Orion Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 8, 2025

Key Takeaways

  • Underlying earnings power in Q1 was masked by about $10 million of unplanned costs and timing effects, implying a mid-$70 million EBITDA run rate and stronger business potential than reported.
  • Tariffs and trade paradigm shift—25 percent duties on imported tires and a move toward localized manufacturing—are expected to be a structural tailwind for Orion’s carbon black business over the next several years.
  • Free cash flow reaffirmed for 2025 despite lower EBITDA guidance, supported by cost-cutting measures, a $10 million reduction in CapEx, working capital improvements, and ongoing share repurchases.
  • Operational disruptions in Q1 from unplanned plant outages and aging equipment, exacerbated by recent EPA retrofits, cost the company over $13 million and highlight the need for enhanced maintenance and reliability programs.
  • Demand conditions remain mixed—rubber volumes rose 2 percent year-over-year but were hurt by elevated tire imports, while specialty end-markets are described as “choppy,” though order books show no clear recession signal.
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Earnings Conference Call
Orion Q1 2025
00:00 / 00:00

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Operator

everyone, and welcome to the Orion First Quarter twenty twenty five Earnings Results Conference Call. At this time, all participants are in a listen only mode. Later, there will be a question and answer session. Please be advised that today's call is being recorded. I'd now like to turn the floor over to Chris Vice President of Investor Relations. Please go ahead.

Christopher Kapsch
Christopher Kapsch
Vice President of Investor Relations at Orion S.A.

Thank you, Jamie. Good morning, everyone.

Christopher Kapsch
Christopher Kapsch
Vice President of Investor Relations at Orion S.A.

This is Chris Katz, VP of Investor Relations at Orion. Welcome to our conference call to discuss our first quarter twenty twenty five earnings results. Joining our call today are Corning Painter, Orion's Chief Executive Officer and Jeff Gluck, our Chief Financial Officer. We issued our first quarter results after the market closed yesterday, and we have posted a slide presentation to the Investor Relations portion of our website. We will be referencing this deck during the call.

Christopher Kapsch
Christopher Kapsch
Vice President of Investor Relations at Orion S.A.

Before we begin, as you know, we are obligated to remind you that some of the comments made on today's call are forward looking statements. These statements are subject to the risks and uncertainties as described in the company's filings with the Securities and Exchange Commission, and our actual results may differ from those described during the call. In addition, all forward looking statements are made as of today, 05/08/2025. The company is not obligated to update any forward looking statements based on new circumstances or revised expectations. All non GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release and the quarterly earnings deck.

Christopher Kapsch
Christopher Kapsch
Vice President of Investor Relations at Orion S.A.

Any non GAAP financial measures presented in these materials should not be considered as alternatives to financial measures required by GAAP. With that, I will turn the call over to Corning Painter.

Corning Painter
Corning Painter
CEO at Orion S.A.

Good morning. Thank you, Chris, and thank you all for your interest in Orion and for joining our call today. Before getting into some details regarding the first quarter results, we wanted to discuss three central themes to help you get a sense for how we're positioned as global trade continues to rebalance around the world. First, we'll touch upon Q1 results in a broad sense. Yes, a challenging start to the year, but the numbers are not indicative of a stronger underlying performance and certainly Orion's greater potential.

Corning Painter
Corning Painter
CEO at Orion S.A.

Second, we'll discuss how we expect the current tariffs to affect our value chains, but in a bigger picture sense, also about how the new paradigm on global trade policies will likely benefit the carbon black industry given its regional and localized nature and Orion in particular. Finally, we fully recognize the increased likelihood of an economic recession. With this possibility, and although we do not see a pronounced weakening in our order books at this juncture, we are taking additional protective measures to manage costs and bolster free cash flow. These, coupled with other dynamics within our business enable us to reaffirm our free cash flow guidance for the year. On slide three of the earnings deck, we convey several items affecting first quarter results including multiple unplanned plant outages, which impacted productivity, absorption levels and other transient costs as well as adverse timing effects mainly tied to contractual pass throughs of raw materials.

Corning Painter
Corning Painter
CEO at Orion S.A.

