is likely that -- it will be split between '26 and '27 as it works its way through working capital.

Right now to simplify, we're assuming we collect about half of that increased EBITDA this year and half next year. So that would mean about half of that gets tied up in working capital. I think before that, we were assuming this year actually that working capital would be a source of cash of, say, call it, $100 million as we continue to reduce inventory in EM.

So maybe working capital in this scenario is closer to flat for the year. And then I think you kind of ebb and flow with demand, but we do expect to continue to take inventory out of the system and generate tailwinds in working capital.

Our next questions come from the line of John McNulty with BMO.

So on EM, with all of the work that you've been doing and I guess, some incremental work even this year, I guess, is there a way to think about -- maybe this year is not necessarily a normal year, I guess, is there a way to think about what you think the mid-cycle earnings power of the business is now just given all the changes that you're completing and also maybe a more normalized demand environment?

Yes. Thanks, John. The words that we used in the prepared comments, I think, are important to think about here. It's really about growth and Fortify. And as we think about the Fortify piece, I mean that's -- we've been working that hard with the cost reduction actions that we've taken out, the efficiency that we've been able to drive, how we're adding technology to the business with our CAMIL platform, there is -- we are strengthening this business and positioning it to be able to ready to respond to customer needs.

The other thing that the team has been working really hard on is kind of building a really deep segment approach focused on where we can win and where we can hold that business. So where we have a differentiated offering in growth subsegments in things like medical, electronics, data centers, some key growth industrial applications, high-performance athletic wear, there's just a lot of really great work the team has been doing in these high-growth areas.

And so positioning well there, building the pipeline so that we can hit that growth piece going forward. And look, growth is always hard. Growth is even harder when the world around you isn't growing broadly, but there are pockets of growth here, and that's really where that focus is. And so it's hard to say what mid-cycle will look like.

We do not believe we're anywhere near mid-cycle demand in kind of our historical key end uses as well as some of these emerging growth areas. So as we work that, as we continue to build out what we think the addressable market space is there, then we'll provide that color in the future.

Our next questions come from the line of Matthew DeYoe with Bank of America.

I think there's a desire amongst investors really sell side as well to just get a better handle on like what EM is now, given just the kind of asset aggregation and then closures and repolymerizations and closures. I get the core identity and thesis behind Fortify. But like at the end of the day, what is an achievable -- I don't know, I don't want to call it mid-cycle because it's not necessarily a pure commodity business. But what should the people or what should the market think about as like a reasonable expectation on profitability for this business under normal demand, normal kind of margin structure?

Yes. Thanks, Matt. There's a lot to unpack there. What I would say is this is a business that is customer-focused with an eye towards building unique solutions. And it's a business that we've been working hard over the last 3.5 years to make sure that we're well positioned in the environment that we're now in globally with a lot of the competitive landscape that's changed to be able to win.

And it's a business that has unique capabilities. It has unique products and it has a unique ability to be able to get polymer solutions to do just about anything. And we've got a great model that I think ensures that the things that we're working on are going to drive the profitability on our worth the time and effort that it takes to work these solutions. And so I think what we've been able to do now is take a business that was performing on an EBITDA basis in the low teens now to one that's now consistently performing north of 20%. And the idea is to keep moving that upward.

Even if the world around us is not growing, we are focused on growth. And when you look at and kind of back into our assumptions for this year and you normalize out Micromax and the $40-or-so million of EBITDA that comes out of that, this is a business that's going to grow year-over-year, even though its end markets are not growing. And so I think that's the way to think about it.

It's a business that should be able to grow like we did in the past, going back 5, 10 years ago at 5% to 10% minimum on the EBITDA line and a business that's consistently going to find a way to be able to deal with whatever the global environment is. And if we see a normalization of demand back to mid-cycle, and it's hard to say what that looks like because the world's changed quite a bit, then I think you also possibly get kind of a hockey stick lift on that at some point.

So it's about being consistent. It's about being ready, and it's about continuing to take the hard steps to ensure that we have the cost structure in place to be able to win in a very competitive landscape.

If I could just ask on the acetic side, right, like I've never really trusted some of the consultants when it came to U.S. acetic prices. But to your point, Asia is off peak. And that would lead me to believe like absent another leg higher, it remains maybe a bit curiously below Western markets.

So how does that sustain -- well, first off, is that right? Because, again, I don't have confidence in the U.S. pricing, I get. But how does this sustain? And then how does weaker acid pricing not translate to weaker VAM? Or would that weaker acid back up into methanol? Like how possible is this just stays kind of relegated to one market? I would assume it's not, but I don't just want to hear you opine on it.

Yes. Matt, as you know, I'm old, and I've been here at Celanese for 21 years. And when I joined Celanese, you are what we now call Acetyl Chain business was an acetic acid business. And now it is an acetyl chain business. And it's a business that doesn't rely on us just selling acetic acid in order to be successful.

And back then, 20 years ago, over half of what we sold to an end customer in this business was acetic acid. That is very much not the case anymore. And so some of the dynamics that you talk about, we are very much less susceptible to those acetic acid movements. And yes, you are going to see acetic acid pricing in some regions roll through into the downstream, but it usually takes some time, both on the way up and on the way down.

And so it's about managing that, and it's also then continuing to position for the pockets of growth that are in this business. And yes, they've been small, but there have been pockets of growth for us in the vinyl emulsions part of the business as well as in redispersible powders. And in the environment we're in now, we're finding ways at which to expand that. As I mentioned earlier, with some of the switching that customers want to do away from oil-based systems, this is giving us a nice advantage and the opportunity is now for us to go get that business, get it contracted and extend it into next year and beyond.

Our next question has come from the line of John Roberts with Mizuho.

This is [ Eden Badiger ] for John. My quick one, Scott. So in this inflationary environment, like how concerned are you about demand disruption in the later parts of the year? And related to that, are you seeing any signs of prebuying by customers that trying to get ahead of price increases that they're seeing coming?

Yes. Thanks for the question. Yes, look, it's something that we're very much concerned about, and we're watching very closely. And it factors into the scenarios that we put out for the second half. And there's no doubt that's something that we are looking at. And we put it in our prepared comments that particularly in Engineered Materials, that we may be seeing a front-loading of some of that volume.

And so that certainly factors into the guide that we made for the second half. I don't think we're seeing much of that in acetyls, to be honest with you. I mean the products that we have there largely are liquid bulk chemicals. They have some element of shelf life as well as storage limitations around the world. So I don't think it's much of a factor there, but it's certainly something that we're cognizant of on the Engineered Materials side of the house.

Daryl, we'll make the next question our last one, please.

Our final question will come from the line of Josh Spector with UBS.

It's Chris Perrella on for Josh. Can you size the Palm turnaround impact in the second quarter there? I might have missed that earlier. And is the later restart dependent on the ability to get speed out of benzene? Or can you make the economics work buying methanol to feed the plant there? And I guess the corollary is, are you seeing raw material sourcing issues, particularly in Asia at this point?

Yes, Chris, let me start, and I'll let Chuck fill in the details. Let me hit the second part of your question first. No, we are -- we have already moved and we are moving methanol from our plant in the United States over to Europe. So our Palm unit in Europe either uses sourced methanol from the market or uses our own cost-based U.S. natural gas-based material.

Yes. Let me talk about kind of walk Q1 to Q2, both the turnaround and some of the other inventory. So in Q1, we built POM inventory, hit the income statement, $25 million benefit in Q1. Now in Q2, we're going to draw that POM inventory down, but we will build some nylon for the transitions that we've talked about. Expect a net $10 million absorption hit to the income statement in Q2, plus about $15 million of turnaround expense. As you know, from the guide, we do expect to offset the majority of that $50 million sequential headwind through the volume improvement and pricing actions we've talked about.

