Orion Engineered Carbons SA

NYSE:OEC

Earnings Call Analysis

Company Reports Strong Q3, Eyes Future Growth

In the third quarter, the company achieved its second-highest adjusted EBITDA and adjusted diluted EPS for any third quarter at $77 million and $0.49, respectively. Along with strong operating cash flow, debt was reduced. Challenges like lower European power prices and startup impacts are expected; nevertheless, strategic advancements, including the ramp-up of Wave China and a climate-neutral carbon black process initiative, are key highlights. The adjusted EBITDA midpoint guidance for annual growth is 7% over 2022, targeting $330 million to $340 million, with a projected Q4 increase. Adjusted EPS is anticipated to grow 5% year-over-year, with a guidance range of $2 to $2.10 per share.

Sustaining Growth and Record Results

Orion's third quarter report emanates optimism, as they set the stage for annual growth and record-breaking financials. With an adjusted EBITDA of $77 million and diluted EPS of $0.49, the company logged its second-highest figures ever for the period. This performance is underscored by a 7.5% increase in the 9-month EBITDA, teasing at a potentially unmatched full-year outcome.

Navigating Operational Milestones

The company is progressing well with its operations in China through its greenfield facility in Wave, which is crucial for regional customer engagement. Additionally, an update of US emission controls and strategic share repurchases are indicative of a prudent balance between growth investment and shareholder value optimization. Despite some negative quarter impacts due to these milestones, the long-term outlook remains untarnished, with the expectation of carrying some of these effects into the fourth quarter.

Advancing the Specialty Business Amid Headwinds

Despite challenges, such as lower power prices in Europe and lower loading, affecting specialty gross profit per ton, Orion is steadfast about the core strength of its specialty business. These developments don't overshadow their ability to now offer tailored support for Chinese clients with a reallocation of reactors in the US and Europe for their respective markets. The integration of a climate-neutral carbon black process, backed by German and EU funding, exemplifies the company's commitment to innovation and sustainability.

Cultural and Employee Engagement Contribution

Orion attributes part of its success to the enhanced engagement and commitment of its workforce, with an impressive 1,100 basis points improvement since 2021. This cultural focus, along with strategic capital allocation, is credited for the company's ability to weather a subdued manufacturing environment and emerge with favorable outcomes compared to industry peers.

Responding to Subdued Specialty Demand

Facing slightly subdued demand in the broader manufacturing sector, Orion leverages the situation to further innovate, obtaining crucial wins in battery, wire and cable, and coatings markets. The launch of PRINTEX kappa 10 adds a high-potential product to the portfolio, aiming to cater to the growing demand for conductive additives used in lithium-ion batteries for various applications.

Rubber Business and Market Dynamics

Expanding tire production capacities in the Americas and Europe set up a tighter market, which Orion is keen to capitalize on. Although truck traffic has seen a downturn, signaling a decline in manufacturing robustness, passenger vehicle tire replacements have shown an improvement. This is particularly encouraging as the EU's upcoming ban on Russian Carbon Black could shuffle the marketplace dynamics substantially.

Financial Resilience Amidst Lower Volumes

Orion's financial health remains strong with a 17% return on capital employed, signaling effective capital stewardship and ongoing sustainability. Even with flat volumes in the third quarter due to varied regional activities and a drop in cogeneration profitability stemming from lower electric prices compared to 2022's highs, the company maintains a robust financial position.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to Orion's Third Quarter Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Wendy Wilson, Head of Investor Relations. Thank you, Wendy. You may begin.

[Wendy Wilson, executive]

Thank you, Alicia. Good morning, everyone, and welcome to Orion's conference call to discuss our third quarter 2023 financial results. I'm Wendy Wilson, Head of Investor Relations. With me today are Corning Painter, Chief Executive Officer; and Jeff Glajch, Chief Financial Officer. We issued our press release after the market closed yesterday, and we also posted our slide presentation to the Investor Relations portion of our website. We will be referencing this presentation during the call. Before we begin, I'd like to remind you that some of the comments made today on today's call are forward-looking statements. These statements are subject to the risks and uncertainties as described in our filings with the SEC, and our actual results may differ from those described during the call. In addition, all forward-looking statements are made as of today, November 3. 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 table attached to our press release. I will now turn the call over to Corning Painter.

