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DATE

Wednesday, May 6, 2026 at 10 a.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Scott Richardson
  • Chief Financial Officer — Chuck Kyrish
  • Vice President, Investor Relations — William Cunningham

TAKEAWAYS

  • Back-Half EPS Guidance -- Management reiterated an expected $3 per share in EPS for the second half, premised on supply chains beginning to unwind by end of Q2 and moderation of volumes and margins in subsequent quarters.
  • Engineered Materials Absorption Impact -- CFO Chuck Kyrish stated, "we would expect an additional $50 million of absorption hit on the income statement" in the second half due to inventory drawdown from the nylon transition, with further structural inventory reductions ongoing.
  • Nylon 66 Strategic Cost Savings -- As detailed by management, newly announced initiatives targeting incremental cost savings of $30 million are underway in the U.S. and Singapore, with approximately one-third of savings expected to benefit results in the second half.
  • Acetyl Chain Profitability Drivers -- CEO Scott Richardson reported that "the majority of the profit...comes from the Western Hemisphere," and recent sequential improvement is disproportionately driven by downstream vinyls products rather than acetic acid sales.
  • Clear Lake Operating Rates -- The Clear Lake facility operated at a "relatively high utilization rate" in the quarter, with both assets at "optimal usage" in response to demand and margin dynamics.
  • Acetyls Regional Pricing Trends -- Acetyls pricing in China peaked early in Q2 and has since moderated, while Western Hemisphere prices remain flat versus early-quarter levels; management sees possible further moderation in Asian prices through the quarter.
  • Working Capital Outlook -- The base case assumes roughly half of incremental EBITDA generated this year will be collected as free cash flow in 2026, with the remainder realized in 2027 due to working capital timing.
  • Divestiture Efforts -- CFO Chuck Kyrish said, "we do feel good about signing another deal this year," but no cash proceeds are included in forecasts given M&A market uncertainty.
  • EM EBITDA Margin Performance -- CEO Scott Richardson noted that Engineered Materials has shifted from "low teens" historic EBITDA margins to "now consistently performing north of 20%" following restructuring and segment focus.

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RISKS

  • CEO Scott Richardson acknowledged, "demand continues to be low at an end use level," with further uncertainty around pace of supply chain normalization and demand pullback.
  • Management cited scenarios involving "front-loading" of Engineered Materials volume and potential later demand weakness, explicitly factoring this risk into second-half guidance.
  • CFO Chuck Kyrish indicated potential $35 million in absorption hits, $15 million turnaround expense, and raw material cost pressures as offsets to segment earnings, emphasizing material cost headwinds and inventory impacts.
  • Acetyl Chain margins in China have retreated from early Q2 highs, with CEO Scott Richardson stating, "we're certainly not at margin levels where they were at the beginning of 2026," suggesting ongoing regional volatility.

SUMMARY

Celanese Corporation (CE 9.78%) management reaffirmed its $3 per share EPS guidance for the back half of the year, contingent on anticipated supply chain normalization and stable regional demand. Strategic initiatives, particularly in Nylon 66, are expected to generate $30 million in cost savings, partially benefitting upcoming quarters. Working capital timing will defer a significant portion of 2026 EBITDA translation into free cash flow until 2027. While Engineered Materials maintains EBITDA margin gains above 20%, headwinds include planned absorption impacts related to inventory actions, ongoing raw material cost pressures, and variable acetyls profitability across regions. The company pursues at least one divestiture in 2026, but has excluded proceeds from its cash flow planning due to transaction uncertainty.

  • Management maintains a flexible asset operating strategy, with capacity adjustments at Frankfurt, Singapore, and Clear Lake responding dynamically to regional shifts in demand and supply chain conditions.
  • Celanese's transition from commoditized acetic acid to higher-value downstream vinyls and powders has lessened exposure to volatility in upstream acid prices.
  • Contracting strategies in acetyls have been adapted regionally, with U.S. volumes balancing formula pricing and spot exposure while Asian contracts "moves with how the market is moving very quickly," enhancing customer retention and flexibility.
  • Segmental cost-reduction actions in Engineered Materials and Nylon 66 are expected to reshape structural margins and enable growth even in flat or declining end markets.

INDUSTRY GLOSSARY

  • Nylon 66: A specialty engineering thermoplastic known for its strength, used extensively in automotive and industrial applications, produced via compounding and often referenced as a margin and cost strategy focus for Celanese.
  • Acetyl Chain: An integrated product value chain extending from acetic acid to value-added chemicals such as vinyl acetate monomer, emulsions, and specialty powders, critical to Celanese's business mix evolution.
  • VAM (Vinyl Acetate Monomer): A key chemical intermediate derived from acetic acid, used in the production of polymers, emulsions, and adhesives, and cited in the call as a profitability and downstream growth driver.
  • EM (Engineered Materials): Celanese's specialties segment, comprising advanced polymers and compounding businesses with direct focus on margin enhancement and differentiated end uses.
  • POM (Polyoxymethylene): Also known as acetal, an engineering polymer used in precision parts, discussed in the context of inventory drawdown and turnaround impacts.

Full Conference Call Transcript

Operator: 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.

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

Ghansham Panjabi: 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.

Scott Richardson: 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.

Ghansham Panjabi: 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?

Scott Richardson: 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.

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

Patrick Cunningham: 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.

Scott Richardson: 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.

Patrick Cunningham: 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?

Scott Richardson: 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.

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

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

Scott Richardson: 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.

Jeffrey Zekauskas: 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?

Scott Richardson: 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.

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

Vincent Andrews: 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.

Chuck Kyrish: 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.

Vincent Andrews: 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?

Scott Richardson: 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.

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

Michael Sison: 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?.

Scott Richardson: 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.

Chuck Kyrish: 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.

Michael Sison: 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?

Scott Richardson: 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.

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

David Begleiter: 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?

Scott Richardson: 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.

David Begleiter: 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?

Scott Richardson: 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.

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

Frank Mitsch: 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?

Scott Richardson: 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.

Frank Mitsch: 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?

Scott Richardson: 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.

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

Hassan Ahmed: 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.

Scott Richardson: 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.

Hassan Ahmed: 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?

Chuck Kyrish: 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.

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

Kevin McCarthy: 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..

Scott Richardson: 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.

Kevin McCarthy: 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?

Scott Richardson: 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.

Chuck Kyrish: 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.

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

Laurence Alexander: 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?

Chuck Kyrish: 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.

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

John McNulty: 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?

Scott Richardson: 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.

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

Matthew DeYoe: 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?

Scott Richardson: 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.

Matthew DeYoe: 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.

Scott Richardson: 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.

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

Unknown Analyst: 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?

Scott Richardson: 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.

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

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

Christopher Perrella: 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?

Scott Richardson: 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.

Chuck Kyrish: 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.

William Cunningham: 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.

Operator: 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.