Well, thank you, everyone. We like to thank you for listening in today. And as always, we're available after the call for any follow-up questions. Daryl, please go ahead and close out the call.

Ladies and gentlemen, thank you so much for your participation. This does conclude today's teleconference and webcast. Please disconnect your lines at this time, and have a wonderful day.

Greetings, and welcome to the Celanese Q4 2025 Earnings Call and Webcast. [Operator Instructions] Please note 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 Fourth Quarter 2025 Earnings Conference Call. My name is Bill Cunningham, Vice President of Investor Relations. With me today on the call are Scott Richardson, President and Chief Executive Officer; and Chuck Kyrish, Chief Financial Officer.

Celanese distributed its fourth 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 of these materials have also been submitted to the SEC.

With that, Darryl, let's please go ahead and open it up for questions.

[Operator Instructions] Our first questions are coming from the line of David Begleiter with Deutsche Bank.

Scott, now that the business has been stabilized and you've done some improvements in the cost and balance sheet side, what are your updated thoughts on potentially selling some equity to get ahead of this balance sheet issue?

David, our focus continues to be on the plan that we've been outlining. It is really about cash generation first. And I think the team has done an excellent job of prioritizing cash generation and the strength of that in 2025 despite the earnings decline year-over-year was evident. And the fact that I think we've built the right elements that can keep that going here in '26 and beyond. And we're extremely well poised for recovery. So our focus really continues to be on using debt and we've been able to refinance our bonds and continue to pay off what is right in front of us. So given the fact that our maturities now coming up over the next couple of years are significantly lower than they were and the cash generation that we have from the business as well as what we have coming from divestitures, we believe, is strong. We feel like we're in a really good position.

Very clear. And just on [indiscernible], what are you seeing for pricing in your contracts 2026?

Very little change in contract pricing, David. And I would say in more of the spot part of the business, that's where we've seen more competition with the additional capacity that came on in the market last year, which drove the actions that we're taking. And I think the team with the action we announced last quarter about the Lanaken plant closure, we're going to be able to drive enhanced cost benefit into the business of about $20 million to $25 million on a full year basis, of which we should see about $5 million to $10 million of that this year, and we're trying to bring as much of that forward as possible.

Our next questions come from the line of Patrick Cunningham with Citi.

I guess first, just on the sequential improvement in Engineered Materials, both from a volume and mix perspective. Can you just parse out which end markets are starting to stabilize and unpack some of the broader macro assumptions for 2026?

Yes. What I would say is electronics is what I would say the bright spot right now, Patrick. I said it's a net positive on a global basis. We're seeing a global build-out from AI as well as data centers, and that's positive in the electronics space, but it's a small part of the overall base of the business. So certainly, auto is a much larger piece of the base and the business is going to trend kind of where that goes at least at this point. And I would say auto is more mixed. You've got some uncertainty in China with some of the EV credits and stimulus rolling off in China to start the year. So we've seen some softness in auto in China. Europe has been relatively stable to start the year. And in U.S., with the fleet mix becoming a little more certain and a focus of the OEMs around ICE and hybrids, that could be a net good thing for us. But I would say, to start the year, it's about as expected.

Got it. That's very helpful. And then with halfway to your $1 billion divestiture target, just any ideas on timing, potential assets that you'd look to explore to achieve that divestiture proceeds target?

Yes. And just to kind of restate, we called out $1 billion by the end of 2027. And to your point, we're about halfway there. We feel like -- we feel good about getting a deal done this year, another deal done this year, and we feel very good about achieving or exceeding that target by the end of '27. And again, we're prioritizing parts of the business that don't fit the core operating models of Engineered Materials or Acetyl Chain. And that does kind of lead you to a heavier focus on some of the joint ventures, as we've talked about in past quarters. So we have what I would say is a pretty robust slate of things that are being worked. But it's hard to get deals done in this environment. But I'm proud of the team for what we did on Micromax, the speed at which we started that process to when we got it closed was approximately 9 months, which is pretty fast in any M&A market. And so we're going to continue to work this with a sense of urgency.

And our next questions come from the line of Jeff Zekauskas with JPMorgan.

When you take a step back and look at 2025, I think in the Acetyl Chain, your adjusted EBIT was down about $400 million and your engineered materials was down about $120 million. How do you analyze those changes? That is, how do you see the larger factors that were at work in those changes?

Yes. Let me start with acetyls, Jeff. Of that, it was pretty much all driven by volume and price. And you got a mix element that goes into that. So it's largely split relatively evenly between those 2, of which a good chunk of that was driven by the acetate tow business. And so that was -- I would say, from a product line perspective, that was the the bigger chunk. We did see some margin compression from China as well that went into that. And then the balance was really driven by Western Hemisphere volume. We didn't have as much margin compression in the non-tow part of the portfolio in the Western Hemisphere. So those are the biggest components in Acetyl Chain. In Engineered Materials, volume and price were both, I would say, semi equal overall in terms of how much they were down, and then it was offset by cost. And we had some cost benefit in acetyls as well. But those are the largest drivers, I would say, overall in both businesses. It really comes down to above the line variable margin.

Okay. And then for 2026, is your base case that you can get some EBIT growth out of Engineered Materials, but the Acetal Chain might be challenged to grow in 2026 or do you have a different approach? And what are the key markets that you really need to have improved in order for Celanese to excel in 2026?

Yes, Jeff, when we started 2025, we talked internally in the organization, kind of a mantra around act now and win together. And I think it was really that action orientation that was important with a focus on cost reduction and free cash flow generation. This year, we're still going with act now win together and grow. That growth piece that you highlight is important. And I do believe Engineered Materials in the current demand backdrop has more controllable ways to grow through our pipeline model. It doesn't mean we won't be able to drive growth in Acetyl Chain. I just think that the groundwork that we've been laying in Engineered Materials and our ability to drive innovation and partner with customers and designers and engineers around innovative solutions, just we have more degrees of freedom to do that in Engineered Materials.

It's likely to be in the higher growth areas like electronics that I called out earlier, elements of automotive continuing to penetrate in higher-margin areas in China and then continuing to partner with our customers on innovation into kind of the what is now the chosen fleet mix here in the Western world. So those are the big elements. I do think we'll have some growth in medical as well. But I would say electronics and elements of automotive are going to be the key components.

Our next question has come from the line of Vincent Andrews with Morgan Stanley.

This is Turner Hinrichs on for Vince. I'm just wondering, could you provide more color around your expectations for higher than the first half earnings and whether you still expect to see $1 to $2 of EPS uplift versus 2025?

Yes. Thanks for the question, Turner. Our team is still focused on $1 to $2 of lift. As I talked about in Engineered Materials, it's going to be around driving growth there and getting volumetric growth continuing to push price where we can and the team continues to be focused on doing that in the pockets of the business where we can achieve it, then also continuing to drive our cost-reduction programs. In Acetyl Chain, it is about looking for those opportunities where the supply-demand balance, we can be opportunistic around to be able to drive volume and price and start moving kind of the sequentially on a quarterly basis back in a more positive direction.

