德银-全球化工行业-全球材料大会：主要收获

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GlobalMaterialsConference

GlobalMaterialsConference:KeyTakeaways

DemandremainsstrongintheUS;bullishoutlookinChina;uncertaintiesinEurope

Wehosted19chemicalcompaniesatour13thAnnualGlobalMaterialsConferenceonJune8-9inNYC.TheseincludedAPD,ASH,CBT,CE,DOW,DD,EMN,ECL,ECVT,HUN,IFF,LIN,LYB,KWR,SHW,TSE,UNVR,VNTRandWLK.

Overall,thetonewaspositiveasdemandtrendsremainstrongacrossmostendmarketsandgeographieswithonlymodestsignsofconsumerdrivenweakness,pricingcontinuestoaccelerate,underpinnedbypersistentinflationandsupplyremainstightandinventoriesremainacrossmostoftheindustry.

Keytakeawaysinclude:

i)Junequarterdemandhasbeenstrong,ledbyelectronics,building&construction,chemicals&refining,packagingandmanufacturing.Byregion,theUSisseeingthestrongestgrowthwithEuroperelativelystableduetovariouscrosscurrentsandChinahasbeenweak,upuntilnow,duetoCOVIDrelatedlockdowns.

ii)modestpocketsofconsumerdrivenweaknesshavestartedtoappearinEurope(DIYpaint,building&construction)andtheUS(DIYpaint,durables).

iii)Chinademandisexpectedtoincreasestronglystartinginthemid-to-latterpartoftheSeptemberquarterasCOVIDlockdownseaseandeconomicstimulusisimplementedaheadofthePartyCongressinNovember.

iv)USdemandisexpectedtoremainstrongin2Hbutorderbooksoftypically60daysorless,thelevelofconviction,givenincreasingpressureontheconsumerfromhighenergyandfoodcosts,islow.

v)Europeandemandisexpectedtoslowin2H’22duetopressurefromelevatedenergyprices.

vi)sellingpriceincreasescontinuetobeimplementedathighratesandwithlittleresistance.Thereisnoevidence(yet)ofdemanddestructionfromwhathasbeenunprecedentedlevelsofpriceincreases;mostcompaniesexpecttofullycatch-upifnotexceedhigherrawmaterialenergyandfreightcostsin2H’22;alargeportion

Date

10June2022

IndustryUpdate

DavidBegleiter

ResearchAnalyst

+1-212-250-5473

DavidHuang

ResearchAssociate

+1-212-469-5307

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DeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)051/04/2022.

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ofthesepriceincreasesareexpectedtoberetainedifandwhenrawmaterialand

energycostsmovelower.

vii)costinflationremainshighandpersistent.Whilerawmaterial,energyandfreightcostsareexpectedtopeakinQ2/Q3,thereislittleexpectationthatthesecostswillweakenmateriallyin2H’22.

ix)supplychainandlogisticsissueshaveimprovedonlymodestly.Thishashelpedtotightensupply/demandfundamentals(andsupportpricing)acrossmanychemicalchainsandmarkets;Theseissuesarenotexpectedtoberesolveduntilatleast’23.

x)afterrising$0.03/lbinMay,polyethyleneproducershavea$0.05-$0.06/lbincreaseonthetableforJune.Supportiveofthisincreasearerisingfeedstockcostsandstrongdemand.PushingagainstthisincreaseisnewsupplyintheUSandChina.

xi)commoditychainswithoutsignificantnear-termsupplyrisksincludingchlor-alkali,acetyls,PVC,MDIandTiO2.Asaresult,pricesinthesechainsareexpectedtobemaintainedifnotmovehigher.

xii)companiesarepreparingforarecessionthroughscenarioplanning,readyingfinancialleverstopullinordertocombatslowingdemand.Theseleversincludevariablecostreductions,workingcapitalreductions(resultinginpositivecashflow)andreducedcapitalspending.

xiii)M&Acontinuestobeastrategicpriorityandaprimarygrowthdriverforanumberofcompanies.

xiv)sustainabilityandESGarebeingincorporatedintoeverychemicalcompany’sstrategy,operationsandculture.