Collectively, these factors masked at least $10,000,000 of greater earnings power in the first quarter alone, implying our business' Q1 underlying earnings power being more in the mid-seventy million dollars range of EBITDA. Even at higher levels wouldn't showcase the earnings capacity of Orion because of the impact of elevated imports on Western tire manufacturers, at least for now. We expect some of the mix and timing issues that affected our P and L to lessen in Q2. Further, our overall plant operations have improved sequentially, and this should contribute favorably moving forward. Business conditions were mixed in Q1.

Corning Painter
Corning Painter
CEO at Orion S.A.

Rubber demand was off to a slow start. Rubber volumes improved more than 2% year over year, but it would have done better if not for persistent headwinds from still elevated tire imports into our key markets. On this slide, can see industry data showing U. S. Production of tires being down low double digit percentages in the first two quarter months of the quarter, and they remain dramatically below pre COVID-nineteen levels.

Corning Painter
Corning Painter
CEO at Orion S.A.

Our Specialty segment addressed a much more addresses a much more diverse variety of end markets. And here, we would characterize demand as choppy. We see some degree of cautiousness with certain downstream value chains, such as those feeding into the automotive space, including coatings and certain polymer markets. If looking through the transient items affecting our costs in the quarter, overall gross profit metrics were generally in line with our expectations. This includes a modest GP per tonne drag from the rubber lanes we picked up contractually for 2025, which helped the volumes but contributed negatively from a geographic mix standpoint.

Corning Painter
Corning Painter
CEO at Orion S.A.

More generally, and with continued conviction around the inherently greater earnings power and enterprise value, we continue to repurchase shares in the quarter. On Slide four of the deck, we wanted to share our current view of how tariffs may affect our business, albeit with the same caveats most companies are offering around a high degree of uncertainty as to the final tariff environment as well as underlying economic conditions. On the left hand side, we graphically depict how we believe our manufacturing footprint will gain in the new trade paradigm. Using a framework put forward by industry observers, on the x axis, you consider if your region is a net importer or exporter of the final product, such as tires. The y axis considers if your region is a net importer or exporter of your specific product.

Corning Painter
Corning Painter
CEO at Orion S.A.

Obviously, as the trade paradigm shifts, being a manufacturer in a region that is a net importer of the final product is the place to be. The US is a net importer of tires, and that puts us on the right side of this axis. The U. S. Is more or less in balance on carbon black, but it always has the threat of imports. That puts us and our customers in a strategically advantaged position.

Corning Painter
Corning Painter
CEO at Orion S.A.

In Europe, where both carbon black and tires are imported, local manufacturing stands to gain even more. Whereas globalization has arguably hurt Orion in the recent past, given our under indexing to Asian markets, the ongoing shift should become a structural tailwind for our business over time. And perhaps getting a little more granular on the tariffs, as contemplated today, including last week's fine tuning to assist the automotive OEMs while maintaining 25% tariffs on other auto content, and that includes replacement tires. Tariffs, again, should be a net positive for Orion. Remember, it would not take a major rebalancing of tire trade flows to positively affect our demand function.

Corning Painter
Corning Painter
CEO at Orion S.A.

We are not making the case that The U. S. Is ever going to be anything close to self sufficient with tire tire you know, with captive tire making capacity. Currently, more than 60% of replacement tires in The U. S.

Corning Painter
Corning Painter
CEO at Orion S.A.

Are imported, primarily from Southeast Asian countries and Mexico. A similar percentage flows into Europe, primarily coming from China. Even modest rebalancing of trade flows would help our demand function to benefit meaningfully. Now when will we see the benefit? Data shows tire imports into Western regions remained elevated in the first months of twenty twenty five.

Corning Painter
Corning Painter
CEO at Orion S.A.

It's a widely held view that tire imports will slow and the channel inventories will be drawn down, resulting in a demand inflection starting in twenty twenty five second half. We are well positioned to serve that upside should it materialize. Slide five accentuates a couple of these key points more finally. Sure. The initial tariffs that were announced were more extensive than almost anyone had contemplated, precipitating market volatility and macro uncertainty.

Corning Painter
Corning Painter
CEO at Orion S.A.

But since the recent fine tuning to lessen the impact on auto OEMs, but while also keeping the 25% tariff on certain auto content, including replacement tires, we see the current framework as a bit of goldilocks scenario for Orion and for our customers, potentially not too disruptive for the broader economy but offering significant protection for auto industry workers, including those at tire plants. In a recent conversation, a customer expressed similar views, but also expressed near term concern about freight volumes. Orion's potential direct exposure to The U. S. Tariff cost is quite manageable as we procure essentially all raw materials locally.