Look, since the last time we spoke, there's been some things that changed. Our interest expense is likely to be relatively flat on the P&L year-over-year. I think how we model out our inventory draw this year, it's likely to have some amount of P&L impact. And then the demand backdrop is certainly not at least right now, where we were in the middle part of last year. And if we return to that, then certainly, that would be a really nice tailwind. So it's -- I do think that we are working a plan to be able to drive growth here this year. And certainly, if we get any help whatsoever from the macro, we are leveraged to be able to move up very quickly from an EPS perspective. I'll just kind of remind you that a 1% improvement in volume in the Acetyl Chain is about $15 million to $20 million a year and a 1% improvement in volume in EM is about $20 million to $25 million a year. So these are small changes drive significant uplift for the business.

Great. Great. That makes a lot of sense. Also, when thinking about the difference between first quarter and second quarter earnings, I'm wondering whether we need to reverse the $30 million inventory tailwind that's benefiting 1Q as well as the size of the polyacetyl turnaround and any other bridge items that you might call out?

Yes. I think that's probably the right assumption, Turner, is that $30 million benefit we're going to get is going to likely dry out there in the second quarter. And we are going to have some turnaround -- higher turnaround expense certainly in Q2. So I think with the dividend coming back in the second quarter, all of those things relatively even out. I mean Q2 flattish to Q1. And certainly, depending on where the demand environment is, you might get some equal benefit. But until we have better line of sight to that, I don't know that flattish is the wrong way to think about Q2. As we called out in the prepared remarks, we do believe this year is going to be more second half weighted just because of that turnaround activity that we've got in the second quarter.

Our next questions come from the line of Ghansham Panjabi with Baird.

Scott, just on the acetyl chain and just zooming out a little bit and think about EBIT margins, which were sort of mid-teens last year versus the previous trend line in the mid-20s, how much of that differential do you think is cyclical versus something having changed in terms of, obviously, supply coming on and also some of the challenges that you're seeing on acetate tow in the spot market?

Yes, Ghansham, how I view these things in our business over the last 20 years, we've seen structural changes. We saw -- and these could be headwinds, they can be tailwinds. And shale gas revolution in the U.S. certainly was a structural change. The market -- the industry didn't get the benefit of that overnight. It's actions that we're taking to be able to take advantage of those structural changes. We saw overcapacity in China, for example, come into the market the first time, 2009 through 2017, and it was actions and business model changes that we and others made to be able to drive a more sustainable and higher level of earnings. And certainly, even today, where we sit now in the current market with overcapacity and where it is in acetyls, the underlying business today is better than it was during 2012 and 2013.

So I think it really is about how we, as a company, respond to changes that we see in the market. I do believe that through those changes, you will see things start to move back up. Now each cycle is different. Each cycle is shorter or longer, and nobody can really predict how long it will last. But it is about responding to those changes that we see.

On the Engineered Materials side, we've seen changes as well. The move from ICE to EV in China, in particular, is a big structural change. It's not likely to change. We have to adapt to that. We have to change. We have to respond to that from a market perspective and we have to continue to drive efficiency in our own business so that when we see small incremental changes in volume that I talked about earlier, those underlying margins are higher in the future than they were in the past.

Okay. Got it. And maybe a question for Chuck on free cash flow. Obviously, 2025 working capital was big for the year in terms of driving the free cash flow performance there. What are you embedding for 2026 for working capital? And just more broadly, what's defining your confidence on free cash flow relative to what seems to be a pretty challenged operating environment at least for the first half of the year?

Yes. No, thanks, Ghansham. I think what's driving our confidence is our ability to pull levers to generate free cash flow in all demand environments. So you mentioned working capital. It was very strong in [ '25 to 390 million ]. We are targeting another $100 million, Ghansham, primarily from further inventory reductions. Cash tax is going to be lower this year, $50 million to $60 million, cash interest down about $50 million, and the cash that will outlay for cost-reduction programs that are -- that's adjusted out of EBITDA. That will be lower by about $25 million to $50 million. So as you know, we plan for a number of different scenarios, Ghansham, and we feel confident that we can drive free cash into our target range that we provided, either through modest earnings growth or through these additional levers we know how to pull.

Our next questions come from the line of Salvator Tiano with Bank of America.

So firstly, I want to come back a little bit to the EPS growth this year and you have with your prepared remarks all the free cash flow, I guess, outlook and the puts and takes on free cash items. And it seems to us if you do some rough math that that points to probably net income or EPS change, EPS this year of around mid- to high 4s as a base case. Does that make sense? And are there any items we may be missing that would deviate -- that would make you guys deviate from that as a base case?

Yes. So how I look at it is our prioritization right now is around free cash flow and continuing to drive sustainable changes into our business models. As we look at the year, we've run a number of different areas on kind of where things could play out from a demand standpoint and then what that translates into EPS. And for us, that's -- we're confident in being able to generate that free cash flow between [ $650 million and $750 million ]. So there's a number of different EPS scenarios that get you to that number, just depending on the movements and timing and the fact that we're second half weighted, also certainly plays a little bit of a role just in terms of how much AR is sitting on the balance sheet as we model it out. So all of those factors go into play in terms of how we model it. So we're not looking at a finite range right now. Our focus is on really driving and maximizing as much as we can and working to grow on a year-over-year basis with an emphasis on ensuring that we are delivering the cash flow.

Okay. Perfect. And I wanted to ask a little bit about capacity additions on the nylon and the home chain, specifically because these are something you have to face in the past few years. Can you provide us with some information on what may be coming online, particularly in [indiscernible] this change? And what is kind of your exposure given you moved away from some chains such as nylon polymerization? What would be your exposure if there's more capacity coming online in these chemistries?

Yes. So as we've talked about in the past, our focus really is to continue to build flexibility into our operating model in our nylon business as well as some of our other polymers. And that means being balanced in what we make, but also what we buy. And so the additional capacity that may come on in Asia and to be very honest, it's already overcapacitized in China, and we're taking advantage of that by buying as much polymer as possible because that's a more advantageous way for us to be able to supply our business in that region of the world. It is about being opportunistic and about building flexibility into our model. And what I would tell you is we are going to continue to evaluate options to be able to enhance and maximize profitability in all our value chains, including nylon.

Our next questions come from the line of Laurence Alexander with Jefferies.

This is Kevin Estok on for Laurence. So just on working capital inventories again. Obviously, you're targeting additional reduction. And I guess I was wondering what guardrails are you sort of using to avoid any service issues, are there any specific product families, I guess, where inventory is still elevated? And maybe, I guess, what's the time line to reach a steady-state inventory model?

Yes. So it's a very coordinated approach internally, right? We're never going to take too much risk on service levels and delivering to our customers, right? There's many different ways you can just inventories, you can use raw materials. You can change your offtake agreements, and you can reduce finished goods, right? So we're in a multiyear journey on that. So we don't ever like to think that we're done. We think we do have $100 million this year, but we're not going to stop there. There's a lot of efficiency that EM is driving within the organization and you're just going to need less and less inventory as you go forward, right? So it's a constant activity of ours, and we feel good about continuing that progress.

Got it. Okay. And then just as a follow-up. So on Acetate Tow, I guess, obviously, it's one of the biggest headwinds I guess, what are -- I know you touched on some of this already, but I'm just curious what the specific levers that, I guess, you can do to stabilize on basically like regional mix shifts any capacity actions, customer inventory normalization, contract resets, I mean -- and I guess when should we expect measurable improvement?

Look, we're working this with a level of aggressiveness as we look at every element of the business, and that includes cost structure. It also looks at how we go to market, our future contracts in this business, you have to take both a short-term view and a long-term view of how things are rolling in and rolling off. And so it is really about stabilization. We did see a decline. I do think there has continued to be an element of destocking. I think there was a lot of inventory throughout the value chain in this business. I think that will probably take another quarter or so. So I think midyear where that evens out is our current estimation. And then you should get to a little bit more steady state, and I think get a little bit more balance here as we get into the middle part of the year.