OurtoppickscomingoutoftheconferenceASH,DD,EMNandLIN.

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KeyTakeawaysby

Company

AirProducts(APD,Buy)-CEOSeifiGhasemi;CFOMelissaSchaeffer

nOveralldemandissolid.Byregion,USdemandisstrong,drivenbyhigherhydrogenvolumesduetostrongrefiningandchemicalsdemand.InChina,whiledemandwasimpactedbylockdownsearlyinthequarter,theimpactwasnotasbadasinitiallyfearedandmerchantvolumeshavestartedtorecover.InEurope,thereissomeslowingofdemandduetohigherenergyprices.AndinLatinAmerica,thereisalittlebitofaslowdownduetotoughcomparisonsfromnormalizinghealthcaredemandpostCOVID.

nAirProductscontinuestobenefitfromtheindustrialgasindustry’sbesteverpricingcyclewithFQ2markingthe19thconsecutivequarterofpriceincreases.DrivenbysharplyhigherpowerandenergycostsintheUSandEurope,merchantpricesrose13%withAmericasup12%(versus+9%inFQ1),Europeup22%(versus+14%inFQ1),andup8%QoQ,andAsiaup3%(versus+8%inFQ1).FQ2markedthe15th,17thand20thconsecutivequartersofpriceincreasesforAmericas,EuropeandAsia,respectively.AirProductsbelievesthatifpowerandenergymovelower,itwouldhavetogivebackaportionofthepriceincreasestocustomers–thoughitwouldbeabletoretainalargeportionofthepriceincreases.

nThetimelinesforallmajorprojects(NEOMgreenhydrogen,AlbertaNet-ZeroHydrogen,LouisianaBlueHydrogenCleanEnergyandLosAngelessustainableaviationfuel)remainontrack.

nAirProductshas$20Bofprojectsunderconstruction.AirProductsbelievestheriskofprojectcostinflationismitigatedbythelackoftake-or-paycontractsontheseprojects–ifthereiscostinflationontheprojects,AirProductscanselltheproductsproducedfromtheseprojectsathigherprices.Asaresult,ifthereis10%costinflationontheseprojects,AirProductsbelievesthenetcostimpactwouldnotbe$2B(10%x$20B)butcloserto$300MM.

nAirProductsbelievesthemateriallossfromdisassociationofammoniatohydrogenwillbesignificantlybelow30%.ThisisduetoatechnologythatAirProductshasdeveloped,whichitbelievesismoreefficientthanexistingtechnology.Inaddition,forcertainmarineapplications,thereisnoneedforconversionfromammoniatohydrogen.

nOnNEOM,mostofhydrogen(shippedviaammonia)willbesoldinEurope,primarilyGermany,theNetherlandsandtheUK,withsomeoftheremainingproductsoldinCalifornia.Meanwhile,fortheLouisianaproject,asignificantportionofthebluehydrogenwillgotoitshydrogenpipelinewiththerestconvertedintoammoniaandlikelysoldtoJapantodecarbonizingtheirpowerplants.

nOnJazan,AirProductshasreceiveditsfirstcashdividendfromtheJV.Thisissoonerthanexpected.

nGasificationremainsanintegralpartofAirProductshydrogenstrategybecausebluehydrogenneedsgasifiedenergy(coal,naturalgas).

nAirProductsexpectsthedemandforbluehydrogentobesignificantlyhigherthanthedemandforgreenhydrogenduetoi)bluehydrogen’slowercostasitcanbemadefromlessexpensivehydrocarbonsversusmoreexpensivewindandsolarenergyandii)theCO2canbesequestered.Asaresult,AirProductsexpectstoinvestinonlyfewgreenhydrogenprojectsin

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thenext10yearswithmoreofitsinvestmentfocusedonbluehydrogen.

nAlimitingfactorforbluehydrogenissequestrationcapacityasitrequiresspecificgeologicalstructurerequirements.Amongsttheregions,theUSGulfCoasthasthebestgeologicalformationforcarbonsequestration,followedbytheNorthSeaandMiddleEast.

nAirProductsbelievesitssharesdonotreflectthevalueofitslarge,cleanenergyprojects(NEOM,Alberta,Louisiana,LASAF,Oman)duetoconcernsonexecution,costinflationandpotentialcustomers.

