Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Kraton Corp (NYSE:KRA)
Q2 2020 Earnings Call
Jul 30, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Kraton Corporation Second Quarter 2020 Earnings Conference Call. My name is Kath, and I will be your conference facilitator. [Operator Instructions]

I will now turn the call over to Mr. Gene Shiels, Director of Investor Relations. You may begin.

H. Gene Shiels -- Director of Investor Relations

Thank you, Kath. Good morning, and welcome to the Kraton Corporation Second Quarter 2020 Earnings Call. With me on the call this morning are Kevin Fogarty, Kraton's President and Chief Executive Officer; and Atanas Atanasov, Kraton's Executive Vice President and Chief Financial Officer. A copy of our second quarter news release and the related presentation material we will review this morning is available in the Investor Relations section of our website.

Before we review our results for the second quarter of 2020, I'd like to draw your attention to the disclaimers on forward-looking information and the use of non-GAAP measures included in our presentation this morning and in yesterday's earnings release. During the call, we may make certain comments that are not statements of historical fact and, thus, constitute forward-looking statements. Investors are cautioned there are risks, uncertainties and other factors that may cause Kraton's actual performance to be significantly different from the expectations stated or implied by any forward-looking statements we make today. Our forward-looking statements speak only as of the date they're made, and we have no obligation to update such statements in the future.

Our business outlook is subject to a number of risk factors. As the format of this morning's presentation does not permit a full discussion of these risk factors, please refer to our forms 10-K, 10-Q and other regulatory filings available in the Investor Relations section of our website. Regarding the use of non-GAAP financial measures, a reconciliation of each non-GAAP financial measure we use to its most comparable GAAP financial measure was provided in yesterday's earnings release and in the appendix of the presentation we'll review this morning. Following our prepared remarks, we'll open the line for your questions.

I'll now turn the call over to Kevin Fogarty. Kevin?

Kevin M. Fogarty -- President and Chief Executive Officer

Thanks, Gene, and morning everyone. In light of the overall market conditions, in particular a greater impact on global market demand associated with COVID-19, we are pleased with our results for the second quarter of 2020. Kraton delivered strong financial results in the second quarter, with adjusted EBITDA of $69.5 million. As always, and certainly in the current environment, the safety of our employees has continued to be our highest priority. We have been fortunate thus far that the steps we have taken and the responsible actions of our employees have resulted in no significant COVID-19 concerns or any material impairment in our ability to operate efficiently, effectively and, of course, safely.

Kraton's broad portfolio and geographic diversification continues to be a strength. Our diversification and the resilience of our business model contributed to our second quarter 2020 results, particularly in our Polymer segment, where we continue to see stable demand in many end markets such as medical, personal care, adhesives and infrastructure. And with favorable raw material sourcing, particularly for butadiene, contributed to the strong profitability in the quarter. However, current market conditions do present a more challenging environment for our Chemical segment, where sales volume was down compared to the second quarter of 2019 due to overall market fundamentals, especially in the Americas, including the adverse impact of COVID-19 on end market demand and the significant decline in oilfield activity in North America.

In terms of management actions, during the second quarter, we made solid progress on cost control and operating efficiency, particularly with the ongoing focus on our manufacturing locations, to drive improvement in fixed costs. Turning now to slide five. While COVID had a broader impact on the global environment, as mentioned, we did not experience disruption in our global safety chain, supply chain or operational capability. Our plants continued to operate at plan rates, raw materials were readily available and, in our Polymer segment specifically, at historically attractive prices.

And as a result, we targeted an inventory build in the second quarter to leverage these low raw material costs. With the health of our employees, customers, stakeholders and local communities remaining our top priority, our manufacturing locations continue to operate at normal planning rates under the enhanced social distancing protocols and safety measures we implemented earlier in the year. Outside of our manufacturing locations and innovation centers, the majority of our employees continue to work remotely. Because of our safety precautions, once again, and the ongoing diligence of our employees, we have not had a significant number of reported cases of COVID-19 within our company.