Our next question is come from the line of Aleksey Yefremov with KeyBanc Capital Markets.

There's a number of price increases that were announced in the polymers world. I wanted to ask you about your expectations for achieving those? And also, is the intent here to offset rising raw material costs or actually expand margins?

In some of these polymers, Aleksey, margins have got to where they are at unsustainable levels. And I think you can look at challenges we've seen in the industry, and you've seen some folks in the marketplace go into default. And I think that has just shown that things are at an unsustainable level. I'm proud of the way the team got ahead of this a few years ago by taking action in our footprint in our highest cost locations. And so that has certainly helped us be able to weather that storm. But as we go forward, the returns need to improve here. And so it really is about pushing to drive returns to just an acceptable level going forward, and the team continues to push that. I do think it's going to continue to be a -- it's going to take some time. It's going to be a step-by-step process. I wouldn't expect us to get all of it at once, but it is about continuing to work this as we are having dialogue with our customers.

And as a follow-up, acetyl spreads have been a little better in China lately. What are your expectations for anti-value or any kind of rationalization in that country just based on your knowledge of what government might be thinking?

Yes. As I mentioned before, I mean, we've gone through big overcapacity in the acetyl business in China in the past. When I was living there, in 2009, the first overcapacity came in, and we were in that period for a long time. I think the pattern of behavior that we've seen over the last year or so does kind of tend to trend with what we saw in the past, which is new capacity comes in. There's a lot of new capacity over the last couple of years. As those plants are starting up, they run at high rates that prove out the technology, but margins are unsustainable. And so rates come back down and margins move up a little bit. And so we certainly have seen that trend continue, and things have stabilized, I'd say, at higher, albeit still relatively low levels on a margin basis over the last 8 weeks or so. So we're not forecasting huge lifts by any stretch of imagination. And the team will continue to kind of work near term and instantaneous opportunities on both a price and volume basis.

Our next question has come from the line of Frank Mitsch with Fermium Research.

It's Aziza on for Frank. Scott, I was curious if maybe you can provide some thoughts on Chinese acetyls pricing as we progress through 2026?

Yes. Aziza, I mean, look, we're not going to forecast any huge uplift. I think we would expect things to stay in the range. They've been over the last several quarters. I mean, plus or minus kind of where they -- as I just said, we've kind of stabilized at these levels over the last 8 weeks or so. Demand right now is extremely low as we're in Chinese New Year. And this year's Lunar New Year is a longer holiday than what we typically see by a few extra days. So It'd be interesting to see how things come out. It's a later new year as well. But certainly, demand was relatively stable going into the New Year holiday, pricing held, and that doesn't always happen. Sometimes as you're getting into that new year period, pricing falls off. It stayed relatively stable as we went in.

So we'll see kind of where things come out, but we are not anticipating a really big uplift coming from Asia. As we look at recovery scenarios in the acetyl business, we tend to really look at Western Hemisphere only. And so those numbers I quoted earlier about a 1% improvement in volume being $15 million to $20 million, that's on Western Hemisphere only. That doesn't include any of the business in China, just because I think with where overcapacity is, if we get upside on volume and price, we'll take it, but we're not going to necessarily bake that into our numbers.

Got it. And also regarding the second quarter POM turnaround, have you guys quantified the impact to the second quarter earnings?

No. I mean what we said earlier is I think a number similar to the lift in that we called out of $30 million. So that's the right range. I mean, these -- typically, these turnarounds in the past were about every 3 or so years. We've worked really hard on our reliability over the last several years. So where we've been able to extend this to 5 years between these major turnarounds. So this is not something that certainly happens every year in the asset. And so it is a little bit larger than we would typically see, but it really is contained in the second quarter.

Our next questions come from the line of Hassan Ahmed with Alembic Global.

Look, I wanted to revisit the $650 million to $750 million free cash flow guidance you guys provided. Look, I mean, it's anyone's guess what demand does, but if we were to take a draconian view and say that demand really doesn't improve much from Q4 levels, what does that do to the guidance and all the other aspects baked into it, meaning the $100 million sort of working capital uplift that you guys guided to and the like?

Yes. First of all, Hassan, I would never refer to you as draconian by any stretch of imagination. So look, not to be repetitive, but I'm going to kind of go back, we model out a lot of different scenarios, kind of that low-demand scenario, higher-demand scenarios. I mean we kind of look at different permutations. We also -- you also have to plot timing. And so as we kind of look at that, you end up range finding for where you think you can move on cash flow given the other actions that you can take and how AR and inventory can move and what you can do through the year. And so we kind of range find for that. We do feel very confident in that $650 million to $750 million range that we put out there.

Understood. Understood. And just moving on, again, as it relates to sort of debt paydowns and the like, I mean, you guys seem pretty comfortable with the incremental $500 million of sort of asset sales. So a, what gives you that comfort to achieve that by 2027? And b, if need be, could that number actually be higher?

Yes. I mean we're aggressively pursuing additional divestitures. As Scott mentioned, we feel good about getting another one of those done. There's a lot of things that we can look at. We're -- that's part of our cash generation. That's part of our debt paydown strategy. That's a probability weighted number. So theoretically that could end up at a higher number, but we're targeting right now $1 billion total by the end of 2027 to help us deleverage the balance sheet.

Our next questions come from the line of Michael Sison with Wells Fargo.

Guys. Sorry about that. You sort of noted that the Western Hemisphere acetyl margins are better or holding up better. How much of your business is Eastern? And is there any reason to be there longer term? I mean this trough in the Eastern Hemisphere has been pretty deep. Does it make sense to reduce some capacity for that area longer term?

Mike, you've known us for a long time. You know that we look at every option on the table, and we continue to look at what the short-term needs of the business are and balance that with where we think we need to be long term. And we will look at what the footprint in both businesses needs to look like and what the right match is. So I would say we're constantly evaluating where we need to be and how we need to be operating the assets. And the acetyl team continues to pivot there. We're block operating the Frankfurt VAM unit, block operating the Singapore acetic acid unit as well and just for that very purpose and finding ways at which to be more efficient and squeeze out costs.

Got it. And then if you take a look, as we head in the second half and we sort of sat here last year thinking things couldn't get worse. But if there are areas within EM or the Acetyl Chain that that could get worse, what do you think it could be? And it does sound like things are more stable sequentially at least. But what are the things we need to watch out for if things could potentially get worse on the macro side for you?

Mike, we're not going to take anything for granted, and we're going to continue to evaluate, take bold actions across the portfolio. We knew as we started last year, that we needed to kind of reset the growth mindset in Engineered Materials. And I feel like Todd Elliott and the team have done a great job of building the pipeline and refocusing commercially on those areas where we can really drive high-quality wins and making sure our time is being spent there with a focus on quality over quantity. And I think that is really going to start to pay off for us as we work our way through 2026. And we're going to continue to evaluate the cost side of the equation in both businesses as well as from a corporate perspective because I do think it is really about how we generate operating leverage going forward. And so those are our priorities, with cash as being kind of that keen focus and delivery of our cash target.

Our next question has come from the line of Kevin McCarthy with Vertical Research Partners.

Scott, in explaining the volume decline of 6% in the quarter, I think you mentioned in the prepared remarks last night that the destocking and seasonality were kind of greater than expected. And so I wonder if you could comment on the degree to which you've seen any rebound or temporary restocking in January and early February, ahead of the Lunar New Year? Or has it been mixed or just not happening? Just looking for any additional color on kind of incremental volume stability or improvement as you see it.