[Corning Painter, executive]

Thank you, Wendy. Good morning, everyone, and thank you for joining our call today. As you can see on Slide 3, we remain on track for another year of growth and record results in 2023. We delivered third quarter adjusted EBITDA of $77 million and adjusted diluted EPS of $0.49, the second highest third quarter results we have ever posted for both figures. Beyond this, we also reported 9-month record adjusted EBITDA of $266 million, up 7.5% and adjusted diluted EPS of $1.76. Our 9-month adjusted EBITDA of $266 million is just $1 million short of our entire 12-month adjusted EBITDA just 2 years ago in 2021. We also delivered strong third quarter operating cash flow and reduced our debt level. At the same time, we continued our share purchases having bought back $63 million in total since the fourth quarter of 2022, nearly 5% of our outstanding shares. We have 2 operational milestones. First, we continue to ramp up our first ever greenfield facility in Wave China. Customer qualifications, sales and operations are all progressive. Second, we progressed our final air emission upgrade in the U.S. in the third quarter. I'm happy to say that controls are now operational and final testing is scheduled for this quarter. We will also be completing an important safety upgrade at the same site. It's great to be on the verge of having this behind us. As is typical of startups, both of these projects had some negative impacts on the third quarter and will also impact the fourth quarter in terms of margins and in the U.S. on sales. This, combined with lower power prices in Europe and lower loading drove the drop in specialty gross profit per ton this quarter. However, none of this cast a shadow on the strength of our specialty business. In fact, this is important progress for us. We can now better support our Chinese customers with products made in China for China and reallocate reactors in the U.S. and Europe for those local markets. Another important milestone for us was securing German and EU funding for further developing a climate-neutral process for producing carbon black from alternative sources, such as the molecular recycling of tires. This was an arduous and competitive process, and we greatly appreciate the confidence of the German government and the EU. I'd like to take a moment to talk about the role of people and culture in our performance under pressure. As you know, we expected to have a stronger manufacturing environment, resulting in higher volumes this year. We set the bar high, even though our adjusted EBITDA is up 7.5% year-to-date, the team is disappointed. Despite this, the people of Orion progressed some difficult challenges this quarter and delivered excellent results given the manufacturing economies we operate in. Why? I would say the commitment and engagement of the Orion team, we actually measure engagement using a third-party firm. We have improved this measure by 1,100 basis points since 2021, a huge improvement and a rare accomplishment according to the firm. Beyond that, the Orion team consistently reports customer focus as a near universal top priority. I believe this, along with thoughtfully allocating capital has enabled us to succeed despite a soft manufacturing environment in an ever-changing world. You can see this has paid off in our financial results. They're not as high as we would like, but we compare very well to other manufacturers. If you follow other specialty chemical companies, you know we are one of the few that remain on track for stronger year-over-year performance. This is a testament to the great team here and our long-term strategy. On the operations front, specialty demand, reflecting the broader manufacturing economy continues to be subdued. We are using this as an opportunity to push new customer qualifications, upgrade our plans, introduce new products to the market. We have achieved a number of recent wins in the battery, wire and cable and coatings markets. A good example of a new product is our recently announced launch of PRINTEX kappa 10, a high-quality conductive additive that will address surge in demand from producers of lithium ion batteries for electric vehicles, energy storage systems and consumer applications. The new product is produced in existing reactor systems that have been upgraded initially in Europe and soon in Asia. It marks an important expansion of Orion's portfolio of conductive additives. In addition, in the quarter, we opened a new battery innovation center and have added additional leadership to our conductive additives team. There are mixed views these days on the speed of the conversion to EV and the ultimate size of the market. For us, however, this is nearly all upside, and we are confident of profitably securing our product in this important market. In Rubber, as I mentioned earlier, we believe the industry restructuring is evident in our results and will continue. Tire capacity continues to expand in the Americas and Europe, and this simply tightens the market. Although we've seen some weakness in truck traffic reflecting destocking and a less robust manufacturing environment this year, the underlying trend is with us. Additionally, the EU ban on Russian Carbon Black begins midyear 2024. While some Russian Carbon Black is being bought into EU today, one large revolting distributor, meaning that they have the ability to transfer imports from Russia into trucks and rail cars was recently barred from doing business, reminding everyone of the danger in that business model. Let me provide an update of what we think is happening downstream, starting with rubber on Slide 4. First, on the bottom of the page, you can see that people are driving and the trucking while still negative, has improved from being down 15% to 19% last quarter. Moving up the slide, OEM tire demand weakened in the quarter. I don't think that's a surprise for anyone. Finally, at the top of the slide, while replacement truck tire volumes remain weak, passenger car and light truck replacement volumes have improved significantly from being down 6% last quarter. In general, according to the USTMA data, U.S. tire shipments were up 4% year-over-year in August. However, tire manufacturing is lagging that recovery. Now all this is based on U.S. data. However, we continue to believe the picture in the EU is similar, albeit perhaps with higher level of higher imports. With that, I would ask Jeff to provide additional insights into our financial results.