Although COVID-19 did not have a material impact on our first quarter 2020 results, we did see a broader demand impact associated with COVID-19 in the second quarter, particularly in North America. However, our geographic and end market diversity was an advantage in the quarter, as solid demand trends in medical personal care, adhesives and infrastructure served to mitigate weakness in other markets. Given the overall resilience of our business, our balance sheet remains healthy. Since year-end 2019, we have reduced consolidated net debt by $474 million. We have no scheduled maturities until 2025 and a very strong liquidity position, with cash of $137 million at quarter end and significant availability under our $250 million ABL facility.

Due to a number of factors, including the annual seasonal inventory build in advance of the paving and roofing season, we historically generate the majority of our cash in the second quarter the second half of the year. We expect this to be the case this year as we liquidate inventory in the second half, releasing working capital and generating cash in the process. As such, we anticipate further debt reduction through free cash generation over the balance of the year. Given the health of our balance sheet and our financial flexibility, our current operating and strategic priorities remain unchanged. Debt reduction remains a primary focus. We continue to position the company for the long term and we, therefore, continue to invest in our innovation pipeline.

Through our innovation commitment, we have recently introduced our REvolution family of low-color Rosin Ester formulations, which are providing a compelling biobased alternative to hydrocarbon-based tackifiers, and our CirKular polymer grades, which are enabling expansion of the circular economy through their ability to compatibilize virgin plastic, bioplastics and post-consumer and industrial plastic recycling streams. The overarching theme in many of our recent innovation successes as well as our ongoing innovation programs is sustainability.

Over the past year, we have made great progress in advancing our sustainability objectives, not only on the product development front, but also in terms of tangible progress in establishing key metrics. Consistent with the overall theme of sustainability, we remain on track to deliver an estimated $20 million of run rate cost savings by year-end. With these opening comments,

I'm going to turn now the call over to our Chief Financial Officer, Atanas Atanasov, who will provide more details on our financial results for the second quarter. Atanas?

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks, Kevin, and good morning everyone. Turning to slide six, I will provide more detail on our consulted financial results for the second quarter. As Kevin indicated, in the context of overall market conditions, we posted strong results in the second quarter of 2020, with adjusted EBITDA of $69.5 million and an associated adjusted EBITDA margin of 19.6%. While adjusted EBITDA was down $32.5 million compared to the second quarter of 2019, a significant portion of the decrease is explained by the sale of our former Cariflex business.

Excluding Cariflex, operating results in the second quarter of 2019, consolidated adjusted EBITDA would have been down $18.1 million, with a decrease largely attributable to current market conditions, including the impact of COVID-19. The second-quarter 2020 consolidated revenue of $355.7 million was down $139.6 million compared to the second compared to the year-ago quarter. $51 million of this decrease was associated with the sale of the Cariflex business, while the balance of the decrease was driven by lower sales prices in both Polymer and Chemical segments, resulting from lower raw material costs and the lower sales volume in our Chemical segment.

In terms of segment results, our Polymer segment delivered strong results in the second quarter, with adjusted EBITDA of $53.8 million. This was down $6.3 million compared to the second quarter of 2019, due to the sale of the Cariflex business. The Polymer segment margins remained relatively stable in the second quarter and in light of the effective lower average raw material costs on selling prices and revenue, we posted an adjusted EBITDA margin of 26.4% for the quarter. Market conditions for the Chemical segment were more challenging in the second quarter, principally due to the impact of COVID-19 on market demand. Chemical segment adjusted EBITDA was $15.7 million in the second quarter, down $26.2 million compared to the second quarter of 2019.