Yes. Let me start with Acetyl Chain. I think we've seen some moderate seasonal improvement largely in the coatings space, and we'll see kind of where things hunt out as we get into March and April, which tends to be when demand moves up higher. So I would say that it's moderate at this point. We haven't seen substantial change positively in the acetate tow side of the equation there in acetyls.

In Engineered Materials, what we called out last quarter was that we knew we were going to see some destocking from our channel partners here in the Americas. We're starting to see that come back to the order book. And we've seen seasonal improvement in spaces like automotive in the Western Hemisphere improve to start the quarter. So that is pretty much as expected and as is typical as we see from Q4 to Q1.

Okay. And then to follow up on your divestiture efforts. It sounds like the focus or at least one of the focus areas would be your joint ventures. You've got quite a few of them, I think. Maybe can you provide any color as to where you are in that process? And whether or not we might expect something this year or more likely next year? Are you looking at multiple JVs or focusing on a primary target? Any color there would be helpful.

Yes. What I would tell you, Kevin, is we are looking at a lot of different things, and we have a pretty robust portfolio of options of varying sizes, some small, some getting a little closer to the size of Micromax. And as Chuck mentioned earlier, we probability weight that. We feel good about getting another deal done here in 2026. I don't know exactly where it will fall in the size spectrum. It might be a smaller one, but certainly would be attractive, even if it's small. So we are kind of working all elements. It may be that it takes a few of these deals to get to the target and maybe it takes one deal. So it just -- it kind of depends upon how these things materialize here over the course of the next 1.5 years.

Our next question is coming from the line of Josh Spector with UBS.

I want to just ask on the earnings in Engineered Materials. If I kind of take your comments on first half, your EBIT is maybe around $200 million a quarter on average. Looking at last year, it's kind of similar levels to what we saw in 2Q, 3Q, I'm obviously ignoring seasonality in the weaker 1Q a year ago. But I'm just wondering that we're not seeing some of the cost initiatives really come through. You're talking about them more second half, but you've been talking about the cost initiatives for 6, 9 months now. So why aren't we seeing it as much in the first half? And why does it take to the second half on the cadence of timing? And then when you talk about the new products and the higher margins, kind of the same thing. Like when do we start to really see more of this? And why not now?

Yes. Josh, I'm going to respectfully disagree with you. I think you're definitely seeing it roll through. We are in a much lower-demand environment today in that business than where we were in the middle part of last year. And we're still performing at very similar levels. And that really is coming from the mix improvement we've seen as well as the cost reductions the business is taking, and we're going to continue to drive that forward. As I said, there's such a leverage on volume in this business, with a 1% change kind of being $5-plus million a quarter, the amount of change that we've seen in that business is sizable on a year-over-year basis, volumetrically. So it really is about continuing to improve the underlying fundamentals of this business and those small incremental changes in the demand are going to flow right back to the bottom line.

Our next question has come from the line of John Roberts with Mizuho.

Have you actually guided for the China to dividend expected for the final 3 quarters of 2026 in your free cash flow range?

Yes, John, I think pretty flat to last year is what to expect, that $40-ish million a quarter.

Okay. And then you once explored some consolidation opportunities in the does the contraction in the industry increase the chance of revisiting further consolidation maybe in a different form or different partner than what you earlier pursued?

I don't know that the landscape has changed considerably, John, overall, in terms of the fundamentals. But look, we are always very open to options in all of our businesses. And so we explore every opportunity that might be out there. But I think on tow, I just don't know that the fundamentals have changed enough to change that outcome.

Our last question will come from the line of Arun Viswanathan with RBC Capital Markets.

This is Adam on for Arun. If I could ask maybe Ghansham's question in another way, it seems like the working capital management change for '26 is almost a $300 million headwind. And you talked about some benefits from lower cash, about $25 million. Taxes lower by [ 4 50 ]. Is the balance of that from earnings improvement? And if not, where is that coming from? And how much earnings improvement are you really expecting to impact to free cash flow?

Yes. Thanks, Adam. Yes, you're right. I mean the working capital headwind year-over-year is sizable and some other things that have offset it, as you mentioned. But again, I'll say again, we feel good about driving free cash flow into that range, either through modest earnings or through further levers if we see a lower demand scenario play out. It's very similar to what we did this year in 2025. So we're confident in that range.

Okay. Great. And apologies if I've missed this, but have you guys outlined in terms of a cost benefit from the Lanaken closure kind of market impact aside?

Yes. So Lanaken closure for us is going to be about a $20 million, $25 million cost benefit on a full year basis and about $5 million to $10 million of that we expect to get this year.

Well, thank you, everyone. We'd like to thank everyone for listening in to today's call. And as always, we're available after the call for any follow-up questions. Darryl, with that, let's please go ahead and close out the call.

Thank you so much, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time. We appreciate your participation. Enjoy the rest of your day.

Greetings. Welcome to the Celanese Corporation Third Quarter 2025 Conference Call.

[Operator Instructions]

Please note, this conference is being recorded. I would now like to turn the conference over to Bill Cunningham. Thank you. You may begin.

Thanks, Daryl. Welcome to the Celanese Corporation Third Quarter 2025 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 third quarter earnings release via Business Wire. 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 of these materials have also been submitted to the SEC. With that, Daryl, let's go ahead and open it up for questions.

[Operator Instructions]

Our first questions come from the line of David Begleiter with Deutsche Bank.

Scott, looking at '26, can you give us an early look at what you can see your control of '26 and what's not in your control for '26 relative to earnings?

Yes. Thank you, David. Let me just start by saying how we have focused on 2025 continues into 2026. The priorities of increasing cash flow, intensifying our cost improvements and then driving top line growth. And that third piece, I think, is going to continue to be more important as we're seeing progress from our EM pipeline. Those are going to be our priorities going in to '26, and we've laid a really nice foundation here in 2025. And so that foundation, even if we're in an environment where we see flattish demand.

And I kind of look at flattish demand on what we've seen, say, Q2 through Q4 here in 2025. If we're in that type of demand environment just to make it easy, I believe we're going to be able to grow EPS by $1 to $2 next year. And that's going to come from the cost actions that we've already put in place and not yielding increments next year. And then the second big piece is going to come from EM pipeline and the success we're seeing driving that including the high-impact program growth, which is starting to yield results. And certainly, we won't have the Micromax EBITDA, but I think that's going to be offset by the fact that we don't expect to have the significant auto destocking that we saw in Europe in Q1 of this year. So I think when you put it all together, we feel confident in about $1 to $2 even if the world around us isn't growing.

Very good. And just on EM pricing, the best in 8 quarters. Can you discuss how much more there is to go in EM on the pricing front?

There's always more that can be done here, David. We have gotten price in some of the standard grade materials in the Western Hemisphere, not as much across the board as we want to see. So I think there's still going to be opportunities there. In addition, where we're seeing good nice benefit is on the price for the new elements from the pipeline that are being launched. So this is going to continue to be a very critical area of focus for us as we go into 2026.

Our next questions come from the line of Vincent Andrews with Morgan Stanley.

Could you speak a little bit about the operating rates and the AC chain? I know there was a comment in the prepared remarks about sort of flexing Singapore based on demand and Frankfurt is going to be, I guess, off-line for the balance of the year. But what do you anticipate or maybe just back up and how -- what rates did you run at in the second half of this year? And then what do you anticipate in the first half of next year.

