AdvanSix Q3 2024 Earnings Report

AdvanSix EPS Results

• Actual EPS: $0.84
• Consensus EPS: $0.60
• Beat/Miss: Beat by +$0.24
• One Year Ago EPS: -$0.41

AdvanSix Revenue Results

• Actual Revenue: $398.19 million
• Expected Revenue: $357.65 million
• Beat/Miss: Beat by +$40.54 million
• YoY Revenue Growth: N/A

AdvanSix Announcement Details

• Quarter: Q3 2024
• Date: 11/1/2024
• Time: Before Market Opens
• Conference Call Date: Friday, November 1, 2024
• Conference Call Time: 9:00AM ET

AdvanSix (NYSE:ASIX), Inc. (NYSE: ASIX) is an integrated chemical manufacturer specializing in the production of nylon 6 intermediates and related co‐products. Established as a publicly traded spin‐off from Honeywell Specialty Chemicals in June 2016, the company is headquartered in Parsippany, New Jersey.

The company’s principal product is caprolactam, the key building block for nylon 6 resin, used in fibers and engineering plastics across industries. In addition to caprolactam and nylon 6 resin, AdvanSix produces ammonium sulfate fertilizer and industrial chemicals such as phenol and acetone. These products serve a variety of end‐use markets, including automotive, textiles, packaging, wire and cable insulation, and consumer goods.

AdvanSix operates three main manufacturing facilities located in Hopewell and Frankford Township, New Jersey, and in Chesterfield County, Virginia. Through these plants, the company supplies a global customer base across North America, Europe and Asia, leveraging integrated production processes to optimize feedstock utilization and reduce costs.

Led by an experienced senior management team, AdvanSix is focused on operational excellence, cost leadership and sustainable growth. The company pursues continual investment in process innovations and environmental stewardship initiatives aimed at reducing energy consumption, minimizing waste streams and advancing circular economy solutions.

AdvanSix Q3 2024 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: This quarter saw 23% sales growth to $398 M, $53 M adjusted EBITDA, and $27 M free cash flow, reflecting robust top- and bottom-line performance.
• Positive Sentiment: AdvanSix secured an approximately $12 M USDA grant for its Sustain program, accelerating the expansion of its premium granular ammonium sulfate capacity.
• Negative Sentiment: An extended ammonia plant restart at the Hopewell facility is expected to cause an incremental $17 M pretax earnings headwind, including $7 M of lost sales and fixed cost absorption.
• Positive Sentiment: The ammonium sulfate order book is sold out through year-end, supported by strong sulfur premiums and resilient farmer demand despite broader crop price pressures.
• Neutral Sentiment: 2024 CapEx guidance was narrowed to $135–140 M (down from $140–150 M), with modestly higher spending in 2025 for growth projects and water permit investments.

Presentation

[Operator]

Good day, and welcome to the AdvanSix third quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

[Adam Kressel, VP of Investor Relations and Treasurer at AdvanSix]

Thank you, Rocco. Good morning, and welcome to AdvanSix's third quarter 2024 earnings conference call. With me here today are President and CEO Erin Kane, Senior Vice President and CFO Sidd Manjeshwar, and former Senior Vice President and CFO Michael Preston. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change, and the actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation.

[Adam Kressel, VP of Investor Relations and Treasurer at AdvanSix]

In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K, as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the third quarter 2024 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So with that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane.

[Erin Kane, President and CEO at AdvanSix]

Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, the AdvanSix team capitalized on the strength of our competitive position to deliver robust results. With the continued realization of commercial performance across our diverse product portfolio and strong operational execution in the third quarter. We drove top and bottom line growth, as well as continued cash flow improvement again this quarter, while maintaining our investments for long-term sustainable performance. During the third quarter, we successfully completed a Responsible Care Recertification Audit, which is conducted by a third-party independent auditing firm, which meets specific American Chemistry Council criteria.

[Erin Kane, President and CEO at AdvanSix]

For more than 35 years, Responsible Care has been a core priority for American Chemistry Council members and represents our industry's commitment to the health and safety of our employees, the communities in which we operate, and the environment as a whole. My thanks to the entire team for their commitment to continuously improving our health, safety, and environmental performance alongside our financial results. The broader market backdrop in which we are operating remains favorable overall, with strong sulfur premiums supporting higher year-over-year pricing in our ammonium sulfate fall fill program, a constructive global acetone supply and demand environment, and modestly improving North American nylon industry conditions. Our disciplined capital execution continued in support of long-term performance and growth, including SUSTAIN, or Sustainable U.S. Sulfate to Accelerate Increased Nutrition program.