The decrease was driven by lower sales volumes associated with these market conditions, lower average prices in our CST chain compared to the historical high in the second quarter of 2019 and, to a lesser extent, to our upgrades in the timing of sales to a significant customer which shifted to the third quarter of this year. Debt reduction remains a key priority for Kraton. Although consolidated net debt adjusted for FX increased by a modest $10.5 million in the second quarter, this was largely due to timing and the impact of the targeted inventory built in the second quarter of 2020. On a year-to-date basis compared to year 2019, we have reduced consolidated net debt by $474 million, adjusted for the effects of foreign currency.

Historically, we generate the majority of our cash in the second half of the year, and this relates to the seasonal inventory build in the first half associated with our paving business, a use of cash and inventory liquidation and release of working capital in the second half of the year. As such, we expect further reduction in debt in the second half of 2020. Our liquidity position remains strong. We ended the second quarter with $137 million of cash and $208 million of borrowing base availability under our $250 million ABL facility, with only $15 million outstanding at the end of the second quarter.

Turning to slide seven, to discuss the Polymer segment results. The second quarter revenue for the Polymer segment was down $94 million compared to the second quarter of 2019. And as previously noted, $51 million of the decrease relates to the sale of the Cariflex business. Excluding Cariflex, the Polymer segment revenue was down $42.9 million primarily due to lower average selling prices associated with lower raw material costs. Compared to the second quarter of 2019, sales volume was down 5.9%. However, excluding volume associated with Cariflex in the second quarter of 2019, overall Polymer segment sales would have been up 2.5% compared to the second quarter of 2019.

Sales volume for the Specialty Polymer business was down 14.7%, which reflects lower sales into lubricant additives, the impact of COVID-19 on sales into consumer durables, principally in North America, as well as lower sales into global automotive applications. The sales volume for Performance Products was up 6.7% compared to the second quarter of 2019, on higher sales into European roofing applications and strong demand in adhesives and personal care and hygiene applications. Second quarter 2020 adjusted EBITDA for the Polymer segment was $53.8 million with an associated margin of 26.4%. And this was down $6.3 million compared to the second quarter of 2019. Excluding Cariflex from second quarter 2019, the Polymer segment adjusted EBITDA would have been up $8 million or 17.7% compared to the second quarter of 2019.

I'll also note that despite the sale of our Cariflex business in the second quarter of this year, second quarter 2020 adjusted gross profit per ton was a strong $1,040 compared to $1,075 per ton in the second quarter of 2019, which included the Cariflex business. On a year-to-date basis, Polymer segment revenue was down $114.7 million reflecting the sale of Cariflex and lower average selling prices associated with lower raw material costs. Excluding Cariflex, revenue would have been down approximately $60 million or approximately 13%, largely due to the effect of lower average selling prices resulting from lower raw material costs. Excluding Cariflex, sales volume was unchanged versus the first half of 2019. Specialty Polymer sales volume was down 6.5%, reflecting the impact of COVID-19 resulting from weaker demand in North America and lower sales into lubricant additives.

In Asia, demand weakness associated with COVID-19 was largely offset by high demand in medical applications. Sales volume for Performance Products was unchanged compared to the first half of 2019. The Polymer segment adjusted EBITDA for the first six months of 2020, was $105 million compared to $108.3 million for the first half of 2019. Excluding Cariflex, first half 2020 adjusted EBITDA would have been up 13.4% compared to the first half of 2019. In addition, on a year-to-date basis adjusted gross profit per ton for the first half of 2020 continues to be strong at $1,056 per ton, slightly ahead of the $1,049 per ton for the first half of 2019.

Turning to the Chemical segment results on slide eight. Chemical segment revenue for the second quarter of 2020 was down $45.8 million compared to the second quarter of 2019. The decrease reflects lower average selling prices in the CST chain and, to some degree, for rosin esters, which is related to the significant decrease in gum turpentine and continued pressure on rosin prices and by lower sales volume in TOFA products and TOR upgrades resulting from market conditions, including lower oilfield demand and the impact of COVID-19,

In terms of the pricing decline in the CST chain, the second quarter of 2019 was essentially the peak pricing for gum turpentine and, therefore, for our CST base products. Relative to year-end 2019, we have seen a stabilization in gum turpentine and rosin prices, and this has translated into stabilization of margins in our CST refinery products and for rosin esters. Second quarter sales volume for the Chemical segment was down 16.1% primarily a reflection of decline in the oilfield market and related systemic impact of COVID-19 on market demand, mostly in North America.