Yes. Thanks, Vince. Not to be flippant, but every day is different in this business. And I don't say that as hyperbole, it's true. When you look at our lowest cost assets, our lowest cost assets are running at 100%. And then the balance of the network, which is really our asset base outside of the United States, is being flexed to meet demand of flex to meet industry conditions. And we're going to continue to operate that way. We block operated Singapore as well as Frankfurt. We would expect that to continue going into next year.

And part of that is our manufacturing team has done an excellent job of being able to continue to operate with high degrees of reliability as well as find ways to know capital to debottleneck our assets to where we have more capacity at those lower-cost assets. So we're going to continue to flex that to meet demand, but I'd really look at lowest cost asset base running full and then the rest of the network operating as needed.

Our next questions come from the line of Jeff Zekauskas with JPMorgan.

Thanks very much. In the cecal chain, when you look at sequential pricing, through the year, it's gotten tougher. And prices had come down a lot in China earlier in the year. Where is the sequential price pressure coming from in the acetal chain, either by product line or geography?

Yes. Thanks, Jeff. I think we've seen a little bit of pressure in Europe in kind of what I would say more of the downstream. So getting into the vinyls chain, VAM and emulsions as we've worked our way through the year, and that was really demand-driven as demand has off. We've seen a little bit of pricing pressure there. We've seen a stabilization of pricing in China now over the course of the last quarter or so. And in fact, pricing went up a little bit here at the beginning of this quarter. Not significantly, but we did see a price lift as we got into October, really across all product lines in China in acetyl. So the U.S. has been relatively stable. So that's kind of how I would look at it. It's been more around a function of demand where demand has been weaker and we've seen a little bit of softening of price in Europe.

Okay. And in Engineered Materials, year-over-year, your consolidated volumes were down 8% and which product lines are, I guess, falling more than that? And which product points are falling less than that? Can you help us -- I mean it might be that there are particular pockets of weakness? Or is it across the board? Can you talk about that?

Yes. It's mainly the product lines, Jeff, that we have higher levels of volume and have just generally more market exposure in the standard grade materials. And so that tends to be more of your engineered thermoplastics. So that's your palm, your nylon and then into GUR and polyesters our thermoplastic elastomers have held up extremely well, and the team has actually found nice pockets of growth there. It's just -- that's not where we have as much volumetric exposure. So it tends to be more on the engineered thermoplastics side of things.

Our next questions come from the line of Mike Sison with Wells Fargo.

Nice third quarter as well. For 2026, if I take a look at Slide 11, it looks like cost savings could represent somewhere between $0.40 and $0.50. How much -- in terms of the rest of the dollar to $2, how much comes from potentially lower interest expense and -- just trying to gauge how much could come from volume growth and new products.

Yes. I mean, given kind of the $1 to $2 that I talked about earlier, Mike, I would look at that really split largely in 2 areas. One, about half of that is cost. And we didn't put all of the cost actions on that slide. We have kind of an ambiguous bucket there on that last line of that graph. And I think I would look at it, there's more to come. We had the announcement last week about the Lanaken closure. We're continuing to work the cost side of the equation extremely hard, and we'll talk more specifically about those as we complete those actions.

So about half of its cost and the majority of the rest of it is really coming from the pipeline. And that's kind of how we're thinking about things right now. I mean there's -- there's definitely going to be some things around the edges like interest, et cetera. But those are the 2 big buckets that we're looking at currently.

Mike, this is Chuck. For interest expense, I would [indiscernible] $30 million to $40 million reduction year-over-year.

Okay. And then a quick follow-up in EM in terms of the volume growth potential, how much is that coming from sort of the legacy, if you can think about that way, the Celanese businesses? And then how much comes from some of the depot?

I'll be honest with you, Mike. Right now, we're looking at that portfolio as all Celanese. And we're not breaking it out. We're not operating the business of the company that way anymore. It really is about Celanese and products. What I would say is that engineered thermoplastics piece and the portfolio we have there, has proven to be a really nice add for us. Part of that came from M&M. Part of that came with Santoprene, and that's a really nice area of growth going into next year. It's a really important area for us to be differentiating the offerings that we have.

And then -- so that's been a really nice driver for us. And then we are seeing really, as we look at this high-impact program area, I mean there is there's end uses there that are extremely attractive where we're bringing both the engineered thermoplastics. So that's both historical Celanese and M&M as well as the elastomer portfolio to bear -- in really high-performance type applications, whether that's data centers or in high specification EV opportunities, medical opportunities.

So there's across these spaces, we're really seeing, as we've gotten extremely focused from a commercial team perspective on these areas, we think we're going to have nice pockets of growth in '26.

Our next questions come from the line of Ghansham Panjabi with Baird.

Scott, just given the evolution of the macro throughout the course of the year end markets such as building and construction and autos and so on, sequentially weakening. Are you starting to see more accelerated inventory destocking at the customer level throughout the year-end? Or our inventory is already pretty low, so what you're mirroring is just basically the end markets themselves at this point?

Yes. Thanks, Ghansham. As I look at where demand is on a lower base than what we've seen historically. But if we look at what we called out for seasonality from Q3 into Q4, on a volumetric and percentage basis, it's very similar to what we've seen in the past from Q3 to Q4. So we're not necessarily seeing accelerated destocking. There's a few pockets, for example, our channel partners here in North America came to us at the beginning of the quarter and talked very openly about wanting to bring inventories down a little bit by year-end. And so that was great that we're able to partner with them.

We can take rates down at our asset base and do it really in a thoughtful way over the course of the quarter and not just get to the end and have this big slug down. So I think there is there's definitely, I would say, what pockets, but I wouldn't say it's something we're seeing extensively across the board because we've been seeing this kind of work its way through the value chain in various areas now for about 6 months.

Okay. Got it. And then maybe a question for Chuck on free cash flow. What's the expectation for working capital contribution for this year in 2025? And then how would you have us think about some of the parameters for 2026 free cash flow? I think you said at the low end of your guidance for this year?

Right, right. Yes. So working capital so far this year has been a has been a source of cash of $250 million as we've really focused on cash generation. I really don't expect much change in working capital, either source or use of cash in fourth quarter. So I would just -- I would model then 0 at this point for working capital. As you look ahead, for 2026. With that, we don't expect with similar demand levels that we would repeat that $250 million of working capital source of cash.

But we are continuing our inventory actions in Engineered Materials. So there will be some level of free cash flow source there. At this point, Ghansham, our cash outlay of restructuring which is adjusted out of EBITDA is looking to be lower in 2026 as we have some projects that have rolled off from prior footprint. So adding to that, the EBITDA improvements that Scott has talked about on the cost and commercial side, that gives us confidence next year in free cash flow, at least at the low end of that $700 million to $800 million range. And I think it's important to understand, as we look ahead in the next few years, we think this level of free cash flow is sustainable.

Our next questions come from the line of Patrick Cunningham with Citi.

The decision for the linac enclosure, you cited a valuation of longer-term end market trends. I guess, did anything change in terms of your forward view on either the demand or supply side. And then as you look to evaluate other more targeted measures and AC, should we be looking to the Frankfurt facility? Or do you expect more of a smaller collection of savings across the asset for

Thanks, Patrick. First of all, I think it's important. Look, we don't take any of these types of decisions lightly. We look at where things are in the near term, long term and we study them. And we also look at our ability to continue to supply our customers. And acetate tow has faced challenges including decline demand over a period of time, Lanaken is our highest-cost asset. And so as we looked at where things are, we're able to meet all of our customer needs from our network and subsequently drive productivity savings with this move, both in the short term and long term.