Ashland(ASH,Buy)-CEOGuillermoNovo;CFOKevinWillis

nAshlandreaffirmeditsFY'22salesguidanceof$2.25-$2.35BandEBITDAguidanceof$550-$570MM,flatto3%YoY(consensus:$565MM).

nDemandisholdingupacrosstheboard,ledbystrengthinLifeSciences,PersonalCareandArchitecturalCoatings.Ashlandhasnotseenanysignsofconsumerdemandslowing.Byregion,USdemandisstrongandEuropeandemandisstable.

nChinesedemandhasstartedtoimprovefollowinglockdowns.Duetostrongdemand,Ashlandnotedithasbeendifficulttorebuildinventorieswhilecustomerinventoriesremainlow.

nSupplychainissues,andinparticularoceanfreight,havenotmateriallyimproved.

nAfterastrongFQ2duringwhichAshlandfullyoffsethigherrawmaterial,freightandenergycostsforthefirsttimethiscycle,pricingremainsaprimaryfocusforAshland.Andif/whenrawmaterialcostsrollover,Ashlandbelievesitcanretainmostofthesepriceincreasesgiventhehighlyspecializednatureofitsproducts.

nAshlandnowexpectstheturnaroundatitsLima,OHBDOtooccurinFQ4ratherthanFQ3.Thecostoftheturnaroundisestimatedat$10-$12MM.ToreflectthistimingshiftweareraisingourFQ3EBITDAby$11MMto$153MM,up4%YoYandloweringourFQ4EBITDAbyasimilar$11MMto$149MM,flatYoY.

nWiththesaleofitsPerformanceAdhesivesbusinesstoArkemafor$1.65BonFebruary22,Ashlandhascompleteditstransformationtoapure-playadditivesandingredientscompanywithreducedcyclicalityandasignificantlystrengthenedbalancesheet(~1xnetdebt/EBITDA).ThisbalancesheetstrengthprovidesAshlandtheflexibilitytomakeorganicinvestments,pursuebolt-onM&Aandbuybackstock.Ashlandisalsofocusedonpursuinghighvalue,strategicM&Ainpharma(withafocusoninjectables),personalcareandcoatings.

nAshlandbelievesitcanincreaseLifeSciencesandPersonalCare&HouseholdEBITDAmarginstotheirtargeted30%-plusrangebyi)basebusinessimprovementfromhigherpricing,ii)costactions,iii)leveragetohighergrowthconsumermarketsandiv)innovationdrivengrowth.

nAshlandcontinuestotradeatalargediscounttoitsingredientsandadditivespeersat11.5x‘22EEBITDAversus~20xforpeers.

nOncapitalallocation,Ashlandwillcontinuetofocusoninvestinginitscorebusinessandgeographicexpansionswhileparticipatinginvaluecreatingbolt-onacquisitions.

Cabot(CBT,Hold)-CEOSeanKeohane

nReinforcementMaterialsdemand(75-80%drivenbythereplacementtire

market)isholdingup"quitewell".Historically,demandinthisbusiness

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tendstobequitedurable.

nInPerformanceChemicals,autoOEMdemandremainsdepressed.However,thisweaknesscontinuestobeoffsetbygrowthinareassuchasalternativeenergywhereitsfuelsiliconesgointothemanufacturingofwindturbinebladesorinbatterymaterials.AfullautoOEMrecoverywouldprovidea"mixuplift"fromhigh-valueproductssuchasfinishcoatingsandstructuraladhesives.

nCabotremainsexcitedaboutBatteryMaterials.Cabotexpectsearningsofthisbusinesstogrowata50%-plusCAGRoverthenext3years.Cabotforecastsatotaladdressablemarketforconductivecarbonadditives(CCA)of~$2Bby2025.