Corning Painter
Corning Painter
CEO at Orion S.A.

We do also export certain specialty grades from plants in other regions into The U. S. This is a very small percentage of our specialty portfolio, and we believe the differentiated nature of these grades translate into sufficient pricing power to offset potential tariff exposures. An additional point, the rebalancing benefit we are discussing here is structural in nature, So we expect this shift and benefit to our business to build over the next couple of years as The U. S.

Corning Painter
Corning Painter
CEO at Orion S.A.

And ultimately European tire manufacturing benefits. In the near term, with odds of a recession having increased, it's worth highlighting the resilience our business has demonstrated in prior recessions. As I referenced in our annual report commentary, which was recently posted to our website, we believe our business' overall volume performance through the COVID pandemic in 2020 and 'twenty one as well as the Great Recession in 02/2008 and 02/2009 showcase that resilience in our portfolio. Our aggregate volumes declined 15 during 2020 when the COVID-nineteen pandemic was shut down down the global economy, but rebounded more than 11% in 2021 despite still subdued economic conditions. Conditions.

Corning Painter
Corning Painter
CEO at Orion S.A.

Looking further back, during the global financial crisis, after a very strong 02/2008 when volumes gained more than 25%, Orion's overall volumes declined about 14% in 02/2009. In 2010, volumes recovered nearly 15% to levels almost on par with part peak 02/2008 levels, and they were just about 23% higher than 02/2007 levels. Moving to Slide six, the factors in our control slide that we shared in the fourth quarter presentation back in February, and is being used here as somewhat of a scorecard. We have stated if we execute on the factors we control ourselves, then we will be able to optimize performance regardless of the backdrop. So how does it look thus far into 2025?

Corning Painter
Corning Painter
CEO at Orion S.A.

Here, we can put a check mark next to the commercial strategy line. Volumes from additional lanes we were awarded have helped, but to be fair, these have more or less been offset by continued pressure on key Western customers where tire production remains down. Still, the subtle customer portfolio rebalancing should be beneficial as the global trade paradigm shifts as discussed. We completed headcount reduction measures in Q1. We were leaning to start with but expect an annualized 5,000,000 to $6,000,000 run rate of savings. We did not add back the separation costs to our adjusted EBITDA like many companies do. Looking forward, we're taking additional actions with the goal of doubling that savings through a variety of means. We've made good progress in resolving operational challenges at our new facility in China, and we still expect a positive EBITDA contribution swing there. Our debottlenecking projects and differentiated grades are largely behind us, and we have refined the algorithm that helps us decide which grades should be run on which reactors to optimize mix and asset utilization. An area where we have considerable progress to make, however, is with improving plant reliability, and this journey is underway.

Corning Painter
Corning Painter
CEO at Orion S.A.

We're also making progress in driving operational and yield improvements within our network of manufacturing plants. This will be evident when our plants are more stable. As Jeff will touch upon in the Q1 financial review, unplanned plant downtime was a major factor impacting results in the first quarter driven by equipment failures. One strength we have is the commitment of our people, and I'd like to recognize our team in Bordeaux, Texas in particular. They worked through a number of challenges with aged equipment in the quarter.

Corning Painter
Corning Painter
CEO at Orion S.A.

Several of us were at the site in March and conducted, amongst other things, a surprise crisis management tabletop drill. Later, that very day, a wildfire tore through the area, threatening our plant and taking out the power lines on the edge of our production site. I would like to thank the border team for their housekeeping, which made us less vulnerable and for their quick actions to safely secure the plant in this real crisis. I would also like to thank the team at Panhandle Northern Railroad for their quick action to replace a trestle bridge that was completely destroyed in the fire. Well done by all of you.

Corning Painter
Corning Painter
CEO at Orion S.A.

It's worth framing the opportunity we see in reliability. Many of our plants are aged, and with age comes some fragility and unpredictability. On top of that, the addition of the EPA equipment in The U. S. In recent years, essentially overlaying a new unit operation on top of our existing footprint, served to stress some of our plans even more.

Corning Painter
Corning Painter
CEO at Orion S.A.