[Jeffrey Glajch, executive]

Thank you, Corning. Starting on Slide 5. We have used this slide for a couple of quarters now. It provides a good visual representation of our multiyear growth. In 2023, we expect at the midpoint to grow EBITDA 7% versus 2022 despite lower volumes. Our return on capital employed, or ROCE, progress has continued over the past few years during a time when we made our substantial air emissions control investments. The ROCE levels we achieved were significantly in excess of our weighted average cost of capital. At the conclusion of the third quarter, the trailing 12-month ROCE stands at 17%. This key metric keeps us aligned with our shareholders as stewards of their capital and with the long-term sustainability of the company. On Slide 6, you can see the consolidated results in the third quarter. Volume in the quarter was flat with an increase in specialty due to our new capacity in China coming online, offset by lower volumes in EMEA and in the Americas. The contractual price improvements in rubber partly offset the decrease in revenue, which was due to lower oil pricing, which, as you know, is a pass-through to our customers. While our profitability metrics were close to last year's level, there were headwinds in the quarter. Cogeneration profitability was down because the comparable third quarter of 2022 had extremely high electric prices in Europe. We knew this was likely to be a significant drag on earnings as we mentioned it back in August. The startup of EMEA also affected our gross profit and GP per ton metrics in each business. Finally, we had some cost absorption issues in specialty. The sum of these lowered gross profit GP per ton and adjusted EBITDA by approximately 4% each versus Q3 2022. Despite these headwinds, the third quarter this year was still solid. And as Corey mentioned, this quarter was our second highest Q3 ever, just $3 million of adjusted EBITDA behind last year. Slide 7 provides the year-to-date results for the company. Weaker volume in rubber across most markets as well as the lower oil price pass-through drove revenue down 9%. This revenue drop was partly mitigated by stronger contractual pricing. The higher contractual pricing benefited gross profit per ton. The gain in GP per ton that we had seen in the first half of 2023 were tamped down sold due to the Q3 headwinds I mentioned previously. Year-to-date EBITDA was up over $18 million or 8% adjusted diluted EPS up $0.06. We achieved these gains despite volume decreases and a significant drop in cogeneration profitability as power prices dropped in Europe relative to the extraordinary high power prices last summer. On Slide 8, in Q3, the benefit of the price/mix improvement was driven by contractual pricing gains in rubber that were more than offset by lower volume and lower cogeneration profitability, the latter of which shows up in the cost count. On Slide 9, Specialty in the third quarter had increased volumes, primarily from our new plant in China. Our other markets remained relatively subdued due to the continued softness in demand in those geographies. Gross profit per ton decreased compared with the Q3 level last year due to both geographic and end market mix of sales as well as the lower cogeneration profitability. Importantly, for the specific mix of products that we sold in the quarter, our pricing has continued to remain stable. Slide 10 shows the key factors affecting adjusted EBITDA for the specialty business compared with last year. As noted earlier, mix adversely affected results as to the significant reduction in cogeneration profitability and some fixed cost absorption. On Slide 11, Q3 rubber volume decrease was affected by lower demand in EMEA and the Americas. We experienced higher gross profit and GP per ton driven by the contractual price increases. However, this was partially offset by lower cogeneration profitability and start-up related impacts in the quarter. Q3 GP per ton was $386, which, while lower than the past 2 quarters, was still above the Q3 2022 level of $364. The Q3 2023 level will likely be the low point for the year, and we expect it to revert well above $400 in the fourth quarter. Slide 12 shows the key factors affecting adjusted EBITDA for the rubber business. Strong contractual pricing was clearly the key driver. However, much of this was offset by lower volume and reduced cogeneration profitability. We believe the lower volume is a combination of fewer end customer purchases and an increase in tire imports into European markets. On Slide 13, you can see the effect that our improved cash flow has had on our debt. We have reduced our net debt by $102 million in the first 9 months of 2023 to $756 million. Our debt-to-EBITDA ratio now stands at 2.29x, down from nearly 3x in mid-2022. We have also repurchased $59 million worth of shares this year and $63 million in share buybacks since we started our program in late Q4 2022. This represents nearly 5% of our outstanding stock. We will continue to look opportunistically to repurchase shares with a portion of our free cash flow. Additionally, we announced early in the fourth quarter that we renewed our senior secured revolving credit facility, which was intentionally reduced from EUR 350 million to EUR 300 million as a result of the company's stronger cash flow. The credit facility has a 5-year term and was oversubscribed by 20%. Our goal is to continue to strengthen our balance sheet, reduce our total net debt and improve our net debt-to-EBITDA ratio. We have made substantial progress in all of these areas over the past year. Before I pass the call back to Corning on Slide 14, I would point out the dramatic increase in our discretionary cash flow conversion as we have stepped up our profitability and nearly completed our EPA projects. I expect the dramatically improved conversion rates that we have seen in 2023 to continue in the coming years. With that, I'll turn the call back to Corning to discuss our 2023 guidance.