nBasedonits25%marketshareinspecialtycarbons,CabotseesnoreasonwhyitshouldnotachieveasimilarshareinCCA.Andatanestimated20-25%EBITDAmargin,webelievethisbusinesshasthepotentialtogenerate$100-$125MMofEBITDAin5years.

nCabotbelievesithasadurablecompetitiveadvantageinconductivecarbonadditivesduetoi)abroadportfolioofconductivecarbonadditivesthatgivesformulationflexibilitytothebatteryproducers,ii)anabilitytodesignblendsofconductivecarbonadditivesforcustomersandiii)aglobalfootprinttosupporttheirgrowth.

nWithsignificantexposuretoChina(25%ofFY21revenue),Cabothas"managedthru"thelockdownswell,particularlyinShanghai.However,inpreviousguidanceCabotindicatedthatFQ3volumesforChinawouldbe5-15%lowerthaninitiallyexpectedduetotheimpactofCOVID-relatedlockdowns.

nInEurope,akeymarketforCabot,managementisconcernedgiventheuncertaintycausedbytheRussia/Ukraineconflictandthedramaticimpactonenergyprices.Cabotbelievesdemandcouldseeapullbackintheregionifcostsdonotcomedownandgeopoliticalriskremains.Wenotethat40%ofthetiremarketinEuropeissuppliedbyRussiancarbonblack.

Celanese(CE,Buy)-CFOScottRichardson

nInEngineeringMaterials(EM),whileChinaautomotivedemandslowedinthequarterduetolockdownimpacts,automotivedemandhasbeenstrongintheUSandstableinEurope.Meanwhile,MedicaldemandisslowlyimprovingwhileElectronicsdemandhasheldupwell.

nIntheAcetylChain,VAMandemulsionsdemandhasremainedrobustinQ2.Celaneseisseeingnewgrowthareasparticularlyinrecyclability.

nCelanesewasabletomanagethroughtheChinalockdown,includingchallenginglogisticsandsupplychain,withnooperationaldisruptionstoitsNanjingfacility.However,CelanesebelievesChinawillbelumpyfortheremainderofQ2andpartofQ3.However,bymid-to-lateQ3,Celaneseexpectsgovernmentstimulustodriveasignificantpick-upindemand.

nInAcetyls,supplychainandlogisticsissueshavefurtherexacerbatedsupplytightnessinthewesternhemisphere.WhileCelanesecontinuestoexpectaceticacidpricestonormalize,strongdemandisdrivingdownstreamVAMandemulsionpriceshigher.DuringthequarterCelanesewasabletoflexaceticacidvolumesfromtheEasttotheWestintoVAM,emulsions,andotherdownstreamproducts.

nCelanesebelievestheAcetylChainwillremainverystronginthenearterm.AndcoupledwithnewaceticacidcapacitystartingupinClearLakein’23,Celanesebelievesitspreviouslyprovidedfoundationalearningsof>$1BfortheAcetylChainisstale.Itwillprovideanupdateonthisfoundational

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earningslevelfortheAcetylChainlaterthisyear(weestimateitwillbeinthe

$1.4Brange).

nOnitsforcemajeureonWesternHemisphereacetylchainandacetatetowproductsannouncedinearlyMayduetoaCOsupplyissuesatitClearLake,TXplant,CelanesewasabletoshiftsomeofitsChineseaceticacidvolumestotheWest.Assuch,CelaneseexpectsnomeaningfulearningsimpactinQ2fromtheforcemajeureashigherpricesoffsetslightlylowervolumes.

nOnits$11BacquisitionofamajorityofDuPont’sMobility&Materials(M&M)business,Celanesebelievestheweaker-than-expectedQ1results(EBITDAdown21%YoY)wasduetohigherrawmaterialscosts,whichwerenotoffsetbysellingpriceincreaseandM&M’sexposuretoChinaautomotiveproducersaroundShanghai(andwhichwerelargelyshutdownduetoCOVIDlockdowns).WhileCelanesedoesnotexpectameaningfulimprovementinQ2,givensimilarresultsbyEMinQ4,whichwerefollowedbyrecordresultsinQ1duetofullpassofallcostinflationandareboundinorders,CelanesebelievestheM&MbusinesscangenerateasimilarperformancestartinginQ3.