Performance Chemicals sales volume was down 23.4% compared to the second quarter of 2019, reflecting lower sales into oilfield and fuel additive applications and the timing of sales to a significant customer, which shifted into the third quarter, while sales volume in Adhesives was down 8.1% primarily due to lower sales into road marking applications. Sales volume for tires was down 39.4%, reflecting weaker automotive demand and disruption in tire production associated with COVID-19.

However, from absolute volumetric standpoint, sales volumes in our Tires business accounts for less than 5% of Chemical segment sales volumes. Chemical segment adjusted EBITDA for the second quarter of 2020 was $15.7 million, a decrease of $26.2 million compared to the second quarter of 2019. The decrease reflects lower sales volume due to overall market conditions and the impact of COVID-19 and lower pricing in the CST chain compared to the second quarter 2019 peak pricing and, to a lesser extent, lower pricing for TOR upgrades compared to the second quarter of 2019.

Now turning to year-to-date results for the Chemical segment. Chemical segment revenue for the six months ended June 30, 2020, was down $54.1 million compared to the first six months of 2019. Drivers for the decrease is similar to the second quarter, the largest of which was lower pricing in the CST chain and for rosin esters and lower sales volume into TOFA upgrades related to oilfield market conditions and TOR upgrades and with COVID-19, a significant factor in the volume decrease, primarily in North America. Chemical segment volumes for the first half of 2020 was down 4.9% compared to the first half of 2019, due to current market conditions and the impact of COVID-19 on overall demand.

Performance Chemicals sales volume was down 5.5%, reflecting lower sales into oilfield and fuel additive applications, while volume for adhesives was down 2.1%, principally due to lower sales into road marking applications. Volume for our Tires business was down 18.3%, reflecting overall trends in the automotive market and production disruption associated with COVID-19. Chemical segment adjusted EBITDA for the first six months of 2020 was $42.4 million, down $40.8 million compared to the first half of 2019. The decrease was driven by lower sales volume resulting from market factors, including the adverse impact of COVID-19 and lower pricing in the CST chain and TOR upgrades.

Slide nine presents consolidated results for the second quarter on year-to-date basis. Having largely covered the drivers of consolidated results in the segment review, I'll note that here that adjusted EBITDA for the first half of 2020 for the whole company was $147.4 million, and this compares to $191.5 million for the first half of 2019. The adjusted EBITDA margin for the first half of 2020 was 18.8%. For the second quarter of 2020, we reported adjusted diluted earnings of $0.30 per share, and this compares to $1.58 a share for the second quarter of 2019. For the first six months of 2020, we reported adjusted diluted earnings of $0.57 per share, and this compares to $2.48 per share for the first half of 2019.

Now turning to slide 10. Debt reduction remains a high priority for Kraton. Since year-end 2019, we have reduced consolidated net debt, excluding the effect of foreign currency, by $474 million, largely through the sale proceeds from our Cariflex business. As previously mentioned, we expect cash generation and, therefore, further debt reduction, in the second half of 2020. I want to again highlight our strong liquidity position, which at quarter end totaled $345 million, consisting of $137.4 million of cash and an available borrowing base of approximately $208 million under our ABL facility. As previously mentioned, earlier this year, the maturity of our ABL facility was extended to January of 2023.

Now turning to slide 11, a few comments on our expectations for the second half of the year. While we're not providing any formal guidance at this time, we do expect that weaker overall demand associated with COVID-19 and other factors will have an adverse impact on financial results for the second half of 2020 compared to the first half of 2020. Specifically, number one, lower plant operating rates in our plants associated with first half 2020 inventory build would result in less favorable fixed cost absorption with an expected impact of $20 million to $25 million.