No matter what may materialize from a demand perspective. And so this closure will yield probably in the neighborhood of $20 million to $30 million of productivity savings in 2027. We get a little bit at the end of next year probably on that. But certainly for the full year of '27. That's the types of savings we're looking at. And we're going to continue to look across our whole footprint in both businesses for similar types of examples. And so there's no specific asset, I would say that we're looking at right now. It continues to be kind of crosschecking where industry demand is, where is our capacity, where do we maybe have excess capacity in the network that will allow us to drive that productivity, but still be able to meet customer demand even if we were to see a big increase down the road in a recovery period.

Understood. Very helpful. And then maybe one for Chuck, just in terms of progress on inventory reduction, they're still tracking well towards that goal. And then just in some the context of some of your comments in the prepared remarks, what percentage of SKUs are made to order today versus made to stock? And what goal are you looking toward there?

Patrick, look, it's an ongoing effort to be more efficient with inventory. I don't have that percentage right in front of me of the number of make-to-stock SKUs, but it's one of the several levers that EM is working on to reduce inventory. It also includes logistics and warehousing and testing lead times, et cetera.

Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.

I think you identified to $50 million of additional savings that you're targeting in Engineered Materials. Can you elaborate on the sources of those and the flow-through timing and remind us if those figures are gross or net of inflation?

Yes. Let me hit the last part of your question, Kevin, I would look at those as net of inflation because we will work inflation through our productivity pipeline to offset that. So look at these as definitely being net. And it is really looking across the board. There is continued SG&A and R&D savings there as we optimize that side of the business on a global basis. footprint continues to be an area of focus that will be in there. And then the last area is really things that we kind of call complexity reduction.

So streamlining of our supply chain and our logistics network and really getting that optimize. I mean Chuck just talked about the benefits we get from that on an inventory reduction, we also get cost reduction from that. And so a good chunk of that, we're going to get for full year 2026. Some of it will phase in through the year, but we definitely are confident that we'll be able to get to those levels next year.

Great. And then second question for you on divestitures, if I may. Congrats, first of all, on the Micromax deal, it looks like you got a nice multiple for that relative to your own trading multiple. Can you talk about the after-tax cash proceeds from that $500 million deal? And then more broadly, if we remain in the current environment of, I'll call it, industrial malaise globally, what additional portfolio actions or at least the magnitude thereof are you thinking about over the next several years? I think you said in your prepared remarks, you are actively pursuing additional. So any color on that would be appreciated.

Yes. Kevin, let me start, and then I'll turn it to Chuck to answer the tax question. Our principles really around divestitures had not changed. We have what we believe are 2 leading franchises here at Celanese and in acetyls, it's about leveraging kind of this integrated up and downstream operating model that starts with methanol and acetic acid and goes downstream and it is really uniquely globally positioned to kind of operate to drive value on a daily basis. In Engineered Materials, it's about driving unique customer solutions and leveraging the globe's leading portfolio around engineered thermoplastics and thermoplastic elastomer. So if we have things in the portfolio that are not part of that acetyl value chain, or not a differentiated thermoplastic or thermoplastic elastomer.

Then we are going to look to see if it's worth more to someone else than what it's worth to us. And that has been the principle that we've been operating on now for a number of years around divestitures. And that's what led to the Food Ingredients transaction. That's what's led now to the Micromax transaction because they didn't fit in the Engineered Materials business in that thermoplastic or elastomer bucket. JVs is another area that -- where we don't have as much control and that value that they create to the enterprise is not what the rest of the portfolio creates. So that's the principle that we're operating under, and that's the principle that will continue to look at being able to monetize different assets around.

And we committed to $1 billion of divestitures by the end of 2027. And this Micromax transaction gets us around halfway there. And so we are very much in line with achieving that target. And we're going to continue to focus on that here as we finish this year and get into 2026.

Yes. On the tax leak, it's Kevin, that that's expected to be 5% of the final gross sales price.

Our next questions come from the line of Salvator Tiano with Bank of America.

Firstly, I want to continue on Kevin's question on divestitures and you mentioned JVs as a specific area of focus. I'm wondering, though, how are you thinking about the methanol JV? Because on one hand, it is one where you are a partner with someone else. On the other hand, it is against your main way of being integrated into methanol in the U.S. So how strategic is that business to you?

Look, I'm not going to comment on specific joint ventures. What I have said around methanol in the past is it really is about leveraging methanol and acetic acid. And so as we look at all of our joint ventures, we have a partner that is in those JVs. And so JVs can be harder to monetize across the board. And we'll continue to look at the partners.

We'll continue to look at other potential counterparties who are interested in having ownership of our joint ventures. But our focus really is around value creation. And so if value is there to be created, and it is higher than what we believe is inherent in the current and potentially future stock price, then we will definitely look at it.

Great. And I also wanted to ask about your nylon chain. I know you've been deemphasizing nylon polymerization instead of doing compounds. So at this point, how much of your nylon volumes and sales, perhaps profit comes from actual nylon standard grades versus the compounded value-add products.

Yes. So almost all of our profit in that business is really created by compounds. And so now to make a compound, you need polymer. And so whether we make that polymer buy that polymer, the key is getting that polymer at the most optimized economics possible because we create our value really through that compounding step.

Our next questions come from the line of Alex Yefremov with KeyBanc Capital Markets.

I just wanted to continue down this line of questioning. I think you just earlier said, Scott, that you don't foresee any major capacity closures. But I recall earlier, there was a discussion about maybe buy versus make and polymers and potentially some rationalization there. So should we take it that rationalization of polymer capacities off the table for now? Or that's still being considered?

Let me be very clear, Alex, we are taking bold actions across the board, and we have continued to be, I think, through year, every single quarter. We have had another cost reduction announcement. We are looking at all elements of our business in both acetyls as well as in Engineered Materials, and we will take action around cost, including footprint, if there's value creation opportunities there.

Okay. Makes sense. And then as a follow-up on your EM pricing, I realize it was relatively modest, but do you see any signs of more rational competition, sort of improvement in competitive environment maybe across any of the end markets or types of polymers.

Look, we can't control what others are doing. What I will say about our EM commercial team is they are energized by the opportunity that's in front of them, not just around making sure that we're getting full value for the materials that we sell but on partnering with our customers, about being connected to our customers, being current about what's happening in the marketplace. And being able to respond to customer needs and leverage and drive new solutions.

And I think we believe that, that team is going to continue the trajectory that they have been on this year despite the fact that through the year, the volume side of the equation has been difficult, but to be able to drive price, drive mix improvement through the year, I think, is a great accomplishment and is a really good starting point for us going into 2026, and we think we will be able to drive volumes through the pipeline next year.

Our next questions come from the line of Frank Mitsch with Birmingham Research.

Congrats again on the Micromax sale. To that end, Chuck, I believe you indicated that with the $3 billion plus debt to '26, '27, you were fairly comfortable being able to pay that or you indicated that you -- given the free cash flow and expected divestitures that you would not need to tap a revolver and that you felt like you would or issue more debt, you'd be able to cover that. Do you still feel that way today?

Yes, Brian, I mean, if you look ahead at our 2026 maturities, we've got about $900 million due. So when you look at between the Micromax proceeds, the cash -- excess cash we have on hand, Q4 cash generation those are spoken for. We've already been looking ahead of the 27s, and we made several payments to our term loan over the last few quarters. We're confident in the cash generation ability to pay off the 27s. We do know that sometimes that cash is back-end loaded in a given calendar year. So as we've done a few times, we'll continue to be prudent and opportunistic in the debt markets, refinancing a small portion of our maturities to align the maturities 1, 2 years out with our free cash flow generation. And that's just to bridge the timing of those repayments. But we're confident in how we can generate the cash to pay those off and continue to deleverage.