[Erin Kane, President and CEO at AdvanSix]

We are pleased to be awarded an approximately $12 million grant from the USDA through the Fertilizer Production Expansion Program, reinforcing a strong return profile for our series of projects. The grant funding will be received during the program's execution on a milestone achievement basis and importantly supports the demand growth for our U.S. customers as we increase our production capacity of premium-grade product. Everyone at AdvanSix is proud to have true material impact in helping to nourish the world. Effective October 1st, we welcome Sidd Manjeshwar as our new Senior Vice President and Chief Financial Officer. Sidd has tremendous experience establishing corporate and financial strategies that accelerate growth and profitability, and we look forward to his expertise as we advance our next chapter.

[Erin Kane, President and CEO at AdvanSix]

I would like to take the opportunity to once again thank Mike Preston for his significant contribution to the success of AdvanSix as our founding CFO, in which he will announce his retirement. Mike will remain with the company through year-end in an advisory role to ensure a smooth transition of responsibilities. We appreciate that we have a number of items to cover in our outlook, which I'll dive more into later. Let me close here now with a reflection on our confidence to navigate, perform, and execute within a multitude of environments. We remain convinced in the future prospects for AdvanSix and are committed to delivering sustainable long-term value to our shareholders. Let me now turn the call over to Sidd to walk through the quarter financials.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

Thanks, Erin, and good morning. I'm excited to be joining my first earnings call as a member of AdvanSix and look forward to engaging with our analysts and investors moving forward, as well as delivering upon our compelling investment thesis. I'm now on slide four, where I will provide a summary of our third quarter 2024 financials. As Erin mentioned, our performance in the third quarter was terrific, with robust sales and earnings performance, as well as strong cash generation. I would like to thank all of our talented and dedicated employees for delivering these outstanding results. Sales of $398 million in the quarter increased approximately 23% versus the prior year, with contributions from both volume and price. Sales volume increased roughly 11%, primarily driven by higher sales of ammonium sulfate. Raw material pass-through pricing was 8% favorable as a result of net cost increase in benzene and propylene.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

Market-based pricing was favorable by 5%, including continued strength in acetone, as well as ammonium sulfate, as growers seeking to maximize crop yields continue to recognize the benefits of sulfur nutrition. Adjusted EBITDA was $53 million, and adjusted EBITDA margin was 13.4%. I'll walk through the key year-over-year variances on the next slide. Our adjusted earnings per share of $0.88 increased by $1.24 versus the prior year. The effective tax rate was 25.1% compared to 20.7% in the third quarter of 2023, primarily driven by the pre-tax loss in the prior year period. Free cash flow was $27 million in the quarter, up $31 million year-over-year, and an improvement of $10 million sequentially from the second quarter. Cash from operations of $57 million increased $37 million versus the prior year, primarily due to higher net income.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

Capital expenditures of $30 million in the quarter increased $5 million, reflecting our planned increased spend on maintenance and enterprise programs. Now, let's turn to slide five. Here, we highlight the key drivers of our third quarter 2024 Adjusted EBITDA performance compared to the prior year period. Overall, the quarter can be characterized by our team's demonstrated ability to capture the pricing and volume benefits of commercial opportunities across the portfolio, the timing of planned plant turnarounds, and approximately $3 million impact in the quarter compared to $27 million in the prior quarter, was a consideration for the year-over-year comparable. However, when normalizing for the timing of impact of turnarounds, our underlying earnings growth remained substantial. Pricing over raw materials was favorable by $17 million, tracking our key variable driving margins.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

We saw expansion in acetone margins over propylene, supporting chemical intermediates, improvement in ammonium sulfate on a net price over natural gas and sulfur bases, and a modest increase in our nylon and caprolactam portfolio over our key raws. Volume, sales mix, and other items provided improved performance of $5 million, largely reflecting higher ammonium sulfate volume amid continued sulfur nutrition demand growth. Now, let's turn to slide six. Overall, our healthy balance sheet with prudent leverage ratios have continued to support reinvestment, growth, and return of cash, with our debt leverage expected to remain near the low end of our one to two-and-a-half times target range. Our CapEx framework is a key pillar of our balanced and value-creative capital allocation strategy.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