Number two, the second half of 2020 is expected to include costs associated with turnarounds and maintenance that will be $5 million to $7 million higher than in the first half of 2020. Thirdly, the second half of 2020 is expected to include two quarters of COVID-19 impact versus one quarter impact in the first half of 2020. Number four, we expect continued market weakness in our Chemical segment in the second half of the year, primarily due to adverse impact of COVID-19. And lastly, our financial results in the first half of the year included approximately $10 million of adjusted EBITDA associated with the Cariflex business which was sold in March of this year.

I'll now turn back to Kevin for his closing comments.

Kevin M. Fogarty -- President and Chief Executive Officer

Thank you, Atanas. Now let's turn to slide 12 for an update on our near-term market outlook. As previously noted, during the second quarter in our Chemical segment, we did see a more pronounced demand impact for COVID-19, particularly in North America where we experience lower sales into oilfield, fuel additives and road marking applications. Sales volumes for tires globally were down, reflecting weaker automotive demand and disruption in the tire production associated with COVID-19. Our Polymer segment, similarly in North America, primarily, the impact of COVID-19 resulted in a lower sales volume into consumer durable applications. We continue to expect that relative stability in certain end markets will mitigate weaknesses in others. And as result, the outlook for North America is mixed.

In contrast, in Europe we currently see relative stability in overall market conditions, and in China and broader Asia, we see evidence that demand is improving. In terms of specific end markets, nothing significant has changed compared to our view at the end of April. As expected, we have seen weaker demand in oilfield applications, in automotive applications and in our tire business, where automotive demand and COVID-19 disruption in tire production have been a factor. However, while we saw particularly robust demand in many adhesive markets in the first quarter, particularly in packaging applications such as tapes and labels, and in construction adhesives for medical applications such as masks, during the second quarter we noted some moderation in demand in adhesive markets.

In our view, overall adhesive market demand remains stable, but concerns about supply availability, which may have contributed to strong first quarter demand have lessened, and we believe many customers now have a more conservative approach in managing inventory levels relative to actual demand. In summary, we expect that our market diversification will continue to contribute to relative stability in our financial results. Nearly half our Polymer segment revenue is associated with end markets in which we continue to see positive demand trends and approximately 40% of our Polymer segment revenue is associated with end markets where demand trends are relatively stable, but for which we are maintaining a cautious outlook.

In our Chemical segment, less than 15% of revenue is associated with end markets where we have seen significant weakness in overall demand. However, we have seen a moderation in adhesive demand compared to the first quarter of 2020. And for the segment overall, we expect COVID-19 will continue to be a factor for the balance of the year. While we expect that the impact of COVID-19 will continue to drive near-term uncertainty, we continue to believe longer term the outlook for our business remains favorable because of our market position and the nature of our portfolio offerings, which we intend to leverage through our ongoing focus on innovation and sustainability.

Now sustainability on slide 13 is a broad term and is often open for interpretation. First and foremost, we believe that a focus on sustainability is premised on embracing actions to create long-term value in a resource-constrained world. For Kraton specifically, the role we play in a world that is increasingly defined by a growing need for sustainable products and a desire for sustainable actions and business practices, which is best summed up at Kraton through our tag line of Sustainable Solutions Through Endless Innovation. Simply stated, our portfolio positions us well to deliver in a resource-constrained world. And his reality drives our focus on innovation. Our Chemical segment is 100% biobased with a broad portfolio that's provides effective and compelling alternatives to hydrocarbon-based products.

While innovation was not a key focus of the business when we acquired the Chemical segment, we have applied our R&D capabilities to the business and are now introducing differentiated products to the market. A significant example is our REvolution family of low-color Eosin Ester formulations which have significantly enhanced functional performance color and stability, positioning them well relative to C5 hydrocarbon-based alternatives. This advancement is specific to Kraton. We had our first commercial sales in the third quarter of last year and customer feedback continues to be quite positive.