[Corning Painter, executive]

Thanks, Jeff. The topic of destocking has come up in the Q&A with investors over the last year. So I'd like to add a bit more color, in general, it's hard to speak with certainty about this as we are well removed from the end customer and comprehensive data is elusive. However, we recently had a chance to review a third-party analysis of the impact of destocking on the chemical industry. By looking at comments made by retail packaging and personal care companies who are close to the consumer, they estimate that destocking will be a headwind into the second half of 2024. Naturally, there's a fair amount of uncertainty and assumptions in this kind of analysis, which puts a premium on being agile and responding to market changes quickly. In the face of the market uncertainties, we believe our business has proven to be resilient. And as Jeff and I have both said earlier, we continue to believe this will be another year of earnings growth. We also believe we are in a strong position going into 2024 with the majority of our Americas and EMEA rubber demand essentially committed. Again, our demand is not immune to destocking in the business cycle, the tires do wear out, beautiful black cars increasingly powered by batteries continue to be made and black as literal wear is hot. We're confident in our business, and we are maintaining our adjusted EBITDA guidance midpoint while narrowing the range to $330 million to $340 million. This guidance is up over 7% at the midpoint and implies a slightly stronger Q4 this year. Our adjusted EPS guidance range is $2 to $2.10 per share is up 5% year-over-year at the midpoint. In closing, I would say, first, we are on track for our third consecutive year of earnings growth and a record year despite lower demand than in 2022. Second, with the ramping up of our idea facility, Capatconversions, expanded customer applications facilities, debottleneck activities and the construction of the new Ascendon based plant in La Porte, Texas, we are positioning our specialty business for further growth. Third, the fundamentals of the tire and rubber carbon black industries in our key markets continued to evolve favorably, and we expect this to continue in the foreseeable future. Fourth, the U.S. air emission systems and our final plant are operating as we speak. We expect to complete the third-party stack test this quarter with this capital spending nearly behind us, we can use our cash flow to more directly improve shareholder value. I continue to be encouraged by the future I see for Orion for our shareholders, our employees and the communities we serve. We've been on our journey over the past few years to improve our performance and increase returns to shareholders, and we are seeing the results come into fruition this year, and I expect it to continue into 2024 and beyond. Thank you. Operator, please open up the line for questions.

[Operator]

[Operator Instructions]. Thank you. Our first question comes from Josh Sceptor with UBS.

[Joshua Spector, analyst]

I guess, first, I wanted to ask on contract pricing. I think in the release last night, you were pretty positive on the progress and said you're almost done last year at this time, you were able to size what you thought the impact could be for next year. I wanted to see if you could do the same now.

[Corning Painter, executive]

Yes, Josh, last year was a kind of a unique event and that we had it all racked up at this point, and it was very significant, and we thought it was important to do that disclosure at that time. We typically don't. And really going forward, I don't expect us to typically release that kind of information at this point in time. We still have some going and there is an element of what's appropriate and commercially sensitive.

[Joshua Spector, analyst]

Okay. All right. Fair enough. I'll pivot to something else then. When I looked at the quarter itself, I guess sticking on the rubber contracts, the price mix benefit was lower in 3Q than it was in the past couple of quarters despite volumes being higher, what was the driver of that?

[Corning Painter, executive]

Well, so part of the impact in the quarter in terms of mix was that start-up in China and some issues associated with the start-up. And without that, that would have been above 400, for example.

[Joshua Spector, analyst]

Okay. Understood. So that flowed through into price mix. And that's actually kind of the last one to talk on is just within the 2 segments, Rubber and Specialty, you talked about the startups. Can you size those in terms of the EBITDA impact you thought you saw in each of the segments in the quarter?

[Jeffrey Glajch, executive]

Sure. We saw maybe a better way to describe it, if I can describe it on a GP per ton basis, it's probably about $20 in the rubber and probably close to about 70% in specialty.