Specifically, our strategy remains focused on our base maintenance and health, safety, and environmental spend to support safe, stable, and sustainable operations, our enterprise programs to support long-term operational excellence and risk mitigation, and a pipeline of high-return growth and cost-saving projects. As shared in our press release, we now anticipate CapEx in the range of $135 million-$140 million in 2024, compared to our previous guidance of $140 million-$150 million. Capital investments in 2025 are expected to be modestly higher due to refined execution timing, reflecting approximately $10 million of 2024 carryover and the continued planned progression of our growth and enterprise programs. We continue to focus on making the necessary investments at the right time to support our long-term performance. We anticipate our new pending water permit for our Hopewell facility to require a multi-year investment to support sustainable water stewardship and resiliency at our site.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

So, while this does represent a new consideration for CapEx, we do anticipate both the Frankford dock and boiler upgrade spend to wrap up in 2025. With that, let me turn the call back to Erin.

[Erin Kane, President and CEO at AdvanSix]

Thanks, Sidd. I'm now on slide seven to discuss each of our product lines, starting with our plant nutrients business. While we navigated typical seasonal pricing considerations, our continued strong performance in Q3, including the higher year-over-year pricing of our fall fill programs, are further proof points to the resiliency of sulfur nutrition demand. Industry Corn Belt ammonium sulfate prices were up 16% year-over-year. In contrast, Corn Belt nitrogen pricing saw both a sequential reduction into the third quarter, as well as an 18% decline year-over-year, supporting continued robust realized sulfur premiums. We also continued to see strong demand for ammonium sulfate, including tons for sulfur application, which led to higher anticipated volumes in the third quarter, ahead of our fourth quarter 2024 planned plant turnaround.

[Erin Kane, President and CEO at AdvanSix]

Looking ahead, our order book is sold out through the end of this year, and we remain focused on being well-positioned for an anticipated favorable ammonium sulfate environment in the spring. We continue to expect strong performance despite recent industry data signaling caution around crop prices. As we've seen in past periods, when farmer economics were on the decline, we typically see strong demand for ammonium sulfate as growers seek ways to maximize crop yields. There continues to be supporting evidence that farmers understand the investment trade-off in driving better yield while managing their cost structure and profitability. As we have had a number of questions in the past regarding our regional and product sales mix, we have added a table here to characterize our 2024 first half versus second half sales volumes.

[Erin Kane, President and CEO at AdvanSix]

As you can see in the table, we ship and sell domestically on a fairly consistent basis through the year. And as a reminder, this is where we sell the vast majority of our premium granular product. Export sales do go up in the second half, particularly for our standard-grade product, which is predominantly sold into Central and South America. Longer term, we remain excited about the growth prospects for this business and leveraging our expertise as a leader in this space. Let's turn to slide eight to provide an update on our multi-year sustained growth program. As a reminder, this program will continue to support growing market demand for sulfur nutrition, with an estimated growth of 3%-4% per year and additional upside potential driven by increased adoption on soybeans. As we've shared in the past, this program is a primary driver of near-term focused growth capital investment.

[Erin Kane, President and CEO at AdvanSix]

And as we promised, we endeavor to provide greater clarity to the timing of our investments and expected outcomes as we hit certain milestones. The program is comprised of a series of projects targeting expansion of our granular ammonium sulfate production, predominantly through increased conversion by approximately 200,000 tons per year. That represents a nearly 20% increase to support the growing needs of our domestic customers. With ammonium sulfate traditionally a co-product of caprolactam production, the program also provides enhanced flexibility for higher granular production, even under variable caprolactam output scenarios. Benefits are being realized and will continue to phase in over the investment period as individual components of each project come online. We remain on track in our proceeding in front-end engineering design and field execution.

[Erin Kane, President and CEO at AdvanSix]

We expect production capabilities by the end of 2024 to reach a milestone of 70% conversion, ahead of our original target for the year and 7% over our original baseline. By completion of this program, we anticipate roughly 75% granular conversion, with increased production flexibility, improved domestic customer logistics, and no net increase in energy consumption or emissions. The return profile for our program remains robust, with expected IRRs exceeding our 20% target hurdle rate. Coupled with the awarded grant from the USDA, we remain very excited about this program and look forward to sharing our continued progress moving forward. Let's turn to slide nine. For nylon, global pricing and spreads have continued to see recovery sequentially through 2024. We continue to expect North American nylon industry spreads to modestly improve amid stable end market demand and more favorable macroeconomic conditions.