This is not unique to Orion. We've disclosed in the past that the industry's overall effective capacity was likely crimped by at least 200 basis points by the EPA imposition. That compliance burden, which we have shouldered disproportionately relative to our competitors, has contributed to the failure of equipment that was designed long before retrofitting these plants for air emission controls equipment was ever contemplated. Costs, absorption, restart scrap and other impacts from these equipment issues and other plant downtime collectively had a major impact on Q1 results. We recognize the need to flip the script on this dynamic.

Corning Painter
Corning Painter
CEO at Orion S.A.

Looking forward, we have a pathway for improvement, including a distinct portfolio of maintenance projects that are prioritized to protect our business and customers. As we shift from being reactive, as was the case in Q1, like literally fighting fires, to focusing our small project spend on replacement and preventative maintenance efforts, we will see the improvement. Moreover, as we enhance many of these unit operations, we'll also see parallel opportunities to drive better process yields and quality levels. Quantifying the anticipated benefit from these manufacturing and operational excellence issues, we foresee the potential to improve utilization rates by as much as 50 to 100 basis points annually. Moreover, in flight enhancements are expected to enhance or to achieve as much as two fifty basis points of underlying margin upside over the next several years, all else being equal.

Corning Painter
Corning Painter
CEO at Orion S.A.

Encouragingly, we've had an early success in implementing this more systematic and holistic approach to operational effectiveness. Our plant in Brazil served as a pilot, and these results have been tremendous with all operating metrics improving sharply, including uptime, performance, diminished quality issues and greater throughput, which has helped us being awarded with additional lanes in that region. We intend to deliberately extrapolate our success in South American operations to other plants in our network. Let me now pass the call over to Jeff to discuss our continued focus on free cash flow as well as the Q1 results. Jeff?

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Thanks, Courtney. Slide seven is important. We are focused on our free cash flow, improving $100,000,000 compared with 2024 and being free cash flow positive in 2025. Despite the lower EBITDA guidance, we are reaffirming our full year free cash flow expectations. We are not going to let the increased market uncertainty undermine our commitment here.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

In addition to the further belt tightening measures that Corie mentioned, we have also reduced our twenty twenty five CapEx spending expectations by $10,000,000 to $150,000,000 down $57,000,000 from 2024. Furthermore, we have initiated programs that should improve our cash flow conversion. These actions should enable working capital to be a source of cash in 2025. And while penciling in a modest improvement 2025 walk through working capital, if current oil prices prevail, the benefit should be materially higher. On slide eight, we share KPIs for the overall business and the year over year EBITDA bridge.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Volumes were up 1% compared with last year's first quarter and improved 10% sequentially. We had expected better volumes and believe demand was constrained by factors which I will discuss shortly. Notably, the most pronounced volume improvement came from low margin regions, specifically South America and Asia. Here, we benefited from additional lanes and improved operations respectively, but these volumes came with an adverse regional mix impact, which shows up as a headwind to our volume to volume in our EBITDA bridge. The biggest challenge in the quarter were higher costs, primarily a function of unplanned downtime due to equipment failures and unfavorable timing, which were partly offset by a favorable Q1 inventory revaluation.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Despite the dollar's recent weakness, it was stronger on average throughout Q1 compared to Q1 of twenty twenty four, so this represented a headwind in our EBITDA comparison. This should inflect starting in Q2, assuming current FX rates continue. Slide nine shows our Rubber segment results. We saw 2.5% volume improvement compared to last year and 13% sequential improvement. These metrics reflect the benefit of our 2025 contractual mandates and the operational improvements in China, most notably in our Huaybei plant.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

However, as Corning mentioned, reduced local tire manufacturing in The EU and U. S, a function of still elevated tire imports, remains a headwind to our demand. The Rubber segment took the brunt of the cost issues in Q1. The impact from unplanned downtime and related effects were more than $13,000,000 even with a slight benefit from better cogeneration. Notably, cogen would have contributed more if not for the equipment outages.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Importantly, our gross profit per ton metric is impacted by roughly $80 from the downtime and pass through timing issues. Looking through these items, the remaining lower GP per ton was primarily due to regional and customer mix. This was in line with our expectations of plus or minus 5% from the structurally improved $400 per ton level achieved across the past couple of years. Higher U. S.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Or European tire manufacturing levels would improve this further. Slide 10 highlights our Specialty segment KPIs. We have characterized Specialty demand as choppy. Segment volumes improved 3% sequentially, but declined 2% year over year. We expected better as volumes in North America were impacted by our operational challenges.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