[Joshua Spector, analyst]

And that lasts into fourth quarter. Same impact or base?

[Jeffrey Glajch, executive]

There will be an impact in the fourth quarter. It shouldn't be as dramatic.

[Operator]

Our next question comes from the line of Chris Kapsch with Loop Capital Markets.

[Christopher Kapsch, analyst]

I understand the commercial sensitivity of the conversation around contract negotiations. But in the last quarter, the second quarter call, you provided some more specific metrics and some color around the imperative and the nature of the ongoing conversations. So I'm just wondering if you could have any more color about the progress. I think you had said 60% of your volume commitments were complete as of 3 months ago. So any additional insights, I think, would be helpful for investors to try to assess the prospects for '24.

[Corning Painter, executive]

Sure. So a couple of things. Number one, I mean, the points I made last quarter remain on track. So restructuring continues to happen, right? You can look at the Notch report, you actually have a list of higher manufacturing, new investment, new projects, what they're going to mean in terms of KT. You can see that for North America, you can see it for Europe, you can see it all around the world. So that restructuring of the market, that is very much in place. Number two, right? We are just like on the verge of finishing all these air emissions upgrades, our competitors had to do the same. So look, like we're entitled for a return on investment on that. Number three, yes, things are a little weak right now. We're not negotiating for 2023. We're negotiating for 2024. In some cases, we're negotiating for '24, '25, '26, that kind of thing. So it's a forward look, which is another item. And then in Europe, you have this huge dislocation with the ban on Russian part of Black. For some tire companies going back a couple of years, they've probably got about half their carbon blocked from Russia. That is a really big change. So those are all positive drivers. We are further along but there's competitive and there are sensitivities about impacts we could have on the broader market and so forth. So I would just rather not say exactly what we have last year, because I think that can get complicated in that regard. To be clear, despite everything I just said, I do not expect a repeat of last year. Last year was a bit of a reset in North America. I think that Europe is obviously a different supply and demand dynamic. So maybe that's an area where more can be achieved this year. We'll see when it's all said and we all announce our results. So don't take my reticence as like some indication. I think all the fundamentals are there, and it's a long-term game where titles or return on capital. It's just difficult when the negotiations are still undergoing, and that's where we are this year. Not quite there.

[Christopher Kapsch, analyst]

Right. And just historically, this is kind of a much more normal time to still be crossing to diving eyes, negotiating as my history serves.

[Corning Painter, executive]

For sure. Yes.

[Christopher Kapsch, analyst]

Yes. And then so also the other question was just on maybe framing your view of, I don't know if trajectory is the right word, but for the specialty segment, there's some variances here in the third quarter, both mix, the cogen drag, which I assume is going to persist into the fourth quarter and maybe early next year. But just there's also some cross currents in the different end markets. I'm wondering if you could discuss kind of what your general expectations are in terms of the trajectory and mix and profitability of that segment as we exit this year going into next year?

[Corning Painter, executive]

Sure. So first, let's talk about power. So power is clearly a more dynamic market than it's been in a long time in Europe. I think that will continue. We don't really define what that power price is. So that's going to be noise in this. But from an operational perspective, I don't think super is significant in it. Because we price according to the value we create for our customers, we're always going to have mix being an important part of the overall equation for us. We feel strongly that we have held share in the premium grades and the important grades for us. We do, at the lower end of this, we'll trade off volume between Russia between rubber and specialty as well as just where we think is an appropriate price cutoff point. But I think in the important grade, we're strong on that. So depending upon not just even how the premium performed, but do we see a lot of volume sometimes in, let's say, less premium products, that's going to share mix. And that's hard to predict for next year. I think for as an operating company, that's all about being agile. And to some degree, right, this can reflect the broader manufacturing economy going into next year. We have the start-up effects, which Jeff talked about some impact of that in the fourth quarter, but then I think that will be behind us. Things like Capitan and new product qualifications, all those sort of things that move the bulk average of, let's say, GP per ton forward as we continue to work. But if you think about this quarter, without that start-up, we would have been above 700, which I think is a pretty respectable number.

[Operator]

Our next question comes from the line of Jon Tanwanteng with CJS Securities.

[Jonathan Tanwanteng, analyst]

My first one is, as you mentioned in the press release and then kind of talked about it a little bit, but you quoted lower demand. And I'm wondering, was that a specific reference to destocking and versus end demand? Or was that a reference to something else more generally in your overall end markets?