[Erin Kane, President and CEO at AdvanSix]

The lower interest rate environment in time is expected to favorably impact building construction, and we anticipate seeing a more meaningful impact translate across the fiber and filament chain in 2025. Packaging demand remains stable overall, supported by the food and beverage sector. While in engineering plastics, we are monitoring fourth quarter inventory drawdowns through the auto value chain. Varying regional dynamics, including competitive intensity and trade flows, continue to impact regional pricing. Despite long supply and demand fundamentals, estimated operating rates in China are sitting at multi-year highs, resulting in continued nylon exports to other regions, namely Southeast Asia. In light of this, and supporting our performance moving forward, is an improved geographical mix, as our export sales have reduced and returned to historical averages, with an estimated 13% of total nylon sales volume compared to approximately 20% overall in 2023.

[Erin Kane, President and CEO at AdvanSix]

Our customers value reliable domestic supply, and we demonstrated the benefits of our competitive position with an average of 93% utilization at Hopewell in the second and third quarters. For our nylon business, we remain highly focused on supporting improved through-cycle profitability by driving productivity, optimizing our regional and product sales mix, and continuing to promote the value proposition of our differentiated nylon offerings. As an example, our wire and cable tailored solutions are designed to meet strict specifications and maintain compliance with UL certifications. This is essential for ensuring the highest safety standards in building wire protection. Our value technical support and innovative solutions have helped customers solve problems and enable them to run their production lines at significantly higher rates. We've seen this translate into strong sales growth with a low double-digit percent CAGR since 2021 and 4% sales growth for the third quarter year-to-date.

[Erin Kane, President and CEO at AdvanSix]

Let's turn to slide 10. Moving to chemical intermediates, industry realized acetone prices over refinery-grade propylene costs generally remain healthy amid continued balanced to tight global supply and demand as lower global phenol operating rates continue to persist. Into the fourth quarter, we're monitoring the paints and coatings end market, as this is typically a seasonally weaker period. Looking forward, the lower interest rate environment into 2025 would also support phenol demand into building construction applications in both renovation and new builds. As a reminder, acetone represents roughly half of our chemical intermediates portfolio and is a key product line with a perform and optimize strategy to meet customer needs while driving favorable sales and profitability mix. I would continue to characterize demand across the rest of chemical intermediates as mixed overall, but they do represent platforms serving high-value applications in support of longer-term growth and profitability.

[Erin Kane, President and CEO at AdvanSix]

Let's turn to slide 11. 2024 has truly been a year of contrast. As we just walked through, on the positive side, we have consistently shown our agility and focus by deploying the right strategies and actions to achieve commercial success while advancing targeted growth initiatives. Our underlying commercial performance has been strong, with year-to-date pricing up 1% and sales volume up 3%, a robust recovery following our first quarter operational event. The results have been led by our ammonium sulfate and acetone product lines, as well as our ability to navigate the nylon cycle through our product and geographic mix. On the opportunity side, while we have proven ability to navigate and recover from operational difficulties. Our manufacturing execution overall this year has not met our expectations, including our disclosure today regarding the unfavorable impact of our extended outage at Hopewell.

[Erin Kane, President and CEO at AdvanSix]

As a reminder, this year's multi-year planned turnaround was comprehensive in scope, designed to encompass maintenance and reliability work at our three major sites. While the mechanical portion of the turnaround is behind us, we did experience a delayed ramp in operating rates at our Hopewell facility, given a challenge with our ammonia plant restart. The reduced production and a delayed ramp to target operating rates is expected to result in an approximately incremental $17 million unfavorable impact to pre-tax income, inclusive of $10 million of fixed cost absorption and higher maintenance expense, and an additional $7 million of lost sales. The unplanned situation did not have an impact on 3Q 2024 results. Operational excellence is a key enabler to our overall performance, and we take all the learnings for sustained continuous improvement with rigor and discipline.

[Erin Kane, President and CEO at AdvanSix]

Our planned plant turnarounds, as well as prioritized maintenance capital investments, are critical to supporting high utilization rates and key to capturing the operational leverage of our competitive cost advantage. This year has reminded us that there is meaningful annual opportunity of sustainably running at our targeted production rates. If we look at our last eight years, our average annual impact of planned plant turnarounds is approximately $35 million per year. Our strategy and expectation is to run at targeted production rates outside of these planned events. When you look over the last 10 quarters, on a 12-month trailing basis, we have seen the impact of timing and duration of outages, as well as unplanned interruptions, grow to approximately an average of $45 million. We are refreshing enterprise-wide actions that will be designed to capture this $10+ million opportunity through consistent year-over-year timing of our turnarounds and improved execution.