We believe there is some evidence of cautiousness in certain supply certain value chains, including the automotive coatings market. This ties to new build automotive forecasts, which have been downgraded for key Western regions. The EBITDA bridge shown here is pretty much straightforward. However, the cost benefit in this walk came from a transient inventory revaluation, which more than offset the drag for the unplanned outages. This is not expected to continue in Q2.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

On slide 11, we provide our new guidance ranges. The $20,000,000 coming out of the midpoint of our EBITDA range, that revision is roughly split across our Q1 actual results and Q2 expectations. The guidance reflects lower tire manufacturing rates in Europe and The Americas as well as the preference by our customers for lower inventory levels. It does not anticipate a broader recession, and we do not see that in our customers' current order patterns. Our plants have been operating well in the current quarter, and we do not expect a repeat of the Q1 operational issues.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

That said, demand in the month of April was just okay. Our overall order book for May looks promising with no signs that customers are gearing up for a recession. One downside in Q2 is that we expect a negative inventory adjustment based on lower oil prices in the quarter. Of course, oil prices will also release working capital. We've reduced our CapEx forecast by $10,000,000 as mentioned, a reduction of nearly $60,000,000 from twenty twenty four levels.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

We have reaffirmed our free cash flow guidance range of 40,000,000 to $70,000,000 If current oil prices prevail, there would likely be additional upside in working capital and possibly push the cash flow metric toward the higher end of this range. Considering the confidence we have in our free cash flow inflection, we bought back $16,000,000 worth of stock in Q1 and have bought back $105,000,000 of stock since the inception of our program in late twenty twenty two. Looking forward, we will likely shift our focus towards building cash and reducing debt given the economic uncertainty. Slide 12 is self explanatory depicting the reduced CapEx spending intention. With that, I will turn the call back over to Corning.

Corning Painter
Corning Painter
CEO at Orion S.A.

Thanks, Jeff. So, okay, a challenging start to the year, which we own, but I'd offer you three key takeaways. Number one, our underlying earnings capability Business conditions are better than our numbers reflected this quarter. Number two, the Orion team remains committed to delivering free cash flow this year.

Corning Painter
Corning Painter
CEO at Orion S.A.

And number three, we are the beneficiary of the changing pro global trade paradigm. There's a lot of noise out there, tariffs shifting, this and that, but the direction this is moving is good for Orion. And with that, we see an opportunity to exhibit more resilience than much of the broader chemical industry as we navigate this backdrop. With that, Jamie, let's open it up for Q and A.

Operator

Certainly. We'll take our first question from Josh Spector with UBS. Please go ahead.

Josh Spector
Josh Spector
Executive Director at UBS Group

Yeah. Hi. Good morning, guys. I just wanted to ask on the outage impacts in 1Q. So I mean, you sized them at around $13,000,000 Corning, you spent a lot of time talking about some of the challenges with older facilities and other things.

Josh Spector
Josh Spector
Executive Director at UBS Group

But two questions here. One, is this fully contained in 1Q or is there any cost that lingers into 2Q? And then two, just kind of talk about the nature of the reliability and the impacts that you've had and the ability to avoid recurrence here? Is this something investors should be concerned about incrementally? Or do you feel that you've ring fenced a lot of this or at least resolved this to prevent recurrence?

Corning Painter
Corning Painter
CEO at Orion S.A.

Sure. Why don't I take actually some of the second part of that question, and I'll let Jeff speak on the numbers. So our fleet of plants are aged. And with that, as I said in the script, there comes some fragility and unpredictability. And that's always been in our numbers.

Corning Painter
Corning Painter
CEO at Orion S.A.

That's always been our results. And what we saw in q one was just a a clustering of many of these issues in one quarter, and if you think about cogen, it was more impactful than it would have been at other times of the year. So I would say we see that as unusual, not that that hasn't ever happened with us before. I think it is, but I wouldn't wanna say to investor, jeez, none of these plants are ever gonna have equipment breakage again. But we do think the clustering is unusual that we experienced in q one.