[Corning Painter, executive]

Right. Let's separate this rubber and specialty. I shared that one report that we reviewed that was looking at it. When they looked at packaging, personal care. The truth is certain areas were on an upward trend, certain ones were on a downward trend. I think this good salt of that is, though, that end consumer demand has shifted a bit more towards services and experiences away a little bit away from manufacturing goods. They would say that there was the great shortage when we came out of COVID, right, and there were shortages for everything, people built a lot of inventory, and we're now more or less in a phase of kind of working through that, especially as consumer demand has shifted a little bit. So I think you're looking at a mix of both of them. That's a little bit hard to see to speak with certainty about how much is destocking versus end customer demand. And I think that's just the reality we have to all expect. When you look at the rubber demand, which is largely going around hires, it's a little bit easier, right, which is why we put in that slide. It shows to be clear though, a bit of a mixed environment, right? So passenger car, gasoline consumption, miles driven, those kind of metrics continue to grow. Truck traffic, reflecting to a certain degree in manufacturing, but also just general commerce, is off a bit. And so we sort of have mix factors in that. Beyond that, I think you do see or you have seen up until now, certainly, consumers deferring some of their purchases. When you look at the purchases by light truck and personal or passenger cars, those were up a bit this quarter. So maybe it shows like we're hitting the end of that. But I think we need more than 1 quarter to really have a trend there. Does that help, Jon?

[Jonathan Tanwanteng, analyst]

It does. And then second, do you have an estimate of what your UAW impact in Q4 is going to be? I don't know if it's going to be anything material or not, but any clarity would be helpful.

[Corning Painter, executive]

Yes. No, I would just say that in our expectation and the guidance that we provided, which is a fairly strong Q4 you compare it to prior years.

[Jonathan Tanwanteng, analyst]

Okay. Fair enough. And then last question, just what's driving the lower EPS guidance versus the unchanged midpoint of the EBITDA guidance? It doesn't look like your tax or interest rate expectations have changed. So I'm just wondering what's going on there.

[Jeffrey Glajch, executive]

Sure, Jon. There's not that much. It might be a little on the light side.

[Jonathan Tanwanteng, analyst]

I'm sorry, what was that?

[Jeffrey Glajch, executive]

Sorry, there's nothing really dramatically different. It might be a little on the light side of EPS. Sometimes, we have Q4 tax things at some that come in that I was concerned about, so decided to be a little cautious there. Our key for tax things, of course, are cumulative for the year.

[Corning Painter, executive]

Jon, are you still there? Did you have another question?

[Jonathan Tanwanteng, analyst]

I'm sorry, I think I was on mute.

[Operator]

Our next question comes from Laurence Alexander with Jefferies.

[Kevin Estok, analyst]

This is Kevin Estok on for Laurence. I guess I was just wondering how you were thinking about 2024, I guess, thoughts on a possible further slowdown, maybe a recession thinking about maybe how rising rates are impacting auto loans? Just curious to get your thoughts around the puts and takes for next year?

[Corning Painter, executive]

Well, so we'll do our guidance later, right, after we can report our fourth year and quarter results. And so that gives us a little more time to see how the economy develops between now and then. It's certainly a pretty dynamic world that we're in. But I think if you come back to it, like on the fundamental level, especially if you go out rubber, the economy can go wherever it's going to go. Yes, there can be truck traffic goes up and down a bit or passenger cars, but it's ultimately a product that wears out. It's a consumable. I think that's a strength for us in whatever environment we're in. I think products like Capitan that are going into a new market that have high growth, I think that's something where we can place all that project regardless. I think in a market like China, where we're small in the overall scheme of things, we're going to have success in our specialty and in our rubber there, we'll be able to place that all. So I think we've got certain like real strengths going into this. If it is slow, we'll be very focused on customer qualifications, that's sorting. If it's very strong, we'll be taking full advantage of it. And I just don't know that I'm in a better position to speak about macroeconomics than anybody else you read about.

[Kevin Estok, analyst]

Okay. Fair. And I guess most of my other questions have been asked already. But I guess, I think last quarter, you mentioned that you expect customer slowdown to be longer in Q4 than usual. I guess wondering, is that still true?

[Corning Painter, executive]

Excellent question, Kevin. I appreciate that. Certainly, for some have signaled that they may take a longer shut down. Others have not, right? So this is somewhat customer-specific. And I would say that's really the comment we made before about rubber. But even in other specialty markets, I guess we find the difference between what one customer is experiencing in their game plan versus another is somewhat spiky and a little bit distinct right now. But that's in our guidance for the fourth quarter. And yes, I do think we'll see some people really trying to draw down their inventory for the end of the year.