[Erin Kane, President and CEO at AdvanSix]

As we move through the fourth quarter, we are highly focused on capturing commercial success off a diversified product portfolio, driving efficient working capital performance to support continued improvement in cash flow generation, and executing our focused growth investments while maintaining a strong balance sheet. Despite the unfavorable impacts on the extended turnaround, our outlook for the fourth quarter and 2025 continues to be supported by a diverse portfolio, advantage of our business model, and favorable industry dynamics. With that, Adam, let's move to Q&A.

[Adam Kressel, VP of Investor Relations and Treasurer at AdvanSix]

Great. Thanks, Erin. Rocco, can you please open the line for questions?

[Operator]

Absolutely. If you would like to ask a question, please press star then one on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then two. Once again, that's star then one if you have a question.

[Operator]

We'll pause for just a moment while we assemble our roster. All right. Our first question today comes from David Silver with C.L. King. Please go ahead.

[Kevin Holder, Equity Research Analyst at C.L. King]

Hi, good morning. This is Kevin Holder on for David. My first topic would be on your fertilizer business. I was wondering if we could get a bit more color on how that business performed over the summer. Could you first discuss the factors that led to your success on your most recent fall-fill program, despite the less-than-robust farm income and crop price outlook? And then secondly, how would you characterize your fertilizer demand in your Southern Hemisphere markets? Thank you.

[Erin Kane, President and CEO at AdvanSix]

All right. Thanks, Kevin, for joining here this morning. Yeah, I would start by saying, if you kind of think about where we left off. AS pricing did experience its typical seasonal decline in 3Q 2024, but sulfate pricing was higher on a year-over-year basis. And reflecting really the recognition of our sulfate value proposition and continued strong sulfate premiums. And when we think about the proof points here, as we've seen, certainly farmer economics are notably on a decline. But we continue to see the strong demand there. The growers continue to seek ways to maximize crop yields. When you think about certainly where we've been and why we fared a bit better than broader nitrogen, there is a tighter North American supply-demand environment for AS, and we continue to have the research that has shown that growers need a premium source of sulfur to ensure high-yielding crops.

[Erin Kane, President and CEO at AdvanSix]

And so these are proof points that through the demand, the buying threshold, and the pricing, that growers will continue to invest in ammonium sulfate to support their yields and profitability. And so when you look at third-party industry data, we've seen the long-term average of premiums in the 85% range over the sort of last 10 years. And certainly, while that ebbs and flows from year to year, it's strongly influenced by industry supply and farmer sentiment. And so again, these strong premiums in the current environment demonstrate that value proposition that we are delivering to growers and has ultimately our excitement to continue to take our industry position here and the technology we have and growing it through our SUSTAIN growth program. So yeah, the positives here in the North American domestic space and our focus here is to continue to support that growing demand.

[Erin Kane, President and CEO at AdvanSix]

When we think about certainly the hemisphere and we are in the back half of the year where we will sell into South America. Again, as you've shown on the table there, we'll have an uptick in demand. This is predominantly where we sell our standard-grade products. And again, the places where we're selling is providing a value proposition on the crop year, and things look good here for the back half.

[Kevin Holder, Equity Research Analyst at C.L. King]

Great. Thank you, Erin. That's very helpful. My next question is directed towards Sidd. Congratulations on your appointment. In the press release when you were announced as CFO, you stated, "I'm looking forward to joining the AdvanSix leadership team to drive accelerated profitable growth in support of the company's long-term sustainable performance." What do you envision your strategies will be to drive that accelerated profitable growth? Thank you.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

Thanks, Kevin. I hope you're doing well. And thanks for your thoughtful question. I'm looking forward to seeing you and David in person at some point in the near future. Look, if you look back over the last eight years or so, the team's done a tremendous job of growing the company's underlying EBITDA and through-cycle profitability, right, while navigating a fairly shifting macro backdrop. As the newest member of the team, what I'd look to do is further that growth both organically and inorganically.

[Sidd Manjeshwar, SVP and CFO at AdvanSix]

As a diversified chemistry company, our focus is in accelerating our profitable growth in the most attractive end markets we participate in. So my focus will be around helping the company improve our productivity, our margins, expanding our commercial earnings growth through targeted differentiated products and high-return growth investments like SUSTAIN, and then seek the best risk-adjusted capital allocation outcomes for AdvanSix.