nCFOScottRichardsonis“moreexcitedaboutowningthebusinesstodaythanwhentheyannouncedthedeal”duetoi)AbetterideaofM&M’sexcesscapacity,ii)moreinformationontheirmanufacturing,iii)abetterunderstandingoftheirtalentandiv)“reallyexcellenttechnology”thanhasonlybeenappliedtoautomotivemarketsbutwhichCelanesebelievescanbeappliedtoelectronicsandhealthcare.

nOnfinancing,Celanesenotedthatitwillnotneed$11Bofdebtfinancingithadexpectedduetostrongerfreecashflowgenerationandsomeassetsales.Itwillalsomaxoutonforeigndebt(Yen,Euro)toreflectM&M’sgeographicexposureandwillincludebothatermloan(~$2B)andbonds($8B-plus).AllofthisshouldhelpmitigatetheimpactofhigherinterestratesfromwhenCelaneseannouncedthetransactioninFebruaryandwhenitwilllikelylockinFinancinginJuly-September(postthereceiptofauditedfinancials).

nOnIbnSina,duetosubstantiallyhigherMTBEmargins,Q3earnings(IbnSinaresultsreportedona1quarterlagbasis)shouldbesignificantlyhigherthanQ2earnings(weestimate~$25MMhigher).

Dow(DOW,Hold)-VP,InvestorRelationsPankajGupta

nUSpolyethylenecontractpricessettledup3c/lbinMayfollowingaflatsettlementinAprilanda4c/lbincreaseinMarch.Producershaveannounceda6c/lbincreaseforJune.Duetostrongdemand,ahighlevelofturnaroundsandhighfeedstockandenergycosts,Dowbelievesatleastaportionofthisincreasecouldbeachieved.

nDemandtrendsintheUSare"verygood"asi)siloxanesdemandremainsstrong(expectedtohavea"great"year),ii)polyolsdemandremainselevatedthoughadditionalsupplyispressuringmarginsandiii)coatingsdemandremainsstrong.

nEuropeis"holdingstrong"withnosignificantslowdowninconsumerspending.Autodemandhoweverremainsdepressedduetothesemiconductorchipshortageandothersupplychaindisruptions.Packagingandarchitecturalcoatingsdemandremainsstrongwhilepersonalcarevolumesareimproving.

nAsiahasexperiencedsomeweaknessduetoextendedlockdownsinChina.However,DowexpectstoseesignificantrecoveryinChinastartinginlateQ3aslockdownsendandportcongestioneases.

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nInMDI,durableshavestartedtoseesomesoftness,partiallyoffsetby

constructionactivitywhichcontinuedtodowell.MDImarginshave

compressedslightly.DowexpectsitsForceMajeureonNorthAmerican

MDI(announcedJune8)stemmingfromaformaldehydesupplyissuefor

itsFreeportplanttohaveamodestimpactonearnings.

DuPont(DD,Buy)-CEOEdBreen;CFOLoriKoch

nOveralldemandisverygoodacrossmostmarketsandgeographies.AreaswhereDuPontdoesseepocketsofweaknessisamongstChineseconsumers,mostlyfromlowersmartphonedemandduetolockdownimpacts,andcontinuedautoproductionissuesduetosemiconductorchipshortage.InChina,whileDuPonthasnotseenameaningfulpick-upindemandpostlockdowns,supplychainshavestartedtoimprovewithareturntonormalexpectedinthenextfewweeks.InEurope,DuPontisstillseeingdecentdemand.WhileDuPontisseeingnosignsofrecession,itisdoingscenarioplanningandwilltakecostactionsasnecessary.

nOnprice/cost,DuPontbelievesitwillbeabletoholdontoatleastaportionofitspricesincreasesinbothWater&Protection(W&P)(price/mixup10%inQ1)andElectronics&Industrial(E&I)(price/mixup1%inQ1;typicallydown1%)whenandifrawmaterialcostscomedown.DuPontbelievesitsrawmaterialcostshavepeaked.