[Operator]

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

[Jeffrey Zekauskas, analyst]

If you exclude Huabei from both Specialty and Rubber Black businesses. And I know volume exclusive of Huabei decreased, but how much did it decrease? What would your volume numbers have been in the 2 businesses, excluding the capacity addition?

[Corning Painter, executive]

So your question is ex Huabei, what exactly was our volume. Sort of a little reluctant to go exactly to one site that we're in startup. The volume impact there is there's larger volume in rubber, let me say, than the other, so that they both would have been a little bit further negative, but just for commercial sensitivity in China. And given the specialty is aimed at a few markets in particular, I rather not go to quite that little detail for one quarter.

[Jeffrey Zekauskas, analyst]

Okay. So let's try it a different way. What was your utilization rate in the Huabei?

[Corning Painter, executive]

Excellent. So our utilization was around 70%. So that's a mixture of maintenance that we had in the quarter. That's a mixture of EPA work, those upgrades as well as just responding to end customer demand levels.

[Jeffrey Zekauskas, analyst]

And in the fourth quarter, we should be, I don't know, 90% utilization in Huabei?

[Corning Painter, executive]

Well, so we'll have some work as we go through the start-up and you take some downtime to make this adjustment or that adjustment. So that will impact Huabei. I think it will be less than 90% in the fourth quarter, but loading there would otherwise be quite high, yes.

[Jeffrey Zekauskas, analyst]

Right. And then lastly, can you just give us a feel for what the demand conditions are like in your 2 businesses in the United States and Europe. And if you had to compare the U.S. demand to European demand, are they both the same? Is one weaker or stronger than the other? How do you feel about it?

[Corning Painter, executive]

Right. So let me go even broader and full in China. I don't think demand is really robust in any of those 3 markets right now. So you're kind of talking about what's within a pretty so-so environment, how do you scale the 2. I'd say rubbers a little bit stronger in North America, perhaps because Europe is seeing a little bit more in terms of tire imports. I'd say specialty is, I'd say it's really soft in both. And it depends a little bit, you have to start getting into end segment by end segment, and that can shift around quarter-to-quarter.

[Jeffrey Zekauskas, analyst]

So in specialty, which is weaker in the United States or Europe?

[Corning Painter, executive]

So which one is weaker? I would say, again, on tire, I think rubber is a little bit weaker in Europe than it is in North America on specialty between the 2, I would say they're both quite weak, probably Europe is a little bit weaker than North America.

[Jeffrey Zekauskas, analyst]

And lastly, your CapEx is $175 million to $200 million. Can you even get to $175 million given your spending through the first 9 months?

[Corning Painter, executive]

Yes, Jeff, good question. So it's considerably back-end loaded, and we backed it off a bit just in timing. A lot of the timing is regarding to La Porte. So I think that we'll see a number of large purchases left this quarter, and that will cost there. And some of the underspend right, is going to shift over into next year.

[Operator]

Our next question comes from the line of Kyle Mowery with GrizzlyRock Capital.

[Kyle Mowery, analyst]

Two related questions for me within your conductive business. On PRINTEX Kappa, can you frame out the potential incremental EBITDA contribution relative to the recent announcement? And then secondly, how does this PRINTEX Kappa EBITDA relate to the report, Texas because this is in addition, right? Just wanted to make sure it's not a shift, but rather a growth?

[Corning Painter, executive]

Yes. So we expect, let's say, in the 3- to 5-year time period that this would contribute, let's say, $5 million, $10 million of EBITDA to us. It's a different product than what we're going to make in La Porte. It's aimed at a different segment in the marketplace. So it's really complementary. Now a lot of battery companies have a wide range of materials. So it does help to make us a bit more relevant to these folks, but we really see it as a separate marketplace.

[Operator]

Our next question comes from the line of Jon Tanwanteng with CJS Securities.

[Jonathan Tanwanteng, analyst]

Just a follow up on the CapEx. What was the amount that's pushing out into 24 #1. And number two, can you give us a preview of what your overall CapEx plan is for next year? And just kind of what's growth, what's maintenance? That would be very helpful.

[Corning Painter, executive]

Sure. I would expect like $20 million to $30 million to push into next year at this point we're expecting for this year. If we think about next year, we'll have maintenance capital in a similar range, let's say, around $90 million. And I would expect the vast majority of our growth capital really to be look for for next year. And so that would, right there get you, let's say, in the $200 million range, I'd say. Plus, we may have to make the adjustments depending on how much pushes over from 1 year to the other. Does that get all of your question, Jon?