[Kevin Holder, Equity Research Analyst at C.L. King]

Thank you, Sidd. Yeah, we're looking forward to meeting you as well. That's all my questions. Thank you, guys, for the color. Appreciate it.

[Erin Kane, President and CEO at AdvanSix]

Thanks, Kevin.

[Operator]

Thank you. And our next question comes from Charles Neivert with Piper Sandler. Please go ahead.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

Good morning, everybody. A couple of questions. One, you said your order book was basically filled on ammonium sulfate to end of year. In looking at that, again, that's always associated with the amount of caprolactam. So if you're sort of ordered out, does that mean that caprolactam is going to also be running very hard through the rest of the year in order to make sure that supply is available, or we shouldn't necessarily make that conclusion?

[Erin Kane, President and CEO at AdvanSix]

Yeah. Our standard targeted approach here, certainly with our competitive advantage in our Hopewell facility, we are targeting at full rates here. Leveraging our assets will be important to, again, just get the benefits of the expanded granular conversion and maximizing the opportunity set. So certainly, as we've come through the turnaround, that is the intent here. Now, through generally the spring, right, it's a good opportunity for us.

[Erin Kane, President and CEO at AdvanSix]

So making sure that we're using all of our degrees of freedom that we have and that we're investing in to have success here for ammonium sulfate. And we definitely will continue to service our important caprolactam customers, rebuild our merchant pipelines there as well. So that is the intended strategy here.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

Okay. Another question. On the acetone front, I know a lot of your acetone sales are based on the cost and any movement, and the cost will just move the pricing. But in terms of the margin over propylene in this case, on the stuff that's not tied directly to the cost structure, are you seeing an improving margin in that business? Because again, it's a bit tight because of the phenol issues.

[Erin Kane, President and CEO at AdvanSix]

Yeah. So in general, certainly the supply-demand environment is supportive and constructive for acetone spreads. RGP certainly moved in Q3. As seen in the chart here in the presentation, it has come off a bit from those peaks. But certainly, as long as lower global phenol operating rates persist, it does lend to that tighter market for us. We will watch certainly the demand side on paints and coatings, if that could influence any sort of moderation there.

[Erin Kane, President and CEO at AdvanSix]

But then certainly, you have to look forward, as I mentioned. If building construction, when that starts to come back, that is really the key we're watching for when phenol operating rates would likely improve. We do think we have some time here in a continued constructive space.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

And then lastly, China has been exporting a lot of ammonium sulfate. And I know in the near term, during the spring and fall, you're really more focused on U.S. deliveries. But now, as you move into the Latin American market, are you finding any significant amounts of Chinese product down there? Anything that might be affecting pricing, things like that? I know, again, China hasn't done much on urea, but they've been in effect substituting nitrogen export through ammonium sulfate.

[Erin Kane, President and CEO at AdvanSix]

Yeah. No, certainly we watch that closely. And as you point out, on a rolling 12-month basis, they are really at peak levels of exports at this time, just with the underlying operating rates remaining high there. China remains the primary source to Brazil at this point. So for us, focusing more on Central and other countries in South America. We have strong sales with long-term customers. And yes, there's that influence of sort of the global pricing. But I think here, the sales team, the commercial execution, the strength of our relationships and operating in spaces that are key for us is serving us well.

[Charles Neivert, Senior Research Analyst at Piper Sandler]

Well, that's it for me. Thanks very much.

[Erin Kane, President and CEO at AdvanSix]

Great. Thanks, Charlie.

[Operator]

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to Erin Kane for closing remarks.

[Erin Kane, President and CEO at AdvanSix]

Great. Thank you all again for your time and interest this morning. Despite the challenges of the extended turnaround in the fourth quarter, our performance through 2024 reflects the resilience of our business model, our position as a diversified chemistry company, and our ability to navigate and execute in a multitude of environments. We hope today's call helped to continue clarifying the key strategies that we're executing across the organization to support safe, stable, and sustainable operations, improve through-cycle profitability, and total shareholder returns. With that, we look forward to speaking with you again next quarter. Stay safe and be well.

[Operator]

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful weekend.

Participants

Executives

• Erin Kane, President and CEO
• Sidd Manjeshwar, SVP and CFO
• Adam Kressel, VP of Investor Relations and Treasurer

Analysts

• Kevin Holder, Equity Research Analyst at C.L. King
• Charles Neivert, Senior Research Analyst at Piper Sandler