Other examples include two recently introduced biobased products for our Tires business, SYLVATRAXX 8000 and SYLVATRAXX 2097 that are providing differential performance for tread enhancement agents. And as a reminder, tread enhancement technologies are used by the auto industry to drive fuel efficiency without sacrificing performance. In our Polymer business, through the years, we have continued to provide innovations to enhance recyclability, improve safety or manufacturing efficiency in products such as wire and cable, automotive applications and medical packaging.

More recently, we have introduced our CirKular polymer formulations that we believe will facilitate growth in the circular economy as compatibilizers for bioplastics and industrial plastic recycling streams. We believe our current product offering and the innovation projects we have under way will continue to drive Kraton growth into the future. However, our focus on sustainability extends well beyond our products and innovation programs. Our focus on sustainability is more holistic as we consider our business in terms of economic impact, environmental impact and our impact on society overall.

It guides our practices around governance, compliance and stakeholder engagement. In this regard, over the past year, we have made significant and tangible progress in our sustainability objectives. We have aligned with the United Nations Global Compact on Sustainable Development Goals, or SDGs, which is a global framework for sustainable development intended to address world's most challenging issues by 2030. We have introduced a responsible procurement program and we recently were awarded a Gold rating by EcoVadis in acknowledgment of our progress and sustainability and management of those systems.

This recognition places Kraton in the 98 percentile of all companies that are in the industry assessed by EcoVadis. In alignment with the American Chemistry Council, we have adopted principles of responsible care implementing ISO 14001. We have also recently joined Together for Sustainability, a joint initiative of chemical companies focused on sustainable supply chains. Lastly, we have committed to conduct 12 lifecycle assessments by the end of this year to measure and evaluate the environmental impact for specific products. We look forward to sharing more with you on our progress in sustainability, and we encourage you to learn more in our recently published 2019 Sustainability Report that is available on our website.

With those comments, we're happy now to open up this call for your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Matthew Skowronski of UBS. Your line is now open.

Matthew Skowronski -- UBS -- Analyst

Thank you and good morning. How should we think about sequential volumes in unit margins in the polymers, given this is about of an odd year in terms of seasonality? And then secondly, I might have missed it. But is your full year capex guide still $90 million?

Kevin M. Fogarty -- President and Chief Executive Officer

I'm going to ask Atanas to go ahead with the capex, and then I'll take the polymer question.

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. Well, we're not providing guidance for the full year, as you know. What we had indicated earlier this year is that we were looking at around $90 million. And what we have indicated now is that we don't believe that we're going to be spending anything more than $90 million. So it will be $90 million or less for this year. And we're looking at various opportunities and retain flexibility with respect to capex as the rest of the year unfolds.

Kevin M. Fogarty -- President and Chief Executive Officer

And so when I think about the polymer question, yes, I mean this is an interesting year, to say the least. But for the most part, I mean, sequentially, the volume's going from Q1 to Q2, particularly for our Performance Products business that is driven by the paving and roofing demand, has been inconsistent with our expectations in terms of the market evolution and heading into the summer paving season. Our specialty business, while the volumes going from Q1 to Q2 look the same, I think there's a couple of different drivers.

In Q1, we obviously had the return to China that we were thinking through when that would occur, and talked about that openly in the call in first quarter results. But then you had the China recovery starting to pick up and then COVID impacting a lot of the volume scenarios and market demand in other Kraton markets. So you kind of have kind of two different demand drivers equating to approximately the same type of volume trend in our specialty business. Now, we also have on top of that, of course, what's happened to raw materials.

And yes, we did see a decline in raw material costs going into the second quarter from the first quarter, fairly dramatic as you probably noted. That being said, obviously, consistent with our price right strategy, I mean we use that as an opportunity, obviously, to manage our margins very effectively through that time period. And I think the impact, if you will, on the results in the second quarter, for that raw material, if you kind of look at it relative to the overall margin expansion that we were able to achieve, is somewhere between $5 million and $7 million.