Helpful. And then, Chuck, if I could ask you a more esoteric question. Very sizable write-down this quarter. I'm reading the press release and it's tied to [indiscernible] and nylon, and then in the prepared remarks, it's talking about your stock price and so forth. I'm sure others understand what's going on there, but I don't. Can you please expand on that?

Sure, Frank. Look, the third quarter is our annual reported a test or goodwill and certain intangibles like trade names. We did this using the same third parties that we that we always do. We did record an impairment. I think what's important, Frank, is there was not a reduction in the projected cash flows of Engineered Materials since the last time we did this test. This impairment was really driven by a reduction in our market cap created by a reduction in the stock price because part of the test is sort of a market to book analysis this use. So no change, no decline in the cash flow projections, but it was really driven by the market cap of Celanese.

Our next questions come from the line of Hassan Ahmed with Alembic Global.

So just wanted to get a bit more granular about the sort of near-term guidance. I know in the past, you guys have talked about trying to get to a quarterly EPS run rate of $2 per share imminently, right? So I know the guidance, obviously, for Q4, $0.85 to $1, bakes in seasonality, it's not really in an otherwise abnormal environment, it's not really sort of the right starting point. So maybe if we could start with like the $1.34 you guys reported in Q3, right? Where in the near term, you see that going on a quarterly run rate basis via self-help via, obviously, now with Micromax, almost about to close. Reduced interest expense there and the like. And again, I understand that you guys are talking about an incremental $1 to $2 from self-help, which is $0.25 to $0.50, but would love some more granularity around that.

Yes. Thanks for the question, Hassan. We continue to be focused around driving controllable actions that will, as a first step, get us back to that $2 a quarter run rate. That hasn't changed. Even with where demand is at from a seasonality perspective, and we will get there. If demand stays lower, it may take us a little bit longer to get there. But if you look at where we were performing in the middle part of the year, Q2, Q3 from an EPS perspective, and you just take the actions that I've talked about we have going to next year, it starts to really get to a point where you're approaching kind of that level as you're getting up into the $1.75 to $2 range.

And that's where continuing stack wins, as we called them in our prepared comments, additional costs continuing to drive the pipeline. And then if we get any inkling of of demand improvement. And even if you were just at the demand levels we saw in the second quarter, you're effectively there. And so the multiplying effect of the actions that we're taking are significant. We look at our enterprise right now as a coiled spring that win release is going to really drive very substantial and increased earnings levels as we go forward. It's tough right now. Demand environment is not tough, but I'm extremely proud of the resilience and the actions that the team here at Celanese has taken this year to position us going into next year and beyond.

Very helpful, Scott. And as a follow-up, I would love to hear your views about anti involution as it affects the acetyls chain and you guys. And more specifically, what I asked this is that it seems a bit -- just yesterday, PetroChina, it seems came out and announced that they're studying 19 sort of different refining and petrochemical assets. to potentially retire and those include methanol assets as well, right? So it seems moving away from the pipe dream phase and actually becoming real. So how do you see anti-evolution impacting you guys?

It's hard to say exactly how it will materialize, Hassan. But Look, the dialogue on the ground in China, and I was there in the quarter and was talking to the team, it's palpable more so than I would have expected. I don't know that it's had a really direct impact thus far. I mentioned we've seen some price movement, albeit small, but some price movement in the quarter. I don't know how much of that is anti-evolution or just kind of normal market changes and some of the inventory getting absorbed after some new plants started up, but the reality of it is, is that people are talking about it there.

And I don't know how it comes in fruition to the business. But I do expect that we're definitely going to see this be an important step going forward because I do think the profitability of assets in China need to be higher than where they are today.

Our next question is come from the line of Josh Spector with UBS.

I wanted to follow up just on the acetyl utilization rates. I think my understanding prior was maybe you had rates lower in some of the western markets. So some of your low-cost regions like the U.S. to basically react to some of the weaker demand. I guess your earlier comment was that it's your low-cost assets running full out. So specifically, can you comment on that and maybe your U.S. asset base utilization rate where that is today? And then related with that, if we think about what gets utilization rates higher, if you're running at a high rate in the U.S. today, does U.S. demand improvement help you? Or do you really need Europe or other regions to improve to get your utilization rates up?

Yes. I mean, look, Josh, we've always run our U.S. assets at pretty high rates. That really hasn't changed dramatically. And I'm not saying we don't have room there. We probably have a little bit of room, but you definitely see the uplift. And when you see Western Hemisphere improvement, the netback is significantly higher than moving that product around the different regions where it's better than running other assets, but certainly, U.S. demand flows directly to the bottom line in that case.

So we do think assets are extremely well positioned. We've done debottlenecks of the U.S. asset base over the last 5 years. And so we have the ability to move those up. And when I said full rates, I was really particularly on acetic acid in the U.S., really referring to, we kind of operate that at kind of the capacity that we've historically had, not necessarily operating both acetic acid plants at full rate. So we kind of look at those still operating kind of at the levels they historically did on a combined basis with the ability to ramp up going forward.

Okay. No, that makes sense. So just a quick follow-up on the cost savings side. Just I mean...

Apologies. It looks like we lost Josh. Our next questions come from the line of Arun Viswanathan with RBC Capital Markets.

So if I just go back to that $1 to $2 of uplift, can you just frame that out I think in the past, you had said maybe $0.35 from some of your cost actions. Is that accurate? And then maybe what would be kind of a restocking amount? Is that also included in there? Or maybe -- or could you maybe frame it as what the destocking amount was for '25?

Yes. Arun, as I said earlier on the call, we look at that $1 to $2 really as a rule of thumb, if we're not seeing the market really changed at all off of where we've been over the last several quarters. So there's no kind of restock element in there. And what I said earlier is make the assumption about half of that is coming from cost actions and then the balance coming from the EM pipeline and then some other things, as Chuck mentioned, maybe interest expense.

And then could you just also provide an update on maybe some of your recent actions to maybe change the commercial strategy or extend your legacy commercial strategy within EM, maybe on the project pipeline or anything else that we would find relevant to track your progress there?

The EM team has been modernizing its strategic orientation. That's the best way I can put it. We're evolving. And just where our world is, where we have the ability to really win is in the differentiated spaces where we can leverage our widespread unique portfolio. We have more engineered thermoplastics, more thermoplastics elastomers in our portfolio than anyone else has in the world. Bringing that full portfolio to customers to meet unique challenges that they have around solution sets.

And it is about partnering and really getting focused around where we spend our time and then leveraging innovation that we've had. We've launched publicly our grade selection tool for customers called Chemille, where it's an AI-driven tool which is allowing great selection around our materials for the customers as well as our commercial organization to very quickly meet the needs and streamline that commercialization cycle. And so it's investments we've made in areas like that, that are really bringing the EM team to the leading edge as it comes to creating new opportunities and partnering with our customers.

Daryl, we'll make the next question our last one, please.

Our last question will come from the line of John Roberts with Mizuho.

Well, the European acetate tow closure have any ripple effects across the rest of the Acetyls network, either upstream or even downstream, maybe some of your JVs?

No, I would not look at it that way, John.

Thank you. We'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions.

Daryl, please go ahead and close out the call.

Thank you, ladies and gentlemen. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.