Corning Painter
Corning Painter
CEO at Orion S.A.

And as I've said, the plants are operating well at this time. And by and large, the q one costs are contained in q one. But Jeff?

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Sure. Hi, Josh. On the $13,000,000 that was specific to rubber. Overall, the number was a little bit less than that. About $5,000,000 of it was due to the unplanned downtime. About 2,000,000 or

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

3,000,000 was related to fixed cost absorption, namely an inventory draw because of the unplanned downtime. And there was about 2 or

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

$3,000,000 of timing cost in there also. So that pretty well covers the the impact of the issues we had in Q1.

Josh Spector
Josh Spector
Executive Director at UBS Group

Okay. No. That's helpful. And I guess, can you talk about the cadence of earnings at all? So I mean, West 2Q, I guess, we add back the outage impacts.

Josh Spector
Josh Spector
Executive Director at UBS Group

You talked about demand okay, and you mentioned something around inventory impacts. So what's the expectation that we should see in 2Q? And then do you need an improvement in macro environments to hit what you need to do for the rest of the year or frame the macro assumption there? Thanks.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Sure, Josh. I'll take the first part of that, maybe Corning can take the second part.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

So in the second quarter, we did mention that these onetime events we think are past us. The one thing we will see in the second quarter as oil prices have declined from roughly $70 a barrel at the end of

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

Q 2 to right now roughly $60 we will see a bit of an inventory hit in the second quarter. And that's incorporated into our guidance between the inventory hit and a little bit weaker demand overall in specialty compared to what we'd like to see or we expected to see earlier. That's why we lowered our guidance by $20,000,000 10 million dollars in the first quarter, about $10,000,000 in the second quarter. I think Corning can talk in more detail, but I think we would expect to see a step up relative to that as we get into the third quarter, again, not having this impact of the lower oil price inventory revaluation.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

I think one of the parts that's relevant here is we've got lower oil, which will have a negative impact on our ongoing earnings, excluding this inventory revaluation.

Jeff Glajch
Jeff Glajch
CFO at Orion S.A.

We have what right now appears to be favorable foreign exchange. The two pretty much cancel out. So going forward, that should those two should cancel out, but we do have a onetime impact of inventory revaluation in the second quarter.

Corning Painter
Corning Painter
CEO at Orion S.A.

Yes. So when I think about the second quarter, I wouldn't expect the special factors impacted Q1, the inventory revaluation in Q2. I do think that also as we move through the year and we see the impact of these tariffs, I mean, quite significant, 25% on imported tires, that we'll see that building in terms of demand for manufacturing in The US and North America in general, that that will be a plus for us. I think beyond that, it's gonna set us up for a promising 2026 where we'll see our tire customers having more confidence looking to boost their manufacturing plans for 2026. And with that, they're being interested in security and supply.

Josh Spector
Josh Spector
Executive Director at UBS Group

Okay. Thank you.

Operator

We'll hear next from Laurence Alexander with Jefferies.

Dan Rizzo
Dan Rizzo
Senior Vice President at Jefferies Financial Group

Hi. This is Dan Rizzo on for Laurence. Thanks for taking my question. Sorry, did you say the benefit from the tariffs? I mean, you give a time frame of when you start you should start to see that with your customers? Did you say the second half of the Yes.

Corning Painter
Corning Painter
CEO at Orion S.A.

I think that's when we talk to other when we talk to tire companies, that's the kind of number you hear about. I think I referenced it. We had a recent conversation with one. Surely, there's been some inventory build of the imported tires that's gonna have to be worked through. The exact timing is a little hard to say.

Corning Painter
Corning Painter
CEO at Orion S.A.

So we would expect then to see that in the second half. In fairness, the caveat that tire customers said is they had some concerns about what was going to happen with freight traffic, which would push it in the other direction.

Dan Rizzo
Dan Rizzo
Senior Vice President at Jefferies Financial Group

Does something more have to happen? Or are tire companies considering building more in The US? And, I mean, what's the cost and time frame? I mean, when could there be, like, a structural change for that?

Corning Painter
Corning Painter
CEO at Orion S.A.