Matthew Skowronski -- UBS -- Analyst

Thank you.

Operator

Thank you. Our next question is from Vincent Anderson of Stifel. Your line is now open.

Vincent Anderson -- Stifel -- Analyst

Yeah. Thank you. I know you typically don't disclose this level of detail. But I was curious if you'd be willing to talk about volume versus price in your adhesives demand this quarter and going into July, particularly in pine chemicals, because I'm looking at the 2Q pressure and your comments that you made, and I'm wondering is how much of it was maybe an inventory correction from the first quarter versus an actual structural reset and demand lower than maybe what you had anticipated?

Kevin M. Fogarty -- President and Chief Executive Officer

No. As I said in my comments, we didn't see what we would characterize as a demand shift in terms of consumption. As we now look back on some of the first quarter positive volume trends, it's pretty evident to us that our customers, not knowing fully how the supply chains would be available to them, wanted to make sure that for the very critical adhesive formulations that go into a lot of the demand surge and downstream packaging associate with COVID-19, that they had ample supply. So they probably built some inventory and then in the second quarter they released that inventory. But from an overall consumption standpoint, we're not seeing any changes.

Vincent Anderson -- Stifel -- Analyst

Okay. Thanks. I appreciate that clarification. I wanted to go back to turnarounds. Have you, with your second half kind of demand outlook have you been able to move any turnarounds into this year? And then kind of coupled with that, if you'd be willing to kind of quantify 2019, 2020 and then going into next year, your total turnaround costs and maybe how they've moved?

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. I think your sense is accurate. When you look at turnarounds, we have had some turnaround activity that basically slipped from the second quarter into third quarter that was largely attributable to COVID. And we indicated in our prepared remarks, as you recall, that we're looking at $5 million to $7 million of incremental impact that's expense on our P&L for the second half of the year, so that that reflects that. When it comes to turnaround, you have to realize that we have a dozen plants and they have revolving, shall we say, turnaround schedule.

On some of our plants, we have regulatory required maintenance that occurs every five to six years, while on others it's every year or every other year. So at any point in time, you may have turnaround activity depending on what part of the world you're looking at. But specifically to this year, as you look at it, it's nothing out of the ordinary or unexpected. It's simply a shift from the first half to the second half of the year, which is that $5 million to $7 million.

Kevin M. Fogarty -- President and Chief Executive Officer

And the only thing I would note is for our Paving and Roofing business specifically as part of our performance products, depending on that turnaround cadence, we have to manage our inventories carefully relative to the summer season, because we can't produce what the market demands over the course of just the summer season. So we have to look at our inventories across the calendar year and then line it up with the turnaround schedule that that Atanas just mentioned.

Vincent Anderson -- Stifel -- Analyst

Thank you. That's helpful. If I could sneak one more in. You spoke about your compatibilizers. That's very interesting. I was also curious to hear if you're looking at opportunities in incorporating recycled styrene content. We've just been seeing quite a few large styrene monomer suppliers start to partner with some interesting technologies that are on the pyrolysis side, and wondered if you had started looking at that as a potential source of increasing your sustainable portfolio.

Kevin M. Fogarty -- President and Chief Executive Officer

No, I wouldn't say that the styrene of the polystyrene plastic chain is a driver in our CirKular technology. I think our CirKular technology, though, works very well for a number of other plastics; of course, polyolefins being the largest driver. But also, some of the polyamides as well as even the polyester, so...

Vincent Anderson -- Stifel -- Analyst

Okay. If I could clarify. It sounds like you have given some thought to this then. Is my understanding that the output, the virgin styrene monomer from these pyrolysis plants would not meet the specifications needed for styrenic block copolymer, so you expect it to go back into the polystyrene function?