nOnits$5BRogersacquisition,DuPontbelievestheweaknessRogersisexperiencingin1Hisbeingdrivenbylowerautoproduction(akeyendmarket),slowdowns/lockdownsinChinaandsupplychainissues.Despitetheseissues,Rogersorderbookis“verygood”andtheyaregettingalotofnewwinsinEVs.Asaresult,while1HEBITDAwillbebelowexpectations,withChinalockdownsending,supplychainissuesgettingbetterandautoproductionratesramping-up,DuPontbelievesRogerswillbeclosetoitspriorprojectedrun-rateEBITDAbythetimethedealclosesinlateJuly/earlyAugust.

nOnMobility&Material(M&M),the21%declineinQ1EBITDAwasdrivenbyweakerautodemand(60%ofsales),higherEuropeannaturalgasprices,supplychainchallengesandFXheadwinds.Despitetheweakdemand,DuPontwasabletoachievesellingpriceincreases.Inaddition,thebusinessisalsoimplementingpricesurchargesforthefirsttimeinitshistory.The$11BM&MdivestituretoCelaneseremainsontracktoclosebyyear-end.

nTheDelrandivestitureprocess(pieceofM&MnotbeingsoldtoCelanese)issettolaunchlatethisweekorearlynextweek.WithEBITDAmarginsinthelow30sversus~23%fortheM&MbusinessbeingsoldtoCelanese,DuPontfeelspositiveabouttheoutcome.WenoteDuPontreceived14xtrailingEBITDAfortheM&MportfoliobeingsoldtoCelanese.

nOnPFAS,DuPontremainsinconversationswithplaintiffsintheSouthCarolineMDLandexpectstomakeprogressthisyearonresolvingthislitigation.NoteworthyisthatthejudgeintheMDLisencouragingDuPontandtheplaintiffstocomeupwithasettlement(whichweestimatewouldbe$1B-plus).BeyondtheSouthCarolinaMDL,thereare5or6stateswithnaturalresourceclaims.DuPontrecentlysettledanaturalresourceclaimfor$12.5MM(itsshareofalargersettlement).

nDuPontbelievesitsnew,slimmeddownportfoliocangrowsalesata5%annualratewithEBITDAmarginsof32-33%EBITDAinE&I(versus30%in‘22E)and27-28%inW&P(versus24%in‘22E).

nOncapitalallocation,DuPontbelievesitwillhave~$10Bofdeployablecashincludingadditionaldebtcapacity(2.1xnowversus2.7xtarget)followingthecloseoftheM&Mdivestituresinearly’23(Delranshouldclose4-5

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monthsafterM&M).Givenitslowvaluationmultiple(~10xEBITDA),

DuPontexpectstobeaggressiveinbuyingbackshareswiththislargecash

balance.

EastmanChemical(EMN,Buy)-CFOWillieMcLain

nQ2isontracktoachieveguidanceof8-12%YoYEPSgrowthinthequarter,or$2.69-$2.79(consensus:$2.69).ThesolidresultsarebeingledbyChemicalIntermediatesandAdvancedMaterials.

nDemandisverystrongacrossallofEastman’skeybusinessesthroughMay.Despitepersistentinflation,highercrudeandnaturalgaspricesintheUSandEuropeandconsistentpriceincreases,Eastmanhasyettoseeany"real"signsofconsumerweakness.

nEastmanisseeingsomeimpactfromChinalockdownsandsupplychainissuesduetoCOVID.EastmanisalsoseeingsomeimpactsfromtheUkrainewaronbuildingandconstructioninEurope.Inaddition,Eastmancontinuestoexperiencelogisticsconstraintsacrosstheglobe.

nChemicalIntermediatesremains“very,verystrong”.