[Jonathan Tanwanteng, analyst]

Yes. And the pushed out piece that wasn't EPA spending, or is it something else?

[Corning Painter, executive]

No, it's mainly about when you place orders for big pieces of equipment that are going to go to La Porte.

[Jonathan Tanwanteng, analyst]

Understood. And then second, I think you gave a metric on Rubber getting back well above $400 per ton on a gross profit basis in Q4. Did you give something similar on specialty? I don't recall if you said so.

[Corning Painter, executive]

No, we didn't. Because like mix there is a much more dynamic market for us and the whole power play. So I think we'll have to see where that ends up.

[Jonathan Tanwanteng, analyst]

Okay. Do you have a directional expectation?

[Corning Painter, executive]

Yes, I think it's probably improving from where we are right now.

[Operator]

Our next question comes from the line of Chris Kapsch with Loop Capital Markets.

[Christopher Kapsch, analyst]

Yes. So my follow-up is kind of a bigger picture one on Slide 3 of your presentation, you talked about being on track for the 2025 mid-cycle capacity of $500 million in EBITDA. I'm just kind of wondering, obviously, there was never an expectation to get there linearly and there's business cycles and so forth, and the world changes seemingly every day almost. But I'm just kind of curious what sort of levers or pieces you would need in a theoretical waterfall to get there, whether it's economy or pricing between now and then or different recoveries in end markets in specialties. Maybe you can just talk about the bridge to that kind of threshold.

[Corning Painter, executive]

Yes. Great. Thanks, Chris. All right. So let's add a couple of different things. So we start on pricing, to be clear. We see the pricing that we achieved in 2023 to be the baseline, right? I don't want any confusion around that. We see that's a number from which we can continue to grow that the market continues to tighten for rubber carbon black in North America, in Europe, actually in South America as well. So you can just see that in the tire capacity being expanded, if we're going to just clearly have pricing power in that environment. And we need to raise prices to get return on all the capital we've put into air emissions. It's only fair. So I think the pricing part is something we can continue to build on from here. And I think in specialty, we can continue to drive our mix in a favorable way. In any one quarter, like the current quarter, you exactly know what your mix is going to be month-to-month. Hard to say, especially with today's toxity economy. But I think the trend is clearly with it, and you can see it in the numbers we've posted. Next, our target is a 2025 mid-cycle economy earnings capacity, right? So we see ourselves in no way in a mid-cycle economy right now. Certainly, for the materials, for the chemicals industry, I don't think this is mid-cycle where we are. So yes, we expect some recovery in volume. That volume is going to flow in very nicely for us. And then we continue with the various growth of investments that we have, principally the La Porte project. I do not expect to fully load La Porte in 2025. So I expect to have the capacity in 2025, not the full EBITDA from that. We've always said, right, it's going to take a year or 2 to get those products qualified into the right markets. But I do think having that capacity in the United States in that time frame, looking at a number of these giga-fabs right? I think that's going to be really positive for us. So I see that as really pretty low risk. If you think about the 3 big levers that we had to get there, well, one was La Porte. So that project continues. It's on track. We will do very well with that. Another one was pricing and mix. So we already achieved everything in pricing. Although it's just awkward in terms of competitive dynamics depending upon how much I say. Look, I think it's a positive fundamental environment that we're in. And then the other one was things like Huabei. Huabei is up and running, product is shipping. I think those things are all going to deliver for us. So I think we're very much on track for that. Are we going to have a mid-cycle economy in 2025? I don't know. We'll have to see. But we're going to be ready for it. And I think that's what's really good here.

[Jeffrey Glajch, executive]

I think, Chris, just to lay out what Corning said early on in his response, clearly, the big lever there is volume. And the volume is a function of where the economy and where the market demand is at at the time.

[Corning Painter, executive]

Yes, I would say no other thing is like we're not going out to chase volume in specialty that isn't really there. I don't think that's the way to run a specialty business. So we're cautious on that. I don't think we've lost share at the same time. We're entitled to the premiums that we have in our specialty business, stuff performs very well.

[Operator]

There are no further questions at this time. I'd like to turn the floor back over to Corning Painter for closing comments.

[Corning Painter, executive]

All right. So thank you to our analysts and the investors for your insightful and penetrating questions today. We really appreciate your interest, your continued support and look forward to seeing some of you soon as we're going to be on the road later this month and in December talking to investors. Thank you all for your time.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.