Well, so look, tire companies have been shifting capacity or building capacity in The US and, to a certain degree, in Europe as well. So that trend is well underway. I think it's maybe it was Michelin who was thinking of doing four expansions in Mexico. I wonder in this world if they would continue maybe with some of that, but maybe shift more of that over to The US. We'll see as that time frame plays out.

Corning Painter
Corning Painter
CEO at Orion S.A.

We would expect to see I think Ham Cook's announced that they'll be starting up their second line doing TBR tires later this year. So that movement's happening. And I think just the whole change in direction of like just the whole paradigm about global trade, all that's going to continue to incent people to add capacity where the demand actually is.

Dan Rizzo
Dan Rizzo
Senior Vice President at Jefferies Financial Group

Okay. And then last question. So with your in your Specialty Black business, I mean, you're not seeing customers draw down inventory there or kind of being a little more cautious because others have kind of I mean, it's been mixed, but others have seen that seem to think so.

Corning Painter
Corning Painter
CEO at Orion S.A.

Yeah. Our our I would say the closest that comes to seeing that behavior is we have seen distributors slow down a bit for us. So maybe that's consistent. But I you know, choppy is the word. And, like, believe it or not, like, ink was really strong.

Corning Painter
Corning Painter
CEO at Orion S.A.

So, you know, I I would just say you really have to see these trends play out for several quarters to have clarity on them. It's more choppy, I'd say, than than crystal clear

Dan Rizzo
Dan Rizzo
Senior Vice President at Jefferies Financial Group

Okay. Thank you very much.

Operator

Our next question comes from John Roberts with Mizuho. Please go ahead.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

Thank you. Is that run rate EBITDA mid $70,000,000 also indicative of the June conditions exclusive of the oil price inventory revaluation?

Corning Painter
Corning Painter
CEO at Orion S.A.

Well, I mean, we're relatively early in the quarter, right? And it's a pretty dynamic time. But, yeah, I'd say so.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

And then South America has been under import tire pressure as well. Could you discuss your operations down there?

Corning Painter
Corning Painter
CEO at Orion S.A.

So as I said, look, our actual operation of our facility has improved a lot over the last couple of years. Our operations are really pretty strong in South America right now. Obviously, we picked up some volume, but I would say I think there's been broader shifts, I guess, in that market.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

Thank you.

Operator

We'll hear next from Jan Fonting with CJS Securities. Please go ahead.

Analyst

Hey, this is Will on for John. Can you provide more detail on the headwind from timing of input costs and if that reverses out in future quarters?

Corning Painter
Corning Painter
CEO at Orion S.A.

So probably one of the biggest moves we had was really just in natural gas in the quarter. There's always the potential for a slight mismatch. There's also differentials, which can move slightly different from the oil prices. But I wouldn't expect that to be a headline. And sometimes, if you lose one quarter, you gain another.

Analyst

Thank you. And then are you including any sort of net impact or benefit from tariffs in your outlook? And how do you balance potential upside from reduced import competition against lower freight activity and potential lower replacements and lower auto sales?

Corning Painter
Corning Painter
CEO at Orion S.A.

Yeah. We really go with what our customers are forecasting to us moving forward. And I would say in our customers' outlook, like everybody's cautious and everybody's concerned, but we don't see a real, like, guidance from them about really seeing a recession in their business at this time. And at the same time, nobody's, like, taken up their forecast because, oh, they think there's going to be a big huge increase in the second half. I'd say they're continuing with a slow build through the year.

Analyst

Thank you.

Operator

And ladies and gentlemen, if there are no further questions at this time, I'd like to turn the call back over to Corning Painter for any additional or closing comments.

Corning Painter
Corning Painter
CEO at Orion S.A.

Once again, I'd like to thank you all for joining us today. I'd like to highlight that we have multiple investor events coming up over the next month and a half, including an NDR in New York next week, a virtual CGS Securities Conference next Wednesday also, a Wells Fargo Industrial Conference in Chicago in early June, and a UBS Virtual Conference later in June. So a number of opportunities there, and we're looking forward to the chance to talk to most many of you and have some great engagement. Thank you all very much.

Operator

Thank you. Once again, ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time, and have a wonderful rest of your day.

Executives
    • Christopher Kapsch
      Christopher Kapsch
      Vice President of Investor Relations
    • Corning Painter
      Corning Painter
      CEO
    • Jeff Glajch
      Jeff Glajch
      CFO
Analysts
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