nInAdvancedMaterials,demandinthefilmsbusinessesremainsstrongacrosstheglobe.Interlayers,however,arebeingimpactedslightlybyaslowdowninEuropewithinautoOEMandarchitectural.AndwhileEastmanisrecoveringaheadofscheduleonproductionfromitssteamlineincidentinQ1,itisfacinglogisticsconstrainsonhowitgetsitschannelsfilled.Asaresult,Eastmanisincurringslightlyhighercostsandtakingmoretimethanexpectedtorefillthechannelstoitscustomers.

nInflationishigher-than-expectedinQ2duetohigheroilandnaturalgaspricesintheUSandEurope.Tooffsetthesehighercosts,Eastmaniscontinuingtoraiseprices.

nEastmanremainsontracktodeliver$100MMofgrowthinthebackhalfoftheyear.

nForitsmolecularrecyclingplantinKingsport,Eastmanhas75%ofthefeedstockcontractedfor.Ultimately,Eastmanisnotlookingtogoto100%astheywouldprefertosourcesomeofthematerialonaspotbasis.TheplantremainsontracktobecompletedattheendofQ1withcommerciallevelsofproductionbymid-year.

Ecolab(ECL,Buy)-EVP&GMGlobalInstitutionalGregCook

nEcolab’sQ2pre-announcement(~$1.10,down10%YoYand$0.10,or8%belowconsensusof$1.22)wasdueprimarilytoadelayinimplementingitstemporaryenergysurchargeof8-12%withonly1-plusmonthofthefullsurchargebenefitinthequarter(itwasimplementedstartingApril1)but3fullmonthsofincrementalenergycosts.Thedelayinimplementingtheenergysurchargewasduetocustomer/andthird-partysystemsissues.

nEcolabexpectstheenergysurchargetoaddlow-singledigitstopricingin1Hand~10%in2H(subjecttochangeasitispeggedtooilprices).Fromamarginperspective,EcolabexpectsEBTIDAmarginstoinflectinQ3beforerisingsignificantlyinQ4asstructuralpricingandtheimpactofthesurchargesareexpectedtocoverrawmaterialinflation.

nRawmaterialcostinflationof30%-plusinQ2isroughlyinlinewithexpectations(ofup30%).

nOndemandtrends,Institutionalis"stillholdingup"withtherecoveryinLodginghappeningquickerthaninFood/Beverage.

nLookingahead,Ecolab"feelsgreat"aboutitstoplinegrowthasaresultof

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structuralpricingactionsandvolumegrowthwithashiftinthebackhalfof

theyeargearedmoretowardspriceandlesstowardsvolumedueto

seasonality.Onadollar-for-dollarbasis,structuralpriceincreasesare

expectedtobe"closetodone"withtheremainingbeingpushedthroughin

theformofsurcharges.

nExiting'22,Institutionalvolumesareexpectedtobebackto'19levelswiththerecoverydrivenbyLodgingfollowedcloselybyFood/Beverage.

nEcolabisinastrongerpositiontodaythanitwaspre-pandemicduetoincreasedglobalcleaningandsanitizingstandardsandawideningofitscompetitivemoatasitinvestedthroughthepandemic(innovation,digitaltechnology,salescapabilitiesandbackboneinfrastructure).

Ecovyst(ECVT,Buy)-CEOKurtBittingandCFOMikeFeehan

nEcovystremainswellinsulatedfrominflationarypressuresthatmostchemicalpeershavebeensusceptibletoduetothenatureoftheir"recessionresilient"businessmodel,with"somesegmentsactuallybenefitting"fromthecurrentinflationaryenvironment.

nDemandremainsstronginbothEcoservicesandCatalystTechnologies.

nEcoservices,duetothelong-termnatureoftheircustomercontracts,hasa"very"highrawmaterialpass-throughpercentage(>90%)inadditiontoindexedpricing,whichsupportsits30%EBITDAmargins.

nWithpricetocostratiospositiveinCatalystTechnologies,EcovystbelievesEBITDAmarginscanreturntothemid-30slevelsin’23(versus32%in‘22E).

nOngrowth,Ecovyst"reallylikes"theseculargrowthprospectsinalkylateproduction,hydrocrackingandrenewablefuelsandwillplaceanemphasisondebo