Kevin M. Fogarty -- President and Chief Executive Officer

Again, I'm not quite sure what you're driving at for this question. But as we look at the main opportunity for our CirKular technology, it's certainly focused on the polyolefin chain as well as the polyester chain. We see those as very large sources of recycle streams that need a solution, and CirKular will provide that solution.

Vincent Anderson -- Stifel -- Analyst

Okay, fair enough. Thank you.

Operator

Thank you. Our next question is from Jim Sheehan of SunTrust. Your line is now open.

Jim Sheehan -- SunTrust -- Analyst

Good morning. Thank you. If you could parse out the COVID-19 impacts by segment in the first half. You said you had to know more you're going to have two quarters of that in the second half versus just one in the first half. And also, just clarify, what do you see as continued chemical market weakness? Are you expecting similar EBITDA levels from the second half to what you realized in the second quarter?

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. Thank you for your question. This is Atanas. So when we look at COVID-19 impact, it's not a precise science, but I will give you our view of our specific impact on our company. When we look at the first half, if we look at the second quarter, and again I'll give you some ranges. On the Chemical segment, that's probably anywhere between $12 million to $13 million in our results. And on the Polymer segment, around $4 million to $5 million, primarily on the HSBC on the specialty side of the portfolio. So you're looking at around $16 million, maybe $17 million of impact in the second quarter of this year.

On a year-to-date basis, obviously that's going to be a little more, but the majority of the impact occurred in the second quarter. So for polymers, I think it's around $6 million. And again, that's primarily on the HSBC side of the portfolio. And on chemical, we're looking at maybe $15 million to $17 million. So in total, you're looking at, call it $20-plus million of COVID impact on a year-to-date basis for Kraton. When you look at the Chemical segment and the continued weakness, the weakness is primarily in volumes, because if you look at versus year-end, margins have largely stabilized, particularly on the CST, chain and, to a large degree, on the TOR chain.

You may have a little bit of movement, but not much. So that's why when we talk about COVID impact, for the second half of the year, it's demand-driven impact, primarily in North America on the chemical side. So it's a volume, sales volume impact. I hope that answers your question.

Jim Sheehan -- SunTrust -- Analyst

Yes. Thank you very much. And you referenced your gross profit per ton this year and last year in polymer. Could you state what was your gross profit per ton in the second quarter of 2019 excluding Cariflex?

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. It would not have been excluding Cariflex, it would have been still right around $1,000, $950; between $950 and $1,000, so still very robust.

Jim Sheehan -- SunTrust -- Analyst

Thank you. And with the election coming up, there are some political proposals to raise the U.S. corporate tax rate to 28%. If that were implemented, what would that mean for your effective tax rate?

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

Well, as you know, we operate across various tax jurisdictions. All I would say is that our effective tax rate is likely to be, I would say well below 28% on an overall basis simply because of our overall favorable tax positions, the availability of credits and such. But just at a high level, I would say that will not have an immediate impact on us for the immediate or foreseeable future at 28%. And again, that's just a high-level estimate.

Jim Sheehan -- SunTrust -- Analyst

Thank you very much.

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

You're welcome.

Operator

Thank you. Speakers, there are no questions in queue at this time. [Operator Instructions]

Speakers, we show no further questions at this time. I will now hand the call back to Mr. Gene Shiels for the closing comments.

H. Gene Shiels -- Director of Investor Relations

All right. Thank you, Kath. Well, we'd like to thank all of our participants this morning for their interest in Kraton and their thoughtful questions. A replay of this call will be available shortly after the termination of the call, through a link on our website. You can also access the replay by dialing 888 562-6891. That concludes our prepared remarks. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

H. Gene Shiels -- Director of Investor Relations

Kevin M. Fogarty -- President and Chief Executive Officer

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer and Treasurer

Matthew Skowronski -- UBS -- Analyst

Vincent Anderson -- Stifel -- Analyst

Jim Sheehan -- SunTrust -- Analyst

More KRA analysis

All earnings call transcripts

AlphaStreet Logo